Travelers returning from China often report having seen the future. The country’s advances in frontier commercial technologies are visible in the robots that make and serve food in restaurants; the drones that deliver food and medicine; and the deployment of industrial and humanoid robots on factory floors. Even outside China, most of the world is now familiar with Chinese electric vehicles that are as affordable as they are sleek, with massage chairs and swappable batteries winning over passengers from London to Santiago.
Most Americans, however, are unaware of this future. Chinese EVs are effectively absent from the U.S. market, blocked by 250 percent tariffs and broad national security restrictions. And a bipartisan fear has prevented many frontier Chinese technologies, including drones and robots, from reaching U.S. shores. Apart from a handful of products, mostly consumer electronics, the U.S. market is largely oblivious to the fruits of China’s advanced manufacturing ecosystem.
The United States has its reasons for this blind spot. As early as the second Obama administration, if not before, it became clear that China was not playing fairly in business. Successive administrations have used a slew of trade remedies and official complaints to the World Trade Organization to fight back against unfair subsidies, and rulings by the federal Committee on Foreign Investment in the United States (CFIUS) have tried to prevent sensitive U.S. technologies from falling into the hands of Chinese actors. Since 2017, Chinese firms have also found themselves the targets of heightened security reviews.
Today, many actors in Washington think the United States should do even more to disengage from Chinese business. Members of Congress are pressuring American pharmaceutical companies to discontinue clinical trials in China, for instance, citing concerns that China’s research and development ecosystem has ties to the People’s Liberation Army. Others are proposing legislation to ban Chinese ownership of U.S. farmland, ostensibly to protect the U.S. food supply and critical infrastructure.
Calling out China’s gains as ill gotten is frequently justified. Defensive responses also feel satisfying—as if the United States could level the playing field and instantly create effective American competitors by locking out Chinese firms that have scaled up and advanced unfairly. Unfortunately, this approach does little to advance American economic and security interests. Chinese firms are no longer merely efficient producers or copycats; in terms of knowledge and production capability, they are increasingly global leaders in many industries. Denying them access to the American market harms U.S. competitiveness, hinders U.S. efforts to build industrial capacity at home, and ensures that U.S. industry and consumers remain far from the frontier of technological advancement.
Instead, Americans must reckon honestly with the scale of China’s industrial and technological progress. The United States need not embrace Chinese imports and investment unconditionally, but it must recognize that its own long-term competitiveness depends on its companies and consumers being exposed to the cutting edge. U.S. President Donald Trump’s vague proposal for a joint “Board of Investment” with China, announced after his May summit with Chinese leader Xi Jinping, seemed to suggest Washington was moving in this direction. But nothing concrete has come from the board, and managing investment flows at the leader-to-leader level is certainly not efficient.
A more mature strategy of selective openness is possible. The United States should permit carefully structured Chinese investment in areas in which the economic and technological benefits are substantial while imposing stringent safeguards to mitigate security risks. Building the political confidence to sustain a selectively open market for Chinese direct investments requires skilled, transparent, and thorough regulatory oversight. With such an approach, Washington can penalize some imports but still permit access to the U.S. market through investments in American production facilities. There is a clear precedent for this strategy. It is, in fact, exactly what China did to Western companies for decades.
TROJAN HORSES?
Since the 1990s, China has required global investors to operate under conditions that are designed to advance its national development goals. When foreign automakers or cellphone manufacturers wanted to take advantage of China’s cheap labor force, Beijing required that the firms use local supply chains, transfer technology, share management with Chinese firms, provide workforce training, and offer security protections (for example, localizing data and submitting to government oversight). The goal was always to ensure that foreign companies invested in ways that fostered a Chinese ecosystem. As Jeffrey Immelt, then chief executive of GE, said of China in 2010, “I am not sure that, in the end, they want any of us to win, or any of us to be successful.”
Indeed, GE spent decades accessing the Chinese market through joint ventures that eventually seeded Chinese competitors. China is now home to both private and state-owned companies such as Midea, Haier, and State Grid that rose up to compete with GE in everything from home appliances to power generation and transmission. Many are even taking their strategies global—including to the United States.
Chinese firms in frontier sectors like EVs, robotics, and life sciences especially want access to the vast U.S. consumer market. These firms face narrow profit margins at best at home—a result of the overcapacity and “involution” that came from excessive state investment and hypercompetition in specific sectors. If companies want to survive, they need foreign markets to prosper, and the United States remains the largest consumer market in the world. Companies such as the electronics and EV conglomerate Xiaomi and the battery maker CATL have publicly pined for U.S. market access, signaling that they would make significant investments in the United States in exchange for access. So far, however, the U.S. government has blocked such investments because of security concerns. An array of technologies are imagined to be modern Trojan horses. EVs, for instance, are not simply cars; they are traveling networks of sensors, software, computers, batteries, and communications systems capable of collecting data, mapping cities and infrastructure, and integrating with national grids. The fears range from reasonable (Chinese-connected vehicles mapping U.S. critical infrastructure) to far-fetched (remote control and even weaponization of vehicles on the road).
These realities require vigilance. But the answer is not to reject all Chinese investment unless it poses zero security concerns. Such an approach risks isolating the United States economically. If American firms don’t have to compete against the global leaders, they will increasingly sell things only to Americans. The United States will end up an island of legacy firms and practices, and the isolation will weaken American dynamism, reduce competitiveness, and erode broader economic security.
A SMARTER GATEKEEPING
Instead, the United States can adopt strategic terms for investment, as China did. Trump’s Board of Investment remains something of a mystery—a talking point only, so far—but it is not difficult to imagine it drawing from the many regulatory tools in Washington to create and sustain an overall investment structure for Chinese companies. In fact, imposing such a regime should be fairly simple for Washington because it already has much of the institutional sophistication to implement such terms. In addition to CFIUS, the United States has a substantial arsenal of tools to monitor, selectively ban, and condition Chinese investments. A host of regulatory agencies, including the Food and Drug Administration, the Commerce Department’s Bureau of Industry and Security, and the Federal Communications Commission, can make targeted rules for firms in specific sectors, like life sciences, networked EVs, and robotics. Rules about data localization, required local partnerships, and supply chain diversification can help ensure that Chinese supply chains are not just imported into U.S. production.
Washington can and should upgrade these tools to shape Chinese investment on its terms. CFIUS, for example, imagines the most far-fetched risk scenarios and judges whether they can be mitigated. The interagency committee’s approvals for sensitive investments and acquisitions frequently involve “national security agreements”—special corporate governance arrangements devised collaboratively between firms and CFIUS personnel with provisions for cybersecurity protection, data management, and continuous monitoring of firm decisions by national security specialists appointed to boards.
This is a good beginning for a robust investment control system, but these agreements focus only on protecting national security—not enhancing economic benefits. To be more aggressive, they could also mandate that companies with Chinese investment have special corporate governance boards that monitor and execute economic requirements, including workforce training, diversification of suppliers, technology transfers, and more.
While the specific administrative solution may evolve with experimentation, the central task is clear: Washington needs more systematic assessment and coordination. It needs a structure that is both more open and more targeted in mitigation and governance. This requires greater coordination among industry-specific regulators. Indeed, given that multinationals have complex corporate supply chains and ownership patterns, even deciding the national identity of firms requires coordination across the U.S. government. CFIUS may not think a company is controlled by Chinese interests, for instance, but Commerce may deem it sufficiently connected to a “foreign adversary.” The ability to resolve these regulatory complexities is important, since it is only through good bureaucratic coordination that Washington can both recognize the risks of technologies and also harness their benefits.
THE TESLA MODEL
China’s playbook for EVs is especially instructive. Beijing began encouraging domestic EV and large battery production in the early 2000s, largely through subsidies and industrial policy. Private companies like CATL and BYD made progress with batteries, but the industry, especially large state-owned producers, needed competitive pressure to upgrade the cars they made to meet consumer tastes. In 2019, Beijing decided to balance the risks and rewards of inviting Tesla, then the global leader in EV manufacturing, into the Chinese market at scale. They lifted the joint-venture requirement, and Tesla became the first global automaker to operate a production facility in China with no local partner.
The Shanghai government offered impressive incentives for Tesla’s Gigafactory 3 in Shanghai, including land and subsidized loans. But the Chinese government, which was wary of having an American company mapping roads and collecting data on Chinese nationals in cars, insisted that Tesla store all the personal data of Chinese drivers in China. In 2024, it also required that Tesla use a Chinese company—the Internet giant Baidu—for navigation services inside China and that it localize all mapping data in the country.
Tesla’s production in China soared; even during the COVID-19 pandemic, the Shanghai factory was producing 140,000 cars a year, and localization of supply chains (85 percent by 2020) brought costs down. Tesla became profitable in 2020 for the first time on the strength of the Chinese market, and Shanghai had become an export hub for the rest of Asia and Europe by 2022.
Baidu, meanwhile, used its time working with Tesla to develop frontier autonomous driving technologies and has now deployed “robotaxis” in Switzerland, the United Arab Emirates, and beyond. Perhaps most important, the success of Tesla in the Chinese market helped propel the EV industry there and served as inspiration for homegrown challengers such as BYD, pushing them to focus especially on design and consumer experience. BYD now sells more EVs globally than Tesla does, and Tesla is pushing a cheaper version of the Model Y to compete with companies like BYD and Xiaomi.
For the United States, this is the great irony: the investment and manufacturing expertise it needs to compete with China can increasingly come only from China. For years, analysts have instead proposed working with allies and third countries to construct a scaled market outside China—one with common rules that can serve as a counterweight to China’s sheer size and operate parallel to it. This idea is at least a decade old and has taken many forms, from the Obama-era Trans-Pacific Partnership trade agreement, to the first Trump administration’s campaign to rally allies to exclude Chinese telecom companies, to the Biden era’s Indo-Pacific Economic Framework and Transatlantic Trade and Technology Council. All three administrations sought to build coalitions of countries with common rules or standards to collectively rival China’s scale.
Despite their theoretical merits, however, all these efforts have either failed or scored only narrow gains. And now it is too late for such a vision: Chinese technologies have reached a tipping point of sorts, becoming ubiquitous in too many countries. The moment for massive, allied coordination to decouple drastically from China has passed. Selective collaboration on particular technology safeguards or supply chain diversification may be feasible, but most of the world has accepted a future with substantial Chinese economic presence in their countries.
Even the United States’ closest traditional allies, Canada and the United Kingdom, seem to recognize this new reality and are approaching China with pragmatism. They are wary of China but consider enduring interdependence a fact of life, especially when the United States keeps changing its own approaches trade. Ottawa and London are embracing Chinese investment and exports, but with creative rules to better balance the costs and benefits.
Canada, for example, has now abandoned huge tariffs on Chinese EVs in favor of import quotas with an eye to localizing production through carefully structured joint ventures with Canadian companies. Chinese firms are already localizing production in the EU, and a recent EU proposal, the Industrial Accelerator Act, would require limits on foreign ownership alongside supply chain localization and technology transfer requirements. These rules allow Chinese companies access to Canadian and EU markets but ensure that local production systems benefit. A similar strategy is possible in the United States.
TIKTOK SUCCESS
The United States does not need to choose between naive openness and blanket exclusion. Indeed, the Trump administration has on at least one occasion chosen a smarter path. ByteDance’s TikTok operation in the United States, which collects vast amounts of data on American users and uses an algorithm to push content, raised some legitimate national security concerns. Although the Trump administration’s process for handling these concerns was tumultuous, in the end, ByteDance agreed to sell its U.S. business to an American-controlled joint venture in which the Chinese company retained a minority share. Control over the TikTok software and its upgrades went to a U.S. team. All personal data must now be stored in the United States. These arrangements are subject to monitoring and reporting and prove that selective openness for Chinese direct investments is possible.
Arrangements for securing robotic automation or safeguarding biomedical data would, of course, be more complex. And some Chinese investments should be refused. But the United States possesses the institutional capacity to craft serious protections. It can welcome investment in areas in which it strengthens American industry, while also imposing enforceable safeguards. The best outcome would be selective openness alongside a sustainable industrial policy strategy and, eventually, coordination with other large markets on governing risks transparently. The harder task is political: acknowledging that the United States is already behind in several vital industries and that the barriers Washington has built are costing the United States more than they are protecting it.
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