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GUEST ESSAY
We Are in an Industrial War. China Is Starting
to Win.
Jan. 9, 2025, 1:00 a.m. ET
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By Robert D. Atkinson
Dr. Atkinson is the founder and president of the Information Technology and Innovation Foundation, a policy think
tank.
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Credit goes to Donald Trump for alerting the world to the dangers posed by China,
particularly its efforts to overtake the United States as the world’s most advanced
economy. But neither his first administration nor President Biden’s has done
enough to combat China’s incursions, which have cost America millions of
manufacturing jobs and the closure of tens of thousands of factories, according to
data compiled by the Information Technology and Innovation Foundation, the
nonpartisan technology policy think tank I lead. That’s because policymakers on
both sides of the aisle are only slowly waking up to the reality: We are already in
the middle of an industrial war.
Lawmakers need to understand that for China, a desire to make money — the
fundamental driver of trade and of capitalism — is secondary. Its primary goal is to
damage America’s economy and pave the way for China to become the world’s pre-
eminent power. Countries like China are power traders, called such because their
policies and programs are designed not only to advance their power but also to
degrade their adversaries’, even at a financial cost to their own economies.
China’s rate of progress in production and innovation across a wide range of
industries is striking. If our policymakers don’t work fast and smart enough, they
will put at risk America’s workers, economy and place in the world.
History has seen other campaigns like this. From the late 1800s to World War II,
Germany illustrated how trade could be weaponized into “an instrument of power,
of pressure and even of conquest,” wrote the development economist Albert O.
Hirschman.
Like China, Germany mostly focused on importing goods needed for its war
machine, redirected trade to friendly or subject nations and sought to control
oceanic trade routes, all in an effort to limit development of its adversaries. Like
China, the German government kept its currency undervalued (making its goods
relatively cheaper for consumers in other countries), leveraged the use of tariffs
and subsidized its exports to bolster its position in industry goods such as steel,
chemicals and machinery.
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Like China, German companies sold goods for less than the cost of manufacture to
wrest market share from overseas rivals. Like China, Germans engaged in
systemic industrial espionage. Engineers were sent overseas with the explicit
order to return with trade secrets for German companies.
There was also the theft of intellectual property, including chemical formulas and
machinery plans to give German manufacturers a leg up. “Trademarks are to be
pirated,” declared a 1919 New York Tribune article on Germany — a declaration
that could have been written today about China.
In short, Germany sought to gain technoeconomic power, especially over its
European adversaries, then use that power to dominate the continent. As the
French economist Henri Hauser wrote in 1915, “Germany made war in the midst of
peace with the instruments of peace. Dumping, export subsidies, import
certificates, measures with respect to emigration, etc., all of these various methods
were used not as normal methods of economic activity but as means to suffocate,
to crush and terrorize Germany’s adversaries.”
For a while, it was successful. Without American intervention in World War I and
II, it is quite possible that Germany would have taken over much of Europe, in
large part because its industries and hence military were so much stronger than
those of other European nations. While America’s industrial revolution continued
through the early 20th century, insulated by high tariffs initiated by Abraham
Lincoln during the Civil War, the German trade shock stopped many Eastern and
Southern European economies from fully industrializing and spurred the
deindustrialization of nations like Britain. Many have not fully recovered.
It seems all the trade lessons from that fraught period have been forgotten. In the
postwar glow of American dominance, U.S. legislators and business leaders
embraced an idealistic vision of an increasingly wealthy free world. Countries
would embrace capitalism and, thus incentivized by self-interest, would trade fairly
and freely with the United States, enriching their citizens and naturally leading to a
democratic order. Because American companies were so strong, this was seen as a
path to expanded U.S. global economic leadership.
As we now know, that vision was never fully realized. Today it is China that is
weaponizing its roughly $18 trillion economy, using a vast array of policy tools to
distort trade and increase its relative economic power. Wielding such weaponry as
export financing and subsidies — almost four times as much as a share of G.D.P. as
the United States, according to a study by the Center for Strategic and
International Studies — China has already gained global leadership in
telecommunications equipment, effectively destroying North America’s industry. It
has done the same in solar panels and commercial drones and is close in high-
speed rail and batteries.
The Information Technology and Innovation Foundation found that in 10 advanced
industries — including semiconductors, robotics, artificial intelligence, quantum
computing, space and chemicals — China is making progress toward the global
leading edge of innovation, backed by extensive intellectual property theft,
enormous government subsidies and closed domestic markets. And in some
industries, such as electric vehicles and commercial nuclear power, Chinese
companies now lead.
China installed more industrial robots last year and has more nuclear power plants
under construction than the rest of the world combined. It spent almost $50 billion
on subsidies to catch up on semiconductors before the U.S. Congress responded
with the CHIPs Act. It is seeking to flood the world with electric vehicles, as well as
gasoline-powered models. It has spent as much as three times as much on
semiconductor subsidies as the United States. And it is spending billions of dollars
more on the development of quantum technology than any other government,
according to an analysis by the consulting firm McKinsey. Sales of the C919 by
COMAC (a state-owned company) are on pace to make it the top-selling jet aircraft
in the world this year, contributing even further to Airbus’s and Boeing's travails.
And China accounts for 44 percent of the world’s chemical production, according to
my research.
China has demonstrated time and again a willingness to lose money to gain power
— decisions that would make little sense under the regular dynamics of profit and
loss. Look at the LCD display and OLED display industry (high-definition
electronic screens), which are critical to smartphone and television production. In
2023, China’s leading producer, BOE, received more in government subsidies ($532
million) than the company generated in profits. That could explain why, for
displays like those used in smartphones, Chinese suppliers are charging just $20 to
$23 while rivals charge more than twice that. This is why China accounted for 72
percent of LCD production in 2024, up from virtually nothing in 2004.
U.S. policymakers are starting to wake up. Rush Doshi, formerly the deputy senior
director for China on the National Security Council under Mr. Biden, titled his 2021
book “The Long Game: China’s Grand Strategy to Displace American Order.” And
Marco Rubio, the former chair of the U.S. Senate Committee on Small Business and
Entrepreneurship and Mr. Trump’s choice for secretary of state, issued a report
concluding that China was doing more than “breaking the rules” to dominate high-
value industrial sectors. This helps explain why, despite a highly polarized political
climate, Congress managed to pass the CHIPS and Science Act, which invested
billions of dollars to support new semiconductor factories in the United States.
Nothing promotes unity like a common and frightening enemy.
But these measures are not enough. America must expand its competitiveness in a
range of other industries — including aerospace, biopharmaceuticals and
machinery — and lead in emerging ones such as A.I., quantum computing and
nuclear fusion.
Instead of across-the-board tariffs, the new administration should take a page from
Ronald Reagan and negotiate a major decline in the value of the U.S. dollar vis-à-
vis our trading partners, and if that does not work, the Treasury Department
should take unilateral steps to drive down the value of the dollar. That would make
American exports less expensive and imports pricier without the risk of trade
retaliation. Congress should also update U.S. trade law, such as by eliminating the
requirement of harm to U.S. companies from foreign unfair trade practices before
remedies can be enacted.
America needs closer collaboration among allied nations to push back on China’s
predatory power trade practices, including increasing foreign aid to help
developing nations avoid their dependency on Beijing. And the United States needs
to take advantage of its being a magnet for the best and the brightest globally by
making it much easier for scientists and engineers to work here.
America should respect free-trade ideals and hold them dear. But that should not
blind us to the harsh reality that the world now is distorted by its strongest power
trader. The answer is not deglobalization or protectionism. America depends on too
many industries — like aerospace, biopharmaceuticals, software and
semiconductors — that cannot thrive without access to global markets. And it is
not holding on naïvely to the hopes that free trade could yet prevail if the United
States simply ended the trade war. China will not end its power trade regime until
it has gained dominance across a wide range of advanced industries. Rather, we
need to understand the adversary we face and respond bravely, strategically and
expeditiously.
Robert D. Atkinson is the founder and president of the Information Technology and Innovation Foundation and
the author of the books “Innovation Economics: The Race for Global Advantage” and “Technology Fears and
Scapegoats.”
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