China Doubles Down on Advanced Manufacturing — A Brewing Clash with Trump's Vision

While U.S. President Donald Trump is steering America toward boosting domestic production of high-tech goods, China is also accelerating its own ambitions to lead in advanced manufacturing. This parallel trajectory could set the stage for heightened U.S.-China trade tensions.

During a recent visit to Henan province, Chinese President Xi Jinping reaffirmed his country’s commitment to manufacturing-led growth. Calling advanced manufacturing “the backbone” of China’s economy, Xi emphasized that self-reliance is “the right path” for national development — a clear signal that China won’t easily back down under foreign pressure.

The Strategic Pivot Toward High-Tech Manufacturing

Manufacturing accounted for over 25% of China’s GDP in 2023, according to the World Bank. The focus now is squarely on high-tech sectors like semiconductors, electric vehicles, and robotics — part of the long-term “Made in China 2025” strategy introduced in 2015.

While the plan has drawn criticism from the U.S. and its allies for distorting global markets through state subsidies, Beijing shows little sign of retreat. A 2022 report by the Center for Strategic and International Studies (CSIS) revealed China spent around 1.73% of its GDP on industrial support in 2019 — far surpassing the U.S.’s 0.39%.

However, the strategy hasn’t been without flaws. According to the European Chamber of Commerce in China, key targets — especially in aerospace and robotics — have been missed, and excessive government support has led to overcapacity and unhealthy market competition.

U.S.-China Trade Tensions: No Quick Fix

Trump’s trade agenda demands a reduction in trade imbalances and an end to what he calls unfair Chinese subsidies. But experts like Allan von Mehren of Danske Bank see little room for compromise, suggesting tariffs on Chinese goods could remain around 40%.

Even as U.S. Treasury Secretary Scott Bessent floated the idea of a mutually beneficial rebalancing — with the U.S. producing more and China consuming more — the reality remains complex. Chinese economists predict Beijing will reduce reliance on U.S. imports, while U.S. manufacturers will take years to shift supply chains.

Jing Wang of Nomura warns that the U.S. trade deficit with China is unlikely to narrow significantly, noting that any global flood of low-cost Chinese goods could trigger backlash in other markets.

Global Repercussions and Rising Trade Barriers

As China redirects its exports amid American tariffs, other economies are feeling the pressure. Toy manufacturers in Yiwu, for example, are redesigning products to suit European tastes. Yet this pivot is prompting concern in Europe about unfair competition across a broader range of products.

Nick Marro from the Economist Intelligence Unit cautions that tensions are expanding beyond U.S.-China relations and will increasingly involve the EU, especially in sectors like electric vehicles and consumer electronics.

The G7 has already begun discussing coordinated responses to Chinese overcapacity, which may escalate into new trade restrictions. Eurasia Group’s Wang Dan warns that Beijing could retaliate by delaying licenses or excluding foreign firms from local incentives.

Winners, Losers, and the Inflation Effect

China’s grip on low-end manufacturing continues to squeeze developing economies. Countries like India, Vietnam, and Indonesia have implemented protectionist measures to shield local industries from low-cost Chinese imports.

Yet some experts argue that Chinese overcapacity could help inflation-hit countries by reducing price pressures. “China is exporting deflation,” said Marro, suggesting that cheaper goods could benefit markets like Australia, where domestic manufacturing is limited.

A Difficult Transition to a Consumption-Led Model

Despite global calls for China to shift toward domestic consumption, progress has been slow. In April, China’s trade surplus hit a record $992.2 billion, underscoring the mismatch between supply and demand. Retail sales also underperformed, growing just 5.1%, while car sales stagnated.

Louise Loo of Oxford Economics projects that consumption won’t account for even half of China’s economy until mid-century — far below the 70% typical in the U.S.

Xi Jinping’s continued emphasis on industrial strength may also reflect geopolitical calculations. With Washington likely to maintain technology export restrictions, a strategy of "strategic decoupling" appears inevitable.

Nomura’s Wang concludes: “Trump would likely expand the ‘small yard, high fence’ approach — tightening controls on tech access even further. This ensures that national security, not economics, will dominate U.S.-China relations moving forward.”

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Source: CNBC