U.S. policy circles in the 1980s and 1990s did not widely anticipate China as a peer competitor in the 2020s, at least not in the sense of a strategic rival matching U.S. technological and economic power.
Context in the 1980s/1990s
In the 1980s and 1990s, U.S. strategic attention was heavily focused on the Cold War rivalry with the Soviet Union, encompassing nuclear deterrence, space competition, and high-tech defense programs. Economic policy during this period prioritized industrial restructuring, deregulation, and the expansion of the financial sector rather than anticipating emerging industrial competitors in Asia. China, emerging from the post-Mao reform era under Deng Xiaoping, was largely perceived by U.S. observers as a vast but impoverished developing country, unlikely to pose a serious challenge to American technological or industrial dominance. Trade policy, in turn, concentrated on managing relations with Japan, which was widely regarded as the primary competitor in high-technology and automotive industries. U.S.–Japan tensions, while sometimes acute, were fundamentally bilateral, centered on trade imbalances and export competition.
By the 1990s, the European Union emerged as a distinct economic challenge to the United States, though its character differed from that of Japan. Unlike Japan, which was a single, export-oriented nation, the EU was a regulatory and economic bloc, whose internal cohesion was uneven but whose collective weight in both goods and services sectors could not be ignored. The EU’s influence extended beyond manufacturing to encompass regulatory standards and high-technology markets, creating a more complex and institutional form of competition. Whereas U.S.–Japan friction was often confrontational and bilateral, tensions with the EU were frequently mediated through regulatory frameworks and multilateral negotiations. Together, these dynamics illustrate that the U.S. of the late twentieth century was simultaneously navigating a shifting landscape of industrial rivalry, emerging regulatory competition, and a financialized domestic economy increasingly oriented toward short-term returns rather than long-term industrial capacity.
The Illusory Peace Dividend
After the Cold War, U.S. policymakers operated under the assumption of a “peace dividend” and unipolar economic dominance, expecting the global order to remain favorable to American strategic and economic interests. China’s accession to the World Trade Organization in 2001 was widely perceived as a mechanism to integrate the country into a rules-based global economy, rather than as a development that could produce a strategic competitor. The prevailing view held that economic liberalization would encourage China to become a responsible stakeholder, contributing to global trade norms rather than challenging U.S. industrial or military preeminence. Prior to its WTO accession, most economists, policymakers, and international observers expected China to remain confined to low-end, labor-intensive industries for the foreseeable future, with limited capacity to move up the technological or industrial value chain.
China’s domestic firms in the 1990s and early 2000s largely lacked advanced technology, research and development capabilities, and managerial expertise. Foreign investors were primarily interested in assembly operations and joint ventures that relied on imported technology, offering little incentive to nurture indigenous innovation. Economists expressed concern that China’s WTO accession, which implied lowering tariffs and opening markets to foreign competition, could trap the country in an “export-platform FDI” model: foreign companies would exploit China’s low wages, import capital goods, and repatriate profits, leaving the country primarily as a hub for low-value-added manufacturing. At the same time, state-owned enterprises dominated capital-intensive and high-tech sectors, yet many were inefficient, burdened with overstaffing, and constrained by debt, while the domestic financial system remained weak, limiting private investment in high-tech industries. Much of China’s infrastructure was oriented toward low-cost manufacturing rather than advanced industrial production, and the country was often stereotyped as a source of inexpensive, copycat gadgets.
U.S. industrial and economic strategy during this period emphasized outsourcing, offshoring, and globalization, operating under the assumption that cheap Chinese labor would benefit American consumers and firms without contributing to China’s long-term industrial or military capabilities. Policymakers underestimated how these dynamics could enable China to acquire advanced technology, strengthen its industrial base, and cultivate management and research capabilities. Over time, what was intended as a controlled integration into the global economy inadvertently provided China with the tools to develop high-tech industries, expand indigenous innovation, and build the foundations for strategic capabilities, ultimately challenging the very assumptions behind the anticipated “peace dividend.”
Industrial-Age vs. Finance-Age Mindset
During the Ford and General Motors “Arsenal of Democracy” era, U.S. industrial policy explicitly recognized that robust manufacturing capacity and technological leadership were central pillars of national power. Maintaining a strong industrial base was considered not only an economic imperative but also a strategic necessity, directly linked to defense capabilities and global influence. This mindset prioritized long-term investment in critical industries and technological innovation, ensuring that the United States could project both economic and military strength on the world stage.
By the 1980s and 1990s, however, this industrial-age perspective had largely been supplanted by a finance-driven ideology. The prevailing corporate ethos shifted toward maximizing short-term shareholder returns rather than sustaining long-term industrial or strategic capabilities. Offshoring of manufacturing became common, reflecting a broader belief that industrial capacity could be externalized while economic returns were captured through financial markets. This approach was emblematic of the broader ideological shift captured by Simon Johnson’s observation that “what’s good for Wall Street is good for America.” A striking example of this attitude emerged in 1992, when Michael Boskin, then-chair of the White House Council of Economic Advisors, was asked about the need for a U.S. semiconductor policy and reportedly dismissed the concern by remarking, “Potato chips, computer chips—what’s the difference?” Such comments reflected a fundamental belief that government intervention in strategically important sectors was unnecessary, provided overall GDP growth continued.
The consequence of this shift was a diminished focus on cultivating and sustaining long-term industrial capabilities that would later prove crucial in competing with rising powers such as China. By privileging financial returns over strategic industrial investment, the United States created conditions in which its manufacturing base eroded, leaving it less prepared to maintain technological leadership in industries critical to national security and global competitiveness decades later. The contrast between the industrial-age emphasis on enduring capacity and the finance-age pursuit of immediate financial gain illustrates a profound transformation in U.S. economic and strategic thinking, one whose implications continue to reverberate today.
Hindsight vs. Anticipation
In the 1990s, U.S. strategic thinking toward China was largely framed through the lens of economic opportunity rather than potential geopolitical threat. Policymakers recognized China’s rapid growth and expanding market, yet the possibility that it could emerge by the 2020s as a peer competitor—possessing advanced manufacturing capabilities, artificial intelligence, 5G technology, and significant global influence—was not a central concern. Influential intellectual frameworks reinforced this perception. Francis Fukuyama’s “The End of History and the Last Man” promoted the idea of inevitable global convergence toward liberal democracy and integrated markets, while Thomas Friedman’s “Golden Arches Theory of Conflict Prevention” suggested that deep economic interdependence would make war between major trading partners unlikely. Together, these perspectives fostered the belief that engaging China economically could promote stability and mutual benefit, rather than strategic competition.
At the same time, the United States faced a series of prolonged military and geopolitical challenges that diverted attention and resources away from Asia. The wars in Afghanistan (2001–2021) and Iraq (2003–2011), as well as ongoing crises such as the Russo-Ukrainian war beginning in 2022, consumed political focus and constrained Washington’s ability to maintain sustained strategic pressure on China across military, technological, and economic domains. These distractions limited the United States’ capacity to anticipate China’s rise proactively, leaving it more often in a reactive posture as Beijing expanded its influence and strengthened its industrial and military capabilities.
During this period, China capitalized on the relative absence of sustained U.S. scrutiny to pursue an ambitious agenda of industrial modernization, technological advancement, and global influence through initiatives such as the Belt and Road. As a result, the United States frequently found itself responding to developments in the Asia-Pacific—ranging from tensions in the South China Sea and across the Taiwan Strait to intensified technological competition—rather than shaping the strategic environment on its own terms. While the United States did not entirely ignore China, its attention was fragmented, and its long-term strategic focus was constrained by competing global conflicts. This combination of opportunity-oriented thinking and external distractions allowed China to consolidate economic and technological gains, setting the stage for the more assertive and capable global competitor that emerged by the early 2020s.
All That Glitters Is Not Gold: The Slow Erosion of American Industrial Might
The United States’ transition from an industrial-age mindset to a finance-driven economy has gradually undermined its long-term preparation for global industrial competition. Once-iconic manufacturing companies such as Boeing, GE, and Intel defined the standard for world-class engineering and production, serving as the backbone of American technological leadership. Over the decades, however, a growing emphasis on financial metrics and short-term shareholder returns began to erode the strategic focus and industrial capacity that had once made these firms global exemplars. The decline of Intel illustrates this transformation vividly. Over a twenty-year period, the company lost its technological edge, not due to a single failure but as a result of a complex combination of strategic missteps, missed opportunities, and internal cultural challenges, compounded by the rise of more agile competitors and fundamental shifts in the computing landscape.
GE’s experience offers a parallel cautionary tale. Under Jack Welch, the company became a diversified stock market powerhouse, but critics argue that this success came at the cost of prioritizing short-term financial performance over long-term industrial innovation. By reorienting corporate incentives toward financial engineering, such leadership strategies, while profitable in the immediate term, inadvertently contributed to the hollowing out of industrial capabilities that had historically underpinned U.S. competitiveness. Boeing, too, confronted mounting challenges as delays, design missteps, and intense global competition eroded its position as the premier symbol of American aerospace ingenuity. Together, these developments reflect a broader trend: a strategic neglect of industrial foresight in favor of immediate financial returns, leaving U.S. manufacturing increasingly vulnerable on the world stage.
Meanwhile, China’s rise as the preeminent global manufacturing power has brought the consequences of this strategic imbalance into sharp relief. According to the Centre for Economic Policy Research, China’s manufacturing output in 2020 accounted for roughly 35 percent of global production, establishing it as the dominant force in international manufacturing. By the 2020s, China’s deliberate investments in infrastructure, education, and industrial capabilities began to translate into tangible technological and economic influence. Initiatives such as “Made in China 2025” exemplify the country’s strategic emphasis on indigenous innovation, allowing it to emerge as a peer competitor in critical high-tech sectors, from advanced manufacturing to digital technologies.
The juxtaposition of China’s methodical capacity-building and the United States’ increasingly financialized industrial approach underscores a pivotal shift in global economic power. While American industrial capacity stagnated in certain sectors, China leveraged decades of cumulative investment to establish not only scale but also technological sophistication. This divergence highlights a critical lesson: short-term financial optimization, though lucrative in the moment, cannot substitute for sustained investment in innovation, infrastructure, and human capital. The slow erosion of U.S. industrial might is thus not the result of a single failure or miscalculation, but of a broader structural transformation in economic priorities—one whose consequences for technological leadership, national security, and global competitiveness are only now becoming fully visible.
Conclusion
During the 1980s and 1990s, U.S. policymakers did not foresee China emerging as a peer competitor by the 2020s. Attention was largely directed toward financial deregulation, expanding global trade, and security issues in the post-Cold War environment. This shift in focus from long-term industrial strategy to finance inadvertently left the United States less prepared for China’s rapid ascent.