Apple cancelled its decade-long effort to build an electric car in 2024, ending years of speculation without ever bringing a vehicle to market. In contrast, Chinese companies such as Xiaomi—already a major player in consumer electronics, software, and online services—are not only producing electric vehicles(EV) but selling them at scale.
This contrast underscores a broader reality: China is no longer merely assembling products for others but is innovating and competing directly in advanced manufacturing sectors. Its dense industrial ecosystem, built on supplier agglomeration and tightly integrated value chains, enables rapid innovation and large-scale production. By comparison, the United States relies on a globally dispersed supply network, which brings cost advantages but also increases complexity, raises risks of disruption, and slows response times.
The divergence highlights China’s speed, scale, and ecosystem integration versus the more cautious, speculative approach of American technology companies.
China’s Battery Supremacy: How the U.S. Lost Leadership and Beijing Built a Self-Sustaining EV Ecosystem
The United States, despite being the birthplace of lithium-ion technology, failed to maintain leadership in the sector. Underfunded research programs, a weak STEM talent pipeline, and limited industrial support, combined with decades of offshoring, outsourcing, and underinvestment, led to a thinning of the domestic supply chain and the erosion of critical production know-how.
In contrast, China has emerged as the global leader in electric vehicle (EV) batteries. The world’s two largest battery makers—CATL (Contemporary Amperex Technology Co. Ltd.) and BYD (Build Your Dreams)—are both Chinese. CATL, the world’s number one by market share, supplies batteries to Tesla, BMW, Hyundai, and other automakers. It has pioneered advanced chemistries such as lithium iron phosphate (LFP) and built vertically integrated supply chains that span mining, refining, and manufacturing. BYD, both an automaker and a battery supplier, dominates the domestic EV market and is expanding aggressively into Latin America and Europe. Its proprietary “Blade Battery” technology enhances safety and lifespan, further strengthening its competitive position.
The strategic implications are significant. Western automakers, including Ford, GM, and Volkswagen, remain dependent on Chinese suppliers for the most critical component of electric vehicles, creating a major vulnerability. Unlike the West, China does not merely export raw materials—it controls the intellectual property, the manufacturing base, and the market access.
This dominance is no accident. China’s manufacturing ecosystem operates like a powerful flywheel, where advances in one sector drive progress in others. Breakthroughs in batteries fuel EV growth, which in turn relies on AI, robotics, and smart infrastructure. Each success reinforces the next, generating a self-sustaining momentum that accelerates both economic development and technological leadership.
The U.S. Focus on Financialization and Capital Efficiency
Since the 1960s, the United States has increasingly prioritized capital efficiency, especially in finance and corporate governance. Wall Street and corporate leaders shifted their focus from long-term industrial capacity to maximizing shareholder returns. This orientation accelerated in the 1980s and 1990s, when firms embraced financial optimization strategies that rewarded them for reducing tangible assets and emphasizing profitability through intangible ones such as intellectual property and software.
The rise of financialization reinforced this trend. Companies that could scale rapidly without heavy investment in physical infrastructure—particularly in technology and services—became the model for American business. Such firms appealed to investors because they promised high growth with relatively little capital tied up in factories or equipment.
Outsourcing became a natural extension of this logic. Manufacturing operations in industries ranging from steel and shipbuilding to advanced technology were increasingly offshored to countries with cheaper labor and more flexible regulations. This was not merely about lowering costs; it was about reshaping balance sheets to appear leaner and more asset-light, which markets rewarded.
The long-term consequence was the erosion of America’s industrial base. By privileging financial returns over production, the United States allowed critical manufacturing capabilities and supply chain expertise to atrophy. While the strategy delivered short-term profitability, it left the nation strategically vulnerable in advanced industrial sectors that require sustained expertise, innovation, and domestic production capacity.
China’s Focus on Hard Assets and Manufacturing Capabilities
In contrast to the United States, China’s economic strategy has centered on building and maintaining hard assets, particularly in manufacturing. Over the past three decades, China has invested heavily in industrial infrastructure, human capital, and supply chain integration, viewing these as essential not only for economic growth but also for long-term strategic advantage.
China’s approach emphasizes industries that demand significant capital investment—such as steel, semiconductors, and electronics. While costly, these sectors generate durable benefits: the development of a highly skilled workforce, accelerated innovation cycles, and mastery of complex supply chains. Unlike the U.S., which has often outsourced production or shifted focus toward financialization, China has prioritized cultivating these capabilities domestically.
By building a strong industrial base, China has created a workforce adept at handling sophisticated manufacturing and rapid prototyping, allowing its companies to respond quickly to market shifts. At the same time, tight control over supply chains has enabled efficient scaling of production with cost discipline and quality assurance.
Ultimately, China’s model derives strength from the synergies between physical assets—factories, logistics networks, and production capacity—and intangible assets such as technology, intellectual property, and skilled labor. This integrated control across the value chain provides China with a competitive edge that is difficult for other nations to replicate.
Has China’s Bet Paid Off?
China’s population of more than 1.4 billion has been a decisive foundation for its industrial rise. A vast labor pool enabled the country to sustain large-scale manufacturing operations across the supply chain, from factory-floor workers to engineers, technicians, and managers. In the early stages of development, this abundance of labor brought two key advantages. First, it guaranteed the availability of workers to power labor-intensive production. Second, it allowed wages to remain relatively low by global standards. Even as Chinese wages have risen in recent years, they are still significantly lower than those in the United States or Europe, preserving China’s cost advantage in manufacturing.
Population scale has also supported the development of a complete supply chain and a robust industrial ecosystem. Domestic demand has fueled the growth of industries supplying raw materials, making China one of the world’s largest producers and consumers of steel, aluminum, coal, and rare earths. The size of the domestic market has justified massive investments in infrastructure—factories, ports, highways, and railways—that sustain high-volume production and efficient logistics. Unlike fragmented systems elsewhere, China’s manufacturing base is characterized by co-located supply chains and tightly integrated clusters.
Industrial agglomeration has been central to this success. In regions such as the Pearl River Delta and the Yangtze River Delta, suppliers, OEMs, assemblers, and logistics providers are concentrated within a few kilometers of one another. This proximity accelerates design, prototyping, and production cycles, facilitates face-to-face collaboration, and allows for real-time adjustments in design and sourcing. Specialized clusters have emerged across the country: Shenzhen for electronics and semiconductors, Dongguan for precision components, Suzhou and Wuxi for solar and semiconductor manufacturing, and Changsha for construction machinery. These hubs generate economies of scale, knowledge spillovers, and competitive pressure, which together fuel efficiency and innovation.
The results of China’s strategy of focusing on hard assets and industrial capability are evident. Over the past three decades, the manufacturing sector has expanded dramatically, making China the “world’s factory.” The country has become a global leader not only in textiles and consumer goods but also in electronics, automotive production, and advanced machinery. This industrial capacity has underpinned rapid economic growth, technological development, and strategic autonomy. Companies such as Huawei, BYD, and CATL have emerged as global leaders in telecommunications, electric vehicles, and batteries, demonstrating that China is no longer just a manufacturing hub for foreign firms but a creator of advanced technologies. During crises such as the COVID-19 pandemic, China’s industrial base also proved resilient, allowing the country to adapt quickly and supply critical goods while more service-oriented economies struggled with disruptions.
At the heart of this resilience is a comprehensive and vertically integrated manufacturing ecosystem that is unmatched anywhere else in the world. From microchips and sensors to rare earth chemicals, China can domestically source virtually every component required for complex production. This enables rapid prototyping, flexible sourcing, fast production cycles, and much lower dependence on foreign suppliers. For innovators, it means an idea can move from design to market entirely within China, supported by a complete ecosystem of suppliers and manufacturers.
China’s manufacturing strategy is now entering a new phase, driven by automation and artificial intelligence. The country has set ambitious goals for fully automated production and storage, envisioning factories and logistics centers that run with minimal human labor through robotics, AI, and automated warehousing. Such systems would drastically cut costs, improve efficiency, and allow remote, centralized control of production worldwide from AI-powered hubs in China. Factories could be strategically located closer to end markets, reducing shipping times and enabling product customization, while the critical command centers of innovation and data analytics remain in China.
This shift underscores the reality that future global competition will not be defined solely by scale or cost but by mastery of AI. Artificial intelligence is advancing rapidly, with the potential to disrupt industries everywhere. The decisive question is which country will best integrate AI into manufacturing, supply chains, and product design. Whoever achieves this will shape the next phase of global industry.
China is positioning itself for that future. It is evolving from being merely the world’s manufacturer, defined by the label “Made in China,” to becoming a hub of design, innovation, and high-tech R&D—“Designed in China.” Proximity between OEMs and suppliers, exemplified in Shenzhen’s hardware ecosystem, continues to accelerate prototyping, enhance quality control, and enable real-time collaboration. Yet the trajectory now extends beyond production volume. China is building an AI-driven, innovation-powered industrial system capable not only of producing goods but of designing and controlling the entire global innovation–manufacturing cycle.
In this transformation, China’s manufacturing power has become more than a matter of labor or cost advantage. It represents a deeply integrated ecosystem of supply, infrastructure, and innovation that is reshaping global competition. With its combination of industrial scale, technological ambition, and rapid progress in automation, China is poised not only to sustain its role as the world’s leading producer but also to define the terms of industrial leadership in the AI age.
The U.S. Dilemma Moving Forward
The United States has faced growing political polarization, which has hindered cohesive policymaking and long-term strategic planning. At the same time, the rise of social media platforms such as TikTok and Instagram has shifted societal attention toward consumption and entertainment, diverting focus from productive and innovative efforts. While China invested heavily in building a robust manufacturing base, the U.S. has gradually lost focus on industrial development, with cultural distractions and political divisions undermining its global competitiveness.
Industrial clusters—where suppliers, manufacturers, and R&D facilities are geographically close—play a critical role in fostering rapid communication, just-in-time production, shared innovation, and effective problem-solving. Henry Ford’s River Rouge factory exemplifies the benefits of vertical integration, where co-located production and design enabled tight control and accelerated innovation. Since the mid-20th century, however, U.S. manufacturing has shifted away from traditional industrial heartlands in the Midwest and Northeast to the South, and increasingly offshore to Mexico, China, and Southeast Asia, largely driven by labor-cost savings. This geographic dispersion has weakened local supplier agglomerations, slowing innovation, reducing coordination, and eroding supply chain resilience.
The financialization of the U.S. economy has further complicated matters. Emphasis on short-term returns has reduced incentives for long-term investment in manufacturing infrastructure and industrial capability, contributing to the decline of key sectors and weakening technological and production prowess. Over decades, the U.S. has lost competitiveness in many areas, increasingly relying on Chinese-made products, which has diminished economic and strategic leverage. China, benefiting from economies of scale, subsidies, advanced manufacturing, and integrated supply chains, has captured significant global market share.
Western firms’ globalized supply chains have often sacrificed speed for cost. Since the 1980s and 1990s, offshoring production to Mexico, China, and Southeast Asia lowered labor and operating costs but introduced longer lead times, communication delays, and greater vulnerability to supply chain disruptions, as seen during COVID-19 and the Suez Canal blockage. Innovation, particularly in hardware-intensive sectors, suffered from the physical separation of design and manufacturing. Detroit automakers illustrate this dynamic: moving production away from innovation hubs in Michigan to the South or Mexico diluted the feedback loop between engineers and factory workers, hindering design-for-manufacturing efficiency, real-world validation, and rapid iteration. In contrast, Japanese automakers such as Toyota maintained tighter vertical integration and closer supplier relationships, sustaining innovation and quality.
In response to China’s rise, there are growing calls in the U.S. to rebuild industrial strength through reshoring manufacturing, investing in advanced technologies such as AI and semiconductors, and creating more resilient supply chains. However, decades of deindustrialization and entrenched financial models focused on short-term returns present significant obstacles. To compete effectively, the U.S. may need to rethink capital allocation, shifting toward long-term strategic investments in manufacturing and technology development alongside traditional financial considerations.
Strategic Irony: Decoupling Efforts May Backfire
Instead of fostering true supply chain independence and a domestic manufacturing revival, U.S. tariffs have had mixed and often counterproductive effects. They have increased reliance on Chinese inputs—albeit through foreign intermediaries—reduced transparency in trade flows, and hurt small- and mid-sized U.S. businesses that rely on global supply chains but lack the capacity to reroute operations or absorb cost increases.
Many companies have responded not by severing ties with China, but by relocating parts of their production abroad. While final assembly or branding may now occur in third countries such as Vietnam, Mexico, or Thailand, much of the value still originates from Chinese inputs. As a result, China remains deeply embedded in global supply chains.
By the 2020s, China has emerged as a peer-level economic competitor, possessing the largest trading footprint in the world and a substantial industrial base. The Chinese government has responded to U.S. measures with retaliatory tariffs, policies aimed at self-reliance such as “Made in China 2025” and the dual circulation strategy, and by maintaining control over core structural features of its economy, including state-owned enterprises (SOEs) and party-state influence.
The U.S. market alone is often insufficient to sustain rapid innovation and competitive production in advanced industries such as semiconductors, electric vehicles, advanced batteries, and telecommunications equipment. Many of these sectors rely on large, integrated global markets to achieve economies of scale in research and development, manufacturing, and sales. Access to global markets—including China—is therefore critical for growth and innovation.
China is not only a key supplier but also a major consumer market. Western companies such as Apple, Boeing, Nike, Intel, Starbucks, and Hollywood studios depend heavily on Chinese consumers, while firms like Walmart, Target, Dell, HP, and various pharmaceutical companies rely on Chinese manufacturing for their supply chains. Apple exemplifies the dual role of China as both a critical market and a source of production. The U.S.-China trade deficit largely reflects U.S. companies sourcing products from China rather than Chinese firms selling directly to U.S. consumers.
The broader reality is that complete self-sufficiency is practically impossible in today’s global economy. The United States is deeply integrated into worldwide supply chains, with raw materials, components, and finished goods sourced from across the globe. This interdependence underpins cost-effective production and access to goods that would be difficult—or impossible—to produce domestically at the necessary scale or quality.
Conclusion
The global economy is undergoing a fundamental shift, as China’s strategic investment in manufacturing and industrial capabilities has positioned it as a leader in numerous key industries. In contrast, the United States has lost much of its manufacturing base due to decades of financialization and a relentless focus on capital efficiency. As the global balance of power evolves, the U.S. may need to reassess its economic strategy to remain competitive with China in the coming decades.
Modern supply chains in the U.S. and other Western countries have often “hollowed out” intermediate and less-profitable segments, which were offshored to countries like China. This has reduced control, speed, innovation, and overall resilience. To compete effectively with China’s vertically integrated and dense manufacturing ecosystem, the U.S. must rebuild deeper domestic supplier networks and intermediate production capabilities.
China’s tightly integrated local supply chains have conferred structural advantages, enabling both rapid scale and speed of innovation—particularly in sectors that rely on hardware production and iterative development. While Western firms are beginning to explore reshoring and nearshoring strategies, China’s ecosystem continues to offer a durable edge grounded in supply chain economics, industrial performance, and innovation capacity.