China’s Made in China 2025 initiative (MIC 2025) mirrors the historical catch-up strategy once employed by the United States, which protected key industries like steel and textiles to achieve global economic leadership. This approach—using state tools to build strategic advantage—reflects a pattern noted by economist Ha-Joon Chang, who observed that developed nations often “kick away the ladder” after having climbed it, criticizing developing countries for pursuing the same protective policies that once benefited themselves.[1] Historically, such economic control was evident in colonial trade restrictions, exemplified by Edmund Burke’s assertion that “the Colonies should not be permitted to manufacture so much as a single horseshoe nail,” illustrating how Britain sought to constrain the economic independence of the American colonies.
Kicking Away the Ladder: Developmental Policy from Friedrich List to China
Friedrich List famously described infant-industry protection as a “ladder” that developing nations could climb to achieve industrial maturity. Historically, once countries reached economic strength, they removed these protective measures and embraced free trade, often promoting it internationally. Today, however, developed countries frequently discourage or prevent developing nations from employing the same protectionist policies. By “kicking away the ladder” after having climbed it themselves, established powers limit the policy space that developing nations need to nurture their industries, making it far more difficult for them to catch up. International rules, trade agreements, and political pressures often reinforce these constraints, reflecting the interests of already dominant economies.
China’s Made in China 2025 strategy, launched in 2015, exemplifies modern developmental-state principles in action. Through mission-oriented planning, the Chinese government targeted ten high-tech sectors—including AI, robotics, semiconductors, aerospace, and electric vehicles—seeking global leadership rather than mere comparative advantage. The state directed private-sector innovation by providing research and development subsidies, procurement preferences, local government support, and investment guidance funds. In doing so, China emulated earlier developmental-state models such as Japan’s MITI and Korea’s EPB, illustrating how deliberate industrial policy can be used strategically to cultivate domestic capabilities and achieve international competitiveness.
State-Led Industrial Strategy: China and Global Historical Parallels
Since 2014, China has pursued a deliberate strategy to develop strategic industries, particularly semiconductors and aviation, viewing them as critical to national security and economic sovereignty. In the semiconductor sector, China’s reliance on imports from the U.S. and Taiwan was perceived as a major vulnerability. To address this, the government launched the China Integrated Circuit Industry Investment Fund, also known as the “Big Fund,” committing hundreds of billions of RMB to nurture domestic capabilities. The strategy relied on heavy state subsidies, state-owned enterprise involvement, targeted R&D investment, and import substitution policies under the “Made in China 2025” initiative. Foreign ownership in core semiconductor areas was restricted to protect domestic firms. This approach has produced domestic champions such as SMIC, Yangtze Memory Technologies, and Huawei’s HiSilicon, with recent Huawei breakthroughs demonstrating the potential of a protected and strategically guided R&D ecosystem.
China’s aviation industry has followed a similar model. The Commercial Aircraft Corporation of China (COMAC) is a state-owned enterprise supported by substantial government funding. Chinese airlines are encouraged or mandated to purchase domestic aircraft, while the domestic market remains shielded from foreign competition. These policies have allowed projects such as the COMAC C919 passenger jet to reach commercial operations, exemplifying the long-term approach to nurturing infant industries even when global competitiveness is initially limited. Both the semiconductor and aviation strategies reflect China’s broader goal of reducing reliance on foreign technology and building globally competitive domestic champions.
Historically, the United States and Britain employed comparable policies during their industrial revolutions. In the 19th century, the U.S. imposed high tariffs of up to 60% to protect nascent industries such as steel, textiles, and railroads, while investing in infrastructure through subsidies and land grants. Britain similarly subsidized its textile industry and maintained high tariffs before gradually adopting free trade once it had secured industrial dominance.
Modern parallels exist in the United States’ approach to semiconductors and clean energy. The CHIPS and Science Act allocates roughly $280 billion for domestic semiconductor manufacturing, R&D, and workforce development, while the Inflation Reduction Act provides extensive subsidies for clean energy and electric vehicles. Buy American provisions prioritize domestic suppliers, echoing historical protectionist strategies now employed by today’s advanced economies. These examples underscore that the path to industrial leadership often involves strategic state intervention rather than strict adherence to free-market orthodoxy.
China: Gradualism and Selective Opening
China’s approach to economic reform has been characterized by gradualism and selective opening, rather than indiscriminate liberalization. Since 1978, reforms have followed a carefully staged and experimental path, beginning with agriculture and the establishment of special economic zones (SEZs) before progressively expanding to broader sectors of the economy. Strategic control over sensitive industries such as defense, gambling, energy, telecommunications, and finance has been maintained, ensuring that key sectors remain under state oversight even as the country integrates into global markets.
The principle of selective opening emphasizes competence-based liberalization: industries that are already internationally competitive are opened to foreign trade and investment more quickly, while less competitive sectors receive protection and time to develop technological and managerial capabilities. This approach also prioritizes learning-oriented exposure, enabling Chinese firms to absorb foreign technologies, production standards, and management practices incrementally. Policies such as controlled foreign investment, joint ventures, reverse engineering, and technology transfer were carefully designed to facilitate industrial upgrading while limiting exposure to destabilizing foreign capital flows through strict capital controls.
China’s empirical experience demonstrates the effectiveness of this gradual and selective strategy. Unlike the “shock therapy” or rapid liberalization policies implemented in Eastern Europe and Russia, China avoided full-scale privatization and abrupt liberalization, instead maintaining state ownership in strategic sectors and gradually adjusting price, trade, and capital controls. Multinational corporations were allowed access, but domestic competitiveness was preserved, giving Chinese firms time to grow before full global integration. The result has been a sustained period of economic growth and industrial capability building, establishing China as the world’s manufacturing hub while disproving the assumption that rapid, linear liberalization is necessary for successful economic development.
Lessons from Rapid Reforms: Counterexamples to Gradual Opening
The experience of German reunification offers a striking counterexample to gradualism and selective economic opening. In 1990, Chancellor Helmut Kohl promised a 1:1 conversion of East to West German marks to secure East German votes, despite warnings from economists that East German industries could not compete under a hard-currency regime. While this move granted East Germans immediate purchasing power, it simultaneously devastated local industries. Eastern European trade, previously conducted through rubles or barter arrangements, collapsed as these countries lacked sufficient hard currency to pay for East German exports. The result was a “double whammy”: domestic consumption shifted to Western goods, while traditional export markets vanished.
The case of Zeiss, the world-renowned optics firm, exemplifies the consequences. Although Zeiss had advanced technology and global recognition, most of its production served Eastern Bloc markets. Reunification stripped the company of these key markets, and West German management prioritized mergers, acquisitions, and alignment with Western corporate strategies over local autonomy. East German employees faced layoffs, and research and production priorities shifted, undermining the firm’s traditional strengths. Zeiss’s plight illustrates how even technologically advanced and globally respected firms can collapse under abrupt liberalization, wage equalization pressures, and the sudden exposure to fully competitive markets without transitional protections.
Eastern Europe mirrored this experience, adopting “big bang” reforms that dismantled domestic industries, opened markets to foreign multinationals, and caused widespread social disruption. Similar patterns were observed in other regions subject to externally imposed rapid liberalization. In Argentina during the 1990s, neoliberal reforms—including privatization, trade liberalization, and austerity—triggered recession, deindustrialization, and increased inequality. Zambia, under IMF Structural Adjustment Programs, experienced industrial collapse and deepening poverty as subsidies were removed, tariffs cut, and state enterprises privatized.
Brazil’s industrial trajectory offers a contrast. Through decades of Import Substitution Industrialization (ISI) and state-led investment, the country built substantial industrial capacity in steel, oil, and energy, supported by public banks and targeted subsidies. While these policies fostered development, excessive protection created inefficiencies, and later pressure to liberalize markets and privatize state-owned enterprises led to economic instability in some sectors. Collectively, these cases underscore Chang’s argument that one-size-fits-all neoliberal reforms—especially when imposed rapidly—often undermine domestic industry, erode policy space, and exacerbate social inequality, highlighting the importance of phased, context-sensitive approaches to economic transition.
Concrete Examples of WTO Issues with MIC 2025
The WTO faces several concrete challenges in addressing issues arising from China’s Made in China 2025 (MIC 2025) initiative. Key concerns include subsidies, forced technology transfer, and standards or certification requirements. For instance, China’s direct subsidies to electric vehicle manufacturers or robotics firms may be challenged under the SCM Agreement as distortions of trade. Foreign companies entering China are often required to form joint ventures and share sensitive technology, raising potential violations of TRIMs and TRIPS rules. Additionally, Chinese authorities may implement product standards or certification procedures that disproportionately burden foreign companies, creating TBT-related concerns.
These challenges are compounded by structural and systemic factors that make enforcement difficult. WTO rules were primarily designed for market economies, yet MIC 2025 is characterized by strong state intervention, creating legal gray areas. Many of China’s industrial policies are indirect—such as preferential loans or R&D support—making it difficult to demonstrate clear WTO breaches. Furthermore, the WTO’s dispute settlement mechanism is often slow, and political and economic complexities can delay enforcement. Finally, China’s rising global influence complicates negotiations and reduces the effectiveness of traditional trade remedies, leaving the WTO struggling to fully address the implications of MIC 2025.
Two Basket Cases: The Pot Calling The Kettle Black
Ha-Joon Chang’s thought experiment comparing two historical country profiles highlights the diversity of pathways to economic development.[1] Country A, analogous to modern China, historically relied on high tariffs, heavy capital controls, state-owned banks and enterprises, selective subsidies, and restrictions on foreign investment. Political freedoms were limited, corruption was widespread, property rights were opaque, and intellectual property enforcement was weak. Despite these factors—often considered “anti-development”—China has emerged over the past three decades as a global economic powerhouse. Similarly, Country B, representing the United States in the 1880s, combined even higher protectionist tariffs with weak competition laws, rampant corruption, limited political participation, and inadequate protection of foreign intellectual property. Yet, 1880s America experienced rapid industrialization and became one of the world’s wealthiest nations.
These examples challenge the conventional free-market orthodoxy that claims open markets, minimal state intervention, secure property rights, and liberal democracy are prerequisites for economic growth. Both countries demonstrate that strong state involvement, strategic protectionism, selective subsidies, and controlled engagement with foreign capital can support dynamic development. The critical distinction lies not in the presence of state intervention, but in its effective application—through industrial policy, protection of infant industries, state-guided investment, and selective openness to foreign technology and capital. Growth trajectories are therefore contingent on historical, political, and institutional contexts rather than adherence to a one-size-fits-all economic formula.
The failures of free-market prescriptions in poorer countries further illustrate this point. Premature liberalization exposes fragile domestic industries to overwhelming global competition, while weak state capacity prevents the provision of essential public goods and enforcement of rules that support industrial growth. Over-reliance on market forces can produce volatile capital flows, financial crises, and rising social inequality. Moreover, institutions critical to development—such as effective bureaucracies, meritocratic civil services, and strategic state ownership—are often weakened or undermined by strict free-market reforms. These historical lessons underscore that economic development is not automatically achieved through liberalization and market orthodoxy, but through context-sensitive, strategic state involvement.
Conclusion
Strategic competition between great powers has consistently linked industrial policy to both national security and economic growth. In the 19th century, the United States pursued protectionist measures to support its steel industry, while today, similar dynamics are evident in sectors such as semiconductors and artificial intelligence. Trade frictions are therefore inevitable: contemporary U.S. tariffs, export controls, and World Trade Organization disputes over China’s Made in China 2025 initiative echo historical pushbacks against U.S. protectionism.
The neo-liberal agenda—promoted through frameworks like the Washington Consensus and enforced by institutions such as the IMF, World Bank, and U.S. Treasury—emphasizes trade liberalization, deregulation, privatization, and minimal state intervention. Yet empirical evidence shows that these policies have frequently slowed growth and exacerbated inequality in developing countries. In contrast, nations that have combined selective liberalization with strategic state intervention, such as China and India, have achieved superior economic performance. This reflects a striking irony: developed countries advocate free-market policies abroad despite having historically relied on interventionist strategies themselves.
China’s Made in China 2025 initiative illustrates this dynamic. Despite U.S.-led tariffs and sanctions aimed at curbing China’s industrial rise, a 2024 South China Morning Post investigation confirmed that many of the plan’s decade-long manufacturing targets have been met. This underscores the limits of trade restrictions and highlights the enduring effectiveness of strategic, state-led industrial policy, even in the face of significant external pressure. The experience of China and other selectively interventionist economies challenges the conventional narrative that unfettered liberalization is the sole path to growth.
References:
[1] Kicking Away the Ladder: An Unofficial History of Capitalism, Especially in Britain and the United States,By Ha-Joon Chang, 2002