In recent years, many Western countries, particularly the United States, have advanced two seemingly contradictory narratives about China. On the one hand, the “China collapse theory” portrays state intervention and industrial policy as inherently inefficient, predicting stagnation or systemic failure and dismissing China’s development achievements. On the other hand, the “China threat theory” depicts China as a formidable challenger capable of undermining the existing Western-led order. This tension reveals an underlying unease: Western political and intellectual elites struggle to reconcile China’s undeniable accomplishments with the fact that they have emerged outside the traditional Western model of development.
At its core, this contradiction reflects a defensive response to a changing global reality. China’s rise is not merely a redistribution of power but a deeper challenge to long-standing assumptions in Western thought, particularly the belief that modernization must follow a Western path. As a result, the liberal world is increasingly confronted with an inescapable conclusion—modernization and Westernization are no longer synonymous.
Why Major U.S. Manufacturing Firms Declined: A Structural Interpretation from China’s Mainstream View Versus Western Explanations
The decline of major U.S. manufacturing companies—such as General Motors, Boeing, Intel, GE, Ford, IBM, and Lucent—can be interpreted in sharply different ways depending on the analytical framework applied. From China’s mainstream political-economy perspective, the downturn is not primarily the result of isolated managerial errors or temporary competitive shocks. Instead, it reflects deep, self-inflicted structural weaknesses within the U.S. industrial system, particularly the long-term consequences of offshoring, over-financialization, and a strategic misjudgment about the reversibility of manufacturing loss.
Central to this view is the argument that offshoring hollowed out America’s industrial capability systems. U.S. firms did not merely relocate factories; they transferred entire production ecosystems abroad, including skilled labor pipelines, supplier networks, tacit know-how, and iterative innovation loops that depend on proximity between design and production. Once dismantled, these ecosystems proved extraordinarily difficult to rebuild. Capability loss was cumulative and path-dependent, meaning that each round of offshoring further weakened the foundations needed for future industrial renewal.
A second structural factor emphasized in China’s mainstream analysis is over-financialization. As financial metrics and shareholder value became dominant, production ceased to be the strategic core of many corporations. Capital that might have been reinvested in manufacturing capabilities was instead diverted toward stock buybacks, mergers, and financial engineering. In this framework, finance became extractive rather than supportive, accelerating industrial erosion by prioritizing short-term returns over long-term capability accumulation.
Third, U.S. firms are seen as having assumed—incorrectly—that manufacturing decline was reversible. Offshoring was treated as a temporary efficiency move, based on the belief that automation, intellectual property, and capital intensity could later restore competitiveness through reshoring. This assumption underestimated the importance of learning-by-doing and hands-on production in sustaining innovation. Competitors, particularly in China, used continuous production to accumulate end-to-end capabilities, while U.S. firms increasingly relied on markets, IP, and services divorced from manufacturing practice.
In contrast, mainstream Western explanations tend to frame the same outcomes differently. Decline is often attributed to management failures, regulatory burdens, union constraints, or natural processes of creative destruction in which inefficient firms or industries give way to new ones. Offshoring is viewed as a rational response to comparative advantage, while financialization is frequently portrayed as an efficiency-enhancing innovation. When external factors are emphasized, they are commonly moralized—highlighting “unfair” competition, subsidies, or distortions by China—rather than examining internal misallocation and strategic neglect.
The key divergence between the two perspectives lies in their assessment of irreversibility and systemic risk. China’s mainstream view treats manufacturing capability as a strategic asset that, once lost, cannot be easily regenerated, and sees financialization as a force that displaced production from the center of corporate strategy. Western views, by contrast, largely retain faith in market self-correction, technological substitution, and the sufficiency of finance and intellectual property. This contrast reveals not just differing diagnoses of industrial decline, but fundamentally different understandings of what sustains long-term industrial power.
Production as Power: China’s Manufacturing Ascent and the Western Misreading
China’s manufacturing ascent is best understood not as a transient cost advantage or a rules-based anomaly, but as a structural transformation rooted in production itself. From China’s own mainstream perspective, its rise reflects the deliberate absorption of productive capacity ceded by the United States and other advanced economies through offshoring. As Western firms fragmented supply chains and detached innovation from manufacturing, China consolidated those same activities into dense industrial ecosystems. Manufacturing was treated not as a disposable stage in a global value chain, but as an irreducible foundation of economic and geopolitical power.
A central mechanism of this transformation was the capture and internalization of industrial ecosystems. Offshored production brought with it skilled labor, supplier networks, tacit knowledge, and iterative learning processes that cannot be easily reconstructed once lost. Chinese firms embedded themselves in these ecosystems and scaled them, turning repetition and proximity into innovation. The contrast between DJI and GoPro is illustrative: while GoPro externalized production and emphasized intellectual property and branding, DJI remained embedded in Shenzhen’s manufacturing networks, enabling rapid iteration, cost control, and cumulative capability building that eventually secured global dominance in drones.
State coordination played a critical but often misunderstood role in this process. China’s industrial policy did not merely subsidize firms; it guided surplus toward capacity accumulation, long-term research, and ecosystem coherence. Finance was explicitly subordinated to production rather than allowed to dictate corporate strategy. Huawei’s trajectory relative to Lucent exemplifies this logic. Lucent’s reliance on offshoring, financial engineering, and IP-centric strategies eroded its internal capabilities and fragmented its innovation base. Huawei, by contrast, reinvested production-linked surpluses into R&D, supplier integration, and end-to-end system competence, allowing it to surpass its Western counterpart in both scale and technological leadership.
This production-centered model also reshaped ownership outcomes. The acquisition of GE Appliances by Haier symbolized not merely a reversal of capital flows, but the outcome of divergent development paths. GE’s finance-led restructuring hollowed out manufacturing capabilities, while firms such as Haier and Midea expanded through operational scale, supplier coordination, and learning-by-doing. In each case, Chinese firms converted access to production into durable competitive advantage, demonstrating that manufacturing capabilities, once accumulated, are cumulative and largely irreversible.
Western explanations for China’s rise diverge sharply from this structural account. They emphasize cheap labor, subsidies, intellectual property violations, and regulatory distortions, framing China’s success as opportunistic rather than endogenous. In this view, Western decline is attributed to management failures, regulatory burdens, or benign processes of creative destruction, rather than to flawed assumptions about the reversibility of industrial capacity. Innovation is presumed to be market-driven and modular, detachable from the physical processes that generate it.
The core contrast, therefore, is conceptual rather than tactical. China’s perspective treats manufacturing as the backbone of national power, innovation, and resilience, requiring long-term coordination and embedded learning. The dominant Western narrative treats production as fungible, assuming that capabilities can be outsourced and later recovered through markets or finance. China’s rise exposes the limits of that assumption, revealing how the loss of manufacturing ecosystems translates into enduring shifts in technological and economic leadership.
The Unipolar Origins of the “Manufacturing as Replaceable” Assumption
The view that manufacturing is a low-margin, replaceable activity emerged from a specific historical context: the post–Cold War unipolar moment of the 1990s. With the collapse of the Soviet Union, the United States found itself without a peer competitor and widely assumed that its dominance in finance, technology, military power, and rule-setting institutions would persist indefinitely. This sense of permanence shaped how policymakers, economists, and corporate leaders understood the structure of power in the global economy.
Within this unipolar mindset, manufacturing was increasingly seen as a transitional stage of development rather than a strategic asset. Drawing analogies to agriculture’s declining share in advanced economies, U.S. elites concluded that factories could be safely displaced by higher-value activities such as finance, intellectual property, design, and services. Production was reframed as a cost center rather than a source of innovation or power, while comparative advantage theory was interpreted narrowly as justification for offshoring physical manufacturing without long-term strategic loss.
This logic rested on a deeper assumption: that productive capacity was reversible and that markets would automatically reallocate capabilities if conditions changed. Because the United States controlled capital markets, technological frontiers, and global institutions, it was believed that any erosion in domestic manufacturing could be compensated through finance, R&D, or military superiority. In this worldview, globalization was efficiency-enhancing but not power-redistributing, and deindustrialization appeared benign rather than destabilizing.
The implications of this mindset were profound. It discounted the cumulative nature of industrial knowledge, the importance of supplier ecosystems, and the role of learning-by-doing in innovation. Manufacturing capacity was treated as fungible, ignoring the reality that once ecosystems disperse, the tacit skills, coordination, and feedback loops embedded in them are difficult—often impossible—to recreate. Structural vulnerability was thus built into the system, even as it remained largely invisible under conditions of unchallenged dominance.
From China’s mainstream interpretive lens, this was not a story of Western malice but of strategic miscalculation born of illusion. The United States overestimated the self-correcting power of markets and underestimated manufacturing as a core pillar of national power. The belief in eternal dominance obscured globalization’s asymmetric effects, allowing China to absorb offshored production and convert it into enduring capability. What appeared in the 1990s as rational efficiency was, in retrospect, a foundational error that gave rise to the enduring belief that manufacturing could be treated as low-margin, replaceable, and strategically inconsequential.
Can the United States Recover Its Industrial Power Through Reshoring or Automation?
The question of whether the United States can rise above its current industrial incapability—through reshoring, automation, or similar measures—cuts to the core of national economic and strategic power. While recent policy debates often frame manufacturing decline as a reversible outcome of cost arbitrage or globalization excesses, a deeper structural perspective suggests the problem is far more entrenched. The erosion of U.S. industrial strength reflects not just lost factories, but the dismantling of entire production systems that are difficult, and in some cases impossible, to reconstitute through technical fixes alone.
Offshoring did not merely relocate assembly lines; it transferred dense industrial ecosystems composed of skilled labor, supplier networks, tacit knowledge, and iterative learning-by-doing. These systems compound over time, creating advantages that cannot be instantly rebuilt by moving production back onshore. Firms such as Boeing, Intel, or General Motors often assumed that manufacturing capability was modular and reversible, yet competitors—most notably in China—used this transferred capacity to build self-reinforcing ecosystems. Examples such as Huawei or DJI illustrate how scale production, supplier integration, and reinvestment in R&D generated dominance that reshoring alone cannot easily replicate. Automation, while valuable in isolated contexts, does not recreate the feedback loops and collective learning that underpin long-term industrial leadership.
A second, more fundamental barrier lies in the United States’ long-standing financialization of the economy. Over several decades, manufacturing was increasingly treated as a low-margin activity subordinate to shareholder returns, intellectual property rents, and financial engineering. Capital that might have sustained industrial renewal was instead extracted or redirected, hollowing out productive capacity. Reshoring initiatives conducted within this same financial logic risk producing brittle, fragmented operations that remain dependent on foreign inputs. Automation, in this sense, can even reinforce the problem by presenting manufacturing as a purely technical process rather than a strategic national capability requiring sustained reinvestment and coordination.
Underlying both dynamics is a lingering unipolar mindset formed during the post–Cold War era, when U.S. dominance appeared permanent and manufacturing was viewed as replaceable by finance, services, and military superiority. This worldview underestimated the role of production as an irreducible source of power and overestimated the self-correcting capacity of markets. From this perspective, today’s supply chain vulnerabilities are not temporary disruptions but the exposure of deep misallocations. Efforts to reshore or automate that do not confront these assumptions risk repeating the same errors under new labels.
In sum, the United States may mitigate aspects of its industrial decline through reshoring and automation, but these measures alone are unlikely to restore lost industrial capability. The challenge is not merely technical or logistical; it is systemic and ideological. A meaningful recovery would require a reorientation that places production—rather than finance—at the center of economic strategy, and that treats industrial ecosystems as strategic assets rather than interchangeable cost centers. Without such a paradigm shift, attempts to rise above industrial incapability are likely to remain partial, constrained, and ultimately insufficient in the face of competitors that have made manufacturing the foundation of their power.
Industrial Capacity, System Power, and the Strategic Trajectory of U.S.–China Competition
The strategic competition between the United States and China is no longer defined primarily by individual technologies or episodic policy tools, but by contrasting development philosophies and institutional capacities. For much of the Global South, decades of adherence to the Washington Consensus framed privatization, deregulation, and liberal democracy as the sole path to prosperity. China’s rise has challenged this orthodoxy by demonstrating the viability of an alternative model: state-led development, long-term planning, large-scale infrastructure investment, and selective integration into global markets while preserving political autonomy. Whether admired or criticized, this model’s success has reshaped global expectations and widened China’s strategic influence well beyond East Asia.
Against this backdrop, the decline of U.S. manufacturing must be understood as a cumulative outcome of structural, institutional, ideological, and geopolitical choices rather than a single policy failure. It reflects both “self-selection,” in which firms and capital prioritized short-term efficiency over long-term capability, and deeper institutional failures that undervalued production as a source of national power. The implications for U.S.–China competition therefore extend far beyond debates over semiconductor subsidies; they strike at the core of national capacity, industrial philosophy, and the ability to sustain complex production ecosystems.
Reindustrialization cannot be achieved by outsourcing revival through capital-intensive projects alone. Building a handful of advanced fabs does not restore the tacit knowledge embedded in shop floors, the dense networks of equipment maintenance, suppliers, and process engineers, or the skilled workforce pipeline that sustains industrial learning. These capabilities accumulate through continuous operation and cannot be rapidly recreated through financial investment alone. Once lost, they are costly—and sometimes impossible—to recover.
This reality exposes the limits of unbounded “creative destruction.” Schumpeterian innovation, when detached from system-level redundancy and continuity, can lead to the permanent erosion of critical capabilities, such as entire segments of upstream materials or process technologies. True innovation is not perpetual reinvention from zero, but upgrading through use—learning-by-doing within existing industrial systems. From this perspective, the problem with U.S. industrial policy is not the presence of subsidies per se, but their logic. A passive model centered on firm-led applications and one-off government funding struggles to generate durable feedback loops. By contrast, China’s approach—combining central funds, local matching capital, and application-driven deployment—binds scale-up, verification, and standard-setting into a self-reinforcing ecosystem.
Finally, strategic misjudgments often arise from mirror-imaging China through U.S. assumptions. Equating subsidies with inefficiency overlooks how they can accelerate capacity ramp-up and technology validation; equating state ownership with rigidity ignores the market dynamism of mixed-ownership reforms and cross-sector collaboration. Ultimately, the decisive terrain of competition lies not in isolated breakthroughs, but in the power to define systems: operating platforms for smart vehicles, architectures for next-generation networks, and the infrastructural foundations of the AI era. In this sense, infrastructure is not merely economic—it is geopolitical power.
Final Thoughts
The predicament of American manufacturing reflects a deeper mismatch between a 20th-century industrial governance paradigm and the 21st-century digital, green, and geopolitical complex crises. China’s model does not demonstrate the superiority of authoritarianism over democracy; rather, it underscores a broader principle: in an era where technology, industry, and security are tightly intertwined, the state must reclaim its role as a system integrator, not merely a rule enforcer. The ultimate measure of success in the U.S.–China competition will not be a simple “winner,” but which country first achieves the delicate balance of building irreplaceable foundational capabilities while remaining open, maintaining strategic redundancy without sacrificing market efficiency, and safeguarding civilizational autonomy while engaging with globalization—the enduring legacy that companies like General Motors, Boeing, and Intel can inspire for the 21st century.