After the Cold War, the United States elevated a cluster of post-1991 doctrines—market fundamentalism, free-trade universalism, end-of-history liberalism, anti-industrial and asset-light biases, financialization as progress, limited-government absolutism, global capital mobility, consumer-welfare reductionism, and the assumption of peace through trade—into something approaching natural law. The meta-error was not any single ideology, but the belief that these were permanent truths rather than context-dependent tools. In the absence of a peer rival, the U.S. mistook a unipolar moment for a universal model, confused the suspension of competition with its end, and allowed ideology to substitute for strategy—an intellectual move epitomized by Francis Fukuyama’s end-of-history thesis.
Europe, often caricatured as stagnant or overregulated, proved more pragmatic: it abandoned or softened several of these orthodoxies earlier and more decisively than the U.S., particularly in industrial policy. China went further still. It never fully believed most of these doctrines in the first place. Where Europe eventually reverted, China rejected early, selectively adopted, or weaponized them—treating markets, trade, finance, and globalization not as moral imperatives but as instruments of state capacity and national development. Where the U.S. ideologized and universalized, China engineered and contextualized. This contrast—between ideology mistaken for law and strategy grounded in contingency—frames the deeper divergence in post-Cold War political economy.
The Ideological Overreach of American Market Absolutism
In the late twentieth century, the United States elevated market fundamentalism from a policy preference into a governing worldview. Markets were treated not merely as efficient mechanisms but as self-justifying arbiters of economic and social order. Political intervention was presumed distortionary by default, and allocative efficiency was prioritized over strategic direction or long-term capability. This absolutist posture blurred the distinction between markets as tools and markets as truths, constraining the state’s capacity to act deliberately in the face of structural change.
Europe diverged earlier and more pragmatically. While it experimented with liberalization, European economies never fully surrendered to the idea that markets should dominate all domains of economic life. Industrial policy, social coordination, and state involvement persisted beneath the surface, and by the early 2000s Europe had already begun softening the more rigid elements of market fundamentalism. The retreat was not ideological but practical: markets were useful, but insufficient on their own.
China never made this turn at all. From the founding of the People’s Republic, markets were treated as subordinate instruments rather than sovereign forces. Party supremacy over capital was never in question, and the concept of a “socialist market economy” explicitly rejected market absolutism while preserving the allocative advantages of competition. Profit was permitted, but autonomy was conditional; firms could operate freely only within boundaries set by political authority.
This framework was embedded early in China’s development trajectory. The First Five-Year Plan (1953–1957) made clear that industrialization would be state-directed, with hundreds of large and medium-sized projects—many supported by Soviet assistance—designed to establish the foundations of a socialist industrial economy. Agriculture and handicrafts were reorganized through cooperatives, while private industry and commerce were guided onto a path of state capitalism. Markets existed, but only as channels through which broader political and developmental goals were pursued.
Over time, this logic produced a system in which the state set direction while firms competed within defined bounds. National champions were explicitly constructed through state-owned enterprises and mixed-ownership structures, combining market incentives with political oversight. Competition was encouraged, but it was never allowed to undermine strategic coherence or state authority.
The reasons for this design were structural rather than doctrinal. China’s Leninist legacy framed markets as instruments, not governors. The post-1991 collapse of the Soviet Union reinforced fears of oligarchic capture if capital were allowed to dominate politics, as occurred in Russia. Above all, China prioritized capability accumulation—industrial depth, technological learning, and national resilience—over allocative purity. Europe eventually walked back from market fundamentalism. China designed around it from the outset, treating markets as means rather than ends in a long-term project of state-led development.
The Strategic Cost of America’s Post-Industrial Turn
From the late twentieth century onward, the United States increasingly embraced a post-industrial worldview in which manufacturing was treated as a sunset activity rather than a foundation of national power. Economic sophistication came to be equated with services, finance, and information, while deindustrialization was reframed as a natural and even desirable stage of development. This outlook assumed that production could be safely offshored without strategic consequence, that innovation would remain detached from factory floors, and that industrial capacity was no longer central to sovereignty or geopolitical leverage.
Europe diverged earlier and more cautiously. Although it experienced its own deindustrialization pressures, it resisted the notion that manufacturing was obsolete. Core industrial capabilities were defended through vocational systems, regional clustering, and selective state support, particularly in capital goods, autos, chemicals, and advanced machinery. Europe did not romanticize industry, but it never accepted that a modern economy could afford to abandon it entirely.
China inverted the American premise outright. Manufacturing was never seen as backward or transitional; it was understood as power. Services were treated as derivative of a strong productive base, not as substitutes for it, and large-scale deindustrialization was regarded as a civilizational failure rather than an economic inevitability. From early planning efforts through successive “Made in China” programs—culminating in the Made in China 2025 initiative—industrial upgrading was treated as a permanent national mission, not a temporary phase.
Central to this strategy was export-oriented manufacturing as a learning system rather than merely a profit engine. Like Japan and South Korea before it, China accepted thin margins in early export stages in exchange for something more valuable: know-how. Competing in demanding global markets forced Chinese firms to absorb process engineering, quality control, logistics discipline, and cost-down innovation. Foreign buyers functioned as uncompensated instructors, imposing strict specifications and standards that accelerated organizational learning, much as Japanese firms learned under U.S. procurement pressure and Korean chaebol learned through OEM subcontracting.
This learning process was tightly structured by the state. Domestic firms were protected and nurtured through controlled market access, joint-venture requirements, localization rules, and coordinated industrial policy involving central authorities, local governments, and state-owned enterprises. The value-chain ascent was deliberate and familiar: from labor-intensive assembly to components, systems, and eventually global brands—textiles to electronics, assembly to batteries, electric vehicles, telecom equipment, solar technologies, and AI hardware. Crucially, state direction coexisted with intense internal competition, preventing stagnation and differentiating China’s approach from many failed industrialization efforts.
The rationale behind this model was straightforward. As a late developer in the Gerschenkronian sense, China prioritized rapid capability accumulation; as a labor-abundant society, it needed industry to absorb surplus employment; and as a geopolitical realist, it understood that industrial depth underwrites sovereignty. Where the United States treated manufacturing as expendable and Europe sought to preserve it, China built its entire growth strategy around industrial mastery—using exports as a classroom and factories as the backbone of national power.
America’s Asset-Light Illusion and the Erosion of Industrial Power
From the late twentieth century onward, U.S. corporate strategy became dominated by an asset-light doctrine closely aligned with shareholder-value maximization. Championed intellectually by Milton Friedman and operationally by figures such as Jack Welch during his tenure at General Electric, this model encouraged firms to minimize ownership of physical assets and fixed capital. Outsourcing, contract manufacturing, franchising, and an emphasis on platforms, brands, and intellectual property were framed as markers of managerial sophistication. Production itself was increasingly treated as a low-value, commoditized activity best kept off the balance sheet.
Europe never fully accepted this logic. While European firms adopted elements of financial discipline and selective outsourcing, they generally retained ownership of core plants, tooling, and process expertise. Manufacturing capabilities remained embedded within firms and regions, supported by long-term labor institutions and dense supplier networks. As a result, Europe preserved a measure of industrial depth even as it liberalized markets, avoiding the more extreme separation of design, ownership, and production that characterized the American approach.
China explicitly rejected the asset-light premise. Ownership of factories, tooling, and process knowledge was understood as strategic rather than incidental. Outsourcing was tolerated only at lower-value tiers, while vertical integration was actively encouraged in sectors deemed critical to national development. Leading firms such as Foxconn, CATL, and BYD internalized production end-to-end, co-locating R&D with manufacturing and treating tacit, shop-floor knowledge as a national asset. The firm was conceived not as a financial wrapper around IP, but as a learning organization rooted in physical production.
This emphasis on asset ownership translated into measurable advantages. China’s manufacturing ecosystem allows companies to design, prototype, and scale complex products rapidly and at lower cost than most competitors. According to the International Federation of Robotics’ 2024 report, China accounted for roughly 54 percent of global industrial robot deployments, reflecting both market size and the depth of its integrated supply chains. Such dominance is difficult to reconcile with an asset-light model that externalizes production and disperses learning across contractors.
The logic behind China’s choice was straightforward. Learning-by-doing requires sustained engagement with physical production; it cannot be outsourced without also outsourcing capability accumulation. Chinese policymakers also internalized the risks visible in the United States: hollowed-out industrial bases, underinvestment in workers and applied R&D, and diminished resilience in the face of shocks. Export discipline reinforced scale, process mastery, and the preservation of an “industrial commons” that asset-light strategies tend to erode.
In the final accounting, the contrast is stark. Europe sought to preserve industrial depth while modernizing corporate governance. China made depth and breadth the central objective of its growth model. The United States, by elevating asset-light corporate structures into a governing doctrine, traded long-term productive capacity for short-term financial efficiency—revealing how a theory of the firm can quietly become a theory of national decline.
When Finance Became the Measure of Progress
In the late twentieth century, the United States increasingly equated economic advancement with the expansion and sophistication of its financial sector. Financialization was presented as progress: a larger, deeper, and more liquid system was expected to lower the cost of capital, channel savings toward the highest-return investments, improve risk sharing, and discipline inefficient firms through market signals. In theory, finance would act as a neutral optimizer, allocating resources more efficiently than bureaucratic or political judgment ever could.
To be fair, this model delivered real but narrowly concentrated gains. Venture capital, public equity markets, and complex financial instruments played a significant role in the growth of the U.S. technology sector and the emergence of powerful innovation ecosystems. Greater liquidity reduced financing constraints for large firms and facilitated rapid scaling in select industries. These successes reinforced the belief that financial deepening itself was a reliable proxy for economic health.
Yet these benefits proved sector-specific, while the costs were systemic. As finance grew in scale and influence, it increasingly detached from the real economy, redirecting talent and capital toward trading, arbitrage, and asset inflation rather than productive investment. Corporate behavior adjusted accordingly: short-term returns were privileged over long-term capacity, leverage substituted for innovation, and asset prices became more important than output or employment. The financial system did not merely support the economy; it began to shape it in its own image.
Europe resisted this transformation earlier. While European economies liberalized capital markets, they retained stronger regulatory constraints and a clearer sense that finance was a means rather than an end. Banking systems remained more closely tied to industrial lending, and speculative excesses were treated with greater skepticism. Finance was permitted to grow, but not to dominate the economic hierarchy.
China went further by actively disciplining finance from the outset. The core principle was explicit: finance exists to serve industry, not the reverse. Capital allocation was treated as a political and developmental function, not a purely market outcome. State-owned banks dominated credit creation, lending was directed toward priority sectors, and speculative activity—whether in property, fintech, or shadow banking—was tolerated only so long as it remained controllable. When it did not, it was curtailed.
This approach reflected both historical precedent and political necessity. East Asian development models in Japan, Korea, Singapore, and Taiwan had already demonstrated the dangers of premature or excessive financialization. Chinese leaders also observed the volatility and asset bubbles characteristic of Anglo-American systems and concluded that financial excess undermines social stability and long-term growth. Party legitimacy, unlike shareholder value, depended on tangible improvements in employment, productivity, and industrial capacity.
The contrast is instructive. Europe sought to limit the reach of finance. China sought to subordinate it. The United States, by treating financial expansion as an end in itself, allowed a powerful intermediary to become the economy’s organizing principle—confusing the circulation of money with the creation of real value, and mistaking financial sophistication for sustainable progress.
The Universalist Illusion of American Free Trade
For much of the postwar and post–Cold War period, the United States treated free trade not merely as an economic arrangement but as a civilizational force. The core belief was simple and expansive: if markets were opened and trade liberalized, societies would grow wealthier, a middle class would emerge, liberal democracy would take root, and over time other countries would become more like the United States—politically, culturally, and ideologically. Trade was thus framed not as a contingent policy choice but as a universal pathway to convergence.
This conviction was embedded deeply in the architecture of the global economic order. The Bretton Woods institutions, the evolution from GATT to the WTO, and the globalization surge of the 1990s all reflected the assumption that economic openness would naturally produce political and institutional alignment. U.S. trade policy toward China, Eastern Europe, and much of the Global South was guided by this expectation. Openness was offered with the implicit wager that integration would dissolve strategic difference rather than intensify it.
The results exposed the limits of this universalism. Externally, many countries integrated into global trade without converging toward American political norms. Internally, the model generated sharp backlash. Large segments of the U.S. industrial base were hollowed out, middle-class employment eroded, and inequality widened. Rather than reinforcing confidence in liberal democracy, the domestic consequences of trade liberalization undermined it, revealing a paradox in which a policy meant to universalize stability weakened it at home.
Europe approached trade with greater conditionality. While committed to openness, European states quietly hedged through regulatory standards, social protections, and industrial safeguards. Free trade was accepted, but rarely treated as self-justifying or politically transformative on its own. The expectation of automatic convergence was muted, and reciprocity was more carefully monitored.
China adopted a fundamentally different stance. Trade was never understood as a destination or a moral commitment, but as a ladder to be climbed and, if necessary, held in place. Openness was exchanged for technology, scale, and learning, while reciprocity was delayed, staged, or selectively denied. WTO accession was used to lock in export access, while domestic standards, subsidies, and selective market barriers shaped internal development. Autos, finance, and technology markets were opened gradually and asymmetrically, in line with national priorities.
This strategy reflected historical awareness and strategic patience. Chinese policymakers internalized the lesson, articulated by development economists such as Ha-Joon Chang, that advanced economies often “kick away the ladder” after climbing it themselves. Within the global rules-based system, China pursued a mercantilist logic adapted to modern institutions—complying formally while exploiting flexibilities substantively.
The contrast is telling. Europe hedged behind rules. China exploited the rules. The United States, by universalizing free trade as both economics and destiny, mistook integration for convergence and openness for alignment—discovering too late that trade can globalize markets without globalizing values.
The Myth of Minimal Government in a Competitive World
In the late twentieth century, the United States elevated limited government from a pragmatic preference into an organizing creed. State action came to be viewed as inherently suspect, planning as synonymous with inefficiency, and industrial policy as a relic incompatible with modern capitalism. This absolutism rested on the assumption that markets, once exposed to trade and competition, would not only allocate resources efficiently but also reshape societies and political systems in their own image. Government’s role was reduced to rule-setting and restraint, while strategy was left to decentralized market forces.
Europe never fully accepted this premise. Even as it liberalized markets, European states normalized active government involvement in economic coordination, social protection, and industrial adjustment. Planning was not treated as a taboo, and state intervention was justified where market outcomes conflicted with long-term national or regional objectives. Limited government was understood as a balance, not an article of faith.
China was openly hostile to the notion that the state should withdraw. From Beijing’s perspective, state coordination was non-negotiable. Planning did not mean micromanagement of firms but the setting of direction, priorities, and constraints within which competition could occur. Policy experimentation was encouraged under centrally defined goals, allowing local governments and firms to test approaches while remaining aligned with national strategy.
This model is institutionalized through mechanisms such as Five-Year Plans, which function as industrial roadmaps rather than rigid command systems. Local governments and state-owned enterprises act as investment arms, mobilizing capital at scale, while policies are iterated rapidly—subsidies are introduced to catalyze sectors, expanded to achieve scale, and withdrawn once objectives are met. Failure is tolerated only insofar as it contributes to long-term capability building.
At its core, China operates a coordinated, state-led development system. Markets handle day-to-day allocation, but the party-state sets direction, protects and guides key sectors, and embeds political objectives directly into production. Institutions such as the Ministry of Industry and Information Technology (MIIT) and the State-owned Assets Supervision and Administration Commission (SASAC) explicitly reject the idea of market neutrality. Prosperity is pursued not as a pathway to political liberalization, but as a pillar of durable non-liberal governance.
The contrast exposes the limits of American limited-government absolutism. The United States assumed that trade exposure would transmit market logic and ultimately produce political convergence. China demonstrated the opposite: exposure to global markets can deepen state learning and strengthen centralized authority. Europe normalized state action as one tool among many. China placed it at the center of the system. The U.S., by turning restraint into doctrine, constrained its own strategic capacity in a world where competitors never accepted such limits.
America’s Deep Suspicion of State-Owned Enterprise
Among the defining features of late-twentieth-century U.S. political economy was a deep aversion to state-owned enterprises. SOEs were treated not merely as inefficient, but as inherently illegitimate—symbols of failed socialism rather than instruments of national strategy. Privatization and market competition were assumed to be universally superior, and public ownership was associated with rent-seeking, stagnation, and political interference. This stance hardened into doctrine, narrowing the range of institutional tools the American state was willing to consider.
Europe moved away from this absolutism earlier. While many European countries pursued privatization in the 1980s and 1990s, they later reversed course in key sectors, rediscovering the utility of state ownership in infrastructure, energy, transport, and finance. Rather than viewing SOEs as ideological liabilities, European governments increasingly treated them as pragmatic mechanisms for coordination, resilience, and long-term investment—especially where markets alone failed to deliver strategic outcomes.
China never shared the American aversion. From its founding, the Chinese system assumed that state ownership would remain central to economic governance. State-owned enterprises were designed to control the “commanding heights” of the economy—energy, telecommunications, transportation, defense, and core finance—while private firms were encouraged to operate in competitive layers above and around them. Mixed-ownership structures were used tactically, not to dilute state control, but to improve efficiency and discipline without surrendering authority.
In practice, SOEs in China serve functions that go well beyond profit maximization. They act as macroeconomic stabilizers during downturns, as investment vehicles for large-scale infrastructure and industrial projects, and as instruments of policy execution when speed and coordination matter. Private champions are tolerated and even encouraged, but always within clear bounds, as seen in periodic interventions involving firms such as Alibaba or the structured coexistence of state oversight with nominally private telecom equipment makers.
The logic behind this model is straightforward. Political control over critical infrastructure is treated as non-negotiable. State ownership preserves crisis-management capacity and prevents capital from evolving into an autonomous power center capable of rivaling the state itself. Where Europe eventually rediscovered the strategic value of SOEs, China never abandoned them. The United States, by contrast, transformed suspicion into reflex—foreclosing a tool that its competitors never ceased to refine.
The Limits of Consumer-Centered Antitrust in a Productive World
For much of the late twentieth century, the United States embraced a narrow conception of economic success rooted in consumer welfare. Antitrust and trade policy increasingly reduced their central question to whether prices were low for consumers. Efficiency, cheap imports, and shareholder value became dominant metrics, while production capacity, labor outcomes, and industrial resilience were treated as secondary or even irrelevant. Offshoring was not seen as a vulnerability so long as it delivered low inflation and abundant goods.
Europe ultimately rejected this reductionist approach. Its competition policy evolved to balance consumer prices with broader concerns such as market structure, strategic autonomy, and social welfare. Antitrust was widened rather than narrowed, reflecting the view that markets serve public purposes beyond immediate price effects.
China, by contrast, never adopted consumer welfare as the organizing principle of competition policy. From the outset, antitrust and industrial regulation were subordinated to state objectives: capacity building, employment stability, and national security. Overcapacity in sectors such as steel, solar panels, and electric vehicles was tolerated as a means of accelerating learning and scale. Consolidation was guided strategically rather than disciplined by price effects, and antitrust enforcement functioned as a political and developmental tool rather than a doctrinal one.
This approach reflected China’s historical experience. Scarcity, foreign pressure, and technological dependence shaped a belief that control over production is synonymous with national power. Drawing on Marxist thought and East Asian developmental-state practices, Chinese policymakers prioritized dynamic efficiency—capability accumulation over time—over static price efficiency. Scale was pursued before profit, and resilience before consumer comfort.
The result is a structural divergence. The United States optimized for consumption in the present, assuming production could always be sourced globally. China optimized for production capacity and strategic autonomy, accepting distortions in the short run as insurance against future shocks. When supply chains fractured, the fragility of a consumer-only framework became evident. What appeared to the United States as inefficiency or unfairness was, for China, a deliberate investment in power, leverage, and long-term security.
In short, Europe broadened antitrust after recognizing the limits of price reductionism. China never narrowed it in the first place. The United States, by contrast, built an economic order that privileged consumers above all else—and is now confronting the costs of that choice.
The Illusion of Peace Through Trade
For decades, the United States operated on a powerful but fragile assumption: that deepening trade ties would pacify great-power rivalry. Economic interdependence was expected to raise the costs of conflict, align incentives, and gradually socialize rivals into a rules-based order. Under this logic, commerce was not merely an economic tool but a stabilizing force in international politics—prosperity would produce peace.
Europe broadly shared this belief until reality intervened. The Russian occupation of Crimea in 2014 exposed the limits of trade-driven détente, revealing how economic integration could coexist with, or even enable, geopolitical aggression. Energy dependence became leverage, not reassurance. The promise that trade would civilize power politics cracked, and European strategic thinking began to shift accordingly.
China, however, never accepted the peace-through-trade premise. From Beijing’s perspective, trade creates interdependence—but interdependence is inseparable from vulnerability. Economic ties are potential instruments of coercion, not guarantees of restraint. As a result, Chinese strategy has long treated economic leverage as a weapon to be wielded or defended against, rather than as a substitute for hard power.
This worldview is visible in China’s policy choices. The “dual circulation” strategy prioritizes domestic production alongside selective external engagement. Technology self-reliance drives seek to insulate critical sectors from foreign choke points. Stockpiling, redundancy, and parallel systems are not inefficiencies to be minimized, but safeguards deliberately built into the system. Autarky in critical nodes is viewed as prudent preparation, not ideological excess.
These choices are rooted in historical memory. China’s leadership carries the imprint of repeated embargoes and exclusions: the Sino-Soviet split after the 1969 Zhenbao Island incident, Cold War export controls such as COCOM, the Wassenaar Arrangement, restrictions embodied in the U.S. Wolf Amendment, and the broader legacy of coercion associated with the “century of humiliation.” Combined with acute awareness of the U.S. alliance structure, these experiences reinforced the belief that access can be withdrawn and dependence exploited. Long-term conflict planning, therefore, became rational rather than paranoid.
The contrast is stark. The United States treated trade as a pathway to peace and assumed mutual dependence would neutralize rivalry. Europe learned—belatedly—that commerce does not dissolve geopolitics. China never made that mistake. Europe woke up. China was already awake.
Summary & Implications
The deepest American error after the Cold War was not commitment to any single doctrine—market fundamentalism, free-trade universalism, consumer-welfare antitrust, financialization, limited government absolutism, or the belief in peace through trade—but the assumption that these ideas were natural laws rather than contingent tools. The absence of a peer rival after 1991 was misread as the end of competition itself; a temporary unipolar moment was mistaken for a permanent and universal model. Strategy gave way to ideology, and economic governance became an exercise in principle rather than power.
China never made this mistake. Europe, drawing on institutional memory, abandoned several post-Cold War orthodoxies earlier and more decisively, at least in industrial domains, and quietly hedged. The United States ideologized. China operationalized. It treated ideology as background noise and capability as the signal, studying Europe’s industrial memory, America’s missteps, and Asian developmental precedents—from Japan and South Korea to Singapore—and synthesizing them into a system oriented toward production, resilience, and state capacity. The uncomfortable truth for Americans is not that Europe chose better ideas, but that China refused to confuse ideas with laws of nature.