China’s rise to near-peer status with the West reflects deliberate strategic choices rather than chance. While the United States and much of Europe gradually abandoned industrial density—treating manufacturing as expendable, subordinating engineers to finance, and assuming globalization and symbolic dominance would secure permanent advantage—China embraced production as a civilizational foundation. It built dense industrial ecosystems, integrated engineering into governance, tolerated inefficiency as a learning cost, and leveraged manufacturing to accumulate tacit knowledge, rewrite standards, and deploy at scale. By prioritizing execution, resilience, and cumulative capability over short-term efficiency or financial abstraction, China transformed industrial capacity into geopolitical leverage, achieving asymmetric dominance in production, innovation, and endurance—domains the West had declared obsolete, yet which ultimately underpin real power.
From Factories to Foundations: How the U.S. Abandoned Industrial Density and China Made It Central to Power
Over the past five decades, the United States progressively abandoned industrial density, not simply as a side effect of economic evolution, but as a deliberate intellectual shift. Industrial power, contrary to conventional understanding, is not measured merely in factories—it is measured in density: suppliers located next to assemblers, engineers embedded on production lines, tooling, materials, logistics, and testing co-located, with iteration cycles compressed to days or weeks. Once this density was lost, it became impossible to recreate through capital investment, subsidies, or policy slogans alone.
The West, particularly the United States, treated manufacturing as a temporary stage of development, assuming that advanced economies would naturally outgrow production as they moved toward services, finance, and abstraction. Physical production was increasingly delegated abroad, perceived as a permanent, politically neutral function that could be outsourced without consequence. In practice, this mindset dissolved entire industrial ecosystems, eroded institutional memory, and turned universities away from the realities of production, leaving engineers working in theory divorced from practice. Industrial coordination was replaced by short-term financial optimization, while the symbolic rhetoric of innovation masked the erosion of material capacity.
This shift was not mere ignorance; it was complacency born of exceptionalism. Western policymakers and intellectuals assumed modernity was a permanent inheritance rather than a condition to be actively reproduced. As China began to build industrial capacity at scale, Western observers minimized the effort as “catching up,” inefficient, or an authoritarian excess, failing to recognize that a rival system was deliberately reconstructing the foundations of state power. By the time the limitations of symbolic leadership became apparent, the cumulative loss of industrial density had made recovery slow and costly.
China, in contrast, treated industrial density as a civilizational asset. Rather than separating R&D, manufacturing, and deployment into disconnected silos, China embedded engineers into governance, planning, and execution. It accepted inefficiency, redundancy, and local protectionism as the necessary costs of learning, using scale and iteration as mechanisms to accumulate knowledge that markets alone could not provide. Industrial networks were cultivated not merely as individual firms, but as integrated systems capable of producing at unprecedented velocity and complexity.
The results of these divergent paths are stark. The United States retains symbolic leadership in innovation, grounded in finance, theory, and rhetoric. China, however, retains material capacity: the ability to deploy infrastructure, energy grids, transportation networks, and advanced manufacturing systems at a scale that the West struggles even to imagine. Execution, rather than intention, has become the defining metric of power. Where the U.S. relied on abstract notions of market efficiency, China invested in resilience, cumulative expertise, and the strategic integration of production into state governance.
Ultimately, the contrast highlights a profound lesson: industrial density is not incidental—it is a core component of national power. By abandoning it, the United States ceded a fundamental lever of influence. By making it central, China transformed manufacturing from a means of economic activity into a foundation for political, technological, and strategic strength. The story of these five decades is not one of luck or inevitability, but of deliberate choices that reshaped the balance of global power.
Beyond the Smile Curve: How China Turned Manufacturing into a Strategic Engine
For decades, Western economic thought treated the so-called “smile curve” as an immutable law: upstream activities such as intellectual property, software, and finance were assumed to hold permanent value; downstream functions like branding and platforms were seen as the primary levers of control; and midstream manufacturing was treated as expendable. This framework hardened into ideology, shaping U.S. and European policy and producing a strategic blind spot in which the productive core of the economy was undervalued.
The West assumed that nations focused on manufacturing would never master design, systems integration, or standards; that political liberalization must precede technological leadership; and that dominance over capital markets, IP regimes, and consumption patterns would guarantee permanent advantage. These assumptions drove the offshoring of production without retaining domestic process knowledge, the passive acceptance of industrial decline as a “natural” evolution, and the reflexive dismissal of Chinese success as the result of subsidies or coercion rather than deliberate competence.
China, however, rejected the notion that the midstream of production was inherently subordinate. It treated manufacturing not as a marginal cost center but as a strategic platform capable of pulling higher-value functions inward. By embedding engineers into operations, linking design and deployment directly with production, and tolerating inefficiency as a cost of learning, China used scale and iteration to accumulate tacit knowledge unavailable through markets alone. Manufacturing itself became a mechanism for learning, standard-setting, and reshaping global supply chains.
Chinese firms progressed from OEM (original equipment manufacturing) to ODM (design) and ultimately to OBM (brand ownership) not by waiting for permission or Western approval, but by leveraging sheer scale and operational velocity to bend the value chain around them. Where the West assumed that high-value functions could be permanently isolated from production, China demonstrated that integration across the chain amplified both technological mastery and geopolitical leverage.
In short, the “smile curve” was a trap for those who accepted it as law. China treated it as a temporary condition to be engineered out of existence. By recognizing manufacturing as a source of strategic advantage rather than a low-value step, China transformed industrial capability into a driver of innovation, resilience, and global influence, while the West continued to view production through the narrow lens of abstraction and financial optimization.
Engineering Strength Accumulated as Financial Logic Hollowed Out the West
One of the most consequential errors of Western economic strategy has been the systematic undervaluing of engineering capability in favor of financial logic. Over decades, the United States and its allies assumed that markets are superior information processors, that finance naturally reallocates resources toward what matters, and that industrial capacity, if ever needed, could be rebuilt quickly with sufficient money. While these assumptions work in software, services, or short-cycle sectors, they collapse in domains with long learning curves, cumulative know-how, and physical constraints.
The consequences were profound. Western systems increasingly rewarded financial extraction over productive reinvestment, treated engineers as cost centers rather than strategic assets, and allowed entire categories of tacit skill—skills built through years of hands-on experience and institutional learning—to atrophy. The belief that “if it mattered, the market would provide” became a convenient rationale for state abdication from industrial strategy. In effect, the West hollowed out its own productive backbone while assuming that abstract financial signals could replace deeply embedded engineering capability.
China, by contrast, approached the problem with an opposing logic. It recognized that engineering capability is fragile, cumulative, and irreplaceable, and that scale accelerates learning far more reliably than profit incentives alone. Losses were tolerated when they bought mastery, and industrial capacity was deliberately built before it was fully justified economically. Engineers, not financiers, became the core political and strategic constituency, and failure was reframed as part of a national learning process rather than a liability.
This approach created a system in which knowledge compounds. Practical expertise, system integration, and institutional memory accumulated through repeated cycles of experimentation and deployment. China’s industrial intelligence—rooted in hands-on engineering, tacit knowledge, and systemic coordination—cannot be replicated, purchased, or reverse-engineered on command. It is a structural advantage embedded in scale, practice, and governance.
The contrast between West and East is stark. While the U.S. and Europe celebrated abstract financial optimization and symbolic innovation, China invested in material capability and human expertise as the foundation of power. Where the West assumed capital could substitute for competence, China allowed engineering to compound into a strategic asset that underpins resilience, technological mastery, and geopolitical leverage. In the long run, it is not finance that secures influence, but the enduring accumulation of skill, knowledge, and execution capacity.
China Built a Social Production System, Not Just Companies
While Western analysis tends to focus narrowly on individual firms, China pursued a fundamentally different approach: it built integrated production systems rather than isolated corporate champions. In the West, efficiency is often equated with minimal redundancy, and logistics, permitting, and infrastructure are treated as secondary or supporting concerns. This mindset overlooks the systemic advantages that arise from coordinated networks, dense industrial clustering, and state-industry collaboration. As a result, Western observers have historically dismissed Chinese infrastructure as “overbuilt,” industrial clusters as distortions, and state-led coordination as illegitimate, failing to recognize its strategic purpose.
China’s reality is the inverse. It developed dense networks of small and medium-sized enterprises functioning as external R&D arms, integrated with local governments focused on throughput rather than short-term profit. Logistics systems are designed not merely to move goods efficiently but to maximize speed as a strategic capability. By linking firms, governments, and infrastructure into a cohesive operational ecosystem, China created a mechanism for production that amplifies innovation, learning, and deployment at scale—an industrial capacity mobilized as systematically as finance or media might be elsewhere.
The result is a fundamentally different model of power. The United States possesses excellent firms, capable of technological innovation and competitive advantage in specific sectors. China, however, possesses industrial swarms: interconnected, adaptive, and resilient production networks that operate collectively to achieve capabilities far beyond the sum of individual companies. In short, China’s industrial strategy is not about discrete enterprises; it is about creating a civilization-wide production machine capable of rapid learning, deployment, and systemic coordination, transforming manufacturing into a strategic instrument of national power.
Deindustrialization Transformed U.S. Power into Shadow Power
The retreat from industrial capacity over recent decades has transformed U.S. power from a material force into what can be described as “shadow power.” Western analysis repeatedly conflated financial dominance, control over standards bodies, and sanctions authority with true productive and strategic capability. In reality, these instruments only amplify power when backed by underlying industrial strength; without it, influence is largely symbolic and fragile.
Empirical evidence of this vulnerability is clear. The United States faces multi-year timelines to restart critical factories, shortages in essential materials and ammunition, paralyzed infrastructure, and a limited ability to deploy energy and industrial solutions at the scale required for climate or national security objectives. Symbolic power, divorced from material capacity, erodes quickly under stress and exposes the limits of influence built on abstract control rather than tangible capability.
China, by contrast, converts industrial output directly into geopolitical leverage. Its systems absorb external pressure through internal substitution, scale rapidly, and compete in endurance rather than spectacle. Where the West mistook finance for the source of power, China demonstrates that industrial strength—dense networks of production, infrastructure, and human expertise—is the foundation upon which resilience, innovation, and strategic influence are built. Deindustrialization, therefore, did not merely reduce U.S. capacity; it hollowed out the practical basis of power, leaving it largely shadowy and contingent.
Why China Became a Near Peer, Not Just “Caught Up”
China’s emergence as a near-peer power did not result from competing on Western terms or simply “catching up.” Rather, it achieved this status by invalidating the assumptions underpinning Western dominance. While the West gradually retreated from industrial capacity and relied on finance, symbolic leadership, and abstract metrics of innovation, China focused on building, internalizing, and continuously expanding full production systems. Its strategy emphasized endurance, scale, and material deployment as the truest measures of power.
Near-peer status arose not from symmetry with the United States or Europe, but from asymmetric dominance in areas the West had devalued: dense industrial capacity, cumulative engineering expertise, and the ability to deploy infrastructure and technology at scale. China outlasted Western industrial decline, embedded engineering governance at the center of state power, and treated the deployment of capability as a legitimate marker of national strength. By reframing the very rules of technological and industrial competition, China achieved a level of operational and strategic power that Western frameworks had declared obsolete, demonstrating that real influence is built on execution and resilience, not rhetoric or abstraction.
Summary & Implications
The United States did not lose its industrial edge by accident; it adopted a worldview in which finance was assumed smarter than engineers, demand more important than supply, innovation separable from manufacturing, efficiency superior to resilience, and modernity permanently Western. In contrast, China made the opposite set of choices at every turn, treating manufacturing as a foundational component of civilization, embedding engineering into governance, and building resilience, scale, and cumulative capability as strategic priorities.
The ultimate Western failure was not policy misjudgment, but intellectual denial: a refusal to recognize the significance of China’s industrial strategy until the evidence became overwhelming. By 2025, these choices had compounded, leaving the United States reliant on symbolic power while China achieved near-peer status through asymmetric dominance in production, deployment, and strategic execution. In the end, China did not merely catch up—it redefined the terms of industrial and technological power, demonstrating that civilization-level capability depends on execution, not rhetoric.