Both President Donald Trump and former President Joe Biden have stated that China engages in unfair trade practices such as preferential treatment for state-owned businesses and extensive subsidies, resulting in high exports.In response, China disputed these claims and initiated dispute settlement proceedings at the World Trade Organization in 2024.
Despite differing perspectives on the trade issues between the U.S. and China, it is undeniable that China is "the world's factory,” accounting for nearly 30% of global manufacturing output in 2024. It is the largest exporter of goods globally, with sectors like electronics, textiles, machinery and steel driving much of its production capacity.
The trade war between the U.S. and China that began in 2018 has led both countries to increase import tariffs and export controls against each other. These retaliatory measures have created trade friction without creating societal value.
A constructive approach would be to examine China's strategies in electric vehicles (EVs), solar panels and export policies to identify potential lessons for revitalizing the U.S. manufacturing sector.
China’s Industrial Policies on Electric Vehicles and Solar Panels
China’s success in the electric vehicle (EV) and solar panel industries is a testament to its strategic industrial policies. The Chinese government identified these sectors as important for reducing reliance on fossil fuels, addressing environmental pollution and establishing leadership in high-growth industries, particularly due to challenges in competing in the combustion engine vehicle market.
Through a combination of subsidies, tax incentives and infrastructure investments, Chinese brands accounted for 62% of global EV sales in 2024. For instance, the government provided direct subsidies to EV manufacturers and consumers, significantly reducing the cost of EV adoption. Also, China invested heavily in charging infrastructure, addressing one of the key barriers to EV adoption.
Similarly, China’s dominance in the solar panel industry highlights the effectiveness of its industrial policies in fostering green energy manufacturing. The Chinese government identified solar energy as a strategic sector and provided significant support through subsidies, low-interest loans and research and development (R&D) funding. In 2024, China produces over 80% of the world’s solar panels and has driven down the cost of solar energy globally.
Chinese Government Subsidies and Use of Soft Power
The rationale behind China’s EV and solar panel policies extends beyond environmental benefits. By fostering these industries, China aimed to reduce its reliance on imported oil and create new export sectors. The government also implemented local content requirements, which encouraged foreign automakers to establish joint ventures with Chinese firms, facilitating technology transfer and skill development. These policies have enabled Chinese companies like BYD and NIO to compete globally, with China accounting for over 50% of global EV production in 2023.
China’s use of soft power has also been instrumental in pushing for more exports. Through programs like the Belt and Road Initiative (BRI), China has created a vast network of infrastructure and trade routes connecting China with Europe, Asia, Africa and beyond. By fostering economic interdependence, China not only boosts its own economy but also deepens its ties with participating countries, positioning itself as an indispensable partner in their development. For example, BYD is developing factories in Hungary, Türkiye, Thailand, and Mexico.
Lessons for the U.S. to Develop and Restore Its Manufacturing Ecosystem
Learning from China’s approach to dominate the manufacturing sector, the following suggestions can help the United States to revitalize its domestic manufacturing ecosystem:
Targeted subsidies and incentives: The U.S. should provide targeted subsidies and tax incentives for emerging industries like EVs, EV batteries, pharmaceutical products and semiconductors. This could include direct subsidies for manufacturers and consumers, investments in charging infrastructure and policies to encourage domestic production of critical components like batteries. The Inflation Reduction Act (IRA) and the CHIPS and Science Act are steps in this direction. The IRA provides significant incentives for clean energy technologies, including EVs and solar panels, while the CHIPS Act allocates $52.7 billion to boost domestic semiconductor manufacturing. These initiatives aim to reduce reliance on foreign supply chains and enhance national security.
Investment in R&D and innovation: Increasing public investment in R&D is crucial for maintaining technological leadership. The U.S. should prioritize emerging technologies like artificial intelligence (AI), quantum computing and advanced materials, which are critical for future manufacturing competitiveness. Collaboration between academia, industry and government should be encouraged to foster a vibrant innovation ecosystem. The CHIPS Act, for example, includes $13 billion for semiconductor research and workforce training. Also, the Biden administration’s focus on infrastructure and clean energy through the IRA aims to drive innovation and create high-quality jobs.
Building a resilient supply chain ecosystem: The U.S. should invest in infrastructure and industrial clusters to build a more integrated supply chain ecosystem. This could include policies to support domestic production of critical materials, investments in logistics and transportation infrastructure and initiatives to foster collaboration among manufacturers. Key target areas include semiconductors, rare earth elements, and advanced manufacturing technologies. The CHIPS Act, for instance, aims to strengthen the semiconductor supply chain by providing incentives for domestic production and reducing dependence on foreign suppliers. The Biden administration’s infrastructure plan also includes investments in transportation and logistics to improve supply chain resilience.
Proactive export policies: The U.S. should adopt a more proactive approach to supporting domestic manufacturers in accessing new markets. This could include negotiating trade agreements, providing export financing and investing in infrastructure to improve trade connectivity. Reciprocal tariffs can help U.S. products compete globally by ensuring that other countries lower their tariffs for importing U.S. products. For example, the Trump administration’s “Fair and Reciprocal Plan” aims to address trade imbalances by imposing tariffs equivalent to those faced by U.S. exporters. By expanding into new markets, U.S. manufacturers can achieve greater economies of scale and reduce their reliance on domestic demand.
Addressing labor shortages and skills gaps: Investing in workforce development is essential for sustaining a robust manufacturing sector. The U.S. should focus on training and upskilling workers to meet the demands of advanced manufacturing technologies. This could include partnerships with educational institutions, apprenticeships and vocational training programs. Also, the use of advanced robotics and humanoids can help address labor shortages by augmenting the existing workforce. China has been a leader in this area, with initiatives like the “Made in China 2025” plan promoting the development and adoption of industrial robots. For example, companies like Foxconn have implemented robotic systems to improve efficiency and reduce labor costs. The U.S. can learn from China’s approach by investing in robotics and automation to enhance productivity and maintain competitiveness.
Some of the initiatives to strengthen resilient supply chains in EVs, EV batteries, pharmaceutical products and semiconductors should continue regardless of differing political viewpoints. By nurturing the domestic manufacturing ecosystem and negotiating bilateral trade deals, the U.S. can build a manufacturing ecosystem that drives economic growth, enhances national security and contributes to global sustainability.
