^{Photo: South China Morning Post}

China's Manufacturing Drive Collides with U.S. Trade Strategy

As global markets brace for heightened trade friction, Chinese President Xi Jinping is placing advanced manufacturing at the center of China’s economic future — a move that runs directly counter to U.S. goals under the Trump administration.

In a recent visit to Henan province, Xi reaffirmed his commitment to making China a powerhouse in high-tech industries. Touring a state-owned ball-bearing factory, Xi declared that “self-reliance in advanced manufacturing is the backbone of the Chinese economy,” emphasizing that this path was “non-negotiable.”

Manufacturing Still Key to China’s Economic Engine

Manufacturing accounted for over 25.5% of China’s GDP in 2023, according to the World Bank. With global demand softening and geopolitical risks rising, China is digging deeper into its “Made in China 2025” strategy, which aims to dominate key sectors like electric vehicles, aerospace, semiconductors, and robotics.

However, this vision is clashing with the Trump administration’s renewed focus on rebuilding U.S. industrial capacity and addressing massive trade imbalances. President Trump has explicitly called for reducing dependency on Chinese manufacturing, particularly in sensitive technology sectors.

Persistent Trade Imbalances

Despite years of tariff battles, the U.S. trade deficit with China stood at over $279 billion in 2023, highlighting the structural imbalance in trade. U.S. officials have repeatedly accused Beijing of using state subsidies to give Chinese companies unfair advantages. A 2022 report by the Center for Strategic and International Studies estimated that China spent at least 1.73% of GDP on industrial subsidies in 2019 — more than four times that of the U.S. (0.39%).

These subsidies include direct cash grants, tax breaks, and favorable loans, with over 90% of large listed Chinese firms receiving some form of state support, according to research by Rhodium Group.

Missed Targets but Unrelenting Goals

Despite generous backing, China has missed several key goals from its 10-year manufacturing plan. The European Chamber of Commerce in China reported that sectors like aerospace and high-end robotics have fallen short. Moreover, overcapacity has led to fierce price wars and increased friction with global trading partners.

Nick Marro, principal analyst at the Economist Intelligence Unit, warns that rising tensions are no longer limited to the U.S. “By late 2025, we could see a wave of protectionist measures across Europe, particularly as China ramps up exports to offset losses in the U.S. market,” he noted.

The Global Ripple Effect

Efforts to flood foreign markets with competitively priced Chinese goods are sparking global backlash. At a recent G7 summit, finance ministers, led by the U.S., discussed curbing China’s export saturation and addressing “unfair trade practices.”

Beijing’s export-heavy approach may also suppress manufacturing growth in developing nations. For instance, India’s global market share in toys, furniture, and garments has either stagnated or declined, while China continues to widen its lead. Countries like Vietnam, Indonesia, and India have responded with protectionist tariffs and anti-dumping measures.

Yet for some advanced economies, especially those battling inflation, excess Chinese production could bring relief. “China is now exporting deflation,” Marro said. For countries like Australia, which rely heavily on imports, cheaper Chinese goods could help ease cost-of-living pressures.

U.S. Negotiators: Hope for Rebalancing

U.S. Treasury Secretary Scott Bessent recently expressed optimism about aligning the two countries' economic goals: “We need more domestic manufacturing, and they need more domestic consumption — it’s possible to meet halfway.”

However, economists remain skeptical. A Nomura Research report predicts the trade imbalance is unlikely to shrink significantly, noting that American firms need years to rebuild domestic production and find alternative suppliers.

China’s Domestic Dilemma: Consumption Lagging Behind

Shifting to a consumption-led model — as urged by many economists — remains a distant goal for China. In April, China’s retail sales growth slowed to 5.1%, underperforming expectations. Auto sales, a major consumer spending indicator, grew by only 0.7% year-over-year, compared to 5.5% in March.

Oxford Economics forecasts that household consumption will make up just 50% of China’s GDP by 2050, far below the 70% typical in developed markets like the U.S.

Convincing Chinese households to spend more remains a major challenge, particularly in a climate of slowing job growth and declining real estate values — two key drivers of consumer confidence.

Strategic Decoupling: The Road Ahead

Despite economic realities, Xi’s focus on manufacturing is underpinned by strategic calculations. According to Nomura’s Jing Wang, a second Trump term would likely harden U.S. restrictions on technology exports to China, expanding the “small yard, high fence” strategy that limits access to critical technologies.

“Decoupling is already in motion,” Wang said. “The question is how far both sides are willing to go before the economic fallout becomes too severe.”

No Easy Fixes in Sight

The clash between China’s manufacturing ambition and America’s drive for industrial sovereignty is set to intensify. With both nations unwilling to yield on their core economic strategies, global markets must prepare for long-term friction.

While some developing economies may suffer from China's overproduction, others may benefit from deflationary imports. For now, the path forward looks uncertain — and fraught with geopolitical and economic risk.