A Chinese national flag hangs above a Commercial Aircraft Corp. of China Ltd. (Comac) C919 aircraft under assembly at the Comac Shanghai Research and Development Center in Shanghai, China, on Thursday, May 4, 2017.
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Forget the factory lines for socks, sneakers and T-shirts. U.S. President Donald Trump wants to boost the domestic production of high-tech products, and not apparel or footwear, he told reporters Sunday.
However, China is doubling down on its efforts to bolster advanced manufacturing, which could put both countries on a collision course.
Just last week, Chinese President Xi Jinping reaffirmed his plans for manufacturing-led growth during a visit to the northern province of Henan, pressing ahead with a strategy long criticized by the U.S. and major trade partners for deepening global trade imbalances.
Xi told workers at a state-owned ball-bearing factory that self-reliance in advanced manufacturing is “the right path” for China and the “backbone” of its economy, according to an official statement.
The manufacturing sector contributed to over 25% of China’s GDP in 2023, according to the World Bank. While China’s push to expand its manufacturing capabilities is part of its goal to achieve self-reliance, especially in high-tech sectors, this could run counter to the Trump administration’s core demands in the ongoing trade talks, experts warn.
Trump wants China to address the trade imbalances and has slammed Beijing for providing state subsidies to Chinese companies, thereby distorting competition.
However, there is “little scope” for China to budge and scale back its manufacturing-led strategy, which is closely tied to Beijing’s drive for self-reliance, said Allan von Mehren, China economist at Danske Bank.
“I’m not too optimistic on a big deal between the U.S. and China,” Mehren said, anticipating U.S. tariff rates on Chinese goods to hold at around 40%.
The “Made in China 2025” ten-year plan, released in 2015 — two years after Xi came into power — aimed to transform China into a leading high-end manufacturer, from electric vehicles and commercial aircraft to semiconductors and robots.
The Center for Strategic and International Studies estimated in a 2022 report that China’s spending in funding favored industries amounted to at least 1.73% of its GDP in 2019, significantly higher than the U.S., which spent 0.39% of its GDP on industrial support in 2019.
These include direct grants and tax benefits to its prized sectors, with nearly all large, listed Chinese firms receiving some form of state subsidies, according to economic consulting firm Rhodium Group.
Despite the support, China missed several key targets from its ten-year plan, including those for aerospace and high-end robots, and fostered unhealthy industrial competition that worsened global trade tensions, according to the European Chamber of Commerce in China.
India, Vietnam and Indonesia have imposed various protectionist measures to provide some relief for domestic producers from intense price competition, particularly in sectors facing overcapacity, cheap imports.
That said, some argue that excess Chinese capacity could offer a silver lining for inflation-weary economies by easing price pressures.
“China is going to be exporting deflation to the rest of the world,” said Marro, noting that for markets with limited manufacturing bases, like Australia, cheap Chinese imports could ease the cost-of-living crisis and help bring down inflationary pressure.
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hit a record high of $992.2 billion, driven by persistent imbalances with major partners including the U.S., the European Union and Southeast Asia.
The Chinese leadership has stepped up its support, aiming to divert U.S.-bound goods to sell to domestic consumers. But convincing consumers, wary of income and job prospects, to spend again has proven to be a challenging task.
China’s retail sales growth slowed to 5.1% in April, missing economists’ expectations, with automobile sales lagging significantly, growing just 0.7% from a year earlier, compared with a 5.5% jump in March.
