Focal point of major-power competition has shifted to industrial policy

Before Joe Biden leaves the White House, the US Department of Commerce has once again strengthened sanctions to restrict China's ability to develop advanced artificial intelligence by adding 140 Chinese semiconductor companies to its export control entity list. The move came despite the US Commerce Secretary Gina Raimondo's comment that chip export controls were merely "speed bumps", and that "trying to hold China back is a fool's errand".

At the same time, the "Indo-Pacific" strategy, which aims to contain China through military encirclement, may be inherited by Donald Trump as a key foreign policy legacy of the Biden administration.

Although geopolitics, arms races and national security remain the main areas of major-country competition, the devastating effects of nuclear weapons have kept direct military conflicts between major powers within manageable limits since the end of World War II.

In a world dominated by advanced technologies, competition between major powers is not only about military strength and GDP, but also about innovation capacity and its industrial application. As a result, the priority in major-power competition has changed from preventing wars to ensuring industrial security and prominence. As globalization has reshaped the industrial structure of the world, the focal point of major-power competition has also shifted to industrial policy.

Speaking at the Brookings Institution on April 27, 2023, the US National Security Advisor Jake Sullivan said that the US should rethink its development model that has privileged the financial sector, and advocated a state-sponsored industrial policy to reinvigorate the manufacturing industry and build a new international economic partnership that moves beyond traditional trade deals.

When market liberalization fails to support technological innovation and commercial application on a super-massive scale, some major countries have realized that only industrial policy can support advanced manufacturing. That's why developed economies have rolled out their industrial policies in recent years. Today, technological development has reached a new fault line, where breakthroughs in research require massive investments, cooperation and commercial application.

Globalization has reshaped the industrial structure of the world, and the US' industrial base has been hollowed out since the Cold War ended. Washington's strategic anxiety is a testament to the claim that "manufacturing is essential to prosperity".

When the hollowing out of medium- and low-end industries coincides with a technological fault line, when "Moore's Law is dead" in many areas, and when the high-end sectors of the US lack strong market support due to a change in its industrial structure, the only viable strategy for the US is to bring manufacturing back home and to curb the industrial growth of competitors.

In the long term, the lack of support from a whole industrial chain and the lack of motivation for commercialization will seriously threaten the development of the US military industry, and undermine the US' global hegemonic status. In this context, industrial policy has emerged as the focus of major-country competition.

The First Industrial Revolution shaped the basic structure of the developed world, which has not changed much despite the two world wars in the 20th century. After the Cold War ended, as globalization accelerated, the global division of labor gradually took shape. China is the only developing country that has seized the opportunity brought by the round of industrial revolution in the post-Cold War era, and it is also the only developing country that is likely to reshape the structure of the developed world formed since the First Industrial Revolution.

China's industrial policy is not designed to support an arms race, or to replace the US as the sole superpower, but rather to gradually move the country up the global value chain in a well-planned manner based on its economic strength and technological capabilities.

There are differences between the industrial policies of the US and that of China, including the objectives they pursue. While China's industrial policy aims to facilitate a shift from labor-intensive industries to capital-intensive industries, and then to technology-intensive industries, the US' industrial policy is designed to revive the country's labor-intensive industries, maintain its strength in capital-intensive industries, and consolidate its control over technology-intensive industries.

Therefore, the structural contradiction between the two countries is not just about a technology war, but about the US trying to regain its dominance in the whole global industrial chain. This is because labor-intensive industries can provide enough jobs, capital-intensive industries can catalyze technology commercialization, and technology-intensive industries can lead the way to future development.

Today, international relations have entered an era in which the rise of emerging countries cannot be stopped by wars. Instead, it is an era in which the country that controls the whole industry chain can dominate the global industrial structure. Against this background, major countries are adopting various policy tools and striving to improve the efficiency of their industrial policies. It is fair to say that major-country competition has reached the stage of industrial policy competition.

Central to major-country competition is building a whole industry chain across geopolitical barriers. The development of high-end industries relying on cutting-edge technologies can only be sustained by massive employment and technology commercialization.

When a reigning power cannot stop the rise of emerging nations up the industrial chain by war, it can only enhance industrial development at home, and remove the "ladder" by which emerging countries climb toward the higher rungs of the global value chain through trade barriers, restrictions on technology and knowledge transfer, and restrict the commercialization of technology of emerging countries in the global market.

In the coming decades, building whole industrial chains will become the main target of major countries. Countries that lose out in this round of competition will find it almost impossible to climb up the global value chain.

US senator Marco Rubio released a report titled "The World China Made: 'Made in China 2025' Nine Years Later" in September 2024, which reviews China's industrial policy.

The report finds that "China has reached, or is near to reach, the technological cutting edge in most of the sectors it has targeted".The report has some influence on US politics, and should Rubio become the next top US diplomat, industrial policy is expected to be a focus of US-China competition.

The incoming Trump administration is likely to introduce a US industrial policy 2.0, which may focus on three main areas — manufacturing, energy and the high-tech sector. The Trump administration may push for the return of manufacturing to the US through trade protectionism, give more support to fossil fuel energy, while providing more subsidies to fields such as AI, semiconductors and low orbit communications to keep the competitive edge of US tech sectors. The US' allies and other countries need to be fully prepared for new challenges ahead.

The author is an associate professor at the School of International Studies at Peking University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.