China, long known as the world’s manufacturing superpower, continues to pile on more production capacity at an astounding pace. This has left many countries, especially the United States, scrambling to reassess their manufacturing strategies. The fear of being stripped of their industrial base is palpable, with pundits coining the term “second China shock” to describe the potential devastation this could bring. But in a world increasingly dependent on Chinese-made goods, the question arises: how can the U.S. and other nations reduce their over-reliance on China?
This debate has led to two main schools of thought. One group believes the U.S. should collaborate with like-minded countries to form a united front against China’s manufacturing dominance. Others argue that the U.S. should focus on achieving self-sufficiency and avoid entangling alliances. Two quotations encapsulate this dilemma:
Aaron Friedberg, a Princeton University professor, asserts, “No country alone can forestall or contain the impending second China shock,” meaning that the U.S. cannot handle this alone and must work with other nations.
Lord Palmerston, a 19th-century British statesman, famously said, “Nations have no permanent friends, only permanent interests,” warning that alliances may shift over time, potentially leaving the U.S. vulnerable.
These two perspectives highlight a key question: should the U.S. band together with allies or pursue an independent path to protect its industrial base?
Aaron Friedberg advocates for the formation of a “trade defense coalition,” wherein the U.S. would work with allies to harmonize manufacturing subsidies and implement coordinated tariffs on Chinese goods. The coalition’s aim would be to ensure the proliferation of manufacturing capacity across several nations, so that no single country – especially China – dominates the global supply of critical products. The concept is akin to creating a diverse supply chain similar to China’s soybean strategy.
A prime example of supply chain diversification is China’s approach to soybean imports. Despite its enormous need for soybeans to feed its livestock, China produces less than 20% of the soybeans it requires. Historically, the U.S. was the primary supplier. However, China has reduced its reliance on American soybeans by increasing imports from Brazil and Argentina. Moreover, China has even encouraged Russia, a friendly neighbor, to grow more soybeans, further diversifying its sources.
By spreading its imports across multiple countries, China reduces its risk of being cut off from a single supplier during a crisis. Friedberg argues that a similar strategy should be adopted by the U.S. and its allies to avoid over-reliance on China for critical manufactured goods. A coalition would allow multiple nations to share the manufacturing burden, providing a safeguard against disruptions in global supply chains.
Friedberg’s vision is not about creating a single, monolithic production base in one country but about encouraging the spread of industrial capacity across multiple nations. This would reduce the risk of supply chain shocks should one country falter or act maliciously. China’s current dominance in sectors like solar panels and electronics has wiped out many of its competitors, creating a global dependence that can be dangerous in times of conflict or crisis.
In the case of critical goods, such as weapons, semiconductors, and rare earth materials, having multiple suppliers spread across allied countries would ensure that the U.S. and its partners are not left vulnerable if China decides to cut off its supply. For example, Friedberg points out that the U.S. already relies on Japan to produce Patriot missiles, and the Navy has considered using South Korean and Japanese shipbuilders because the U.S. is no longer a global leader in that sector. This lack of domestic capacity highlights the importance of working with other countries to bolster manufacturing.
While Friedberg’s coalition strategy has its merits, critics argue that relying on other countries can be risky. The students of Lord Palmerston’s philosophy would warn that alliances are often temporary and that today’s partner could become tomorrow’s adversary. They believe the U.S. should focus on bringing back manufacturing capacity within its borders, ensuring that it is not dependent on others for critical supplies.
History is filled with examples of countries that shifted alliances, often to disastrous results for those who relied on them. The 1939 non-aggression pact between Nazi Germany and the Soviet Union is a prime example. Despite signing a treaty promising peace, Germany launched a massive military attack on the Soviet Union in 1941. This betrayal demonstrates how quickly international alliances can crumble when interests diverge.
Relying on a coalition, therefore, carries risks. If one or more of the partner countries in a manufacturing coalition decides to switch sides or prioritize their own interests, the U.S. could be left scrambling for critical supplies. In a time of crisis, it may not be able to count on its allies.
Critics of the coalition approach also argue that the U.S. should aim for self-sufficiency by investing in its own industrial base. However, this would be a monumental task. The U.S. has allowed its manufacturing sector to atrophy for decades, and rebuilding it would require significant time and investment. Even in the short term, the U.S. lacks the capacity to produce everything it needs.
For instance, American shipbuilding is a shadow of its former self. Once a global leader, the U.S. now ranks poorly compared to other countries in ship production. Restoring the manufacturing base to its former glory would take years, if not decades, and in the meantime, the U.S. would remain vulnerable to supply chain shocks.
Given these realities, the best approach might lie somewhere between Friedberg’s coalition and the self-sufficiency model. In the short term, the U.S. could work with allies to diversify supply chains, reducing the risk of over-reliance on China. At the same time, it should pursue policies to reinvigorate domestic manufacturing, ensuring that the country can eventually produce more of its own goods independently.
Friedberg acknowledges that setting up a trade defense coalition would not be easy. Negotiations would likely be contentious, as each country would have its own interests to protect. Political support for such a coalition could be hard to find, particularly in countries where Chinese trade is deeply embedded in the economy. Furthermore, China would work hard to undermine any such effort, exploiting any loopholes that arise in the collective defense.
Moreover, implementing coordinated tariffs on Chinese products could violate World Trade Organization (WTO) rules. China has already manipulated WTO procedures to protect its trade advantages, and undermining the institution further could harm U.S. exporters in industries like agriculture. Despite these challenges, Friedberg believes the potential benefits of a coalition outweigh the risks.
The debate over how to counter China’s growing manufacturing dominance is far from settled. On one hand, the U.S. cannot afford to wait decades to rebuild its industrial base. On the other hand, relying too heavily on international alliances could leave the country vulnerable to supply chain disruptions if allies turn against it.
To strike the right balance, the U.S. should consider the following steps:
- Form Strategic Alliances: In the short term, the U.S. should work with allies to diversify supply chains and reduce reliance on China. This will provide immediate protection against supply chain shocks.
- Invest in Domestic Manufacturing: At the same time, the U.S. should invest in rebuilding its manufacturing capacity, particularly in critical industries like semiconductors, defense, and shipbuilding.
- Create a Bipartisan Commission: A bipartisan national commission of experts should be established to develop a long-term strategy for revitalizing American manufacturing. This commission would study the key questions surrounding the debate, including whether to pursue a trade defense coalition or focus on self-sufficiency.
- Adapt to Geopolitical Shifts: The U.S. must remain flexible and adapt to changing geopolitical realities. While forming a coalition makes sense in the short term, it should be prepared to pivot if alliances shift in the future.
The second China shock is looming, and the U.S. must act decisively to protect its manufacturing base. While the path forward is fraught with challenges, a combination of international cooperation and domestic investment offers the best chance of success. The question of whether to go it alone or work with like-minded countries is complex, but one thing is clear: doing nothing is not an option. The U.S. must take immediate steps to secure its industrial future, ensuring that it is prepared for the challenges ahead.
