Podcast Transcript — Why China's Industrial Strategy Is Reshaping Global Competition
The Association of Foreign Press Correspondents (AFPC-USA) hosted “Why China's Industrial Strategy Is Reshaping Global Competition,” a Foreign Press Podcast episode produced in partnership with the Hinrich Foundation.
In a new white paper for the Hinrich Foundation titled “Is the West better than China?” Robert Atkinson, a senior fellow at the Information Technology and Innovation Foundation (ITIF) who founded ITIF in 2006 and was the science and technology policy think tank's president for 20 years, explained how China's state-directed economic model is reshaping global competition and challenging long-held assumptions about innovation, industrial policy, and technological leadership. His research covers why China has become a manufacturing powerhouse, where the West still holds key advantages, and why he believes the United States and its allies must adopt a more coordinated industrial strategy to remain competitive.
Atkinson elaborated on his findings in conversation with journalist Jennifer Freedman, who for more than two decades has contributed reporting on trade and global markets for different outlets.
This podcast episode was produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode. The learning takeaways can be found HERE.
Jennifer Freedman: This is an episode of the Foreign Press USA Podcast, produced by the Association of Foreign Press Correspondents in the USA, in partnership with the Hinrich Foundation, an independent Asia-based philanthropic organization dedicated to advancing mutually beneficial and sustainable global trade. AFPC-USA is solely responsible for the content of this episode. I'm Jennifer Freedman, and I've spent more than two decades reporting on trade and global markets for outlets including Bloomberg, MLex, and Borderlex.
I'm joined today by Robert Atkinson, senior fellow at the Information Technology and Innovation Foundation. Rob founded ITIF in 2006, led it for 20 years, and served as co-chair of the China-US Innovation Policy Experts Group under the Obama administration. He's here to discuss his new Hinrich Foundation white paper, “Is the West better than China?” — a sharp assessment of Western strategic missteps. He argues that the West misread China's trajectory, misunderstood the nature of globalization, and failed to prepare for a world in which China is a capable, assertive rival. His prescription is clear: the West must adopt a serious state-supported industrial strategy and abandon the ideological assumptions that shaped the last three decades of policy.
Rob, thank you so much for being here.
Robert Atkinson: My pleasure, Jennifer.
Jennifer Freedman: Your paper argues that China's techno-economic model is fundamentally different from the West's. What do you see as the single most important structural advantage China has built and the single most important advantage the West still retains?
Robert Atkinson: Sure. So there's a difference between the advantage they've built and how they've built it. So let me actually just talk about the advantage they've built. Their real advantage is a very large economy where they have built what economists call a strong agglomeration economy. In other words, they don't just have a factory here and a factory there. They have deep, deep supply chains all the way through their system. And so it's really, really hard to separate things out from China. That's why the efforts to get American and foreign companies to move out of China have been so hard. China's very sticky. So that's their main advantage. They've built this thing up over three decades and it's very powerful and it's hard to disentangle it.
Robert Atkinson
I think our strongest advantages are really [in] two areas. We still have very strong multinationals in a variety of industries, and we're not going to become a state-backed economy. So we have to rely on strong, well-capitalized firms in this war, in this competition. And that's a lot of the big companies, particularly in tech and in biopharma and aerospace. But I would also argue that our entrepreneurial culture still is a real benefit. We have a stronger and better entrepreneurial culture than, say, Europe or Japan or Korea.
Jennifer Freedman: “We” being the US, versus, obviously, the West?
Robert Atkinson: Yeah, the West is different because the problem with the West, it's hard to say what the advantage of the West is, other than, you could say, well, maybe democracy. The West is such a hodgepodge of different techno-economic systems, policy approaches, and all. But if I had to say the West overall, I guess one advantage the West has is still this embrace of freedom and the ability to do things and say things. And that can lead to, and be supportive of, new ideas, new business models, that sort of thing.
Jennifer Freedman: The West often frames competition with China as a battle over innovation. In your view, is the West's innovation ecosystem still capable of outpacing China's, or has China already surpassed it in key sectors? And where does the West stand today in linking innovation to industrial output?
Robert Atkinson: Sure. One of, I think, the problems in the West, and particularly in the United States, is that we're hyper-fixated on innovation — like, “Oh, we've innovated something.” At the end of the day, that’s really good, but what really matters is: Are you capable of producing it at scale, in a competitive way, in your own economy? There are lots of things we've innovated on that the Chinese now dominate on. Telecom equipment would be a good example of that, high-speed rail, drones, et cetera. So it's not just enough to innovate.
But even having said that, I think the Chinese innovation system is close to ours, if not ahead of ours. There's an institute in Australia — the Australian Strategic Policy Institute, I believe, ASPI. And they argue that, just when you look at scientific outputs, research papers, [and] patents, China is ahead of us in almost all the key sectors right now. And I don't have problems with that measurement. I readily grant that, but China is way more innovative than we think. ITIF did a major study looking at 10 or 11 major technology-based industries and where China was relative to the global frontier of innovation. They're ahead in electric vehicles. They're ahead in nuclear power. They're very close in a number of other industries, like robotics and displays, and they're making rapid progress. So even if they're not ahead of us fully right now, they're making faster progress than the West is making.
Jennifer Freedman: In your paper, you describe China's system as a state-directed capitalism. How does this model enable Beijing to scale strategic industries faster than Western economies, and where do you see its limits?
Robert Atkinson: One of the problems, I think, in the debate, particularly in the US, but in the West generally, is a lot of scholars and experts are very binary in thinking: You either have capitalism, or you have a sort of Gosplan communist socialism, and it's like Soviet communism. There's another model, and that's what's called state-directed capitalism, where China is a capitalist economy for the most part, although they have lots of state-owned enterprises. But even though state-owned enterprises have some level of flexibility and freedom, what's different from that system with our system is they push, they support, [and] they fund all of those enterprises that they think are important to act in ways that advance state interests.
The West doesn't do that. The West is much more like, “Pursue your own interests.” And if we end up with a lot of social media companies but we don't end up with semiconductor companies, who cares? Then so be it. The Chinese system is really enabling companies to do a lot, but at the end of the day, they are going to have to work in the direction that the state wants. They're not [micromanaged]. They're not told what to price things at. They have to align with state goals. And one advantage of that is they provide massive, massive subsidies. They also use trade policy to shut out competitors. So if they target a Chinese firm or set of firms as real champions, they'll get so much money, and they'll essentially close the market off to foreign competitors to allow those companies to scale and grow. Then, when they get to a point where they go out — it's called “going out” — they provide a whole new set of subsidies to go out and sell their products and services in Belt and Road countries, Eastern Europe, and other places like that. So I think they have a big advantage there.
Jennifer Freedman: Right. You also argue that Western policymakers underestimate the degree of intentionality and coordination in China's industrial strategy. What specific blind spots do you think Western governments still have?
Robert Atkinson: So part of this is a problem with the dominant economic theory that most policymakers subscribe to, even if they're not aware of it. It’s called neoclassical economics, or free-market economics, which basically says that market choices are always superior to government-influenced choices. It's not based on any evidence or facts. It's just a religion. So one of the blind spots because of that is a view that the Chinese system just simply can't be effective because it's the government pulling strings. The government does do that, and they make a lot of mistakes.
I met with a high-level Chinese policymaker a number of years ago, and he was talking about tragedies in China. I asked him, “What do you mean by that?” And he was saying, “Well, we put billions and billions of dollars into the VCR [videocassette recorder] industry right when the DVD [digital video disc] came out.” And he said, “That's a tragedy because they lost a lot of money and they made the wrong bet.” And I said, “Well, what did you learn from that?” He said, “Well, we just need to make better bets.” It wasn't like, “We needed to become a free-market economy.”
That's number one. I think the second is that they tend to look at measures of China against our measures. Our measures are efficient. Did we waste money? And to use my example of the DVD and VCR, the Chinese don't fundamentally care if they waste money. They would rather not waste money, but that's not their principal goal. Their principal goal is to achieve techno-economic power.
And then I think the other one that comes up all the time is looking at Chinese macroeconomic performance: the declining birth rate, the problems with real estate, da, da, da. Well, again, I mean, the Chinese government would rather not have a housing bubble and not all these bank loans and the like. They'd rather not have that. But at the end of the day, that's not their goal either. Their goal really isn't that. Their goal is fundamentally to take over the world in these advanced industries. And so, if we're judging them against our standards, they don't look anywhere near as threatening. But if we judge them against their standards, then they do.
Jennifer Freedman: Right. So you are sharply critical of China's industrial strategy in this paper. How do you distinguish criticism of state policy from criticism of China as a nation of people?
Robert Atkinson: Yeah. Well, this is something that comes up. I think particularly on the left, the progressive left in the US — if you're critical of China, you're somehow an anti-Asian racist. Look, I'm incredibly supportive of Taiwan. I think we should defend them. I think we should help them. I feel the same way about Japan. I feel the same way about Korea. Last I looked, those people are Asians. So unless I'm sort of like, “Oh, we like Asian Koreans, but we don't like Asian Chinese.” I mean, fundamentally, it's kind of a ridiculous point.
So I think really good US leaders have made a point, including in the Trump [administration], our gripe is not against the Chinese people. It's against the CCP. It's about the way the Chinese Communist Party structures its economy in ways that are systematically unfair and damaging. So it's not about the Chinese people. If the Chinese people were to overthrow the CCP — which I have no idea if [or] when it [would] happen, but let's just say it did — I think the problems would just go way, way, way down, and we’d have a much more cooperative and friendly relationship.
Jennifer Freedman: Interesting. So one of your central claims is that the West must adopt a more coherent industrial policy to remain competitive. What would a realistic, politically feasible industrial strategy look like for the United States or Europe?
Robert Atkinson: Well, I actually think it's a little different for both the US and Europe. For the US, I think it has to do three main things. Number one is, and this was a big report we wrote called From Financial Capitalism to National Power Capitalism. Even American companies that want to do the right thing, in other words, invest in the longer term, not offshore reflexively, invest in much riskier technologies, [or] scale up their technologies with a lot of capital expenditures. I mean, those are all the things that we need our companies to do in key industries. The financial system has no patience for that. It punishes companies that do that with lower stock prices, et cetera. So we fundamentally need to change the financial system away from short-term capitalist pressures to much more longer term. That doesn't at all mean we should have stakeholder capitalism or any of that. I don't believe in any of that. I just do believe, though, that we shouldn't be putting all the incentives on companies that are in the wrong direction and then blaming them for not doing what we want. That's number one.
Number two is that we just need a coherent strategy. And then that means that we align all sorts of different policies — our trade policies, our science and research funding policies, our workforce policies, [and] our environmental policies. We need to align all of those and more with the goal of ensuring that we stay competitive in advanced industries. Just a real quick example: the Taiwanese semiconductor maker is building six factories, or fabs, in Phoenix. And under the Clean Air Act, they have to get these permits, but the permits don't exist. It's kind of beyond belief. It's like, “Are you kidding me? If we don't get semiconductors here in the US as quickly as possible, we are very, very vulnerable.” So we need to, again, think about these things from a strategic perspective.
And finally — and I would put this as well into Europe — we need to reverse what has become an anti-technology, anti-progress, anti-business ideology. There was just a letter signed by a whole bunch of economists, including Nobel Prize economists. So clearly, they must know what they're doing. Really, a lot of it was anti-AI. It was like, “Well, you need to rein in AI and only allow AI that doesn't automate things and all.” So here, it's way worse. They want to overregulate AI. So the West has to get back to its roots, which historically have been pro-innovation [and] accepting of what's called creative destruction. So I think all three of those things are key for the US.
Jennifer Freedman: So if the West fails to adapt, which sectors do you believe will be the first to tip decisively toward Chinese dominance over the next decade?
Robert Atkinson: Yeah, I mean, it's important to realize that a whole lot of sectors already have [fallen]: high-speed rail, the telecom equipment, drones, you name it. But I think. if you look at the next dominoes to fall in the next 10 years, I think absent the status quo, I should say, because we're certainly doing something. I would say semiconductors, especially memory, are at risk.
Computer peripherals, all sorts of electronic displays. The Chinese are very, very good there. Simple things like electrical appliances, certainly EVs, electric vehicles, auto parts, motors, automation equipment, robots: this constellation of electromechanical and digital technologies that are in physical form. The Chinese are really good at that, and they threaten us. I think, if you want to extend out another 10 years, then the other big threats are aerospace and biotech, where they're working super hard to displace Boeing and Airbus, a European company, and most of the European and American biopharma companies.
Jennifer Freedman: They're working hard to do it. Do you see that as an actual real threat or just something, a hopeful, a wish on their part?
Robert Atkinson: Well, again, we could stop it if we wanted to, but we don't. I'll give you an example. When President Trump went to Beijing last year, he threatened to cut off engine sales to COMAC [The Commercial Aircraft Corporation of China]. COMAC is the state-owned enterprise making these commercial aircraft. COMAC would not exist. It just simply wouldn't exist if it relied on private capital. No way. It's massively subsidized. It's designed for China to build a third competitor to Airbus and Boeing. And so one of the things that President Trump threatened was, “We'll cut off jet engines,” which would kill COMAC because they can't make engines, so they can’t make planes. And, of course, the Chinese said, “Well, if you do that, we're going to cut off all your rare earth elements,” and President Trump backed down. And I think that's the condition we're in. The Chinese already have way more leverage. I don't see any reason why they're not going to succeed in aerospace. Their plane is pretty good. It's already been certified. The main thing they need to do is figure out a way to be able to make more planes per year, but that's an engineering problem, and they'll do it.
When you look at biotech, particularly — well, in pharmaceuticals, there are what are called biotech [drugs] and regular drugs like small-molecule, large-molecule. Biotech, they're really focusing there. They're really focusing on genomics and personalized medicine, and they're making great breakthroughs. They have lots of cancer drugs in clinical trials.
They're still behind us, but I think, without action on our part, they will be able to become the dominant biotech player. Again, it's going to take a while, but I think they can do that as well. There are certain other areas, like semiconductor equipment, [where a] company like ASML in the Netherlands, that's so complicated, so hard. It's not clear that the Chinese can do that. They're trying to do it, but that's incredibly hard to do. So there are some sectors like that where the technological hurdles are so great, and technology keeps advancing, where maybe the Chinese won't catch up. But there are a lot of other ones where I think they will and are certainly trying to catch up.
Jennifer Freedman: Right. You note that China's model allows it to absorb inefficiencies because the state can direct capital at scale. So how should Western economies respond to a competitor that can afford and even strategically use inefficiency?
Robert Atkinson: We need to do two things. The first thing we need to do is we need to essentially keep them out of our markets. So when I say “they,” I don't mean every Chinese company. There are some Chinese companies. In fact, I've met with some of the CEOs that are legitimate companies. They invest mostly their own money, they do their own thing, and it's generally fair. Okay, all right, that's fine. There are so many Chinese companies that are competing successfully in the West because of massive subsidies, because they've stolen intellectual property from the West, and/or because they have had the government act on their behalf to close their domestic markets to our exports. So I think it's time to be tit-for-tat here and reciprocal in Europe, Japan, and the US, in particular. We need to have an aggressive approach: “We're just going to close our markets to you. Any Chinese company that's systematically unfair, we'll close our market to you.” That would make a big role because their market share and their revenues would decline. Our market share and revenues would not decline as much, and I think we would have the ability to survive.
But the second thing is we need to really work more collaboratively together. I think President Trump has done a lot to raise the issue of China, presumably in the first term. But one complaint I would have is he's alienated a lot of our allies. And the US cannot win this battle on [its] own. It's just we're not big enough anymore to do that. So we have to really work carefully with our allies on things like export control regimes, on collaborative technology, on commercial counterintelligence, and a lot of things that we have to do with Europe, Japan, some of these other countries, the Commonwealth countries.
So I think that's something that we have to do as a group. And then, certainly in the US, we just have to spend more money, whether it's through tax incentives or through direct government funding of research, or other centers and things like that. US R&D [research and development] funding is the lowest it has been as a share of the economy since the 1950s, and there's just no way to win with that. We've got to bite the bullet and say, “Okay, yeah, I get it. We’ve got a problem with the budget deficit, and maybe we need to rein in entitlements and raise taxes some, but you can't win this war by not funding your own system.”
Jennifer Freedman: You write that Western political systems struggle to sustain long-term industrial strategy. Is this a governance problem, a cultural problem, or a structural flaw in liberal democracies?
Robert Atkinson: It's all of the above. And I would add one more. So, on the cultural problem, there was a very good book a number of years ago called The Rise of Selfishness in America. Interesting guy, he wrote it back in the '80s or whatever, and I think it's way worse now. If you look at almost every issue that's related to that, the first question is, “Hey, it might affect me negatively. I'm opposed to it. Oh, the tariffs. Oh, I don't want tariffs to raise my prices,” or, “Oh, I'm worried about a data center in somebody's backyard.” We really have developed a culture of selfishness. And, at the end of the day, we have to go back to JFK's [President John F. Kennedy] statement: “Ask not what your country can do for you — ask what you can do for your country.” So cultural selfishness means we can't work collectively together to do the hard things.
The second component, which is true I think across all the Western economies, is there was a famous Yale political scientist who, in the '60s, I think, wrote a book and he was referring to what he called “interest-group liberalism.” And the point being, how does policy get made? It gets made by interest groups fighting it out among each other.
So if you look at some of the major technology issues in the US vis-à-vis China, like export controls, one of the reasons why not much happens — or perhaps not as much that should happen — is because you have so many different interests in the business community among industry. One group will lobby for this, another group will lobby against that. And the entire form of US government is really one of, “Well, as long as the process works, we listen to everybody, we had hearings, then the ultimate outcome is good.” And we need to move away from that.
In 1948, the US really changed its system in a certain way with the National Defense Act because we were rightly worried about the Soviets. We built part of our economy around purpose and goals, and that was the national defense system. And so we ran roughshod over certain interests. It was like we had to. We need to broaden that out to a broader set of industries, what I would say, dual-use industries.
A third is we just really don't have any adequate industrial policy or [analytical] institutions in the US government. The ability to analyze this, the data to analyze it, [and] the ability to come up with innovative ideas and programs are very thin. It's extremely thin. Maybe NIST, the National Institute of Standards and Technology has a little bit here and there. Maybe DOD [the US Department of Defense] has a little bit here and there, but we just don't have that.
Most of the other governments do have that. You go to Korea, and it has a very, very rich system for them to do that. And finally, I would argue that the real big problem is — I don't want to say we're in a civil war, but it feels like that — we have a Democratic Party that is so far to the left that it embraces hating big companies, it's against technology. It only wants to spend money on redistribution. And then you have a big share of the Republican Party — that's the Freedom Caucus — and all they want is small government. They don't want any more government. And that is a big, big barrier to us going down, if you will, the center of the road and doing what we need to do.
Jennifer Freedman: If you had to choose one Western misconception about China's economic model that most urgently needs correcting, what would it be?
Robert Atkinson: Well, I'll answer that [in] two ways. I think the first and most important thing we need in the misconception is: Potato chips, computer chips, what's the difference? It’s a famous quote that might be apocryphal, but a lot of people attribute it to Stanford economist Michael Boskin, when he was the head of the Council of Economic Advisers in the first Bush administration. He was responding to then-candidate Clinton, who at the time was going out to Silicon Valley and pushing semiconductors. And Boskin was like, “Hey, who cares? What's the difference? Everything's the same.”
Believe it or not, that framing, that ideology, that conceptualization is still part of our core way that we think about economic policy in the US. And the Chinese don't think about that at all. They have the exact opposite. There are certain industries that are great, and others that aren’t. For example, that's why they sort of — I don't want to say shut down — but dramatically limited their internet, online education things, and tutoring. They don't care about that stuff. Social media, they don't care about that. [It] doesn't give them power.
So, at least in terms of China, the misconception, I think, is that these industries matter and that the Chinese system is very, very good. They have all of the components. They have all the parts. They have a playbook, which is the same playbook for every industry where they're catching up. It's the same thing. You’ve got lots of competitors, you weed them out, you get a few good ones, and you fund a lot of research and pre-competitive things. Once you get ones that look like they can stand on their own, you close your markets, you subsidize them even more, and then you go out.
That's the same model: high-speed rail, drones, EVs, you name it. And then, with regard to emerging sectors like AI, quantum, and bio — particularly quantum and AI, where everybody is kind of at the frontier. They also have a model, which is to fund the heck out of this stuff. The Chinese government spends more money on quantum research, quantum computing research, or quantum communication. There are all sorts of parts of quantum. They spend more money supporting research on that than the rest of the world’s governments combined.
Jennifer Freedman: That's remarkable.
Robert Atkinson: People don't understand the level of commitment that they have and the vast amount of resources they're putting into this. And yeah, let's say that half of that money's wasted. They're still spending way more than every other country. So, yeah, I think that's really the main misconception is just how dedicated they are.
And this is important, not just as competing. A lot of the China apologists will say, “Well, they're a developing country. Why can't they compete? They have every right to compete.” And the answer is, of course, they have every right to compete. Nobody's denying that. Maybe the most aggressive China hawks might question [that], but reasonable people don't deny that they have a right to compete. It's how they compete.
And I don't think a lot of [people] in the US — or even in Europe, who's been asleep at the switch until very recently with regard to the China threat — understand this. When you read Chinese Communist Party literature, which I haven't read, but I've looked at people who have read it, including in the intelligence community. And it's very clear.
You're not supposed to talk about Hitler, but if you read Mein Kampf, it's pretty clear what Hitler wanted to do. He wanted to invade Eastern Europe. He says it in the book right there. The Chinese government has said very clearly what they want. The CCP — they want to dominate. They use the word “dominate.” They want to win the war, win the battle. They want to take over.
And that's not what Japan did when it was competing in a few industries. It wasn't what Germany was doing. It's very different. It's about victory and domination through unfair means, and it's across almost every advanced industry. The Japanese were never really good at pharmaceuticals. They weren't good at aerospace. They were good at a few things like auto, steel, electronics, and they did great on them, but China's different. They want to do everything, and that fundamentally is a threat to the US and the West going forward.
Jennifer Freedman: Robert Atkinson, thank you for walking us through your report. Before we wrap up, is there any brief final insight that you want to leave our listeners with?
Robert Atkinson: Yeah, it would be this. When President Obama's team asked me to chair this White House US-China experts group, which is where I learned a lot of this being over in China and really talking to people, companies, and government officials like, “Whoa, this is amazing. What's going on?”
Back then I said, “Okay, we've got a certain number of years before we get to a tipping point. We still had leverage over them, and they hadn't gained in every industry.” That timeline, that runway, is rapidly shrinking. And I don't want to say, “Well, within a few years they're going to take over everything.” They're not. But we don't have anywhere near as much time as people think. We've got to act fairly quickly within the next three, four years. And I say “we,” meaning the West, in a very serious and committed way. Otherwise, it may be too late.
Jennifer Freedman: Great. Thank you, Rob, again, and thanks to everyone who joined us. I'm Jennifer Freedman, and this has been the Foreign Press USA Podcast, produced by the Association of Foreign Press Correspondents in the USA, in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of today's episode.
