The Earliest Salvos: Made in China 2025 and America’s Response
The Blueprint That Triggered a Trade War
In May 2015, Beijing released an industrial policy document that would eventually become the catalyst for the most significant trade conflict of the 21st century. « Made in China 2025 » outlined China’s plan to transform itself from a low-cost manufacturing hub into a high-tech powerhouse. The strategy targeted ten key sectors: advanced information technology, robotics, aerospace, maritime engineering, advanced rail transport, electric vehicles, power equipment, agricultural machinery, new materials, and biomedicine.
What distinguished this plan from previous Chinese industrial policies was its explicit goal of replacing foreign technology with Chinese alternatives and dominating global high-tech manufacturing. The policy set specific targets: 70% self-sufficiency in high-tech industries by 2025 and a dominant position in global markets by 2049, the centenary of the People’s Republic of China.
Washington Takes Notice
Initially, Made in China 2025 received little attention in Washington. That changed in 2017 when the Trump administration began examining Chinese trade practices. The Office of the United States Trade Representative (USTR) launched a Section 301 investigation in August 2017, focusing on China’s intellectual property practices, technology transfer policies, and innovation-related matters.
The investigation concluded in March 2018 with a 215-page report that directly referenced Made in China 2025 over 100 times. The report characterized the industrial policy as a threat to American technological leadership and economic security. Within weeks, the administration announced its first round of tariffs on Chinese goods.
The Mechanics of China’s Early Advantage
What gave China an early edge in this conflict was a combination of several factors:
Strategic Ambiguity
After the first American tariffs, Chinese officials temporarily downplayed Made in China 2025 in public statements. References to the program disappeared from government websites and state media. This tactical retreat allowed China to continue the policy’s implementation while reducing its prominence as a target for U.S. trade negotiators.
Targeted Retaliation
China’s counter-tariffs were surgically precise. When the U.S. imposed tariffs on $34 billion of Chinese goods in July 2018, China immediately responded with equivalent tariffs on U.S. exports. However, China’s list disproportionately targeted agricultural products from states that had supported President Trump in the 2016 election. Soybeans, pork, and other farm products from Midwestern states faced steep tariffs, putting pressure on the administration through its political base.
Alternative Supply Chains
Chinese planners had already been diversifying supply chains as part of the Belt and Road Initiative launched in 2013. This gave China flexibility to redirect trade flows when U.S. tariffs hit. For example, when American soybean exports to China fell by 50% in 2018, Chinese importers increased purchases from Brazil, Russia, and other countries. Meanwhile, many American farmers lost their largest export market overnight.
Domestic Market Leverage
With 1.4 billion consumers, China wielded its domestic market as a powerful tool. American companies faced a difficult choice: comply with Chinese requirements to maintain access to the world’s largest consumer market or risk being shut out entirely. This market leverage allowed China to continue requiring technology transfers and joint ventures even as trade tensions escalated.
The First Battle: ZTE
The case of telecommunications company ZTE illustrated China’s early vulnerability but also its resilience. In April 2018, the U.S. Commerce Department banned American companies from selling components to ZTE for seven years after the company violated sanctions on Iran and North Korea. Since ZTE relied on U.S. suppliers for critical components, particularly advanced semiconductors, the company suspended major operations within weeks.
This demonstrated how dependent even China’s most advanced tech companies remained on American technology. President Xi Jinping personally requested relief during talks with President Trump. In June 2018, the administration lifted the ban after ZTE agreed to pay a $1 billion fine, change its board and management, and allow U.S. compliance officers inside the company.
The ZTE crisis accelerated China’s determination to reduce technological dependence on the United States, reinforcing the core aims of Made in China 2025. What seemed like an American victory actually strengthened China’s resolve to develop indigenous technology capabilities.
The Semiconductor Battleground
Semiconductors emerged as the central battlefield in the early stages of the trade war. China spent more on importing chips than oil, with purchases exceeding $300 billion annually. Despite massive investments, Chinese firms controlled only a small fraction of the global semiconductor market.
Made in China 2025 aimed to change this, targeting 70% self-sufficiency in semiconductors by 2025. The U.S. responded by blocking acquisitions of American semiconductor companies by Chinese firms and restricting exports of chip manufacturing equipment to China.
China countered by establishing the National Integrated Circuit Fund, which raised $150 billion to invest in domestic semiconductor research and production. This massive state-backed fund dwarfed similar initiatives in other countries, giving China an early advantage in scaling up manufacturing capacity, though technical gaps remained.
Economic Decoupling Begins
By late 2018, what started as a trade dispute had evolved into the beginning of economic decoupling. American companies began redirecting supply chains away from China. Chinese investment in the United States fell by 88% from 2016 to 2018. Technology transfer between the countries became increasingly restricted.
This decoupling gave China an early incentive to develop its domestic market further. The « dual circulation » economic strategy emerged, emphasizing greater self-reliance while maintaining openness in specific areas. Chinese consumers who previously preferred foreign brands were encouraged to buy domestic products through a combination of nationalist marketing and improved quality.
Internal Debates in Beijing
Behind closed doors in Beijing, the trade war sparked intense debate about economic strategy. One faction advocated accelerating market reforms to address legitimate American concerns. Another pushed for doubling down on state-directed development. The latter group ultimately prevailed, arguing that the conflict confirmed the need for greater self-reliance.
This internal consensus gave China coherence in its response to American pressure. While U.S. trade policy sometimes appeared to shift with political winds, China maintained a consistent long-term approach focused on reducing technological dependence and building alternative economic relationships.
The Regional Comprehensive Economic Partnership
As the bilateral relationship deteriorated, China accelerated efforts to strengthen economic ties with other trading partners. The most significant initiative was the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement between China, Japan, South Korea, Australia, New Zealand, and ten Southeast Asian nations.
Negotiations for RCEP had begun in 2012, but the U.S.-China trade war added urgency. After the United States withdrew from the Trans-Pacific Partnership in 2017, China positioned RCEP as an alternative vision for regional economic integration. When signed in November 2020, RCEP created the world’s largest trading bloc, covering nearly one-third of global population and GDP.
This agreement gave China preferential access to regional supply chains just as American tariffs were forcing realignment. The timing constituted a significant early advantage in the broader economic competition.
The European Front
China also moved quickly to prevent a united front between the United States and Europe. While the Trump administration imposed tariffs on European steel and aluminum in 2018, China presented itself as a defender of the multilateral trading system. Chinese leaders courted European businesses with promises of greater market access and investment opportunities.
This strategy achieved mixed results. The European Union designated China a « systemic rival » in 2019, acknowledging growing competition. However, the EU also pursued an investment agreement with China, which was signed in December 2020 after seven years of negotiations. This prevented the trade war from expanding into a coordinated Western approach in its early stages.
The Road Not Taken
An alternative American strategy might have produced different results. Rather than bilateral tariffs, the United States could have built a coalition of advanced economies to collectively address concerns about Chinese industrial policy. This approach would have leveraged combined market power and prevented China from playing countries against each other.
The decision to act unilaterally gave China room to maneuver. The bilateral focus allowed Beijing to frame the conflict as American hostility rather than legitimate concerns shared by multiple trading partners. This narrative helped maintain domestic support despite economic disruption.
Beyond the First Round
By the end of 2020, both sides had inflicted significant economic damage. American tariffs covered $370 billion of Chinese exports. Chinese counter-tariffs targeted $110 billion of American goods. The Peterson Institute for International Economics estimated the conflict reduced U.S. GDP by 0.3% and Chinese GDP by 0.5%.
Yet the structural issues that triggered the conflict remained largely unaddressed. The Phase One trade deal signed in January 2020 included Chinese commitments to purchase additional American goods and modest reforms on intellectual property and technology transfer. It did not fundamentally alter Made in China 2025 or address state subsidies.
The early advantage China secured in this opening round set the stage for a longer, more complex economic competition that continues to reshape the global economy. The first shots in the trade war revealed both American leverage and Chinese resilience, establishing patterns that would define the relationship for years to come.
This article is an excerpt from the book The First Round – Inside the US-China Trade War and China’s Early Edge by Olivia Brown -ISBN 978-2-488187-20-6.
