How did China, once one of the world’s poorest nations, become an economic powerhouse dominating markets in the United States and Europe? And why has the West allowed this dynamic to persist, even as trade imbalances grow and dependency on an authoritarian rival deepens?
This brief “explainer” is not a fully historical account. Its purpose is to inspire you to explore this fascinating topic further.
This is the story of China’s rise, the West’s missteps, and the challenges of rebalancing global trade.
Less than fifty years ago, China was a nation in economic isolation, scarred by decades of central planning and hardship. In 1978, everything changed. Leader Deng Xiaoping introduced sweeping reforms, opening China’s doors to foreign investment while keeping the Communist Party firmly in control. Special Economic Zones, like the coastal city of Shenzhen, became magnets for Western companies, offering cheap labor, tax incentives, and minimal regulations. Factories sprang up, transforming China into the world’s manufacturing hub.
What made China’s ascent so remarkable? First, its sheer scale. A vast workforce, low wages, and limited labor protections gave China an edge no other nation could match. The government invested heavily in infrastructure—ports, highways, and industrial parks—creating an ecosystem that could produce anything from clothing to electronics at breakneck speed. Second, China’s authoritarian system allowed for long-term planning. Unlike democracies constrained by election cycles, Beijing could execute decades-long strategies, suppress unrest, and steer the economy with precision. Though labeled “communist,” China’s model is closer to state-guided capitalism, blending market incentives with iron-fisted control.
By the early 2000s, China’s trajectory was unstoppable. Its entry into the World Trade Organization in 2001 granted access to Western markets with low tariffs, supercharging exports. By 2010, China was the world’s second-largest economy. State-driven policies, like subsidies for industries such as steel and solar panels, flooded global markets with cheap goods, often undercutting competitors. Ambitious initiatives, such as “Made in China 2025,” aimed to dominate high-tech sectors, leveraging foreign technology acquired through joint ventures and other means.
But China’s rise didn’t happen in a vacuum. The West played a pivotal role, driven by a mix of economic incentives and strategic miscalculations. In the 1990s and 2000s, the United States and Europe championed globalization, believing free trade would foster prosperity and integrate China into a rules-based international order. Many assumed economic openness would nudge China toward democracy. That assumption proved wrong. China embraced global markets on its own terms, protecting its industries while exploiting open access to Western consumers.
Western corporations, chasing profits, fueled this shift. Companies like Apple and Walmart outsourced manufacturing to China, slashing costs and delivering cheaper goods to consumers. This came at a steep price: the hollowing out of industrial heartlands. In the US, 5 million manufacturing jobs vanished between 2000 and 2015, many linked to China’s trade surge. Europe faced similar losses, particularly in textiles and electronics. Yet, for years, the benefits—lower prices and higher corporate earnings—masked the long-term costs.
Why did Western leaders tolerate this? Part of it was a failure to anticipate China’s ambitions. Policymakers assumed China would remain a low-end manufacturer, not a rival in cutting-edge fields like artificial intelligence or 5G technology, where companies like Huawei now lead. The West also grew dependent on China’s supply chains. China controls 80% of the world’s rare earth minerals, critical for batteries and tech, and dominates production of semiconductors and pharmaceutical ingredients. The COVID-19 pandemic exposed this vulnerability, as shortages of masks and medicines revealed the risks of over-reliance.
Then there’s the trade imbalance. In 2022, the US ran a $419 billion goods trade deficit with China, driven by imports of electronics, machinery, and consumer products. The European Union’s deficit was nearly as stark, at 396 billion euros, fueled by China’s dominance in green technologies like solar panels and batteries. These gaps persist because China’s exports are aggressively competitive, bolstered by past currency manipulation and ongoing subsidies. Meanwhile, China restricts Western firms’ access to its market, demanding joint ventures or technology transfers that tilt the playing field.
So why hasn’t the West pushed back harder? Economic interdependence is a major factor. China is a massive market for Western firms, from German automakers to American tech giants. Disengaging risks economic disruption, given China’s 30% share of global manufacturing. Rebuilding domestic industries is no small task—it requires billions in investment, skilled workers, and years of effort. Political realities also play a role. Policies like tariffs, implemented by the US in recent years, raise consumer prices, sparking backlash. And there’s a geopolitical calculus: confronting China too aggressively could escalate tensions with a nation wielding significant military and economic power.
Yet, the tide is turning. The United States has imposed tariffs on Chinese goods and restricted exports of advanced technologies, such as semiconductors, to slow China’s technological ascent. Legislation like the CHIPS Act and Inflation Reduction Act is channeling funds into domestic manufacturing, though scaling up remains a challenge. The US is also forging alliances, such as the Quad with Japan, India, and Australia, to counter China’s influence.
Europe, meanwhile, is pursuing a strategy of “de-risking,” aiming to reduce reliance on China for critical goods like batteries and renewable energy components. The EU’s Carbon Border Adjustment Mechanism seeks to level the playing field by taxing carbon-heavy imports, many from China. Investment screening is tightening, limiting Chinese access to strategic sectors like infrastructure and technology. Globally, companies are exploring “friendshoring” and “nearshoring,” shifting supply chains to allies like Vietnam or Mexico, though China’s manufacturing dominance remains unmatched.
China, for its part, continues to adapt. Its Belt and Road Initiative secures resources and markets across the Global South, reducing dependence on Western trade. Advances in electric vehicles, 5G, and artificial intelligence position China as a technological leader. Its manufacturing ecosystem—vast, efficient, and cost-effective—is a hurdle the West struggles to overcome. Fragmentation among Western nations, with varying priorities in the US and EU, further complicates a unified response.
As we look ahead, China’s economic grip poses a dilemma. The West’s push for self-reliance is gaining momentum, but decoupling from China’s supply chains and markets is a daunting task. The trade deficits, dependency risks, and industrial losses are stark reminders of the costs of past decisions. China’s rise was no accident—it was built on strategic vision and Western acquiescence.
Now, the question is whether the US and Europe can rebuild their economic resilience before China’s lead becomes unassailable.
Let’s start a conversation on LinkedIn or X.com (formerly Twitter).
I am a project manager (Project Manager Professional, PMP), a Project Coach, a management consultant, and a book author. I have worked in the software industry since 1992 and as a manager consultant since 1998. Please visit my United Mentors home page for more details. Contact me on LinkedIn for direct feedback on my articles.
