Don’t Let China Buy Into America’s Industrial Future
DR. NADIA SCHADLOW is a Senior Fellow at the Hudson Institute.
The recently concluded U.S.–China summit highlighted that Beijing continues to double down on an economic model that is focused on dominating the industries it believes are strategically important. As U.S. officials return home and consider proposals for a board of trade and board of investment, which according to the White House could result in “increase[ed] Chinese investment into [U.S.] industries,” they should keep one principle in mind: Chinese capital and firms should remain outside of America’s advanced manufacturing buildout.
Modern manufacturing is no longer about building more factories. The emerging industrial ecosystem will fuse materials, chemicals, hardware, software, robotics, AI, and vast streams of data. Tomorrow’s factories will not merely produce goods. They will generate information, shape supply chains, and help determine future military and economic advantages. They are as much data systems as production systems.
The national security stakes are clear. Future military strength will depend heavily on commercial manufacturing. Many Department of War reforms center on producing weapon systems at scale through commercial industry. As Secretary of War Pete Hegseth has put it, the Department will “prioritize the purchase of industry-driven solutions, commercial solutions first.” Army leaders seeking to acquire tens of thousands of drones are emphasizing modular “plug-and-play” systems that can be rapidly upgraded as battlefield needs evolve. This shift is occurring across all the services. As one Army official explained, “if whatever they’re building isn’t modular with other industry partners … then I’m going to go with another industry partner.”
This trend makes the integrity of America’s industrial base even more important. Companies that build robotics, autonomous platforms, industrial software, and precision components may not have traditionally been viewed as defense firms, but many now sit at the core of the national security ecosystem.
Another national security concern is that modern factories generate enormous amounts of data about machine performance, materials behavior, and supply chains. The National Institute of Standards and Technology notes that manufacturing facilities produce vast and expanding streams of data every day. For instance, a major concept in advanced manufacturing is the “digital twin,” which is a virtual, data-driven model of a factory, machine, or production system that continuously updates based on real-world operational data. In the wrong hands, this data is industrial targeting information.
The track record for granting China access to sensitive sectors of the American economy is decidedly bad. China has repeatedly used commercial relationships, various types of business partnerships, predatory hiring, supply-chain access, and embedded corporate relationships to acquire technology and industrial know-how.
That pattern is well documented. In 2018, the U.S. Department of Justice secured a conviction against Sinovel Wind Group for stealing trade secrets from American Superconductor Corporation, including critical wind turbine source code that helped accelerate China’s wind industry while damaging the American firm. A year later, the DOJ alleged that Huawei used commercial partnerships and employee recruitment to obtain sensitive U.S. robotics and telecommunications technology. Similar allegations later emerged involving Micron Technology, GE Aerospace, and GE Power, where U.S. officials accused Chinese-linked actors of targeting advanced semiconductor and aerospace technologies through insider access, recruitment, and theft of trade secrets.
U.S. policymakers recognize these risks and have taken steps to mitigate them. The first Trump administration expanded national-security reviews of Chinese acquisitions amid concerns that Beijing was using investment to gain access to sensitive technologies and critical infrastructure. In 2018, Congress passed the Foreign Investment Risk Review Modernization Act (FIRRMA) because it understood that foreign ownership, joint ventures, and access to sensitive data can all create national-security risks. (Despite these more rigorous reviews, outcomes remain mixed, with China still acquiring U.S. industrial base companies.)
Chinese capital could also end up crowding out American investment. The Trump administration and Congress have spent significant time and political capital trying to channel U.S. government and private funding into manufacturing and industrial capacity. The objective is understandable, but it is not easy. Traditionally, because manufacturing generates lower margins than sectors such as software, it has been harder to attract private investment. Recent efforts to address this difficulty have ranged from the Department of War’s Office of Strategic Capital initiative to mobilize some $200 billion in financing to programs across the Departments of Commerce and Energy. These initiatives also aim to attract private capital, such as JPMorgan’s $1.5 trillion “Security Resilience” initiative to support “key sectors from critical minerals to frontier technologies.”
China, however, has demonstrated a willingness to tolerate lower returns in pursuit of strategic objectives. According to the Rhodium Group, Beijing has increasingly inserted “non-market considerations” into investment decisions, prioritizing strategic goals at the expense of profitability. That creates an uneven playing field for American capital, which still largely operates under market expectations for returns and efficiency. Competing against a state-backed system willing to absorb losses could make it more difficult to sustain private investment in U.S. manufacturing.
China knows advanced manufacturing will shape the next era of competition, and it has spent over a decade determined to dominate it. Today, China is the world’s largest market for industrial robots. Its most recent five year plan prioritizes advanced manufacturing as a way to increase productivity, calling for “new quality productive forces”—that is, productivity driven by robots, AI, and other smart manufacturing. Furthermore, its 2025 AI + Manufacturing initiative aims to integrate intelligent agents into production lines and supply chains as part of an overall integration of AI into 90% of the Chinese economy by 2030. China sees advanced manufacturing as a strategic asset, not just a commercial sector.
This does not mean America should wall itself off from foreign investment. The United States should deepen manufacturing ties with allies. South Korea recently pledged $150 billion to help modernize American shipbuilding. Japanese, Korean, European, and other allied firms can help rebuild critical supply chains. But China is different. It is the United States’s chief strategic competitor, a state-directed industrial rival, and a government that has repeatedly used commercial channels to advance its national aims.
Some might argue that allowing Chinese firms to build and operate factories in the United States could generate valuable spillovers for American workers and companies. For decades, China benefited from foreign firms that brought production expertise and other know-how into its economy. Couldn’t the United States do the same with leading Chinese manufacturers?
The purported benefits, however, would not likely outweigh the costs. Many Chinese companies would operate with lower overhead due to government subsidies, allowing them to sell their products at artificially low prices. Tariffs on Chinese imports allow us to level the playing field, so long as Chinese firms are kept out. The ultimate issue is that any market that includes China is neither free nor fair, and providing additional vectors into sensitive and strategic parts of the U.S. economy would be shortsighted.
Requiring Chinese companies in the United States to form joint ventures (JVs) with American companies to mitigate vulnerabilities and acquire technology could be counterproductive for similar reasons. Those who believe that the United States should or even could duplicate Beijing’s forced-JV strategy forget that the U.S. government is not the Chinese government. Unlike the Chinese government, American laws and courts enable businesses operating within U.S. jurisdictions to protect their proprietary knowledge from unauthorized transfers. Chinese companies, like all foreign companies, would be able to use such protections. As a result, American companies could simply be exposing themselves to deeper Chinese infiltration instead of gaining a true technological edge. Moreover, further tethering U.S. business operations to Chinese entities could exacerbate the industrial, technological, and economic dependencies that the Trump administration has been trying to unravel.
Others might assert that excluding China is merely a shield for uncompetitive American manufacturers and that they can only get stronger if forced to compete with Chinese firms. But American manufactures are not shielded from all competition. They already compete fiercely with companies from Japan, South Korea, and Germany, which have formidable manufacturing cultures and capabilities. In addition, as noted, competition with China is not on a level playing field.
The United States can’t afford to lose its edge at the increasingly important cross section of data, technology, and advanced manufacturing, especially since it is foundational to so many other competitive arenas, from defense to energy to AI. Rebuilding American manufacturing is urgent. But it should not involve inviting America’s principal rival into the systems on which future military and economic power will depend.
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