Beijing’s ‘Industrial Policy of Everything’ Leaves Rest of the World in the Dust
Government support encompasses the old, the new, goods and services, micro and macro. Nothing Trump elicits in China will change this.
In the decades since China joined the world economy, U.S. presidents have traveled to Beijing with a predictable list of demands: stop stealing American intellectual property, don’t force technology transfer, open your markets. Donald Trump followed the script on his previous visit in 2017.
Whether he does so again this week, it would be pointless. Those demands reflect a view of Chinese industrial policy (broadly, government support for favored sectors) that is woefully out of date.
Xi Jinping has elevated Chinese industrial policy into something the world has never seen. It targets almost every industry and region, demand as well as supply, services as well as goods, the sophisticated and the mundane. Its goals are economic, technological and strategic. Its tools are microeconomic and macroeconomic.
There is no obvious solution. Trump has reportedly secured agreements by China to purchase soybeans, energy and aircraft, withhold military equipment from Iran, and open up more to American business. But none of this will stop China from swallowing ever more global market share.
Rhodium Group, a research organization, in a sobering new report prepared on behalf of the U.S. Chamber of Commerce and released this week, identifies the key features of what it calls China’s “industrial policy of everything.”
Prioritize everything
Many Chinese products now match or beat Western competitors on quality and price without government help. Yet rather than dial back support, Beijing keeps broadening it. The country’s five-year plan issued in 2021 listed 19 priority sectors. The latest, released in March, lists 24, adding “brain-computer interfaces” and “nuclear fusion energy.”
While sexy products such as smartphones and electric vehicles hog the limelight, China’s ambitions also cover the mature and the mundane.
The “Made in China 2025” plan released in 2015 that caused so much consternation in the West earmarked 10 industries for self-sufficiency. The update issued in 2023 dropped one and added seven, including mature industries such as household appliances and textiles.
Chemicals are a good example: Global exports of tetrachloroethylene, used in dry cleaning, have risen 25-fold since 2019. Exports of o-Xylene, used in plastics and coatings, have climbed 12-fold.
Chemicals also illustrate the emptiness of China’s promises to cut back on overcapacity (dubbed involution), which has depressed prices and profits. Rhodium reports that a 2025 directive promised to address petrochemical overcapacity, but only plants more than 20 years old were targeted, accounting for 5% to 6% of capacity. Far from shrinking output, the plan aimed to shift the industry from bulk to high-value chemicals and boost output 5% a year.
Rhodium reports that once Chinese firms reach technological parity with their competitors, they take market share at breathtaking speed. The result: In 2016, Rhodium estimates, China controlled more than 50% of export volumes in 163 industries, out of about 2,000 for which data is available. By 2024, that had risen to 315.
Managing demand, not just supply
China’s massive trade surpluses are often attributed to chronically weak domestic demand. Yet China can create demand when it wants. To nurture its drone industry, Beijing encourages numerous sectors, including agriculture, local government and tourism, to integrate drones, “complemented by public investment in enabling infrastructure, including the use of local government special bonds,” Rhodium writes.
Xi once regarded services as inferior to the “real” economy. Not any more. A series of state directives since 2024 have singled out high-value services such as biopharma contracting, which conducts testing, research and development and manufacturing for multinational drug companies. It saw sales double between 2018 and 2022, and they are projected to double again by 2027, Rhodium concludes.
Chokepoints targeted
National security is integral to Xi’s industrial policy. Eliminating imports makes China less vulnerable to foreign pressure, while increasing export market share makes others more vulnerable to Chinese pressure.
Thus, Xi prioritizes “chokepoint” products that are critical to larger supply chains, such as organic chemicals and machinery, Rhodium reports.
China routinely retaliates against unfriendly governments by weaponizing its market—that is, shutting out their exports. Weaponizing chokepoints is more potent, with the potential to shut down entire production lines. Even the U.S., the only economy large enough to resist Chinese pressure, sought a trade-war truce when China imposed export controls on rare earths and critical minerals. “As dependence on China increases, the capacity of foreign governments to mitigate that dependence diminishes,” Rhodium warns.
The pervasive nature of China’s industrial policy makes it difficult for competitors to counter. Trump’s tariffs, for example, have driven down the U.S. trade deficit with China. But China has redirected exports to other markets. And because Chinese inputs are omnipresent in global supply chains, the value of Chinese content entering the U.S. can remain steady even as imports drop.
This could be addressed through tariffs on Chinese content, regardless of where the product originated, or through tighter rules of origin, a particular thrust of Trump’s trade negotiators.
But that wouldn’t solve the competitive threat. The U.S. could ban every Chinese-made product, but those products would keep gaining market share abroad, threatening American leadership. For example, Chinese electric vehicles may incorporate Chinese software and artificial intelligence. As those EVs gain market share abroad, Chinese software and AI may supplant U.S. rivals as the global standard.
This calls for a joint response by all market-based democracies to Chinese industrial policy. But U.S. allies’ willingness to coordinate with the U.S. on China, never high to start with, has eroded further under Trump.
Waiting for China to fail
The Achilles’ heel of Chinese industrial policy is its cost and waste. China runs bigger budget deficits relative to economic output than the U.S. Outside advanced manufacturing, the economy is moribund, weighed down by debt, deflation and aging demographics.
Many critics thus expect, even hope, that Chinese industrial policy will eventually implode under the weight of its own contradictions.
But there is no guarantee that will happen soon. To paraphrase an adage about markets, China can stay irrational longer than foreign competitors can stay solvent.
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Appeared in the May 16, 2026, print edition as 'Xi’s Industrial Policy of Everything China Policy Has Rivals on Back Foot'.