"frontier leadership rests on a broad industrial base. Manufacturing showed what happens when that base erodes. Lose enough of it, and eventually you lose the frontier as well."
Desmond Shum (@DesmondShum)
From Manufacturing to Technology: Is the West Repeating the Same Strategic Mistake?
If the West wants to win today’s technology competition, it should first revisit what happened to global manufacturing after China entered the World Trade Organization in 2001.
The conventional narrative is that China climbed the value chain because it gradually mastered more advanced technology.
I think the sequence was, to a significant extent, the reverse.
China first captured the mass market by producing goods that were substantially cheaper and “good enough” for most customers, often supported by massive state subsidies and industrial policy.
Scale then generated cash flow, engineering talent, supplier networks, manufacturing know-how and continuous learning. Those advantages enabled Chinese companies to move steadily up the value chain.
Mass market → Scale → Capability → Higher-value products → Technological leadership
After WTO accession, China displaced competitors across one industry after another. It began with textiles, garments, toys and furniture before moving into consumer electronics, telecommunications equipment, solar panels, batteries, electric vehicles, drones and advanced industrial machinery.
China did not become a technological power because it first achieved technological leadership.
It acquired much of that capability because it first achieved manufacturing scale.
That history increasingly resembles what we are seeing across technology today.
Western companies still lead at the frontier, producing many of the most important breakthroughs.
Chinese companies, meanwhile, are rapidly improving while driving costs sharply down.
For most customers, they do not need to offer the best product.
They only need to offer one that is good enough at a much lower price.
Whether in AI models, robotics, electric vehicles or industrial technology, a product delivering 75–80% of the performance at a fraction of the cost can capture an enormous market. Once enough customers adopt it, revenues grow, ecosystems develop, engineering capability improves and the frontier becomes progressively easier to challenge.
The strategic question for the West is whether occupying only the very tip of the pyramid is sustainable while the entire base beneath it gradually migrates elsewhere.
Manufacturing suggests the answer is NO.
Interestingly, the CCP has long understood this strategic logic.
Mao Zedong’s strategy of “using the countryside to surround the cities” (农村包围城市) emphasised controlling the periphery before taking the centre. Today’s technology competition is commercial rather than military, but the strategic logic bears comparison.
Chinese companies do not necessarily need to win first at the frontier. By dominating the much larger lower and middle segments of the market, they accumulate the scale, capital and industrial capabilities needed to challenge the top.
The lesson for the West is equally clear: frontier leadership rests on a broad industrial base. Manufacturing showed what happens when that base erodes. Lose enough of it, and eventually you lose the frontier as well.
The West therefore needs to protect the entire pyramid.
The objective is to preserve the industrial base that makes the next generation of technological leadership possible.
Lose the base of the pyramid, and eventually you lose the summit.
I believe greater market protection and trade frictions are inevitable when competing against a mercantilist system.
The bigger challenge for Western governments is to come to terms with the consequences of allowing so much of their manufacturing base to migrate to China under a largely laissez-faire philosophy that assumed markets alone would produce the right outcome.
That assumption proved costly in manufacturing.
The West cannot afford to make the same mistake in technology.
— https://nitter.net/DesmondShum/status/2081807086321844608#m