Updated August 29, 2018
The Made in China 2025 Initiative: Economic Implications for the United States
Summary
develop multinational enterprises and industrial clusters
China’s incomplete transition to a free market economy
with strong international competitiveness. Next, by 2035,
stands out as one of the biggest sources of trade friction
China seeks to reach “an intermediate level” among world
with the United States. Recent proposals by the Chinese
“manufacturing powers,” greatly improve innovation
government, such as its “Made in China 2025” (MIC 2025)
capability, make “breakthroughs” in major areas, boost
initiative, appear to signal an expanded role by the
competitiveness, and become a global leader in various
government in the economy, which many fear could distort
innovation industries. By 2049, and coinciding with the
global markets and negatively affect U.S. firms. The Trump
100th anniversary of the founding of the People’s Republic
Administration has made MIC 2025 a major focus of its
of China (PRC), China aims to “become the leader among
Section 301 actions (including increased tariffs) against
the world’s manufacturing powers,” have the “capability to
China over its alleged distortive policies related to
lead innovation and possess competitive advantages in
technology transfer, intellectual property, and innovation.
major manufacturing areas,” and “develop advanced
technology and industrial systems.”
What Is MIC 2025 and Why Did China Propose It?
Introduced by China’s State Council (the highest Chinese
“China’s government is aggressively working to
executive organ of state power) in May 2015, the MIC 2025
undermine America’s high-tech industries and our
initiative is the latest in a series of ambitious state-led
economic leadership through unfair trade practices
programs introduced by the Chinese government that seek
and industrial policies like Made in China 2025”—
to modernize the Chinese economy, boost productivity, and
USTR Robert Lighthizer, June 15, 2018
make innovation a driver of economic growth. One key
Chinese motivation for MIC 2025 is to avoid hitting the so-
The MIC 2025 establishes nine priority tasks, including (1)
called “middle-income trap,” a phenomenon that often
improving manufacturing innovation, (2) integrating
occurs to low-income countries that initially experience
technology and industry, (3) strengthening the industrial
rapid economic growth after implementing certain reforms.
base, (4) fostering Chinese brands, (5) enforcing green
Many such countries are able to reach middle-income
manufacturing, (6) promoting breakthroughs in 10 key
levels, but eventually the factors that produced that growth
sectors, (7) advancing restructuring of the manufacturing
can no longer be sustained or the economic returns began to
sector, (8) promoting service-oriented manufacturing and
diminish. Without new sources of growth, much slower
manufacturing-related service industries, and (9)
economic growth rates (or stagnation) can occur, preventing
internationalizing manufacturing. The 10 sectors identified
a country from transitioning to a high-income economy
in the State Council’s 2015 plan are (1) next-generation
(hence the “trap”). While China is currently a high middle-
information technology, (2) high-end numerical control
income economy, it faces several economic challenges,
machinery and robotics, (3) aerospace and aviation
including unbalanced economic growth, high corporate
equipment, (4) maritime engineering equipment and high-
debt, severe pollution, and a declining working age
tech maritime vessel manufacturing, (5) advanced rail
population, which could sharply slow future growth.
equipment, (6) energy-saving and new energy vehicles, (7)
electrical equipment, (8) agricultural machinery and
The MIC 2025 plan notes that “China’s manufacturing
equipment, (9) new materials, and (10) biopharmaceuticals
sector is large but not strong, with obvious gaps in
and high-performance medical devices. The plan also seeks
innovation capacity, efficiency of resource utilization,
to establish 40 manufacturing innovation centers by 2025.
quality of industrial infrastructure and degree of
digitalization. The task of upgrading and accelerating
Why Has the MIC 2025 Generated Concern
technological development is urgent.” China seeks to
Among U.S. Policymakers and Stakeholders?
upgrade its economic model from a system where products
While the MIC 2025 plan states as a basic principle that the
are largely assembled in China by foreign multinational
government will “comprehensively deepen reform” and
firms to a system where products made in China are
give markets the “decisive role in allocating resources,”
invented there. MIC 2025 seeks to move China up the
critics contend that the plan represents a state-directed
manufacturing value chain by utilizing innovative
industrial policy intended to reduce not only China’s
manufacturing technologies or “smart manufacturing.” MIC
dependence on foreign technology but to help Chinese
2025 is the first stage of a larger three-step strategy to
firms become dominant global players in numerous
transform China into a leading manufacturing power. The
advanced industries. Concerns have been raised that the
first step is for China to improve the overall quality of
Chinese government will provide extensive financial
manufacturing, boost innovation and labor productivity,
assistance to Chinese firms involved in the plan, such as
obtain an advanced level of information technology
through state-directed investment funds and preferential
integration, reduce energy and material consumption, and
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The Made in China 2025 Initiative: Economic Implications for the United States
access to credit from state banks. Another concern is that
licensing requirements, (3) government-backed cyber-theft
the Chinese government is funding and directing
of U.S. trade secrets, and (4) efforts by China to acquire
acquisitions of foreign technology firms and intellectual
U.S. technology and IP through acquisitions to support its
property (IP) to advance MIC 2025 goals.
industrial plans. On May 4, a high-level U.S. government
delegation visiting China called on it to “immediately cease
Another major aspect of the MIC 2025 plan that raises
providing market distorting subsidies and other types of
considerable concern among foreign businesses has been
support” that could create excess capacity in the industries
the listing of date-specific percentage targets for the
targeted by the MIC 2025 plan. On June 15, the USTR
domestic content value of certain products that are sold in
issued a two-tier list of products imported from China
China. The 2015 State Council’s document outlining MIC
(totaling $50 billion) that would be subject to increased
2025 specified that by 2020, 40% of essential spare parts
25% tariffs in response to China’s forced IP and technology
and key materials will “have domestic sources,” and will
policies. The first list of tariff hikes were applied on July 6.
rise to 70% by 2025. In September 2015, the Chinese
The second list of U.S. tariff hikes, which the USTR said
government released the “Made in China 2025 Key Area
targeted products “benefiting from Chinese industrial
Technology Roadmap,” which includes domestic content
policies, including the ‘Made in China 2025’ industrial
goals for several of the 10 sectors targeted (see Figure 1).
policy,” went into effect on August 23.
Some critics contend that such targets constitute an import
substitution plan that will likely hurt foreign high-
Many U.S. business groups support the Administration’s
technology suppliers and appears to violate World Trade
goals of addressing China’s distortive economic policies,
Organization rules. Chinese officials contend that the MIC
but oppose its methods. For example, critics of the USTR-
2025 plan is transparent, open, and nondiscriminatory, and
targeted lists argue that the increased tariffs will likely have
that the domestic content numbers are goals, not mandates.
a greater negative impact on U.S.-related sectors that utilize
China as part of their global supply chain network. For
Figure 1. Various MIC 2025 Domestic Content Goals
example, the Section 301 actions increase tariffs on a
number of information and communications technology
(ICT) imports from China. According to the U.S. Census
Bureau, U.S. ICT imports from China totaled $156 billion
in 2017, accounting for 60% of U.S. global ICT imports
and 31% of total U.S. merchandise imports from China. A
March 2018 study by the Information Technology
Innovation Foundation stated that “blanket tariffs applied
across entire categories of productivity-boosting capital
goods, especially on ICT, would reduce investment in these
technologies in the United States, thus decreasing U.S.
Source: U.S.-China Business Council.
productivity, competitiveness, and economic growth.”
Note: Dates for domestic content goals range from 2020 to 2030.
Others note that a significant share of the USTR’s
implemented and/or proposed tariff increases affect
Some assessments of the MIC 2025 plan warn of possible
intermediate goods (such as parts) and consumer products,
negative outcomes. For example, a 2016 study by the
which may have little to do with targeted Chinese MIC
Mercator Institute for China Studies warned: “Chinese
2025 sectors. Another concern is that punishing China with
high-tech investments need to be interpreted as building
increased tariffs over its industrial policies might induce the
blocks of an overarching political program. It aims to
Chinese government to increase its involvement in the
systematically acquire cutting-edge technology and
economy rather than adopt free market reforms.
generate large-scale technology transfer. In the long term,
China wants to obtain control over the most profitable
In the 115th Congress, H.R. 6001 (Conaway), S. 2826
segments of global supply chains and production
(Rubio), and S. 3361 (Rubio) would require the USTR to
networks.” A 2017 study by the U.S. Chamber of
issue a list of products from China that are determined to
Commerce concluded that “MIC 2025 aims to leverage the
have received support from the Chinese government to
power of the state to alter competitive dynamics in global
promote MIC 2025, and would subject U.S. imports of such
markets in industries core to economic competitiveness. By
products to countervailing duties. In addition, the
targeting and channeling capital to specific technologies
Department of Commerce would be directed to use export
and industries, MIC 2025 risks precipitating market
controls to restrict sales by U.S. firms of technology or IP
inefficiencies and overcapacity, globally.”
that may assist the MIC 2025 plan.
The Section 301 Case Against China and MIC 2025
Wayne M. Morrison, Specialist in Asian Trade and
In August 2017, the U.S. Trade Representative (USTR)
Finance
launched a Section 301 investigation to determine if
China’s policies on IP, innovation, and technology were
IF10964
unfair and harmed U.S. stakeholders. On March 22, 2018,
the USTR announced action against four broad Chinese
policies, including (1) forced technology transfer, (2) unfair
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The Made in China 2025 Initiative: Economic Implications for the United States
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