Updated April 12, 2019
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)
The MIC 2025 plan notes that “China’s manufacturing
electrical equipment, (8) agricultural machinery and
sector is large but not strong, with obvious gaps in
equipment, (9) new materials, and (10) biopharmaceuticals
innovation capacity, efficiency of resource utilization,
and high-performance medical devices. The plan also seeks
quality of industrial infrastructure and degree of
to establish 40 manufacturing innovation centers by 2025.
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
access to credit from state banks. Another concern is that
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The Made in China 2025 Initiative: Economic Implications for the United States
the Chinese government is funding and directing
policies, including (1) forced technology transfer, (2) unfair
acquisitions of foreign technology firms and intellectual
licensing requirements, (3) government-backed cyber-theft
property (IP) to advance MIC 2025 goals.
of U.S. trade secrets, and (4) efforts by China to acquire
U.S. technology and IP through acquisitions to support its
Another major aspect of the MIC 2025 plan that raises
industrial plans. On May 4, 2018, a U.S. government
considerable concern among foreign businesses has been
delegation visiting China called on it to “immediately cease
the listing of date-specific percentage targets for the
providing market distorting subsidies and other types of
domestic content value of certain products that are sold in
support” that could create excess capacity in the industries
China. The 2015 State Council’s document outlining MIC
targeted by the MIC 2025 plan. On June 15, 2018, the
2025 specified that by 2020, 40% of essential spare parts
USTR issued a two-tier list of products imported from
and key materials will “have domestic sources,” and will
China (totaling $50 billion) that would be subject to
rise to 70% by 2025. In September 2015, the Chinese
increased 25% tariffs in response to China’s forced IP and
government released the “Made in China 2025 Key Area
technology policies. The first list of tariff hikes were
Technology Roadmap,” which includes domestic content
applied on July 6. The second list of U.S. tariff hikes, which
goals for several of the 10 sectors targeted (see Figure 1).
the USTR said targeted products “benefiting from Chinese
Some critics contend that such targets constitute an import
industrial policies, including the ‘Made in China 2025’
substitution plan that will likely hurt foreign high-
industrial policy,” went into effect on August 23, 2018. In
technology suppliers and may violate World Trade
addition, in 2018, legislation was enacted (P.L. 115-232) to
Organization rules. Chinese officials contend that the MIC
tighten U.S. export controls and to reform and expand
2025 plan is transparent, open, and nondiscriminatory, and
federal screening of certain proposed foreign investments in
that the domestic content numbers are goals, not mandates.
the United States. These measures appear to have been
Over the past two years, China’s government-controlled
largely aimed at China, including its MIC 2025 policies.
media appears to have curtailed references to MIC 2025.
Many U.S. business groups support the Administration’s
Figure 1. Various MIC 2025 Domestic Content Goals
goals of addressing China’s distortive economic policies,
but oppose its methods. For example, critics of the USTR-
targeted lists argue that the increased tariffs will likely have
a greater negative impact on U.S.-related sectors that utilize
China as part of their global supply chain network. For
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 $157 billion
in 2018, accounting for 60% of U.S. global ICT imports
and 29% of total U.S. goods imports from China. A March
Source: U.S.-China Business Council.
2018 study by the Information Technology Innovation
Note: Dates for domestic content goals range from 2020 to 2030.
Foundation stated that “blanket tariffs applied across entire
categories of productivity-boosting capital goods, especially
Some assessments of the MIC 2025 plan warn of possible
on ICT, would reduce investment in these technologies in
negative outcomes. For example, a 2016 study by the
the United States, thus decreasing U.S. productivity,
Mercator Institute for China Studies warned: “Chinese
competitiveness, and economic growth.” Others note that a
high-tech investments need to be interpreted as building
significant share of the USTR’s implemented tariff hikes
blocks of an overarching political program. It aims to
affect intermediate goods (such as parts) and consumer
systematically acquire cutting-edge technology and
products, which may have little to do with targeted Chinese
generate large-scale technology transfer. In the long term,
MIC 2025 sectors. Another concern is that punishing China
China wants to obtain control over the most profitable
with increased tariffs over its industrial policies might
segments of global supply chains and production
induce the Chinese government to increase its involvement
networks.” A 2017 study by the U.S. Chamber of
in the economy rather than reducing it through reforms.
Commerce concluded that “MIC 2025 aims to leverage the
In the 116th Congress, H.R. 704 (Conaway) and S. 2 (Rubio
power of the state to alter competitive dynamics in global
would require the USTR to issue a list of products from
markets in industries core to economic competitiveness. By
China determined to have received Chinese government
targeting and channeling capital to specific technologies
support of MIC 2025 and would subject U.S. imports of
and industries, MIC 2025 risks precipitating market
such products to U.S. countervailing measures. In addition,
inefficiencies and overcapacity, globally.”
the Department of Commerce would be directed to use
The Section 301 Case Against China and MIC 2025
export controls to restrict sales by U.S. firms of technology
or IP that may assist the MIC 2025 plan.
In August 2017, the U.S. Trade Representative (USTR)
launched a Section 301 investigation to determine if
China’s policies on IP, innovation, and technology were
Wayne M. Morrison, Specialist in Asian Trade and
unfair and harmed U.S. stakeholders. On March 22, 2018,
Finance
the USTR announced action against four broad Chinese
IF10964
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The Made in China 2025 Initiative: Economic Implications for the United States
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