The China-light industrial strategy: The West’s newfound heavy state intervention 

Since the Cold War ended, Western governments treated industrial capacity as an economic byproduct rather than a foundation of national power. Efficiency governed supply chains. That era is over. Great power competition, supply chain weaponization, and defense industrial base production shortfalls have forced policymakers to confront an uncomfortable reality: Markets do not automatically sustain resilience. 

Despite historically high defense budgets and repeated military commitments across multiple theaters, the United States and its European allies lack the production capacity in munitions, ships, advanced components, and critical materials to sustain a prolonged high intensity conflict against a near peer adversary.  

As noted by Dennis Laich, the U.S. military cannot replace material losses or surge production at the pace required for major war without dramatically expanding industrial throughput. The structural constraint isn’t even a budgetary issue either. 

The 2026 National Defense Strategy acknowledges this emerging dynamic, making industrial base capacity crucial for deterrence. The response has been dramatic. The Trump administration has expanded executive orders and used Defense Production Act authorities to support domestic critical minerals development and accelerated permitting for strategic mining and processing projects.  

That is on top of the U.S. CHIPS and Science Act commitment of $53 billion to semiconductor manufacturing and research and Inflation Reduction Act directing $370 billion toward energy and industrial transformation. The European Union has mobilized over €43 billion through its European Chips Act, launched a European Defence Industrial Strategy to encourage joint procurement and consolidation, and enacted a Critical Raw Materials Act to rebuild extraction and processing capacity. Japan has passed its Economic Security Promotion Act to secure sensitive supply chains. 

What was once politically taboo is now normalized – just like President Trump ordering the Pentagon to buy coal. Across the West, governments are embracing heavy state intervention that, by capitalist standards, marks a structural shift toward a ‘China-light’ model. The state is back in the economy as Western capitals borrow selectively from Beijing’s playbook through subsidies, local content requirements, export controls, and state backed financing.  

Yet Brussels and Washington are not building the sort of long-term governance structures and centralized coordination systems need to counter Beijing’s cartel control of minerals and manufacturing markets. 

The wars in Ukraine and Gaza exposed munitions shortfalls and the fragility of Western defense industrial bases. U.S.-China competition has further identified industrial capacity as a sort of strategic infrastructure that determines endurance, military capabilities, and economic growth. China-light policies by Western governments signals seriousness, but it may not be enough to build the structural depth that real industrial power requires. Without that, state involvement in the economy risks becoming episodic and reactive, when it needs to be transformative instead. 

Integration is the difference 

China’s industrial advantage is often reduced to subsidies or low labor costs. Integration, however, has been the most important variable, as Beijing spent decades linking upstream resource extraction to midstream processing and downstream manufacturing. This reinforced the system with state finance, protected demand, and long-time horizons. Western apathy that led to these industrial ecosystems to die as China began to control the entire global market. 

Chinese dominance is most evident in critical minerals and rare earths. China’s dominance includes mining and the technically complex and capital-intensive midstream aspect of making ore useable.  

China refines 68% of the world’s nickel, 73% of its cobalt, 95% of its manganese, and 100% of the spherical graphite for battery anodes. For rare earths, China controls over 90% of processing and magnet production. When Beijing announced 2023 export controls on gallium and germanium, two minerals vital for advanced semiconductors, it was leveraging control over 98% of global production. 

Western economies followed a different path, hollowing out these midstream layers in a search for efficiency. The case of the Mountain Pass mine in California is illustrative. As the biggest rare earth deposit outside China, it can produce substantial ore. Yet for years, that concentrate was shipped to China for processing because America lacked capacity to cheaply do it at scale.  

While MP Materials is now building out its own processing, the case highlights a structural dependency built over decades. This is the gap China-light policies are trying to close. Meanwhile, the Europeans have set clear benchmarks for domestic extraction, processing, and recycling of critical raw materials by 2030. But energy prices, regulatory fragmentation, and limited investment have slowed tangible progress. Setting targets is easy, constructing industrial ecosystems is harder. 

This is the strategic asymmetry China has set by building a system; Western governments are just funding projects. 

Production rates are strategy 

China’s industrial strategy also has strategic adaptability. As the U.S. and its allies impose tariffs and “de-risking” measures, China’s industrial depth allows it to reroute supply chains and absorb shocks. Its dominance in solar panel manufacturing, where China controls over 80% of all stages of production, allows the weathering of trade disputes by shifting exports to non-Western markets. Chinse industrial power is now like the force of gravity: difficult to escape even when alternatives exist. 

The United States has struggled to raise monthly artillery shell production to levels need to support Ukraine’s military, and Europe faces similar constraints. Expanding output means even more money to retool facilities, qualify new suppliers, and fix bottlenecks in energetics and sub-tier manufacturing. Shipbuilding is a similar problem. For every ship the United States makes, China can build 232 more. China’s government controls steel supply, finance, and workforce continuity. While America has advanced naval design expertise, commercial shipbuilding capacity has shrunk to a fraction of global output. Rebuilding it would require years of capital investment, labor development, and predictable demand. 

Semiconductors follow the same industrial logic. Fabrication plants cost almost $20 billion to construct and qualify, while the supply chains for specialty chemicals, lithography equipment, and precision tooling remain globally dispersed. China’s semiconductor system is structured around redundancy, scale, and coordinated finance – as the west is optimized for efficiency. 

China-light policies emphasize stockpiles and incentives, but stockpiles deplete; production rates determine depend on industrial depth. 

Moving beyond China-light theater 

None of this implies that the West should replicate China’s political economy. If strategic autonomy is the goal, policy must match the scale and duration of the challenge. 

Three Western policies are needed. 

First, prioritize the midstream. While mines matter, processing and component fabrication determine dependence. Investments should focus on conversion capacity and throughput. 

Second, align incentives with output. Defense contractors can expand revenue without expanding production if incentives reward complexity and compliance over volume. Long-term procurement contracts, predictable demand signals, and conditional public financing tied to capacity metrics can shift industrial base behavior. 

Third, coordinate minerals and materials across allies structurally. Friendshoring requires shared standards, integrated stockpiles, and joint investment vehicles. Fragmented national subsidy races raise costs and dilute impact. Collective capacity equals more allied industrial resilience. 

Industrial strategy is not ideology. It is the management of material chokepoints that shape national power. The West has crossed the Rubicon into state intervention, yet its China-light approach still avoids deep structural reform. Without durable governance, industrial base investments will be more theater without capacity. Industrial competition is measured in production and we have to wonder if doing China-light policies will actually deliver it. 

 
Lt. Col. Jahara “Franky” Matisek (PhD) is a US Air Force command pilot, nonresident research fellow at the US Naval War College, Senior Research Fellow at the Payne Institute for Public Policy, and a visiting scholar at Northwestern University. He is the most published active-duty officer currently serving, with 2 books and over 160 articles on industrial base issues, strategy, and warfare.