The Military-Industrial Battle Between the U.S. and China

Hey What's News listeners, it's Sunday, June 1st. I'm Alex Osula for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. On today's show...

Over the past decade or so, China has ramped up its investment in some strategic industries. The country has come to dominate the manufacturing of products from basic chemicals to advanced machinery, most of which would be vital in wartime. Today, we get into how China's economy fueled that buildup and how U.S. manufacturing is losing the production battle. Modern warfare is, in a sense, a contest of industrial might.

After all, that's how the US won World War II, by making more of everything from bullets to food than its enemies. But today, the US lacks that kind of manufacturing heft. China, on the other hand, has got it in droves. For years, China's leader Xi Jinping poured money into developing strategic sectors, from shipbuilding to mining and processing critical minerals. Faced with a war, China would be well-positioned.

And with tensions rising between the US and China, the two countries' output is coming into focus as a front line in any conflict. Now, that's not to say that an armed conflict between the US and China is imminent. though people are keeping an eye on what's going on in Taiwan. But it's also relevant for each country's economy, the sectors that power them, and how they're poised to compete. WSJ senior reporter John Emond joins me now to discuss.

So, John, what does China's economy mean for its ability to compete in modern warfare? They're really well equipped. It's hard to think of a country that would be better equipped. If you think about, say, the... battlefields in russia and ukraine a lot of the drones that are flying and getting destroyed are chinese drones right they have drone manufacturers they're producing drones for everywhere in the world

These are good drones. These are cheap drones. These are exactly the drones you would want if you were having to wage a long, protracted conflict, which is why both sides are buying drones from China. And that's just drones, right? But if you look at shipbuilding, China is...

by far the world's largest shipbuilder. It has crowded out just about everybody else. South Korea and Japan have hung on a bit, but certainly the United States hasn't. The vast majority of China's shipbuilding is civilian, right? It's building oil tankers and cargo ships, but a ship's a ship. And if they wanted to build ships with guns, they could build lots and lots and lots of ships with guns. But China is already building those ships, right?

Yeah, yeah, yeah. They are building lots of ships with guns. So if you look at, for example, destroyers, which are a very useful multifunctional ship for war, China has built a lot more destroyers than the United States. since the year 2000. So these are new. One way that some scholars look at it is through something called VLS, the amount of vertical launch cells that ships have. So basically, let's try to imagine how many

cruise missiles could all of China's Navy launch versus the United States. And if you go back 15 years ago, it was a pittance that China couldn't remotely. It would just get blown out of the water. And now I think they're at about half the United States, and it's growing. The gap is diminishing by the day. One Chinese shipbuilder last year produced more commercial ships by tonnage.

than the entire United States has made since World War II. So China is building up all these different sectors. Is the goal here to be self-sufficient? Is that ever even possible?

Well, yeah, a major goal is to be self-sufficient, which is what every country, when it thinks about wars, is thinking about how can we make sure that even if there are blockades or there are certain countries that turn their backs on us, that we can continue to fight.

China is making a lot of headway with indigenous technology, with making sure that they have all the minerals and materials they would need in their supply chain to continue to be able to produce even if they were under a lot of pressure. So it is possible. There would certainly be challenges for China.

They do still import lots of semiconductors and microelectronics, and there are certain minerals that they rely on other countries for that could be useful in wartime. It wouldn't necessarily be a walk in the park. But they've made a lot of headway. And even if you imagine, say, that they were cut off from their trading partners, There's every reason to think they would be able to continue to produce military equipment at a pretty extraordinary clip. You know, we've been talking about...

just how much money China is pouring into some of these sectors and towards building them up. I'm curious whether all this investment could potentially backfire. Could that happen? And what would it look like? What's interesting when you look at... China today is you see...

There's this immediate contradiction, right? On the one hand, it's racing far ahead of the rest of the world in a lot of key technologies for the future. Things like electronic vehicles, with shipbuilding, how it's just producing so much more than everyone else.

robots, it seems to be doing very well. There are also advanced pharmaceuticals. There are a lot of things you can point your finger to and just say, wow, this is a country that's really humming. On the other hand, economic numbers aren't so good.

It's wrestling with deflation, which is typically not a sign of a thriving economy. There's a lot of youth unemployment. When I speak to Chinese people, a lot of them are pretty down about the economy in a way that it wouldn't have happened 10 years ago. So how do you reconcile these two things? And one answer is that they're sort of over-investing in these strategic industries where the government, because it's authoritarian, can just dedicate enormous resources to strategic industries.

But at the same time, they're sort of stifling consumption, in some cases even holding back other industries that might employ people in jobs they'd rather have, say the tech sector. So over-investing, it depends on what your priorities are. is clearly trying to focus on national security and being self-sufficient, but certainly there are costs to broader economic health. Coming up, how the US's industry stacks up to China's when it comes to products that would be vital in wartime. Stay with us.

Welcome back.

As we've been discussing, modern warfare is a contest of manufacturing strength. So what does the U.S.'s industrial capacity look like, especially compared to the powerhouse that is China? Here's senior reporter John Emond. John, what are some of the areas where the U.S. has lagged behind China? You already mentioned shipbuilding, but what are some of the others?

Minerals and materials are another thing. So a common example is the rare earth magnet. This is something that was invented by the United States. These magnets are made up of something called rare earths, which are from a group of minerals that are...

difficult to mine efficiently and process efficiently and they make these magnets that are extremely powerful and those are very important for motors in vehicles and the united states hardly produces them and has hardly produced them for years and china produces

something like 92% of the world's rare earth magnets today. And the United States produces a teensy, teensy bit today. So this is a major vulnerability, for example, for the United States. And there are all sorts of... little thingamabobs like that that are actually very important for running a military machine.

that the United States has really lagged in. It relies on imports for many different types of microelectronics. So that's at a very basic level. And then as you continue building up and you look at something like... I mean, the United States hardly produces commercial ships anymore. So that just means you don't have the same efficiencies and the scale of these Chinese naval yards. It means you have very few.

workers who are actually trained in how to make ships, which means that if you ever needed to ramp up shipbuilding capacity, you'd really struggle to do so. So there are a lot of potential weaknesses in the United States' defense industrial base. I'm sure each sector has its own dynamics, but just broadly, why is the US lagging so far behind? One thing is because China is this un...

unprecedented manufacturing power. If we compare the United States to almost any other country, and we imagine some type of conflict scenario, we might think the United States would actually be able to out. The second is that America...

America has been deindustrializing, manufacturing as a share of the economy has declined for decades, but the United States economy has moved in different directions, right? In a world of free trade, the United States has had comparative advantages elsewhere, and the economy has grown. You can debate whether the pluses ever outweigh the minuses, but certainly if you look at it from the perspective of a potential conflict that's a real problem.

I'm curious what role President Trump's trade policies play in bringing the U.S. into a better military position compared to China. From one hand, you can certainly see that this is alienating allies. The United States, it's really hard to imagine it's ever going to be able to outproduce China.

But potentially, if it has a tight web of alliances and is able to work closely with countries like Japan and European countries that do have strong manufacturing bases, you can imagine it could put up a much better fight. to the extent that it's alienating these countries. You could see how that could...

To certainly put the United States in a worse position, you could certainly take the other side of that too and say that this is making American allies realize that they've got to demonstrate that they have things to offer, that they can't just free ride. So that's one way to look at it. plan to levy a major tax on Chinese ships that deliver goods to U.S. ports. That would definitely cause a lot of disruption to the economy, like they could diminish interest in buying Chinese ships.

That could lead to more orders, not really coming to the United States just from that policy alone, but potentially going to places like Japan and South Korea. But that wouldn't automatically mean rebuilding the U.S. shipbuilding industry. That's tougher. And where does the US-China relationship go from here? What's clear is both countries see the other as their main geopolitical competitor.

it's hard to imagine that changing anytime soon and that just almost certainly means there's going to be a lot of thought in both countries about their vulnerabilities and which of their industries are... vulnerable to the other side decides to stop trading a particular product and so therefore there will be a lot of thought into how can we build up indigenous capacity in this even if it costs more there's definitely going to be a lot of

wariness for the foreseeable future between the United States and China, which obviously they continue to have a huge trading relationship. So the world's going to be an interesting place for a while, unfortunately. John Imont is a senior reporter based in Singapore. Thanks, John. Thanks so much, Alex.

And that's it for What's New Sunday for June 1st. Today's show was produced by Charlotte Gartenberg with supervising producer Michael Kosmedes and deputy editor Chris Zinsley. I'm Alex Osola, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.