How China's Next-Generation Industrial Policy Reshapes North American Supply Chains

Subheadline: The expansion of Beijing's state-led strategy deepens dependencies and forces a strategic response from the United States, Canada, and Mexico.

Executive Summary

A new report by Rhodium Group, commissioned by the U.S. Chamber of Commerce, assesses how China's industrial strategy is evolving and what it means for global competition. The findings show that Beijing is doubling down on state intervention, moving from a targeted industrial policy to what the authors call an "industrial policy of everything." This expansion is accelerating China's trade dominance, deepening foreign dependencies on Chinese supply chains, and facilitating the rapid global expansion of Chinese firms. For North America, the implications are significant: the region faces mounting competitive pressures in advanced manufacturing, critical minerals, and technology sectors, while supply chain vulnerabilities become increasingly difficult to manage. The report highlights that China's market share gains are underestimated in value terms, and that indirect dependencies through third-country exports create hidden risks. As China refines its policy playbook under fiscal constraints, North American stakeholders must confront a new phase of economic competition that demands strategic coordination across the United States, Canada, and Mexico.

Introduction

A decade after Made in China 2025 (MIC25), China is entering a new phase of industrial policy. Rather than retreating in the face of domestic and international pressures, Beijing is deepening and broadening its state-led economic strategy. The latest assessment from Rhodium Group, commissioned by the U.S. Chamber of Commerce, provides an evidence-based analysis of this next-generation industrial policy and its global impact. This article examines the report's key findings through a North American lens, focusing on trade, supply chains, manufacturing, and regional competitiveness.

Main Analysis: The Expanding Scope of China's Industrial Policy

Rhodium Group's report, titled "China's Next-Generation Industrial Policy," concludes that Beijing is moving beyond targeted sectoral intervention toward a comprehensive state strategy across all layers of production. Three trends stand out.

First, industrial policy is becoming more systemic and pervasive. While MIC25 focused on strategic emerging industries, current frameworks extend to mature sectors, foundational supply chain nodes, and frontier technologies. Beijing is not abandoning mature industries but is pushing them toward higher-value segments, using support to upgrade production technologies and lower costs. In upstream segments such as critical minerals, wafers, and magnets, China already holds dominant positions and seeks to extend its leverage.

Second, the policy playbook is being refined under tighter constraints. Slowing growth, weak domestic demand, and fiscal pressures have forced Beijing to adapt by recentralizing financial resources. Control over fiscal spending, bank lending, capital markets, and state investment funds is being tightened to direct resources toward strategic priorities. This may prolong the potency of industrial policy but risks reducing long-term economic efficiency.

Third, the global impact is accelerating. China's manufacturing trade surplus has roughly doubled since 2019 to around $2 trillion. Market share gains are increasingly concentrated in upstream segments of global value chains, such as chemicals, machinery, and industrial equipment—areas traditionally dominated by advanced economies. Notably, when measured in volume, China's market share gains are roughly twice as large as in value terms due to falling producer prices, meaning the true pace of expansion is systematically underestimated.

Trade Impact: New Pressures on North American Commerce

For North American manufacturers, exporters, and importers, the report's findings carry immediate and long-term policy implications.

The acceleration of China's manufacturing surplus signals renewed competitive pressure on industries in the United States, Canada, and Mexico. Chinese inputs and capital goods are increasingly embedded in products manufactured and exported by third countries, creating indirect dependencies that are difficult to detect. This means that even as North American companies diversify sourcing away from China, they may still rely on Chinese-made components through intermediate suppliers elsewhere.

Global reliance on Chinese supply chains is deepening across critical products. The number of products where China accounts for more than 50% of global exports has nearly doubled, stretching across sectors from electronics to pharmaceuticals. For North American importers, this concentration presents a risk management challenge. For exporters, China's industrial policy supports domestic competitors that can undercut prices with state-backed financing and scale.

The report also highlights Beijing's increasing use of policy tools to entrench its position in global value chains and counter foreign diversification strategies. This includes export controls on critical minerals, procurement policies favoring domestic firms, and restrictions on technology transfers. North American trade policies must account for these measures when designing tariff, investment, and export control strategies.

Regional Perspective: United States, Canada, and Mexico

The implications for the three North American economies differ but converge on the need for coordinated response.

For the United States, China's industrial policy poses a direct challenge to its leadership in advanced technology and manufacturing. The report identifies persistent gaps in high-end semiconductors, aerospace, and biomedicine, but also notes that China's capabilities are expanding. U.S. industrial policy, including the CHIPS Act and Inflation Reduction Act, is a direct response to these dynamics. However, the report warns that China's "industrial policy of everything" requires a comprehensive strategy that goes beyond sectoral subsidies.

Canada's economy, with its significant resource base and manufacturing ties to the United States, faces both risks and opportunities. China's dominance in critical minerals is a particular concern, as Canada positions itself as a reliable supplier of lithium, nickel, and other inputs for North American battery and clean energy supply chains. The report's findings on China's upstream dominance underscore the strategic importance of diversifying critical mineral sources within North America.

Mexico's role as a nearshoring destination is increasingly central to North American strategy. The report suggests that China's expansion in upstream segments could affect the competitiveness of Mexican manufacturing. As companies relocate production to Mexico to serve the U.S. market, they must manage the indirect risk of Chinese content embedded in their supply chains. USMCA rules of origin provide a framework for ensuring that regional preferences benefit North American production, but enforcement and monitoring will be essential.

The report's findings reinforce the urgency of joint North American action on supply chain resilience, critical mineral strategy, and industrial innovation. The newly established North American Supply Chain Crisis Response Network, formalized under the USMCA, is a step in the right direction. But the report suggests that more comprehensive coordination is needed to counter China's state-driven approach.

Future Outlook: Strategic Choices for the Next Three to Five Years

Over the next three to five years, China's next-generation industrial policy will continue to shape global trade and investment dynamics. Several trends are likely to unfold.

First, China's market share gains in upstream industries will intensify. As Beijing pushes firms to upgrade production technologies, North American industries will face sustained price pressure in steel, chemicals, and machinery. This will make it harder for American, Canadian, and Mexican firms to compete without significant policy support.

Second, the role of artificial intelligence in industrial policy will grow. China is mobilizing its entire economic system to gain a foothold in AI and future industries, using public procurement and state-owned enterprises to create demand for new products. North America must accelerate its own AI adoption in manufacturing and logistics to maintain competitiveness.

Third, the risk of economic fragmentation will increase as Beijing uses policy tools to deter foreign diversification. Export controls and trade restrictions may escalate, requiring North American companies to build dual sourcing capacities and invest in supply chain mapping to identify hidden dependencies.

Fourth, the effectiveness of China's industrial policy may face headwinds from internal inefficiencies. The report notes that expansion risks diluting effectiveness, and increasing state influence on financial markets may reduce resource allocation efficiency. Declining corporate profitability and weakening private investment could temper China's technological advance. However, the leadership's willingness to sacrifice economic efficiency for strategic objectives means that these vulnerabilities may not quickly translate into reduced competitiveness.

For North America, the next few years will require a proactive and coordinated industrial strategy. Investments in infrastructure, workforce development, and R&D are essential. A stronger alignment of U.S., Canadian, and Mexican policies on trade, energy, and technology will be critical to maintaining the region's global competitiveness.

Conclusion

China's next-generation industrial policy represents a strategic shift that will have lasting consequences for the global economy and for North America. The Rhodium Group report makes clear that Beijing is not retreating from state intervention but expanding it. For North American policymakers, business leaders, and trade strategists, the takeaway is simple: the era of benign globalization is over, and strategic competition will shape the next phase of regional trade and industrial development. By understanding the evolving nature of China's industrial policy and acting decisively, North America can protect its economic security and seize new opportunities for growth.