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On January 23rd, three hundred miles southwest of Beijing, a rocket the size of a fifteen-story building ascended on a thundering pillar of flame from the Taiyuan spaceport. It was carrying a five-ton payload: a batch of eighteen satellites for the Qianfan (“Thousand Sails”) satellite internet project. There have been four Thousand Sails launches so far, with 72 now in orbit. Many more will be launched this year. 

Thousand Sails will be a “megaconstellation,” a new category of orbital satellite constellations that number in the thousands. SpaceX’s Starlink is the first and biggest such megaconstellation, with seven thousand satellites in orbit, a feat China aims to match. Thousand Sails is scheduled to have over one thousand satellites by 2027 and 14,000 in the 2030s. These are credible plans, both because there are no new technical challenges to overcome and because Chinese space organizations have had a good track record in recent decades of achieving their announced timelines.

Other Chinese constellations are also underway, such as the more secretive and defense-oriented Guowang (“National Net”) project run by the state-owned enterprise China SatNet, which current plans also place at 13,000 satellites by 2035. The first ten National Net satellites were launched on December 16, 2024, this time on a rocket with three times the payload capacity. Details are unclear from public information, but the rocket lift capacity suggests these new satellites may be the size of Starlink V3 satellites (close to 2,000 kilograms). SpaceX has not yet deployed Starlink V3, which will provide substantially higher network capacity; the company is waiting on the higher payload offered by Starship, their new launch vehicle. 

China now has over 800 satellites in orbit, recently having overtaken the United Kingdom for second-most behind the United States. While the United States might seem far ahead at almost 9000, as recently as 2017 the U.S. had less than 800 satellites in orbit. Once new launch vehicles are developed, the number of Chinese satellites might quickly increase to match or exceed those launched by the United States. There is a revolution underway in space technology, with the United States leading and only China catching up. These are by no means the only Chinese space accomplishments in recent years.

The day after the first National Net deployment, Chinese astronauts Cai Xuzhe and Song Lingdong broke the record for the longest spacewalk in human history. The Chinese astronauts spent over nine hours working on maintenance and upgrades to the Chinese Tiangong (“Heavenly Palace”) space station, circling the Earth six times before their work was done. New, more lightweight and flexible Chinese spacesuits helped make this long spacewalk less tiring and dangerous. These achievements are not exceptional but expected for the modern Chinese space industry. Gone are the days of infrequent launches and deep caution.

In 2024, China launched 68 orbital rockets—a new record, and lagging behind only the United States. There were two failures in the growing commercial launch sector, but other commercial launches were successful. Recent Chinese successes in space have ranged from the Tianwen-1 (“Heavenly Questions”) mission, driving a rover around the Martian surface for almost a year from 2021 to 2022, to commercial satellite launches for friendly nations, to a series of lunar exploration missions, starting with the Chang’e-1 lunar orbiter in 2007 and including the Chang’e-6 mission in 2024, which was the first mission by any nation to return samples from the dark side of the Moon. The United States undeniably finds itself in a new space race that its politicians and the American public barely know anything about. Unless that changes, it might well be a space race the Western superpower ends up losing.

The Chinese Plan to Outdo the Apollo Program

In the wake of the second successful Chinese lunar sample-return mission, Chinese paramount leader Xi Jinping met with space program leaders in September 2024 and redoubled his emphasis on space achievements in the pursuit of national greatness, encouraging accelerated development. Xi has made his goals clear: to “explore the vast universe” and “become a great power in space.” The requirements for great power status, however, are relative. Cai and Song’s record-setting spacewalk was only barely longer than the old record after all—just enough for a news headline. 

China’s space program, carried out by the China National Space Administration (CNSA), has become a focal point in building up national prestige and an aspirational mindset. Tellingly, contemporary CNSA program names such as the Chang’e series of lunar missions—named after the Chinese Moon goddess—draw from Chinese mythology rather than the history of revolutionary communism as with the Long March rockets—programs that began in an era when the Soviet Union, not just the United States, was far ahead in space technology.

Chinese lunar exploration has clearly become focused on sending a crewed mission to the Moon and landing astronauts on its surface, matching the United States’ accomplishment and prestige as currently the only country whose astronauts have walked on the Moon. The Chinese intend to go this decade too: current plans schedule a manned landing for 2030. After that, they intend to build a Moon base.

Various state-owned enterprises within the Chinese space industry are working on improving all the technologies they have developed over the last decade to help achieve this goal. These projects include more advanced spacesuits, a lunar lander, and, most importantly, a new super heavy-lift rocket. By U.S. conventions, a super heavy-lift rocket is one that delivers fifty metric tons to low Earth orbit (LEO). The Long March 10 rocket has a stated capacity clocking in at seventy metric tons to LEO and 27 to trans-lunar injection—the more energetically expensive trajectory required to reach the Moon. The first test flight is planned for 2026.

The third and final module of the Tiangong space station was installed in 2022. Launched on a Long March 5B rocket, the Mengtian (“Dreaming of the Heavens”) module weighed 23,000 kg at launch and had to be accelerated to over seven kilometers per second to achieve a stable orbit four hundred kilometers above the Earth’s surface. Delivering to the existing modules with a crew on board required careful orbit alignment and a large robot arm to help manipulate the module into place. This was the realization of a plan conceived in the early 1990s. Chinese astronauts have inhabited the Tiangong station ever since, performing countless spacewalks, experiments, and live streams for the Chinese public.

The construction of the first permanent space station is not just an achievement in and of itself but a crucial stepping stone for manned missions deeper in space. Tiangong and the International Space Station (ISS) are the only space stations humans today operate in the Earth’s orbit. While the ISS is set to be decommissioned in the coming years, the Chinese space agency is preparing a new space telescope module to be launched in 2026 and periodically dock to their space station. The Chinese station has seen notable research take place, including experiments such as microgravity rice cultivation for feeding crews on long space voyages and tests of artificial photosynthesis to produce ingredients for rocket fuel.

China’s Space Industry is Second Only to SpaceX

Since the end of the Cold War, the United States has enjoyed decades of being an undisputed leader in space exploration and orbital infrastructure, with more advanced satellites and more ambitious missions than any other power. However, U.S. orbital launches were very expensive: the Space Shuttle program was ultimately a failure when it came to making a reusable launch vehicle that was actually cost-effective. Russian rockets were the cheapest mass-to-orbit system into the 2000s and, as the Space Shuttle was phased out, were necessary for ferrying American astronauts to the ISS.

Elon Musk’s SpaceX changed that and single-handedly brought about U.S. dominance in launch vehicles. The company’s success in developing vertical-takeoff vertical-landing (VTVL) rockets unlocked much more efficient reusability than the Space Shuttle ever did. With reusability, you don’t need to build a completely new rocket for every launch, merely refurbish and refuel it for the next flight. Truly reusable VTVL launch vehicles are effectively impossible for single-use rockets to compete with. The typical price an external customer pays for a SpaceX Falcon 9 launch bottoms out at roughly $2500/kg, with an up to 23 metric ton payload to LEO, depending on the configuration. Elon Musk, in 2020, even estimated the marginal per-launch cost for Falcon 9 at about $15 million, which is under $1000/kg. The price is widely considered the best available.

While launch costs are difficult to directly compare due to the unique requirements of each customer and the lack of public information in many cases, the Chinese Long March 5B costs about $3000/kg, with a payload of about 25 metric tons. This puts Chinese launch vehicles behind SpaceX but ahead of everyone else. For example, United Launch Alliance, a U.S. launch provider, has the Vulcan Centaur, which costs about $4000/kg; Europe’s Ariane 5 costs about $9000/kg; and Russia’s Proton costs about $4300/kg. Without SpaceX, China would have the world’s cheapest satellite launch costs.

SpaceX uses metal 3D printing technology to produce reusable rocket engines, as well as complex arrays of sensors and control systems to enable vertical landing. China already has a robust capital equipment industry, including companies with 3D printers for metal. For example, upstart Chinese rocket maker Galactic Energy has been working with the Chinese 3D printing company Farsoon Technologies to develop fully reusable rocket engines.

While Chinese suppliers are almost certainly technologically behind SpaceX suppliers, the necessary machining systems, while advanced, will likely take just years, not decades, to develop. While successfully developing VTVL is a difficult engineering challenge, there is now a clear proof of possibility and a clear incentive to catch up. 

To fulfill the more ambitious goals the Chinese government has set, they have to develop the capability to bring larger payloads to orbit and do it at an even lower cost per kilogram. Without such heavy and ultra-heavy launch vehicles, projects such as a manned Moon or even Mars mission become prohibitively expensive. The same is true of maintaining extended space infrastructure such as new space stations, orbital weapons, or satellite megaconstellations. 

When it comes to more ambitious payloads, SpaceX is far and away the dominant launch provider both in the U.S. and globally. Falcon Heavy rockets are the cheapest option for super-heavy launches to energetically demanding orbits, delivering 50-64 metric tons to LEO and 27 tons to geostationary transfer orbit, which is used for communication and observation satellites that do not require low latency. Starship—the most ambitious rocket under development by SpaceX—is likely to achieve even better prices per kilogram with even more mass to orbit. Whether the United States maintains its role as the preeminent pioneer in space exploration and, hopefully, colonization and resource extraction will depend on whether the American space industry can stay decisively ahead of China.

Old American launch providers—namely Boeing, Lockheed Martin, and Northrop Grumman—are making relatively few and rather expensive launches every year. They continue to receive government contracts, such as satellite launches for the U.S. Space Force. The old guard of launch providers are also deeply involved in the super-heavy lift Space Launch System (SLS) under development for the Artemis program to return to the Moon. This expendable rocket, which is expected to cost in excess of $2 billion per launch with a capacity of 70-130 metric tons to LEO and 27-46 tons to lunar orbit, has faced constant delays and cost overruns. These dead player institutions are unlikely to ever catch up to SpaceX, so this is likely a waste of U.S. funding. There is, however, one notable alternative to SpaceX: Jeff Bezos’ Blue Origin successfully completed the first orbital launch of its partly reusable heavy-lift New Glenn rocket on January 16thThe core institutions of the Chinese space industry have, in contrast, long been large state-owned enterprises. The Long March family of rockets that have been manufactured by such enterprises for over fifty years continue to be the workhorse of Chinese orbital launches.  The China Aerospace Science and Technology Corporation (CASC) and the China Aerospace Science and Industry Corporation (CASIC) both maintain strong connections to defense technologies, from missiles to drones. These companies benefited massively from a transfer of Russian technology starting in the 1990s and continuing to the present day.

The Chinese manned space program in its current form began in 1992, laying out three initial goals: crewed orbital launches, a temporary orbital laboratory, and finally a more permanent space station. China worked closely with Russia, receiving capsule, docking system, and life support system hardware to reference for their designs. Chinese astronauts traveled to the Yuri Gagarin Cosmonaut Training Center in Russia and passed on their knowledge to other astronauts back home. Even the Chinese permanent space station is largely based on the Soviet Mir station which operated from 1986 to 2001, although it is entirely Chinese-made and outfitted with more modern technology. Thus,. successes ranging from the first Chinese astronaut, Yang Liwei, in 2003 to the completion of Tiangong in 2022 owe a great deal to direct assistance from Russia.

China even relied on a Russian launch vehicle for its first attempt at a Mars orbiter, hitching a ride with several other spacecraft in 2011. However, the rocket failed to exit its initial Earth orbit, leaving the payloads to slowly deorbit. China began its own independent Mars project, this time without Russian help. Sino-Russian collaboration remains active. For example, in a memorandum from early 2021, the Russian space agency Roscosmos and the China National Space Administration agreed to build an International Lunar Research Station by the mid-2030s, with many other nations signing on. 

Having relied on Russian technology in the past does not mean that CASC and CASIC are dead players, like Boeing. The Tianwen-1 Martian rover is the only one to ever successfully deploy that wasn’t made by the United States. Crucially, they are pursuing the development of the Long March 9 as a fully reusable super-heavy lift rocket designed for manned lunar missions—a pivot from the original design and a clear response to Starship. Nor does it mean they can’t successfully commercialize their technology. For example, China’s GPS competitor, BeiDou, was completed in 2020, with dozens of thousand-kilogram satellites in geostationary and medium Earth orbit. Built in part by CASIC, along with other state entities, BeiDou’s capabilities are generally recognized to be superior to GPS, reflecting their newer technology. The network generates tens of billions of dollars in revenue for the state-owned and private-sector companies involved in its operation. 

The Limits of Catch-Up Only Development

There is little reason to think that, given enough time and resources, Chinese engineers and scientists will be incapable of reinventing the many technologies that are currently the unique purview of U.S. entities. China has been extraordinarily successful in building up domestic industrial capacity in recent decades. It has built up industries ranging from chemicals to consumer electronics to shipbuilding, becoming a global manufacturing hub by blending market economics with trade barriers, subsidies, and strong export incentives. 

However, this doesn’t necessarily translate into achieving technological dominance. China is at the forefront in some industries, such as electric cars, drones, and solar panels, but remains behind in others, such as high-end chips or drug development. Moreover, past Chinese successes in catching up to foreign producers often involved Western companies offshoring to mainland China, chasing the better margins of cheap labor—something that inevitably resulted in technological transfer. 

That won’t work for space technologies. There was some U.S.-China space collaboration in the 1990s, but after the Cox Report in 1999 documented significant concerns over technology transfers to China, rules were tightened substantially. And since 2011, as a result of the Wolf Amendment included in every appropriations bill since, NASA’s contracted-out mission hardware cannot be made in China. Satellites and launch vehicles are also both regulated by both International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR), requiring export licenses.

Industrial espionage efforts are undoubtedly underway on many fronts and are likely to achieve some results for China. However, by the time Chinese launch providers catch up to where SpaceX is today, the American company will have advanced further still. China may have an uphill battle to achieve technological supremacy over U.S. launch providers, at least for as long as frontier innovations continue to have compounding returns, as with SpaceX today.

There are, furthermore, some structural problems with the Chinese launch vehicle development process. The development cycles for new generations of Long March rockets have typically been quite long, similar to legacy defense contractors in the U.S. and other launch providers around the world, such as Arianespace in France or Roscosmos in Russia. CASC and CASIC have also typically been technologically conservative rather than modernizing as fast as possible. This is a notable contrast from other Chinese industries, in which private companies have made savvy bets with state backing to enter industries and end up ahead of the curve.

Failing to anticipate the disruptive innovation delivered by SpaceX, many next-generation Long March rockets are in the late stage of development, with enormous resources being sunk into them despite having no possibility of competing with reusable VTVL rockets. Nearly half of China’s 2024 launches were using older, less efficient, and highly toxic hypergolic fuels, and several new cryogenic fuel rockets are reaching maturity at a time when leapfrogging to reusable rockets might be more advantageous.  

The past ten years have seen a push for further commercial forays into launch vehicles in China, with leaders including Orienspace, Landspace, Galactic Energy, and iSpace, but none have yet developed heavy or super-heavy lift vehicles, which start at over twenty tons of capacity. Commercial launch providers in China currently operate mostly with payloads under one metric ton, although Orienspace’s Gravity-1 rockets have an LEO payload of 6.5 tons and others are in development. These companies also have no autonomy to pursue their own ambitions in space. Rather, they have been given room to compete and grow with the infrastructure and parameters laid out by the central government.

In support of increased orbital launch capacity, China has gradually improved its spaceports. While its first three spaceports were constructed deep inland, far from the reach of foreign sabotage and surveillance, priorities have shifted towards efficiency. The newest Chinese spaceport is at Wenchang, which opened for operation in 2014 on the island of Hainan in the South China Sea. Instead of traveling long distances by rail from manufacturing centers, launch vehicles can now be transported by sea, allowing for much bigger rockets. The Wenchang spaceport is also closer to the equator, reducing the energy needed to escape Earth’s gravity. The Tianwen-1 Mars mission launched from the facility.

On January 25th, the second phase of a commercial launch facility with two new liquid rocket launch pads broke ground in Wenchang, aiming to reduce bottlenecks in launch facility access for commercial space companies. The five-meter-diameter Long March 10 rockets carrying manned lunar missions to space are planned to launch from Wenchang as well; a crewed lunar exploration site currently under construction at the same complex.

These moves to commercialization and ambitious new launch capacity haven’t overcome a fundamental weakness of the Chinese space industry: by having developed in a context of slow progress and clear pre-existing examples to follow, the industry is less adaptable than it needs to be for this moment, and perhaps even less able to chart its own course absent a roadmap drawn out by those who came before. Institutions designed for gradual, long-planned execution of technology development according to a template aren’t easily repurposed for rapid pivots.

Internally sourcing an independent vision for what one might create out of nothing, comparable to those of Sergei Korolev, Wernher von Braun, or Elon Musk, might prove difficult. While China is sure to have some wild geniuses among its increasingly well-educated workforce, they are not empowered in its space industry as things stand. It remains to be seen whether China’s elites are still adept enough at institutional reform to successfully emulate the new privatized U.S. model or alternatively politically empower an ideological and perhaps politically unreliable individual and put them in charge of the national space program—a key pillar of Chinese national security. 

However, while few advanced technologies from the past century were first invented in China, today China manufactures many goods in larger quantities than any other nation. If China can build fully reusable rockets, even if they are smaller or less advanced and even if U.S. launch providers stay several years ahead, it will unlock vast possibilities.

The Windfall of a Second Space Race

Chinese satellite internet may or may not be better than that of U.S. companies, but they are very likely to complete megaconstellations made up of thousands of satellites providing service across vast parts of the globe, if only for their own national security needs. CNSA may well beat NASA’s Artemis to the Moon, and they will almost certainly achieve manned lunar landing at lower cost. If SpaceX does send humans to Mars, barring unlikely changes in the nature and interests of the governing regime, China will quite likely have the capability to reach Mars not too much later.

China is expanding the vision of its space program. For example, future stages of the Tianwen interplanetary exploration missions include sample returns from the atmosphere of Venus in the 2030s. NASA has plans for this too, perhaps sooner but perhaps not. Venus is closer than Mars, has more Earth-like gravity, and the upper layers of its atmosphere may be able to support habitable colonies—floating cities in the sky above the lightning storms and acid rains. However, our understanding of the exact composition and properties of its atmosphere remains incomplete. If NASA is too mismanaged to keep to project timelines, China may well fill the gap.

Regulatory structures in the U.S. remain relatively stifling for companies requiring extensive infrastructure buildout and frequent government approvals for test launches. The current Trump administration favors SpaceX, though the previous administration hampered them in a variety of ways because they perceived Elon Musk to be a political enemy. In the long term, much depends on whether SpaceX remains the only competitive player in U.S. or Western launch capabilities. While the company is currently led by a founder with a clear and motivating vision, companies, especially without good succession plans, tend not to perform well indefinitely. 

The new space race between the U.S. and China will likely have its own positive externalities. American launch providers mostly don’t need to compete with Chinese launch providers on cost, nor vice versa, because the markets are mostly walled off from one another. However, the push to be the first and bring glory to your nation or demonstrate superior military capabilities often proves more compelling than simple curiosity when marshaling vast resources. Perhaps this new competition will prove enough to finally propel humanity across the Solar System.

Almost immediately after his rise, South Korea began implementing his industrial policy. While some of South Korea’s new industry was managed directly by the state, much of it was run by the chaebol, large conglomerates of private industry. The chaebol, however, were far from independent, and the state exerted substantial control over their actions. As Hyung-A Kim writes in her 2003 book, Korea’s Development Under Park Chung Hee:

Nothing would illustrate the effectiveness of the “administrative controls” on the business community more than the SCNR’s arrest of fifty-one prominent businessmen on the charge of “illicit profiteering,” and thus the confiscation of their property…These leading businessmen were released on 30 June, only after they had signed an agreement stating: “I will donate all my property when the government requires it for national construction.”

After establishing who was in charge, the Park regime was not shy about telling the businessmen how, exactly, to use their property for “national construction:”

Ku Inhoe, the founder of Lucky-Goldstar and one of the “illicit profiteers,” was ordered to build a cable factory. He would have preferred to build a textile factory…But in April 1962, exactly four years before the completion of Lucky-Goldstar’s Han’guk Cable Company, Ku was summoned by Colonel Yu Wonsik…Although details of this episode are not documented, which is not surprising, Ku, like many industrial proprietors at that time, seems to have received much more than “verbal” lessons. It took around just ten days for Ku’s company, Lucky-Goldstar, to complete a loan contract of US$2.95 million with Fuhrmeister, a West German company, which had clearly taken extraordinary steps to help address Ku’s needs…After this incident, no business leaders, including Ku, dared to resist directly the directives that emanated from the SCNR’s industrial planning committees.

Once Ku shaped up and came on board with Chung-hee’s program, he was treated very well. His company, Lucky-Goldstar, is known today as LG. Instead of cable or textiles, LG has a sterling reputation for manufacturing advanced electronics such as cell phones. The company is still run by Ku’s descendants.

Under the direction of the SCNR and its successors, chaebol such as LG built up South Korea’s basic industries like agriculture and concrete, then progressed through steadily more advanced industries in record time. This required the construction of factories, and by the mid-70s, South Korean industry had grown large enough that they needed to import machine tools for these factories in large quantities.

Machine tools are tools for cutting and shaping metal more precisely and efficiently than hand tools ever could, originally controlled by manual levers and wheels or rigid metal pattern jigs, but nowadays mostly via computer control.

https://www.youtube.com/watch?v=81UjjSH2iFw

A machine tool in action

These “tools that make the tools” are a crucial piece of modern supply chains, and most advanced manufacturing would be impossible without them. The ability to produce machine tools domestically is one of the foundations of a deep industrial base. Recognizing this, the South Korean state encouraged Hyundai, a chaebol which built the first all-Korean automobile in 1975, to begin making machine tools for the growing domestic market. Since then, the South Korean machine tool industry has grown steadily alongside the Korean economy as a whole. Production today is slightly larger than the machine tool industry of the United States, a country more than six times as populous.

This was just one element of South Korea’s “Miracle on the Han River,” which catapulted the country into the ranks of the world’s most developed nations, even as the government transitioned from an authoritarian dictatorship to a liberal democracy. By now, the South Korean industrial base has not only raised tens of millions out of poverty, but also lifted the nation from a backwater of little geopolitical significance into an important regional player and a crucial part of global supply chains.

Korea’s story may be more extreme than most, but this type of state-led economic development is how every wealthy country on Earth has industrialized. The sole exception is Britain during the original Industrial Revolution. In spite of the Crown’s active economic policy in many other areas, the earliest industry was built with very little government support, and that only tangential and undirected. Examples of state involvement in industrialization abound. America’s government-funded railroad boom of the late 19th century made possible the burgeoning Pacific cities and the agricultural boomtowns of the Wild West, while the demand for rails provided a market to fuel the explosion of steel mills using the groundbreaking Bessemer process. The Five-Year Plans of the Soviet Union developed the heavy industry that would launch Sputnik and kick off the Space Race. In China today, hundreds of millions have been lifted out of poverty by state-directed economic development.

Such transformations require high-level guidance from a competent state coordinating the key industries and establishing crucial infrastructure for the new economic system. Building a single industry in isolation does not transform a society, and frequently cannot be done at all without the other industries that support it. The right industries must be built in the right order, and often in parallel, as in the case of Korea’s automobile and machine tool industries. In the presence of existing industry available in international trade, the coordinated investment in localizing industrial capability is beyond the ability of undirected markets, no matter how good they are at hill-climbing. Radical change has enough different steps, moving parts that must be coordinated, and short-term investment for long-term gain, that it must be planned by a human mind. The great strength of capitalist societies is that industrialists like Henry Ford or Jeff Bezos can transform single industries within an existing economic framework, but the economic framework itself is too large to be remade with the resources of any individual or corporation. Only the state can coordinate many different industries to produce a transformation at the scale of industrialization. Some attempts at this have been more competent than others, of course, but whether the state accomplishes its industrial policy via purchases and subsidies on a relatively free market, or by more directly coercive methods, the economic effects are similar.

The industrial capacity of a nation can often be predicted by its ability to produce machine tools at high quality and quantity, as seen with South Korea as its industrial capacity developed. Machine tools are not only vital to industrial supply chains and an unfakeable indicator of real industrial capacity, but they also provide a lens to examine broader industrial and development policy. Machine tools, like the industrial economy as a whole, require a well-educated workforce, substantial and well-coordinated capital investment, and a robust consumer base—none of which can be produced by a single machine tool manufacturer. Creating the context in which machine tool production can develop and flourish requires coordination between government, business, and finance elites; much of this is captured by the term “industrial policy,” but factors ranging from the nature of the financial and legal systems to culture and positioning within global trade systems are also critical. Substantial state capacity is required to plan and execute the process of industrialization. In a recent report published by Bismarck Analysis, we described the involvement of the state and other elite institutions in the machine tool industry of every major producer, as well as some failed attempts to build this industry. What follows is based on that research.

Britain Sparks the Industrial Revolution

The first machine tools were invented in Britain to support the metalworking needs of early industrialists. Watt’s steam engine, which began production in 1776, was made with a boring machine that had been invented only two years earlier to make cannons. The Crown paid little attention to this nascent industry, although it was quick to buy machine tools to manufacture guns and ships, and many historians believe Britain’s relatively new patent system was a necessary precondition of the period’s rapid technological progress. Nevertheless, there was no state effort to support machine tool production as such, since there was no way of knowing how important such tools would become.

Once the British realized what they had, Crown and Parliament stepped in to support advanced manufacturing. British technology was kept from foreign competitors by a succession of bans on export, starting in the late 18th century. However, as demand rose in the early 19th century, makers of products such as machine tools would routinely circumvent these bans and risk the heavy fines in order to sell to markets in the U.S., Prussia, and beyond. By 1841, under pressure from machine tool makers, these export bans were lifted in favor of a free trade policy. This increased profits but allowed foreign powers to accelerate their coordinated attempts to replicate British technology.

However, foreign powers did not respect British patents, and there was minimal support to protect domestic manufacturers from foreign competition backed by industrial policy. British machine tool makers at first blazed trails beyond what anyone even imagined, but the extreme cost efficiency and technological superiority of British manufacturing relative to foreign competitors, which had propelled the massive boom of the early Victorian era, waned over time. British manufacturing supremacy gradually eroded and ended up facing inwards to the captive markets of the empire. In the years after the Second World War, as Britain’s ability to protect what remained of its once-formidable industrial output slipped away, so too did Britain’s ability to maintain its overseas empire and stand on its own against the new superpowers. Today, the United Kingdom produces a mere 1% of the world’s machine tools.

The American Juggernaut

The first countries to surpass Britain industrially were Germany and the United States, whose policymakers were the first and best at aggressively supporting machine tool production in their own home markets. In America, an early two-prong strategy protected American companies with the series of trade barriers kicked off with the 1828 tariff act, while avoiding recognition of patents protecting English inventions. The federal government also purchased mass-produced rifles, creating a government-supported market for machine tools, much like that which supported Hyundai in Korea. American firms were actually exporting back to England by the 1850s. This was followed by a century of meteoric rise in industrial output. By the end of the Second World War, in the afterglow of extraordinary investment in arms manufacturing, America was fully dominant in the global production of machine tools and almost everything else.

However, in the post-war years, U.S. policymakers were more interested in rebuilding and supporting their Cold War allies than protecting domestic manufacturing. The domestic market remained colossal, but first German and then Japanese firms made massive inroads, and today, the majority of American machine tools are foreign-made. A common thread can be drawn between postwar trade policy and the late British Empire, where the growth of foreign competitors, in conjunction with lack of political support for domestic machine tool production, also led to a substantial fall in output. In a sense, both stopped engaging in deliberate industrial policy for manufacturing, while operating in the global market where other countries were still very much pursuing deliberate policy.

Bismarck’s German Industry

In contrast to the great English-speaking countries, Germany is a perfect example of what continued support for manufacturing can look like. With the Unification of Germany, orchestrated by Otto von Bismarck in 1871, high-level industrial policy became possible. Bismarck met with leading industrialists and coordinated a complex economic policy including targeted tariffs, while German industrialists sought to acquire British technology. By the eve of the First World War, German machine tool production was second only to the United States.

The situation in Germany from the dawn of the First World War until the end of the Second was turbulent. By 1945, the occupied and partitioned German state was devastated. However, after the war, West Germany engaged in massive reconstruction. West Germany supplemented American aid with massive domestic investment and planning focusing on supporting key industries and rebuilding a stable export-oriented manufacturing economy. In contrast, France used American aid for non-infrastructure projects such as the war in Vietnam and continued a pattern of importing machine tools from elsewhere. German programs such as the 1952 “Investment Aid Law” forced hundreds of thousands of firms to contribute funds for investment in bottleneck sectors of the quickly growing post-war economy, while substantial tax breaks, loans, and grants supported machine tools and other heavy industries. By the 1960s, West German industry had largely recovered to pre-war levels and after the rise of newer technologies West German manufacturers became competitive in the U.S. home market, and rose to being one of the top producers in the world.

State intervention in the German economy has long been understated by the German government. When direct U.S. aid played a substantial role, Cold War ideology made it politically untenable to speak of central economic planning and interference with private enterprise. In the modern era, with the proliferation of free trade agreements and zones, the best way to ensure access to foreign markets is to sing the praises of the free market. The modern German state, however, is more subtle rather than less active in promoting specific modes of economic activity: from structuring financial institutions to encouraging domestic investment and supply chains, to vast subsidized research institutes for manufacturing technologies, to the German role in shaping the European Union, the German state has supported high-value manufacturing since Bismarck.

Japan’s Rise

Japan’s path to a domestic machine tool industry and robust domestic manufacturing base has a lot in common with Germany’s, but started from a less developed point. Japan was a largely agrarian and feudal society, but beginning in 1868 under Emperor Meiji, Japan catapulted into vastly more modern forms of government and economy. Careful Japanese observers traveled around the Western world, especially Germany, to determine what worked best. In 1889, Emperor Meiji put in place the new Meiji constitution, based on that of the newly unified German Empire, and Japanese policymakers brought in foreign machinery and advisors to reproduce the capabilities of foreign industry. The largest focus was on bringing military technology and heavy industry to a level that allowed Japan to compete with Western powers, culminating with the Japanese annexation of much of East Asia. By the Second World War, Japan was advanced enough to produce a vast navy and support the invasion of mainland China, but their infrastructure was still behind that of Western Europe and the United States. It was in the post-war years under U.S. occupation and then as a U.S. protectorate that Japanese policymakers worked with their large business conglomerates—the keiretsu—that Japanese manufacturing finally caught up. With a strong focus on exports, Japan overtook first the U.S. and then West Germany in machine tool production, and since 1990, has remained at a similar level of production to now-unified Germany. Japan maintains relatively closed markets and deeply interlinked companies and financial institutions, which combines with substantial ongoing state investment to maintain leading-edge manufacturing for export. South Korea and Taiwan’s later industrialization relied upon a style of industrial policy heavily inspired by Japan, and on the same preferential access to U.S. markets.

In fact, the ability to buy from and sell to American companies and consumers enormously helped all of the great success stories within market economies: Germany, Japan, Korea, Taiwan, and several other Western European countries. These countries dominated production capacity through the end of the Cold War, while many trying to operate outside the U.S.-led global order failed to fully develop a domestic manufacturing base.

Failures in the Periphery

Much of the world has never developed substantial industrial production. In countries such as Brazil and India, industrial policy has had mixed results. Efforts in Brazil began in the 1930s, but were largely decentralized and contradictory. Import restrictions subsidized low-end domestic production, even as imports of higher quality machinery continued; as a result, domestic firms had no natural path to more sophisticated manufacturing, and have mostly stagnated. India has also had largely contradictory and poorly coordinated industrial policy, and despite substantial demand for machine tools in low-end manufacturing, India has limited domestic production. Many countries in the position of India or Brazil rely on global trade systems both for raw materials and for end markets, but do not have the leverage to gain access without taking down their own tariffs and protection of domestic industry. Accumulation of the capital needed to invest in advanced manufacturing is also a challenge; foreign capital investment is difficult to direct to strategic industries, but without foreign assistance or very strong domestic coordination, domestic capital accumulation is almost never achieved.

Russia’s Collapse and China’s Success

Russia and China, however, have a different story to tell.

Soviet policymakers well understood the necessity of machine tools, but did not operate within the market framework that led to American or German success. Instead they centrally planned production via the famous Five-Year Plans. By the time of the Second World War, the Soviets were able, through massive proliferation of low-end machine tools and vast factories across the country, to produce overwhelming numbers of tanks and planes to support the war effort. They still relied on imports from the even more formidable American military machine, but the contrast from 1890 to 1940 is staggering.

Almost as staggering is the fall that came later. Soviet machine tool production continued to rise after the war, and by the 1970s overtook the United States, which by then was sourcing many machine tools from other NATO countries. Soviet industry was often thought to be an unstoppable juggernaut. However, in the 1970s and especially the 80s, the Soviet system began to fray at the edges, and after the collapse of the Soviet Union in 1991, machine tool production dropped precipitously. Soviet industry had always been inefficient, but with the protection of the Iron Curtain, better and cheaper machine tools from the West could not drive Soviet producers out of business. The 1990s brought sudden withdrawal of state subsidies, introduction of free trade, and elimination of price and exchange controls, collectively termed “shock therapy.” This, along with the breaking up of supply chains distributed across many different regions of the now fractured Eastern Bloc, destroyed much of the region’s productive capacity. To this day, Russia tries to rebuild machine tool production capacity to support its relatively modest military needs but fails even at that. Many attempted policies fall flat due to corruption, lack of state capacity, limitations of global trade rules, and the sheer weakness of both consumers and producers of machine tools in Russia. The implications for sovereignty are made starkly evident when American sanctions can restrict Russian access to high-end German or Japanese machine tools vital to maintaining their dilapidated navy.

China comes out of a sister tradition to that of the Soviet Union. After the communist forces won the civil war in 1949, Soviet support for the revolutionary cause became direct aid to the fledgling state to build a bulwark against American influence in East Asia. The early years of Maoist China had uncountable failures—more so even than the early years of communism in the Soviet Union—but one of the more successful programs was a massive transfer of industrial technology spanning 1949 to 1966. While Sino-Soviet relations broke down by the end of this period, early on there were enormous strides as Soviet advisors came in and built entire factories with copied over workflows across dozens of Chinese cities. By the time of the Sino-Soviet split, Chinese machine tool production was self-sufficient, although quality and efficiency were poor.

Liberalization reforms under Deng Xiaoping allowed the Chinese machine tool sector to become far more efficient, along with the rest of Chinese industry. Later efforts to bring in foreign technology through control of lucrative direct investment deals and state-financed acquisition of foreign companies catapulted some leading Chinese machine tool producers to a technological level far beyond what the Soviets had achieved. Chinese machine tool production expanded exponentially from 1990 to 2015 to outfit massive factories built across the country, serving export-focused manufacturing directives driven by Chinese planners. Today, China produces more machine tools than any other country but still relies heavily on imports from Germany, Japan, Taiwan, and Korea for more high-end needs. China has not yet solved the problem of self-sufficiency; its supply chains still rely on essential partners within the U.S. alliance. However, through implementing a market system yet keeping in place massive state-owned enterprises, state-controlled investment banks, import and export restrictions, strong requirements for any foreign investors, currency manipulation, and many other policies, China has to this point managed to build an extraordinary industrial base.

Industrial Policy

Chinese policymakers understand industrial policy. Li Keqiang, for example, spearheaded the Made in China 2025 initiative to develop Chinese high-tech manufacturing. This includes subsidies and intellectual property transfer requirements intended to promote domestic production of equipment such as machine tools. China has used such policies to substantial effect for decades. For a modern economy, machine tools are just as essential as roads, and the state has a necessary role in building both types of infrastructure.

Savvy states often support such foundational industries via manipulating the structure of the market. Targeted tariffs, for example, raise the price on foreign imports within certain categories, thus helping domestic “infant industries” compete where they otherwise couldn’t; in theory, the tariffs are then phased out as the industry matures. This can be part of a broader import substitution strategy wherein trade barriers are put in place while the currency value is kept high, helping producers acquire capital goods necessary to build factories, and controls are placed on certain types of financial transactions. The goal is to allow a product that has been typically imported to instead be made by domestic producers, thus reducing dependence on foreign nations.

Another type of industrial policy is export discipline, wherein government policy supports industries on the basis of their ability to export to global markets (often the U.S. market). This can take the form of direct subsidies, access to loans, or other incentives tied explicitly or implicitly to export volume. This forces domestic producers to make products that are up to world standards, but allows them to do so less efficiently while the industry is being established.

A more direct approach is for the government to simply purchase a favored industry’s products, as the U.S. did for military hardware during and after the Second World War. These massive investments in American industry helped propel the country to staggering heights of production, and launched industries including space travel, the internet, and solar energy.

Industrial policy can also include broader things like education and public research. Germany invests a great deal in education and research for manufacturing. Since the Second World War, German policymakers have tailored their workforce to support advanced manufacturing.

Intellectual property rights are a piece of industrial policy so ubiquitous they are often taken for granted. The United States has long maintained a patent system inspired by the English, but during critical parts of the American industrial revolution English patents were not respected, allowing American manufacturers (with the aid of tariffs) to dominate foreign competitors. Now, American intellectual property law and strong enforcement is an essential part of ensuring investment in research and development, and American negotiators seek to entrench respect for U.S. patents in any country seeking free trade with the U.S. Britain’s history suggests American negotiators will eventually fail in this goal.

Financial systems are another way that states can support favored industries. In countries like Germany and Japan, heavily regulated banks act in part as arms of the state, ensuring easy investment and access to capital for key industries. In contrast, the American system is much more laissez-faire, and relatively low-return investments like machine tool production simply do not do well.

A reality of industrial policy is that every economic situation is unique. The toolbox extends far beyond the few policies discussed here. The reconstruction of post-war West Germany, where an industrial titan was reborn from the ashes, requires different policies from the 1950s reforms that jump started Taiwan’s growth from a nation of poor farmers to a major global exporter of manufactured goods. These are both very different from the problem of reversing industrial decline which now confronts much of the English-speaking world. Countries from the United States to Canada to the United Kingdom have at least begun to de-industrialize, importing a much larger fraction of their manufactured goods.

Decline and Revival

The United Kingdom’s decline prefigured that in the United States. Early signs included the German supersession of British production output before the First World War and the reliance of the British state on imports to support the war effort. As per The Collapse of British Power Vol. 1 by Correlli Barnett:

The shortcomings of the British iron and steel industry alone were proof enough that the Motherland, no less than the empire, was not the great independent power it seemed, for as The History of the Ministry of Munitions states: ‘It was only the ability of the Allies to import shell and shell steel from neutral America…that averted the decisive victory of the enemy’

In the years after the Second World War, the collapse became acute. As the United Kingdom transformed from a hub of manufacturing for its empire and the world to a mere part of the European and Atlantic economic ecosystems, occupying niches such as finance and high-tech, the British state became unable to act independently of nations such as the United States, as demonstrated during the Suez Crisis in 1956. Like the Russians or the Chinese, who cannot operate their essential industries without relying on advanced machine tool imports, the United Kingdom is also dependent in a multitude of ways that it was not before the decline of domestic manufacturing.

The decline in American machine tool production has not progressed nearly as far. The relative power of America in the world may not be at its apex, but there has been no great, obvious collapse—no loss of overseas possessions, no supplicant position with regards to foreign economies like the European Union—and overall American manufacturing output is still strong for now. It was confidence in American power that allowed domestic industries to be replaced by imports from Cold War allies. Policymakers in the 1990s, at the end of history, believed that the victorious American global alliance would flourish into an eternal system of free countries spanning the entire world. If U.S. supremacy would never end, then there was no need for domestic manufacturing capacity to support sovereignty, with the distortions to efficient markets that that entails.

However, even a global superpower with no real peers like the U.S. cannot import critical technologies from competitors without consequences. Reliance on China for cheap steel is one thing—5G infrastructure is quite another. Even stalwart allies like Germany and Japan, which supply the overwhelming majority of advanced machine tools to the remaining American heavy manufacturers, cannot be seen as just protectorates without their own interests. Looking at the history of machine tools, and what happens to countries that have to rely on foreign powers to get them, makes clear that what remains of industry in the former powerhouse of global manufacturing is worth reviving.

The state has a role to play in running an advanced economy. In the United States, many institutions of government are too dysfunctional to do the part required of them, and finance is too used to free rein to take kindly to the reassertion of their responsibilities. The exact path forward is unclear, but coordination among the economic power centers of American society must be reestablished to rebuild the engine of creation.