My View: How the US can retake the lead from China in global supply chain

Anyone following the news lately needs a scorecard and a huge eraser if they want to keep up with the tariff situation, since it seems to change by the day.

The country that most people seem to be waiting for a final outcome? China.

For Arizona businesses, that’s especially true. Consider that in 2024 alone, China bought $1.7 billion worth of our products. That total placed the nation as the No. 4 export destination behind Mexico, Canada and the Netherlands, respectively.

But when it came to products headed our way, China sold Arizona $5.4 billion worth of products — more than three times what we shipped. That placed the nation only behind Mexico on our importer list.

It stands to reason that there may be lessons for businesses to learn when studying the secrets to China’s success. When it comes to technology, key have been that nation’s nearly three dozen Manufacturing Innovation Centers (MICs) connected in a for-profit system with equity ownership from state-owned enterprises and private investors.

As outlined in the recent NIST Advanced Manufacturing Series report, the seeds for MICs are planted when regional hubs directed by the Ministry of Industry and Information Technology set their focus on developing expertise in critical technologies in semiconductors, advanced materials, biopharmaceuticals and electric vehicles. Once funding, land and research talent are in place, the hubs gain the designation as centers.

Each MIC functions as a vertically integrated ecosystem, bringing together universities, suppliers and applied research centers. In Wuhan — China’s “Optics Valley” — for example, an MIC focused on information optoelectronics (light’s interplay with electronics) has become a national anchor for 5G and photonics research, and is linked to Huazhong University of Science and Technology.

By comparison, the United States has the consortia of institutes named Manufacturing USA. However, by operating in siloes, these nonprofits fall victim to being under-resourced compared to China’s MICs. Even Germany’s system of Fraunhofer Institutes and Research Units, according to NIST, invests nearly 20 times more per unit of manufacturing GDP than the United States does in its institutes.

A shift toward US strategic investments

Still, there is so much potential for our nation to not just catch up but take the lead. America’s greatest strength may lie in its flexibility and regional dynamism.

Arizona is a prime example. From Intel’s $32 billion investment in semiconductor fabs in Chandler and TSMC’s $165 billion in Phoenix to Lucid Motors repurposing and reshaping electric vehicle production along the Interstate 10 corridor, we boast a booming advanced manufacturing sector. Arizona’s proximity to key logistics hubs like the Port of Los Angeles and its robust rail network make it an ideal for reshoring supply chains.

In my own backyard, the Arizona Technology Council’s Optics Valley Committee offers a case study in how regional clusters can align with national goals. Optics Valley unites academia, startups and legacy firms in fields such as imaging, sensors and quantum technologies.

By focusing on automation, AI integration and design-for-manufacture strategies, the United States — and Arizona in particular — can reclaim ground in sectors where offshoring eroded capability. Instead of competing head-to-head on cost, we can compete on intelligence: smart manufacturing; lights-out factories; and resilient, digitally integrated supply chains.

Close gap between invention and commercialization

I opened this column with the hot topic of tariffs. To respond effectively to China’s innovation model, we instead must shift our thinking toward strategic investment. An Information Technology and Innovation Foundation proposal is funding 50 to 100 “super-automation” demonstration factories to serve as blueprints for the future: integrating robotics, AI and 5G-enabled control systems to dramatically raise domestic productivity.

This strategy also would help close the gap between invention and commercialization. The challenge — and opportunity — is building the infrastructure to keep production closer to the lab and to home. While China continues to outpace the U.S. in manufacturing research and development growth, we still lead in foundational research, although proposed funding cuts for National Institutes of Health and National Science Foundation may impede that dominance.

Keep in mind no amount of innovation matters if we can’t get goods where they need to go. As we modernize U.S. manufacturing, supply chain resilience must remain front and center. For example, Arizona and its neighboring states must cooperate on infrastructure investment, intelligent warehousing and regional collaboration. Let’s not forget deep partnerships inside Mexico, whose maquiladora network remains a critical ally in North American production ecosystems, especially those in our state.

China’s rise in advanced manufacturing should not be feared. The MIC model shows what’s possible when government, industry and academia align with a unified mission. The United States can and must respond with strategic investment, regional execution and a bold vision for 21^st century manufacturing.

Steve Zylstra, a regular Business Journal columnist, is president and CEO of the Arizona Technology Council.