China built deterrence through trade. The Indo-Pacific’s democracies need factories of their own. 

The Indo-Pacific has made real progress in the past decade. Frameworks like the Quad and AUKUS have strengthened maritime coordination, technology sharing, and political trust. These partnerships have built the scaffolding for a free and open Indo-Pacific. What the region now needs is the industrial depth to turn cooperation into lasting capability.

China understood this long before anyone else. It has built its power not through wars or alliances but through trade and industrial policy. In 2000, China accounted for under 9 percent of global manufacturing output. By 2024, that share had risen to nearly 30 percent, “more than the next four largest manufacturing economies combined (the United States, Japan, Germany, and India),” according to China Power.

Over the past two decades, Beijing has transformed industrial scale into diplomatic leverage. It now produces 50 percent of global shipbuilding tonnage, 80 percent of the world’s solar modules, 75 percent of lithium-ion batteries, and 90 percent of rare-earth elements. On this foundation, China has built a formidable system of deterrence for the twenty-first century.

Beijing’s logic is simple. If supply chains run through China, confrontation becomes costly for everyone else. That thick economic web deters rivals from escalation. Hence, the heart of the China challenge is how to compete with its quiet hegemony of trade.

President Donald Trump’s tariffs on Chinese goods strike at this imbalance. They are not a retreat from trade but an effort to reset its terms. For years, the combination of China’s strategic industrial subsidies and regulatory and tax pressures across the West and other democracies has led to outsourcing to China of the very industries that underpinned our security. Tariffs can counter Chinese subsidies and buy time to rebuild and curb the dependency long enough for the strategy to catch up.

However, tariffs can only steady the ground; capacity must follow. The goal is to use the space tariffs created for strategic rebuilding by using the pause tariffs created to expand manufacturing and supply-chain redundancy across trusted partners. This must be done by attracting investment at home through lower taxes, deregulation, and reduced bureaucracy. But America must also lean on its partners and allies to build more trusted supply chains and industrial capacity networks.

An Indo-Pacific Industrial Compact

Across the Indo-Pacific, strategic cooperation has matured. Naval exercises, technology initiatives, and regular dialogues have strengthened cooperation. Yet production capacity remains the missing layer. Many regional economies still depend on Chinese inputs for chemicals, electronics, and raw materials. The next phase is to align political cooperation with shared industrial capacity so that the region can sustain itself in both crisis and peace.

This is why the Indo-Pacific would benefit from an industrial compact: a set of voluntary, measurable commitments to strengthen manufacturing and reduce single-source risks. It would not replace existing frameworks but rather deepen them.

A practical framework could include:

1. Reducing dependency on Chinese inputs in key sectors by 50 percent by 2030.

2. Committing 2 to 3 percent of defense budgets to industrial capacity such as shipyards, energetics, and advanced materials (similar to NATO’s 2 percent rule, but for capacity building).

3. Publishing annual supply-chain dependency reviews to track progress.

4. Developing dual-use industrial corridors among trusted partners such as the United States and India or Japan and Australia.

5. Advancing mutual tax and regulatory reforms that remove penalties on capital formation and streamline duplicative barriers across key industries, including energy generation and resource extraction.

These steps would turn cooperation into durable capabilities and give measurable meaning to the oft-used word “resilience.”

Encouragingly, early signs are visible. The US-India jet-engine partnership, Japan’s shipbuilding revival, and Australia’s rare-earth investments hint at what an industrial compact could institutionalize.

Burden-Sharing as Capacity-Sharing

Under Secretary of Defense for Policy Elbridge Colby has argued that deterrence in Asia cannot rest on American power alone. Using that logic, real burden-sharing must extend beyond deployments to production. Each nation must be able to make what it needs and contribute to what its partners might require in a crisis.

Industrial burden-sharing could possibly see India lead in energetics and subsystems, South Korea and Japan in shipbuilding, Australia in rare earths, and the United States in propulsion and advanced systems. Together, these networks would form a distributed industrial backbone. One that can surge, sustain, and substitute when necessary.

This is balanced interdependence: diversified, transparent, and trusted. The goal is not to out-produce China, but to ensure that no single point of failure allows Beijing to hold the region hostage.

Industrial Policy Is the Price of Sovereignty

Expanding industrial capacity is not an act of confrontation. It is an act of stabilization. Shared production across trusted partners reduces vulnerability and the risk of miscalculation. Because a region that can sustain itself industrially is less vulnerable to coercion and less likely to miscalculate. In today’s world, industrial policy is no longer a choice; it is the price of sovereignty. We must, however, ensure that our policies will foster robust and sustainable industrial growth.

Manufacturing employment in the United States fell from 19.5 million in 1979 to about 13 million in 2019. India’s manufacturing share of GDP has remained near 17 percent for more than a decade. China’s dominance in shipbuilding, critical minerals, and clean-energy technologies continues to expand. Every year spent coordinating without producing widens the gap between planning and power.

The next great competition will not be won by ideology or diplomacy alone but by the ability to make and move things at scale.

Tariffs can hold the line; an industrial compact can move it. The Indo-Pacific should make production a shared measure of seriousness, just as defense spending once was for NATO. Trade built China’s power. Tariffs can slow it, but only production can balance it. In the end, it will not be the forums that define the Indo-Pacific. It will be the factories.