The value of China’s electronics exports increased from $5 billion in 1990 to $1 trillion in 2021. In 2021, its electronics exports exceeded the electronics exports of the other five leading exporters combined. Figure 1 shows the electronics exports of leading producers.
Figure 1 The value of electronics exports of leading producers
Source: CEPII-CHELEM Database.
Note: Electronics products include clockmaking, computer equipment, consumer electronics, electronic components, optics, precision instruments, and telecommunications equipment.
Not only has the value of China’s electronics exports increased, but so too has China’s value added in these exports. Xing (2021) discussed how, when the first iPhone came out in 2007, China’s only contribution was a $6.50 per phone assembly fee to Foxconn. Many of the parts and components came from firms in Japan, South Korea, Taiwan, and other Asian economies. By contrast, for Apple’s 2022 list of input providers, 151 suppliers resided in China.
How did Japan, South Korea, Taiwan, and then China become centres for electronics manufacturing?
Incentives played an important role. Entrepreneurs such as Byung-Chul Lee at Samsung and Tadashi Sasaki at Sharp faced intense competition. They needed to assiduously choose and master technologies to reduce costs and differentiate their products. If they failed, their firms faced bankruptcy. Education was also crucial. East Asian countries prioritised education, and this facilitated technology transfer (see Yoshitomi 2003). Infrastructure also mattered. Countries in the region constructed high-quality highways, ports, airports, and information and communication technology infrastructure. This attracted foreign investors, enhanced connectivity, and promoted global value chain (GVC) trade.
China’s linear and nonlinear innovation models
Xing (2021) documented how China followed a linear innovation model, moving up the value chain step-by-step. Within global value chains, the lead firm would allocate tasks across countries based on differences in factor endowments. When Apple began producing iPhones, China’s comparative advantage was in low-wage labour. Chinese workers assembled imported parts and components into phones. The huge demand for smartphones then motivated Chinese firms to join this value chain.
Interacting with lead firms gave Chinese companies opportunities to assimilate technologies and gain production know-how. In the mobile phone sector, Chinese firms advanced from assembly to producing non-core parts. As Chinese firms gained competitiveness against Asian rivals, they supplied printed circuit boards, battery packs, displays, and other more sophisticated inputs.
Xing (2021) discussed how firms also followed a nonlinear innovation model. Chinese phone makers could not produce core technologies such as operating systems and semiconductors. In 2006, MediaTek offered a turnkey solution to manufacture cellphones. They provided the hardware and software needed to power cellphones. Firms with low-wage workers used MediaTek’s chipset and Google’s Android operating system to make phones. Chinese phone makers Oppo, Vivo, Xiaomi, and Huawei then developed their own brands even though they lacked the technological prowess of competitors like Apple and Samsung.
Chinese firms progressed from imitating to innovating. Competition to access China’s 1.4 billion consumers forced them to differentiate their products. Understanding Chinese consumers better than foreign brands gave them a competitive advantage.
China’s most innovative firm, Huawei, spent $25 billion on research and development in 2024 (Zhe 2025). Huawei strives to use R&D funds efficiently. For instance, to foster innovation, it relies on individual stars rather than large teams. Employees at Huawei consider technological innovation and customer satisfaction to be their highest goals. As Wang (2021) noted, Huawei in 2018 submitted 5,405 intellectual property (IP) applications to the World Intellectual Property Organization, which ranked first among global multinational corporations. Huawei had acquired 87,805 IP rights by 2018.
Threats to China’s electronics industry
The Achilles’ heel of the nonlinear innovation model is that it leaves China dependent on foreign technology. When the Trump Administration restricted Huawei’s access to Google Android and to US technology, it limited Huawei’s ability to sell phones abroad. While Huawei has developed its own operating system, the inability of users to access Google’s app store makes Huawei’s phones less attractive.
Chinese electronics exports can also be harmed by tariffs. In recent work (Chen et al. 2025), we investigate how tariffs and other factors affect China’s electronics exports. To do this, we use the methodology of Bénassy-Quéré et al. (2021). They explained annual disaggregated bilateral exports using a series of fixed effects, the bilateral real exchange rate between exporting and importing countries, bilateral tariff rates, and other variables. We use data on China’s bilateral exports to 196 trading partners for 44 categories of electronics exports. These products include phones, semiconductors, computers, semiconductor manufacturing and testing equipment, software, scientific instruments, and other parts and accessories. We use the electronic goods that are included in the Information Technology Agreement. The sample extends from 2003 to 2018.
The results indicate that a ten percentage point increase in the tariff rate would reduce electronics exports by between 12% and 21%, and that a 10% appreciation of the Chinese renminbi would reduce electronics exports by between 7% and 8%. The higher response of exports to tariff changes than to exchange rate changes is an example of the international elasticity puzzle (Fontagné et al. 2018). Even though tariffs and exchange rates should have the same impact on exports in many trade and international macroeconomic models, researchers have found that tariff rate changes affect exports more than equivalent exchange rate changes. Tariffs on China’s electronics exports would cause a large decrease in exports. In another paper, we find that China’s exports after the Global Crisis stopped responding to exchange rates, but were still harmed by tariffs (Thorbecke et al. 2025).
Lessons for reshoring production to the US
President Trump has used the threat of tariffs to motivate companies to invest in the US. During his first administration, this strategy failed to establish a Foxconn factory in Wisconsin.
Haeberle et al. (2025) and Dzieza (2020) discussed how Foxconn responded to the threat of tariffs by agreeing to build a liquid crystal display factory in Mount Pleasant, Wisconsin. Town officials offered Foxconn four square miles of land. To obtain the land they declared that the farms located there were blighted ― much to the dismay of the residents who claimed that they had maintained their farms. Government officials offered Foxconn $3 billion in subsidies. Despite the agreement, Foxconn, instead of building the promised 20 million-square-foot factory, constructed an empty building one-twentieth that size. It employed only 281 people, and many played video games or watched Netflix because they had nothing to do. Foxconn let employees go after receiving subsidies for hiring them, pocketed subsidies in excess of $400 million, and never constructed a working fab.
A lesson from the Foxconn affair is that the threat of tariffs is not enough to reshore factories to the US. The Asian experience indicates that incentives, education, and infrastructure are crucial. As an example of misaligned incentives, Pat Gelsinger, the former CEO of Intel, earned $179 million in his first full year and $16.9 million in his last full year. This is despite the fact that Intel’s stock price kept falling and that, even with $8 billion in government subsidies, Gelsinger failed to improve Intel’s performance. In terms of education, US student performance in the 2022 OECD Programme for International Student Assessment exams for math was the worst ever (OECD 2022). Concerning infrastructure, the American Society of Civil Engineers gave US infrastructure a grade of C in 2025 (ASCE 2025). To promote manufacturing, the US must improve incentives, education, and infrastructure.
Conclusion
China has imitated, innovated, and mastered electronics manufacturing. Surpluses in electronics have made up more than half of China’s massive trade surpluses after 2008. Setser (2024) showed that China’s goods trade balance may actually be 50% higher than reported. These imbalances have generated tariffs and protectionism abroad. Exchange rates may not act as shock absorbers to correct these surpluses. To forestall protectionism, China should nurture domestic consumption. The US, rather than blaming other countries, should promote manufacturing by focusing on incentives, education, infrastructure, and other fundamentals.
References
ASCE (2025), “ASCE Report Card Gives U.S. Infrastructure Highest-Ever ‘C’ Grade, Stresses Need for Sustained Investment to Support Economic Growth”, American Society of Civil Engineers: Reston, VA.
Bénassy-Quéré, A, M Bussière and P Wibaux (2021), “Trade and Currency Weapons”, Review of International Economics 29: 487-510.
Chen, C, N Salike and W Thorbecke (2025), “Exchange Rates and Tariffs: Unravelling their Impacts on China’s ICT Exports while Accounting for Product Sophistication”, RIETI Discussion Paper 25-E-054.
Dzieza, J (2020), “The Eighth Wonder of the World”, The Verge, 19 October.
Fontagné, L, P Martin and G Orefice (2018), “The International Elasticity Puzzle is Worse than You Think”, Journal of International Economics 115: 115-129.
Haeberle, B, N Halder, R Moy and K Smyser (2025), “What Happened to Foxconn? A Look at the $1.2 Billion Spent and Where It All Went”, NBC 5 Chicago.
OECD (2022), “PISA 2022 Database”, OECD: Paris.
Setser, B (2024), “The IMF’s Latest External Sector Report Misses the Mark”, Follow the Money Weblog, 26 August.
Thorbecke, W (2023), The East Asian Electronics Sector: The Roles of Exchange Rates, Technology Transfer, and Global Value Chains, Cambridge University Press: Cambridge, UK.
Thorbecke, W, C Chen and N Salike (2025), “The Diminishing Impact of Exchange Rates on China’s Exports”, RIETI Discussion Paper 25-E-010.
Wang, J Y (2021), From 1G to 5G: How Telecommunication Technology Changes the World, Zhongxin Publisher: Beijing.
Xing, Y (2021), “Decoding China’s Export Miracle: A Global Value Chain Analysis”, World Scientific, Singapore.
Yoshitomi, M (2003), Post-Crisis Development Paradigms in Asia, ADBi Publishing: Tokyo.
Zhe, G (2025), “Huawei Reports Solid 2024 Performance, Driven by R&D Investment”, CGTN, 31 March.