East Asia’s economic  policymakers have identified the manufacture of advanced intermediate goods as the key to economic leadership.  Such goods include the highly purified materials, the precisely engineered  components and the state-of-the-art production machines needed by  other nations to make the world’s consumer goods.  

The special  significance of advanced intermediate goods  is not fully appreciated these days but it is worth recalling that their manufacture was  dominated by the UK in the nineteenth century. The United States  succeeded to leadership in the early twentieth century and it was  in turn  overtaken by Japan, and, to a lesser extent, Germany, in the late  twentieth century. It is a fair guess that China will come to dominate many of these industries within a few decades.

Why are  these industries so important? They are generally both highly  capital-intensive and highly knowhow-intensive. That means that scale economies are often decisive. So is protectionism, particularly in the early stages of a nation’s “targeting”of an industry.  These industries typically shake down into tight oligopolies and,  in not a few cases, effective  monopolies or duopolies.