Much of this is the result of a single- or limited-iteration analysis of the manufacturing ecosystem by decision makers and policy analysts. Elsewhere in this thread, there are comments about how "blue collar" jobs are looked down upon by "white collar" workers. This excerpt puts the lie to that notion:

They had access to the factories, but more importantly, they had access to the trade skills (and secrets) of all of the big brand phone manufacturers whose schematics could be found for sale in shops. These schematics and the engineers in the factories knew the state of the art and could apply this know-how to their own scrappy designs that could be more experimental and crazy. In fact many new technologies had been invented by these "pirates" such as the dual sim card phone....There is a very low cost chipset that bunnie talks about that seems to be driving these phones which is not available outside of China, but they appear to do quad-band GSM, bluetooth, SMS, etc. on a chip that costs about $2. The retail price of the cheapest full featured phone is about $9. Yes. $9. This could not be designed in the US -- this could only be designed by engineers with tooling grease under their fingernails who knew the manufacturing equipment inside and out, as well as the state of the art of high-end mobile phones.

What happened was decision makers and policy analysts took a snapshot in time of the ecosystem throughout the 1950-70's, and decided that certain activities would be "low value" for all time, ever more, amen, period, end of story. What is ironic is that the same strata of high priests today are banging the drum of "innovation". You even see the hanging of the West's future hat on innovation in this thread.

While in software we deplore leaky abstractions, it turns out having leaky abstractions in that high priest strata would have been A Good Thing. Airtight abstraction of what the manufacturing sector actually does caused them to miss how the chaotic, unruly, boisterous activity they characterized as "low value" is evolution in action. More importantly, that activity enables a continuous Cambrian explosion of small, Fail Fast projects to take place in the interstices of the ecosystem in a positive feedback loop of constant improvement working hand-in-glove with design activities that cannot be matched by a top-down, centralized command-and-control system that separates design from manufacturing. The sheer economic inefficiencies strangle the top-down approach in a near "because physics" set piece explanation.

If you expect to innovate your way to economic success through design-heavy activities without a correspondingly massive, vibrant manufacturing ecosystem that surrounds the design/sales/marketing/management ecosystems, then you're gonna have a bad time.

For China to "win", that does not mean America has to "lose". For America to also "win" in the future in this landscape will take the kind of massive mindset change that is rarely seen in history. But if I had to bet money on any nation making that kind of change, it would be America. It might not happen soon enough for many people's tastes, but that's pretty par for the course for America.