US vs. China, Round Two: China’s Shifting AI and Supply Chain Strategy and Korea’s Response

US-China competition has moved past its first round, a contest of trade and technology pressure fought over tariffs and core technologies, and is evolving into a race to capture the global AI ecosystem of the physical AI era and to set the standards for industrial architecture. China is pursuing three shifts in its AI and supply chain strategy. First, as the effectiveness of US export controls erodes, it is building both leverage over demand markets and a semiconductor ecosystem of its own. Second, as the only country that covers every branch of industry in the UN industrial classification, it is applying AI to upgrade even its traditional manufacturing sector, turning manufacturing as a whole into a strategic asset. Third, it is using physical AI to extend its manufacturing and process-based standards worldwide. The second round of this competition calls for a Korean response that goes beyond a defensive diversification of supply chains. That response should center on three lines of action: building a K-manufacturing architecture that vertically integrates chokepoint assets with a manufacturing large language model (LLM) trained on the judgment data of demanding production processes; upgrading the K-materials industry by applying AI to traditional flagship industries; and pursuing the architectural assetization of K-manufacturing by binding Korea’s separate strengths in technology, production capacity, standards, and shop-floor data into a single asset system. The indispensable assets developed in this way should in turn support deeper strategic partnerships, ones in which Korea participates in the technology ecosystems of major economies as a co-designer rather than a component supplier.