That's not really what happens though. You don't actually "lose" capacity, you just move to higher-valued special niches within the overall industry because (1) you can afford to, while low-cost competitors can't and (2) you can no longer expect to be the lowest-cost supplier for the bulk of the market. That's a win-win development and something to be encouraged.
That's not what people mean by "lose" capacity.
Suppose DRAM companies expand capacity because prices are high, then demand levels off, the price crashes, and they all go out of business except for the one in China which gets a government bailout. That's fine, right? We're not interested in making DRAM, that's a fungible commodity, we want to make iPhones or something. (They make those too anymore, but never mind that.)
What happens now if China restricts what you can buy to give an advantage to their own companies who are trying to displace you in the higher-valued special niches? Or just raises the price for you and not them? What if there's a trade war? Or a conventional war?
When you still have a domestic industry, you go to them and have a source for the commodity. If only one country becomes the sole global supplier and that country isn't even particularly friendly, that's bad.
We are seeing that with some rare earths, even tho china is back into exporting them (except to japan, I think?) everyone is looking for alternatives already. They may have killed their industry 10 years down the line for playing with the export lever a bit too much.
Just like how markets punish the ram cartel creating a chance for cxmt and ymtc to enter. It would create a chance for western companies to do the same if china messes with the markets they have "cornered".
The first problem is that it doesn't go away instantaneously, so even if you could recover in ten years, you still get screwed immediately.
The second problem is that it's leverage. They can threaten to do it if they don't get what they want, and if you then do what they want (which often gives them even more leverage) they don't have to do it. But then they keep their leverage and you have to keep doing what they want.
You can't just spin up a 2nm wafer fab when the latest you've been running is a 300nm process.
Compare: US shipbuilding industry to China or SK.
Factories, tooling, supply chains, and engineering knowledge aren't fungible in the way they would need to be for your statement to be true.
"easily" is doing a lot of work in that sentence. Depending on the good and what they switch to making, this may neither be easy nor quick.
In my mind, if it can't do that, then it can't make the volume that China does at the cost that China does, which means it really isn't as capable as Chinese industry.
Perhaps at one time it could have, but those muscles have atrophied.
> which means it really isn't as capable as Chinese industry.
But this was always true. There was never really a time when Western industry was producing as much and as cheaply as China is today - that's the whole point. It makes more sense to diversify away from that, because non-trivial real-world markets will always reward increased variety.
