Another 50ish ME here.
I worked for Applied Materials when it was busy outsourcing production of 5000 and Centura systems to Japan, in the early 1990s. At that time Silicon Valley was getting full of Japanese companies doing exactly what we're talking about here: buying, cross-licensing, or otherwise co-opting technology. There was - and still is - an AMAT R&D center in Narita where the biggest, nastiest kludge prototypes were being built by local staff. And they learned, and they got better at it....
and the market moved. AMAT is now seeking growth in solar films, not in what was their core business: wafer fab.
AMAT is probably smart enough to keep the cutting-edge tech nuggets the hell out of China. The parent is right about production raising the ante. The parent is wrong in implying that this ipso facto ruins the home business - it only ruins businesses that have gotten complacent. UK car industry? Failed to be paranoid. Ditto UK bicycle industry, American audio industry, American car industry. The American aircraft industry is next and I assure you Boeing are not missing the implications. 757 production -will- be moved to China in ten years or fewer. How will the market move in aircraft?
After all, the UK, France and Germany are still in business. So is the US.
In my current business, labor is a pretty small fraction of the cost of goods sold. As it matures, it will get more cost sensitive and the gains to be had in reducing labor cost will mean this business will move to China.
The question is whether the fuse is built faster than it burns.
Don't discount, above all, the idea that the Chinese are managing their own fuse. If 1.3 billion people demand more than what can be supplied, there you have the necessary conditions for a revolution: they're not started by starving people, they're started by people who see progress but aren't sufficiently sharing in it.