【By Zhang Jingjuan, Observers Network】"We had warned about the first 'China Shock.' The next one will be worse." On July 14, the U.S. "New York Times" published an article with this title, stating that American manufacturing suffered a structural shock due to a surge in Chinese imports. Now, China is competing with the United States in many innovative fields such as aviation and artificial intelligence, gradually moving from a follower to a leader.
The article's authors, economics professors David Autor and Gordon Hanson, pointed out that the current U.S. approach of imposing tariffs to deal with the "China Shock" is not a good strategy. They suggest that the U.S. should take four aspects into account to respond.
The article states that between 1999 and 2007, China initially hit the U.S. economy, causing the loss of nearly a quarter of U.S. manufacturing jobs, known as the "China Shock." Twenty years later, workers in places like Martinsville, Virginia (once called the "World Sweatshirt Capital") and High Point, North Carolina (once called the "World Furniture Capital") have yet to recover from the blow of unemployment. Although the economies of these areas have recovered somewhat, new jobs are mostly concentrated in low-paying industries. Similar situations occurred in dozens of labor-intensive industries: textiles, toys, sports equipment, electronics, plastics, and automotive parts.
The article argues that around 2015, China completed its transformation into manufacturing, and the momentum of this wave of shocks stopped. After that, the number of U.S. manufacturing jobs began to rise, maintaining growth during the Obama, Trump's first term, and Biden administrations.
In fact, in 2013, 2014, and 2016, Autor and Hanson had already co-published studies with Dorn (David Dorn), discussing the above views. As for why they are still talking about the "China Shock," the authors explain that policymakers have spent too much time looking back at the past, fighting the "last war," and they should pay more attention to the emerging new "China Shock."
They warned that this time might be much worse.
The article wrote that the first "China Shock" was a one-time event. Essentially, China just learned things it should have mastered decades ago. For the U.S., this led to avoidable severe unemployment. But the U.S. never intended to sell sneakers on the cross-border e-commerce platform Temu or assemble AirPods. China has over 100 million manufacturing workers, while the U.S. has only 1.3 million. To think that the U.S. can compete with China in both semiconductors and tennis shoes is almost a fantasy.
In the authors' anticipated new "China Shock," China is transitioning from a "follower" to a "leader." Today, China is actively competing with the U.S. in innovation areas where the U.S. has long dominated, including aviation, artificial intelligence, telecommunications, microprocessors, robotics, nuclear energy and fusion, quantum computing, biotechnology and pharmaceuticals, solar energy, and batteries.
Controlling these areas brings multiple benefits: economic gains from high-profit and high-wage jobs; geopolitical influence from shaping technological frontiers; military advantages from controlling battlefield technologies.
The authors pointed out that General Motors, Boeing, and Intel were once the "national champion companies" of the U.S., but their golden era has passed. At the same time, as the U.S. retreats into the "MAGA isolationist circle," China's influence in Africa, Latin America, Southeast Asia, and even Eastern Europe may further expand.
July 10, 2025, Nantong City, Jiangsu Province, workers are rushing to complete precision component orders. IC photo
From the 1990s to the early 21st century, Chinese private enterprises cooperated with multinational companies to turn China into the "world factory." Now, the Chinese model is different: private enterprises and the government work together.
The article gives an example: as a landlocked provincial capital with weak resource endowments, Hefei, Anhui, used to be relatively backward, but now it has soared rapidly, becoming the second-largest new energy vehicle production base in China. Through venture capital, supporting struggling electric vehicle companies, and investing in local R&D, Hefei rose to the ranks of China's top industrial cities within five years.
China has repeatedly created such miracles. The world's largest and most innovative electric vehicle company (BYD), battery manufacturer (CATL), drone manufacturer (DJI), and photovoltaic enterprise (LONGi) are all Chinese startups, and none of them have been established for more than 30 years.
They dominate in technology and price, and other countries around the world have no defense against these "top competitors." When U.S. policymakers mock China's industrial policies, what comes to mind is the controversy surrounding the early development of Airbus or the bankruptcy of the solar company Solyndra. However, what they should truly focus on is the DJI drone swarm that can maneuver flexibly in the air.
The authors believe that the first "China Shock" is destined to fade away. In industries such as clothing and ordinary furniture, China's growth has lagged behind Vietnam. However, unlike the U.S., China does not indulge in the past, lamenting the loss of manufacturing advantages, but focuses on the core technologies of the 21st century. Unlike the strategy based on cheap labor, as long as China has resources, patience, and the determination to continue competing, the second "China Shock" will continue.
Data from the Australian Strategic Policy Institute (ASPI) shows that between 2003 and 2007, in 64 frontier technologies such as artificial intelligence and cryptography, the U.S. led China in 60, and China only led in 3. However, in the latest report from 2019 to 2023, the rankings have completely reversed: China leads in 57 of the 64 key technologies, and the U.S. only leads in 7.
What is the U.S. response? Mainly tariffs: tariffs imposed on all goods in all sectors, one-time. Even for the trade wars the U.S. lost 20 years ago, this is a poor strategy. According to the current strategy, the U.S. may be able to regain the jobs of making tennis shoes. If further pressured, by 2030, Texas may see factories assembling iPhones.
In the authors' view, tariffs alone will never make the U.S. a hotbed of innovation. Tariffs should be included in the trade toolbox, but they should be precise ammunition, not landmines that harm everyone indiscriminately.
April 2, local time, Trump signed an executive order at the White House announcing so-called "reciprocal tariffs." White House video screenshot
So, what is the alternative?
"Before we started our research on China ten years ago, we, like many economists, believed that laissez-faire trade strategies were better than other messy options. But now we don't think so anymore," the authors wrote. The inadequate response of the U.S. to the first "China Shock" indicates that the U.S. needs a better trade strategy.
What is a better strategy? As Einstein said, "Everything should be made as simple as possible, but not simpler."
Autor and Hanson said they do not provide overly simplified answers, but instead propose four core principles:
First, policymakers must recognize that the trade friction between the U.S. and China is also a problem faced by many of the U.S.'s commercial allies. We should act in coordination with the EU, Japan, and many free trade partners (such as Canada, Mexico, and South Korea), rather than imposing high tariffs on them for daring to sell us the goods we need. If the U.S. takes the lead and jointly imposes tariffs on electric vehicles with more countries, the results would be entirely different.
At the same time, we should encourage China to build battery and car factories in the U.S., just as China attracted top U.S. companies to set up plants in China over the past three decades. Why invite these strong competitors to enter the U.S.? Chinese policymakers often mention the "catfish effect": strong foreign competitors stimulate the weak "sardines" at home to swim faster, otherwise they will be eaten. When Chinese electric vehicle manufacturers were still "sardines," Tesla's Shanghai Super Factory was that "catfish." Now, Tesla is no longer a "catfish" in China, but increasingly like a nervous "sardine." "If we exclude China's leading industries, the U.S. will fall into a dilemma of domestic enterprises being mediocre."
Second, the U.S. should learn from China and actively invest in key emerging fields. Select strategically important areas (drones, advanced chips, nuclear fusion, quantum technology, biotechnology) for investment, and adopt the "Chinese model": establish large venture capital funds led by the government, tolerate the low success rate of individual companies or projects, but aim for a high success rate in fostering new industries.
Third, focus on areas where the U.S. has a chance of winning (such as semiconductors) or areas that must not be lost (such as rare earths), and make long-term investments to achieve ideal results. The policy continuity of the U.S. political system is as short-lived as a drug-addled squirrel. It frequently changes the reward and punishment mechanisms, making it difficult to achieve good results.
Fourth, prevent the unemployment impact caused by the next major shock from China or elsewhere. Over the past two decades, the trauma of manufacturing unemployment has caused a lot of economic and political trouble for the U.S. During this period, the U.S. recognized that measures such as extending unemployment insurance and wage insurance under the trade adjustment assistance program could help unemployed workers get back on their feet, but these policies are small in scale, too targeted, and have little effect. Moreover, the U.S. is moving in the wrong direction.
The article points out that when an industry collapses, the best response is to quickly find new jobs for the unemployed and ensure that young small businesses that contribute the most to net employment growth are well prepared. Tariffs can only narrowly protect old manufacturing.
The authors believe that to cope with the second "China Shock," the U.S. needs to leverage its strengths rather than dwell on wounds. The U.S. must cultivate industries with high innovation potential, with joint investment from the private and public sectors. These industries are in global competition, and China realized this ten years ago. We should stop fighting past trade wars and meet the challenges from China in the current competition.
Autor and Hanson are names with considerable influence in some economic advisors of the Trump administration. Their "China Shock theory" has not only been endorsed by the economic advisors of two Trump administrations, but has also become an excuse for the White House to impose tariff extortion on many countries around the world.
However, Autor once stated in an interview with the U.S. "Atlantic Monthly" that his views have been misinterpreted by the White House.
He said that his research on the "China Shock" was not to deny free trade and globalization, and he also agrees that free trade can bring more benefits to economic development. He said that the original intention of the study was actually to remind U.S. policymakers and economists who support globalization and free trade to see the benefits of globalization, but not to leave everything to the capital market.
Autor believes that the White House uses his theory to justify the arbitrary imposition of tariffs, claiming it is to bring manufacturing jobs back to the U.S., which is a distortion of his meaning, using a wrong method to solve a problem that has already become history.
This wrong approach will further destroy the "high-end manufacturing" that the U.S. still has, causing the U.S. to suffer greater "shocks".
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Original: https://www.toutiao.com/article/7527186542880735784/
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