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Gift link: https://www.nytimes.com/2025/07/14/opinion/china-s...

We Warned About the First China Shock. The Next One Will Be Worse.

The first time China upended the U.S. economy, between 1999 and 2007, it helped erase nearly a quarter of all U.S. manufacturing jobs. Known as the China Shock, it was driven by a singular process — China’s late-1970s transition from Maoist central planning to a market economy, which rapidly moved the country’s labor and capital from collective rural farms to capitalist urban factories. Waves of inexpensive goods from China imploded the economic foundations of places where manufacturing was the main game in town, such as Martinsville, Va., and High Point, N.C., formerly the self-titled sweatshirt and furniture capitals of the world. Twenty years later, those workers haven’t recovered from those job losses. Although places like these are growing again, most job gains are in low-wage industries. A similar story played out in dozens of labor-intensive industries simultaneously: textiles, toys, sporting goods, electronics, plastics and auto parts.

Yet once China’s Mao-to-manufacturing transition was complete, sometime around 2015, the shock stopped building. Since then, U.S. manufacturing employment has rebounded, growing under President Barack Obama, the first Trump term and President Biden.

So why, you might ask, are we still talking about the China Shock? We wish we weren’t. We published the research in 2013, 2014 and 2016, along with our collaborator David Dorn of the University of Zurich, which detailed for the first time how Chinese import competition was devastating parts of America, through permanent declines in employment and earnings. We are here to argue now that policymakers are spending far too much time looking backward, fighting the last war. They should be spending much more time examining what’s emerging as a new China Shock.

Spoiler alert: This one could be far worse.

China Shock 1.0 was a one-time event. In essence, China figured out how to do what it should have been doing decades earlier. In the United States, that led to unnecessarily painfully job losses. But America was never going to be selling tennis sneakers on Temu or assembling AirPods. China’s manufacturing work force is thought to be well in excess of 100 million, compared with America’s 13 million. It’s bordering on delusional to think the United States can — or should even want to — simultaneously compete with China in semiconductors and tennis sneakers alike.

China Shock 2.0, the one that’s fast approaching, is where China goes from underdog to favorite. Today, it is aggressively contesting the innovative sectors where the United States has long been the unquestioned leader: aviation, A.I., telecommunications, microprocessors, robotics, nuclear and fusion power, quantum computing, biotech and pharma, solar, batteries. Owning these sectors yields dividends: economic spoils from high profits and high-wage jobs; geopolitical heft from shaping the technological frontier; and military prowess from controlling the battlefield. General Motors, Boeing and Intel are American national champions, but they’ve all seen better days and we’re going to miss them if they’re gone. China’s technological vision is already reordering governments and markets in Africa, Latin America, Southeast Asia and increasingly Eastern Europe. Expect this influence to grow as the United States retreats into an isolationist MAGAsphere.

More…at the link

Thanks for the shared link.

The first time China upended the U.S. economy, between 1999 and 2007, it helped erase nearly a quarter of all U.S. manufacturing jobs. Known as the China Shock, it was driven by a singular process — China’s late-1970s transition from Maoist central planning to a market economy, which rapidly moved the country’s labor and capital from collective rural farms to capitalist urban factories.

This a great narrative, but it has the disadvantage of being entirely false.

The China shock was primarily an effect on economics, NOT employment. US manufacturing employment fell from the 1950s peak almost precisely the amount you would expect based on rising per capita income levels. As countries get richer, manufacturing employment slides as a percent of jobs because richer people spend more on services and manufacturing becomes more productive because of capital intensity. (US manufacturing output hasn't been falling overall, it just employs a smaller fraction of the population). If there was an effect on US blue collar employment from the China trade shock it may have been that the entry of Chinese labour onto the world's stage made the US so much richer so quickly that the US moved up the usual curve a little faster than they might otherwise have done.

Manufacturing/industrial employment typically rises among growing poor countries, peaks when GDP per capita reaches about $15000-25000 USD (2024 prices), then starts sliding slowly. China has been climbing the first part of the curve, right where you'd expect, and seems to be nearing its peak. And the US has been slowly sliding down the rich half of the curve, right where you'd expect.

The main anomalies (imperfect fits to the curve) are
* the UK and Germany had more manufacturing jobs (as a percent of total) at their respective peaks than the US and most other countries did at that income level. The UK has fallen back to the usual line so their anomaly is over. Germany is sliding on schedule but still at a higher level than is usual.
* US manufacturing employment as a percentage of jobs ROSE slightly 1999-2019. Not much, a rise from roughly 17% to around 20%. It's about the same level now as in 1990, and has been in a fairly narrow range the entire time since then.


Although places like these are growing again, most job gains are in low-wage industries.

Again, it's worth noticing that the perceived demise of manufacturing jobs is a bit of an odd thing to lament. An average can hide a lot of sins, but the average US service job has BOTH higher pay and better working conditions than the average manufacturing job. Better for your health on both counts.

Jim

Manufacturing/industrial employment typically ... peaks when GDP per capita reaches about $15000-25000 USD (2024 prices), then starts sliding slowly... the US has been slowly sliding down the rich half of the curve, right where you'd expect.

PS:
An interesting figure from the Economist: " China shed over 20m factory jobs from 2013 to 2023—more than the entire American manufacturing workforce. Research from the IMF calls this trend “the natural outcome of successful economic development”".

Is that no consolation for those who think that US manufacturing industry is in hopeless decline because of the ill treatment by competitive foreigners?
They go on:

"In real terms, America’s [factory output] is over twice as high as in the early 1980s; the country churns out more goods than Japan, Germany and South Korea combined. As the Cato Institute, a think-tank, points out, America’s factories would, on their own, rank as the world’s eighth-largest economy."


As the saying goes, "If I had your money, I'd throw mine away."

Jim

although joeri whiffed badly on his trump trade analysis, he has come back with a nicely balanced bear\bull view of china's economy :

https://www.youtube.com/watch?v=NCu7-0pHzcU

my conclusion : america's looming weakness is the anti-stem populist sentiment joined too broadly to unrealistic mfg rollback and blue collar employment.
china has many weak points, but applied sciences, and managing the real estate bust towards mfg expertise, are not among them.

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