The New China Shock

China’s rising trade surplus is once again causing unease in the United States and Europe. But the real casualties from this new “China Shock” will not be in the West. They will be in the de- veloping world, where hundreds of millions of people still depend on manufacturing for jobs and upward mobility. China’s trade dominance not only threatens growth across the Global South; it also undermines China’s own claim to global leadership.

- Shoumitro Chatterjee & Arvind Subramanian

Influential work by David Autor and his coauthors documented how the first China Shock, from the mid-1990s to the late 2000s, wiped out manufacturing jobs and communities across the US. Yet much of that adjustment reflected deeper, long-term forces: technological progress and the steady reallocation of workers from factories to services —a shift that predated the China Shock, but was accelerated by it. As a result, advanced economies have largely vacated the low-skill sectors that China continues to dominate.

Today, China’s manufacturing trade surplus stands at roughly $2 trillion, about $1.4 trillion of which comes from low-skill goods. For the West, then, the new China Shock is narrower, concentrated in a few sectors such as electric vehicles and renewables, and in specific technologies where Chinese imports still account for about 1.5 per cent of the West’s GDP.

The story is far more alarming for lowand middle-income countries (LMICs), which face a threat to the sectors where their comparative advantage lies namely, low-skill manufacturing industries, which remain crucial for job creation and economic development. Accounting for almost 4 per cent of LMICs’ combined GDP, the import shock from China represents a larger (and growing) share of their economies than imports of high-skill goods do in developed countries.