We warned about the first China Shock. The next one will be worse

The Trump administration is fighting the last war while China marches towards dominating the industries of the future.

- David Autor and Gordon Hanson

The first time China upended the US economy, between 1999 and 2007, it helped erase nearly a quarter of all US 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, Virginia, and High Point, North Carolina, 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, some time around 2015, the shock stopped building. Since then, US manufacturing employment has rebounded, growing under President Barack Obama, the first Trump term and President Joe 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 backwards, 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.