‘China Shock’ hitting poor countries hardest

If China truly aspires to global leadership, it must vacate the low-skill manufacturing space in favour of developing countries

- SHOUMITRO CHATTERJEE & ARVIND SUBRAMANIAN

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 developing 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.

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 United States. 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 gross domestic product (GDP).