Trade Analyst Predicts a Looming ‘China Shock 2.0’ for the US Economy
In a recent interview with NTD’s “Capitol Report,” Michael Stumo, the CEO of the Coalition for a Prosperous America, warned of a potential “China Shock 2.0” for the US economy. Stumo, who focuses on domestic production and jobs, believes that the United States could soon experience a surge in cheap products produced by Chinese firms, similar to the “China Shock” era of the early 2000s.
Stumo referred to the original “China Shock” that occurred after China’s entry into the World Trade Organization in 2000. He expressed concerns about the impact of surging Chinese imports on US industries, particularly the automotive and solar sectors. Stumo emphasized that if action is not taken, US companies in these industries could face dire consequences. He called on President Biden to pay attention to this issue.
According to Stumo, China’s goal of growing its economy by 5 percent this year could lead to increased pressure on the country to expand exports. Limited consumer demand in China and slowing infrastructure projects may drive Chinese firms to target Western production. Stumo predicted that the United States would be a prime target for these Chinese exports, as Europe and Japan have shown less interest in importing them.
Despite President Trump’s tariffs on Chinese imports remaining intact under President Biden, Stumo noted that Chinese firms are finding ways to bypass these tariffs. They are shipping their exports through other countries or establishing affiliated factories in Mexico and even in the United States. Stumo pointed out that Chinese solar companies have been built in various US states, taking advantage of tax credits provided by the US government.
To understand the potential impact of “China Shock 2.0,” it is essential to examine how the original “China Shock” affected the US economy. In 2016, economists David H. Autor, David Dorn, and Gordon H. Hanson published a research paper that analyzed the impact of China’s accession to the World Trade Organization. They concluded that approximately 2.4 million US manufacturing jobs were lost between 1999 and 2011 due to China’s entry.
However, other economists have offered differing views on the impact of the “China Shock” period. For example, economists Robert C. Feenstra and Akira Sasahara estimated that about 2 million US jobs were lost during this period, but approximately 6.6 million US jobs were created from the growth in US exports. Meanwhile, researchers Scott Lincicome and Arjun Anand argued that the losses experienced in the US manufacturing sector during the “China Shock” were subject to scholarly debate, considering preexisting economic trends, gains in American service jobs, benefits for consumers, and increased US exports.
The CATO Institute, a libertarian-oriented policy think tank, also weighed in on the matter. In a December 2023 report, authors Scott Lincicome and Arjun Anand stated that Trump-era trade tariffs against Chinese imports did not reverse losses in the US manufacturing sector. They claimed that these tariffs contributed to net manufacturing job losses in the United States.
The Tax Foundation, another policy think tank, criticized the use of tariffs as a means to protect the US economy. According to author Erica York, tariffs are ultimately paid for by consumers and businesses in the domestic economy. She argued that tariffs can lead to stagnation as protected industries are shielded from competitive pressures and can invite retaliatory tariffs from other nations.
As the potential for “China Shock 2.0” looms over the US economy, it is clear that there are differing opinions on how the original “China Shock” impacted the country. With concerns about Chinese imports and their potential effects on US industries, it remains to be seen what actions President Biden will take to address these challenges. The future of US trade relations with China hangs in the balance, and the consequences could be significant for American workers and firms.
