We Warned About the First China Shock. The Next One Will Be Worse.
By David Autor and Gordon Hanson, The New York Times, July 14, 2025
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…
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. …
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…
In the 1990s and 2000s, private Chinese businesses, working alongside multinational corporations, turned China into the world’s factory. The new Chinese model is different, with private companies working alongside the Chinese state. China has created an agile, if costly, innovation ecosystem in which local officials such as mayors and governors are rewarded for growth in certain advanced sectors. They had been assessed by total G.D.P. growth, a blunter instrument…
Some mile markers on our current route include the ebbing of U.S. technological, economic, geopolitical and military leadership. …[end quote]
In cutting-edge research, China often beats the U.S. by a substantial margin. China’s share of the world’s most cited research in several high-tech fields has accelerated rapidly over the past 10 years. They are now ahead of the U.S. in important fields from electric batteries to adversarial AI.
The rest of the article is a list of suggestions, including nourishing industries that have high potential for innovation, funded by joint investments by the private and public sectors.
China Shock 2.0 is already hitting Tesla. The article mentions General Motors, Boeing and Intel as American national champions that have seen better days and may be threatened.
Tariffs are meant to protect manufacturing industries that will never be competitive again. They are backward-looking.
China Shock 2.0 was designed by the Chinese government to restore China’s historic primacy as the Middle Kingdom. The strategic position of the U.S. as the world’s dominant superpower is threatened by China’s accelerating achievements in high-tech fields.
Wendy