What China Shock 2.0 is and why it matters not just to the US

Bradley Setzler, an economics professor at the University of Pennsylvania who studies the "China shock" phenomenon, answers questions about the U.S.-China economic relationship and its impact on American workers.

Read more: David Autor et al, Places versus People: The Ins and Outs of Labour Market Adjustment to Globalisation, (2025). DOI: 10.3386/w33424

What is the 'China shock'?

Since China joined the World Trade Organisation in 2001, the country has become an export giant. Chinese factories set up mass production of furniture, clothing, toys and appliances. In the U.S., the same goods were more expensive to produce, and American factories began to lose competition.

Setzler estimates that in regions with a high share of textile or furniture manufacturing, up to a third of all manufacturing jobs disappeared. On average, one in seven.

Who suffered the most?

First of all, people without higher education who had been employed in factories after school. These jobs provided a decent income, but disappeared almost completely. There were losses among both men and women - especially in light industry.

Those who already had steady factory jobs largely held on. But the careers of such employees stagnated: factories were no longer growing and opportunities for growth disappeared.

What replaced the factories?

A decade later, a recovery began - but not in industry, but in the service sector. Most new vacancies appeared in healthcare, education, retail and cafes. But salaries there tend to be lower.

High-paying manufacturing jobs have been replaced by low-paying service jobs, even for those with a degree.

Which is better, cheap goods or your own jobs?

Setzler emphasises: thanks to Chinese imports, goods became cheaper and many Americans were able to afford clothes, shoes and electronics. But the price has been the loss of thousands of jobs.

This balancing act is at the centre of the political debate in the US: Is it worth it to save money when millions of people lose their income?

Is a new wave of "China shock" coming?

Economists are talking about a possible "China Shock 2.0". It is no longer cheap textiles that are under threat, but high-tech industries: electric cars, batteries, solar panels.

These are already more skilled and better-paying jobs. Their loss will be tangible, but perhaps not as devastating - such professionals are more mobile and financially stable.

Why is Trump's trade war with China doomed?

According to an article in the Financial Times, Trump's tariff policy is not about trade, it's about power. Tariffs are used as a tool of pressure: obedient countries are given preferential treatment, while disobedient ones receive sanctions.

At the same time, as analyst Arthur Kreber notes, Trump has not achieved any of his stated goals - neither industrial recovery nor deficit reduction.

Here are three reasons why, according to the FT, Trump will lose:

1. The US is no longer perceived as a reliable partner. World leaders don't want to be part of a "crusade" against China.

2. Trump is too dependent on the markets' reaction. Any collapse of quotations - and the policy turns 180 degrees.

3. China is ready for a protracted war. It is developing domestic demand and is less dependent on imports from the US.

What's next?

US trade policy is becoming increasingly protectionist. Both Republicans and Democrats now support tariffs that seemed radical under Trump. In 2025, duties against China reached 145 per cent, and China has retaliated - including restrictions on exports of rare earth metals needed for technology.

But as history shows, trade wars bring not so much victories as losses - both for industry and consumers. And if a new "China shock" does occur, once again it will be workers who will suffer first and foremost.

What is happening now

on 2 April 2025, the US imposed new "reciprocal" duties against 185 countries. For China, the tariff was 34%, but including an additional 20% of sanctions for alleged fentanyl shipments, the total burden reached 54%.

China responded with a mirror image - 34% on all American imports, and also announced restrictions on exports of rare earth metals needed for the production of chips, electronics and electric cars. In particular, we are talking about yttrium and gadolinium, indispensable in the high-tech industry.

on 9 April, following reciprocal moves, Trump sharply raised tariffs to 104% and then to 145%, accusing Beijing of "disrespecting global trade". China raised its tariffs in response - to 84 per cent.

But at the same time, the US softened the blow to its own market by exempting smartphones, computers and other popular electronics from duties - essentially to avoid triggering a wave of negativity among its own consumers.

Why is this important not just for the U.S.?

It's not just important for the U.S., because the "China shock" model can be repeated in any country that is focused on industrial production and open trade. Here's why:

🌍 1. Globalisation affects everyone

Countries' economies are interconnected. If one country starts exporting cheap products en masse (like China), it puts pressure on producers in other countries. In Ukraine, Poland, Germany, Brazil - wherever there are factories and plants, this story could repeat itself.

🏭 2. The disappearance of industrial jobs is a worldwide trend

What happened in the US has already happened or may happen in other countries: mechanics, seamstresses, assembly workers are losing their jobs because their products are more expensive than Chinese products. This is true in developing countries where industry is an important employer.

📉 3. A shift to services - but at lower wages

When factory vacancies disappear, new jobs are more likely to appear in the service sector. But wages there are lower and conditions are often unstable. This leads to rising inequality and poverty even when employment is "officially" growing. This transformation is a challenge for social policy in any country.

🔋 4. The second wave: technology and green energy

China is now becoming a leader in high-tech exports: electric cars, batteries, solar panels. This could hit countries that rely on green and innovative economies - and not just the US. For example, the EU, South Korea, and Japan are already discussing protective measures. Ukraine, developing RES and industry, may also face competition for markets and technologies.

🧭 5. Lessons for Ukraine

• It is necessary to develop not only production, but also the protection of its markets - a sound industrial policy.

• We should be prepared for the fact that cheap imports are not always a good thing. It can "eat up" jobs in the country.

• It is important to create decent working conditions in the service sector if industry fails.

• Finally, it is important to invest in education and retraining so that young specialists can adapt to new labour markets.

What is the point of all this?

Essentially, the trade war between the U.S. and China is a battle that everyone will lose. American consumers are already paying more, businesses are taking losses, and allies are increasingly turning away. And China? It just keeps beefing up its production and expanding its influence in other markets.

Themain bottom line is that this fight is more about politics than economics. And as the experience of previous years shows, a repeat of the "China shock" will hit American workers again - only in other industries.