China’s Next Major Economic Disruption Looms Large

Between 1999 and 2007, China’s economic rise significantly disrupted the U.S. manufacturing sector, eliminating nearly a quarter of all manufacturing jobs in the country. This phenomenon, often referred to as the "China shock," was driven by China’s dramatic shift from Maoist central planning to a market economy starting in the late 1970s. This transformation rapidly redirected labor and capital from collective farms to capitalist factories in urban areas. The influx of low-cost Chinese goods deeply undermined the economic foundations of manufacturing hubs such as Martinsville, Virginia, and High Point, North Carolina—known globally for sweatshirts and furniture production. Two decades later, workers in these regions have yet to fully recover from those job losses. Although employment has returned, most new jobs tend to be in low-wage industries. Similar patterns emerged across numerous labor-intensive sectors including textiles, toys, sporting goods, electronics, plastics, and automotive parts.

By around 2015, China’s manufacturing transition had largely stabilized, and the initial "shock" phase subsided. Since then, U.S. manufacturing employment has rebounded, growing steadily through the administrations of Barack Obama, Donald Trump, and Joe Biden.

Given this context, one might wonder why the "China shock" remains a topic of discussion. Ideally, it would be a closed chapter. Earlier research, published between 2013 and 2016 alongside collaborators from the University of Zurich, first detailed how competition from Chinese imports caused permanent declines in employment and income in certain U.S. regions. However, the current debate often dwells excessively on past impacts, effectively fighting a war that has already passed. Instead, policymakers should focus far more on the emerging challenges posed by a new phase of economic competition with China.

This upcoming phase could present even greater challenges.

The initial China shock was a one-time event. Essentially, China caught up by doing what it arguably should have been doing decades earlier. While this caused painful job losses in the U.S., it was unrealistic for America to compete with China on low-end manufacturing such as sneakers or AirPods assembly. China’s manufacturing workforce is estimated to exceed 100 million, dwarfing the roughly 13 million in the U.S. It is impractical, if not impossible, for the U.S. to compete simultaneously in both high-tech sectors like semiconductors and low-cost consumer goods.

The looming "China shock 2.0" involves China moving from a peripheral competitor to the dominant player. Currently, China is aggressively contesting leadership in innovative industries long dominated by the U.S.: aviation, artificial intelligence, telecommunications, microprocessors, robotics, nuclear and fusion energy, quantum computing, biotechnology, pharmaceuticals, solar energy, and battery technology. Mastery of these sectors offers multiple advantages: substantial economic rewards from high-margin products and well-paying jobs; geopolitical influence by setting technological standards; and military strength through control of critical battlefield technologies. Iconic American companies like General Motors, Boeing, and Intel remain national pillars, but they face challenges that threaten their standing. Meanwhile, China’s technological ambitions are reshaping governments and markets across Africa, Latin America, Southeast Asia, and increasingly Eastern Europe. This influence is expected to grow as the U.S. adopts a more isolationist posture reminiscent of the MAGA era.