After lying dormant for nearly a decade, the term “China shock” has resurfaced in political and economic discussions in the United States. Originally coined in the mid-2010s, the phrase refers to the significant increase in Chinese imports to the U.S. following the Chinese mainland’s accession to the World Trade Organization (WTO). This surge was said to have cost the U.S. millions of manufacturing jobs and contributed to the decline of its industrial sector.
Earlier this week, Lael Brainard, U.S. President Joe Biden’s top economic adviser, addressed the Detroit Economic Club, emphasizing the need for tariffs to avoid a second “China shock.” This marks the second instance in six months where Brainard, a member of the White House’s economic team, has publicly invoked the “China shock” to justify the administration’s trade policies toward the Chinese mainland.
While the “China shock” narrative has been influential in shaping U.S. trade policy, particularly in defending tariffs on Chinese exports, recent economic analyses have revealed a different story. Contrary to the notion that increased imports from the Chinese mainland harmed the U.S. economy, many economists have found that the United States experienced net economic gains during this period.
Research indicates that although there were losses in manufacturing jobs due to shifts in the supply chain, these were offset by gains in non-manufacturing sectors, such as services. Overall employment and wages in the U.S. saw an increase, and consumers benefited significantly. It is estimated that for every manufacturing job displaced, American consumers saved approximately $400,000 due to lower-priced goods from the Chinese mainland.
In summary, the “China shock” led to improved living standards for the average American, presenting a contrast to the adverse effects often highlighted in political rhetoric. From an economic standpoint, these outcomes are not unexpected; they are consistent with the benefits of globalization and international trade.
However, in the political arena of Washington, D.C., the “China shock” has been leveraged to address the concerns of manufacturing workers and communities that have been adversely affected. By invoking this term, policymakers aim to resonate with these groups, particularly during election cycles. Notably, the term first gained prominence in 2016, another significant election year.
Reference(s):
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