If the “China shock” of the early 2000s was about China catching up, then “China shock 2.0” is about the country redefining the boundaries of what is economically possible across manufacturing sectors, according to Columbia University professor Adam Tooze.
Amid complaints about the trade and industrial policies accelerating China’s rise in many sectors – including aviation, space, artificial intelligence (AI), telecoms, microprocessors, robotics, nuclear and fusion power, quantum computing, materials sciences, biotechnology, pharmaceuticals, solar power and batteries – Tooze offers a simple warning: “The rise of China is a long-term trend to which the West must adjust.”
“The New Global Imbalances”, a report by the Centre for Economic Policy Research (CEPR), is similarly blunt: “Failure to acknowledge the structural nature of these changes, and excessive emphasis on protection, will undermine long-term growth for all.”
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Tooze makes clear that the shock has its roots as much in the United States as in China. He distils four “truly radical forces” that define the 2.0 moment: US President Donald Trump’s “trade policy rampage”, the “new and extraordinary incontinence” of US fiscal policy; the AI boom and the “gear-shift” in Chinese economic policy.
Given that the China-shock narrative has been simmering for almost three decades, both Tooze and the CEPR ask three questions. Why care? Why now? And what is to be done?
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Many who say they care have built their anxieties on weak, and sometimes flagrantly false, foundations. Foremost is the “pesky foreigner” prejudice found in every continent: that plucky, innovative and efficient local companies face unscrupulous, corrupt foreign competitors. These companies cut corners and use low-quality materials to undercut local companies’ high-quality products. They collude with their governments to block access to their own markets.