WHAT`S REALLY SHOCKING ABOUT THE SECOND CHINA SHOCK? / THE FINANCIAL TIMES OP EDITORIAL

What’s really shocking about the second China shock?

While the Chinese export surge continues unabated, import volumes have been anaemic

Soumaya Keynes

© Ann Kiernan

Here’s a story you might have heard before: once upon a time, a big bad wave of Chinese exports crashed on to the US economy. 

Anyone complaining was dismissed as a protectionist crank, resistant to progress, freedom and cheap furniture. 

The victims suffered for years, struggling to find new work. 

Eventually they tried to take revenge by electing a chaotic wizard as their president: Donald Trump. 

The End.

Economists know this tale all too well, though they also know that it is far from over. 

The Chinese economy never reformed enough to prevent its excesses smashing into its trading partners, and recently talk of a second “China Shock” has turned into more of a screech. 

As far as I’m concerned, no yarn is complete without a nerdy dive into the data. 

So when assessing whether the sequel is as scary as the original, how spooked should we be?

Looking at China alone, the first shock seems much more severe. 

Over the first seven years of the 2000s, its current account surplus as a share of its GDP exploded by roughly 8 percentage points, while the volume of its goods exports quadrupled. 

Those stunning surges dwarf more recent changes in both the current account surplus (a mere 3.5 percentage points between 2018 and 2025) and goods exports (a 50 per cent rise).

If you’re feeling soothed, stop. 

China’s economy today is much larger than it was back then, which means that smaller imbalances have much stronger global effects. 

As a share of global GDP, the increase in China’s current account surplus over the past seven years has been pretty similar to the increase over the same period in the 2000s. 

And in absolute terms, the increases in export volumes across the two shocks aren’t very different.

Perhaps a shock is scarier if it’s concentrated in a few products, destroying, say, a car industry. 

On this dimension the second China shock looks slightly more intense than the first. 

Over the six years up to 2007 the top 10 fastest-growing products accounted for 25 per cent of total Chinese manufacturing export growth, compared with 31 per cent over the same period up to 2024, for example. 

But that difference isn’t huge, and shrinks using alternative measures.

The clearer difference is in the nature of the products China is sending. 

Whereas rich westerners were relatively relaxed about China sending over millions of socks and sippy-cups, they’re feeling much more threatened by competition in higher-tech products like cars and chips. 

China has become so massive in so many areas that they’re also worried about the country weaponising its market dominance as they did for rare earths. 

(The protectionist cranks mutter “I told you so.”)

Peering through the data, there are a few other ways in which the two shocks differ. 

One is the path of China’s goods export prices, which for all the complaints about currency manipulation, rose by roughly 40 per cent between 2000 and 2007. 

Over the past few years they have plunged, pushing Chinese leaders to acknowledge the problems associated with competition so cut-throat that no one can turn a profit. 

In 2025 they were at the same level as they were in 2018.

Another deviation from the first China shock playbook lies in what China is buying — or rather, what it is not buying. 

Over the first seven years of the 2000s, China’s import volumes rose relatively healthily, as it sucked up the sophisticated equipment it needed to make its manufacturing exports boom. 

But more recently, its import volumes have been anaemic. 

Rather than bemoaning the factories crushed by Chinese competition, perhaps we should be pining for sales that never materialised.

Then there is the contrast with America’s policy approach. 

During the first China shock, the US Congress howled about currency manipulation, but ultimately didn’t erect many new trade barriers. 

This time the Trump administration has one spell for everything: “Tariffa Kedavra!” 

So whereas during the first China shock, America’s share of China’s exports fell by around 2 percentage points, over the past seven years its share has fallen by three times as much.

For protagonists elsewhere in the world, all this sounds alarmingly like a horror story — China’s export surge continues unabated, smashing into the rest of the world. 

There’s also a twist: any efforts to reject Chinese competition could provoke retaliation, threatening access to the Chinese suppliers that are so central to modern manufacturing supply chains. 

Which brings me to the final difference between the two China shocks: this time policymakers will be trying harder to avoid an unhappy ending.