WASHINGTON — For eight years, the United States has been fighting an economic battle with China, imposing heavy tariffs on Chinese goods entering American ports. But those efforts have done little to slow China’s manufacturing machine.
The world’s second-largest economy is actually shipping out more products than ever before — it has simply shifted where those goods are going, steering them away from the U.S. tariff barrier and toward more accessible markets in Europe and parts of Asia.
That redirection of Chinese trade is raising fears of a repeat of what economists call the “China Shock” — the wave of factory closures that eliminated hundreds of thousands of manufacturing jobs across the American heartland in the 2000s. That economic disruption is widely credited with fueling the political unrest that helped put Donald Trump in the White House on two separate occasions. Now, analysts worry Europe could be next.
Even with U.S. sanctions in place, China posted a record global trade surplus last year — a staggering $1.2 trillion.
French President Emmanuel Macron sounded the alarm earlier this year, saying Chinese exports are “literally killing a large part of the European industry” and acknowledging that Europe was “slow to see that.”
European leaders are no longer looking the other way. China’s trade practices are expected to be front and center this week when leaders of the G7 wealthy democracies convene in Évian-les-Bains, France. French officials said last week they are hoping the summit produces a concrete strategy to confront the China problem.
One option on the table is for the European Union and other nations to erect their own higher tariff barriers against Chinese imports. Right now, the EU applies relatively modest tariffs on Chinese goods under World Trade Organization guidelines, though it does impose steeper duties on specific products — up to 35% on electric vehicles, for instance.
“China’s export surge, unless its leaders rein it in, will provoke a protectionist wave against Chinese imports worldwide,” said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. “All the more so if the current disruptions around the Iran war persist and cause a sharper global slowdown.”
An economist at HSBC, Taylor Wang, cautioned this month that a trade dispute between China and the EU could seriously hurt Chinese exports, noting that Europe represents a major portion of China’s overseas sales of electric vehicles, solar panels, and lithium-ion batteries.
European leaders are also pushing Trump to stop levying punishing tariffs on U.S. allies like the EU and Canada, and instead join forces with them to push back against China.
The original China Shock began around 2001, when China joined the World Trade Organization and gained reduced-tariff entry into the markets of the United States and Europe. American factories were overwhelmed by lower-cost Chinese textiles, furniture, electronics, and other manufactured goods.
Economists David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich, and Gordon Hanson, now at Harvard, determined that Chinese competition resulted in the loss of 2.4 million American jobs.
What’s being called China Shock 2.0 is unfolding in a different way. The first time around, China was still establishing itself as a major global trading power. Today, it dominates world trade and manufacturing outright.
China held just 4% of global goods exports back in 2000. That figure has jumped to 16% — the highest of any nation on Earth — making Beijing’s trade decisions far more impactful on the world economy.
China has also moved upmarket, now exporting sophisticated products like electric vehicles, batteries, advanced machinery, software, and scientific instruments — putting it in direct competition with the world’s wealthiest countries. Chinese exports now compete with nearly 58% of goods exported by the 21 European nations that use the euro, up from 46% in 2000, according to a recent paper by researchers at the Federal Reserve and the Federal Reserve Bank of St. Louis.
“The second China shock is characterized by its companies running the board on manufacturing exports — from low-tech, low-wage to high-tech high value-added industries,” said economist Eswar Prasad of Cornell University. “This is directly hitting advanced economies where it now hurts the most” — in high-tech sectors like electric vehicles and advanced robotics that many countries “had been counting on for a manufacturing revival.”
Germany has felt the impact severely. German companies once thrived by selling to Chinese consumers, but the tables have turned: China now exports more to Germany than it imports. German manufacturers are struggling to keep pace with Chinese competitors across key sectors — industrial machinery, construction equipment, automobiles, and chemicals — all pillars of Germany’s export-driven economy.
Largely due to Chinese competition, Germany’s economy has stalled, contracting in both 2023 and 2024, and managing only 0.2% growth last year.
The United States finds itself in a less vulnerable position than it was in the early 2000s. Trump’s tariffs have blocked a significant volume of Chinese goods. U.S. Commerce Department data shows Chinese exports to the United States dropped 37% from January through April this year compared to the same period in 2025.
America also benefits from producing its own energy — unlike the EU and Japan — and is experiencing a surge in productivity and investment in artificial intelligence.
Despite reduced access to the American market, China is still benefiting from strong global demand for its affordable electric vehicles and from AI-driven investment that fuels sales of Chinese electrical components and machinery used in data centers.
Chinese exports to the 27-nation EU climbed 16.4% from January through May compared to the previous year. For France specifically, that translated into a trade deficit with China — measured by Beijing’s customs figures — rising to $5.3 billion from $3.3 billion a year earlier.
Economists point to Chinese government policies that push factories to overproduce while discouraging consumer spending at home. State-run banks, for example, offer low interest rates to savers while providing cheap loans to government-backed manufacturers. A weak social safety net also pressures Chinese families to save rather than spend, as they brace for retirement and healthcare costs.
Obstfeld explained that these policies are partly designed to keep factories running and workers employed. “The result is an excess domestic supply of manufactured products, which must be exported abroad,” he said. The flood of low-priced Chinese goods on world markets then threatens to put European and other manufacturers out of business.
Beijing has also pushed companies to compete fiercely against one another domestically. “The rest of the world is ill prepared to compete with these apex predators,” Autor and Hanson wrote in a New York Times column last year.
China has repeatedly pledged to cut back on overproduction and stimulate domestic consumer spending — a goal the U.S. and other nations have urged for decades. Such a shift would reduce China’s dependence on exports and improve living standards for its own citizens, while also opening up a growing market for American and European goods. “The leadership has long said this is a goal,” Obstfeld noted, “but they have been slow to act as if they mean it.”
“Beijing has been relying on the rest of the world to address its overcapacity problem,” said former U.S. trade negotiator Wendy Cutler, now senior vice president at the Asia Society Policy Institute. “However, this unsustainable situation may soon change if the EU and others take steps to halt Chinese imports, following the U.S. lead.”
