In the late 1990s and early 2000s, the U.S. and the global economy experienced a “China shock," a boom in imports of cheap Chinese-made goods that helped keep inflation low but at the cost of local manufacturing jobs. A sequel might be in the making as Beijing doubles down on exports to revive the country’s growth.
Its factories are churning out more cars, machinery and consumer electronics than its domestic economy can absorb. Propped up by cheap, state-directed loans, Chinese companies are glutting foreign markets with products they can’t sell at home. Some economists see this China shock pushing inflation down even more than the first.
China’s economy is now slowing, whereas, in the previous era, it was booming. As a result, the disinflationary effect of cheap Chinese-manufactured goods won’t be offset by Chinese demand for iron ore, coal and other commodities. China is also a much larger economy than it was, accounting for more of the world’s manufacturing.
It had 31% of global manufacturing output in 2022, and 14% of all goods exports, according to World Bank data. Two decades earlier China’s share of manufacturing was less than 10% and of exports less than 5%. In the early 2000s, overproduction mainly came from China, while factories elsewhere shut down.
Now, the U.S. and other countries are investing heavily in and protecting their own industries as geopolitical tensions rise. Chinese firms such as the battery maker Contemporary Amperex Technology are building plants overseas to soothe opposition to imports, though theyalready produce much of what the world needs at home.
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