China Shock 2.0: Global Trade Dynamics Under Strain

The US-China Economic and Security Review Commission's 2025 report highlights China's growing reliance on exports due to a sluggish domestic economy, leading to 'China Shock 2.0'. The report warns of global trade imbalances, as China pushes excess goods into foreign markets, impacting jobs and triggering protectionist responses.

China's economic challenges are reshaping global trade dynamics, as Beijing increasingly leans on export-driven growth to mitigate a sluggish domestic economy, according to findings from the US-China Economic and Security Review Commission's 2025 Report to Congress. The report introduces what experts are calling 'China Shock 2.0', a phenomenon influencing jobs and industrial capacity worldwide, notably impacting the United States.

The Commission describes an emerging 'two-speed economy' in China, where consumer spending remains weak while state-backed manufacturing sectors, particularly high-tech and heavy industries, thrive on ample capital and policy support. Investment is notably centered around advanced manufacturing sectors targeted by China's industrial programs, as Beijing prioritizes industry to boost growth amid a downturn in the property sector and mounting debt.

The report details how China's export surge is straining global markets, resulting in dumping, overcapacity, and subsidized exports that harm foreign manufacturers. Protectionist measures are already surfacing as countries impose new trade barriers to safeguard their industries. The report cautions that unchecked growth in China's exports could further weaken critical supply chains in the United States.

Adding to the friction is technological competition, with the US imposing restrictions on semiconductor exports to China, leveraging them as part of broader trade talks. China has responded by targeting specific US companies and limiting exports of essential minerals for high-tech and defense production.

As tensions escalate, Chinese producers are increasingly targeting third markets, offshoring operations to navigate tariffs and secure a firm place in global supply chains. Despite these strategies, China continues to present itself as a dependable trade ally, even as it benefits from the global rules-based trade system it often sidesteps. Approaching the 25th anniversary of China's WTO entry, the report underscores Beijing's evolution into a prime benefactor of the global trade platform despite maintaining a fundamentally state-led economy.

The intersection of China's structural issues and US efforts to safeguard strategic technology sectors signals unprecedented stress in global trading systems. Industrial policy, trade dependency, and national security are converging areas, escalating economic competition between the two nations.

(With inputs from agencies.)