Election 2024: The United States Is Facing a Second China Shock

Is history repeating itself? 

The Chinese economic miracle of the early 2000s rode on the back of exports. As China became the world’s manufacturer, many of its products headed to the United States. American consumers got cheaper goods and lower inflation. But those benefits came at a price. Thousands of U.S. firms, especially in the industrial Midwest, couldn’t keep up. They went out of business, and their employees lost their jobs. 

Economists refer to that time as the China shock. Most also thought it was a one-off, an era not to be repeated. China’s currency appreciated, its labor costs rose, its growth became more dependent on domestic investment, and U.S. firms and policy adapted. 

Then came Covid-19 and the bursting of China’s real estate bubble. The country’s growth prospects suddenly dimmed. Talk of China overtaking the United States as the world’s largest economy gave way to talk about how China was bogged down in the so-called middle-income trap. 

To restart its growth engine, China could have done what most economists recommended, spur domestic consumption. China instead returned to the strategy that drove its meteoric rise: exports. Beijing is now heavily subsidizing domestic firms. They have responded. But they are producing more goods than the Chinese market can absorb. The surplus, and there is a lot of it, is headed overseas.  

That is a problem. As U.S. Secretary of the Treasury Janet Yellen put it while in Beijing last weekend, “When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question.”  

The last part of Yellen’s statement merits emphasis. The problem isn’t America’s alone. Complaints that China is trying to solve its economic problems at the expense of others can be heard in Berlin, Brasilia, Delhi, London, Mexico City, and Paris among other capitals. Some of these complaints target China’s policies in traditional industrial sectors. Brazil has pointed to the damage cheap Chinese exports are doing to Brazilian producers of chemicals, metal sheeting, and tires. Chile faces a potentially existential threat to its steel industry. 

Many of the complaints, however, increasingly target China’s massive subsidies for green energy. As Axios put it earlier this week, “there is a rising, worldwide backlash against cheap green tech.” So many cheap Chinese solar panels have flooded the European market that they are being used to build garden fences. Carmakers across the world fret that imports of cheap Chinese electric vehicles (EVs) will cripple their businesses.  

At a conference I attended today, Reuters commentator Hugo Dixon called this the “good, green glut.” In a way, it is. Speeding up the world’s transition to green energy should slow down climate change. But countries aren’t going to sit idly by as domestic industries and jobs are demolished.  

And they haven’t. Yellen has warned that the United States, which has had tariffs on Chinese solar panels since the Obama administration, “won’t rule out” protecting its clear energy industry. The European Union has opened an investigation into China’s subsidies of EVs and adopted a foreign subsidies regulation that blocks companies subsidized by foreign governments from bidding on EU procurement projects. Brazil and India have launched similar efforts, even if they are, like China, members of BRICS. 

The increased concern over Chinese exports adds an additional tension to a strained U.S.-Chinese relationship already buffeted by differences over Israel, Taiwan, and Ukraine. All signs so far are that Beijing is brushing off Yellen’s message, noting among other things how the Biden administration is subsidizing U.S. green energy investments with the Inflation Reduction Act.  

But it would be a mistake to focus solely on the dialogue between Beijing and Washington. The Biden administration, and a second Trump administration if it comes to be, will need to pay attention to what it friends, partners, and allies are doing, as well as to how its own policy choices affect them. Coordinated, or at least aligned, policies would be the most likely to persuade Beijing to turn back from its effort to export its problems abroad. 

The risk is that we will get uncoordinated efforts that produce recriminations and retaliation among countries that otherwise share common objectives. That could produce trade and currency wars that make a second China Shock even more consequential than the first.  

Campaign Update 

The secretary of state’s offices in Alabama and Ohio have informed the Democratic Party that Joe Biden might not be on either state’s ballot in November. The problem is that Alabama state law requires political parties to certify their presidential and vice-presidential candidates eighty-two days before Election Day, which makes this year’s deadline August 15. Ohio state law requires the certification ninety days in advance, or August 7 in this electoral cycle. The Democratic National Convention opens on August 19. The Alabama and Ohio laws have been a problem before. Both state legislatures exempted the Republican Party in 2020 because its convention opened after the deadline passed. The Ohio state legislature also exempted the Democrats four years ago for the same reason. Democrats are hoping for similar treatment this year. Biden is expected to lose both Alabama and Ohio in 2024, as he did four years ago. So not making the ballot, if it should come to that, wouldn’t doom his overall electoral prospects. It would, however, hurt down-ballot Democrats by depressing Democratic turnout. 

Third-party candidate Cornel West named Melina Abdullah to be his running mate. Abdullah is a professor of Pan-African Studies at California State University, Los Angeles, and one of the founders of the Black Lives Matter movement. She has never run for political office before. In naming Abdullah, West said: “I wanted to run with someone who would put a smile on the face of Fannie Lou Hamer and Martin Luther King Jr. from the grave.” An immediate challenge for the West-Abdullah ticket is getting on more state ballots. So far they have qualified in just three states.  

The Candidates in Their Own Words 

Biden criticized Israeli Prime Minister Benjamin Netanyahu in an interview with Univision on Tuesday night, saying, “I think what he’s doing is a mistake.”  

Biden said nothing, however, about pressuring Netanyahu to change course in Gaza. The Israeli prime minister will likely watch what Biden does while discounting what he says.  

On Wednesday, Donald Trump repeated his criticism of Jewish Americans who vote for Biden. The former president told reporters that “any Jewish person that votes for a Democrat or votes for Biden should have their head examined.” 

Trump similarly repeated his criticisms of migrants seeking to cross the U.S. border. He told guests at a record-setting fundraiser on Saturday night: “These are people coming in from prisons and jails. They’re coming in from just unbelievable places and countries, countries that are a disaster.” He went on to recall the criticisms he received in 2018 for saying that migrants coming from Africa, Central America, and Haiti came from “(expletive) countries.”  

 And when I said, you know, ‘Why can’t we allow people to come in from nice countries, I’m trying to be nice... Nice countries, you know like Denmark, Switzerland? Do we have any people coming in from Denmark? How about Switzerland? How about Norway?’... [T]hey took that as a very terrible comment, but I felt it was fine. 

Trump went on to say that migrants were also coming from Yemen, “where they’re blowing each other up all over the place.” 

What the Pundits Are Saying 

The Washington Post reported on what it called “Donald Trump’s secret, long-shot plan to end the war in Ukraine.” The thrust of the plan is that Trump would push “Ukraine to cede Crimea and the Donbas border region to Russia.” The plan appears to rest two debatable assumptions: that both Ukraine and Russia want the war to end and that Russian President Vladimir Putin would be satisfied with the territory he has seized thus far. For its part, the Trump campaign told the Post that “any speculation about President Trump’s plan is coming from unnamed and uninformed sources who have no idea what is going on or what will happen.”  

The Financial Times reported this week that oil markets are likely to tighten in the second half of 2024, which would mean higher gas prices are on the way. That would be bad news for the Biden campaign, especially given that inflation was slightly higher than expected in March.  

What the Polls Show 

A Gallup poll released today found a significant rise in the percentage of Americans saying the United States is not doing enough in Ukraine. When Gallup asked last fall, one in four Americans said the United States wasn’t doing enough to help Ukraine. The most recent poll saw that number rise to 36 percent. Conversely, the percentage of Americans thinking that United States is doing too much fell from 41 percent to 36 percent. The changing numbers largely reflect Democrats deciding that Washington is falling down in its support for Kyiv. So the new polling numbers aren't going to break the logjam on Capitol Hill over the Ukraine funding bill.   

Age is a major differentiator in how Americans see the war between Israel and Hamas, according to a recent Pew Research Center report. Thirty-three percent of American adults under the age of twenty-nine say that their sympathies lie with the Palestinians, with just 14 percent saying their sympathies lie with Israel. In comparison, only 9 percent of Americans over the age of sixty-five say their sympathies lie with the Palestinians, while 47 percent say their sympathies lie with Israel. That discrepancy points to the political problem that Biden faces. Young voters helped put him over the top in 2020. Given how close he came to losing the Electoral College in that race despite running away with the popular vote, a significant erosion in the youth vote could cost him reelection.  

The Axios-Ipsos Latino Poll found that Latino Americans nationally aren’t keen on Biden (41 percent favorable) or Trump (56 percent). Twenty-eight percent said that immigration is the issue they find most worrying. Sixty-four percent believe the president should have the authority to close the U.S. border to prevent too many immigrants from entering. Forty-two percent favor building a wall along the U.S.-Mexico border. That is up eight percentage points from December 2021. Thirty-eight percent endorsed returning undocumented immigrants to their country of origin. That is up ten points compared to December 2021. 

The Campaign Schedule 

Trump’s criminal trial in New York state court for falsifying business records to hide his relationship with Stormy Daniels is set to begin on Monday (April 15, 2024).  

The oral arguments before the U.S. Supreme Court on Trump’s claim that he has blanket immunity for all his actions while president are set to begin in thirteen days (April 25, 2024). 

The Republican National Convention opens in Milwaukee in ninety-four days (July 15, 2024). 

The Democratic National Convention opens in Chicago in 129 days (August 19, 2024). 

Election Day is 207 days away. 

Inauguration Day is 283 days away. 

Sinet Adous assisted in the preparation of this post.