The Strategist

WSJ: The world will soon experience second "China Shock" with abundance of cheap goods

03/04/2024 - 02:30

China is addressing economic issues by growing the amount of goods produced beyond what is needed domestically, according to the Wall Street Journal (WSJ). A second wave of Chinese imports will be felt by nations all around the world.

Twenty years ago, the world economy was hit by the "China shock", a sudden and severe surge of low-cost Chinese goods. Economists predict that this pattern will recur shortly because Beijing is growing exports to boost its economy. 

During the first wave, China was able to control inflation by increasing exports. Since Chinese demand for commodities will not counteract the deflationary effect, economists anticipate that it will be more pronounced the second time around.

Although the initial "China shock" resulted in cheaper prices in the US, it also led to a loss of jobs for almost 2 million Americans between 1999 and 2011 as producers of apparel, toys, and furniture were unable to compete. 

In an effort to prevent a recurrence of the crisis, the US, Japan, and the European Union have allotted billions to boost output and are also thinking about raising tariffs on Chinese exports. Economists believe that a recurrence of the situation would be even more disastrous because China is now a competitor in the manufacturing of high-tech goods.