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The Next China Shock: Dire Threat to U.S. Economy

The Next China Shock: Dire Threat to U.S. Economy

Mar 28, 2024

The Next China Shock: Dire Threat to U.S. Economy

The Wall Street Journal has alerted the international community to an impending 'China shock' that could have significant repercussions for the American economy. According to the report, China's once-booming economic engine is showing signs of distress, with consumer spending plummeting and a consequent buildup of unsold goods reaching tens of billions of dollars. These excess products are now being offloaded into global markets at cut-rate prices, posing a direct threat to the already fragile state of American manufacturing.

The Wall Street Journal

U.S. Treasury Secretary Janet Yellen has raised concerns over the potential influx of inexpensive green energy products from China. The Chinese government, mirroring U.S. policy, has invested heavily in green technologies, including a foray into the electric vehicle market that saw the rise and fall of 500 EV manufacturers. The potential dumping of unsold green energy inventory into the U.S. could undermine the $400 billion investment made through President Joe Biden's Inflation Reduction Act, aimed at bolstering domestic production of solar panels, batteries, and related technologies. With mass bankruptcies a real possibility, the fiscal responsibility falls back onto taxpayers, who are effectively underwriting these subsidies and tax credits.

The Associated Press

Highlighting the irony of the situation, Yellen's warnings were delivered at a Nevada solar panel company that previously succumbed to cheap Chinese imports in 2017, only to be resurrected this year with the aid of taxpayer funds. Despite these cautionary words, China appears poised to continue its global economic strategy, largely disregarding U.S. concerns.

This potential crisis could be more damaging than the first 'China shock' experienced in the early 2000s when the U.S. lost one-third of its manufacturing jobs—totaling 5.6 million positions—due to a surge of inexpensive Chinese imports. While these imports helped maintain low inflation and indirectly supported the housing boom, the current scenario is markedly different. China's growth has halved under President Xi Jinping's leadership, with a notable slowdown in government spending on infrastructure and an unsettling prevalence of uninhabited 'ghost cities.'

With Chinese economic growth now inconsistent and deflation taking hold as consumers tighten their belts, the resultant glut of goods could spell disaster for the remnants of American manufacturing. The analysis concludes with a critical view of government-led industrial policy, suggesting that missteps by China in this economic climate could potentially deliver a crippling blow to 'Made in America' industries.


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