The China Shock 2.0
About this episode
The world is bracing for a second China Shock — China's dominance of frontier industries like electric vehicles, batteries, and solar, and the trade surpluses that come with it. Setser, a former Treasury official now at the CFR, explains how China got here: industrial subsidies, technology transfer, currency management, and a doubling down on manufacturing as the property sector soured. Unlike the first China Shock, the rest of the world is fighting back: Trump's tariffs (which mostly raise US import prices), Indian tariffs, and a newly protectionist Europe. China's rare-earth leverage and supply-chain dependence are security risks. They debate whether trade deficits matter, the overlooked role of services, and whether a weaker dollar would help. The bottom line: China perfected the Japanese–Korean export playbook with far more state backing, and the US has counter-tools — tariffs, industrial policy, devaluation — but lacks the political will to use them coherently.