Understanding the Challenge
As China’s trade surplus grows, with its manufacturing exports increasingly dominating global markets, the rest of the world grapples with how to respond. Should countries erect trade barriers against China? Attempt to decouple from China by reshoring manufacturing and building national supply chains? Emulate China’s strategy of driving manufacturing through industrial policies?
Why Chinese Exports Are a Concern
While low-cost imports exemplify the benefits of trade, there are valid reasons to be concerned about Chinese exports. In key areas like renewable energy, innovation, and manufacturing capacity, China has generated significant climate benefits—a global public good. However, bilateral trade deficits are not inherently problematic; it’s the broader trade imbalances that pose an issue, best managed through macroeconomic policies rather than sector-specific strategies targeting China.
Three Reasonable Concerns
Despite this, three sensible arguments justify the concern over Chinese exports: national security, impact on innovation, and job losses. Each requires a distinct strategy, but political confusion often leads to negative outcomes.
National Security
As US and European leaders increasingly view China as a geopolitical adversary, there’s a valid case for trade and industrial policies protecting strategic and defense interests. This includes reducing reliance on critical military supplies and safeguarding sensitive technologies. Governments must demonstrate to citizens—and China—that these policies are aligned with national security goods, services, and technologies, and are finely calibrated to avoid overreach.
Jake Sullivan, President Joe Biden’s national security advisor, advocates a “small yard, high fence” strategy. Applied rigorously, this doctrine ensures discipline in using trade measures for national security purposes and encourages mutual explanation and dialogue, preventing harmful escalation.
Innovation
There’s a worry that Chinese exports could undermine the innovative capacity of importing nations, diminishing future prosperity prospects. Although manufacturing employs a shrinking portion of advanced economies’ workforce, it remains disproportionately large in indirect effects on R&D and innovation. When these activities are displaced by Chinese imports, trade gains shrink or turn into losses.
Addressing this issue also requires a calibrated, differentiated response. Policies should focus on the most advanced manufacturing segments where new technology and innovation spillovers are greater. Protecting consumer goods or mature industries using standard technologies makes little sense. In the automotive sector, for instance, the US and Germany should focus on next-generation electric vehicles rather than mass-market electric vehicles that China has mastered.
The right way to counter Chinese imports in technologically sophisticated areas is implementing modern industrial policies that directly foster investment and innovation through public inputs, coordination, and subsidies when necessary. Other countries should adapt China’s industrial policies to their local economic, political, and institutional contexts. Trade protection is at best a temporary shield while these policies bear fruit over time.
Job Losses
There’s a legitimate concern that Chinese imports negatively impact employment, especially in lagging regions with competitive industries (the so-called China shock). This concern extends beyond traditional equity considerations. Locations experiencing job losses also tend to show social and political dysfunctions: increased crime rates, family breakdown, opioid addiction, mortality, and support for authoritarian populism.
However, focusing on jobs doesn’t justify supporting manufacturing or protecting imports. It’s hard to imagine replacing lost manufacturing jobs, regardless of relocation success. For nearly a decade, the US has attempted to revive manufacturing through import tariffs (during Trump’s first term and the current administration) and industrial policies (under Biden). Yet, manufacturing’s share of employment continues to decline. European countries have experienced similar trends, albeit from different starting points.
A critic might argue that a more aggressive stance towards Chinese imports could reverse this trend. However, this optimism is undermined by the fact that China has also lost tens of millions of manufacturing jobs while still dominating global manufacturing. While more aggressive policies might regain some of the manufacturing sector, few jobs will be created due to automation’s irreversibility.
Good jobs are essential for restoring the health of our middle class. A good-jobs strategy must focus on services like healthcare, retail, hospitality, and gig work, as they will continue to absorb most future employment. As argued in my new book, this can be achieved through a combination of regional development initiatives based on public-private partnerships and additional investment in labor-favoring technologies that broaden the tasks performed by uneducated workers.
Key Questions and Answers
- Why are Chinese exports a concern? Despite the benefits of low-cost imports, there are valid reasons to be concerned about Chinese exports, particularly in areas like renewable energy, innovation, and manufacturing capacity.
- What strategies should be adopted to address these concerns? A balanced approach is needed, focusing on national security, innovation, and job losses. Each concern requires a distinct strategy, with calibrated responses targeting specific manufacturing segments.
- How can nations protect their industries without resorting to trade barriers? Modern industrial policies that directly foster investment and innovation can be more effective than trade protection, which should serve as a temporary shield while these policies bear fruit.
- Can aggressive trade policies create jobs? While more aggressive policies might regain some manufacturing sector, few jobs will be created due to automation’s irreversibility. A good-jobs strategy should focus on services like healthcare, retail, hospitality, and gig work.
The Author
Dani Rodrik, Professor of International Political Economy at Harvard Kennedy School, is former president of the Institute for International Economics and author of Prosperity for All: Building a Better Global Economy (Princeton University Press, 2025).
Copyright: Project Syndicate, 1995 – 2025
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