MW China is about to shock the U.S. economy again. Economists who predicted the first offer a plan to fight back.

By Barbara Kollmeyer

'Looking backward' tariffs won't help Americans find new jobs

Earnings season is kicking off with banks in the spotlight, but tech is stealing some limelight with Nvidia (likely) rebooting its chip sales to China (see below).

Staying on China, our call of the day warns the U.S. faces another big economic shock from that country, bigger than the first that wiped out U.S. manufacturing jobs between 1999 and 2007.

U.S. policymakers are spending too much time "looking backward, fighting the last war," and not enough on that new China shock, David Autor and Gordon Hanson, economics professors at the Massachusetts Institute of Technology and Harvard University's Kennedy School, respectively, wrote in an op-ed for the New York Times.

They published research more than a decade ago detailing the devastation of Chinese import competition on the U.S. "China Shock 2.0, the one that's fast approaching, is where China goes from underdog to favorite," in AI, robotics, nuclear, quantum computing, biotech and solar, they said.

"Owning these sectors yields dividends: economic spoils from high profits and high-wage jobs; geopolitical heft from shaping the technological frontier; and military prowess from controlling the battlefield," they added.

China is shaking off its waning cheap labor advantage to focus on the 21st century's biggest technologies, and spreading its influence in "reordering governments and markets," while the U.S. retreats into an "isolationist MAGAsphere" with "tariffs on everything, everywhere, all at once."

That tariff strategy would have failed in a trade war 20 years ago and at best will bring "tedious and poorly paid" assembly-line jobs back to the U.S.

They also cited research showing that between 2003 and 2007, the U.S. led China in 60 of 64 frontier technologies, but China led in 57 of 64 technologies between 2019 to 2023 versus just 7 for the U.S.

"One thing that tariffs alone will never do is make the United States an attractive place to innovate. Yes, tariffs belong in our trade arsenal - but as precision munitions, not as land mines that maim foes, friends and noncombatants equally," they said.

So what to do? Rejecting a hands-off trade strategy, Autor and Hanson offer a four-pronged plan to combat the looming China 2.0 Shock.

The first is the U.S. must ally with the European Union, Japan, Canada, Mexico, Korea and others over shared China troubles instead of making punitive tariffs. The U.S. also should encourage China to build plants on American soil, which drives more competition, they say.

The U.S. also should aggressively promote experimentations in new, important fields such as drones and advanced chips, and big venture funds to support them. Third, the U.S. must pick the battles it can win, such as semiconductors or those it can't afford to lose such as rare-earth minerals - arguably steps the U.S. has just taken, given the Nvidia news as well as the recent U.S. investment in MP Materials (MP).

Finally, the pain of devastating job losses and economic fallout needs to be met with extended unemployment insurance and the right technical education from community colleges to help workers find new jobs, they said.

"We should stop fighting the last trade war and meet China's challenge in the current one," Autor and Hanson said. "Contrary to a strategy built on cheap labor, China Shock 2.0 will last for as long as China has the resources, patience and discipline to compete fiercely."

The markets

U.S. stock futures (ES00) (YM00) are mostly higher, led by tech (NQ00), with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y BX:TMUBMUSD02Y are easing. Bitcoin (BTCUSD) has dropped to $116,000 after a record run.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6268.56    0.62%   3.90%   6.58%   11.32% 
   Nasdaq Composite                                                     20,640.33  1.12%   4.77%   6.88%   11.74% 
   10-year Treasury                                                     4.44       3.00    5.20    -13.60  27.70 
   Gold                                                                 3373.3     0.80%   -0.90%  27.81%  38.97% 
   Oil                                                                  66.79      -1.66%  -6.56%  -7.07%  -18.51% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Banks will kick off second-quarter earnings season, with JPMorgan $(JPM)$, Bank of New York Mellon (BK), Wells Fargo $(WFC)$, State Street (STT) and Citigroup (C) reporting results.

Nvidia (NVDA) said it expects to be able to start selling its H20 chips in China again and shares are rising. Chinese companies including Alibaba (BABA) rose as well.

Trade Desk (TTD) shares are surging after the ad-tech company beat out Robinhood Markets (HOOD) for a spot in the S&P 500.

Consumer prices are due at 8:30 a.m., with headline and core CPI each expected to rise 0.3%. The Empire State manufacturing survey is due at the same time.

China said its growth rate cooled to 5.2% in the second quarter from 5.4% in the first.

Best of the web

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Donald Trump reportedly asked Volodymyr Zelensky if Ukraine could hit Moscow.

The chart

Bespoke Investment Group shares this chart, which shows eight of the biggest companies reporting this week underperformed the S&P 500 last week, suggesting investors took profits on a strong three-month run for shares. "That can be considered a modest positive as it suggests investors aren't being overly complacent ahead of their respective reports. They have still mostly performed well over the last three months, though." Nine of the 12 stocks, as shown, finished the week at overbought levels.

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir Technologies 
   GME     GameStop 
   AMD     Advanced Micro Devices 
   NIO     NIO 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   AMZN    Amazon 
   META    Meta 

Random reads

80-year old becomes oldest to finish Death Valley race.

Business is booming for Etsy witches.

A census is starting - for swans.

-Barbara Kollmeyer

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(END) Dow Jones Newswires

July 15, 2025 06:48 ET (10:48 GMT)

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