Chinese exports caused an economic shock in America two decades ago, Europe is now under attack

Chinese exports, which caused an economic shock in America two decades ago and are now hitting Europe, were at the top of the agenda of the G7 leaders' meeting this week in Evian-les-Bains, France, according to a statement today from the group of the world's most powerful economies.

At a media briefing last week, French officials suggested they hoped the summit would produce a plan to combat the threat from China by boosting its exports to Europe, as the United States (US) wages a tariff war against the world's second-largest economy.

G7 leaders did not mention China by name in today's statement, which called for "balanced, sustained and resilient growth", but they clearly had Beijing in mind when they wrote: "With concerns that global imbalances persist and have widened in recent years".

Despite the tariff war that Washington has been waging against it for eight years, China is now exporting more than ever - it has just changed the direction of its exports. Instead of America, its target is now much more market-open Europe and other Asian countries.

This shift carries the risk of a European continuation of the so-called China shock in America from the first decade of the twenty-first century. At that time, imports of Chinese goods destroyed hundreds of thousands of factory jobs in the central US states, contributing to the political turmoil that brought Donald Trump to the White House twice.

Despite US sanctions, China last year achieved a record global trade surplus of an incredible $1,2 trillion, and earlier this year, French President Emmanuel Macron warned that imports from China were "literally killing a huge part of European industry" and admitted that Europe was "slow to realize this."

Europe seems to see this clearly now.

One possibility is that the European Union and others will build a higher customs wall against China, and the EU currently has relatively low tariffs on that country in accordance with World Trade Organization rules, although it burdens certain Chinese products with higher tariffs, for example 35 percent on electric vehicles.

"The surge in exports from China, if left unchecked by its leaders, will trigger a wave of protectionism against Chinese imports around the world," Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund, told the Associated Press (AP), noting that this will happen "even more so if the current disruptions from the Iran war continue, causing a sharp global slowdown."

HSBC economist Taylor Wang warned this month that the China-EU trade dispute could threaten Chinese exports, as Europe accounts for a sizable share of China's exports of electric vehicles, solar panels and lithium-ion batteries.

Europeans are also hoping to persuade US President Donald Trump to stop hitting US allies like the European Union and Canada with tariffs and instead start working with them to counter China.

The first "China Shock" began around 2001 when the Chinese joined the World Trade Organization and gained access to the lucrative markets of the US and Europe where tariffs are low.

In the US, many factories could not compete with cheap Chinese textiles, furniture, electronics and other manufactured goods. Economists David Otor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich and Gordon Hanson of Harvard together estimated that competition from China destroyed 2,4 million American jobs at the time.

"China Shock 2.0," as what is happening now is being called, is playing out differently. China is no longer just one of the major players in global trade. It now dominates world trade and manufacturing.

In 2000, China accounted for just four percent of global merchandise exports. Now its share is 16 percent - the largest in the world - making Beijing's trade policy much more significant.

China has also upped its trade game, exporting sophisticated products like electric vehicles and batteries, advanced machinery, software, scientific instruments, and putting itself in direct competition with the world's richest countries.

For example, Chinese exports now compete with nearly 58 percent of exports from the 21 European countries that share the euro, up from 46 percent in 2000, a survey by the U.S. Federal Reserve and the Federal Reserve Bank of St. Louis showed last month.

"The second China shock is characterized by Chinese companies leading the way in the production of export products - from low-tech, low-wage firms to high-tech, high-value-added ones," said Cornell University economist Eswar Prasad. "This directly hits developed economies where they are hurting the most," which is high-tech industries like electric vehicles and cutting-edge robotics that many countries had been counting on to revive manufacturing.

Germany has been hit hard. German companies once thrived on exports to China, but now the situation has reversed: China now sells more goods to Germany than it buys from it, while German companies compete with Chinese rivals in industrial machinery, construction equipment, cars and chemicals – all mainstays of Germany’s export-oriented economy.

Partly due to competition from China, the German economy has stagnated, shrinking in 2023 and 2024, and growing by just 0,2 percent last year.

The US is less vulnerable than it was in the 2000s. Trump's tariffs have prevented many Chinese products from entering the country.

Chinese goods exports to the US fell 37 percent from January to April this year, compared with the same period in 2025, the US Commerce Department said.

The US is also in a stronger economic position than, say, the EU and Japan, as it produces its own energy and enjoys a boom in productivity and investment in artificial intelligence.

Despite Trump's tariffs and reduced U.S. sales, China is benefiting from growing demand for its low-cost electric vehicles and from investments in artificial intelligence, which is generating sales of Chinese electrical components and machines for AI-powered data centers.

Exports from China to EU countries increased by 16,4 percent from January to May compared to the same period last year.

For France, this meant that its trade deficit with China, according to Beijing's customs statistics, now stands at $5,3 billion, up from $3,3 billion just a year earlier.