US Commission Warns of 'China Shock 2.0' as Economic Overcapacity Threatens Global Trade

US Commission Sounds Alarm on China's Economic Trajectory

The US-China Economic and Security Review Commission (USCC) has issued a stark warning in its 2025 Report to Congress, indicating that China's current economic challenges are poised to unleash a 'China Shock 2.0' on global trade. The report suggests that Beijing's increasing reliance on manufacturing and exports to offset a sluggish domestic economy could lead to significant international repercussions, impacting jobs and industrial capacity across various regions, including the United States.

The Emergence of 'China Shock 2.0'

According to the USCC, China's economy is exhibiting a 'two-speed economy' phenomenon. While consumption and household spending remain weak, state-backed high-tech and heavy manufacturing industries continue to receive substantial capital and policy support. This imbalance has led to a significant overproduction of goods that cannot be absorbed by domestic demand. As a result, China is increasingly pushing these excess manufactured goods into foreign markets, a strategy aimed at dominating global value chains and sidelining competitors. The report's experts describe this growing imbalance as triggering 'China Shock 2.0,' a term that evokes the profound impact of China's entry into the World Trade Organization on global manufacturing in the early 2000s.

Global Implications and Protectionist Responses

The influx of Chinese goods, often characterized by dumping, overcapacity, and subsidized exports, is already harming foreign manufacturers and prompting protectionist responses globally. Several emerging economies have reportedly imposed new trade barriers to safeguard their domestic industries. The USCC report specifically cautions that if China's export surge remains unchecked, the United States could face further losses in critical supply chains. Beyond manufacturing, the report also highlights concerns about China's potential to weaponize its control over essential resources, such as rare earth elements, which are crucial for various manufacturing industries and defense technologies.

Commission's Stance and Future Outlook

The USCC, a legislative branch entity mandated to monitor and report on the national security implications of the bilateral trade and economic relationship between the U.S. and China, emphasizes the systemic risks posed by China's economic model. The Commission's findings underscore a deliberate strategy by China to expand production and deepen global dependence on its exports, while simultaneously reducing its own reliance on imports. This approach, built on decades of industrial policy, has concentrated supply chains in China and undercut competitors through the flooding of global markets with subsidized, underpriced goods. The report suggests that addressing this challenge will require both defensive measures and a proactive strategy to rebuild U.S. industrial strength and shape international trade rules.