‘China Shock 2.0’ could destroy Europe as we know it

Europe’s leaders are waking up to the terrifying danger that China could obliterate much of their industrial base within less than a decade, shattering the old political order and the EU project itself.

The Rhodium Group says the Chinese Communist Party is digging in its heels, doubling down on a strategy of systemic over-investment and over-reliance on exports that cannot be absorbed by the rest of the world, and certainly not a Europe already in semi-slump.

The original “Made in China 2025” plan a decade ago targeted a clutch of specific technologies. Beijing is now expanding this into an “industrial policy of everything”: cars, machinery, chemicals, pharma, software, AI, you name it.

China is pursuing this ruthlessly, aiming to capture a larger share of global value added with vertical control of the entire lifecycle.

It is moving towards autarky in its home market while undercutting the West in its own market and in third countries – everywhere and in every product. It devours foreign technology without releasing its own. The Rhodium Group said the foundations of G7 manufacturing are under comprehensive threat.

The “China Shock 2.0” is bigger and more sophisticated than the original China Shock in the 1990s and early 2000s, which flooded the world with cheap goods and wiped out swathes of blue-collar manufacturing in the West.

America bore the brunt of the first shock. The pauperisation of the Midwest Rust Belt set the stage for Donald Trump.

This time, because of trade barriers, China cannot dump its excess capacity on the US market so easily. The tsunami is instead being displaced into the softer target of Europe. It is hitting with even greater intensity. China’s trade surplus hit a record 1 per cent of global GDP last year. No country has ever reached such an imbalanced position in modern economic history.

“Every day, China posts a €1 billion ($1.6 billion) trade surplus with the EU. If we do nothing, by 2027, our trade deficit will reach €500 billion. That is not economically sustainable,” said European Commission vice-president Stéphane Séjourné.

“We can’t let Europe be the victim of a predatory strategy that is destroying our industry,” he told Le Monde.

Communist China is pursuing more or less the same policy of autarky and one-way trade as the Qing Dynasty in the 19th century. In that era, it sucked up the world’s silver. Today it is sucking up the world’s aggregate demand. China seems culturally unable to trade on a normal footing of balance and reciprocity.

China is a contradiction, wrapped in a paradox, to borrow a Churchillian