Long the 鈥榝actory of the world,鈥 China is now experiencing its own 鈥楥hina shock鈥
China is a manufacturing juggernaut, but the sector鈥檚 growth is slowing. As Beijing and Washington talk trade, what can America learn from China鈥檚 experience?
China is a manufacturing juggernaut, but the sector鈥檚 growth is slowing. As Beijing and Washington talk trade, what can America learn from China鈥檚 experience?
Moving nimbly between clacking looms, Chinese textile worker Li Xiaojuan switches spools and ties loose threads, keeping machines humming as they weave white and lavender towels.
鈥淚 like working here,鈥 says the mother of two teenagers, pulling off her safety mask and wiping back a strand of hair. Ms. Li says her job pays $1,300 a month and allows her and her husband, a shopkeeper, to make ends meet 鈥 for now.
Ms. Li is one of about 120,000 textile workers in her native Gaoyang County on the north China plain. An ancient textile center, Gaoyang is now famed as the nation鈥檚 towel and blanket capital, accounting for a third of the domestic market. Yet Jiang Dongfang, party secretary of Gaoyang County, says the number of textile workers here has already fallen by more than 25% over the last two decades.
A deal reached Monday in Switzerland by U.S. and Chinese officials to suspend tariffs for 90 days offers temporary reprieve to Chinese manufacturers. If the agreement holds, Washington will reduce its tariffs on Chinese imports from 145% to 30%, while Chinese tariffs on American goods will drop from 125% to 10%. News of the accord lifted Asia-Pacific markets Monday as well as futures on American stocks.聽
Many in the United States blame the 2000s 鈥淐hina shock鈥 鈥 a yearslong influx of low-cost Chinese goods 鈥 for hollowing out American factories. That impact was real and hit some communities especially hard. But the bigger picture, experts say, is that manufacturing has been declining in advanced economies for decades. Even China is now seeing its mighty manufacturing sector shrink as a share of gross domestic product聽as wages rise, production moves overseas, and rapid automation eliminates jobs and demands higher qualifications.
鈥淐hina is also experiencing a 鈥楥hina shock,鈥欌 says Tianlei Huang, China program coordinator at the Peterson Institute for International Economics in Washington. 鈥淵ou just don鈥檛 need that many people to work in the factories.鈥
Even if the tariff deal reduces the 鈥渟hock鈥 faced by Chinese factories, experts say China鈥檚 economic landscape will continue to evolve.
Data points to decline
Globally, China still dominates manufacturing, accounting for about 30% of the world鈥檚 added value. Filled with whirring robots, Chinese factories are also more automated today than those in Japan, Germany, or the United States. At the same time, China is losing ground in traditional industries such as textiles, with some production moving to Vietnam, Bangladesh, and other Asian and Latin American countries where labor is cheaper.
As a result, 鈥渕anufacturing employment in China, just like other industrialized countries, has come down,鈥 says Mr. Huang. The sector鈥檚 portion of total economic output (GDP), measured as a share of value added, has dropped from a third to a quarter since 2004, according to World Bank data.
The U.S. trade war is intensifying pressure on manufacturing. Official data shows the sector contracting more than expected in April, as U.S. tariffs of 145% on most Chinese goods took effect. New orders, production, employment, and other key factory activity dropped to a 16-month low, while export orders fell to the lowest level since December 2022.
Last Friday, the U.S. also closed a loophole allowing American shoppers to import from China tax-free as long as the goods were directly shipped to U.S. consumers or small firms in packages worth less than $800.
Such measures are hitting Chinese factories making everything from clothing and bedding to toys, furniture, lamps, and umbrellas, leading to production stoppages and layoffs.
In Gaoyang, towels destined for the U.S. are now piling up in factory warehouses, according to recent reports.
鈥淐learly there is already some pain ... as people stop ordering Chinese goods,鈥 says Bert Hofman, professor at the East Asian Institute of the National University of Singapore and former China country director for the World Bank.
Can China 鈥 or the U.S. 鈥 bounce back on manufacturing?
Domestic demand is unlikely to bridge the gap from canceled exports to the U.S., given China鈥檚 already slowing economy and weak household consumption, Mr. Hofman says.
Overall, China鈥檚 policymakers have overemphasized manufacturing as an economic driver, analysts say, and if the current tariffs stay in place, some predict China鈥檚 GDP growth this year could fall to 3%, missing the official target of around 5%.
Beijing leaned heavily into industrial policy to try to stimulate growth and jobs following the collapse of China鈥檚 real estate market in 2021, 鈥渂ut that didn鈥檛 work. ... You still don鈥檛 have enough job creation,鈥 says Andrew Batson, China research director for Gavekal Research, a Hong Kong-based financial firm. 鈥淓ven with this huge infusion of new resources in the manufacturing sector, it is still shrinking as a share of the economy.鈥
Long known as the 鈥渇actory of the world,鈥 China could offer some lessons for the U.S. as Washington seeks to revive U.S. manufacturing.
Instead of using tariffs and protectionism, the U.S. should take advantage of China鈥檚 gains in industrial automation to move up the value chain, experts say.
鈥淐hinese companies are at the technological leading edge in certain areas, so having them come to the U.S. would be beneficial ... not just to transfer technology ... but to promote competition,鈥 says Arthur Kroeber, head of research at Gavekal and author of 鈥淐hina鈥檚 Economy: What Everyone Needs To Know.鈥 This would be similar to how Tesla鈥檚 presence in China served as a catalyst for local electric vehicle makers, he explains.
鈥淲hat is not achievable,鈥 he says, 鈥渋s significantly increasing the number of jobs.鈥
In China, as manufacturing jobs disappear, workers are increasingly joining the service sector, including the gig economy, just as they have in the United States.
In Gaoyang County, laid-off textile workers are turning to tourism and logistics, or becoming delivery drivers.
鈥淚n the United States, all the textile production and labor force is already gone,鈥 says Xu Qing, former deputy head of Gaoyang. 鈥淕aoyang鈥檚 textile factories will face the same thing one day.鈥
Editor's note: This article was updated May 12, 2025, with new information from U.S.-China trade talks in Geneva.