China’s first multi-decade disruption of the U.S. market was easy to spot: cheap clothes, furniture, and electronics poured in while parts of the American manufacturing base were hollowed out. The second wave is subtler, carries heavier ramifications for U.S. companies — and by most indications, it has already arrived.

“China Shock 2.0 is here,” Torsten Slok, chief economist at Apollo Global Management, wrote in a note on Friday. This time, he argued, China is increasingly exporting precisely the kinds of products that advanced economies once expected to dominate domestically: electric vehicles, semiconductors, and other high-tech goods.

The trade data underscore the shift. China’s exports rose 24% in July — a slight slowdown from the month before, but propped up by increased demand for EVs and electronics. High-tech exports surged nearly 41% in the January–July period from a year earlier, and semiconductor exports doubled.

The concern for companies, therefore, is no longer merely that China manufactures cheaper goods, but that it is competing with the United States in higher-value industries. That makes the issue relevant beyond trade headlines: it affects which firms can win contracts, scale production, and preserve margins in markets where technology and manufacturing now overlap more tightly than they did during the first China shock.

China Shock 1.0 was on Walmart shelves, and the new one is in tech

Slok is not alone in his assessment. Federal Reserve economists published a note in May with a similar “China Shock 2.0” theme, finding that the products driving China’s export boom have changed from labor-intensive goods in the early 2000s to capital- and tech-intensive industries now.

“Taken together, these elements suggest that “China Shock 2.0” is not simply a continuation of earlier trends, but a new phase of global trade integration,” they wrote.

Slok himself referenced Brad Setser, a senior fellow at the Council on Foreign Relations and former U.S. Trade Representative adviser widely credited with coining the term “China Shock 2.0.” Setser was the one who first flagged that this round is different: China now controls the cutting-edge production itself, so there is no cheaper country left to offshore to, and shrinking Chinese import demand means the export surplus simply floods everyone else.

Electric vehicles are perhaps the clearest example. BYD surpassed Tesla as the world’s largest seller of fully electric vehicles in 2025, delivering 2.26 million battery-electric cars compared with Tesla’s 1.6 million. Ford CEO Jim Farley has also called BYD the “best in the business” on cost, supply chains, manufacturing, and IP.

What further distinguishes the second shock from the first is the new trade relationship China has with other countries. During China’s first export boom, Chinese factories typically imported parts, assembled the finished product, and shipped it abroad. That meant manufacturers outside China could still benefit by supplying components even as Chinese exports surged. Now, the Fed economists found, China is increasingly making those inputs itself — meaning that as China has exported more, it has also begun to import fewer manufactured goods.

America may be insulated, but American companies are not

The United States holds one advantage in dealing with this second wave: it has already built substantial barriers against many Chinese products. BYD cars face a 100% tariff, instated by the Biden administration and continued by Trump, keeping them from competing with American carmakers. Washington has also placed restrictions on Chinese products and technology across industries including chips, batteries, and solar equipment.

While tariffs could leave American consumers and factories less directly exposed than their counterparts in other countries, American companies themselves still have to compete with China abroad.

“U.S. companies need to be very cognizant of China Shock 2.0 and what it means for them as they’re trying to compete from a global perspective,” Kit Conklin, chief strategy and global affairs officer at Exiger, a third-party risk management company, told Fortune. “You’re going to have to have way more economic levers from the economic security toolkit than just tariffs.”

He singled out China’s “tidal wave” in foundational semiconductors — the less advanced chips used in almost every device with an off-switch, including cars, coffeemakers, medical devices, and other consumer electronics. Conklin predicted that growing Chinese capacity in those chips could put significant pressure on American and other Western semiconductor companies over the next two years. He also pointed to industrial robots and components used in AI data centers as areas where Chinese producers are becoming formidable competitors.

“China Shock 2.0 threatens the foundation of all manufacturing outside of China, so that’s what we’re competing against right now,” Conklin said.

The U.S.-China Economic and Security Review Commission warned that because of China Shock 2.0, China’s “incumbency” in emerging markets could be difficult for American companies to compete with on top of existing competition overseas, and “can substantially erode profitability over time and constrain future investments in next-generation manufacturing equipment and R\u0026D.”

Conklin pointed to Germany as a warning of what could happen if Western manufacturers lose too much ground. Its auto industry has struggled with weakening demand in China, just as Chinese competitors are swallowing up Volkswagen’s lead in Latin America and Africa — and even competing on its home turf in the EU.

“What’s happening right now with Volkswagen should wake up every CEO and every elected official in every democracy around the world,” Conklin said.

The concern that the U.S. is losing the manufacturing capacity needed to compete in strategically important industries is also no longer confined to Washington policy circles.

“We’re seeing this now in boardrooms,” Conklin told Fortune, recalling a recent conversation with a CEO who was asking many of the same questions about Chinese competition. “CEOs are thinking about this issue now.”

Source: Fortune