不战而屈人之兵，善之善者也
"To subdue the enemy's troops without fighting is the highest of the high"
—The most famous statement by Sun Tzu in The Art of War*
From Fortune Magazine:
China’s first multi-decade disruption to the U.S. market was easy to spot: exports of cheap clothes, furniture and electronics pouring in and the hollowing out of parts of the American manufacturing base. But the second is more subtle, comes with more ramifications for U.S. companies, and seems to have arrived.
“China Shock 2.0 is here,” Torsten Slok, chief economist at Apollo Global Management, wrote in a note on Friday. He argued that this time, China is increasingly exporting the kinds of products that advanced economies once expected to dominate domestically, namely: EVs, semiconductors and other high-tech goods.
China’s exports rose 24% in July, slowing slightly from the month before but propped up by increased demand for EVs and electronics, with high-tech exports surging nearly 41% in the January-July period from a year before, just as semiconductor exports doubled.
This means that the concern for companies now isn’t just that China is manufacturing cheaper goods, but that it’s competing with the U.S. in higher-value industries. This could threaten American companies even as consumers are less exposed to Chinese products and tech because of tariffs.
China Shock 1.0 was on Walmart shelves, and the new one is in tech
Slok is not alone. Federal Reserve economists penned a note in May with a similar “China Shock 2.0” theme, finding that the products driving China’s export boom 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 CFR senior fellow and former U.S. Trade Representative adviser widely credited with coining “China Shock 2.0.” Setser’s the one who first flagged that this round is different: China now controls the cutting-edge production itself, so there’s no cheaper country left to offshore to, and shrinking Chinese import demand means the export surplus just 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 also called BYD the “best in the business” on cost, supply chains, manufacturing and IP.
What also 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 often imported parts, assembled the finished product and shipped it abroad. This made it so that even as Chinese exports surged, manufacturers abroad could still benefit by supplying components.
Now, the Fed economists found that China is increasingly making those inputs itself, meaning that as China has exported more, it also began to import manufactured goods less....
....MUCH MORE
At the Federal Reserve Board, FEDS Notes, May 29 2926:
China shock 2.0: How China’s ongoing export surge differs from the early 2000s
China's accession to the World Trade Organization in 2001 marked the beginning of one of the most consequential episodes in the history of global trade. The subsequent surge in Chinese exports–often referred to as the "China Shock"–has been widely associated with large adjustments in production patterns, labor markets, and trade balances across the global economy (Autor et al. 2016; Pierce and Schott 2016).....
*不战而屈人之兵，善之善者也 (Bù zhàn ér qū rén zhī bīng, shàn zhī shàn zhě yě)
— "To subdue the enemy's troops without fighting is the highest of the high." Literal translation: Not war yet subdue another's soldiers, [is] good of good — Sun Tzu's principle of winning without combat. Chapter 3 of The Art of War. Sun Tzu's most quoted principle: the best victory is the one where no battle takes place. Fighting is costly, risky, and destructive even when you win. The supreme strategist wins by causing the opponent to yield without combat — through positioning, deterrence, psychological pressure, or diplomatic isolation. Used when Quoted as the gold standard of strategy — winning without the costs of combat. Used in business (market dominance without price wars), diplomacy (achieving objectives without military engagement), and conflict resolution (defusing disputes before they escalate).
