Catenaa, Wednesday, August 26, 2026- Years of US tariffs have failed to materially reduce America’s trade deficit or alter China’s industrial trajectory, China trade expert Brad Setser told Ezra Klein on a New York Times Opinion podcast.
Setser made the assessment during the Aug. 21 episode of “The Ezra Klein Show,” titled “The China Shock 2.0.”
Klein, a New York Times Opinion columnist and podcast host, interviewed Setser about China’s expanding industrial strength and the results of US trade policy.
Setser is a senior fellow at the Council on Foreign Relations. He previously held trade and economic roles in the Obama and Biden administrations.
The discussion centered on what Setser describes as a second China shock.
Unlike the first wave of Chinese exports, which was concentrated in lower-cost manufactured goods, the new phase increasingly involves industries at the technological frontier.
China’s entry into the World Trade Organization was followed by a sharp rise in exports of clothing, furniture, household appliances and other manufactured products.
Those imports lowered prices for American consumers but also hurt factory towns in parts of the Midwest and South.
Setser said the current situation is different.
China is now a major producer of electric vehicles, batteries, solar equipment and advanced industrial machinery.
It is also becoming increasingly competitive in artificial intelligence and software.
That puts China in direct competition with industries that advanced economies view as central to future growth.
The impact may be particularly difficult for manufacturing-heavy European economies.
Setser pointed to Germany, which once benefited from selling machinery and vehicles into the Chinese market.
China has increasingly developed domestic alternatives while expanding its own exports.
That reverses an earlier relationship in which China served as a major growth market for European manufacturers.
China’s export strength has also developed alongside weaker import growth.
Setser said Chinese imports have not risen in line with the country’s economic expansion.
At the same time, Chinese exports have continued to increase.
The automobile sector illustrates the shift.
China once imported roughly 1 million vehicles annually, Setser said.
Imports have since fallen below half that level, while Chinese vehicle exports have risen dramatically.
The country has developed a domestic supply chain capable of producing batteries, components and finished electric vehicles at large scale.
State-supported credit, local government assistance and industrial policy helped build that capacity.
Foreign automakers also contributed indirectly by establishing Chinese production and supplier networks over several decades.
Klein asked Setser whether the United States had achieved the objectives behind years of tariffs and trade restrictions.
Setser’s assessment was largely negative.
US exports to China have not increased as intended, he said.
Measured against US economic output, exports to China are lower than before the trade conflict began.
China’s industrial policies have also continued.
Its overall global trade surplus has expanded, while the aggregate US trade deficit remains substantial.
American tariffs have changed where some products undergo final assembly.
Manufacturing destined for the US market has shifted in part from China toward countries including Vietnam, Taiwan and Mexico.
However, Setser said many components used in those products still originate in China.
The result is that supply chains may appear more geographically diverse without fully eliminating Chinese industrial dependence.
Setser drew a distinction between President Donald Trump’s first-term and second-term trade policies.
He viewed the first-term approach as more targeted.
Tariffs focused heavily on China and were generally set at levels that companies could continue paying while adjusting supply chains.
Setser said the second-term strategy became much broader and more disruptive.
The United States imposed tariffs across a wider range of trading partners and at much higher levels during parts of the dispute with China.
At one stage, US tariffs on Chinese products rose to 145%.
Setser argued that rates at that level could not be sustained without serious disruption to American companies and consumers.
Businesses importing ordinary products and industrial components faced costs that could make sales uneconomic.
Washington eventually had to reduce some of those barriers.
Setser also criticized tariffs imposed on countries that could otherwise help the United States respond to Chinese industrial competition.
He cited US measures affecting Canadian aluminum as an example.
Canada is deeply integrated into North American industrial supply chains and supplies aluminum produced using large amounts of hydroelectric power.
Higher costs on those imports can raise expenses for American manufacturers without reducing strategic dependence on China.
Setser also questioned the logic of trade disputes with countries where the United States already runs favorable trade balances.
A broader problem, he said, is that such actions make it harder for Washington to build a coalition with Europe and other partners concerned about Chinese industrial expansion.
China’s strength in electric vehicles, batteries, semiconductors and other sectors creates many shared concerns among advanced economies.
A coordinated response could offer more leverage than separate trade disputes among allies.
The podcast also examined the Biden administration’s trade strategy.
President Joe Biden retained many Trump-era tariffs on China and expanded restrictions in some strategic sectors.
His administration also limited exports of advanced semiconductor technology to China and promoted domestic manufacturing through industrial incentives.
Setser said those policies moved in a direction he considered necessary.
However, he argued that Washington did not move far enough in areas such as critical minerals and pharmaceutical ingredients.
China remains an important supplier of materials and components that would be difficult to replace quickly during a geopolitical crisis.
That dependence can give Beijing leverage even when the United States has financial tools of its own.
Artificial intelligence could become another front in what Setser calls China Shock 2.0.
The United States has so far maintained an advantage in many high-value digital businesses.
Setser cautioned against assuming that advantage will continue indefinitely.
Chinese AI models are becoming increasingly competitive, particularly in open-source systems.
If AI becomes a highly competitive market with lower profit margins, some US technology companies may not generate the returns investors currently expect.
China could therefore challenge both Western manufacturing and parts of the digital economy.
That would make the second China shock broader than the first.
Setser argued against treating economic separation from China as inevitable.
He instead favored reducing dependence in strategically sensitive sectors while retaining trade where national security risks are limited.
Such an approach could create more integrated supply chains among the United States and its allies.
Electric vehicles, batteries, semiconductor technology, critical minerals and pharmaceutical ingredients are among the sectors where governments may seek greater resilience.
Agricultural and other less-sensitive trade could continue.
The difficult question is where governments draw the line.
China remains too large a manufacturing economy to remove entirely from global commerce.
But Setser said its domestic economic structure cannot indefinitely depend on weak internal demand and expanding exports to the rest of the world.
The tension is becoming more pronounced as Chinese manufacturing capacity grows.
For the United States, the podcast discussion suggests that tariffs alone have not produced the structural changes policymakers sought.
The next phase may depend less on simply raising barriers and more on whether Washington can build competitive industries and coordinate policy with allies facing the same Chinese challenge.
