I am not predicting this scenario, but it is useful to think through which paths might restore the growth gains to the American middle class. From my column in The Upshot, here is the section on China:
Much of the competition for American manufacturing has come from China, and recent research has shown that China’s economic impact in the United States has been bigger than many economists initially thought, and in some ways, it has been more painful. China’s manufacturing has held down American middle-class wages, while soaring Chinese demand for commodities has pushed up resource prices. Of course, cheap Chinese imports have made American paychecks go further, but that is no consolation for people who have lost their jobs or suffered lower wages as a consequence.
Better times may be ahead, though. Higher wages in China — and other emerging nations — are now limiting the competitive advantage of those economies. And perhaps more important for Americans, as China reaches technological maturity, it is likely to shower innovations on consumers, creating a net gain for people in the United States.
China is already the major producer of solar panels and electric cars, for example. It is likely to contribute important innovations in consumer drones and driverless cars and in many other fields: The Chinese government is pouring immense resources into biotechnology, including new gene editing techniques. When it comes to mobile apps, messaging and electronic payments, China is arguably ahead of America. Imagine a future in which Chinese innovations benefit Americans just as the United States benefited Europe and vice versa.
This would mean more competition from China, of course, and lost jobs in some fields, but to simply focus on the negatives would be shortsighted. The reality is that innovators do not capture all or even most of the benefits they bring to the world. Once an idea emerges, its benefits begin to expand, and those benefits will surely spread to the United States.
I believe China will become much more innovative even if Chinese growth goes through continuing turmoil; keep in mind the United States was remarkably innovative in the 1930s throughout the Great Depression.
The column also considers skill-based technical change, and how it might turn more toward less skilled workers, and also…religion and Mormons.