Industry/Policy View Book Review: US-China Great Power Competition and the New World Order by Jiandong Ju

Jiandong Ju’s US-China Great Power Competition and the New World Order (henceforth New World Order) is an ambitious and unusually wide-ranging attempt to construct a unified framework for understanding the economic foundations, strategic dynamics, and possible future of US-China rivalry.

When Do Financial Frictions Matter for Misallocation?

Financial frictions are often viewed as a key source of misallocation in developing economies, but their quantitative importance is still debated. Firm-level data from China point to large and persistent capital distortions, which are strongly correlated with financial frictions. A quantitative heterogeneous firm model suggests that eliminating financial frictions can generate large productivity gains when other, nonfinancial sources of capital distortion are also present.

The Generative AI Learning Penalty in Secondary School

Generative AT tools can help students complete assignments faster and achieve better scores. But completing these tasks is not the goal; learning from them is. This column uses data on over 25,000 7th to 12th grade students in China to examine how self-directed use of generative AI affects their learning. Time spent on homework for students who used AI went down and homework scores went up, but their exam scores fell. While the initial effect is small, it grows as students become more proficient with AI tools and as more course material is learned after adoption, suggesting that existing short-duration studies may underestimate the long-run learning costs of using generative AI.

The Unseen Costs of Blue Skies: How Narrow Air Pollution Targets Fuel Ozone Rise and Biodiversity Loss

How China’s Exchange Rate Policy Shaped the China Shock

The usual story of the China shock focuses on cheap Chinese labor, rapid productivity growth, and the loss of US manufacturing jobs. Our paper adds a missing piece: China’s exchange-rate policy. By keeping the renminbi closely tied to the dollar, China slowed the normal price adjustment that would have made its goods more expensive as its productivity rose. This made Chinese exports cheaper for longer, intensified the pressure on US manufacturing, and helped generate the bilateral trade deficit as a result of consumption smoothing. Yet the same policy raised average US welfare by lowering consumer prices, even as it imposed concentrated losses on manufacturing workers.