Higher-than-expected inflation data for January has stirred investor concerns over a possible revival of price pressures in the US, but inflation in China is a different story. In fact, China is exporting disinflation to many parts of the world. The average price of the country’s exports has fallen by almost 20% from its post-Covid peak, while the average volume of exports has risen sharply.
China’s producer prices fell by 2.3% year-on-year in January, marking the 28th straight month of producer deflation.
The increased exports have gone mainly to other (emerging) markets, notably the Belt & Road Initiative countries and markets in Asia, as Chinese manufacturers work to avoid US tariffs.
This diversion goes beyond a simple rerouting of exports away from the US. It reflects a continued move of Chinese products up the value chain as well as excess domestic capacity. The prospects of increased tariffs under the new Trump administration will likely continue to force companies to diversify, innovate, and expand elsewhere, potentially enlarging China’s global footprint.
The impact of Chinese disinflation may help allay investor concerns over the inflationary effects of US tariffs on global markets. US domestic prices will likely still feel upward pressure in the short term.
