China's export of deflation may inpact America

Old_Joe

The following is a heavily edited extract from a current NPR report:

Diana Choyleva is a senior fellow on China's economy at the Asia Society. She and others see the potential for deflation ahead as the Chinese economy struggles with a number of issues going forward. In November, consumer prices in China fell at their fastest rate in three years.

China "should be on American's radar because, first of all, China is a huge economy," Choyleva says. "If China is having severe deflation at home, pretty much the only choice left would be [for it] to export deflation."

At first glance, that would seem to benefit consumers buying Chinese-made goods. Instead, it's more likely to mean that U.S.-based competitors will need to lower their prices to compete with a flood of ever-cheaper Chinese products.

"That translates into businesses closing, jobs being lost and consumers being worse off," Choyleva says.

Dexter Roberts, director of China affairs at the Mansfield Center at the University of Montana sees similar concerns. The U.S. and China, he says, "are deeply entwined," and most top U.S. multinationals "secure a significant portion of their revenues and profits from the China market or their supply chains start there."

Meanwhile, China is pumping money into manufacturing to try to offset its slowing economy.

"Ultimately, [China] is going to be producing a lot of goods that they need to sell somewhere, and they're going to be selling them on the cheap. So I would imagine [that] could be a deflationary force."


Note: Text emphasis was added

Mark

I guess I should be happy that I don't 'always' need to be looking for the cheapest widget out there. There's also forever the mantra "you get what you pay for".

WABAC

I think countries are a lot less likely to accept Chinese dumping these days.

Old_Joe

I agree with both of you, but I like to post stuff that presents various perspectives on the overall economy and financial picture. Never hurts to think about stuff.

WABAC

I'm glad you posted it @Old_Joe. I've been following the news from there. It's hard to imagine what's going on there will not spill over in some way to economies around the world.

Old_Joe

Thanks, @WABAC- Yes, I agree about the potential spillover... best scenario is that any spillover is confined to the financial sphere...

Crash

Some female talking head on tv recently posited that China is becoming uninvestable. Regardless of economics, the politics would dictate a steer-clear stance, I'd say. I have never been to the Mainland, but have seen Hong Kong and Macau. The Beijing government is burying civil rights in order to assert control. The Press focuses upon HK. We don't see much news out of Macau. I don't know why that is. But we all know it is a gambling Mecca with malls and ritzy hotels. And colonial history tied to Portugal, but that is far behind, in the rearview mirror. I wanted to visit the Museum, but it's closed on Mondays. Stinky poopy.

I was there in Jan. of 2019. You don't need to take a ferry between HK and Macau anymore. There's a giant bridge. Cars and tour busses abound. The economy? Evergrande was just ORDERED by the court to dissolve. It's a flaming hot mess. My portfolio is down to 6% foreign stocks, and only a tiny fraction is in DEVELOPED Asia. No thanks. The US/Canada are the cleanest dirty shirts in the hamper.

Observant1

I don't think any country will be exporting deflation to America in the near future.
Recent nearshoring and onshoring trends are inflationary (and not just for the U.S.).
The combination of an aging labor force and short-sighted immigration policies will also push inflation higher.
Productivity increases attributed to AI will not be sufficient to offset these other factors.

Old_Joe

This is exactly why I like to post this sort of thing- great to hear other perspectives.

Crash

More bad news: China's monthly manufacturing = down. Four straight months.
https://www.cnbc.com/2024/01/31/china-pmi-manufacturing-activity-shrank-for-4th-straight-month-in-january.html