While American consumers and the federal reserve are struggling with the prices of President Donald Trump and their effect on inflation, the rest of the world economy can in fact see a certain price relief.
In the United States, prices have not increased prices as much as expected so far, but inflation turns increasingly higher, representing an obstacle for low-expected rate reductions in the federal reserve.
The last consumer price index (IPC) increased at an annual rate of 2.7% in July, below forecasts for a gain of 2.8% and a rhythm of June compared to the rate of June. But the basic IPC has always accelerated at 3.1% against 2.9%, and the capital economy expects the impact of prices to increase gradually during the rest of the year.
Outside the United States, however, the image seems different.
“We doubt that the American prices will considerably affect inflation in the rest of the world, but if something, the effect could be slightly disinflationist,” Simon Macadam and Ariane Curtis de Capital Economics wrote on Wednesday.
Indeed, most countries have not retaliated against Trump’s prices with their own duties on American goods, they explained. And in some cases, the samples from American imports have in fact dropped.
For example, in the trade agreement, Trump negotiated with Indonesia, the country of Southeast Asia has agreed to eliminate prices on almost all American goods. But the United States has imposed an obligation of 19% on Indonesian imports.
“In addition, global demand should mitigate prices, on the sidelines, while redirection of Chinese exports far from the United States to other markets could reduce import prices,” added Capital Economics.
On the other hand, more inflationary pressure goes to American consumers. Although companies have not transmitted a large part of the costs related to prices, it cannot last much longer, warned Macadam and Curtis.
The retailers were willing to absorb the initial cost of the prices by sacrificing their margins, and the investigations indicate that American companies have experienced significant cost increases, unlike the rest of the world.
“With many agreed trade agreements, there is now a greater certainty about the end of the prices, which should allow retailers to finally increase their prices,” they added.
Deflation in China
Not all savings will undergo prices in the same way. In fact, China will undergo a more serious impact because the American prices on Beijing are more steep than on most other countries.
This represents a deflationary shock for the second world economy, according to Robin Brooks, a principal researcher at Brookings Institution and former chief economist of the Institute of International Finance.
The Chinese economy is already flirting with deflation, because consumer prices have been anemic while producers’ prices have dropped. The trade war should worsen the situation.
China exports to the United States have plunged in recent months when they have jumped elsewhere, Brooks wrote in a substitution position last month. He thinks that China uses neighboring countries which are faced with tasks lower than transaction goods in the United States while accelerating exports to other non-American markets as a final destination.
The two exerted a deflationary pressure on China. The transfer of exports through third countries adds to transport costs and reduces the profits of Chinese companies. Meanwhile, the export of more goods to other markets requires that prices drop to generate demand.
“In both cases, the profitability of Chinese exporters is negatively struck,” said Brooks. “For a country like China, which depends massively on export and which is already due to deflation, it is a disturbing perspective.”
