"Asian Trade Slump Eases US Inflation"

Analysis suggests that the export sluggishness of Asian countries amid the global trade downturn is partially helping to ease inflation in Western countries, including the United States. However, unlike the goods prices affected by the Asia-originated trade cooling effect, service inflation and wage growth rates remain high. The U.S. Federal Reserve (Fed) and others have warned that interest rate hikes to reduce inflation are not yet over.

The Wall Street Journal (WSJ) cited official figures from data provider CEIC on the 25th (local time), reporting that exports from China, Japan, South Korea, Taiwan, and Singapore reached a peak of $6.1 trillion over the previous 12 months as of September last year. This represents a 40% increase compared to the 12 months leading up to March 2020, just before the pandemic (global outbreak).

Asian exporters enjoyed a boom during the pandemic as governments pumped money into their economies and consumers spent heavily on sports equipment, new electronics, and household goods. However, WSJ diagnosed that the momentum was lost as the interest rate hikes by major central banks including the Fed took full effect, and Western consumers shifted their spending from goods to services. Expectations that China’s reopening would bring a trade rebound were also dampened.

As of May, South Korea’s 12-month exports had decreased by 11% compared to September last year. Taiwan’s exports fell by 14%. Singapore’s exports shrank by 6%, Japan’s by 4%, and China’s by 3%. This export sluggishness is also reflected in the producer price trends of Asian countries. China’s Producer Price Index (PPI) in May fell 4.6% year-on-year, marking eight consecutive months of decline. WSJ reported that similar trends are observed in other Asian exporting countries, attributing this to collapsing demand for goods and weakened pricing power of companies.

The Asia-originated trade cooling effect is now being detected in the United States as well. According to the U.S. Department of Labor, import prices from Hong Kong, Singapore, Taiwan, and South Korea in May fell 6.3% compared to the same month last year. Import prices from China also dropped by 2%. Import prices from Southeast Asian countries such as Thailand, Indonesia, and Malaysia decreased by 3.7%. Notably, the prices of goods mainly imported from Asia?including furniture, home appliances, TVs, sports equipment, computers, and smartphones?declined in May compared to a year earlier.

However, WSJ pointed out that this Asia-originated decline in goods prices does not fully control U.S. inflation. The U.S. Consumer Price Index (CPI) in May rose 4% year-on-year. There is still a long way to go to reach the Fed’s inflation stabilization target of 2%. The core CPI, excluding food and energy, increased by 5.3%.

WSJ analyzed, “If the explosive inflation caused by the surge in goods prices during the pandemic was the first wave, and the skyrocketing energy prices following Russia’s invasion of Ukraine accelerated the second wave, then the current inflation persistence is driven by wages and services.” While the easing of goods price inflation due to Asia-originated trade cooling is welcome, it does not signify a victory for central banks in the fight against inflation. Frederick Neumann, chief Asia economist at HSBC Hong Kong, noted, “Asia will not be a ‘magic bullet’ for the West’s inflation problem.”

The outlet especially emphasized that countries are gradually moving away from globalization. Since the pandemic, manufacturing companies in various countries have been reducing their dependence on China amid escalating U.S. and Western conflicts with China, and major governments are offering subsidies focused on strategic industries such as semiconductors to bring investment and jobs back home. This means trade barriers are rising. It suggests that manufacturing costs are increasing and inflation is unlikely to subside in the future.

WSJ stated, “The broad integration of goods, services, labor, and capital markets under the banner of globalization meant cheaper goods for consumers and inflation easing for central banks,” adding, “Now, governments and companies are gradually moving away from globalization.” However, the outlet clarified that this trend does not mean the end of the globalization era or that Asia will lose its manufacturing competitiveness, but rather “Asia is unlikely to be as powerful a force in suppressing price increases as before.”

This content was produced with the assistance of AI translation services.