Is China set to export deflation – and trade tensions – once again?

David Rees

There are signs that the recovery in exports is being driven by Chinese manufacturers slashing prices which has the potential for unintended consequences.

The turnaround in the goods cycle that we anticipated earlier this year has so far been borne out in the data. Manufacturing output from Asian economies has generally beaten expectations in recent months, while exports from the region have also picked up.

Leading indicators continue to point to a further improvement in Asian exports into the middle of 2024. For example, while the recent headline ISM manufacturing index from the US remained subdued at 47.4 in December, new orders minus the inventories subcomponent remained consistent with growth in China’s nominal exports accelerating towards 10% year-on-year (y/y) by the middle of 2024.

China’s exports are on course to accelerate into mid-2024

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