How China is contributing to rising global inflation in three areas

0

China’s restrictions and tariffs on two major commodities – fertilizers and pork – have caused prices to spike around the world.

Gang Deng | Visual Group China | Getty Images

Russia is guilty of creating a food security crisis and rising energy prices through its war with Ukraine, but China has – under the radar – also taken action in three areas that exacerbate the inflation around the world, said the Peterson Institute for International Economics.

“Russia’s war in Ukraine has wreaked havoc on the region,” wrote PIIE analysts Chad Bown and Yilin Wang. “It has also contributed to a global food crisis, as Russia blocks exports of vital fertilizers that farmers need elsewhere, and Ukraine’s role as a breadbasket for Africa and the Middle East. was destroyed”.

“But there is another unappreciated risk to global food security,” they wrote in a note last week.

The problem with China is that they continue to act like a small country…they can also be beggars, with China choosing the policy that solves a domestic problem by passing on its cost to people elsewhere.

Chad Bown and Yilin Wang

Analysts from the Peterson Institute for International Economics

Analysts singled out China’s restrictions and tariffs on two main commodities – fertilizers and pork.

The restrictions imposed by China have extended beyond food. The Asian giant, one of the world’s largest steel producers, has also imposed restrictions on the material, the Washington-based think tank noted.

All of these measures drove up prices elsewhere, even as they benefited China’s own people, according to the report.

“The problem with China is that it continues to act like a small country. Its policies often have the desired effect here – for example, reducing input costs for industry or a group of Chinese farmers or increasing yields for another,” the analysts wrote. .

Learn more about China from CNBC Pro

“But they can also be beggars, with China choosing the policy that solves a domestic problem by passing its cost on to people elsewhere,” they added.

Fertilizer

Fertilizer prices in China and around the world began to rise last year, due to strong demand and rising energy prices, but have since pushed even higher in the wake of the Russian-Ukrainian war.

Last July, authorities ordered major Chinese companies to suspend fertilizer exports “to ensure supply to the domestic chemical fertilizer market”, PIIE noted. In October, as prices continued to rise, the authorities began to impose additional export controls.

The restrictions have continued throughout this year and are expected to last at least until the end of the summer, Reuters reported.

“This combination of non-tariff barriers led to a sharp decline in Chinese fertilizer exports. With greater production maintained at home, Chinese fertilizer prices have stabilized and even started to fall since then,” the analysts wrote.

This contrasts sharply with the global situation, where fertilizer prices have continued to climb more than twice from levels seen a year earlier, the think tank said.

China’s share of global fertilizer exports was 24% for phosphates, 13% for nitrogen and 2% for potash – before the restrictions, according to the PIIE.

PIIE analysts said China’s decision to withdraw fertilizer supplies from world markets only “pushes the problem onto others”.

When there is less fertilizer, less food is grown, and it “could hardly come at a worse time” given that the Russian-Ukrainian war is already threatening the world’s food supply, they added. Russia and Ukraine are major exporters of crops such as wheat, barley, corn and sunflower oil.

“At such a critical time, China must do more – not less – to help overcome the potential humanitarian challenge likely to arise in many poor, fertilizer- and food-importing countries,” the report said.

Steel

To reduce soaring prices in the domestic market, the authorities lifted a ban on imports of scrap steel last year. They also implemented a few sets of export restrictions and increased export taxes on five steel products.

In March this year, steel prices in China were 5% lower than before the restrictions.

“But as with fertilizers, these declines have come at the expense of the rest of the world, where prices outside of China remain higher,” PIIE analysts said. “The concern is the widening gap between global and Chinese steel prices that has widened since January 2021.”

Pork

The story of rising pork prices around the world began in 2018, when China – which then produced half of the world’s pork supply – saw its pig population hit by a major outbreak of African swine fever.

This forced the country to cull 40% of its herd, which more than doubled its pork prices by the end of 2019. Global prices followed suit, jumping 25% as China imported more pork and withdrawing supplies from markets, according to PIIE.

“China reduced price pressure at home from 2019 by dipping into imports before halting them more recently. These policies have affected the rest of the world,” PIIE analysts wrote.

Beijing also cut tariffs on pork imports in 2020, which likely caused consumers elsewhere to face higher prices due to lower supply, the think tank said.

However, the authorities raised these tariffs again this year as the swine fever problem subsided.

“A potential unforeseen benefit will be reaped if, in the current environment of high global meat prices, the Chinese tariff unexpectedly releases global supplies and helps ease the pressure on pork prices faced by consumers outside of China. China,” the report said.

Share.

About Author

Comments are closed.