How China is Related to Global Higher Inflation

According to the Peterson Institute for International Economics, Russia is to blame for the food security crisis and high energy prices due to the war with Ukraine. However, China has also taken action in three areas that boost inflation worldwide.

“The war in Ukraine has caused huge injury to the region,” PIIE analysts explained. They said this also contributed to the global food crisis. Russia is burdening the export of crucial fertilizers that farmers need somewhere. In addition, Ukraine’s role as a bread basket in Africa and the Middle East has been destroyed. However, there is another underestimated risk to global food security.

In particular, analysts singled out the restrictions and tariffs imposed by China on two primary commodities – pork and fertilizer. China’s borders extend beyond food. The Asian giant, one of the largest steel producers globally, has also imposed restrictions on the material.

All of these steps have led to higher prices elsewhere. The problem with China is that the country continues to operate as a small country. His policies often have the desired effect at home. For example, it reduces import costs for industry or one group of Chinese farmers; Or increases pay for another. However, they can also be begging neighbours. China chooses a policy that solves the domestic problem bypassing its costs to other people.

China and Inflation

Fertilizer prices in China and worldwide began to rise last year due to strong demand and high energy prices. However, it has grown even more since the Russia-Ukraine war. Last July, authorities ordered large Chinese firms to suspend fertilizer exports to ensure the domestic supply of chemical fertilizers. When prices continued to rise, the government began additional controls on exports by October. The curbs lasted all year and will last until the end of the summer at least.

Analysts say this combination of non-tariff barriers has led to a sharp decline in Chinese fertilizer exports. Chinese fertilizer prices have fallen and have even started to fall since then. This was in stark contrast to the situation in the world, where fertilizer prices continued to rise; moreover, it was twice as much as the previous year. China’s share of global fertilizer exports was 24% for phosphates, 2% for potassium, and 13% for nitrogen before the restrictions.

PIIE analysts said the Asian giant’s decision to supply fertilizers to world markets only pushes the problem to others. When there is less fertilizer, less food grows, which already threatens global food. Russia and Ukraine are significant exporters of crops such as barley, corn, wheat, and sunflower oil. Experts say that China needs to do more – no less – to tackle a potential humanitarian challenge at such a critical juncture, which may arise in many poor, fertilizer and feed importing countries.

Prices and Expectations

Steel prices in China and worldwide have accelerated in the last two years. The country has announced it will reduce domestic steel production to achieve decarbonization goals. The government lifted a ban on steel scrap imports to boost domestic prices last year. They also equipped some rounds of export limits. Also, increase export taxes on five steel products.

For March this year, Chinese steel prices were 5% lower than before the limit. However, as in the case of fertilizer, this reduction occurred at the expense of the rest of the world, where prices outside China remain higher.

Globally, the story of high pork prices started in 2018 When China produced half the world’s pork supply; It Saw that the pig population was affected by the significant outbreak of the African swine fever. This forced the country to destroy 40% of its herd. This then led to the price of pork doubling by 2019. World prices also followed this and increased by 25%. China imported more pigs and cut supplies to markets. The country has eased home price pressures since 2019, using imports, before recently closing them. Analysts estimate that this policy has affected the rest of the world.

Conclusion

Beijing has also reduced tariffs on pork imports by 2020. This is likely to have led consumers elsewhere to a higher price loss due to reduced supply. However, the country grew these tariffs again the current year as the issue of swine fever was relieved. Experts estimate that potential unintended benefits will be gained if China’s tariffs suddenly release world supplies in the current environment of high global meat prices. It will also help ease the pressure on pork prices outside of China.