US inflation? China is more worried the trade war will make goods too cheap

While US President Donald Trump’s tariff hikes stoke fears of inflation in America, China is likely to face the opposite problem: deepening deflation that compounds a long-running economic headache for Beijing.

But China’s push to boost domestic demand amid an escalating global trade war could help cushion the downward pressure on prices, analysts said.

China has been grappling with the risk of a deflation crisis for several years, as sluggish domestic demand and industrial overcapacity lead companies to engage in vicious price wars to gain orders.

Now, Washington’s tariff hikes threaten to exacerbate those issues, with another 50 per cent increase in US duties on Chinese goods taking effect at noon on Wednesday.

“China’s problem is … more related to demand, as it has overcapacity,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank. “Losing overseas markets can pressure China’s corporate profit margins and fuel competition domestically.”

The US has now raised tariffs on Chinese imports by a combined 104 per cent since January, and has also tripled the previously announced duties on low-value packages from China to 90 per cent, after scrapping the “de minimis” exemption for shipments worth less than US$800.