Thank you for expanding on your point. What I did not and still do not understand is the following part of your original comment:
China owns large parts of the debt of the US. Deflation makes them stronger.
Deflation in China –that’s where deflation might occur or even be occuring– would not make the US Treasuries held by China more valuable, would it? Only deflation in the US, with the dollar appreciating, would have that effect, right?
The price of goods going down is not contained to one country. […] Deflation would be global.
That contradicts both present reality and future expectations as far as I understand both.
In the past two years, China has been grappling with deflationary tendencies at the same time that much of the world has been experiencing extraordinary inflation.
China’s current deflationary tendencies stem from a combination of relatively low domestic demand and an ongoing decrease in exports. This decrease in exports was mostly caused by US protectionism, which is set to expand in both rates and scope under Trump.
Looking forward, the divergence I aluded to –deflation in China, inflation elsewhere– seems poised to continue. Further protectionism and the looming tariff war –not only with China, but possibly with Canada, Mexico and others– are expected to both fuel inflation in the United States and further reduce imports of Chinese goods. That would strengthen deflationary tendencies in China unless the government pulls off a stimulus package for their domestic economy more effective than the ones deployed thus far.
Thank you for expanding on your point. What I did not and still do not understand is the following part of your original comment:
Deflation in China –that’s where deflation might occur or even be occuring– would not make the US Treasuries held by China more valuable, would it? Only deflation in the US, with the dollar appreciating, would have that effect, right?
The price of goods going down is not contained to one country. We have global markets. Deflation would be global.
That contradicts both present reality and future expectations as far as I understand both.
In the past two years, China has been grappling with deflationary tendencies at the same time that much of the world has been experiencing extraordinary inflation.
China’s current deflationary tendencies stem from a combination of relatively low domestic demand and an ongoing decrease in exports. This decrease in exports was mostly caused by US protectionism, which is set to expand in both rates and scope under Trump.
Looking forward, the divergence I aluded to –deflation in China, inflation elsewhere– seems poised to continue. Further protectionism and the looming tariff war –not only with China, but possibly with Canada, Mexico and others– are expected to both fuel inflation in the United States and further reduce imports of Chinese goods. That would strengthen deflationary tendencies in China unless the government pulls off a stimulus package for their domestic economy more effective than the ones deployed thus far.