However, according to the Wall Street Journal, falling prices for home furniture, electronics and other industrial goods do not mean that the problem of high inflation will be solved anytime soon. Wages and service prices continue to rise. And central banks in the US and Europe have warned that they are not done raising interest rates in the fight against inflation.

TRADE REDUCED, GOODS PRICE DISCOUNTS THROUGH

In the decades before Covid became a global pandemic, cheap Asian goods helped limit price increases in Western countries. Economic experts assume that this phenomenon will probably no longer reach the same intensity as the globalization process, which has passed its peak.

Asia’s exporting powers have seen overseas sales boom during the pandemic as lockdown consumers spend big on new computers, exercise equipment and upgrades. Over a 12-month period, the value of exports in US dollars from China, Japan, South Korea, Taiwan and Singapore peaked at US$6.1 trillion last September. According to analysis by The Wall Street Journal, this is 40% more than in the 12 months to March 2020, when the pandemic began.

Asian exports began falling late last year as rising interest rates tempered the heat of economic growth in western markets. In addition, Western consumers are cutting back on goods to switch to eating out, travel and using other services they have missed out on during the pandemic. Hopes that China’s reopening would spur a trade recovery have faded as China’s consumer-led economic recovery has also faltered.

South Korea’s exports in the 12 months ended May 2023 were 11% lower than in the one-year period ended September 2022. Taiwan’s exports fell by 14% over the same period. Singapore’s exports fell 6%, Japan’s 4% and China’s 3%.

The slowdown in trade is reflected in commodity prices leaving factories in Asia. China’s Producer Price Index (PPI) fell 4.6% yoy in May, marking the eighth consecutive month of declines in the “factory of the world.” Similar measures of inflation in other export-oriented Asian economies are also moderating as falling input prices drive down costs and a slowdown in demand for goods reduces good company valuations.

The US is beginning to feel the effects of the slowdown in Asian trade, but the US Federal Reserve (Fed) is still signaling that it will hike further after leaving rates unchanged at the June meeting.

Prices of goods imported into the US from Hong Kong, Singapore, Taiwan and South Korea fell 6.3% in May compared to the same period last year, according to the US Department of Labor. Import prices from China fell 2%, while those from the Association of Southeast Asian Nations (ASEAN) fell 3.7%.

The price that importers pay for goods is not necessarily the same as the price consumers pay, as companies must bear the labor, transportation, and other costs of getting the product to their door. However, prices fell in May from a year earlier for a wide range of goods in the US typically of Asian origin, including furniture, appliances, televisions, sports equipment, and computers and smartphones.

INFLATION IS SUCCESSFUL INFLATION

However, headline inflation in the US is proving stubborn. The consumer price index (CPI) — a measure of the prices Americans pay for goods and services — rose 4% year over year in May. This increase is more than double the Fed’s 2% target. Core consumer prices — the food and energy exclusion index — rose 5.3%.

If the rise in commodity prices during the pandemic caused the first burst of inflation, and the rise in energy prices after Russia invaded Ukraine caused the second burst, then the inflationary situation remains. Currently, it is motivated by the trend of rising wages and service prices. So the reduction in commodity price inflation is welcome, but that doesn’t mean central banks have won the battle, economists say.

Frederic Neumann, chief Asia economist at HSBC in Hong Kong, said: “The inflation-reducing impulse coming from Asia will not be the ‘magic bullet’ for the West’s inflation problem.”

In the decades leading up to the pandemic, China’s integration into the global economy contributed to a long period of low and stable inflation experienced by many Western economies. The wider integration of markets for goods, services, labor and capital in a globalized world has brought cheaper goods to consumers and reduced the inflationary burden on central banks and the central government, no matter how big the impact economists argue.

Now governments and corporations are tiptoeing away from globalization for reasons of security and economic viability. Manufacturers are opening more factories in Vietnam or India to reduce their dependence on China, reflecting concerns about deteriorating relations between the US-led West and China. Governments are introducing subsidy programs for strategic industries like semiconductors and green technology products to attract investment and create jobs in the country.

Such trade tensions could increase costs for manufacturers, say economists. And once global demand picks up, these cracks will result in inflation not staying as low as it has been in the recent past.

This does not mean that globalization is over or that Asia will no longer be a competitive manufacturing location. However, that means Asia is unlikely to be as strong as it used to be in curbing global price increases.

“I think the golden age of globalization — and the downward pressure on inflation that came with it — is over,” said Neil Shearing, chief economist at Capital Economics.