China is providing, even during this tariff war period, competitive and affordable prices to a wide array of goods around the world.

BANK of England Monetary Policy Committee member Catherine Mann in a recent lead communication has noted that US tariffs on China are forcing Beijing to raise export prices for other markets, including Britain.

This, she argued, was keeping UK import inflation risks alive. Her statement, clearly directed at China rather than the US as the threat to British economic stability, is contrary to the opinion of many central bankers and analysts who view Beijing’s export impact more favourably. This is because China is providing, even during this tariff war period, competitive and affordable prices to a wide array of goods around the world, including the UK.

Mann made no mention of the fact that the UK has been engaged in economic pressuring of China, producing what British prime minister Keir Starmer has described in his recent visit to Beijing as “an ice age” era that he is intent on reversing.

Starmer is probably privately hoping that a reset of British economic policy and relations with China may provide for lowered prices of Chinese imports into Britain.

What Mann has expressed continues the negative spinning of what has been decried as China’s overcapacity – and now increased pricing allegation – narrative popular with anti-China politicians and policymakers, who view imports of any kind from China with alarm and suspicion. They, and the Western mainstream media, have long sought to conceal and refuse to acknowledge that China’s exports to the world have acted as an effective – perhaps the most potent – anti-inflationary factor in global economics for the last 20 years or more.

For the better part of this century, China has essentially acted as the world’s disinflationary engine. By exporting massive volumes of consumer goods at consistently low prices, China has helped central banks in the West keep inflation low.

The same positive China export impact on national inflation targets has been true for the developing economies. It cannot be denied that Chinese manufactured goods exports have significantly contributed to raising global standards of living by bringing down the cost of consumer goods, boosting real household incomes and enhancing access to technology and infrastructure.

Pricing and speed

China’s entry into the World Trade Organisation (WTO) in 2001 can be said to have triggered a tectonic shift in global trade.

The “China price” became the lowest price point in the world for most manufactured goods. By leveraging large-scale production, low-cost labour and a strong manufacturing ecosystem, China has acted as a global factory that exported disinflation and increased purchasing power for consumers worldwide.

This is how Chinese manufactured exports have contributed to higher living standards around the world:

0 Reduction in global consumer prices – The massive supply of low-cost Chinese consumer goods – household appliances, electronics and clothing – has consistently put downward pressure on prices for everything from toasters to handphones. For instance, it has been estimated that without access to Chinese imports, Australian households would have paid 4.2% more for the same basket of goods in 2022 to 2023. This “China price effect” acts as a subsidy on global household consumption, allowing hundreds of millions to afford more goods and services.

0 Access to affordable technology and green energy – China’s dominance in producing solar panels, lithium batteries and electric vehicles has accelerated the global green transition by making renewable energy technologies cheaper. Wind and solar technology have become the cheapest and often the only affordable energy option in many parts of the world due to Chinese manufacturing scale.

0 Increased access to goods in developing nations – Through the Belt and Road Initiative, China has provided affordable machinery, electronic components and infrastructure-related goods to developing economies. This has enabled developing nations to industrialise faster. Developed nations have benefitted from the ripple effects of development in the South countries. However, this positive development continues to be missing or neglected in the reporting by Western mainstream media.

0 Boosting real incomes – By reducing the cost of living, Chinese goods have effectively raised the real income or purchasing power of consumers, particularly in lower-income households and developing countries, enabling higher standards of living for the poor and middle class.

0 Driving global value chains – China is a critical node in global supply chains, providing low-cost intermediate goods that allow manufacturers in other countries, especially in the West, to keep production costs down. Now that China is providing higher cost intermediate goods, Western policymakers have become more strident in their anti-China discourse.

Contextual factors

0 Absorber of inflation – Amidst global inflationary pressures, China has sometimes functioned as an absorber of inflation by importing expensive raw materials, processing them and exporting finished goods at a smaller price increase.

0 Labour arbitrage – For years, a steady stream of rural labour into cities has kept wages low. This has allowed China to export deflationary pressure to its trading partners. Anti-China media and lobby groups, including in Japan, India and the Philippines, often focus on stories of exploitation of China’s cheap labour in Xinjiang, Hong Kong, Tibet and elsewhere in their “at what cost” campaign to denigrate Chinese economic performance and achievement.

0 Efficiency through supply chain integration – China did not just offer cheap labour; it offered the world’s most integrated infrastructure. By producing components, packaging and finished goods in the same locality, China reduced logistics costs and lead times. Brands such as BYD, Shein and Temu have become market leaders for their “China speed”. To Western propagandists and their followers in Asia, they have become public enemies.

0 Technological catch-up – Rapid adoption of automation and robotics is allowing China to maintain competitive pricing even as domestic wages continue to rise, and China’s “cheap” labour has become more costly.

Green game changer for younger generation

The most important benefit that China’s economic rise is bringing to the world is yet to come. China is now the primary source of deflation for the “green transition”.

China’s production in solar panels, EV batteries and wind turbines is driving down the cost of renewable energy globally, acting as a new anti-inflationary force for the next decade and beyond.

By keeping prices low on essential goods, especially electric vehicles, solar panels and batteries, China is helping other regions – Southeast Asia, Latin America, Africa and the Middle East for now – transition to green energy at a much lower cost than they could otherwise afford.

Britain, the European Union and the US can also benefit from China’s export production, including green production, if their politicians and policymakers can remove their ideological blinkers and anti-China mindset.

Lim Teck Ghee’s Another Take is aimed at demystifying social orthodoxy.

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