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How China is contributing to higher inflation worldwide in three areas

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Restrictions and tariffs imposed by China in two major commodities — fertilizer and pork — have caused prices to surge worldwide.

Deng Gang | Visual China Group | Getty Images

Russia is guilty in creating a food security crisis higher energy prices through its war with Ukraine, but China has — under the radar — also taken actions in three areas that are exacerbating inflation worldwide, said the Peterson Institute for International Economics.

Chad Bown (PIIE analyst) and Yilin Yang (PIIE analyst) wrote, “Russia’s war against Ukraine has taken a shockingly toll on this region.” The war in Ukraine also led to a food shortage worldwide, with Russia preventing vital fertilizer exports from farmers. Ukraine’s position as the main breadbasket of Africa and Middle East is now ruined.”

They wrote last week that there was another unappreciated threat to global food security.

China continues to behave like a small nation. They can be beggars-thy neighbor, and China chooses the policy that resolves its domestic problems by spreading its costs to others.

Yilin Wang and Chad Bown

Peterson Institute for International Economics analyst

The analysts singled out restrictions and tariffs imposed by China in two major commodities — fertilizer and pork.

China’s restrictions have gone beyond food. According to the Washington-based thinktank, China, which is the largest steel producer in the world, also placed restrictions on the material.

The report shows that all those actions have resulted in higher prices around the world, even though they helped China’s citizens.

China acts like a tiny country, that is what the trouble with it. Its policies often have the desired effect at home — say, reducing input costs to industry or one set of Chinese farmers or by increasing returns to another,” the analysts wrote.

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The authors added that “they can also be beggar thy neighbour, with China selecting a policy that solves an internal problem and passes its cost on to other people.”

Fertilizer

China’s fertilizer prices and other locations around the globe are very competitive In response to increased energy prices and strong demand, the price of electricity has started to rise last year. pushed even higher following the Russia-Ukraine war.

Last July, authorities ordered major Chinese firms to suspend exporting fertilizerPIIE said that “to guarantee the supply to the domestic chemical fertilizer industry” was the goal. As prices rose, the authorities began to enforce additional controls on exports in October.

These curbs were in place throughout the year. set to last till at least after the end of summer, Reuters reported.

Chinese fertilizer exports fell sharply due to the combination of tariff and nontariff restrictions. The analysts stated that Chinese fertilizer exports declined sharply because of the increased production at home.

The situation was starkly different from the one worldwide where fertilizer costs continued to rise at twice the rate they were a year ago, said the thinktank.

China’s share of global fertilizer exports was 24% for phosphates, 13% for nitrogen and 2% for potash — before the restrictions, according to PIIE.

PIIE analysts claimed that China’s decision not to sell fertilizer on world markets is only a “push” of the problem.

There is less fertilizer and less food grown. That is despite the fact that there are already serious threats to global food supply from Russia-Ukraine. Russia and Ukraine are the largest exporters of wheat, sunflower oil, and barley.

“At such a critical moment, China needs to do more — not less — to help overcome the potential humanitarian challenge likely to arise in many poor, fertilizer- and food-importing countries,” the report said.

Steel

Authorities lifted last year a ban against steel scrap imports to lower domestic prices. A few export restrictions were also implemented and five steel products were subject to increased export taxes.

China’s steel price was 5% less than it was before restrictions.

According to PIIE analysts, the decreases in steel prices have occurred at the expense, just like the fertilizer case. Steel prices are higher elsewhere than China. The concern here is that the gap between Chinese and world steel prices has been widening since Jan 2021.

Pork

This is the story of higher pork prices globally began in 2018, when China — which then produced half the world’s pork supply — saw its hog population hit by a major outbreak of African swine fever.

This forced the country to slaughter 40% of its cattle. caused its pork prices to more than double by late 2019. According to PIIE, world prices rose 25% when China pulled out supplies from markets and imported more pork.

China has reduced domestic price pressure since 2019, tapping into imports, before closing them down more recently. These policies affected other countries,” PIIE analysts said.

According to the think tank, Beijing cut its tariffs on pork imports in China in 2020. As a result, consumers around the world were likely to pay higher prices because of lower supply.

These tariffs were increased this year by authorities as the situation with swine-fever improved.

“A potential unintended benefit will be reaped if, in the current environment of high global meat prices, China’s tariff unexpectedly frees up world supplies and helps mitigate pressure on pork prices facing consumers outside China,” the report said.

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