Abstract: For a significant period, US interest rates have been considered the anchor for global capital pricing, regardless of the exchange rate policies or capital market openness of individual countries. Similarly, we propose that a parallel phenomenon exists within the global manufacturing market, where China’s prices serve as the anchor for global manufacturing costs. Whether a product is produced in China or imported from China, China’s prices ultimately determine global manufacturing pricing.
This paper examines China’s role in shaping global manufacturing price fluctuations over the past two decades. The analysis reveals that fluctuations in China’s manufacturing prices increasingly lead price changes in other countries' manufacturing sectors. Furthermore, among the various factors influencing global manufacturing prices, China’s price movements have the most significant impact, though their influence is often underestimated in many studies.
Based on these findings, we present three key implications: 1) China has played a crucial yet underappreciated role in global disinflation since 2022; 2) inflation in developed economies is likely to rebound if China enters a recovery phase; and 3) the imposition of tariffs on Chinese goods will raise consumer prices and affect financial markets, leading to higher inflation and yields.
