China has been known to have some of the strictest Covid-19 guidelines in the world. The pandemic started there and ever since the worldwide breakout, they have been on lockdown for the majority of the time. Finally, China is dropping restrictions, but this is going to have a large effect on people, not just residents of China.
The demand for products, social life, etc has been pent up for years now. Businesses had to adapt and adjust and there was less of a demand for certain products since people were in lockdown. This pent-up demand could send inflation high up around the world, including the US. The United States Fed has been working on decreasing inflation by raising rates, but this demand from China could pause or reverse progress in lowering inflation and affect monetary policy decisions.
Obviously the demand for many goods and services will increase, but the demand for gasoline and oil are going to skyrocket. The article outlined “As consumers are allowed out of their apartments, and start becoming more mobile, there’s going to be more gasoline demand and more jet fuel demand.” (CNBC). Even after announcing that China would be dropping guidelines in the near future, oil prices began rising. China opening is going to vastly increase the demand in markets worldwide. Markets all around the world are going to feel a burden of sudden increased pressure to create goods and services at a faster rate than they are used to.
5 comments:
Because China is a large-open economy, their economic decisions will definitely influence our economy's direction. It is normal for American firms to again sell to Chinese consumers as it allows for those firms to profit off of the increase in demand. This will eventually cause inflation to rise, and the FED will have no choice but to raise rates if they want to save the average person. It will be interesting to see when inflation gets out of control again because it is inevitable that it will reach dangerous levels... again.
I definitely agree with the fact that the Chinese economy is one that has a great impact on the world economy, due to it being (mostly) open, and its consumers being a large portion being a large portion of the world's consumers, with it being the second most populated nation on earth.
One particular area of interest would be the American automotive industry, which contributes to roughly 10.2% of total Chinese passenger vehicle sales (in 2021). With restrictions easing in the country, I suspect that the demand for automobiles will once again pick up in China, causing US producers to sell more cars to China, causing an inflationary push in the nation that would, eventually, get high enough for the Federal Reserve to increase interest rates again.
Overall great post!
This morning I saw an article that I feel relates to this post. The article talked about how the United States is facing a major gas shortage and has the lowest about of stockpiles of gas that it has seen in ten years. I imagine that as China begins to drop more and more of these guidelines and as the demand for gasoline skyrockets, we will be in even more of a severe shortage. I imagine that in response to this, public transportation will begin to become more and more popular in the United States as well as hopefully more accessible and reliable.
Great article Lauren!
Due to the potential increase in demand in markets worldwide, as you mentioned, I could see economies employing policies to counter this such as raising taxes or, as we see already, raising interest rates even more. This demand pull inflation would have to be countered somehow, and I could see governments trying to use the contractionary monetary policy in this case.
I agree that China dropping restrictions is going to have a significant impact on the world's economy. It will be interesting to see how China's reopening will impact the oil market. Despite many countries in Europe and the Americas placing sanctions on Russian oil, China has continued buying their oil. It will be essential to see if China will continue to import its oil from Russia or if it we import from other countries.
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