Be like China? Nobody ever says that, but maybe our country should consider it. At least in one area.
Our economy is still trying to adjust from so much extra cash in the market. The pandemic stimulus money gave most Americans more cash to spend than they were used to which caused bidding wars for houses, boats, and several other big-ticket items. Those extra stimulus dollars together with the Federal Reserve’s continued monetary stimulus is causing sky-high inflation.
Our government’s strategy to fix the pandemic economy was to throw money at it which is having a side effect of rising prices (inflation). China’s government, which is generally terrible and untrustworthy, is taking a different approach to tackling their pandemic economy and the inflation that followed and it’s working better than ours.
China knows that if commodity prices (raw materials like copper or agricultural products like corn) stay high, it will raise consumer prices which would slow down their economy. When prices get too high, people, regardless of the country, stop buying.
In the last month, China’s officials have focused their speeches and activities on reducing commodity prices. The Chinese officials temporarily adjusted the rules for how the commodity markets were being managed. They forbid different steelmakers from working together to manipulate a price hike and adjusted their tax laws (tariffs) to make exporting less profitable so their country would have enough steel for their manufactures. They even limited imports to make it cheaper for companies to buy materials in-country. These policies seem to be working.
According to Bloomberg data as of 6/8/2021.
- Chinese lumber prices were 90% higher in May than in January, but after policy adjustments, lumber is only 40% higher than its January prices. Still high but better.
- Chinese corn prices were 60% higher in May than in January, but after policy adjustments, corn is only 40% higher than its January prices.
- Chinese steel prices were 40% higher in May than in January, but after policy adjustments, steel is only 15% higher than its January prices.
The Chinese policy changes isn’t the only reason for their decrease in inflation, but it is a major reason. At the same time American prices continue to climb.
I generally have nothing good to say about China’s communist dictatorship government which I personally believe harms many innocent Chinese citizens. But I think for the first time, they have a better approach to keeping inflation from getting out of control.
Should America be more like China? No, not at all. But maybe the answer to our economic problems isn’t always to throw more money at it. Maybe we should fix the problem instead of putting more band-aids on it. China’s officials aren’t any smarter than our government officials. Inflation hurts Americans. Let’s start thinking outside the box.
Have a blessed week!
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