China Passes Germany As World's Top Exporter

Germany is no longer the world’s top exporter. The Global Trade Information Services say that China exported $957 billion of goods in the first ten months of last year. Germany’s number was $917 billion.  The Wall Street Journal reports that “No changes in November or December are expected to overturn the Chinese lead.” The last time that the US topped the list was in 2006.

The news may not be entirely positive for China.

A by-product of China’s rapid increase in manufacturing is bound to be inflation. China’s need for raw materials and fossil fuels to keep its factories and transportation system running is bound to push up commodities price. That, in turn, will push up the prices of finished goods that China sends overseas.

Economists are already concerned that overheated GDP will increase prices on the mainland which could cause hyper-inflation. Asset bubbles appear to have formed in real estate and equities. That will only be exacerbated if the prices of raw materials rise rapidly.

Inflation will almost certainly damage China’s strength as an exporter. Its products will be less desirable to the West if they begin to be priced higher as factories pass along some of their costs. China’s rapidly growing middle class will find that its consumer buying power has been undermined by the  higher prices that these recently “wealthy” Chinese have to pay for goods produced within their own border. That, in turn, could force China to raise the wages of these workers

Inflation in Germany and the rest of the West will probably stay low as the hangover from the recession remains. That means that Germany will may not face the same pressure of rising labor costs, particularly if its unemployment rate stays relatively high.

China may “export” itself right into the arms of inflation.

Douglas A. McIntyre