Changes in China's trade structure are pushing down goods prices in non-US developed markets

Overview

The report analyzes how rising Chinese exports and falling Chinese imports affect global inflation. The core conclusion is that China's export growth to non-US developed markets has increased goods supply in recipient economies, while weaker Chinese import demand has released supply into global goods markets; together, these two channels have created disinflationary pressure on goods prices in developed markets.

Core views

Changes in China's trade flows have lowered goods prices in non-US developed markets by about 0.7% over the past two years, with the main contribution coming from higher Chinese exports, which lowered goods prices by about 0.6% on average; reduced Chinese imports added an additional drag of about 0.1%. At the macro inflation level, this effect has lowered annual headline and core inflation in developed markets by about 0.1-0.2 percentage points. The report expects the impact to continue accumulating because existing trade changes have not yet fully passed through to consumer prices, while Goldman Sachs' China economics team expects China's current account surplus to keep expanding.

Analysis framework

The report builds a unified cross-country panel of trade and inflation, maps 6-digit HS trade data to 3-digit COICOP goods inflation categories, and uses cross-country regressions to estimate the impact of changes in Chinese export penetration and Chinese import demand on goods prices in other economies.

Methodology notes

• MacroeconometricsCross-country Trade-Inflation Panel

  Links changes in trade shares with changes in goods prices across countries and products.

  The report uses a consistent framework to compare the relationship among Chinese export penetration, global import exposure, and goods prices across major non-US economies.

• Data MappingHS-CPA-COICOP Mapping

  Converts 6-digit HS trade data into consumer price categories.

  It first uses the UNSD crosswalk to map trade data to Eurostat CPA, then allocates it to COICOP consumption categories through Eurostat bridging matrices; for countries that do not report inflation by COICOP, it constructs the closest comparable unified inflation measure.

• Regression AnalysisPooled Scatter Regression with Country Fixed Effects

  Estimates the statistical relationship between changes in trade variables and price changes.

  The first channel estimates changes in the share of Chinese exports in the recipient country's total consumption; the second channel estimates the interaction between changes in China's share of global import demand and each country's import exposure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Developed Market Inflation

  Changes in China's trade flows are putting downward pressure on goods prices and passing through to headline and core inflation.

  Strengths

  The supply-side disinflation logic is clear, and the report uses a cross-country product panel for estimation.

  Weaknesses

  The estimates are mainly based on correlations and historical pass-through; future inflation will still be affected by domestic services prices, wages, and policy.

  Comparison

  The overall effect for non-US developed markets is about a 0.7% decline in goods prices, but regional differences are significant.

  Risks

  Trade frictions, tariffs, or supply-chain adjustments could weaken the price pass-through.

• Euro Area Goods Prices

  More heavily affected by the rise in Chinese export penetration.

  Strengths

  The increase in Chinese supply to European markets makes downward pressure on goods prices more pronounced.

  Weaknesses

  Differences across countries and product categories within the euro area may be substantial.

  Comparison

  The estimated impact is a 1.0% decline in goods prices, above the non-US developed market average.

  Risks

  If Europe adopts stronger trade protection measures, import price pressures could rise again.

• Japan Goods Prices

  Affected by both higher Chinese exports and weaker Chinese import demand.

  Strengths

  The report estimates Japan is hit the most, with goods prices down 1.1%.

  Weaknesses

  Japan is sensitive to changes in Chinese demand, and industry structure may lead to localized shocks.

  Comparison

  The estimated impact is higher than both the euro area and the non-US developed market average.

  Risks

  If Chinese demand recovers or exchange-rate moves offset the supply effect, disinflationary pressure could weaken.

• Canada Goods Prices

  The disinflationary impact is smaller because the increase in Chinese import penetration is more limited.

  Strengths

  Direct exposure to China's trade reallocation is lower.

  Weaknesses

  The downward price benefit from increased Chinese supply is relatively limited.

  Comparison

  Goods prices are estimated to fall only 0.2%, below the average for major developed markets.

  Risks

  Commodity and energy price fluctuations may dominate Canada's inflation path.

Key data

• Growth in China's exports to non-US developed marketsabout 20%Nominal export growth since 2024.
• For each 1 percentage point increase in China's import penetrationgoods prices fall 0.5%Based on panel estimates using detailed trade data for major non-US economies from 2024Q1 to 2026Q1.
• Country-product pairs fully reliant on importsa 1 percentage point decline in China's global import share corresponds to a 1.3% price declineUsed to measure the second channel through which weaker Chinese import demand releases global supply.
• Total impact on goods prices in non-US developed marketsdown 0.7%Estimated combined effect of changes in China's trade structure over the past two years.
• Drag on annual headline and core inflation0.1-0.2 percentage pointsEstimated pass-through of goods price effects to developed-market inflation.
• Euro area impactgoods prices down 1.0%Mainly due to China's high import penetration in European markets.
• Japan impactgoods prices down 1.1%The weakening of Chinese import demand has had a more pronounced effect on related Japanese products.
• Canada impactgoods prices down 0.2%The impact is smaller because the rise in Chinese import penetration has been more limited.

Impact & implications

This research reinforces the view that developed-market inflation is returning closer to target levels. In addition to broadly balanced domestic supply and demand, changes in China's trade structure are providing an extra source of goods-side disinflation, especially for the euro area and Japan. If China's current account surplus continues to expand, goods prices and core inflation may continue to face mild downward pressure in the future.

Risks

• Regression relationships are not equivalent to full causality; price changes may also be affected by exchange rates, tariffs, energy prices, and domestic demand.
• Escalating trade tensions or import restrictions could weaken the disinflationary pass-through from expanding Chinese exports to developed markets.
• Consumer price pass-through is lagged, and the actual timing and magnitude of the impact may differ from the estimates.
• If China's current account surplus does not expand as expected, future additional disinflationary pressure may be smaller than the report suggests.

What to watch

• Whether China's export growth to non-US developed markets continues to run above trend.
• Whether the gap between China's imports and the pre-pandemic trend widens or narrows.
• Whether goods inflation in the euro area and Japan continues to cool more noticeably than in other developed markets.
• Whether trade policy, tariffs, and supply-chain reshoring change the pass-through from Chinese exports to overseas prices.
• The trajectory of China's current account surplus and its implications for global goods supply.