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A Second ‘China Shock’ Is Looming — And It’s Already Reshaping Global Trade

Global markets are bracing for a fresh wave of economic disruption as China’s manufacturing juggernaut continues to flood international markets with ultra-cheap goods. But this new “China shock” isn’t just a repeat of the 1990s export boom — it’s emerging in a more volatile, inflation-strained world. And it comes with a surprising silver lining.

At the heart of this trend is China’s overcapacity problem. With domestic consumption stagnating and tariffs squeezing its access to the U.S., China is doubling down on manufacturing and offloading inventory across Asia and beyond.

Discounts of Up to 70% as China Clears Inventory

Vincent Xue, CEO of Singapore-based Nasdaq-listed Webuy Global, has witnessed this shift firsthand. His online grocery platform, which sources heavily from China, began receiving steep discounts from about a third of his Chinese suppliers late last year. Some product prices have dropped by as much as 70%.

“The domestic Chinese market is oversaturated,” Xue said in Mandarin. “Large food and beverage companies are slashing prices just to clear excess stock, as demand remains weak.”

In 2024, Webuy Global expanded its operations by partnering with Chinese e-commerce powerhouse Pinduoduo, now aggressively pushing into Southeast Asia. “We now see five to six shipping containers of goods weekly,” Xue shared, adding that his company handles last-mile delivery to thousands of local customers.

Deflation at Home, Exports Abroad

China’s producer prices have remained stuck in deflation for over 24 consecutive months, and consumer inflation has hovered near zero, signaling serious demand-side weaknesses in its economy. Instead of pulling back, the government has ramped up manufacturing, with state support for key export-heavy sectors like electric vehicles, solar panels, and electronics.

This massive output is increasingly finding its way into global markets, leading to what some economists warn could be another disruptive economic shock—albeit with mixed effects.

“Every economy is now on high alert over being overwhelmed by Chinese goods,” said Eswar Prasad, professor at Cornell University. “We’re already seeing governments react.”

Countries including India, Vietnam, Thailand, and Indonesia have rolled out anti-dumping duties and other protective measures in response to the price war triggered by Chinese overcapacity.

Silver Lining: Lower Inflation for Struggling Economies

Despite the risk to local manufacturers, there’s a surprising upside: cheaper Chinese imports are helping to cool inflation around the world, especially in countries with limited industrial output.

“This is a lifeline for economies where cost-of-living pressures remain high,” said Nick Marro, principal economist at the Economist Intelligence Unit. “Places like Australia, which rely heavily on imports, could see significant inflation relief.”

Economists at Nomura expect that this disinflationary trend could pave the way for aggressive monetary easing across Asia. Their forecasts include:

• India’s Reserve Bank: Potential rate cuts totaling 100 basis points in 2025
• Philippines & Thailand: Up to 75 basis points in cuts
• Indonesia & Australia: Expected to reduce rates by 50 basis points
• South Korea: A moderate cut of 25 basis points

These central banks could begin diverging sharply from the U.S. Federal Reserve, which remains hawkish due to persistent U.S. inflation.

Singapore Feels the Impact Ahead of Others

In Singapore, rising living costs became a central issue during the 2025 general elections. However, the surge in Chinese imports is beginning to ease inflationary pressures. Nomura analysts believe core inflation in Singapore could undershoot the lower end of the Monetary Authority of Singapore’s (MAS) projections.

“The disinflationary effects are becoming evident,” said a Nomura report. “This trend is expected to spread across the region.”

Revisiting the First ‘China Shock’ — and Why This One Is Different

The term “China shock” originally referred to the influx of inexpensive Chinese goods in the late 1990s and early 2000s, which reshaped global manufacturing and suppressed inflation—but also decimated many Western industrial jobs.

Today’s version shares similarities but comes with sharper geopolitical and economic tensions. China’s exports to ASEAN nations jumped 11.5% year-over-year in the first four months of 2025. In contrast, its shipments to the United States fell by 2.5%, according to official Chinese customs data.

In April 2025 alone, exports to the ASEAN bloc soared 20.8%, while U.S.-bound exports plummeted over 21% year-over-year.

“Chinese goods exported to Japan have become approximately 15% cheaper compared to other sources over the last two years,” estimated Goldman Sachs.

Countries Most at Risk

Some countries are more vulnerable than others. Economists warn that Thailand could suffer the most severe blow from this new wave, even tipping into deflation.

Nomura’s report projects that India, Indonesia, and the Philippines will also see inflation dip below their central banks’ targets. For emerging markets, the flood of cheap goods presents a delicate balancing act: fighting inflation while protecting domestic jobs.

Global Trade Faces a Turning Point

While Chinese overcapacity and deflation threaten to destabilize regional manufacturers, the same forces are providing breathing room to consumers and policymakers battling inflation. Whether this trade-off proves sustainable—or leads to deeper geopolitical and economic divides—remains to be seen.

This new chapter of China’s global economic impact is just beginning, and its ripple effects are already being felt from Bangkok to Brisbane, Singapore to San Francisco.