China is experiencing crippling deflation as its economy struggles with declining exports and imports for the past few months. In July, Chinese exports declined 14.5%, while imports plunged 12.4%. This marks the worst decline in exports since February of 2020 – the month when Covid-19 first struck China, writes Louis Navellier, Founder and Chairman of Navellier & Associates.

As a result of China’s collapse, the Commerce Department just reported that the US trade deficit declined 4.1% in June to $65.5 billion, as exports remained flat at $165.1 billion and imports declined 1.2% to $253.3 billion. Imports are now at their lowest level in three years. The US trade deficit should continue to narrow in July due to higher energy prices. This should boost GDP growth in both quarters.

The Chinese National Bureau of Statistics also just announced that consumer prices declined 0.3% in July, while producer prices declined a much more dramatic 4.4% in July. The unemployment rate for people 24 and younger is now at a record high, despite decades of a one-child policy causing China to have too few young workers to support their aging population.

China isn’t exporting much now, since the whole world is doing more “onshoring,” after the trade backlog during Covid-19 revealed China to be an unreliable trading partner, so the long-term economic outlook for China is looking dire.

Complicating matters further, China’s official purchasing manager index (PMI) has now declined for four straight months and is at its lowest level in a year. A prolonged housing crisis from chronic overbuilding is also contributing to the deflationary pressure in China.

This is all happening under censorship and the most severe dictatorship since the days of Mao. According to the Financial Times, “Chinese authorities are putting pressure on prominent local economists to avoid discussing negative trends such as deflation.”

Further complicating China trade, the Biden Administration just issued an executive order that banned US investment in China for semiconductors, quantum computing, and artificial intelligence (AI). As poor relations between China and America persist, it will be interesting to see how China retaliates.

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