Europe in between US and China

Europe is in the game of thrones between two opposing inflations. China is exporting deflation, US is exporting inflation.

China has seen an implosion of demand, so to counter this they devalue Yuan which deflates the prices of goods produced in China. For Europe, it means lower car, household item and similar, prices.

It’s essentially an export of deflation.

And there is nothing worse than deflation to a highly indebted continent. No one wants that.

US, in the meantime, is printing trillions of dollars, increasing domestic spending and also even strengthening the dollar thanks to high rates. It attracts capital to USD, reinforcing it, and making everything priced in dollars more expensive- Gas, various goods, commodities.

It’s essentially an export of inflation.

Europeans (especially Germans) have a big and a historical problem with inflation. We hate it!

So the only choice will be to balance one another. Considering EU is operating slowly with no clear leadership, the path of least resistance seems like the one we will take.

That is:

Low quality but cheap goods from China – Expensive, hard to maintain energy from US.