Rising Costs Strain Chinese Factories and Threaten Global Supply Chains

June 2, 2021

Chinese manufacturers, in the face of worker shortages and rising material costs, are beginning to delay or even reject orders, which could disrupt global supply chains and lead to additional inflationary pressure.

The Wall Street Journal reports that some Chinese manufacturers are refusing to accept new orders and may even shut down temporarily in the face of high commodity prices. An index that tracks the prices of raw materials for manufacturers climbed to its highest level since 2010. Western counties, flush with stimulus cash, have caused demand for goods to soar, adding additional pressure.

The most likely outcome is that Chinese manufacturers will be forced to raise prices. A survey conducted by the People’s Bank of China found that 47% of manufacturers said they plan to address prices in the near future, and that 37% said they would be more cautious about accepting new orders.

This could be bad news for the U.S., as the availability of cheap goods from China has put downward pressure on prices for decades. Consumer prices have already seen a big jump in recent months, and increased prices for goods from China could exacerbate the issue.

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