There’s a ‘silver lining’ to China’s ‘deflationary cloud’—they can ‘export’ lower prices to the West in a win-win scenario, according to Société Générale’s Albert Edwards

That doesn’t sound like great news, but Edwards, who isn’t exactly known for his bullishess, sees a “silver lining” in China’s problems—the country might be able to “export” deflation to the West in a win-win scenario for both economies.

“China’s economy is sliding into deep deflation. Why is that good news? Well, the ‘West’ wants lower inflation, while China (and Japan) wants higher inflation. There is a deal to be done and maybe all parties can benefit,” he wrote.

In other words, Edwards wants the U.S. and China to go back to the 1990s and early 2000s, when the U.S. benefited from China’s growing role as the world’s (quite affordable) factory by importing trillions of dollars of cheap goods. But Edwards’ proposal comes with a warning, too: If the U.S. overshoots and imports too much deflation, it could kneecap its own economy and its so-far-successful rebound from the pandemic years.

Deflation vs. inflation

Inflation is a terrible economic disease. It acts as a regressive tax on consumers, curbing their purchasing power while simultaneously raising costs for businesses. But deflation can be just as bad, if not worse. When prices fall consistently, it shrinks companies’ profit margins, which can lead to job losses, fading economic growth, and act as a drag on consumer spending. 

The best known example of this is Japan, which suffered through a “lost decade” in the 1990s due to deflation. Asset prices in everything from real estate to stocks tanked during this period, leading to a seemingly inescapable economic stagnation. 

Now, with the Federal Reserve hiking interest rates to fight the hottest inflation in…