Italian firms expect Chinese product rerouting from US tariffs

The paper, based on Banca d'Italia's Survey of Inflation and Growth Expectations, reveals that a substantial number of Italian firms, particularly within the manufacturing sector and among those engaged in export activities, anticipate a surge in the availability of Chinese goods within their domestic markets.

This expected increase is primarily linked to the rerouting phenomenon, where Chinese products, previously destined for the United States, are now redirected due to the imposition of US trade tariffs.

The most prominent consequence foreseen by these firms is a significant intensification of competitive pressures.

This heightened competition is projected to exert downward force on their selling prices, and to a lesser degree, also influence input costs, suggesting a broader impact on their operational economics.

Beyond direct price and competition effects, the study highlights broader implications for firms more directly exposed to this rerouting.

These firms report a marked increase in uncertainty regarding future market conditions.

This heightened uncertainty translates into greater caution when making investment decisions, indicating a potential slowdown in capital expenditure.

Furthermore, these firms tend to hold more negative overall assessments of the macroeconomic environment, reflecting a cautious outlook on broader economic performance.

Interestingly, despite these significant impacts, the paper notes that overall inflation expectations among firms appear to be only marginally affected by the anticipated rerouting of Chinese products.