Rerouting of Chinese products in response to US trade tariffs: evidence from Italian firms' expectations

We study how Italian firms perceive the potential rerouting of Chinese products, as a result of US trade restrictions, and its implications for prices, business conditions, investment and macroeconomic expectations. Using firm-level data from the Survey on Inflation and Growth Expectations, we show that while most firms do not anticipate a significant reallocation, a sizeable minority - around 30 per cent, concentrated among manufacturers and exporters - expect an increase in Chinese supply. Exposed firms foresee modest reductions in intermediate input prices and downward pressures on selling prices, particularly when competition is the dominant channel for transmitting the rerouting shock, while labour costs are found to exert upward pressures in some service sectors. The anticipated rerouting of Chinese products also generates long-term uncertainty about business conditions and dampens investment expectations. At the aggregate level, firms view the rerouting shock as denting short-term macroeconomic confidence, while leaving inflation expectations largely unchanged.