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Brad Setser @Brad_Setser
, 4 tweets, 2 min read Read on Twitter
Greg Ip summarizes Jennifer Hillman's argument for bringing a massive "non-violation impairment of benefits" (nullification and impairment) WTO case against China.

wsj.com/articles/for-u…
Central argument is that many of China's practices aren't clear violations of any specific Chinese WTO commitment, but the overall Chinese system is structured in a way that effectively rigs China's domestic market to favor domestic firms and production -
Hillman's proposal is by far the boldest and most creative proposal for how to address China's policies "inside the WTO" system (at least initially) that I have seen.

uscc.gov/sites/default/…
I agree with her basic argument that "narrow" WTO cases (even done jointly with US allies) are unlikely to be a sufficient response to China's domestic practices; many problematic Chinese practices aren't necessarily violations of WTO rules

cfr.org/blog/us-china-…
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The dog that hasn't barked this week? China's currency

(obviously the fact that is it managed is important here, but I also tend to think China's BoP is - for now - still relatively healthy)
The current account will end 2018 in a small surplus. Exports are poised to slow this year, but imports should fall too - thanks in part to lower prices for oil and semiconductors

And, well, net FDI remains in surplus, thanks largely to effective controls on FDI outflows
Unlike some bank analysts, I though China's detailed q3 BoP showed ongoing strength more than anything else.

Reserve growth fell a bit (but not all that much given CNY move), but that was partially offset by more non-reserve outflows
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A little bit more on the impact, or rather the non-impact, of U.S. corporate tax reform from the balance of payments data.

Profits that US MNCs report in the main low tax jurisdictions in the last 3 quarters?

Basically, unchanged from before.
Have seen big swings (tho less so in q3) in the split between dividend payments and reinvested earnings (as expected, as the tax reform removes any incremental tax on dividend payments home), but very little change in the geographic location of profits.
US firms still report the bulk of the offshore profits in low tax jurisdictions, not the location of most of their real sales.

the reform, as of now, hasn't led to the onshoring of those profits, or a shift away from low tax jurisdictions

(chart shifts to trailing 4qs)
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Good points by @S_Rabinovitch.

Would just note that for all of China's trade integration, China financially is very weakly integrated into the world. World is underweight Chinese financial assets, China's private sector is underweight global financial assets.
Dropping controls would allow rapid integration -- and potentially allow large outflows (or inflows) as the pace of integration might not be symmetric. The risk right now is quite clearly that outflows from high saving China would exceed inflows, given China's financial risks
The corollary would be that China returns to a large current account surplus financed out of its large stock of savings - but given China's current weakness that surplus could be sustained without intervention (unlike the 2002-2013 surplus ... ) given large private outflows.
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