Thread by @Brad_Setser

A couple of quick points on China's reported offer to get rid of China's surplus with the US by 2024 (in five years?)

(1/x)

bloomberg.com/news/articles/…

The first point is super cynical -- the Chinese offer was to get rid of the surplus using the Chinese numbers (the US data has a $400b goods deficit now). So the easiest way to reduce the surplus? Export more to HK for reexport to the US ...

China's exports to HK are way bigger than can be explained by HK's economic size ...

(3/x)

But let's say China is serious about boosting its imports from the US & wants to double its imports by 2024. What would that look like?

The New York Times/ @jimtankersley went through the math last spring, with a bit of data help from me and Chad Bown

nytimes.com/2018/05/18/bus…

Exports of aircraft to China now are $15-20b. Doubling that means tilting orders away from Airbus in a big way ...

Doubling soybean imports? that means tilting imports from Brazil in a big way

Doubling LNG imports-- that's easy, the base is still small.

(5/x)

But getting big numbers on LNG would mean tilting away from alternative suppliers (Australia for ex)

China bought around $10b of oil and gas from the US in 2017. That number could go way up, but it would mean that the US would be exporting less oil and gas to its allies (6/x)

And I think it will be really hard to keep US auto exports (were close to $15b before the trade war) at their current level if Tesla builds a plant in China and BWM expands its Chinese SUV production now that it has a majority owned JV (7/x)

Gonna be hard to keep US exports of medical equipment up if China continues to have "buy China" policies in its hospitals.

And if the c919 enters service, will be hard to keep Boeing exports up even if China tilts away from assembled in China A320s (unlikely)

(8/x)

China could but a lot more US designed semiconductors (US export of chips to China and HK = $10b, v imports of $200b ...) but to impact the bilateral balance, US chip designers will need to start using US fabs rather than Taiwanese fabs ...

(9/x)

And even if US exports of goods doubled (China has imports of @$130b in its data pre-trade way, exports go up to $250-300b ... (a nice boost, by the way, even though i think it is implausible). Imports are still $550b (US data) and likely to grow ...

(10/x)

so to get goods trade to balance (for real), China would need to discourage some current "assembly" operations from continuing to assemble in China (export taxes e.g. no full tax rebates on certain categories of exports) -- e.g. encourage Chinese firms to move to Vietnam

(11/x)

But to get a big fall in US imports from China, China would need to encourage the global electronics industry to reengineer so it does final assembly elsewhere with made in China components (of course, China isn't going to roll over) ....

(12/x)

US imports of cell phones from China in '17 were $70b, imports of computers and accessories were similar. so 1/3 of the trade deficit right there.

so Chinese (& Taiwanese firms) would need to shift the location of final assembly elsewhere to really move the needle

(13/x)