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Brad Setser
@Brad_Setser
, 4 tweets, 2 min read Read on Twitter
Great story from @colbyLsmith and @RobinWigg.

(at least if you are interested in cross border flows)
institutional investors abroad cannot make money buying safe US assets hedged right now (and cannot make money buying assets at home in many cases), so they end up either reaching for yield or buying US assets unhedged ....
Think Taiwan's insurers, for example, have been hedging a bit less, as have (per today's story), some Japanese institutions ...

ft.com/content/a00541…
Apologies for taking down the initial tweet, it had a major type-o so decided to try again
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More from @Brad_Setser see all

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Brad Setser
@Brad_Setser
This was predictable, but it is still disappointing --

China's subsidies (often channeled through SoE investment funds so they aren't WTO violations per se) and its "buy China" preferences in my view create the biggest global distortions.

reuters.com/article/us-usa…
Pattern alas is very familiar -- once you decide that you want a deal with China, you end up negotiating over the areas where China is prepared to give, not over the the areas that you consider most important ... so China ends up shaping the overall agenda.
Has been pretty clear for some time that China was willing to give the US some headline purchases (of ag and energy, which China has to import from someone) and to loosen some of its investment restrictions ... but not to give up its core import substituting industrial policies
Read 3 tweets
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Brad Setser
@Brad_Setser
The Economist (and many others) believe China is heading toward structural current account deficits, and those structural deficits make it safe for China to accelerate the opening of its financial account. I disagree on both counts.

cfr.org/blog/chinas-co…
China's high savings means the underlying structural pressure is toward significant surpluses, absent extraordinarily credit growth and high off budget sheet spending on infrastructure.
China lacks the preconditions - limited implicit guarantees, well capitalized banks, efficient domestic markets -to open its financial account safely right now. And if it did open up quickly, outflows would likely overwhelm inflows, putting the CNY under new pressure.
Read 6 tweets
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Brad Setser
@Brad_Setser
Trade uncertainty is having an impact? Interesting report from @KeithBradsher

"Chief executives say the trade war has prompted a fundamental reassessment of China as the dominant place to make things"

(1/4)
One way to evaluate this argument statistically is to look for an increase in US imports from Mexico relative to US imports from China ...

There is a bit of a gap now (for consumer/ capital goods), but perhaps tariff rather than uncertainty driven (and different base effects)
I took out autos for a reason: U.S. auto and parts imports from China are up quite significantly in 2018. China is beating Mexico there.

As @KeithBradsher has reported, there is a lot of spare capacity in China -- and thus an incentive to export.

(3/4)
Read 4 tweets

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