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Brad Setser
@Brad_Setser
, 6 tweets, 2 min read Read on Twitter
I am not quite sure there the notion that "China is on pace to run a small current account deficit this year " got started.

It could happen will tariff escalation and an oil shock, but it isn't what is "now" in the data!
China's q1 current account surpised on strong side (was close to $60b). q1 is typically the weak point for China's current account surplus as well (lunar new year seasonality). So YTD, China is running a surplus ....

(and surplus in last 4qs of data is $140b)
China's goods surplus remains around $100b a quarter --

and there are at least anecdotal pieces of evidence that China is cracking down on tourism related outflows
To be sure, China could run a deficit this year if:

a) Trump raises tariffs to 25% on all Chinese trade and China responds with a large stimulus
b) oil prices jump (China now is by far the world's biggest importer)

but I don't think China is currently on pace for deficit
quote is from this @colbyLsmith post based on TS Lombard research.

the thing is that I agree with the rest of the piece! there isn't another market that could realistically absorb China's $1 trillion plus in Treasuries ...

ftalphaville.ft.com/2019/06/20/156…
but the notion that "China is now running a current account deficit" has been showing up a lot, it sort of seems to be on verge of becoming conventional wisdom. Even though that isn't what the numbers currently show!
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Brad Setser
@Brad_Setser
this is a relatively straightforward BoP question --

a) there is a bit of capital flight embedded in the current account (the overstated tourism balance)
b) errors and omissions (hot money, flight capital has been roughly equal to the surplus in the basic balance since 14)

1/x
I have written about this in the past, but in the context of explaining why the equilibrium level of intervention by China has fallen (e.g. reserve growth no longer tracks the current account surplus)

(2/x)

cfr.org/blog/why-hasnt…
in the preceding chart I subtracted errors from the basic balance, and compared it to my measure of the buildup of official assets -- the difference is recorded private capital flows (in and out) -- e.g. there was a modest net private inflow in 18

(3/x)
Read 8 tweets
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Brad Setser
@Brad_Setser
President Trump, in his rhetoric, is increasingly defining "currency manipulation" broadly. More or less as any depreciation of the currency of a trading partner that he doesn't like leads to cries of "manipulation."

(1/x)

bloomberg.com/news/articles/…
That in many ways is the opposite of the approach I recommend in my recent policy brief. I would define "manipulation" narrowly, as intervention in the foreign exchange market to maintain a large surplus.

(2/x)

bloomberg.com/news/articles/…
I think manipulation has to be defined narrowly if you want to credibly put a true sanction on manipulation -- and I do. I recommend Bergsten/ Gagnon style counter-intervention.

(3/x)

piie.com/newsroom/press…
Read 9 tweets
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Brad Setser
@Brad_Setser
. @ChadBown has noted that China is cutting tariffs on others a bit even as its retaliatory tariffs on the US rise. That's no doubt true

But I still want to add a couple of points of caution -- largely b/c China remains a relatively closed market

(1/x)
First point of caution -- China's market isn't quite the prize it is often made out to be, at least not for manufacturers. China's final demand is maybe a third that of the US (lots of China's imports are for re-export)

(2/x)
Second caution. China's market for manufactures isn't growing that fast. if you take out imports of semiconductors (mostly for re-export, and China doesn't want to import them long-term) its imports of manufactures have grown more slowly than those of the US since 12
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