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Trinh

@Trinhnomics

Aug 8, 2019 • 28 tweets • 9 min read • Read on X

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Good morning🌞- another hot & hazy Thursday in 🇭🇰. After a Trump Tweet meets a weaker Yuan fix, Asian central banks didn't stand by & slashed🔪rates (RBNZ -50bps, RBI-35bps, BOT-25bps). Today, we got the BSP & expect a 25bps cut w/ a RRR cut to add extra liquidity.

#CurrencyWar

https://twitter.com/Trinhnomics/status/1158881235776593922?s=20

China July trade data is out & expectations of a sharper contraction of imports & exports weak.

Note this: China using the current account as a 1st line of defense is boosting its trade surplus via REDUCTION OF IMPORTS & that is bad news for traders 👇🏻.

https://twitter.com/Trinhnomics/status/1158881235776593922?s=20

Trade relationship between the US and China & the amounts w/ tariffs so far (45bn left to retaliate) & the amount not yet by the US on China (300bn left) 👇🏻. Notice the asymmetric relationship & also the last tranche mostly consumer & capital goods so Trump'll tread gently.

Another way to look at it & decomposed by manufacturing & non. Notice the massive manufacturing bias for China vs the US & also remember that manufacturing PMIs for China are still contracting. Escalated tensions likely to impact China July export figures in USD.

Because China has only 45bn left to retaliate (it knows this). And because its retaliation so far trails the US imposition of tariffs (110bn vs 250bn) & b/c the relationship is asymmetric, it is using the CURRENT ACCOUNT AS A LINE OF DEFENSE.

What does that mean? IMPORTS DOWN👇🏻

Why imports? Let's go back to this concept of a J-curve. The idea is that if you DEPRECIATE your currency (the yuan) then, depending on elasticity of demand, your weaker currency should help w/ pricing power.

But that theory ignores one fact - MOST GLOBAL TRADE INVOICED IN USD👇🏻

China's use of the RMB for trade invoicing PEAKED in Q1 2015, roughly ~65 of total merchandise trade. And do u remember what happened in August 2015? Yes, depreciation of RMB vs USD. Since then, usage of USD trade invoicing has risen to ~85-90%. This's important & pay attention.

Let's pretend u are a manufacturer in Guangdong. Ready?
Costs are: Fixed & variable & in CNY. May import some inputs for production but China uses mostly domestic goods except commodities (Trump's beef is that as China expands it export market globally, it imports less from RoW).

Price in USD to ur foreign customers.
Scenario1: CNY depreciates by 10% & tariffs go up say 10%.
Costs in CNY goes up by less b/c ur import content not so high but there is upward costs to fixed costs such as rent etc by 5%. Translates this into USD & costs of production cheaper

BUT, don't forget that u gain 10% in FX since last yr, but ur inputs in CNY don't stay constant & they go up say 5% so ur net is only up 5% & so in USD ur costs of production goes down by 5%. But tariffs are up 10% on the USD prices. To be competitive u have to discount in USD!

Tariffs are paid by importers (Americans & they are ur BIGGEST CUSTOMER 16-20% of market). But the importers VIEW UR PRODUCTS AS 10% more expensive vs. the others if prices same as last year in USD. Input costs lower but output has to be DISCOUNTED EVEN MORE & margin squeezed!

So the way Chinese manufacturers cope is by DISCOUNTING THEIR PRICES IN USD & passing on the SAVINGS to their American customers (this is why you don't see PCE in the US going higher). In the process, the margin they make on these products are LOWER despite savings in input costs

The DEPRECIATION OF THE CNY is helpful to lower INPUT COSTS & that means that if there weren't any tariffs, a Chinese exporter can get a boost if there aren't any tariff & may choose to either pass on the savings to be competitive or not but the savings less than FX depreciation.

This is why the Chinese government wants to expand usage of RMB in trade invoicing. But the fact is that MOST TRADE IS INVOICED IN USD. And that has implications in the PASS-THROUGH OF FX to the economy. Note that I haven't even touched trade financing, which is also in USD.

What is the macroeconomic implication of the dominance of the USD in trade-invoicing in China? The PASS-THROUGH OF FX IS THROUGH IMPORTS.

A 10% weaker CNY (not to mention a multitude of tax incentives passed recently to help w/ domestic market) means LESS IMPORT FROM WORLD.

You will see this today for the July figure & we already know that from the year-to-date figure of sharper contraction of imports (exports not doing great but domestic producers being helped by less competition).

Something else - the RMB REER is much lower than in 2015. So?

What is a REER? It is a summation of a trade-weighted FX (so say CNYUSD, CNYEUR, CNYKRW, etc) that is deflated by relative CPI. FX strategists/economists use this as a more comprehensive valuation of FX as USD just shows vs USD not other partners.

USD/CNY shows USD appreciating

Are you ready? This is the implication of China sheltering its economy through the current account (imports down): Asian exports are DOWN, especially key traders like South Korea.

Why are they down? Because South Korea depends on China for demand & that market is SHRINKING👇🏻

So the FX policy implication of this, and this is OLD NEWS, is that the Won can't appreciate against the YUAN (I wrote a report on this in 2016) & why you see the KRW DEPRECIATING MORE THAN THE CNY.

Why? Because it can't stand idly by & just watch its external market shrinking.

The mid-rate fix is 7.0039 today (lowest since 2008) & that means max it can weaken onshore is 7.143 (+2% & -2%). Okay, what do you think the trade figure will be? My guess is NOT PRETTY & watch the IMPORTS.

#CurrencyWar

The winner of Japan-Korea tensions, US-China tensions, weak domestic demand thanks to Moonomics & high household debt & low fiscal stimulus, weak global growth, China sheltering its domestic market using the current account as a 1st line of defense (fiscal + FX) is:

BOND🙇🏻‍♀️🥇💪🏻💪🏻

China July exports +3.3% vs expectations of -1% from -1.3% in June & IMPORTS CONTRACTED -5.6%YoY in USD.

Yes, trade surplus ballooning on weaker imports. With the CNY weaker, don't expect import demand to rise.

My guess is a lot of front-loading before the remainder of the tariffs go up (+300bn tariffs 1 September) & that is a key driver of the higher surplus with the US.

Front-loading will be even more intense in August, before the 1 September deadline of 10% of 300bn goods.

Details of China contraction of imports (-5.6%YoY) by destination:
USA -19.1% 🥶
Canada -23.6%🥶
Japan -13%🥶
South Korea -20.1%🥶
Singapore -2.9%🥶
EU -3.3%🥶
UK -22.4%🥶
Germany -7.5%🥶

Hong Kong up +19.9%

Details of China EXPANSION of exports (+3.3%YoY):
USA -6.5% (down but not as much as imports by China of American products)
Canada +6.5% (note that Chinese demand of Canadian is DOWN)
Japan -4.1%
South Korea +9.3%
Taiwan +19.9%
Singapore +11.6%
EU+6.5%
UK +9.1%
Germany +5.8%

Putting this together:
a) China exports to the USA contracts but by less than US exports to China as Chinese exporters likely discounted products (thanks to a weaker CNY) to offset tariffs
b) China exports to RoW rise as a weaker CNY helps w/ input costs
c) China IMPORTS CONTRACT

The big story of the year is:

China using the current account as a first line of defense & that story is especially more salient as the CNY weakness quickens. This has global implication b/c the stabilization of China comes at a great costs to exporters (less Chinese demand)👆🏻

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More from @Trinhnomics

Trinh

@Trinhnomics

Jan 7

Good morning,

I'm reading the RBI December bulletin, which has basically the best analysis on India. What's interesting is that while India recorded record high growth (+8.2%YoY), nominal GDP slowed massively to 8.7%. If we look at the recent high frequency indicators, they are not good. GST revenue is slowing sharply, electricity demand is negative, and petro consumption also very soft.

What that means is that we got rather weak nominal outcome of growth irrespective of strong real GDP growth. And that matters because it impacts government revenue, earnings and of course income.

The INR has been fretting this reality as export sags and thus exporters are not in a hurry to sell USD. Meanwhile, foreign investors are looking at the expected depreciation of INR vs USD while other FX appreciates and that means that while real yield in India is attractive, its return in EUR for example was negative last year for European investors.

So what's next?

Btw, if you want to see some positive demand indicator, you will find it in autos/two wheelers. GST reduction has boosted auto sales. But that is not all.

If you zoom out, India auto sales are one of the few bright spots in Asia for auto sales (China also high but given lower prices, profits sag).

Indian employment overall is weak (high informality) but the trend is positive. The one indicator I find interesting is this MGNREGA work demand, which falls sharply, which should be read as positive because it's basically a rural program that gives out meager pay for random rural projects.

Overall, what's key here is that consumption of autos is up (suggesting that some people are better off and buying more autos) and people are not desperate enough to want rural random payout by the government so India is clearly growing.

But on an aggregate nominal basis, the GST revenue is most telling because it means that weak GST means government will need to increase FINANCING volume, which means more borrowing, and so this growth of auto consumption has costs to the government.

Finally, while weak electricity and petro demand is blamed on earlier onset on winter, I reckon industrial production may be slowing...

Read 8 tweets

Trinh

@Trinhnomics

Jan 6

Good afternoon,

Have you read Trump's team National Security Strategy or Donroe Doctrine?

Shall we read together? It has four sections.whitehouse.gov/wp-content/upl…

First section is easy if you read the Miran paper. Basically it talks about where America went wrong, as in miscalculated ability to shoulder global burdens that divorces from Americans' national interest.

Where did they go wrong? First, massive welfare state, huge military, intel, aid complex. Second, misguided idea on globalism and free trade that hollowed out the middle class. And a lot of US institutions don't support national interests but transnational interests that undermine sovereignty.

Second section is where President Trump comes in for a much-needed correction. To get there, they ask the question of what SHOULD the US want.

Basic answer is obvs survival of the state as an independent republic and the rights of citizens & protect them from military attack, foreign influence, predatory trade pratices, drugs, etc.

Want to tighten legal and illegal borders.

Build infra to protect from natural disasters and foreign threats.

Train, equip, field world's best military to advance interests.

Nuclear deterrence (Gold Dome?).

World best strongest, dynamic most advanced economy. Broad-based security.

Want an industrial base, energy sector, soft power on top of hard power, and American spiritual and cultural health (traditional families).

Read 13 tweets

Trinh

@Trinhnomics

Oct 24, 2025

https://x.com/Trinhnomics/status/1981537465157538079

"The new approach is rooted in a core belief in Beijing: that Trump is fundamentally transactional, not ideological. Policymakers believe they can use Trump’s zest for a deal to neutralize the China hawks in his administration."

But Trump is a trade hawk. He has had the same view since the 1980s no matter what the "experts" have said. He is ideological in this point of view. He sees manufacturing as key to economic strength, the same as Xi actually.

https://x.com/Trinhnomics/status/1981537465157538079

Interesting to look at Xi and Trump meeting to compare Stalin and Franklin Roosevelt meeting at Yalta. Stalin had UK spies telling him all about the "red lines" for the UK and the US. So he came to the meeting totally prepared. Stalin was willing to give the US the "red lines" but in return, he took everything else, including territories in Japan, a foothold into Asia via China, and finally Eastern Europe, including Poland, where Churchill was busy drinking and talking too much to achieve much. This paved ways for Mao and the Communists to emerge in China. And the rest is history.

So does Trump have "red lines" that Xi know? If so, to get that, what would Xi ask in return? Interesting to see this playing out. Irrespective, we are entering strategic decoupling at great speed deal or no deal.

Another interesting fact to compare Franklin vs Stalin meeting was to look at Xi vs Trump's background. Trump came from wealth and has pretty had a pretty cushy life vs Xi whose father was part of the founding members of the communist party but was purged from the CCP and sent to work in factory. Xi essentially suffered as a child and teenager and grew up in China's tough decades.

Meanwhile, Trump grew up when the US dominated the world & still does but going through a tough transition. And so they both see the past and future in a different lenses.

Still, I think to think that Trump is only transactional and not ideological is not entirely true. He fundamentally believe in manufacturing and strategic autonomy and sees the US globalist agenda as a threat to national security, especially dependency on China for US defense supply chain. Lighthizer in the latest FT lunch interview also commented the same.

Read 4 tweets

Trinh

@Trinhnomics

Oct 15, 2025

https://twitter.com/stevehou0/status/1978379197115519049

Good question. Let me just answer this with below tables.

First, whatever China lost in market share in exports to the US, Vietnam has gained. The best example is in mobile phones.

Now, is it REROUTING? As in just Chinese phones that are then trans-shipped to the US?

https://twitter.com/stevehou0/status/1978379197115519049

First, we have to realize that Vietnam went through two stages of FDI.

The first stage is driven by NORTH ASIANS that are basically fed up with geopolitical tensions and too much competition from China (think Japan in 2010 w/ rare earth and South Korea with THAAD but even before) and so what do they do?

They MOVE their production base slowly out of China into where? Well, for South Korea, it was Vietnam.

Samsung Electronics moved into Vietnam in the early 2000s to the point now more than 50% of their stuff is exported out of Vietnam. But not only. Many other Korean stuff.

Also Japanese etc. So what you see in the telecom here is not CHINESE PHONES but KOREAN PHONES.

The second wave of course is Chinese outward FDI themselves and also increasingly EUROPEANS.

Anyway, let's talk about phones.

For phones, the key thing I want to show here is that while Vietnam exports have grown a lot, over time, the IMPORTS of that have DECLINED.

And they have declined everywhere. People that look at China all day long think Vietnam only trades with China.

No, Vietnam is a relatively big trader for its small economic size so it TRADES WITH MANY ECONOMIES, the US and also South Korea etc.

Long story short here is that Vietnam is importing less of inputs while exporting more and that tells you that overtime supply chains are DEEPENING THERE FOR THAT ITEM. And it's not transhipment.

But what's RISING in imports FROM EVERYONE? WELL, capital intensive stuff. Vietnam is importing a lot of machinery etc from EVERYWHERE.

Note that it imports a lot from South Korea and Japan, Taiwan etc as well as China.

Read 6 tweets

Trinh

@Trinhnomics

Oct 15, 2025

Did you know that Vietnam's Q3 GDP grew 8.2%YoY and Q2 was 8%? It is one of the few countries in Asia where manufacturing share of GDP is rising even as Chinese imports flood the market. Why?

“In contrast to other countries that are stuck in political paralysis, Vietnam has moved very swiftly to secure lower tariffs and reform its economy to increase productivity and competitiveness,” @Trinhnomics , a senior economist at Natixis SA, said. “This has allowed Vietnam to emerge as a winner under Trump 2.0 despite high tariffs because it’s favored as a foreign direct investment destination for those wanting to diversify away from worsening US-China tensions.”

bloomberg.com/news/articles/…

Look at manufacturing across Asia and what do you see? Its down for India, Malaysia, the Philippines, Thailand, Indonesia.

But not Vietnam. It's up. The fact of the matter is Vietnam faces a widening trade deficit with China but at the same time it has turned that into an overall trade surplus, which means that Vietnam value add has risen over time.

And you can see it clearly in its manufacturing share of GDP or global market share. Has been slowly steady climb.

This year, in 2025 manufacturing output surged 9.92% in the first nine months of 2025 from a year earlier, with around 77% of companies surveyed by the National Statistics Office saying export orders were higher or at the same level, a sign that US buyers are shrugging off the tariff hit for now.

What is Vietnam doing right? Well, first, the most important thing is that it wants manufacturing above all else. Vietnamese people need formal jobs and by prioritizing that, Vietnam is now focusing on the next leg of development, which is how to ADD MORE VALUE.

Blink and you will miss the biggest reform story of Asia. Vietnam literally redrew its map & made one of the biggest structural reforms in decades.

Read 4 tweets

Trinh

@Trinhnomics

Oct 13, 2025

Rare earth is in the news again. Of course it is not rare, just that you gotta dig deep and then obvs process it. That entire process is polluting, costly and the output itself doesn't yield a lot.

That's how China has captured the market. It's willing to do polluting working and basically sells more not a lot. But having cornered that market, it also sees it as leverage, which it has used since 2010 (with Japan). The weaponization of supply chain is what we call it.

The free market economics of it makes sense for people to just leave it to China to do rare earth & then focus on the more market profitable business. Until, well, dun, dun dun.

So how should a firm or government view rare earth? Should you go and pay HIGHER price than what the Chinese rare earths are going for to then secure resilience of supply chain?

Most say, well, "Nah." That is a costly move because well, others will outcompete you with cheaper Chinese inputs while you go dig and refine your rare-earth magnets. Not an economically worthwhile endeavor.

But not everyone has taken that decision. Here is a story of a company that didn't: General Motors.

Here I summarize the great reporting of the WSJ Jon Emont and Christopher Otts.

As you know, we have known this issue for a long time & Japan knew about it since 2010. So the Japanese usually have about 1 year of this stockpile, just in case. Not the Americans.

The car industry is pretty dependent on rare-earth magnets. GM decided that Covid shocks, which left it with semiconductor shortage, that it should secure non-Chinese rare earth magnets.

This sort of decision takes years to bear fruit so it is one with risks. Why? Well, your competitors can buy cheaper Chinese rare earth while you are trying to get more expensive non-Chinese.

wsj.com/business/autos…

Read 7 tweets

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