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Trinh

@Trinhnomics

Sep 26, 2019 • 25 tweets • 18 min read • Read on X

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The double Ds - demographic & debt - & how that leads to the triple Ds - DEFLATION.

Ready?

#demographics World population growth rates are expected to slow, w/ contraction in many places (think Europe, East Asia - Japan, China, South Korea, etc).

We will grow at the slowest pace than anytime since 1950. Growth rate peaked in 1965-1970 👈🏻

#demographics Breaking this down into regions - very clear that Asian population peaking & will fall.

Look at Sub-Saharan Africa. Note that this is a projection & we shouldn't take anything beyond 2050 too seriously. The UN revises this very often but still useful for trends.

#demographics Let's look at contribution to population growth by country. Ready?

#1 India 🇮🇳
#2 Nigeria 🇳🇬
#3 Pakistan 🇵🇰
#4 Congo 🇨🇬
#5 Ethiopia 🇪🇹
#6 Tanzania 🇹🇿
#7 Indonesia 🇮🇩
#8 Egypt 🇪🇬
#10 USA 🇺🇸

#demographics Most populous country by rankings from 1999 to 2050 (2100 is a bit far away here). By 2050:

#1 India 🇮🇳
#2 China 🇨🇳
#3 Nigeria 🇳🇬
#4 USA 🇺🇸

China population expected to decline while US still increases. Indonesia drops out of fourth place 😱

#demographics Countries where population will DECLINE by at least 1% b/n 2019 & 2050. Ready?

>-20% decline is full of European countries
>-15% is Japan 🇯🇵 - Japanese people becoming rare
>-5% Russia, Taiwan, Thailand - also becoming rarer
>-2% China 🇨🇳 👈🏻

USA not there !

#demographics This is the mother of all charts b/c economists care about working age population to see if the change of labor will be helpful or a drag to growth. In East Asia, that will FALL SHARPLY.

In South Asia, that will RISE. A complete juxtaposition.

#demographics Once upon a time in 1990, the world was very youthful. Not too many >65-year old around (life expectancy lower). Only the UK & Nordic countries had >15% of population >65.

Today, everyone has aged & made fewer babies & so silvering. By 2050, on Africa is young 👇🏻🌍

#demographics We are not replacing ourselves fast enough in Asia (not South Asia however) & Europe. Why? Not having enough babies. Speaking of which, I was obsessed about Archie the royal baby last night - only 1 though, need 1 more to replace both parents.

Birth below 2 👇🏻👇🏻👇🏻

#demographics We are living longer (80s👵🏻🥳) & expected to live longer - so treat your body well as u have to see it for a while. Anyway, not good news if u work for a pension fund or social security office. Haha.

Oh wells. Long silvering stocks?🤷🏻‍♀️

#demographics People voting with their feet? Net international migration during 2010 to 2020.

Look at the USA 🇺🇸 - off the chart!!! A lot of net + migration (I moved to HK in 2011 so -1). Germany big too.

Who sees net outflows? India & China. Also Venezuela. Biggest is Syria!

#demographics This chart is just so heart-breaking for Russia & Italy & good for the USA & the Americas in general & Australia too!

Okay, so if u got net +inflows of people & net +natural increase (births>deaths) = HOT PINK (e.g., 🇺🇸🦘🇦🇺)

If deaths>births and net outflow = BLUE

@BIS_org

All about #demographics 👇🏻👇🏻👇🏻 - they got statistics too on urbanization etc. Free to download. Have fun!

population.un.org/wpp/Publicatio…

Okay, #debt - the fun stuff! This is the @BIS_org turf. The quarterly bulletin! @HyunSongShin - my fav economist 🤓

bis.org/publ/qtrpdf/r_…

@BIS_org

@BIS_org @HyunSongShin #debt We know that debt is not the issue b/c that is asset on the other side of the balance sheet.

But debt can be debilitating if income can't grow faster than the debt. Economists look at debt as a percentage share of income. At the macro level, % of GDP

Private debt % GDP👇🏻

@BIS_org

@BIS_org @HyunSongShin Let's step back & think about this for a second for those not in finance. Say your annual income = 100. But u don't want to stay at 100, u want to grow to say 200 in 10yrs & so u borrow $ & hopefully invest to upskill & not consume &that ur new skills gets u to say 200 salary. OK

@BIS_org

@BIS_org @HyunSongShin When u take on debt, u make 2 assumptions: a) the investment will payoff in making you more productive (rise in income); b) interest expense + payment sustainable.

So u have a problem if: a) income declines; b) interest expenses rise; c) debt too high & principal payment rise👈🏻

@BIS_org

@BIS_org @HyunSongShin Let's look at the situation & assume that all these economies make 100 per year. In the Euro area, private debt is ~160; Off the chart in Sweden at 240.

In EM Asia, China private sector debt is 210 for 100 income, Korea ~150, Malaysia >120, Thailand ~120

India & Indonesia low

@BIS_org

@BIS_org @HyunSongShin This is what we call the STOCK of private sector debt. When you have a lot of debt & the debt is greater than your current income, 2 other elements are important:

Time horizon to repay the debt & interest expense on the debt (how fast it compounds relative to ur income) 👈🏻👈🏻👈🏻

@BIS_org

@BIS_org @HyunSongShin If the term of debt is SHORT-TERM, u're in a pretty hurry to pay it back, which is basically a lot of China's private sector debt. So u're constantly needing to roll over this debt as it EXCEEDS income.

When this happens, if ur income growth is weakening, u'd want RATES TO FALL

@BIS_org

@BIS_org @HyunSongShin Ur risk appetite to take on debt's contingent upon expectation of higher return or paying this back won't destroy ur future well being (economists call this smoothing consumption as u're rational). If profits fall, rates sticky, expectations of future worse, have a flow issue too

@BIS_org

@BIS_org @HyunSongShin This goes back to @michaelxpettis tweet yesterday on it is not a supply but a demand issue in China. I think it is both. When a system is too leveraged, it only make sense to increase risk if the reward of that risk is big enough as debt payment burden high already.

Debt 👇🏻

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis What's going on with growth? Globally, in places where demographic challenges are massive (Europe, Japan, Korea, China) & debt is high (same group), there is a growth problem. This is esp an issue if a country like the US is less willing than before to be consumer of last resort.

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis So demographic (adverse transition) + debt (debt as a share of GDP>2 times) = Weaker growth.

But do not underestimate central banks' resolve to fight this pull. How? Lowering interest rates. Japan. Europe. Korea. and China too when it has space to do so once it sorts out protein

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis In all scenarios of the World Bank's long-term projection, China growth will decelerate below 6% 👇🏻👇🏻👇🏻

@BIS_org

@BIS_org @HyunSongShin @michaelxpettis Today, the Bank of Korea raised its concern regarding the STOCK of debt Korea has & the deterioration of earnings (exports in double digits contraction) on the repayment ability, although says still OK so far. That said, Korean households debt/disposable income is 159%.

👇🏻👇🏻👇🏻

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More from @Trinhnomics

Trinh

@Trinhnomics

May 29

Trump tariffs. Where are the powers coming from? Well, he has a menu of tariff options. It's the only tax that the president can incur without congress.

For Reciprocal Tariffs, he used the International Emergency Economics Power Act (IEEPA), which has an advantage of SPEED and SCOPE but disadvantage in FOUNDATION or legality.

Why? Well, he declared that the TRADE DEFICIT is the national emergency.

The US Court of International Trade said that he MISUSED the IEEPA, as in the foundation of the "emergency" is not right.

Trump team knew this. They know the laws. They decided for SCOPE and SPEED. What happens next?

Well, they appeal. And eventually, it will be the Supreme Court that will decide. But the foundation of his "emergency" was always being questioned.

Irrespective, for markets, there was already a Trump put, and a clear one. He himself sees these "reciprocal tariffs" as maximalist positions anyway.

Remember that he has other powers to choose from. Section 232 has a STRONGER FOUNDATION but takes a while. You need consultation and etc so it takes time.

The +25% steel & aluminum tariffs for example is from Trump 1.0 and he's just removing exemptions + raising alum from 10% to 25%.

Auto tariff is new.

There is a few others that are being "consulted".

Read 4 tweets

Trinh

@Trinhnomics

May 26

Happy Memorial Day to Americans! And good morning to Asia!

Let's talk about something very topical. Debt. Yes, it has risen. How much debt do we have really? Who owns it? Why is cost of debt an issue?

Can the US solve its debt crisis?

This chart is my fav chart. I show stock of debt & then flow of debt (change since 2019 in orange bubble). Debt matters in terms of who owns it, which sector, etc.

Who is the biggest debt of them all? Well, Japan. It is also the biggest creditor to the world (lending money). Japanese debt is unique in that because of weak private sector, the government has been just expanding like crazy because the households and corporates just sit on savings.

Okay, why is this important? Well, those savings traditionally invested in their own debt (used to be very low yielding on the longer end) and also OTHERS' debt, USA + other emerging markets, also Europeans etc.

The Japanese sovereign yield curve is interesting not just for Japanese lifers, banks & JGB strategists but also for everyone else.

What has happened? Well, per usual they will run fiscal deficit. Nothing new. But the BOJ also owns like 48% of this debt and wants to reduce, but very hard because lifers etc don't want to buy so much more of this supply.

So what happens? The yield curve steepens. What is a yield curve? Well, you can borrow short-term (overnight) or for a long time (30 to 40 year in Japan) at a set rate. Japan has been running very close to zero rate for a long time.

So debt is not an issue if your servicing costs were close to zero.

But the longer, esp the 40-yr is now 3.5%. Yep!
The shorter end, which is policy rate is 0.5%.

This curve is STEEP!

Read 13 tweets

Trinh

@Trinhnomics

May 14

Good morning,

US April inflation came over night softer, and that's no surprise really - we knew that energy, food and service costs were going lower. Everyone said, well, what pain for China if April exports were strong, not to the US of course, but to the world (+8.1%)YoY. The same is said about US CPI. It's actually slower to 2.3%YoY despite a very soft USD & tariffs that started since February.

What does that mean? Why did the the US-China both come to the table to stop the embargo of trade?

Can both of these arguments be true? Of course. First, we must talk about these different balance sheets. They are one and the same. But they interact differently.

CPI is a domestic phenomenon. US inequality/lack of affordable housing/high costs of college/healthcare/etc are DOMESTIC IN NATURE. We call it NON-TRADEABLE. Sure, higher steel & timber make building a house more expensive. Higher appliances also make it expensive. But let's be honest here, the biggest costs of the house is the land & next costs is the regulations and the permits and the actual time and capital erecting it.

California/NYC/Seattle where the jobs are all have regulations that make it very expensive to build. And that has been the case during LOW TARIFF REGIME.

So listen, just think if you live anywhere. When you get a paycheck, where does your money go? Well, if you rent or mortgage, then it's HOUSING.

Next, if you live in the US and send your children out of state or private for education, it's not a rounding error on two middle class incomes.

Of course, another essential - FOOD.
Another one is transport - that includes FUEL + Car (and indirect cost is TIME).

Goods, while you know, nice to have, durable goods you buy once and hopefully last you a decade or two, like a washing machine or a fridge or a microwave.

Toys, definitely like you buy according to age and once & don't repeat and prolly can get used because everyone disposes of this once the child is done.

So when you look at US inflation, the largest weights aren't GOODS or IMPORTED goods for a consumer.

It may be a very big part of a producer that imports intermediates. Say an oil driller that needs steel to build infra to drill or a domestic producer of appliances that need parts that are cheaper to source, say China.

Irrespective, an AVERAGE American person isn't going to feel tariffs. They will feel it via the news, via tiktok, via social media, via the financial markets that have exposure to the higher costs, but they are not feeling it much if they don't have a lot of financial assets.

So the reality is that inflation in the US is GOING DOWN for core goods. Egg inflation is lower after a flu supply shock. US food exporters will sell more domestically if selling abroad faces tariffs. But food isn't the bulk of inflation.

It's the services like housing etc. And they are going down.

Read 9 tweets

Trinh

@Trinhnomics

May 13

Of course - China would say it didn’t care that there was an embargo on Chinese goods by it’s #1 customer but a 1trn surplus country with manufacturing share of GDP key to investment and consumption & indirect sector like services would care.

Why? Factories shut first (impact on China), shortages/empty shelves later (impact on the US & due to front loading much later & most goods are discretionary), & so the pain that China feels from trade war is real while the US is expectations of pain via financial assets movement, which may or may not come.

And the reality is who blinked/caved first doesn’t matter. But anyone who laughed at this & said China can just hunker down & accept massive unemployment of 5 to 8millions is not realizing the importance of jobs, especially manufacturing job.

It anchors the entire economy, including services.

Like people that lose steady paying jobs that pay for pensions etc will not want services like restaurant, movies, haircuts as often, nails, music lessons for kids etc.

Not all services are equal. Services were lost during COVID & never recovered & anyone who has lived in a country with high services & informal jobs know that u cannot steadily gain income on gigs.

U need a steady pay check. At the national level, it is millions & hundreds of millions account compounding to give national savings and investment.

Read 5 tweets

Trinh

@Trinhnomics

May 9

UK-US trade-deal and what does it tell you about Asian trade deals?

The UK got 100k auto for 10% vs 232 25% for autos & that's basically 100% of UK auto exports to the US (exported 104k in 2024)

UK got jet engines & plane parts at 0%, which is also a top export

UK got 0% on steel but the UK is on the verge of closing the last steel plant, which is Chinese owned anyway, so no benefit here but maybe it will help beef up some production.

10% on the rest of exports.

Mutual reduction of tariffs on ethanol + beef (agri win for the US but not so much)

For autos, given the 10% tariff but at 100k quota, which is basically all of UK autos, there is no room for "rerouting" of other autos that won't get tariffed. Meaning, the lower tariff from 25% to 10% but with a quota is an interesting move that sets up for EU trade talks on autos.

Steel - UK not a threat so 0% means maybe UK can beef up product but less competitive than the US as the US is almost self-sufficient w/ steel

Agri - US will need to produce beef that UK standard to export. I suppose that can't be hard

Ethanol is at 0% tariff so a win for US agri. For US soybean producers etc, ethanol is a win but how big is it if its biggest export market, China, is shut?

There are talks that the US will slash tariffs on Chinese goods. But let's remind ourselves this:

The US has 20% tariffs on China from Trump 1.0 to Biden (roughly) + 20% of fentanyl tariff on China + reciprocal that was later escalated to 145%.

If the US lowers 145% to say 50%, you still have close to 100% tariffs on China on most goods and higher levels for say autos.

nypost.com/2025/05/08/bus…

Read 5 tweets

Trinh

@Trinhnomics

May 8

Okay, I want to talk about tariffs a bit because there are a lot of tariffs. On everyone:

1) Steel + aluminium +25%
2) Autos is 25% (and some auto parts except USMCA qualified) - but note that Trump has realized that steel & alum are INTERMEDIATE GOODS and when you tax that then you got a big problem so he's BACKTRACKING on that for the auto sector, as in, they don't get steel & alum on top of auto
3) 10% on everyone ex China on top of above until early July in Asia.
4) China gets embargo level of tariffs or >100% and some >200%.
5) Exemptions for semiconductor, energy, pharma, ICT (phones, laptops etc), commodities.

How bad is this?

Tariffs are a tax on investment so Trump is PUTTING A TAX ON INVESTMENT ABROAD.

Specifically: steel & alum & auto ex USMCA and specifically China.

More to come of course but this is now.

He is starting to understand that when you tax a lot of stuff, especially sectoral, especially intermediates, you are SHORTENING SUPPLY CHAINS AS THIS COMPOUNDS.

A car is made of thousands of parts. Steel is part of it of course. So he has to make exemptions to make sure things don't kill the auto sector that he is trying to rescue/prop up. But supply chains are complicated.

The US used to be almost tariff free. Low single digit of trade-weighted tariff. That means a lot of PING PONG OF TRADE.

As in you can ship intermediates back and forth and have things assembled etc. SUPPLY CHAINS LENGTHENED.

Tariffs SHORTEN SUPPLY CHAINS.

So this complex supply chains that is stretching across US-Canada-Mexico and Asia (ping-ponged across Asia from Japan to Malaysia/Thailand/China) etc is all going to get shortened.

So that is what tariffs will do. Supply chains will be more REGIONALIZED.

No matter what the negotiations will be - US w/ China for example, or US with other Asians or Europeans, the fact is that Trump tariffs are starting at MAXIMALIST positions and will settle at a MORE REASONABLE POSITION BUT STILL VERY HIGH TARIFF REGIME VS BEFORE.

And they will be very TARGETED to shorten supply chains to favor US/Canada/Mexico & maybe key allies in Asia and key allies in Europe.

US trade will China will ultimately be to serve rest of the world or to feed into the above. It will ultimately be cutoff. Because China and the US are strategically decoupling. They are putting a floor on that speed but the speed is towards decoupling.

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