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19 Oct, 7 tweets, 3 min read
Think the framing on this WSJ story is backwards -- real question is how long can China rely on the (weak) rest of the world to drive its own recovery

Net exports have been supporting Chinese growth in q2 and q3, not the other way around

1/x
wsj.com/articles/china…
China's contribution to global growth is at least in part a function of whether it imports more than it exports.

And right now China is exporting more to the world (i.e. drawing on trading partners demand to support its growth) than it is importing

2/x
The common notion that China's export boom is a function of PPE exports and increased demand for laptops to work from home understates the breadth of China's export recovery ...

3/x
Laptops and PPE drove the initial rebound in China's exports in q2, but in q3 exports were up 5% even excluding the categories that pick up PPE exports (textile and textile products) and laptops (ADPs and parts)

4/x
The story here is not whether or not China will support the global recovery (it isn't right now, and there is no sign it will, apart from helping to meet global demand for PPE). Rather it is how long can China continue to grow rapidly without stronger domestic consumption)

5/x
+ 5% y/y growth when retail sales are down 5% or more (going into q4) and there is no real government policy set to support consumption is a stunning gap --

implies that recovery is coming from exports (i.e. other countries' demand, investment and inventories )

6/x
p.s. while I think the Journal article didn't go far enough in noting that the world is supporting China's recovery right now, the story itself is actually quite good. It does push back against the (lazy) notion China can drive the global recovery

wsj.com/articles/china…

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More from @Brad_Setser

Brad Setser Profile picture
21 Oct
I was not impressed by the IMF's analysis of the global balance of payments in the October WEO.

It clearly gets the world's two biggest national economies wrong.

cfr.org/blog/chinas-su…
The IMF has the U.S. current account deficit falling slightly in 2020 ...

Yet we know the deficit rose by almost 1.5 pp of GDP in the second quarter, and the third quarter looks like the second quarter not the first Image
And the U.S. trade deficit has increased at an incredibly rapid pace in the last few months, and, in dollar terms, is now (more or less) back at its pre-global financial crisis level Image
Read 4 tweets
Brad Setser Profile picture
20 Oct
Even with the unusually strong (and unlikely to be sustained) September rise in imports, the y/y rise in China's manufacturing surplus in the third quarter looks to be around $150b (~1% of China's GDP)

1/x Image
That's in line with biggest (in dollar terms) y/y rises before COVID-19 --

But it is striking because it comes at a time when overall trade is down

2/x Image
I think with hindsight there is a case that China's manufacturing surplus has been on an upswing since 2016 (i.e. after the big CNY depreciation), though the impact of the tariffs masked that upswing in 2019

(and some will argue that 2020 is a one off ...)

3/x
Read 6 tweets
Brad Setser Profile picture
18 Oct
A thread on the euro area's August trade data.

The overall trade surplus (goods only, but the services balance is hugely distorted by Ireland) is almost back to its pre COVID-19 shock levels

That tho misleads, as lower oil imports offset a much lower non-petrol surplus

1/x Image
Excluding oil, overall goods trade hadn't fully recovered in August (Europe here differs from China)

2/x Image
Euro area imports from China have returned to more or less normal (after a huge spike in May, no doubt linked to medical supplies). But China is clearly doing better at selling to Europe than the EA's other trading partners (relative outperformance remains)

3/x Image
Read 6 tweets
Brad Setser Profile picture
14 Oct
I worry that the IMF's agenda this fall is far less ambitious than the current shock demands.

One way of framing this point is that the IMF so far has provided less financing to limit the impact the impact of COVID-19 on the world than it provided to Argentina alone.

1/x
Another way of framing the issue is that the bulk of the IMF's balance sheet is sitting unused -- and there doesn't seem to be much of a plan to bring it to bear to held vulnerable countries finance higher levels of spending in the crisis.

2/x
The IMF has funds to cover the world's maturing sovereign hard currency bonds many times over. There isn't a systemic crisis from hard currency EM debt lurking just over the horizon. So the IMF could do more to help a broader set of countries meet current fiscal needs

3/x
Read 14 tweets
Brad Setser Profile picture
14 Oct
The Taiwan dollar certainly looks like a managed currency -- and the central bank seems to come in toward the close of the trading day more or less all the time.

But the CBC is also making a bid to avoid crossing the Treasury's trip wires ...

reuters.com/article/taiwan…
To be fair, the period of heaviest management (July and August) isn't covered the CBC's disclosure -- and Treasury's fx report *due tomorrow but likely to be postponed * only looks at data through h1
On the other hand the CBC could reinforce its disclosure about its intervention by publishing more detailed data on reserves -- including a backward looking monthly time series on its forwards and ongoing data on its domestic fx deposits ...
Read 5 tweets
Brad Setser Profile picture
14 Oct
As I noted earlier today, Anna Gelpern and I have been the project directors for the Group of Thirty Working Group Report on Sovereign Debt and Financing for Recovery.

The report broadly speaking is a call for the international community to do more

1/x
prweb.com/releases/g30_c…
More to provide financing to low income countries that have been hard hit by the pandemic -- external inflows (from exports, reduced remittances, reduced FDI) to the DSSI countries will likely fall by $150b this year

2/x
The $12-13b from a fully implemented DSSI with full CDB participation wouldn't have offset this shock -- and certainly the $5 to $5.5b in relief actually provided is wildly insufficient. It doesn't even cover the $10b in interest on on commercial and bilateral debt

3/x
Read 15 tweets

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