1/7 Very interesting article. A series of Chinese studies may be discovering something about the high-speed rail system that France had already learned: rather than boost the economies of secondary cities, being connected...
2/7 to the HSR may actually reduce economic activity and encourage a brain drain. Even patent applications in secondary cities have dropped significantly, according to one study, after the city was connected to a high-speed line.
3/7 If this is true, it undermines the claim that even if much of the HSR is not economically viable today, it will generate enough growth in the less economically advanced areas to become viable in the future. The value of HSR is more likely to decline than to increase.
4/7 This reinforces a point I have made many times before, including in the linked essay. The idea that concentrating investment in poorer regions will drive economic convergence is based on a confusion about what drives growth.
5/7 Poorer regions are usually poorer because their social, economic, legal, and cultural institutions prevent businesses and workers from being able to absorb high levels of capital productively.
6/7 In that case more investment only generates sustainable growth when these regions are relatively underinvested, and this doesn't mean relative to more advanced regions but rather relative to their own specific institutional capacity (what I call the Hirschman level).
7/7 Once each region has as much investment as it can productively absorb — and in China most regions reached that point well over a decade ago — more investment doesn't help. What it needs is more institutional reform.
1/4 The point of this thread is not to suggest that investment in HSR, or capital deepening more generally, is economically a bad idea. It is in fact often a very good idea – for example infrastructure investment in China in the 1990s, or in the US today – but we should ...
2/4 understand both the conditions under which it can accelerate economic development and those under which further economic development will not occur without the right institutional reforms, in which case further capital deepening can actually reduce future growth.
3/4 As a corollary, the longer an investment-driven growth model has proven successful, the more politically entrenched it is likely to become – that is certainly what the historical precedents suggest – but in fact the less successful it is likely to be...
4/4 in the future as it closes the gap between actual investment and the amount of investment the region can productively absorb.
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1/14
It is hard to see much systemic thinking in the new round of tariffs, and because trade can only be resolved on a systemic basis, and not on a bilateral basis, this means that they are unlikely to be very helpful.
2/14
Unfortunately it is also very hard to discuss tariffs in a non-hysterical way. They are neither the panacea that the Trump administration supposes they are, nor are they the instrument of Satan, as most American economists truly believe them to be.
3/14
They are simply one of many industrial policy tools designed to tax consumption and subsidize production, and as such can be expansionary under certain circumstances and contractionary under others. In fact other policies can be much more effective.
1/12
Yicai: "China will further strengthen the role of domestic consumption in driving economic growth this year to offset the impact of weaker external demand caused by higher tariffs imposed by the Trump administration, according to... yicaiglobal.com/news/china-to-…
2/12
Shen Kaiyan, of the Shanghai Academy of Social Sciences."
"At the same time, we must recognize that consumption stems from effective demand that is backed by purchasing power," Shen said, adding that in the long run, increasing household income is essential.
3/12
Although I don't think China's trade surplus will contract this year because I don't think the Trump administration has yet figured out how to reduce the US trade deficit, there are literally only three ways China can respond to an external contraction in its trade surplus.
1/10
Paul Krugman is right to say that foreign central bank purchases of US bonds are unlikely to be big enough to drive US trade imbalances, but then he sort of misses the main point, which is that the US economy must... open.substack.com/pub/paulkrugma…
2/10
adjust to net inflows whether or not these inflows are driven by central banks or by other entities. What matters is the extent to which countries that need to acquire foreign assets to balance their surpluses acquire these assets in the US.
3/10
Whether trade surpluses show up mainly in the form of rising central bank reserves, as was the case with China two decades ago, or in the form of rising foreign asset accumulation outside the central bank, as has been the case with China since 2017, makes little difference.
1/8 Reuters: "During Sunday's meeting, the countries' trade ministers agreed to speed up talks on a South Korea-Japan-China free trade agreement deal to promote "regional and global trade", according to a statement released after the meeting." reuters.com/world/china-ja…
2/8 This sounds good on paper, but China and South Korea both depend on trade surpluses to resolve their weak domestic demand, and while Japan has been running small deficits recently, it is unlikely to want them to surge by enough to help resolve the net imbalances.
3/8 In the growing global trade conflict, countries that rely on large manufacturing surpluses to resolve their domestic demand weaknesses are not in very strong bargaining positions. Their very large and very competitive manufacturing sectors are...
1/9 It may be exciting to view the global rise of trade conflict as wholly a Trump-Xi thing, and many do, but in fact the conflict between the US and China is only a small part of the rise of global trade tensions.
2/9 As Joan Robinson argued decades ago, spreading trade conflict is the inevitable consequence of large, beggar-thy-neighbor trade imbalances that externalize the cost of weak domestic demand in trade surplus economies.
This FT article shows what this means in practice.
3/9 "Beijing." it says, "was the subject of 198 trade investigation cases at the WTO in 2024, double its tally the previous year and accounting for nearly half of all disputes lodged at the global trade body, according to research by Peking University economist Lu Feng."
1/20
The views of Maurice Obstfeld (and other American economists) on the relationship between the internal and external accounts of the US are finally starting to evolve.
2/20
From insisting that the the US external account is wholly driven by domestic imbalances, and that the only sustainable way the US can reduce its trade deficit is by reducing the fiscal deficit, he now accepts that the reality is "more nuanced".
3/20
But in getting there he now argues that people like me are wrong to insist that only external factors matter. Of course neither I nor anyone else has ever made that argument. What I've long argued is that the US plays a special role in absorbing global savings imbalances.