Brad Setser Profile picture
Jan 27, 2023 6 tweets 3 min read Read on X
It is a bit hard to believe that any story involving China has been underreported, given China's large role in the global public debate.

But China's transformation into a major auto exporter has been wildly underreported.

(see the hockey stick in exports of finished cars)

1/
China has gone from a large net importer of finished (mostly from the EU, the Japanese firms never thought they could sell in China w/o producing in China) to a net exporter remarkably quickly ...

(China has been a net exporter of auto parts for some time)

2/
The US has long been a net importer of autos (mostly from Japan and Korea, but to a degree from Europe too).

And the EU has long been a net exporter of autos.

China has suddenly become a major global competitor

3/
I suspect that you need a Ph.D in political science -- or perhaps psychology and trade law :) -- to understand why the Commission's main response to a surge in Chinese competition (primarily in EVs) has been to threaten to challenge the US in the WTO ...

4/
I do understand that the IRA discriminates against European EV exports to the US (there aren't very many yet & the EU EV market is also undersupplied & will absorb any lost sales)

But the big swing in global demand for EU autos right now is coming from China, not the US.

5/5
this thread was inspired both by this Bloomberg story, and the EU's current freakout over the IRA (& its long silence over China's obviously discriminatory policies in the EV sector, which have had a much bigger impact on EU auto exports and employment)

bloomberg.com/news/articles/…

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More from @Brad_Setser

Dec 23
It isn't clear that President Xi would share the suggesting in Ling-ling Wei's latest assessment of China's economy that China is flirting with a lost decade -- but that in a sense is the point ...

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Xi looks at China's success in building a world leading EV industry, the emergence of a semiconductor design and manufacturing cluster centered around Huawei and SMIC and China's strength in clean technology manufacturing and sees a success story ...

2/
. @Lingling_Wei and many liberal Chinese economist see an economy that is still stifled by the heavy hand o the state (and the party), and that can neither safely lever up nor grow without levering up and see an economy that has lost its dynamism

3/

?wsj.com/world/china/ch…
Read 15 tweets
Dec 20
I see that President elect Trump's eye has turned to the trade deficit with Europe --

So a reminder that the single most important thing the US could do to bring down the deficit with the EU is to reform the US corporate tax code to end the pro pharma offshoring provisions

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Since the TCJA was passed, US pharma imports have gone to from just over $100b to just under $250b, and imports from the EU in particular have soared ...

(and that is mostly US firms producing in Europe/ especially Ireland) for the US market

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In fact we are currently seeing a big surge in pharma impacts form Ireland, as firms selectively locate the production of new patented protected drugs there (laying the legal basis to avoid paying the 21% US headline rate on their US sales)

3/ Image
Read 7 tweets
Dec 19
My retweet of Ling-Ling Wei's comment that China's economy is actually in a bit of trouble prompted a number of these kinds of comments.

I hadn't realized quite how many people still put faith in the official Chinese numbers.

So some data highlighting signs of weakness

1/
First, I have always placed a lot of stock in the trade data (customs data) because it can be mapped against counterpart data. And that data shows a sharp deceleration in China's domestic economy in 2024. (given the pace of exports, imports should be up ... )

2/ Image
The oil import numbers have been impacted by China's EV revolution. But they are a clean check on import volume data -- and they show an economy that isn't demanding more oil, which often (tho not always) is a sign of weakness (demand is at 2019 levels ... )

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Read 9 tweets
Dec 18
Somewhat less than exorbitant privilege?

The q3 US current account deficit reached 4.2% of US GDP, and, in a milestone of sorts, the US balance on investment income turned negative ...

1/ Image
Now the US still has a bit of privilege -- with a net external debt position of 45% of GDP (depends a bit on bond market valuation) and a negative net equity position, the income balance should be negative ... the world owns more US assets than the US owns global assets

2/
The deterioration of the income balance, somewhat surprisingly, has been driven more by a deterioration in the FDI/ equity balance than by higher net interest payments (those have been stable at ~ -1.3 pp of GDP)

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Read 9 tweets
Dec 17
Documentation that China's 2024 export growth has wildly exceeded global trade growth -- with important consequences for the global economy.

A joint blog with @Mike_Weilandt

1/

cfr.org/blog/chinas-st…
As in the pandemic (and for that matter some periods in 2012 and 2013, and most of the period before the global financial crisis) Chinese export growth is far in excess of global trade growth, and thus the export growth of other large economies

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Seems obvious to me & @Mike_Weilandt that China's export growth has come at Europe's expense --

Not sure though that this is the current conventional wisdom across Europe; opinion in Germany in particular still lags reality

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Read 7 tweets
Dec 16
The proxies for Chinese intervention for November are out -- and they tell a somewhat surprising story.

China didn't have to sell much fx to keep the CNY stable after the election of Donald J. Trump.

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The Chinese state banks were buying fx (limiting appreciation) earlier this fall (during the carry unwind), and they stopped buying in November -- but there is no real evidence of selling (I expected modest sales)

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Settlement (PBOC plus state banks in theory) was slightly positive, forward adjusted settlement was slightly negative, the net foreign asset position of the state banks was flat -- all the indicators lined up ...

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Read 7 tweets

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