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

Jul 2
I liked Trump's term one trade policy a lot better than Trump's current trade policy.

Back then, the bulk of the tariff increase was on goods from China.

Now, not so much

1/ Image
Gearing up for the May trade data release

In April, tariff revenue was around $20b, equally split between China and the rest of the world.

During Trump's first term the increase in monthly tariff revenue (to $5/6b) was essentially from tariffs on China going from $1b to $4b

2/ Image
Tariff revenue from countries other than China, for future reference ...

Taiwan so far has gotten off relatively lightly, largely b/c of the semiconductor exclusion from the reciprocal/ base tariffs (expected future 232 sector)

3/ Image
Read 4 tweets
Jun 30
Sure seems like the world woke up to the fact that it was enormously overweight US assets (and thus the dollar) on "Liberation" day.

1/
Foreign demand for US bonds was a bit too strong in 2023 and 2024; it has pushed the dollar up to untenable levels.

But there is a some risk of a real reversal now

2/ Image
Not sure that Trump's comments over the weekend about the future path of US rates (and issuing bills until he installs a compliant Fed chair) will increase global appetite for US bonds

3/ Image
Read 7 tweets
Jun 30
Just a reminder that Saudi Arabia runs a current account deficit these days -- and its break even oil price (for the balance of payments) is around $90 a barrel ...

1/ Image
The latest balance of payments data only runs though q1 -- but the difference between the oil price and Saudi's breakeven implies a much larger deficit in q2 than in the past few quarters

2/ Image
Saudi external asset accumulation over the last 4 quarters has been financed by debt, not out of its oil proceeds

3/ Image
Read 6 tweets
Jun 27
One of the surprises of the first half of the year was that China held the yuan stable even in the face of significant new US tariffs.

China's q1 BoP data helps explain why -- China was in a quite strong underlying position

1/ Image
in the past few quarters, China's reported current account surplus jumped up to $150b a quarter (it is still understated, I think it is really ~ $200b a quarter) and the state banks have added $50-100b a quarter to their foreign assets.

2/ Image
The balance of payments signal from China's state bank flows (plus PBOC flows) isn't as strongly as in 2020 and 2021, but it has been pretty consistent ...

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Read 5 tweets
Jun 26
Not sure the issue will come to a head on July 9th (it is always possible to provide more time for the negotiations) but have long thought that the "232" sectors would be the hardest part of the negotiations with the EU (and other allies)

1/ Image
Pharma frankly should be easy -- as the US trade deficit in pharmaceuticals is made in America, as it stems from a flawed US tax policy. But that isn't how the Trump administration sees it ... and the real negotiations probably cannot start before the US case.

2/
And with autos, the Trump administration's push for a quick deal with the UK set a baseline (10% tariff and tariff rate quota for 2024 export levels) that all the big auto exporters now needs to match ...

3/
Read 6 tweets
Jun 24
It is way too early to write any assessment of the full impact of President Trump's turn toward tariffs as a core tool of US economic policy.

But there is no doubt that immediate impact was ... well ... a much bigger external deficit.

1/ Image
The swing in goods trade tied to tariff front running was bigger than any swing during the pandemic (admittedly, it was very concentrated in pharma and precious metals)

2/ Image
Some of the impact of tariff front running will dissipate with time -- but there are more subtle signs of deterioration in the underlying balance. The investment income balance for example remains in a deficit (a big structural shift that is offsetting the oil swing)

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Read 5 tweets

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