Brad Setser Profile picture
Apr 26, 2023 8 tweets 3 min read Read on X
Despite all the talk about how the world is standing in the way of China's growth, the world (including the US) continues to supply China with one thing it cannot generate domestically -- demand for its manufactures.

China's surplus again topped 10% of its GDP.

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Even with relatively high commodity prices, China's overall trade surplus (in goods) is approaching its pre-global financial crisis peak. As is the surplus in manufacturing.

Even scaled to China's GDP

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And of course in dollars the surplus is WAY bigger than it was prior to the global financial crisis (dollars are an OK proxy for scaling the surplus v the size of its trading partners).

The world still supplies China with a ton of net demand.

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What is striking - at least to me - is how rare it is for China's surplus in manufacturing to shrink. It happened after the global financial crisis & after the '15 commodity crisis + USD/ CNY appreciation. But not after the Trump tariffs/ COVID ... rather the contrary

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Imports of manufactures have also been squeezed out of China's market over time -- I don't know anyone who forecast at the time of China's WTO accession that it would eventually in result in a 5 pp fall in China's manufactured imports v its GDP

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China simply doesn't import many manufactures for its own use (it imports chips for reexport) ...

Net of processing imports, exports are about 14% of GDP and manufactured imports are now under 4% of GDP.

This is true "deglobalization"

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China couldn't run these kinds of surpluses globally without the big US deficit in manufactures -- we don't yet trade with Mars (& I increasingly doubt that Elon is gonna let us start)

China may complain about the chip restrictions, but the US is still helping it grow ...

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But China doesn't just rely on the US to supply it with net demand for its manufactures that it cannot generate internally.

This chart, together with the charts on China's sudden emergence as a net exporter of autos, should prompt a bit of reflection in Europe ...

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More from @Brad_Setser

Apr 5
Interesting article on the impact of using goods only rather than goods and services in the Trump tariff formula -- the thing is that adding in bilateral services data would create its own distortions ...

1/

nytimes.com/interactive/20…
Adding in services basically is an adjustment that helps umm, centers of corporate tax avoidance ... the US runs big services surpluses with the Caymans, Ireland, Singapore and, yes, Switzerland (mentioned in the article)

2/
So it is an adjustment that pushes tax centers (who also happen to be the main sources of supply of imported pharmaceuticals) down the tariff list ...

3/ Image
Read 6 tweets
Apr 4
And we have run large trade deficits for quite some time. Those deficits were expanding in a way that should have generated concern -- both because they signalled a shrinking tradables sector and because of the political reaction to sustained imbalances

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The fall in US manufacturing exports over the last 10 years (after the rise in the dollar) meant a shrinking constituency for open trade in much of the country (& yes, I know there are about 1 pp in offshored profits and 1 pp in net IP exports)

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The IP services surplus and the FDI surplus (all attributable to low tax jurisdictions) is:

a) sliding v US GDP (over last 5-6 years)
b) generates a lot more profits than direct jobs (and yes, indirectly, profits support stocks and consumption)

3/ Image
Read 10 tweets
Apr 3
Some ball park tariff math based on the estimated increase in tariffs from @EtraAlex -- the just pay it cost of today's tariffs are around $500b (1.75% of US GDP), the total Trump 2 tariffs are around $750b (2.6% of US GDP).

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The "just pay it" cost isn't a good estimate of actual revenue -- trade adjusts down, so actual tariff collections are lower. But it is a decent baseline for estimating the short-run shock --

2/
For example, if the elasticity of trade to the tariffs is around 1, US imports would fall from ~ $3.25 trillion to ~ $2.5 trillion (a fall of $750b). That is getting close to a percentage point of WGDP if the US is excluded. Not quite there, but close

3/
Read 10 tweets
Apr 1
Martin Wolf seems to think China's recent export surge has reached its natural limits: "investing even more in manufacturing just guarantees ever more excess capacity and thus protection aimed against the inevitable surges of Chinese exports"

nice chart too ;) Image
Wolf confirms that China seems a real upside in Trump's global trade war --

ft.com/content/80ab4a…
Hard to disagree

"what is happening to the US has clear upsides for their own country [China]. It has dawned on just about everybody by now that Trump’s signature is worthless. A man who is trying to demolish the Canadian economy is not going to be a reliable friend to anybody else"
Read 5 tweets
Mar 31
The Saudi balance of payments for q4 is out, and it confirms that Saudi Arabia ran a current account deficit in 2024 -- and (per my estimates), the balance of payments "breakeven" for Saudi Arabia is around $90 a barrel.

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One implication, of course, is that the Saudis are on track to run a substantial external deficit in 2025 --

(@Rory_Johnston can improve the estimated breakeven with a better net oil exports number for 2024!)

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@Rory_Johnston Spending on imports (broadly defined, includes services) is above where it was back in 2014 -- The various MBS visions didn't come cheap

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Read 9 tweets
Mar 31
I haven't loved those trade offs to be honest --

Say a US firm gets access to Korea's local market to sell insurance. It won't employ Americans to run that business ... the firm's global business benefits, but there is little impact on the US economy

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The classic example is TPP, where the US would have liberalized the US auto market (the 'TPP" content requirement was lower than the "NAFTA" content requirement) in exchange for stronger protection of offshore pharmaceutical IP

2/
That would have raised the offshore profits of US big pharma (i.e. more production and profit in Singapore) but not generated more direct activity in the US as big pharma never liked manufacturing in the US for global sales (and paying US tax)

3/
Read 4 tweets

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