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

Jul 6
A bit of work in progress. The net foreign assets of China's state commercial banks doesn't include the net foreign assets of the policy banks. So I converted net "other" in the BoP into a monthly series, and plotted it against net foreign assets.

Good fit

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The gap between the cumulative flows since 2010 in the two series (mostly from 2014 to 2018) implies ~ $1 trillion in net foreign assets in the policy banks, consistent with the work of @AidData

Note this is an upper bound estimate in some ways.

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@AidData Throat clearing: net other is defined as net loans, net deposits and net trade credits, and then I added portfolio debt assets b/c the state banks hold a lot of foreign bonds (including all of the bonds makes it an upper bound estimate)

3/
Read 4 tweets
Jul 3
So much winning --

(By big Pharma)

US imports of pharmaceuticals from the world's low tax jurisdictions have more than tripled since the (Pharma) Tax Cuts and (Irish) Jobs Act was passed ...

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The US trade deficit in pharmaceuticals has gone from $50b to around $200b (close to 0.7 pp of US GDP)

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Imports now top $300b

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Read 5 tweets
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

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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

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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)

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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

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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

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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 ...

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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

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

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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

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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.

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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

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