Brad Setser Profile picture
Feb 27, 2024 8 tweets 3 min read Read on X
A chart that illustrates how it is fundamentally impossible for China to construct a block centered around the developing world that replaces the US/ EU ...

there is an obvious problem, namely the size of China's surplus

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Image
Here is the same chart without China -- it looks totally different. That's the point.

Note one other thing: the big deficits are in India and Turkey.

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That is a real problem for a Sinocentric block that aims to replace the US and Europe as a source of end demand. India is absolutely not prepared to run bigger deficits with China -- and Turkey really needs to bring its deficit down.

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India, remember, didn't join China's trade deal (unlike say Japan ... ) and is exceptionally worried that Chinese exports are undermining its own manufacturing sector. Turkey competes with China in the EU market and isn't gonna give up the EU for China ...

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The bigger point of course is that the world cannot really decouple so long as there are enormous surpluses and deficits across different parts of the global economy (and different political blocks)

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This point is I think obvious to @michaelxpettis, me/ & others who think about "global" demand and supply imbalances. But it is not at all intuitive to the world of trade and commercial diplomacy -- and to my surprise no longer obvious to the "it's all fiscal" IMF! Image
@michaelxpettis ps i think the goods data tells the story more cleanly/ with fewer distortions than the broader data showing the current account (note I don't trust the Chinese current account number & current account data is more distorted by tax). But the CA numbers say the same thing Image
@littlebigfis and BoP based thinking is a lost art -- sadly, even at the IMF, where the norm is now "it is all fiscal" ...

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More from @Brad_Setser

Dec 1
One feature of today's global economy: the incredible concentration of the global goods surplus in East Asia (using customs data). Way more so than in Trump one

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Implicit in the chart is the observation that the rest of oil-importing East Asia has maintained its goods surplus even as China's surplus has soared (helped by demand for Korean and Taiwanese chips)

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There is another point here -- one relevant for both @imfnews and France as they think about global trace and macro imbalances -- the current account surplus of East Asia ex China far exceeds their customs goods surplus ....

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Read 10 tweets
Nov 28
I will disagree with Scott on this -- there shouldn't be any debate about whether a stronger CNY is doable ...

Right now the CNY basically follows the fix; a stronger fix = a stronger yuan

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FX settlement data clearly shows appreciation pressure (with intervention at the fix not at the strong side of the band)

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The large increase in the foreign assets of the SCBs is also a sign of the direction of pressure

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Read 9 tweets
Nov 24
I am (obviously) a part of the "East Coast" think tank establishment Mr. Balding criticizes, & also served in the Biden Administration. But I would encourage Mr. Balding to read some of the work that I and my colleagues have done, as he paints with far too broad a brush

1/
I would be the first to say that not enough was/ is being done on active pharmaceutical ingredients. But inside and outside of government I advocated for the 301 tariffs to be extended to rare earths/ magnets ... which was in the end done as part of the 301 review

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So if Mr. Balding's standard is forward progress, a bit was done there (tho not enough)

3/
Read 7 tweets
Nov 20
The Treasury International Capital Data for September is now out -- China's Treasury holdings were constant during the data that was missed during the shutdown. Japan is up. UK and France are down a bit -- with a rise in the smaller EU custodial centers

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The runup in foreign holdings of Treasuries has all been "private" -- tho note that funds that China holds in private custodians in Europe register as private, so the split is imprecise

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The Treasuries that China holds in US custodians is clearly on a structural decline -- so estimating China's true holdings requires making a guess about China's holdings in custodians outside the US/ funds handed over to private managers

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Read 11 tweets
Nov 20
Crazy current account numbers for Taiwan in q3 -- a 20% quarterly surplus, and q4 looks like it will be bigger. That pushed the trailing 4q surplus up to 16% of GDP -- a record.

(and yet the TWD is weak, after hefty intervention in q3 changed the BoP dynamics)

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Taiwan's soaring surplus though hasn't translated into soaring demand for bonds in the last 4 quarters -- bond purchases picked up in q3, but no longer are on the scale needed to match the huge current account surplus

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That's true on a cumulative basis as well

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Read 7 tweets
Nov 18
A big new report from @AidData sheds insight into one of the mysteries of global capital flows, namely how does China's large/ growing current account surplus fund the US external deficit. The answer, in part, is lending by the state banks

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The disaggregated data shows that China isn't just funding publicly guaranteed infrastructure projects in frontier economies/ Africa. Its state banks also do a lot of lending to "private" firms, including loans that back Chinese firms going out

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That includes funding a lot of China's strategic acquisitions -- Kuka in Germany, Nexperia in the Netherlands, Nexperia's (subsequently reversed) purchase of a chip wafer facility in the UK, etc



3/ nytimes.com/2025/11/18/bus…Image
Read 11 tweets

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