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
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!
@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
@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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The explanation for Taiwan's exceptionally weak currency (on the big Mac index & pretty much any other indicator) is Taiwan's central bank "as Taiwan has exported its way to prosperity, the CBC has tried to avoid such a fate by suppressing the value of the local currency"
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And China's net auto exports far exceed the 1.3 m cars Germany exported on net in 24 ...
Michael Dunne and others put China's production capacity at ~ 50m cars. EV production capacity by the end of the year should approach 25m cars, so the right answer depends on how much ICE capacity has been retired. Huge v the 25m internal market and 30+ m in current output
The old exportweltmeister has been dethroned -- and its economy is suffering at the hand of the new exportweltmeister (China).
That is the story told by both a new ECB paper and the FT in an excellent new piece
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Put simply, Germany is the most exposed large G-7 economy to the second China shock (Japan has been buffered by an incredibly weak yen).
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The impact of the second China shock is in all the relevant data sets -- & it reflects a clear Chinese policy choice: “As a country, the Chinese have been in the last years much better, more proactive, more consistent in going after the big technologies and conquering them”
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Germany needs to fully wake up (it is happening but too slowly)
China's auto export growth did not slow in October.
825K vehicle exports (an annualized pace of close to 10m), likely over 700K passenger car exports (8.5m annualized). Crazy numbers
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Overall export growth slowed in October, but auto exports were surprisingly strong (2024 forecasts that China's export book was set to fizzle out haven't been born out, export growth actually reaccelerated)
The vehicle surplus now exceeds $100b
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The acceleration in exports is clearest in volume terms, but it shows in dollar terms as well -- and imports are being pushed out of the Chinese market (auto imports are now less than 2% of Chinese domestic sales ... )
The first relatively weak Chinese trade data release in a while -- October is usually down v September, but y/y growth in exports and imports also stalled. If October is a leading indicator for q4, the goods surplus will stabilize at (gulp) around $1.2 trillion
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There is a standard seasonal fall in export in October tied to the mid-autumn festival -- and that dip may be a bit pronounced this October. But y/y volume growth looks close to flat (after a surprisingly strong 11-12% increase in Sept)
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Averaging the monthly data (October is an estimate) would suggest export volumes are growing ~ 5% -- still faster than global trade, but a deceleration from most of 2024 and the first part of 2025
Somehow, the US has ended up with a tariff structure for many goods that doesn't really encourage a shift in production out of China. Quote is from Sean Stein of the US-China Business Council, in a new piece from @AnaSwanson
To be sure, the legacy 25% 301 tariff on lists 1-3 does discourage final assembly of those goods in China -- but the term 2 tariffs haven't added to that penalty ...
The bulk of current US imports from China have a 301 tariff of either 7.5% (many household/ consumer goods) or zero (electronics) and now face a 20% tariff (10 reciprocal, 10 fentanyl) -- which isn't much different from the 19 or 20% tariff on SE Asia.
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