1/10
There will be a rush to declare yesterday's trade agreement a total success or an abject failure, but its main consequence will be to partially reopen the trade conduits without changing underlying dynamics much.
caixinglobal.com/2025-05-12/chi…
There will be a rush to declare yesterday's trade agreement a total success or an abject failure, but its main consequence will be to partially reopen the trade conduits without changing underlying dynamics much.
caixinglobal.com/2025-05-12/chi…
2/10
The fact is that as long as China is unable to substantially raise the consumption share of GDP, reluctant to raise the investment share, and continues to pour support into production, it will have to continue running massive trade surpluses.
The fact is that as long as China is unable to substantially raise the consumption share of GDP, reluctant to raise the investment share, and continues to pour support into production, it will have to continue running massive trade surpluses.
3/10
Bloomberg reports that as part of yesterday's deal, China may have agreed to remove non-tariff barriers to US imports, but while these reductions may benefit specific US imports, it is China's internal imbalance that is driving down import growth, not import restrictions.
Bloomberg reports that as part of yesterday's deal, China may have agreed to remove non-tariff barriers to US imports, but while these reductions may benefit specific US imports, it is China's internal imbalance that is driving down import growth, not import restrictions.
4/10
Removing import restrictions on specific US-produced goods may increase Chinese imports of those goods, in other words, but it will have little impact on the overall Chinese trade imbalance, which is driven by the gap between Chinese savings and Chinese investment.
Removing import restrictions on specific US-produced goods may increase Chinese imports of those goods, in other words, but it will have little impact on the overall Chinese trade imbalance, which is driven by the gap between Chinese savings and Chinese investment.
5/10
What is more, as long as the US continues to accommodate global trade surpluses through its capital account, the US-China trade deal is also unlikely to have much impact on the US trade deficit.
What is more, as long as the US continues to accommodate global trade surpluses through its capital account, the US-China trade deal is also unlikely to have much impact on the US trade deficit.
6/10
What we are likely to see is continued pressure on the Chinese economy to maintain its trade surpluses. This is because government supply-side support remains as strong as ever, and consumption, which may jump temporarily from time to time as...
What we are likely to see is continued pressure on the Chinese economy to maintain its trade surpluses. This is because government supply-side support remains as strong as ever, and consumption, which may jump temporarily from time to time as...
7/10
the result of short-term fiscal support, is still extremely weak. But as long as China produces more than it is willing or able to consume or invest, it must continue to resolve the imbalance with large trade surpluses.
the result of short-term fiscal support, is still extremely weak. But as long as China produces more than it is willing or able to consume or invest, it must continue to resolve the imbalance with large trade surpluses.
8/10
And as long as the US continues to accommodate global surpluses through its capital account, high Chinese trade surpluses must be matched with high US trade deficits, even if the bilateral imbalances between the US and China decline.
And as long as the US continues to accommodate global surpluses through its capital account, high Chinese trade surpluses must be matched with high US trade deficits, even if the bilateral imbalances between the US and China decline.
9/10
As always, the "buffer" is likely to be Europe. If the recent weakening of the US dollar relative to the euro represents a permanent shift in the direction of capital flows from the US to Europe (and I am skeptical that this is the case), Chinese trade surpluses may...
As always, the "buffer" is likely to be Europe. If the recent weakening of the US dollar relative to the euro represents a permanent shift in the direction of capital flows from the US to Europe (and I am skeptical that this is the case), Chinese trade surpluses may...
10/10
increasingly be accommodated by Europe rather than the US, but of course it is far too early to say. Either way, the great global imbalances haven't really been resolved, and while the recent agreement may represent a truce, I expect trade tensions to continue to get worse.
increasingly be accommodated by Europe rather than the US, but of course it is far too early to say. Either way, the great global imbalances haven't really been resolved, and while the recent agreement may represent a truce, I expect trade tensions to continue to get worse.
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