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Brad Setser Profile picture
@Brad_Setser
Aug 4 • 5 tweets • 2 min read • Read on X
Good summary of the state of Trump's term two tariff offensive, from the FT's Aime Williams and @dimi

1/ Image
The "deals" struck by the deal maker in chief haven't been entirely, well, coherent -- raising tariffs on SE Asia to ~ 20 and some tariffs on Mexico to 25% helped China out, as it reduced the edge of alternative suppliers



2/ ft.com/content/05e524…Image
And the 15% tariff "deals" with Japan, Korea and the EU have put US auto manufacturers at a significant disadvantage, as they face 25% tariffs on parts from Mexico and Canada + enormously inflated steel and aluminum prices from the 50% tariffs

3/
wsj.com/business/autos…
Given that Michigan is an important part of the Trump coalition, a "Japan first" trade policy that punishes Detroit and the UAW doesn't seem sustainable -- but with Trump, who knows ...

4/
ft.com/content/6071e8…
Still a bit surprised that Bessent, a currency guy, didn't make the yen more of a focal point in the negotiations with Japan: the yen is down 25% in nominal terms & more in real terms relative to Trump's first term.

Incentive to keep producing in Japan = clear

5/ Image

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More from @Brad_Setser

Brad Setser Profile picture
Aug 5
One by product of Trump's obsession with bilateral trade deficits is that it has brought attention to the big deficits the US runs with pharmaceutical exporting tax centers ...

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The deficit in pharmaceuticals is now big ($200b, ~ 1/6th the total deficit ...) and 1/2 of that is with Ireland alone ... (hence the bigger bilateral deficit with Ireland than with Germany this year)

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Switzerland and Singapore are also big suppliers of patent protected meds to the US market (Switzerland = mostly EU/ Swiss companies; Singapore is more like Ireland ... Pfizer has a big tax center there )

3/ Image
Read 6 tweets
Brad Setser Profile picture
Aug 5
The June trade data confirms that imports are down a low from the March (gold and pharma front running) peak -- but they aren't down as much in q2 as they were up in q1 ...

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So the goods deficit is still running ahead of its 2024 pace, even without all the pharma craziness ...

(Pharma imports fell $10b in June v May, driving much of the import weakness)

2/ Image
The trailing 3m sum (maps to quarterly data) illustrates the dynamics behind the fall in the deficit. Imports fell back to their mid 2024 levels, but didn't give back the huge inflow of q1. Higher exports reflect gold re-exports, but also an increase in cap goods exports 3/ Image
Read 9 tweets
Brad Setser Profile picture
Aug 4
President Trump often says he admires President Xi.

He now seems to want to emulate President Xi (or at least China) when it comes to massaging economic data.

And it sure seems like China will up, adjust, its q2 external surplus (down)

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The issue, as some already know, is that China changed how it calculates its goods surplus in the middle of the pandemic, moving away from the (reliable, and verifiable from counterparty data) customs data to an "internal" survey ...

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The result wasn't more accurate data. It was a smaller current account surplus & fewer reported capital outflows. & a certain amount of flexibility in the reported surplus. From the monthly BoP data it looks like the q2 current account surplus will be smaller than in q1 3/ Image
Read 12 tweets
Brad Setser Profile picture
Aug 3
I want to push back just a bit on Martin Sandbu here --

When it comes to goods trade, Japan runs a deficit -- and the EU does too if tax inflated pharma is stripped out. The goods surplus is now incredibly concentrated in Asia, and China specifically ...

1/ Image
There are a lot of reasons for the gap between the goods balance and the current account balance. Japan has a huge investment income surplus (why doesn't China tho?) and so on. But the gap here is enormously important ...

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For global goods trade to adjust (as Trump wants, tho he also likes the tariff revenue), Asia surplus (China's specifically) has to come down, some EMs need to join India in running persistent deficits or Europe has to swing into a bigger (non-pharma) deficit!

3/ Image
Read 4 tweets
Brad Setser Profile picture
Aug 1
Trump's new tariff rate lack rhyme or reason (other than rewarding big countries that made an effort to give him a win ... )

But -- as the decision on Brazil showed -- it is always important to know the exclusions as well as the headline rate ...

1/
The 35% tariff rate on Canada is crazy. Nuts. Insane. dumb. Shows a lack of interest in supporting US manufacturing (the US runs a surplus in manufactures with Canada).

But if oil and USMCA compliant trade are exempt, its practical impact will be modest ...

2/
Same with the high tariff on Switzerland. Crazy. Even to my eyes, and I am no fan of Switzerland's coddling of corporate tax avoidance.

But most US imports from Switzerland are pharmaceuticals and gold, and both are exempt from the reciprocal/ IEEPA tariffs

3/
Read 11 tweets
Brad Setser Profile picture
Jul 31
China appears to have changed its intervention rule, and now intervenes (via the state banks) at the mid point of the band, not the strong side of the band ...

A true old school follow-the-money blog

1/
cfr.org/blog/chinas-ne…
Hope others find this chart as helpful as I did -- the yuan has spent very little time on the strong side of the fix (the theoretical mid point in the band) and, more importantly, the proxy for state bank intervention shoots up if spot is close to the fix

2/ Image
The failure of the yuan to stay consistently on the strong side of the fix is sometimes taken as evidence either of a lack of appreciation pressure or as evidence of a lack of (dollar buying) intervention -- but I don't think either is true

3/ Image
Read 6 tweets

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