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Brad Setser Profile picture
@Brad_Setser
Oct 28 • 4 tweets • 2 min read • Read on X
Excellent piece by @AnaSwanson on the now expected Trump-Xi trade deal/ truce/ US walk back

Agree with Mr. Czin. The most remarkable thing about the current US trade agenda with China is all the things that aren't on it. I would include currency on that list of course

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The best argument for the limited US agenda is that the US lacks the leverage to get China to fundamentally change, so the best the US can hope for is selling some beans and getting export licenses for rare earths

2/
nytimes.com/2025/10/27/us/…
As the FT notes in a very good leader, China's leaders just doubled down on a manufacturing led growth strategy )"there is no retreat from the manufacturing-led development pursued under the current five-year plan")

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ft.com/content/e61634…
But just as Trump looks to have initially over-estimated his term 2 leverage over China, China risks over-estimating the world's tolerance for ever more unbalanced Chinese trade

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More from @Brad_Setser

Brad Setser Profile picture
Oct 30
China's currency is objectively very weak, especially in inflation adjusted terms (it is down just under 20% from its 2021 high). And it is very tightly managed against the dollar --

But within that broad regime, there has been a tiny bit of appreciation over the last 6ms

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And to be sure, the movement is primarily against the dollar -- the yuan remains incredibly weak against the euro (contributing to the second China shock, China's rising share of the EU auto market & German automotive angst)

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There is something technically very strange about the yuan's appreciation -- it has come even though the onshore spot rate has remained weaker than the daily fix (in theory the mid point of the band). That is strange ...

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Read 10 tweets
Brad Setser Profile picture
Oct 28
China, the unexpected "winner" from Trump's second term trade war?

Bringing the Trump 2 tariff on China down to 20% (10% reciprocal, 10% fentanyl) is a huge win for China; it puts the new tariffs at the same level as the new tariffs on SE Asia

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The new tariffs on China would also only be 5 pp higher than the tariffs on US allies like Japan and Korea (and most European countries) ... massive shift away from the campaign proposal

2/
wsj.com/world/china/tr…
There is a myth that the average tariff on China is now 55%

("it would bring the average tariff on most Chinese imports—currently around 55%—to about 45%. That would put China’s average tariff rate closer to those of other trading partners")

3/
Read 12 tweets
Brad Setser Profile picture
Oct 28
Export driven is a bit poorly specified.

China's growth has been driven by the need to make up for weak internal demand through a rising trade surplus, which is a much bigger concern than the export to GDP ratio

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The unusually large contribution from net exports is undeniable. As is the fact that Chinese export volume growth has been far faster than Chinese GDP growth and world trade growth in recent years

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As this chart shows, China's exports have been rising v its GDP over the last 5 years (a change from the 10s) ...

While imports of manufactures continue to fall v GDP, hence the sharp rise in China's trade surplus v its GDP

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Read 5 tweets
Brad Setser Profile picture
Oct 27
Milei has done far better than expected at the polls.

Many thought that Argentina's recent financial turmoil was largely a function of electoral uncertainty. That now has passed.

I alas have long thought that the contradictions in Milei's program were more fundamental

1/
The basic issue, as I saw, it was that Milei and his team wanted a stronger peso (to help contain inflation) than Argentina's economy could sustain -- hence the pressure on Argentina's fx reserves over the course of this year, and the widening current account deficit

2/
There will be temptation among Argentina's policy makers to now think that the market will reward them for their electoral success, and market inflows (+ the expected continued support of the US) will support an organically strong peso

3/
Read 10 tweets
Brad Setser Profile picture
Oct 24
Unfortunate that Trump started his second term determined to fight trade wars with most of the world.

China's export boom (and its lack of imports) have created the material conditions for a coalition that is directed at forcing some policy shifts in China

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Folks usually think of trade as a two way street: I buy from you, you buy from me ... but it isn't clear what, if anything, Xi's China wants to import over time (other than maybe some commodities).

& Xi has made a mint by exporting over the last 5ys

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And no one is doing well selling into China. The IMF WEO data shows zero (slightly negative) import volume growth since the end of 2018, while export volume growth is up 40% ...

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Read 8 tweets
Brad Setser Profile picture
Oct 20
Very useful WSJ report on how China gained control of rare earths processing/ permanent magnet production -- and how it kept control

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The Journal goes through past attempts to revive Mountain Pass/ US rare earths production -- including the now forgotten case of Molycorp from 05 to 14

"Beginning around 2005, China’s government tightened the screws, levying export taxes on rare earths that made it costlier for Western magnet makers to churn out products ... Rare-earth production became so limited in the West that an American company, Molycorp, attempted to revive the Mountain Pass mine and make its own magnets"

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And in 2021 the Biden administration did make an effort to revive interest in US rare earth production as part of a broader supply chain push -- but it foundered when China flooded the market

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Read 6 tweets

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