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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")

3/
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

4/4 Image

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More from @Brad_Setser

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

1/ Image
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

2/ Image
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% ...

3/ Image
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

1/ Image
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"

2/Image
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

3/ Image
Read 6 tweets
Brad Setser Profile picture
Oct 17
Secretary Bessent has a bit of work to do to convince Americans (and perhaps the market) that the bailout of Argentina (and direct peso purchases):

a) will work
b) is a good idea

1/ Image
My former colleague Mark Sobel

“Were the United States to offer Argentina a longer-term support package to back an unsustainable exchange rate, that would be a major folly and waste of U.S. taxpayer resources"

2/
There is a pretty broad consensus that putting US money into Argentina to backstop the current exchange rate regime (i.e. the peso's current trading band) isn't a good use of taxpayer funds

3/
nytimes.com/2025/10/17/us/…
Read 5 tweets
Brad Setser Profile picture
Oct 15
The US -- not just the Trump Administration -- lost leverage when President Trump over-escalated in April.

The US could not sustain 145% tariffs and more or less had to unilaterally back down. Xi and his team know that

1/ Image
Somehow I have managed to start using the same words as the Trump administration ("testy")

"“I have a great relationship with Xi,” Trump said, before quickly adding: “But sometimes he gets testy.”"

2/
Bloody XXXX

3/
Read 6 tweets
Brad Setser Profile picture
Oct 14
The IMF needs to take a serious look at its methodology for forecasting the current account balance in key countries -- the current approach is yielding somewhat absurd outcomes that forecast real problems (notably China's surplus) away

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The WEO forecast for China's 2025 surplus is 3.3% of GDP (the h1 surplus) so an upward adjustment from the absurd $370b surplus in the ESR. That surplus is forecast to fall to 2.8% of GDP in 26, and then down to 2% of GDP in 2020. No problem here worth global concern ...

2/ Image
The basis for the forecast seems to be Chinese policies that now support domestic demand ..

"China and Germany have recently announced and expanded spending measures to boost domestic demand, which will lower net savings and reduce external surpluses"

3/
Read 13 tweets

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