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Brad Setser Profile picture
@Brad_Setser
Jun 26 • 6 tweets • 2 min read • Read on X
Scrolly
I gather that in the eyes of some of the leader writers at the Economist the collapse of German exports to China (down a pp of German GDP led by autos) doesn't have anything to do with today's announced layoffs at VW ...

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It is quite clear in the data that Europe's auto exports to China tanked over the course of 2024 and 2025, and imports from China soared in 25 ...

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and that, combined with competition with China in third party markets across a range of manufactured goods, is an important reason why euro area export growth has stalled

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Chinese global auto exports have soared in nominal terms

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and in real terms

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And autos are part of an enormous outperformance of Chinese exports relative to Chinese imports (in volume terms)

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More from @Brad_Setser

Brad Setser Profile picture
Jun 21
I see that the pre global financial crisis Chinese fears about "Plaza" (meaning a negotiations that results in a coordinated currency appreciation to reduce imbalances and trade tensions) hasn't disappeared ...

Fair enough -- call a deal Shanghai accord ...

1/
The name doesn't really matter. And if China doesn't see value in an agreement that tries to raise the value of all the big Asian currencies together and wants to get points at home for rejecting a "plaza" and instead chooses to appreciate I certainly won't complain

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The notion that China cannot accept any appreciation is absurd. From the end of 2006 to the end of 2011 China's currency appreciated by ~ 20% v the dollar even with a two year pause during the global financial crisis.

3/
Read 25 tweets
Brad Setser Profile picture
Jun 16
As @Aligarciaherrer has already observed, May's data shows ongoing domestic weakness (even increasing domestic weakness) even as China's exports continue to outperform global trade. It is an explosive combination.

1/
The retail sales numbers speak for themselves -- tho there is a goods v services distinction, and the rolloff of some of last year's incentives for durables purchases matters.

The investment numbers also aren't good

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China's property market slump is now 5 years old and there is no sign that it has bottomed ... which it in and of itself remarkable. clearly time to clean up and recap the property developers, painful as that will be. on this I fully agree with the IMF

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Read 8 tweets
Brad Setser Profile picture
Jun 8
Korea's won is incredibly weak (global financial crisis or Korean BoP crisis levels ... ) even though Korea's fundamentals are sound (BoP has a massive surplus, fiscal debt is modest, etc).

Will be interesting to see if the Koreans can mount a defense this week ...

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A bit of background: Korea is experiencing a massive, positive terms of trade shock (chip prices are up so much that it has overwhelmed the rise in price of oil) and Samsung and Hynix are generating massive profits that have pushed the KOPSI way up

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Korea's fiscal position is solid too - not much government debt (thanks to a still stingy system of retirement benefits) and there will be a massive tax windfall from Samsung and Hynix. KRW weakness is all flow driven

3/
ft.com/content/d76e88…
Read 16 tweets
Brad Setser Profile picture
Jun 5
A new blog, on a big topic -- the scale of state driven outflows from China (one might say intervention)

Probably not the easiest read. But hey, I need to prove that BoP based analytics & human intelligence can still compete with the machine god

1/
cfr.org/articles/scali…
For a few months now I have been hearing from folks close to the PBOC that the outflow from the state banks was driven by fx deposit growth, not by backdoor intervention. The blog takes that argument VERY seriously

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One is that onshore fx deposits themselves are a bit funky -- and have been for a long time. They don't move with rate differentials or any other obvious economic variable, so they could be (but I have no smoking gun proof) policy driven

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Read 8 tweets
Brad Setser Profile picture
Jun 2
The argument that China has a comparative advantage at industrial policy is a bit like the argument that the US has a comparative advantage at exporting debt. It is a good line, but even quips need a limiting principle ...

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I am not sure this week's Free Lunch column came up with that limiting principle; the notion that "the west might be better off simply leveraging the benefits of Chinese scale" suggests getting out of China's way across the board

2/
ft.com/content/42fc2e…
But China has -- in Greg Ip's phrase (based on Rhodium's analysis) -- an "industrial policy for everything," which would imply that China is on track (with its comparative advantage at industrial policy) to dominate most industrial sectors

3/
wsj.com/world/china/be…
Read 17 tweets
Brad Setser Profile picture
May 22
Germany's goods and services surplus has collapsed, and its surplus is now down to 2.5% of its GDP -- about half the level of China's far larger economy

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Germany unlike China does report that its accumulated surpluses have generated an investment income surplus -- and China's reported deficit by all accounts (even that of the IMF, which grades China on a very generous curve) makes no sense

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I have criticized Germany for overly restrictive budgeting and excess surpluses in the past -- but fiscal has changed (thanks to the defense budget) and the surplus has fallen substantially ...

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Read 5 tweets

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