Stability in the central parity rate (the "fix") for the yuan led to a reduction in visible pressure on the yuan in February and March. Settlement was ever so slightly positive in March.

No data for April obviously

1/x The yuan did depreciate a bit in April (the fix dipped below 7.2) but not by all that much. The small move was likely a bit of a signal to the US, but so far the yuan hasn't central to China's response to this round of tariffs (@marcmakingsense got this right)

2/

China's most reliable proxy for the intervention of the state banking system (together with the PBOC) -- fx settlement -- is out of March. And it suggests that yuan stability "worked"; there were almost no net sales -

1/ The settlement series has been volatile -- large inflows with the carry unwind last fall, large sales in January in anticipation that the yuan might move with Trump -- but it has been very stable the last two months

2/

On one hand, I am pleased to see a few more folks recognize that China doesn't just hold Treasuries ...

On the other hand, the numbers here are WAY off. The TIC data shows current holdings of $200 billion, down from ~ $270b at the end of 2023

1/ The right numbers for China.

~ $700 in LT Treasuries in US custodians
~ $300b in LT Treasuries in non US custodians (mostly Euroclear), obviously an estimate
~ $250b in bills and deposits
~ $200b in Agencies in US custodians
~ $300b in equities ...

2/

Some medical test results need to be interpreted by a trained professional.

China's high frequency cross border data probably should come with the same warning.

The PBOC & state bank data for March is out -- and has a few surprises

1/ The big surprise is that in March, amid the first round of tariffs, the state banks continued to add to their net foreign assets ... net foreign assets topped $1.1 trillion, gross foreign assets are close to $1.3 trillion

2/

Why good balance of payments data matters for policy

the IMF now wants to focus more on global imbalances (a shift from last year, when the external sector report said there was no problem ...)

The reported current account data suggests Europe is the problem not China

1/ Europe's surplus tho is inflated by tax avoidance in subtle ways (being the home to Ireland and Luxembourg) while China's surplus (just over $400b in the reported data) is -- in my view -- wildly understated in the official Chinese data.

2/

imf.org/en/News/Articl…

China's reported growth accelerated at the end of 2024 and in the first quarter of 2025, partially on a bit of stimulus and partially on strong investment in manufacturing and net exports ...

1/

https://twitter.com/PkZweifel/status/1912664828264792552

As the charts of @PkZweifel show, investment in manufacturing is still increasing -- and driving part of the expansion. net exports contributed a crazy 2.5 pp to q4 growth (y/y) in China's official data

2/

The Economist this highlights the dollar's recent drop & the risk of a future fall.

It was striking that they made the argument essentially on fiscal grounds (tax cuts + a desire for easy money spook the bond market). The balance of payments enters only tangentially

1/ External factors weren't entirely ignored, but they weren't the focus either -- even though conceptually a discal crisis is a bit different than a dollar crisis (folks can sell bonds for cash w-o exiting the dollar)

2/

I often highlight large companies that don't pay much (if any) US tax (cough, big Pharma). But there are exceptions to the rule. Nvidia books almost all its income in the US ($77b out of $84b) --

1/ And of the $11b it set aside to pay tax, $9.5b was set aside to pay US corporate income tax -- so it is paying the lion's share of its tax in the US

2/

Data is lagged (end February is multiple tariff escalations ago ...) and it runs against almost all market and geostrategic narratives, but it sure looks like China added to its visible US portfolio in February.

1/ The portfolio does look to be positioned "defensively" -- with a large portion in cash equivalents/ bills

2/

Nice chart from my (former) Treasury colleague Anna Wong.

It highlights, umm. a "real" problem --

1/3

https://twitter.com/AnnaEconomist/status/1911862719323533632

Because China's domestic economy is weak (and there is no domestic price pressure) the yuan has depreciated in real terms against the dollar -- and almost everyone outside of Asia (KRW and JPY are also very weak) despite an enormous surplus

2/

As @jeannasmialek highlights in the New York Times, Europe is rightly worried that $500b in Chinese exports to the US ($400b if phones, laptops and game stations are excluded) will need to find another home. But it faces a second problem from China too -- its exports

1/ Europe can (and I think should) try to protect its own market from the "deflection" created by US tariffs -- watch for a host of safeguards cases. But it cannot stop the rest of the world (including China) from buying fewer of its goods ...

2/

A $100 billion (goods) surplus in March, a $275 billion goods surplus for q1 (up from $185 billion last year) and a surplus of nearly $1.1 trillion over the last 4 quarters --
crazy numbers coming out of China

1/ The easy explanation is tariff front running. But I think that is too easy an explanation. China's exports to the US and the EU look identical -- and there is no "reciprocal" tariff threat out of the EU

2/

Lots of (understandable) confusion about Trump's tariff policies.

It reflects, I suspect, a decision to put ALL of the traditional tariff tools in play in the initial executive order (232s, a 301 review, etc) and then to front run that process with 2/3 waves of IEEPA tariffs

https://twitter.com/petereharrell/status/1911517970968592565

The end result reflects -- in addition to outright policy reversals -- a failure to effectively coordinate different policies built around different policy tools.

2/

Would really like to hear a more detailed explanation of how the dollar's reserve currency role explains CURRENT dollar strength. There hasn't been a net bid for reserve managers for the dollar since 2014.

1/ Dollar reserve holdings haven't changed in ten years. "reserve holdings" haven't been the bid for dollars for some time

2/

The impact of the tariffs on imports is clear -- they should contract. The impact of the tariffs on the goods deficit is less clear, as exports will also fall (retaliation, increased cost of imported inputs).

1/ A recession induced by the tax hike in the tariff/ reduced consumer purchasing power plus uncertainly would reduce the trade deficit; using the tariff revenue to fund other tax cuts would tend tho to push the deficit back up ...

2/

The $84 billion deficit that the US has run with Ireland in pharmaceuticals on its own accounts for about 1/3 of the total US bilateral trade deficit with the EU -- pharmaceuticals collectively are about 1/2 the deficit

1/ Indeed, the US bilateral trade balance with Europe over the last 10 years would be flat in nominal terms (at between $120-130b) absent the "EU" pharmaceutical surplus

2/

Interesting point from DB's George Saravelos via @RobinWigg -- rather than hedging dollar bonds (via a swap), some investors are just jumping their dollar bonds ...

1/ Lots of focus on China these days, but Japan writ large (MOF, GPIF, Postbank/ Nochu, commercial banks, lifers) owns more dollar bonds than China ... and it provides a good illustrative example

2/

Rather amazing that some around here criticize me for focusing the goods trade balance (note the chart is of the global goods balance) when I started to focus on global goods trade to offset problems in China's balance of payments data!

1/

https://twitter.com/GlennLuk/status/1909878449260343382

When China changed its balance of payments methodology back in 2022 (with changes phased in over the course of 2021) the global surplus stopped adding up to the global deficit (the surplus shrank v the deficit). See this chart for example --

2/

Lots of rumors (best I can tell without strong supporting evidence) of China selling the 10y (and more implausibly, the 30y). A few observations.

1/ China entered Trump's second term with a lot of deposits and bills

thread Data is lagged, but China doesn't need to sell longer dated notes to get liquidity. The state banks also have in the past uses the swaps market to borrow dollars to fund spot sales.

2/

A couple of thoughts:

A) Absent the swaps, alternative sources of dollar liquidity become important - for example the Fed's "FIMA" repo facility that lets central banks borrow dollars v US Treasury collateral

1/

https://twitter.com/RobinWigg/status/1909599248917627033

B) Most Asian central banks whose banks and insurers have large dollar funding/ hedging needs have adequate reserves (Taiwan, Japan), so they can source them internally, from borrowing via repo (with Fed) or from commercial banks

2/

What's more, it is a bit of a myth than tariff differentials and non tariff barriers explain the US trade deficit.

Consider two sectors: pharma and chips

1/

https://twitter.com/TimDuy/status/1909371813504991563

Tariffs globally in both sectors are zero. There are no meaningful differences in tariff rates. And not many non-tariff barriers (FDA approval is needed for the sale of a drug in the US, and many countries piggy back off that ... but no one would say this is unnecessary)

2/