Somehow, the US has ended up with a tariff structure for many goods that doesn't really encourage a shift in production out of China. Quote is from Sean Stein of the US-China Business Council, in a new piece from @AnaSwanson To be sure, the legacy 25% 301 tariff on lists 1-3 does discourage final assembly of those goods in China -- but the term 2 tariffs haven't added to that penalty ...

2/

nytimes.com/2025/11/02/bus…

Jason Douglass and Jonathan Cheng in the WSJ -- the Trade War Didn't Change China.

In fact, China's economy is more unbalanced and more reliant on exports for the demand than it was when section 301 case first started

1/ Open trade failed, spectacularly, to liberalize China's political system.

More restricted trade if anything led China to double down on its manufacturing intensive, channel capital to industry model

2/

China's goods and services data on a balance of payments basis is now effectively out for q3 (with the September monthly data) -- and on a balance of payments basis, exports jumped up a bit in q3

1/ The q2 surplus using China's (whacky) BoP methodology was well below the q2 customs surplus -- but the q3 BoP surplus is strong, and up v q2 (while the customs surplus is down)

2/

There needs to be a better consensus number for the tariff on China. The effective tariff rate (Tariff paid/ imports) was 37-38% in July and August. It should fall to under 30% with the recent deal.

1/

https://twitter.com/JChengWSJ/status/1984083492523929881

As @EtraAlex notes, that is still higher than the effective tariff rate on most other countries (India is a bit of an outlier, but there should be a deal) -- the electronics exclusion lowers the effective tariff on SE Asia ...

2/

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

1/ many 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)

2/

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

1/ 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…

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

1/ 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/…

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

1/

https://twitter.com/baoshaoshan/status/1982913155769741566

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

2/

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/

https://twitter.com/Alea_/status/1982605862805066164

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/

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/ 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/

Very useful WSJ report on how China gained control of rare earths processing/ permanent magnet production -- and how it kept control

1/ 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/

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/ 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/

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/ 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/

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

1/ 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/

Building out capacity (including refining capacity) for rare earths/ other critical minerals should indeed by a real priority now, and the risk of weaponization of this this and other supply chains should have been taken more seriously in the past. But it won't be easy

1/

https://twitter.com/TonyNashNerd/status/1977036957109866501

Just as an example of how far the political debate has come -- Bob Lighthizer (no China dove) excluded rare earths and permanent magnets from the 301 tariffs back in 18 and 19 ...

3/

China -- per the excellent reporting on the WSJ/ @Lingling_Wei -- appears to be pursuing a strategy of applying maximum pressure in pursuit of maximum concessions ... full tariff rollback, rollback of export controls, relaxation of nat'l security review on Chinese investment

1/ China though may have miscalculated -- Trump's "Truth" suggested real frustration. Betting on an even bigger (and more publicly visible TACO) has its own risks

2/

https://x.com/RushDoshi/status/1976655818889035923

There are rumors -- based on material reported in the Argentine press -- that suggest the US lifeline to Argentina will be funded using Special Drawing Right certificates, and that the BCRA will on lend some funds to the MoF to do bond buybacks ...

1/ The logic of using the SDRs (The Treasury technically borrows dollars from the Fed using SDR certificates as collateral) is simple: the ESF has $173b of SDRs, and only ~ $23b of dollars ...

2/

Bloomberg buried the lede here

The real story isn't that Kenya is saving ~ 200m in debt service costs by restructuring into CNY --

It is that China has already gotten $1.5 b of the principal on the original railway loan back

1/ It is well known in sovereign debt circles (but not among the foreign policy world) that the amortization structures on Chinese policy bank loans are super steep, and that China has taken big $$$ off the table between 22 and 25 ...

2/

Great reporting from Bloomberg

Argentina's governemtn has two pools of fx assets. The Treasury fx account -- which can be sold "inside" the band agreed with the IMF, and the BCRA's fx. The Treasury account is close to being empty

1/ The Treasury bought ~$2b in fx from the ag exporters when the ag export tax was dropped (irritating US farmers) ... but that pool of funds is about gone. The BCRA also has a bit of cash but that can only be sold at the edge of the band

2/

Bessent: US Treasury wants to support Argentina's strong policies ...

The message seems a bit off. Countries with strong policies don't usually need a second bailout in a year. Argentina already blew through $14b from the IMF

1/

https://twitter.com/SecScottBessent/status/1975299966701871257

Argentina's strong peso policy this has relied on borrowed money (hence the reserve sales) --

and some of the best evidence that the peso is overvalued has come from the big wave of Argentine outbound tourism

2/

batimes.com.ar/news/amp/econo…

Japan has attracted a bit of attention after the LDP's leadership election -- yen down, stocks up, long-term JGB yields up

Two observations -- one is that the increase in JGB yields over the last 12ms hasn't had much of any impact on US yields. At least not for the 10y

1/ The yen also hasn't recently moved with at least the 10y rate differential (and there is an argument that other rates matter more of course ... but the same would be true at most tenors)

2/