A chart that I always find interesting -- global reserves v Treasury notes and bonds (reserve managers generally don't buy bills) as a share of US GDP

Period between 03 and 08 notable for reserve growth w-o // increase in supply of US classic reserve assets

1/ Always striking to me that there is a lot more talk about the dollar as a reserve currency now, when the impact of reserve holdings on markets is waning, than there was talk of the market impact massive reserve growth back when it was happening

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Not a fan of most of the Miran paper (and the Treasury restructuring proposals), but also not a fan of Employ America's claim that dollar strength doesn't impact the US manufacturing sector

1/

employamerica.org/monetary-polic… This argument in particular has two particular problems --

a) it ignores lags, and treats 02 to 08 as one period of dollar weakness
b) it doesn't look at petrol and non-petrol trade

2/

Set aside politics for a moment (which no one in Argentina ever does) and focus on the numbers. Milei's core problem is that fiscal adjustment hasn't generated balance of payments adjustment. Net out IMF lending and Argentina has been burning through its reserves

1/ and set aside funds borrowed from the IMF and SDR conversion -- even so Argentina's net fx reserves are flat (data through July). And ~ half of that fx more or less is CNY from the PBOC swap line which isn't freely convertible into USD ...

2/

Some additional detail on China's trade surplus, which is up about $400b since the IMF (in)famously declared imbalances were receding back in the summer of 2024 ...

1/many First things first -- don't obsess too much about the slowdown in exports relative to July. That is mostly a base effect. Exports in dollar terms have been pretty constant the last few months, at levels (in USD terms) a bit higher than last year

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According to @Lingling_Wei China isn't feeling much heat from Trump's tariffs, and isn't currently inclined to make significant concessions without getting something in return. That shouldn't be a surprise -- China's overall exports are still doing fine

1/ President Xi apparently views the phase one deal as one sided (China accepted significant US tariffs and committed to large purchases to avoid even larger tariffs ... ) and doesn't want a repeat

2/

wsj.com/world/china/ch…

The dollar, famously, rallied during the global financial crisis (which originated in the US).

It didn't though rally because foreign investors rushed into US assets --

A new blog on an important bit of financial history

cfr.org/article/foreig… There is a very common belief that foreign investors ran into the safety of US assets (and specifically Treasuries) during the global financial crisis (folks tend to reason from the dollar's rise)

But that isn't what the balance of payments data shows

Good chart from the Times; would love to see EU broken out between Ireland and the rest of the EU ... and line items for Singapore and Switzerland for the patent protected/ branded meds

1/ And useful detail on a number of meds, including those where there is a well known (but not yet resolved) dependence on a few factories in China

2/

nytimes.com/2025/08/23/hea…

A somewhat premature headline from the Economist --

Last I checked, China's growth was being driven by:

a) net exports of manufactures
b) investment in new manufacturing production

1/4 I don't see any signs of deindustrialization in China's trade (China is still gaining market share in a range of industries, including autos)

2/4

Euro area exports fell back to earth in June, after pharma front running inflated the q1 number.

Imports (excluding fuels) continue to march up even with slow growth. China ...

1/ Imports from China continue to be on an strong upward trend (Chinese industrial policies, China's undervalued CNY .. ). They are now running around EUR 40b a month/ EUR 500b a year. The EV case didn't have a macro impact

2/

Foreign appetite for safe US government bonds seems to have waned a bit, at least in June.

But foreign demand for US risk assets was exceptionally strong. Big inflows into equities and corporate bonds in the June TIC data (close to $150b)

1/ Looks like there were net sales of LT Treasuries tho, led by official investors ... so a bifurcated report

2/

home.treasury.gov/news/press-rel…

Chinese state banks were buying fx to keep the CNY at the fix during the second quarter; with China now intervening to hold the CNY down (v the USD) it would not be hard to engineer a stronger yuan ...

1/

https://twitter.com/marcmakingsense/status/1953762510403739881

Apart from a brief period in q1 when the market feared China would respond to Trump tariffs with a CNY depreciation, fx settlement has been positive since September --indicating that China's state actors are generally pushing the CNY down.

2/

According to the WSJ, the "transshipment" provisions will in reality be rules of origin that limited embedded Chinese content --

1/ This potentially matters quite a lot, as the primary impact of the tariffs on China to date have been a reallocation of the point of final assembly inside Asia -- so rising imports from the ASEAN countries and the NIEs (Korea, Taiwan)

2/

China's seemingly inexorable march toward a $1.2 trillion goods surplus (customs data) continues.

The July monthly surplus was a bit below $100b, but still up about $15 billion compared to July 2024.

1/ Higher US tariffs are having an impact on bilateral trade (the US and Chinese data agree on the trend tho not the level of trade) ...

2/

Lots of folks (including the FT!) seem puzzled by the broad strength of Chinese exports so far this year --

The answer tho seems easy. China's real exchange rate has fallen by at least 15% over the last couple of years -- giving China's exports a big boost

1/ . @sobel_mark has a good piece today for OMFIF making the case that an appreciation of the yuan is a necessary component of any global effort to bring China's surplus down. I of course agree

2/

omfif.org/2025/08/its-ti…

One by product of Trump's obsession with bilateral trade deficits is that it has brought attention to the big deficits the US runs with pharmaceutical exporting tax centers ...

1/ The deficit in pharmaceuticals is now big ($200b, ~ 1/6th the total deficit ...) and 1/2 of that is with Ireland alone ... (hence the bigger bilateral deficit with Ireland than with Germany this year)

2/

The June trade data confirms that imports are down a low from the March (gold and pharma front running) peak -- but they aren't down as much in q2 as they were up in q1 ...

1/ So the goods deficit is still running ahead of its 2024 pace, even without all the pharma craziness ...

(Pharma imports fell $10b in June v May, driving much of the import weakness)

2/

Good summary of the state of Trump's term two tariff offensive, from the FT's Aime Williams and @dimi

1/ The "deals" struck by the deal maker in chief haven't been entirely, well, coherent -- raising tariffs on SE Asia to ~ 20 and some tariffs on Mexico to 25% helped China out, as it reduced the edge of alternative suppliers



2/ ft.com/content/05e524…

President Trump often says he admires President Xi.

He now seems to want to emulate President Xi (or at least China) when it comes to massaging economic data.

And it sure seems like China will up, adjust, its q2 external surplus (down)

1/ The issue, as some already know, is that China changed how it calculates its goods surplus in the middle of the pandemic, moving away from the (reliable, and verifiable from counterparty data) customs data to an "internal" survey ...

2/

I want to push back just a bit on Martin Sandbu here --

When it comes to goods trade, Japan runs a deficit -- and the EU does too if tax inflated pharma is stripped out. The goods surplus is now incredibly concentrated in Asia, and China specifically ...

1/ There are a lot of reasons for the gap between the goods balance and the current account balance. Japan has a huge investment income surplus (why doesn't China tho?) and so on. But the gap here is enormously important ...

2/

Trump's new tariff rate lack rhyme or reason (other than rewarding big countries that made an effort to give him a win ... )

But -- as the decision on Brazil showed -- it is always important to know the exclusions as well as the headline rate ...

1/ The 35% tariff rate on Canada is crazy. Nuts. Insane. dumb. Shows a lack of interest in supporting US manufacturing (the US runs a surplus in manufactures with Canada).

But if oil and USMCA compliant trade are exempt, its practical impact will be modest ...

2/

China's new (& sadly IMF approved, the IMF didn't think this one through) methodology for constructing China's BoP goods surplus relies on an internal Chinese survey, not the customs data.

The result: China's reported external surplus can simply fall for no good reason

1/ Based on the newly reported data for the monthly surplus on a BoP basis, that is what happened in q2.
The estimated surplus (using q2 2024 income) fell to $125b/ $500b annualized -- even though the customs surplus rose and the services deficit fell.

2/