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

1/

https://twitter.com/tonyannett/status/2057595969374478708

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

2/

I wanted to highlight this chart, as it is the chart that best illustrates why the available data points to active Chinese state management of the exchange rate. it shows that there is a predictable pattern to fx settlement --

1/ When spot is at the weak edge of the 2% band defined by the PBOC's daily fix, there are predictably sales in settlement (someone is defending the band) and when spot is at the midpoint, there are predictably purchases (esp. when the fix is appreciating)

2/

Handelsblatt has -- on its front page -- an article summarizing my new paper with Sander Tordoir on Germany's need to find policies to actually fight back against the second China shock

handelsblatt.com/politik/deutsc…

1/ x.com/CER_EU/status/… China's industrial structure -- as the ECB and others have noted -- increasingly overlaps with that of Germany ... with autos being the most obvious case.

And the China shock there won't go away on its own; Chinese auto export growth accelerated in the last 12ms

2/

The net foreign asset position of China's state banks (in both dollars and RMB) is now $1.5 trillion -- a rather big sum (close to 1/2 China's formal reserves, a sum bigger than Japan's reserves ... )

1/ many These are mostly funds that the state commercial banks have raised domestically (whether from real deposits, from "fake" deposits from SoEs helping out the PBOC, or swaps with PBOC). Total foreign assets are $1.7 trillion v $200b of external liabilities

2/

China's auto sector is a near-perfect metaphor for China's economy -- domestic demand is down, quite significantly. But exports are on a rocket ship up -- vehicle exports should come close to reaching 12m this year, car exports 10-11m

1/ Domestic demand for both ICEs and EVs is now shrinking -- and 22m cars, it falls well short of absorbing China's massive auto capacity (widely estimated to be over 50m)

2/

Hauge to me and Pettis: "Don't hide behind the language of "imbalances." If you think China is a competitive threat and that wealthy nations should actively use industrial policy to keep it at bay, say so"

I object to the idea that arguing about imbalances is hiding ...

https://twitter.com/haugejostein/status/2052389453654609958

China's imports have grown in volume terms at an annual rate of ~ 1% over the last 5 years. China's exports have grown at a faster rare that world trade. that is a real imbalance, not a fake one ...

Glenn's arrogance is incredible given his long history of clinging stubbornly to inaccurate arguments (no overcapacity in China's exports, China doesn't "really" have a trade surplus, SAFE produces accurate BoP that no one outside China should challenge ....)

1/

https://twitter.com/GlennLuk/status/2051828382313115868

Glenn's comment to competence ratio is high -- for various reasons he recycles old work continuously and presents it as new insight (he doesn't seem willing to spring for a real data feed). seems clear domestic margins in China came under pressure in q1. Ask BYD

There has been too much talk of petrodollars.

And not enough talk of Chinese dollars

China isn't really de-dollarizing. Rather the contrary.

A new blog

1/

cfr.org/articles/china… SAFE's quarterly data shows that 70% of the external fx assets of the Chinese state commercial banks are in dollars -- and that almost all of their net external fx assets (external assets funded domestically) are in dollars

2/

Really fun story; and unlike most of the mythology aroud the petrodollar -- accurate!

1/

https://twitter.com/M_C_Klein/status/2049162554988179581

Dollar pricing of Saudi oil predates Kissinger or Simon -- Aramco was the Arabian American oil company, and before that the California-Arabian Standard Oil Company! Standard oil of Californian (now Chevron) has the original Saudi concession

2/

The current inability of most of the GCC countries to get oil to market is a much bigger threat to the US economy than the possibility that some GCC countries (and not just sanctioned countries) might sell some oil to China for yuan ...

1/ selling China oil for yuan also doesn't immediately crete "euroyuan" -- not if the funds are only used to buy Chinese manufactures/ held on deposit in China (as Russia and Iran have sometimes been forced to do)

2/

Absolutely superb synthesis of the academic and policy debate over trade and payment imbalances by Tooze --

1/

https://twitter.com/adam_tooze/status/2047048545119731866

I might quibble with a couple of Adam's points, just as he sometimes pushes back on a few of my arguments

But Adam gets the big picture right, unlike the IMF --

What's radically new is the scale of the surplus in manufacturirng Asia/ China

2/

Taiwan's willingness to do absolutely anything and everything to keep the chip boom from putting pressure on the wildly undervalued Taiwan dollar is unw=matched ...

1/ the preference for a structurally undervalued currency is very deeply entrenched. Why should Taiwanese companies pay dividends in local currency -- best to keep the chip windfall all offshore ...

2/

bloomberg.com/news/articles/…

Interesting WSJ story about the Emirates request for a swap line --

the UAE hasn't reported its end March reserves but it went into the conflict with tons of reserves and no shortage of liquid bills in US custodians

1/ Given the central bank's ample apparent liquidity, the immense assets of Abu Dhabi's sovereign funds and the UAE/ Abu Dhabi's clear ability to borrow dollars, I am not sure there is a realistic prospect that the UAE will ever run short of dollars

2/

Fx settlement is in my view the single best proxy for China's true intervention. It looks like China, Inc bought about $35b in fx in March even with all the turmoil in the oil market. That's down from the (crazy) $100b in purchases in Dec/ Jan but still big

1/ The magnitude of the purchases over the last 12ms of data $460b spot, $580b including forwards creates the basis for a Treasury finding of manipulation if it so desired --

2/

My work on this earth may be nearly over -- or at least my work of the last 4ys could be in its final chapter.

The FT's Big Read is on the China sock 2.0 (one of my favorite phrases) and the pink paper endorsed the concept of "shadow reserves"!

1/ This is the definitive synthesis of the macro and the micro, of currency policy and industrial policy and much more

Great piece



2/ft.com/content/7d51a6…

Joe Gagnon (@GagnonMacro) should take a victory lap; the IMF has conceded intervention does have a real impact --

"A growing empirical literature finds that such intervention can systematically generate real exchange rate depreciation and raise current account balances"

1/ I also take a bit of satisfaction in this conclusion; it explains why I have been systematically tracking official asset accumulation for close to 20 years!

2/

Before the global financial crisis, in 06 and 07, the US fiscal deficit was under 2 percent of GDP and note issuance was under 1 pp of GDP in 07. That was also the time of peak reserve accumulation

https://twitter.com/YanLian31677392/status/2042069508295422339

The low level of US fiscal deficit prior to the global crisis + the small stock of Treasury debt prior to the crisis, especially relative to reserves, are 2 things that many have forgotten; constantly surprised by folks who think US fiscal was an pre crisis issue

2/

Happy to see the IMF has noticed the expansion of global current account imbalances --

And guess what, the IMF seems to have rediscovered the idea that currency manipulation can drive imbalances (though manipulation has been renamed "macro-industrial policy" ... )

1/ many The IMF doesn't find that "micro" industrial policy has a big impact on global imbalances, only economy wide "macro-industrial policies"

2/

"The problem is there was never enough cash to fund all his [Crown Prince MBS] ambitious initiatives."

Indeed. That's why measures lie the balance of payments breakeven are useful. The Saudis needed $90 plus oil -- or near unlimited access to debt financing

1/ Going into the current conflict, the Saudis were borrowing $100b a year from the rest of the world (that's a form of reverse petrodollars so to speak)

2/

An exploration of the February US trade data -- which got buried a bit by the anniversary of liberation day.

A key question -- will the weakness in non "AI" imports in the last 12ms reverse now that uncertainty around tariff levels has disappeared.

https://twitter.com/Brad_Setser/status/2039909366103523351

Imports of computers are up massively (tho not from China) and show no sign of slowing down -- that will mechanically pull the true trade deficit (setting gold flows aside) w/o a big sustained fall in other imports

A thread on the February 2026 trade data, with some answers and some questions --

Both nominal imports and nominal exports (ex petrol) are growing again -- with surprising strength in nominal exports and nominal imports back at their end Biden administration levels

1/ I think I know why nominal exports look so strong --

One clue is that "real" exports are much weaker (but to be clear still up; the Trump 2 trade war did not lead to retaliation and lower exports)

2/