Brad Setser Profile picture
CFR senior fellow. Views are my own. Retweets are not endorsements. Writes on sovereign debt and capital flows.
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Jul 7 13 tweets 4 min read
A quick thread highlighting the (many) puzzle's in China's balance of payments data --

The first, of course, is why did errors (now the statistical discrepancy)/ hot money flows disappear with the property bubble? (my answer is that they didn't really)

1/ Image A related puzzle: why did hot money outflows (errors) fall off the cliff at the same time as FDI inflows? (my answer is that they didn't really, but it is a puzzle)

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Jul 6 4 tweets 2 min read
A bit of work in progress. The net foreign assets of China's state commercial banks doesn't include the net foreign assets of the policy banks. So I converted net "other" in the BoP into a monthly series, and plotted it against net foreign assets.

Good fit

1/ Image The gap between the cumulative flows since 2010 in the two series (mostly from 2014 to 2018) implies ~ $1 trillion in net foreign assets in the policy banks, consistent with the work of @AidData

Note this is an upper bound estimate in some ways.

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Jul 3 5 tweets 2 min read
So much winning --

(By big Pharma)

US imports of pharmaceuticals from the world's low tax jurisdictions have more than tripled since the (Pharma) Tax Cuts and (Irish) Jobs Act was passed ...

1/ Image The US trade deficit in pharmaceuticals has gone from $50b to around $200b (close to 0.7 pp of US GDP)

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Jul 2 4 tweets 2 min read
I liked Trump's term one trade policy a lot better than Trump's current trade policy.

Back then, the bulk of the tariff increase was on goods from China.

Now, not so much

1/ Image Gearing up for the May trade data release

In April, tariff revenue was around $20b, equally split between China and the rest of the world.

During Trump's first term the increase in monthly tariff revenue (to $5/6b) was essentially from tariffs on China going from $1b to $4b

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Jun 30 7 tweets 3 min read
Sure seems like the world woke up to the fact that it was enormously overweight US assets (and thus the dollar) on "Liberation" day.

1/ Foreign demand for US bonds was a bit too strong in 2023 and 2024; it has pushed the dollar up to untenable levels.

But there is a some risk of a real reversal now

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Jun 30 6 tweets 2 min read
Just a reminder that Saudi Arabia runs a current account deficit these days -- and its break even oil price (for the balance of payments) is around $90 a barrel ...

1/ Image The latest balance of payments data only runs though q1 -- but the difference between the oil price and Saudi's breakeven implies a much larger deficit in q2 than in the past few quarters

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Jun 27 5 tweets 2 min read
One of the surprises of the first half of the year was that China held the yuan stable even in the face of significant new US tariffs.

China's q1 BoP data helps explain why -- China was in a quite strong underlying position

1/ Image in the past few quarters, China's reported current account surplus jumped up to $150b a quarter (it is still understated, I think it is really ~ $200b a quarter) and the state banks have added $50-100b a quarter to their foreign assets.

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Jun 26 6 tweets 2 min read
Not sure the issue will come to a head on July 9th (it is always possible to provide more time for the negotiations) but have long thought that the "232" sectors would be the hardest part of the negotiations with the EU (and other allies)

1/ Image Pharma frankly should be easy -- as the US trade deficit in pharmaceuticals is made in America, as it stems from a flawed US tax policy. But that isn't how the Trump administration sees it ... and the real negotiations probably cannot start before the US case.

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Jun 24 5 tweets 2 min read
It is way too early to write any assessment of the full impact of President Trump's turn toward tariffs as a core tool of US economic policy.

But there is no doubt that immediate impact was ... well ... a much bigger external deficit.

1/ Image The swing in goods trade tied to tariff front running was bigger than any swing during the pandemic (admittedly, it was very concentrated in pharma and precious metals)

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Jun 23 10 tweets 4 min read
It is now ancient history -- but Turkey experienced a massive carry trade unwind in March and April that led it to burn through over $30 billion in reserves in 6 weeks or so ... and it is worth taking a look at how this registered in Turkey's balance of payments

1/ Image Unsurprisingly, there was a $8b or so outflow from Turkish lira denominated bonds in April -- an outflow equal to peak inflows. But as big as that was, it doesn't explain the ~ $35b swing in fx reserves

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Jun 22 8 tweets 3 min read
Not today's most pressing issue, China's surplus in manufacturing continues its long march up.

Rather striking that China's surplus increased by over $1 trillion after Trump launched his initial trade war (the 301 case)

1/ Image Actual export volumes are growing faster than nominal exports (export prices are falling) so the headline data actually understates China's export growth strength right now

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Jun 18 12 tweets 4 min read
The story in the April TIC data is the lack of new foreign demand for US Treasuries/ US bonds, not official sales -- total official holdings didn't really change (private holdings dipped a bit but nothing huge)

1/ Image China's long-term holdings dipped a bit (China's long-term holdings in US custodians that is) but Belgium (Euroclear)'s holds went up, so it doesn't look like China was a big seller ...

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Jun 16 6 tweets 3 min read
The Chinese yuan stayed remarkably stable throughout the period of most intense U.S. tariffs.

And in fact it looks like China's state was adding to its foreign assets over this period. May reserves fell a bit but the foreign assets of the state banks rose.

1/ Image In fact, the strong rise in the net foreign asset position of the state banks increasingly suggests that the yuan is under appreciation pressure (as a result of the $100b monthly goods surplus) not depreciation pressure

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Jun 14 7 tweets 3 min read
“China’s vision of trade is exporting without importing,” said Brad Setser, senior fellow at the Council on Foreign Relations and a former Treasury Department official.

From the WSJ

1/ Image The discrepancy between imports and exports is indeed striking, and is consistent across different data sets

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Jun 9 10 tweets 4 min read
There is a widespread view that the US gets a lot of cheap financing because of the dollar's reserve currency role. Two problems there: one, US rates aren't low v the G-10, and two, there aren't actually any current reserve flows ...

1/ Image Anyone who argues that the dollar's reserve currency role currently generates cheap financing for the US should be asked how precisely - it isn't because reserve managers are holding more dollars!

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Jun 9 6 tweets 2 min read
Don't think Xi is feeling that much pressure from Trump's trade war. Exports to the US dipped, but exports to the rest of the world largely offset. The overall monthly goods surplus still topped $100b/ is on track to hit $1.2 trillion (gulp)

1/ Image Export volume growth dipped to 8% (estimate based on April prices). Import volumes fell 4% (not good).

Net exports are still driving China's economy.

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Jun 9 13 tweets 4 min read
Are inflows into the US over the last 10 years come from the dollar's reserve currency role -- or are they simply from private investors seeking more yield (or greater equity market returns) than they get at home?

A new blog

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cfr.org/blog/dollars-g… I think the answer is clear: dollar reserves (the level of dollar reserves, not the dollar's share of global reserves) have been constant for the last ten years, and dollar reserve growth hasn't been a significant source of financing for the U.S. for a while

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Jun 6 6 tweets 3 min read
The craziest bit of the US trade data so far this year is undoubtedly trade in pharmaceuticals. Makes the swings with China look modest.

1/ Image The massive March v April monthly swing tho washes out of the trailing 12m sum, and what shows are the more structural shifts -- like the huge run up in imports from Ireland

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Jun 6 4 tweets 2 min read
Some more interesting (and likely more important) things happening right now, but still wanted to highlight a couple of the details of the US trade data.

Seems pretty clear what is happening here

1/ Image A bit more refined analysis shows the same thing -- namely that US imports from Vietnam and China were inversely correlated in the last few months (as happened with the initial section 301 China tariffs)

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Jun 5 6 tweets 2 min read
The Treasury's foreign exchange report is out -- no fireworks (as well, most countries weren't intervening to hold their currencies down last year or early this year), but it does preview some significant methodological changes

1/x Image And true to form, the report indicates that tariffs are the preferred tool to address any future findings of manipulation

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Jun 5 5 tweets 2 min read
$10 billion increase in Taiwan's reserves in May

"The foreign exchange reserves of the Republic of China (Taiwan) amounted to US$592.95 billion as of the end of May 2025, ... an increase of US$10.12 billion from the end of the previous month"

1/ Image $10b a month/ $120b a year (annualized) is a lot -- it is roughly 15% of Taiwan's GDP. It is also roughly the number than may be needed to keep Taiwan's exchange rate stable for the rest of the year given Taiwan's massive external surplus

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