Mr. Hauge's comment here reflects a common critique of my NYT essay, namely that it puts too much emphasis on China and not enough on the US, which choose not to compete with China and benefits from cheap Chinese goods ...

I want to push back a bit

1/

https://twitter.com/haugejostein/status/1892520105394761885

As Michael Pettis noted in a thread of his own, China bears responsibility for its exceptionally high savings rate -- and if that savings level isn't absorbed domestically, it by definition requires offsetting imbalances elsewhere in the global economy.

2/

Trump's second term economic policy will be ... "foe"-shoring?

Less trade with Canada, Mexico, Europe and likely Japan (reciprocal tariffs, 232 sectoral tariffs) and more trade with China and Russia?

Creative I guess.

1/ A big trade deal with China that keeps the US market open to Chinese goods and perhaps rolls back some term 1 tariffs wasn't what Mr. Trump campaigned on.

Think he was talking about 60% tariffs

2/

nytimes.com/2025/02/19/bus…

The FT today touches on the US "TIC" data on foreign holdings -- highlighting the two big trends of the past few years: the drop in China's visible holdings in US custodians, and the rise holdings in the UK and Europe

1/ The FT story highlights that the large fall in China's visible holdings in the US should be taken with a grain of salt, as it is an open secret that China holds securities through Clearstream and Euroclear

2/

ft.com/content/73aef2…

Think this chart is essential for understanding today's global economy --

Trump wants to shrink the US trade deficit (though his desire for tax cuts may "trump" his trade goals);

Xi's growth strategy is exporting while not importing ...

1/ Many of the comments on my NYT oped suggest that China's surplus is a function of US demand, and the decisions of US companies.

Those arguments, though, are somewhat dated --

2/

nytimes.com/2025/02/18/opi…

Happy to see the BBC highlight the role of both pharmaceuticals and tax avoidance by US companies in Ireland's soaring trade surplus with the US.

There should be a lot more stories about the role corporate tax avoidance plays in trade

1/

bbc.com/news/articles/… I can confirm a point that Paul Krugman made in a recent substack, namely that pharmaceuticals are driving the US bilateral deficit with Ireland.

2/

Two of the three main indicators of Chinese intervention in the fx market are out, and as usual they are interesting --

PBOC balance sheet reserves were down $8b in January.

But the state banks foreign assets rose by over $20b ...

1/ The rise in the foreign assets of the state banks in January follows a big rise in December -- and a clear uptrend in the second half of 2024.

The move is a bit too big to ignore, even if it is puzzling when the CNY is generally trading weak relative to the fix

2/

Trump is obviously shaking up European politics. But even absent Trump, Europe's largest economy would face a profound challenge -- as China isn't the market it once was for German exports. In fact, China is now a clear drag on German growth

1/ German exports to China are falling as a share of German GDP across all major export categories ...

they are now down more than 0.5 pp of German GDP from their pre-COVID, pre Chinese EV revolution peak

2/

China reported a $180b current account surplus in q4, bringing its full year surplus up to $420 billion --

The thing is that is still far too small given China's $1 trillion customs surplus. The real surplus is closer to $800b in my opinion.

1/ The $180b current account surplus, while large, was still $120b less than the $300 b customs (goods) surplus. Throw in a ~ $50b services deficit and the q4 surplus should have been closer to $250b ...

2/

Taken literally, the signal here is that Trump isn't satisfied with a simple "reciprocal" tariff as that tariff wouldn't be high enough (zero on Japanese autos, 10% on European autos ...)

(Market tho seems to be more focused on the delay)

1/

https://twitter.com/Alea_/status/1890109484569358638

Defining a VAT to be a trade barrier isn't just questionable economics (the VAT is the same on imports and domestic production) it also basically forecloses negotiation, as the EU/others aren't in a fiscal position to negotiate away its tax base

2/

The steel and aluminum tariffs only hit a limited amount of trade in two already heavily protected sectors, would take the other side here --

for three reasons --

1/

https://twitter.com/Geo_papic/status/1889091737475506328

One, the steel and aluminum tariffs blow up a lot of prior negotiations, including deals with Canada, Mexico, Australia and Brazil that were struck under the previous Trump Administration -- that makes new negotiated outcomes (like tariff rate quotas) harder ...

2/

A bit of background on steel and aluminum imports ahead of the expected announcement of 25% tariffs (and the cancellation of existing exemptions/ exclusions?) tomorrow --

US steel imports are ~ 25m tons, and stable

1/ Domestic production is ~ 85m tons, so the US is a net importer -- and while there is a 25% tariff now in place, most imports now come in under various exemptions/ exclusions and deals (tariff rate quotas that allow some steel in tariff free)

2/

I agree with Gerard's argument (100% backed in the data) that the funding for the US current account deficit over the last ten years has essential come from private investors abroad looking for a return ...

but would add two caveats

1/

https://twitter.com/gdp1985/status/1888304593991602613

The first caveat is that there really was a period (roughly from 2002 to 2014 ... ) when the funding for the US external deficit really did come from yield insensitive reserve managers -- currency "manipulation" did help keep the external deficit up over that period

2/

Trump's trade war -- the threats at least -- have so far focused heavily on Canada, Mexico and now the EU.

But the global (goods) trade surplus is increasingly an Asian surplus -- even the European contribution is relatively small (Canada and Mexico run global deficits)

1/ There are lots of stories about how China has diversified its export markets -- but a lot of that diversification (exporting parts to SE Asia for assembly for the US) still relies on US end demand. The US non-petrol deficit stil drives the Asian surplus

2/

A central question in the technical debate over China's balance of payments data is the price of an iPhone (a smart phone) in China's export data. China claims that it is inflated, and way higher than the actual cost of production. But that claim doesn't really check out. the US ITC has said that essentially all smart phones imported from China to the US are from Apple -- and the China's export price there is $400. That maps closely to most of the recent knock down studies on the cost of making an iPhone ... the EU/ UK/ JP price is ~ $350

To state the obvious, a 25% tariff on Mexico and Canada and a 10% tariff on China, if sustained, would be a massive shock -- a much bigger move in one weekend than all the trade action that Trump took in his first term

1/x The just pay it cost of the tariffs on Mexico and Canada would be about 0.8 pp of US GDP (imports are ~ 3.2% of GDP). The just pay it cost is crude, but it usually a pretty good rough guide the actual impact -- as many effects offset.

2/

Excellent review of the current state of play in sovereign debt restructuring from Lazard.

The best I have read in some time.

1/

lazard.com/research-insig… Lazard calls for greater coordination among Chinese state lenders (and bringing the Sinosure claims back into the official sector restructuring process). I agree

2/

One of my favorite charts, which supports the argument that Michael Pettis making -- namely that foreign reserve accumulation drove financial inflows into the US from 2002 to 2014 (but not after!)

1/

https://twitter.com/michaelxpettis/status/1884087392644260274

Another way to make the point -- for a long period of time, most of the (net) debt inflow that funded the US current account deficit came from foreign governments. (the last ten years though have been different)

2/

Extraordinary privilege is thrown around a bit too much.

Right now there is extraordinary demand for US bonds, but it isn't coming from reserve managers, China or Japanese institutions ...

1/x

https://twitter.com/lalashwa/status/1883894504492781909

Global reserve growth can be tracked, and there isn't much of it right now -- over the past 10 years of dollar strength, reserve accumulation only helped fund the US external deficit in 2020 and 2021.

2/

Has "the world [moved] on to trade without the US" as Ruchir Sharma seems to claim?

My answer would be a resounding no: yes, there are trade deals that don't touch the US, but the current pattern of global trade only works with the US & its deficit

1/

ft.com/content/07eac5… Sharma seems to embrace the view of trade of many trade diplomats on the global conference circuit -- namely that it can be defined by free trade agreements (and need not be complicated by looking at the actual way global trade balances)

2/

A stat to help explain the world economy.

Since the end of 2018 (before the bulk of Trump's tariffs, before COVID), China imports of manufactures are up $90b, and its exports of manufactures are up $1060b ($1.06 trillion)

1/ That means that China's surplus in manufactures is up close to $1 trillion ($970b) --

It more or less doubled, and the overall good surplus more than doubled, in dollar terms over the last 6 years

2/

Alas, I see a lot of evidence that the Trump Administration has bit hard into the corporate tax lobby's arguments against the OECD deal, and no sign that it recognizes that TCJA led a big part of the US tax base to set up camp in Ireland.

1/2

https://twitter.com/goodtaxtakes/status/1881748458874519816

Two examples -- big pharma (top 6 by revenue) made ~ $250b in the last 3ys, and paid less than $10b in tax to the US (and probably closer to $5b ... ); and Apple pays about $5b a year in US federal income tax on a global profit of over $100b ...

2/2