1/10
Good essay by Justin Vassallo on the historical development of political attitudes in the US to trade and industrial policy. One problem is that many of us still believe that this is about whether or not we should embrace free trade.

@jhv85
compactmag.com/article/when-l… 2/10
Because it is easy to prove that global output is maximized in a world of free trade and comparative advantage, a common argument is that any US policy that intervenes in "free trade" or the "free market" undermines long-term wealth creation.

1/6
Interesting piece by Jens Nordvig and Chris March on an historic shift in global money: "It is a reflection of our times that the sacrosanct strong-dollar policy, as with many other aspects of the post-war settlement, is now being reconsidered."

moneyinsideout.exantedata.com/p/how-to-manag… 2/6
While many analysts wonder if such an historic change is something we would want to initiate, I think it is more appropriate to wonder whether or not decades of deep structural changes in the global economy have made a once-manageable system unsustainable.

1/12
I've received a lot of comments about my recent piece on how, in a hyper-globalized world, a country that does not control its capital and trade accounts (and the US is among the those that don't) cannot control its economy.

@rodrikdani
carnegieendowment.org/china-financia… 2/12
I argue that it is foolish to bicker over whether or not the US benefits from trade policy. In a hyper-globalized world, a country that does not control its capital and trade accounts cannot avoid the impact of aggressive trade and industrial policies.

1/6
It may seem counterintuitive, but fiscal deficits aren't caused by "too much spending".

The problem is that high levels of income inequality and net capital inflows have pushed up ex ante savings to levels that exceed the country's investment needs.

bloomberg.com/news/articles/… 2/6
You can see this in the fact that US businesses sit on huge piles of cash, even after using much of it to acquire their own or other companies' stocks. They don't seem at all eager to invest in productive facilities, probably because there isn't enough demand.

1/4
The Mexican government is expressing very strong criticisms about the structure of global trade and especially of China's role in global imbalances. On Saturday, Finance Minister Rogelio Ramírez de la O said that...

via @Mexico News Dailymexiconewsdaily.com/business/mexic… 2/4
Mexico needs to review its trade relationship with China because it isn’t “reciprocal.”

He said: "We buy US $119 billion per year from China and we sell $11 billion to China. China sells to us but doesn’t buy from us and that’s not reciprocal trade."

1/5
Some analysts suggest that shifting consumption tax revenues from Beijing to local governments creates incentives for local authorities to devise policies to unleash consumer spending. But there is a risk here.

bloomberg.com/news/articles/… 2/5
The only sustainable way to boost the role of consumption in driving the economy is to raise the wage share of GDP, either directly or through transfers to households. Extending shopping hours, declaring consumption festivals, and so on, are a waste of time.

1/4
The 7-day repo rate was lowered from 1.8% to 1.7%, and soon afterwards the 1- and 5-year LPR rates were also reduced by 10 bps, to 3.35% and 3.85%, respectively. According to Xinhua, "authorities stepped up monetary support to shore up the economy".

english.news.cn/20240722/6624c… 2/4
But could this be just pushing on a string? If businesses are eager to borrow to expand production, but haven't been willing to do so because of high interest rates, this might do the trick. Lower rates might set off an expansion in the production side of the economy.

1/12
Rhodium has put out a very good piece on Chinese consumption growth and the various constraints it faces. They estimate that China's average annual consumption growth over the next 5-10 years is likely to be 3-4%.

rhg.com/research/no-qu… 2/12
There are three points worth adding. First, if China can manage 3-4% consumption growth rates as they rebalance the economy, that would be pretty good by historical standards. It would be only a little below the pre-COVID consumption growth rate.

1/5
Bloomberg: "Former President Donald Trump has reiterated an openness for Chinese automakers to build cars in the US."

Some Americans may worry about security implications, but its worth pointing out that this is exactly the point of trade policy.

bloomberg.com/news/articles/… 2/5
China (and other countries) have implemented industrial policies that effectively force their households to subsidize their manufacturing. The purpose of these policies is to shift manufacturing from the US and other trade partners into their own economies.

1/6
"India is likely to do all it can to ensure the rupee keeps pace with the weakening Chinese yuan in order to protect its export competitiveness."

But of course the rupee and yuan cannot weaken unless other currencies strengthen.

via @marketsbloomberg.com/news/articles/… 2/6
Strengthening currencies in turn make their economies less internationally competitive.

That is why we should expect a lot more of this. As Joan Robinson explained in the 1930s, beggar-thy-neighbor devaluations lead to retaliatory beggar-thy-neighbor devaluations.

1/6
According to the WTO, "Beijing has not been transparent on subsidies for major industries." It says it lacks "a clear overall picture" of the amount of subsidies given to its firms.

They're right, but this shouldn't just be about China.

sc.mp/pq2id?utm_sour… 2/6
It should be about all countries that systematically implement beggar-thy-neighbor policies that force weak domestic demand, unemployment, and/or debt creation onto their trade partners. By doing so, these countries use trade to suppress healthy global growth.

1/5
Bloomberg: "China’s manufacturing sector grew faster than the overall economy for a third quarter in a row.", while consumption grew more slowly than GDP.

This is what really matters economically to the rest of the world.

via @economicsbloomberg.com/news/articles/… 2/5
That's because China represents roughly 17% of global GDP, but while it accounts for 31% of global manufacturing, it only accounts for 13% of global consumption. That's a huge gap between manufacturing and consumption.

1/5
I think many analysts are too excited about China's supposed "demographic crisis". While a declining and aging population may reduce China's geopolitical footprint in the long run, it's adverse impact on...

via @scmpnewssc.mp/82jhd?utm_sour… 2/5
the welfare of Chinese people is likely to be much smaller, especially compared to the positive impact of a change in the way income is distributed. During Japan's own 2-3 decade adjustment to decades of excess supply-side support, huge trade surpluses and...

1/6
Bloomberg: "Xi Jinping’s long quest for technology-driven “high-quality growth” is actually starting to pay off."

Good article on the success of China's technology push, but very confused about the impact on rebalancing demand.

bloomberg.com/news/features/… 2/6
The article suggests that if China's technological advancement is maintained, this might be enough to generate a "great rebalancing" in demand.

It implies that if enough supply-side support is maintained, it will allow the demand to will grow faster than the supply side.

1/5
Now that we have the Q2 GDP data, we can see how China’s debt burden evolved in 2024 in more detail. Using total social financing as the best measure of debt, China’s debt burden rose sharply over the first half of the year, but much of that occurred in Q1.

https://twitter.com/michaelxpettis/status/1811705739817140602

2/5
The debt-to-GDP ratio rose from 299.9% at the end of 2023 to 306.9% at the end of Q1, and to 307.7% at the end of Q2.

We get similar numbers when we calculate the increase in debt as a share of that period’s GDP.

1/10
It's hard to find anything good in today's data release, but I think much of this was prefigured in Friday's trade data. While most analysts saw trade as "mixed", with China's higher-than-expected exports in June as a good thing and its...

english.news.cn/20240715/2af94… 2/10
lower-than-expected imports as a bad thing, I argued that what really mattered was the sharp decline in imports, which in turn was what drove the surge in exports. If you produce more than you can absorb domestically, you have no choice but to export the rest.

1/4
This is crazy. Germany exports its domestic demand deficiency to its trade partners through its trade surplus, without which German unemployment would rise as it absorbed the consequence of domestic demand too weak to absorb domestic production.

bloomberg.com/news/articles/… 2/4
This means that its trade partners in Europe and elsewhere must absorb Germany's demand deficiency either in the form of rising unemployment, or with rising debt to counter the unemployment impact.

But Germany demands that they rein in their debt.

1/9
Yicai: "Less-developed Chinese regions will need to find more diversified means to attract investments from businesses after a new ban on targeted local tax policies comes into effect next month in an attempt to promote fair market competition."

yicaiglobal.com/news/chinese-r… 2/9
I found this article to be very interesting. In the old days of soft-budget constraints and unlimited borrowings, localities used business tax breaks, direct incentives, fee discounts, and other subsidies to attract business investment (usually from other localities).

1/5
Total social financing rose by a less-than-expected RMB 3.3 trillion in June. TSF increases in June tend to be among the highest during the year. This year saw the smallest June increase we’ve seen since 2019.

via @marketsbloomberg.com/news/articles/… 2/5
But this doesn’t mean credit growth is tapering off. Nominal GDP growth has also been much lower. We won’t have the Q2 numbers until Monday, but by my calculations, Chinese TSF at the end of June will climb to nearly 308% of GDP, versus 300% just six months ago.

1/4
Reuters: "But China's leaders have not shown how they can cut debt and stimulate growth, get consumers to spend more while channelling resources to producers and infrastructure, or increase urbanisation while revitalising rural areas."

reuters.com/world/china/ch… 2/4
That's exactly the point. The "solution" to each important problem makes another important problem worse. That, for example, is why it is so hard to boost domestic consumption – it can only be done in ways that automatically undermine domestic competitiveness.

1/4
Exports may have been boosted by Chinese manufacturing deliveries aimed at beating potential tariff increases, but the latest trade numbers were terribly unbalanced, with June's trade surplus ($99 billion) the highest monthly surplus ever recorded.

via @economicsbloomberg.com/news/articles/… 2/4
While exports in June were up 8.6% year on year, imports were actually down 2.3%, which I find a little shocking.

I generally expect import growth to be weaker than export growth because, for all its talk about...