1/10
Important Benn Steil article on globalization, free trade, and the cost of underwriting both. He cites Wendell Willkie in 1944 as "recognizing how perilous it would be to integrate market economies with state-directed ones."
@ProSyn @BennSteil
prosyn.org/LkdDyx7 2/10
"When global prices fail to reflect supply-and-demand dynamics," Steil cites Willkie as arguing, "they distort production and trade flows, killing off more efficient enterprises, fueling imbalances, and breeding resentment."

1/7
China's fixed-asset investment declined 1.7% year on year in the first 10 months of 2025, more than twice the expected rate of decline, and well above the 0.5% decline during the first nine months of the year.

english.news.cn/20251114/2bcf2… 2/7
Excluding a 14.7% decline in the property sector, investment rose by 1.7% during the first ten months of 2025, led by a 2.7% rise in manufacturing investment.

As I see it, the weakness in investment growth suggests that the fight against "involution" is working so far.

1/5
Good Setser piece on rising global imbalances. Thanks in part to his work, central bankers and mainstream economists are slowly beginning to acknowledge that rising global imbalances can be a problem for the global economy.

Eventually they all will.
@Brad_Setser
cfr.org/blog/chinas-ma… 2/5
Most mainstream economists know that every country's internal imbalances are always perfectly consistent with its external imbalances, just as its external imbalances are always perfectly consistent with the external imbalances of its trade partners.

1/4
Caixin: "A significant increase in the household consumption ratio hinges on Beijing’s ability to solve a chronic problem of low household spending, a challenge rooted in sluggish income growth, widening inequality and inadequate public services."

caixinglobal.com/2025-11-13/ana… 2/4
It is by now widely recognized among academics and policy advisors that China's weak consumption is a function of a low household income share of GDP, and that the solution is to implement "demand-side measures to boost employment, income and confidence."

1/5
FT: “German Chancellor Friedrich Merz has backed protectionist measures to shield the country’s ailing steel industry from cheap Chinese imports, in a striking departure from the country’s traditional commitment to free trade.”
via @ftft.com/content/a02d77… 2/5
I’d argue that what Germany traditionally displayed wasn’t a commitment to free trade so much as the standard trade-surplus country’s insistence that their trade partners don’t intervene against their abilities to run trade surpluses.

1/10
NYT: "China has offset the decline from America with breathtaking speed. Shipments to other parts of the world have surged this year, demonstrating that China’s manufacturing dominance will not be easily slowed."
nytimes.com/interactive/20… 2/10
"That’s because." the New York Times explains, "China was prepared. It has been seeking out new customers for years, and its massive manufacturing investment allows it to sell goods at low prices."

This explanation shows just how confused analysts remain about trade.

1/4
Interesting article by Yanmei Xie: "Why does involution defy repeated attempts to purge it?" she asks. "Because the foundational structure of China’s political economy breeds it."
ft.com/content/e768df… 2/4
She's absolutely right. "Involution:" is just the latest name for a decades-old problem arising from a development model built around the need to keep increasing investment in capacity, even when capacity is already excessive.
carnegieendowment.org/posts/2025/08/…

1/8
Yale's Stephen Roach says China must raise the household consumption share of its GDP by ten percentage points over the next decade. In August PKU economics professor Lu Feng, said that China should raise it by 5 to 10 percentage points over the..
bloomberg.com/news/articles/… 2/8
next 5 to 10 years, while Peng Sen, chairman of the China Society of Economic Reform, said it should raise it by more than 10 percentage points.

A 10-percentage-point increase, by the way, would still leave China with among the lowest consumption shares of any major economy.

1/7
The NYT on US (and probably EU) over-reliance on China for the chemicals involved in manufacturing drugs. They argue that it is the combination of lower unit labor costs and a greater tolerance for environmental degradation that makes the difference.
nytimes.com/2025/10/15/hea… 2/7
If this isn't too much of an oversimplification, a rational trade policy could easily address both issues. The purpose of such a policy would not be to protect specific sectors except to the extent that they have national security implications.

1/9
Bloomberg: "There’s an upside for the entire global economy from the massive, state-led investments China has made over the years: The abundant supply of cheaper Chinese vessels has helped push down freight rates and keep cargo moving around the world."
bloomberg.com/search?query=H… 2/9
This type of incremental thinking explains why our understanding of trade has been so muddled for decades. To assume that the story stops at cheaper freight rates is to ignore almost everything important about this story.

1/9
The FT's Tej Parikh makes a very important point here. China's industrial policies have involved among the greatest support and subsidies for technology in history, and we've clearly seen the benefits when it comes to advanced technology.
ft.com/content/b44458… 2/9
But in the roughly two decades of their implementation, not only have we not seen a corresponding rise in productivity, but in fact China's fall in productivity has been extremely steep, and has occurred at a much, much lower level of development than it had occurred...

1/9
China's GDP growth for the third quarter came in at an expected 4.8% year on year, with the first three quarters growing 5.2%. It seems China is very much in line to report GDP growth for 2025 at – or just under – the GDP growth target of 5%.
english.news.cn/20251020/f556e… 2/9
This shouldn't surprise. As I wrote earlier this year, we all know that China's GDP growth target is not a prediction. It is politically determined, and by the end of the year China will have achieved it by directing however much credit is needed.
carnegieendowment.org/posts/2025/05/…

1/9
Bloomberg's Chris Anstey notes that "the consumer — not the producer — has been the main focus of officials in Washington. By contrast, China’s leadership, drawing on Marxist tradition, of course focused on production."
@AnsteyEco
bloomberg.com/news/newslette… 2/9
There is nothing wrong, of course, with maximizing consumption. The whole point of economic development, after all, should be to improve total welfare. This was one of Adam Smith's main points.

1/9
China Daily says that the next Five-Year Plan might see a change in the way local governments collect taxes, shifting collection from the site of production to the site of consumption.
chinadaily.com.cn/a/202510/17/WS… 2/9
This will presumably change local-government incentives from encouraging more production to encouraging more consumption. According to China Daily, "Local governments, eager for economic growth and...

1/5
Chinese debt continues to rise quickly, with total social financing rising by 8.7% year on year in September (more than twice GDP growth) to RMB 437.08 trillion. This is equal to nearly 312% of 2025's expected GDP (versus 303% at the end of 2024).
caixinglobal.com/2025-10-16/chi… 2/5
In the first nine months of the year, TSF rose RMB 30.09 trillion. If you assume interest on the stock of debt at an average of 2.5%, this implies that it required an increase in debt in the past year equal to 17% of GDP in order to boost nominal GDP by around 4%.

1/9
WSJ: "According to the people close to Beijing’s decision-making process, Xi’s hard-line strategy is based on the belief that Trump will ultimately fold and offer concessions rather than deploy Washington’s own significant leverage."
via @WSJwsj.com/world/china/ch… 2/9
If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."

1/8
WSJ: "President Trump is trying to publicly de-escalate tensions with China to soothe markets while privately keeping up pressure on Beijing—a difficult balancing act that is being closely watched by Wall Street."
via @WSJwsj.com/world/china/tr… 2/8
This is also the impression I got from my meetings last week. There is a sense that Beijing overplayed its hand, perhaps because until China is able to boost domestic demand (something that will be extremely difficult), it is still very vulnerable to a trade contraction.

1/9
FT: " UBS's Paul Gong played down the chances of an EV industry-wide consolidation in the near term, as deep financial support for lossmaking groups from provincial governments and capital markets stands in the way."
ft.com/content/5f73d2… 2/9
This is a very appropriate example of János Kornai's distinction between economies that operate under hard-budget constraints and those that operate under soft-budget constraints. The hard-budget constraint sets a limit to the extent of losses a business can have.

1/8
Eduardo Porter argues in this FT piece that Latin America's import substitution industrialization (ISI) in the 1960s and 1970s "ended in a massive debt crisis that ushered in a period of economic decline known across the region as the “lost decade”."
ft.com/content/2f9dea… 2/8
This is a very common misperception. The ISI period ran from the late 1930s to the early 1970s, and peaked in the 1950s and 1960s. During this period, ISI economies in Latin America grew extraordinarily quickly and produced many of the first development "miracles" in history.

1/10
While I agree with much of what Stephen Bush argues here, I think this claim is overly simplistic: "This shouldn’t need saying in 2025 but markets and globalisation are good."
ft.com/content/2fa342… 2/10
There is no single thing called "globalization", and "globalization" is neither a good thing nor a bad thing. There are in fact many kinds of globalization and, as Keynes noted, they have different impacts both on the global economy and on individual countries.

1/10
This paper by Daniel McDowell describes the role of the dollar (and potential alternatives) as a global reserve currency. It's a very good and balanced paper, and I agree with his conclusions, but I can't help making one objection.
@daniel_mcdowell
atlanticcouncil.org/in-depth-resea… 2/10
He says: "To overly simplify it, being the reserve currency issuer is akin to having a credit card with an unusually high borrowing limit and the lowest interest rates available. This gives the United States unparalleled macroeconomic flexibility, allowing Washington to..."