1/12
This talk about Europe's ability to wield its holdings of US Treasuries as a political tool is as divorced from reality as the talk about China's ability to wield its holdings of US Treasuries as a political tool.
via @ftft.com/content/7d6436… 2/12
For all the huffing and puffing, Chinese holdings of US assets actually increased. This shouldn't have been a surprise. If you run massive trade surpluses, you have no choice but to acquire foreign assets, and if you won't acquire the alternatives, you must buy US assets.

1/7
EU commissioner for trade Maroš Šefčovič is absolutely right to question the usefulness of the WTO: "If the WTO is to meet today’s challenges, its rules must be fair and deliver balanced, legitimate outcomes. Currently, they do neither."
ft.com/content/2ff1d4… 2/7
The fact that decades of the largest, persistent trade imbalances in history have largely been WTO compliant suggests strongly that the WTO is more about maintaining legal fictions than it is about discouraging the adverse impact of trade intervention on the global economy.

1/6
Reuters: "Chinese leaders have pledged to "significantly" lift household consumption’s share of the economy over the next five years, but have not given a specific target."
reuters.com/world/asia-pac… 2/6
If we assume that Beijing hopes to raise the consumption share of GDP by 3-5 percentage points (roughly a third of what it would need to be a more "normal" low-consuming economy), consumption would have to grow by 1-2 percentage points faster than GDP over the period.

1/7
Good Martin Wolf piece on the global return of mercantilism. What is new about this piece is that it seems part of a growing recognition among global opinion makers that mercantilism and trade war didn't start when deficit economies with...
ft.com/content/cd68b3… 2/7
open external accounts began to implement trade restrictions and otherwise control their external accounts. It started earlier, when economies that controlled their external accounts implemented trade and industrial policies that led to beggar-thy-neighbor trade surpluses.

1/6
Wall Street bankers and owners of movable capital would hate it, but if the rest of the world were to reduce its dependence on the US dollar, this would be good for the US economy, good for US manufacturing, and good for US farmers and workers.
wsj.com/finance/curren… 2/6
The claim that the US benefits from the global use of the dollar is one of those things that people believe even though they can't explain why – except perhaps in terms of sanctions. None of the world's fastest-growing economies (including...
foreignaffairs.com/united-states/…

1/4
Bloomberg: "“Even with strong determination and sufficient resources, transforming China’s economy into one driven by consumption and services will take years,” Goldman said. “With a more reluctant, measured approach, it could take decades.”"
bloomberg.com/news/articles/… 2/4
Goldman is right, of course, unless a debt crisis, or a serious acceleration of trade war, forces a much faster, disruptive adjustment. While the latter might happen, the former is, for now at least, pretty unlikely.

1/10
SCMP: "Kenya has reached a preliminary trade deal with China for duty-free exports of key products including coffee, tea and cut flowers – a major step towards narrowing the East African nation’s long-standing trade gap with Beijing."
via @scmpnewssc.mp/gg0zg?utm_sour… 2/10
This kind of incrementalist thinking is one of the reasons why global trade is so unbalanced and so poorly understood. China does not run a trade surplus with Kenya because of tariffs on coffee, tea and cut flowers.

1/4
Aggregate financing in China, the most widely-used proxy for total debt, ended 2025 at RMB 442.12 trillion, an 8.3% increase over last year's outstanding amount. This is a relatively small increase in total debt compared to earlier years.
english.news.cn/20260115/3e5af… 2/4
But of course nominal GDP growth is also much lower, so the RMB 35.6 trillion increase in aggregate financing in 2025 represents a 12 percentage-point increase in China's debt-to-GDP ratio. This is higher than the 11 percentage-point increases in 2024 and 2023.

1/5
NYT: "The U.S. trade deficit in goods and services shrank to $29.4 billion in October, down from $48.1 billion the prior month. The figure was the lowest monthly trade deficit recorded since June 2009."
nytimes.com/2026/01/08/bus… 2/5
If this persists, it may be the most important factor for those thinking about what is likely to happen in 2026. In a three-month period during which the Chinese trade surplus has surged, the US trade deficit has declined.

1/8
Very interesting CNA article on Beijing's strategic pivot towards upgrading the quality of China's existing housing stock. It turns out that much of its housing stock, including much that was built in recent years, is of unacceptable quality.
channelnewsasia.com/east-asia/chin… 2/8
CNA: "“This strategic pivot to ‘good housing’ is fundamentally about rebalancing the economy – shifting from speculative inventory to quality living,” Lin Han-Shen, China country director at The Asia Group, told CNA. “Restoring household confidence is central".

1/6
People often say that the problem with the global trading system is mainland China, but that's not true. Taiwan, Germany, Japan, South Korea, Switzerland, Singapore and many others have run similar positions. The problem is with the global trading system itself.

https://twitter.com/Brad_Setser/status/2008604975992283284

2/6
As long as countries like the US (and the EU soon?) continue to accommodate global saving imbalances, our current trading system allows for a kind of Kalecki paradox in which individual economies can be rewarded for behavior that undermines growth in the system as a whole.

1/14
Unfortunately I don't subscribe to Krugman's substack, so I cannot comment on the whole article, but I can say that the first few paragraphs lay out the issue very accurately and with commendable simplicity. He certainly understands the main issues.
open.substack.com/pub/paulkrugma… 2/14
He notes: "In the past, China achieved stunning economic growth in part through a combination of very high savings and very high investment. Its savings remain very high, but investment in China is running into diminishing returns in the face of slowing technological...

1/11
Philip Coggan: "It is a mug’s game trying to predict the end of a boom with any precision. They last much longer than anyone might reasonably expect. That is true of bull markets, as well as economic advances. The reason is that markets and... ft.com/content/2ae4ac… 2/11
economies find ways to support themselves. George Soros, the well-known investor and philanthropist, has a term for it: reflexivity."

Coggan then explains that reflexivity is Soros' name for positive feedback loops embedded in economies and financial systems.

1/7
SCMP: "As China grapples with persistent deflationary pressure, scholars from one of the country’s top universities have urged the government to take more forceful action to prevent the economy from becoming trapped in a Japan-style downward spiral."
scmp.com/economy/china-… 2/7
The article continues: "“Japan’s experience has shown that once households form the expectation that prices won’t rise over the medium to long term, it becomes nearly impossible to break that mindset,” said He Xiaobei, a professor at Peking University."

1/7
SCMP: "China is tapping the brakes on some subway expansions, including in certain affluent cities, reflecting a shift from the debt-fuelled infrastructure boom of the past to a new era of fiscal discipline and investment efficiency."
scmp.com/economy/china-… 2/7
I've long argued that much of the infrastructure investment in the past decade was not economically viable. It was implemented mainly to keep economic activity from dropping, and not to create economic value, and is why the debt used to fund this investment was growing...

1/4
WSJ: "The number of ride-hailing drivers in China tripled to 7.5 million in the four years to 2024, even though the number of rides grew only by about 60% during the same period, government data shows."
wsj.com/world/asia/14-… 2/4
By shifting into the gig economy, workers reduce overall unemployment numbers without increasing the the total amount of wages workers receive. This is one of the reasons consumption growth has been so weak.

To boost consumption growth, Beijing must figure out how to...

1/10
President Macron says "We must acknowledge that these imbalances are both the result of weak EU productivity and China’s policy of export-driven growth."

The first part of that statement is technically not true.
via @ftft.com/content/c8fdf1… 2/10
Countries don't run trade deficits because of low productivity, any more than they run surpluses because of high productivity. That is not at all what global trade imbalances around the world tell us, and that is not why countries have lower or higher saving rates.

1/8
It's hard to find anything good in the November economic data for China, just as it is hard to find anything new to say. All the important indicators continue to weaken, as they have throughout the year, in some cases even decelerating further.
english.news.cn/20251215/a5915… 2/8
Retail sales, for example, were expected to grow a very disappointing 2.9% year on year in November. In fact they only grew 1.3%.

For all the talk of a greater role for consumption in driving growth, in the first 11 months of the year, retail sales were up just 4.0%.

1/8
Caixin: "While concerns about weak demand and external uncertainties persist, this year's Central Economic Work Conference, which concluded on Thursday, marked a shift in tone. The official readout framed China's core economic challenge as...
caixinglobal.com/2025-12-12/chi… 2/8
a “prominent contradiction between strong supply and weak demand” — a structural issue rather than just insufficient consumption."

"The change" Caixin writes, "suggests Beijing sees supply-side imbalances, not just inadequate consumption, as a constraint."

1/4
WSJ: "President Trump’s barrage of tariff increases threatened to chill global trade flows, but commercial exchanges continued to increase as most of the international commerce system functions as it did before the onslaught."
via @WSJwsj.com/economy/trade/… 2/4
Contrary to what WSJ says, Trump's tariffs never really threatened to "chill global trade flows" except in the view of those (including far too many economists) who mistakenly thought of trade in incremental terms rather than in systemic terms.

1/4
The IMF formally recognizes that it is a depreciating RMB, not rising manufacturing efficiency, that drives China's growing trade surplus.
ft.com/content/9c92aa… 2/4
That's because a depreciating currency is both a subsidy for manufacturing (and tradable goods) and a tax on consumption. It works by reducing the household share of GDP, especially when reinforced by other production subsidies paid for directly or indirectly by households.