1/5
SCMP: "“China needs to move decisively towards consumption-led growth,” Sonali Jain-Chandra, IMF mission chief for China, said in an interview with the South China Morning Post."
scmp.com/economy/china-… 2/5
Yes, but how? The IMF has urged China to put into place a stronger social safety net, but even if China were to do so, until it is credible (which will take years, even decades) it will have little impact on current consumption.

1/5
Bloomberg: "The scale of the problem is staggering. Trade data released Thursday showed a record $112 billion gap between what China reported exporting to the US and what US Customs said actually arrived last year."
bloomberg.com/news/features/… 2/5
"Put simply," Bloomberg continues, "that suggests that as much as a quarter of what Asia’s top economy shipped to American shores last year slipped under the tariff radar."

1/6
Bloomberg: "Instead of fighting over quotas and rules, officials should be rolling up their sleeves and thinking honestly about where the EU has a fighting chance of competing — not “picking winners, but letting the losers go.”"
bloomberg.com/opinion/articl… 2/6
This might be perfectly good advice in a "normal" trading environment, in which countries maximize exports in order to maximize imports and domestic consumption, trade is broadly balanced, and production shifts according to comparative advantage.

1/4
As this WSJ article points out, countries are keeping their exports competitive in the face of US tariffs by increasingly subsidizing them, with the subsidies ultimately being paid for in the form of suppressed consumption.
wsj.com/economy/trade/… 2/4
This means that we are increasingly caught up in a globalized Kalecki Paradox: when one country subsidizes manufacturing exports at the expense of wage growth, it can grow more quickly, but when all countries do it, they collectively grow more slowly.
engelsbergideas.com/notebook/europ…

1/7
Reuters: "China's biggest solar firms shed nearly one-third of their workforces last year, company filings show, as one of the industries hand-picked by Beijing to drive economic growth grapples with falling prices and steep losses."
reuters.com/business/world… 2/7
"The job cuts illustrate the pain from the vicious price wars being fought across Chinese industries as they grapple with overcapacity and tepid demand. The world produces twice as many solar panels each year as it uses, with most of them produced in China."

1/5
The New York Fed finds that "U.S. firms and consumers continue to bear the bulk of the economic burden of the high tariffs imposed in 2025."
libertystreeteconomics.newyorkfed.org/2026/02/who-is… 2/5
That is exactly how it should be. Tariffs are effectively a tax on consumption and a subsidy to production (of tariffed goods). They work by transferring income from households (net importers) to producers of tradable goods.

1/7
My latest piece was written for friends who are EU policymakers or advisors. In it I argue that there is a difference between an inefficient manufacturing sector and a globally uncompetitive manufacturing sector. We shouldn't conflate the two.
engelsbergideas.com/notebook/europ… 2/7
A country's manufacturing sector is not globally uncompetitive because it is inefficient, but rather because its wages are higher relative to productivity than those of its trade partners.

Efficiency is about how effectively an economy uses resources to create value.

1/4
Very interesting and timely paper. The authors find that "industrial policies lead to trade surpluses if the government pursues an unbalanced policy mix, such that domestic demand does not rise as much as supply. These surpluses are absorbed by the rest of the world, which...

https://twitter.com/LucaFornaro3/status/2020755500762042543

2/4
in response runs trade deficits. Absent policy interventions, trade deficits reduce the competitiveness of the domestic tradable sector, stifling innovation and productivity growth. Innovation policies can help the rest of the world to mitigate these negative spillovers."

1/6
According to Greg Ip, in the US economy today, "rewards are going disproportionately toward capital instead of labor. Profits have soared since the pandemic. The result: Capital is triumphant, while the average worker ekes out marginal gains."
wsj.com/economy/jobs/c… 2/6
And as Marriner Eccles, FDR's Fed chairman, explained in the 1930s, this creates a dangerous illusion. The extent of business profits depends almost wholly on the purchasing power of ordinary people, which in turn depends on wages.

1/5
Reuters: "The EU should consider either an unprecedented 30% across-the-board tariff on Chinese goods or a 30% depreciation of the euro against the renminbi to counter a flood of cheap imports, a French government strategy report said on Monday."
reuters.com/world/china/fr… 2/5
I think it's only a question of time before the EU will intervene in its external account to protect its manufacturing sector, just as China has done for decades and the US is increasingly trying to do. It can implement all the reforms that have been proposed to improve...

1/11
SCMP: "China’s potential growth rate could fall to about 2.5 per cent in the coming years unless action is taken, prominent Chinese economist Zhou Tianyong has warned."
sc.mp/itwrt?utm_sour… 2/11
“Without a strong turnaround in total factor productivity and a meaningful expansion in household consumption, it will be difficult for China’s economic growth to reach 4 per cent or higher,” he added.

1/8
Jason Furman: "A weaker dollar may improve the economy’s long-run balance, but it does so by forcing Americans to cut back on spending. That is like telling children to eat more spinach today so they will be healthier in the future."
nytimes.com/2026/02/03/opi… 2/8
Furman is right. Currency appreciation reduces consumption costs in the short term by making imports cheaper, but in a hyperglobalized world, it also undermines domestic manufacturers by making them less competitive against foreign manufacturers.

1/4
Yicai: "China's macro leverage ratio – a measure of total debt relative to nominal GDP – rose by 11.8 percentage points to 302.3 percent in 2025, exceeding the 10.1 point increase recorded in 2024, according to a new research report by CASS.
yicaiglobal.com/news/chinas-de… 2/4
There is a lot of disagreement about the real debt-to-GDP ratio in China, especially given the difficulty of counting hidden debt, along with an "abnormal" rise in payables and receivables that reflects inability to pay debt more than it reflects rising revenues.

1/7
SCMP: "Chinese scholars have called for greater urgency in reducing reliance on US dollar assets, particularly after Washington and its allies froze about US$300 billion in Russian foreign exchange reserves in 2022."
scmp.com/economy/global… 2/7
Although this may be a favorite new topic among academics – and not just Chinese academics - few seem to understand that a country cannot restructure global capital flows without also restructuring global...

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.