1/8
A translation (by Fred Gao) of a very interesting recent speech by Liu Shijin, a former Deputy Director of the Development Research Center of the State Council. Liu begins by acknowledging how astonishingly low China's consumption share of GDP is.

fredgao.com/p/liu-shijins-… 2/8
"I want to emphasize a concept here." Liu says. "China's insufficient consumption is not an acceptable deviation from international average levels, but a significant gap of 20 percentage points, which can be described as a "structural deviation.""

1/8
As always, a very interesting article by Martin Wolf. I think, however, that he underestimates how difficult it will be for China to raise domestic demand (I agree with Matthew Klein here).

via @ftft.com/content/49e38e… 2/8
There are two ways for China to raise domestic demand. One way, of course, is to increase domestic investment, although in an earlier piece Wolf noted that the fact that China invests 43% of GDP and is...

1/14
Joe Nocera's piece on the backlash against our current form of globalization properly credits Dani Rodrik with being the first serious economist, and still the most important, to question the "quasi-theological" beliefs of neoliberal globalists.

thefp.com/p/the-intellec… 2/14
"Why were we so quick", Nocera asks, "to label anyone who even flirted with the idea that maybe the U.S. should be protecting its industrial base, just as other countries did, as a Pat Buchanan-like fool?"

1/7
“We are now going from a predictable trade regime to what is going to be a new equilibrium,” IMF Managing Director Kristalina Georgieva said. “The way from here to there, very uncertain.”
via @businessbloomberg.com/news/articles/… 2/7
I think this is the right way to understand what we are going through. Trade disruption did not start in 2018. In my 2013 book I argued that given huge and growing trade imbalances, the world was headed inevitably towards trade conflict.

1/8
Andrés Velasco argues that the US benefits from the exorbitant privilege of USD dominance but while he acknowledges concerns that a strong dollar makes American industry uncompetitive, he dismisses this concern as irrelevant.

project-syndicate.org/commentary/glo… 2/8
Instead, he gives the standard two reasons why the US benefits. First he notes that foreigners hold US dollars as a form of savings. The Federal Reserve, he claims, estimates that foreigners hold more than $1 trillion, or 45% of the total currency in circulation.

1/4
Bloomberg argues that "President Xi Jinping’s government is showing signs of increased sophistication when it comes to geo-economic strategy" in its dealings with the EU, and this is probably true.

via @economicsbloomberg.com/news/newslette… 2/4
But it may miss the point. This really isn't about better manners and friendlier gestures. The problem is that China's growth strategy is built around growing its share of global manufacturing, which requires huge...

1/6
As always, the idea that countries like Japan can use their massive holdings of US Treasuries as "leverage" in trade talks is a fantasy. For decades we have heard similar warnings from other countries, and yet no one ever uses this leverage.

via @ftft.com/content/912f86… 2/6
This suggests that either participants in global trade conflicts are much nicer than we thought, or that countries with huge amounts of US Treasury bonds don't have the leverage they think they do.

1/14
This article by Tim Harford is useful because it shows some of the partial thinking that often distorts discussions about trade. One area of confusion is when he discusses how comparative advantage works.

via @ftft.com/content/21a78e… 2/14
As he discusses the arithmetic of comparative advantage, he fails to emphasize that it is able to maximize total production only because each side exports the goods and services in which it has a comparative production advantage in order to import those in which it doesn't.

1/8
Good Keith Bradsher article on the extent of automation in the car industry: "China’s secret weapon in the trade war is an army of factory robots, powered by artificial intelligence, that have revolutionized manufacturing."

nytimes.com/2025/04/23/bus… 2/8
"As a result," he continues, "China’s factories will be able to keep the price of many of its exports lower, giving it an advantage in fighting the trade war."

But it is more complicated than that. Automation increases the productivity of workers.

1/4
Caixin: "China reported better-than-expected year-on-year GDP growth of 5.4% in the first quarter, in stark contrast to the country’s fiscal performance — tax revenue fell 3.5% in the period, continuing a downward trend that began at the end of 2023."

caixinglobal.com/2025-04-22/ana… 2/4
According to the MoF, the main reason for the decline in tax revenues was tax rebates for businesses that spent on equipment, logistics and R&D expenses.

This helps show why it is so hard to boost the domestic role of consumption.

1/8
This Caixin article summarizes various proposals by Chinese academics on how to respond to Trump's tariffs. Most of these proposals focus on boosting domestic demand, but some involve expanding "free-trade" relationships with other countries, which...
caixinglobal.com/2025-04-18/in-… 2/8
basically means that if the US stops absorbing China's growing trade surplus, China should ensure that other countries (mainly Europe) do so instead.

But this misses the point. Dozens of countries have already raised tariffs on Chinese goods, and this is likely to worsen.

1/5
Reuters: "Policymakers have to walk a tight rope as the yuan has come under pressure after U.S. President Donald Trump's tariff onslaught, while shrinking interest margins at lenders has continued to limit the scope for monetary easing."
reuters.com/markets/rates-… 2/5
Reuters adds that "A reduction to the banks' deposit rates could alleviate net interest margin pressure at lenders and allow them to lower lending rates," but this also shows why rebalancing is so difficult.

1/5
WSJ: "In the two weeks since President Trump’s “Liberation Day,” many U.S. trade partners have a clear plan to convince Washington against reimposing stiff tariffs on their exports to the U.S.: buy more American stuff."

via @WSJwsj.com/economy/trade/… 2/5
Getting foreigners to "buy more American stuff" may seem like an obvious way to resolve US trade imbalances, but it isn't. Trade clears systemically, and without changing the domestic policies that drive savings imbalances, trade imbalances won't change.

1/4
Because the only sustainable way to rebalance the Chinese economy towards a greater role for consumption in driving demand requires that household income, including transfers, rise faster than GDP, it is good news that...
english.news.cn/20250416/47426… 2/4
China's per capita disposable income increased by 5.6% (5.5% nominal) year on year in the first quarter of 2025, versus GDP growth of 5.4%.

The problem is that the gap between GDP growth and household income growth must be much larger.

1/8
China's GDP growth for the first quarter of 2025 came in above expectations on a year-on-year basis and below expectations on a quarter-on-quarter basis, which shows how hard it is to reconcile the two.

english.news.cn/20250416/fb2cb… 2/8
At 5.4% year on year, compared to 5.3% in 2024, economic activity in the first quarter of 2025 was disproportionately driven by a surge in exports. On a quarter on quarter basis GDP growth was only 1.2%, however, below expectations and well below last year's 1.5%.

1/10
WSJ: "Around this time, less developed parts of the world, where labor costs were much lower, began dialing up manufacturing of nondurable goods in Latin America and Asia. The U.S. started importing more and more of those items."

wsj.com/economy/us-man… 2/10
I think this is a common misperception. It is not low wages abroad that drove manufacturing out of the US. After all Japanese wages in the late 1980s matched or even exceeded American wages, and yet Japan nonetheless absorbed a great deal of manufacturing from the US.

1/6
SCMP: "Yu has been outspoken in his advocacy for the reduction of China’s US Treasury bill holdings and has advised Beijing to stay alert for any attempts to use the country’s foreign assets against it."

via @scmpnewssc.mp/8tmps?utm_sour… 2/6
It won't be easy for China to shift away from US assets, but to the extent it tries, this could create a new set of tensions within the global trading system. That's because every year China must acquire enormous amounts of foreign assets to balance its surplus.

1/4
Good article on how US tariffs are complicating the relationship between China and the EU. Some analysts argue that US tariffs will force China and the EU closer together as each diverts its exports from the US to the other.

nytimes.com/2025/04/04/wor… 2/4
But that assumes that either the EU is willing to replace the US as consumer of last resort for excess Chinese manufacturing capacity, or that China will play that role for the EU. The former will be extremely painful for the EU, while the latter is all but impossible.

1/9
Citibank thinks that "the 54% US tariffs on China’s goods announced since the start of Trump’s second presidential term may drag the country’s gross domestic product growth down by 2.4 percentage points in 2025."
via @economicsbloomberg.com/news/articles/… 2/9
I don't think this is the right way to think about it. The surge in China's trade surplus contributed 1.5 percentage points (ppt) to China's GDP growth in 2024. This is an extraordinarily high contribution, and there is almost no way it will be...

1/14
It is hard to see much systemic thinking in the new round of tariffs, and because trade can only be resolved on a systemic basis, and not on a bilateral basis, this means that they are unlikely to be very helpful.

nytimes.com/live/2025/04/0… 2/14
Unfortunately it is also very hard to discuss tariffs in a non-hysterical way. They are neither the panacea that the Trump administration supposes they are, nor are they the instrument of Satan, as most American economists truly believe them to be.

1/12
Yicai: "China will further strengthen the role of domestic consumption in driving economic growth this year to offset the impact of weaker external demand caused by higher tariffs imposed by the Trump administration, according to...
yicaiglobal.com/news/china-to-… 2/12
Shen Kaiyan, of the Shanghai Academy of Social Sciences."

"At the same time, we must recognize that consumption stems from effective demand that is backed by purchasing power," Shen said, adding that in the long run, increasing household income is essential.