1/8
Hauge argues that other countries "are choosing to develop trade deficits with China, or failing to compete with China."

This isn't true. The global balance of payments must balance, and a country's internal and external balances must always be consistent.
@Brad_Setser

https://twitter.com/haugejostein/status/1892520105394761885

2/8
This means that in a hyperglobalized world (Dani Rodrik's phrase) if some countries implement policies that create internal imbalances, they also create the very external imbalances that must be absorbed by their trading partners.

1/7
According to China Banking News, "Xi wants to win the Sino-US trade war by splurging on consumption." It notes that "even prior to an imminent Trump presidency, Beijing had been working on policy designs to drive growth in domestic consumption."

chinabankingnews.com/p/xi-wants-to-… 2/7
"Those policies," it goes on to say, "helped to ensure that China’s end consumption expenditures made a 44.5% contribution to economic growth in 2024, driving a 2.2 percentage point rise in national GDP."

1/16
According to the New York Times, "U.S. officials are considering whether they can strike a deal with China that would ramp up its purchases of American goods and investments in the United States."

nytimes.com/2025/02/19/bus… 2/16
This is an example of why it is so mistaken to think about trade incrementally rather than systematically. Even if the US were to strike a deal in which China would commit to buying more US goods (and assuming China keeps...

1/5
Alex Raskolnikov and Benn Steil write that "U.S. law subsidizes foreign investment in the United States by imposing much lower tax rates on foreign investors than American ones," and argue that because these subsidized inflows distort...
foreignaffairs.com/united-states/… 2/5
the US economy and worsen US trade imbalances, the tax subsidy to foreigners should be removed. I not only agree that the subsidies should be removed, but I'd further argue that foreign inflows should also be taxed.
carnegieendowment.org/china-financia…

1/10
"The loss of German manufacturing jobs has been masked by a broader shift in employment trends," the FT notes, citing employment growth in services industries such as real estate, healthcare, communications and public administration.
ft.com/content/bdba0f… 2/10
"Masked" is the wrong word. If the economy implements fiscal and monetary policies designed to prevent a contraction in the economy and a rise in unemployment, a shift in the economy from tradable goods and services to non-tradable goods and services is the automatic...

1/6
NYT: "For decades in Japan, it was accepted as gospel: A weak currency makes companies more competitive and bolsters the economy. Part of that promise came true last year: As the yen tumbled to a 37-year low against the dollar, big brands...

nytimes.com/2025/02/16/bus… 2/6
like Toyota Motor reported the highest profits in Japanese history. Stocks soared to record highs. Yet for the majority of Japanese households, the weakened yen has done little more than drive up the costs of basic living expenses, such as food and electricity."

1/6
Bloomberg: "It remains unclear to what extent authorities will shift their stance toward the private sector. A show of support by Xi would revive animal spirits, but much depends on whether authorities follow through with concrete policy actions."
bloomberg.com/news/articles/… 2/6
This is the key point. There is a widely-held view that the problems private sector businesses have experienced – including excess capacity, weak demand and declining profits – reflect an ideological shift in policymaking by the authorities, but I think this is incorrect.

1/6
Reuters: "China's central bank governor said on Sunday a stable yuan currency has been key to global financial and economic stability and Beijing will continue to let the market play a decisive role in deciding the exchange rate."

reuters.com/markets/asia/c… 2/6
The second part of his statement does not follow from the first part, and indeed contradicts it, but the RMB has been pretty stable in recent years. The value of the RMB against the CFETS basket, for example, was up 0.6% in the past year and...

1/12
According to Doug Irwin, "The British economist Joan Robinson once said that a country shouldn’t throw rocks into its own harbors just because other countries have rocky coasts."

wsj.com/opinion/recipr… 2/12
This is a very common misperception. The implication is that Robinson opposed all forms of tariffs and trade intervention, even when that intervention came in response to trade intervention by other countries.

1/7
This Reuters article describes a process that my friends and former students who own or run manufacturing companies in China have been telling me about for years.

reuters.com/business/chine… 2/7
As Chinese manufacturing expands faster than Chinese domestic demand, both driven by implicit transfers that effectively tax Chinese consumption and subsidize Chinese production, it must turn increasingly to export markets.

1/13
Very good Foreign Policy interview of the very smart Adam Tooze. He has a real talent for identifying and explaining fundamental differences in intellectual positions without distorting the views of those he might not agree with.

@adam_tooze
foreignpolicy.com/2025/02/07/one… 2/13
He describes the Oren Cass view (with which I agree) as opposing the existing global trade and capital regime because it creates distortions in the US economy that systematically rig the system in favor of consumption and mobile capital and against production.
@oren_cass

1/4
Interesting SCMP article about China's northeast. For years I've been telling clients that for all the promises of convergence, China is becoming two increasingly different regions. scmp.com/economy/china-… 2/4
The "good" China, consisting of 6 or 7 coastal provinces is relatively wealthy, has diversified economies with high but (mostly) manageable debt, and a growing working-age population.

1/7
The bad news for Germany is that industrial production was down in December. The bad news for the world is that German exports were actually up, while imports were down.
reuters.com/markets/europe… 2/7
This means that the rest of the world is diverting a larger share of its own demand towards German production as Germany's growing trade surplus pushes the cost of its weak demand onto its trade partners.

1/12
Interesting NYT article that suggests that much of the world will respond to aggressive new US trade policies by trading more with each other and less with the US. This may be partly true, but it is a bit more complicated than that.

nytimes.com/2025/02/03/bus… 2/12
That's because the US plays two very separate roles in global trade. One role is as a trade "partner", in which the US buys and sells different goods to different countries. The other role, of course, is as consumer of last resort, in which the US absorbs...

1/5
Very good Robert Lighthizer piece on fixing global trade. The problem, as he notes, isn't that free trade has failed. It is that it doesn't exist in the current global trading regime, and hasn't for decades.

nytimes.com/2025/02/06/opi… 2/5
That's why the right approach is not to do nothing and call it "free trade", but to find a way jointly or unilaterally of moving closer to free trade. It took government intervention in mercantilist economies to create the distortions that undermine a well-functioning...

1/5
FT: "US President Donald Trump has pushed India’s Prime Minister Narendra Modi to buy more American-made weapons, as he called for the countries to rebalance their trade relationship."

ft.com/content/a33cda… 2/5
This will certainly help US weapons producers, but it is unlikely to affect the overall US trade balance. That's because (to say it again) trade imbalances only adjust systemically. They do not adjust because of incremental changes in specific imports or exports.

1/5
Adam Posen: “The policies he’s pursuing have a high risk of inflation. It seems that promoting manufacturing and beating up US trade partners are goals that, for Trump, are a higher priority than the purchasing power of the working class.”

ft.com/content/b3d310… 2/5
I agree with Adam that there is much be unhappy about with the administration's trade policies, but I disagree with his claim that inflation is a major constraint on the purchasing power of the working class.

1/14
Brad shows that it is often hard to explain capital inflows into the US as reflecting US macroeconomic conditions, and much easier to explain them as reflecting conditions and political decisions from abroad.

https://twitter.com/Brad_Setser/status/1884090435792166990

2/14
This has very important implications for the US economy. Whenever the balance on the US capital account is determined by conditions abroad, or by political decisions in foreign capitals, it means that the US trade balance is also determined from abroad.

1/9
Of course I agree with Paul Krugman that trade deficits are the obverse side of capital account surpluses, and in fact have long argued that this is the main reason the US has run persistent deficits since the 1980s, but we disagree on what drives the capital inflows.

https://twitter.com/EdwardConard/status/1883982706846920822

2/9
Krugman notes that in the late 1990s and early 2000s, US productivity was rising rapidly, and this drew foreign investment into the US. This, he argues, is exactly how economics is supposed to work: when the US economy does well, it should import capital and run deficits.

1/10
WSJ: "In the early 2000s, politicians revitalized the export model by cutting taxes and loosening wage policies, amid other reforms, which made German companies more competitive on manufacturing costs."

wsj.com/economy/trade/… 2/10
As the household income (and consumption) share of German GDP fell after the Hartz labor "reforms", and business profits surged, the German saving share of GDP soared, even as the German investment share dropped.

1/12
NYT: "Colombia refused to accept U.S. military planes deporting immigrants, setting off a furious reaction from President Trump, who on Sunday announced a barrage of tariffs and sanctions targeting the country."

nytimes.com/2025/01/26/wor… 2/12
The fact that Colombia later changed its stance may seem to have vindicated Trump's strategy, but when there are conflicting objectives, a win on one side may come with a loss on the other.