1/5
I know that implementing tariffs on Canada and Mexico is done for political reasons, but we should be very clear how inconsistent they are with a functioning trade policy. In fact these tariffs will actually make US trade deficits larger.

bloomberg.com/news/articles/… 2/5
That's because Canada and Mexico, both economies that run persistent trade deficits, help absorb part of the global excess of savings that the US, with its open capital account, must automatically absorb as foreigners exchange their trade surpluses for US assets.

1/7
"The EU should encourage Chinese carmakers to open more plants in the bloc as part of a deal to drop punitive tariffs on imported Chinese electric vehicles, the boss of Mercedes-Benz has said."

via @ftft.com/content/60a95d… 2/7
This doesn't make a lot of sense to me. The whole purpose of tariffs in this case is to reverse the implicit flows that subsidize foreign production at the expense of foreign consumption, which in turn undermine European manufacturers.

1/5
Reuters: "Argentina likely logged the largest trade surplus in its history in 2024 on the back of libertarian President Javier Milei's bid to boost grains and energy exports in his first full year in office."

reuters.com/world/americas… 2/5
A trade or current account surplus is definitely good news for Argentina's foreign creditors because it is the only way Argentina can be a net exporter of capital, which in Argentina's case means it is the only way Argentina can service its external debt.

1/5
Very interesting Caixin article on the reason for the recent good performance of Chinese bank stocks: "Investors in China’s mainland stock market made the sector the market’s top performer despite...

caixinglobal.com/2025-01-17/in-… 2/5
the country’s sluggish economy, a slowdown in loan growth, and concerns about a deterioration in asset quality. The reason? Dividends. Banks doled out cash payments to shareholders like confetti."

1/9
The FT notes that China recorded its third consecutive year of population decline in 2024, but it seems to me that much of the discussion surrounding the population decline may be a little overdone.

via @ftft.com/content/516f9c… 2/9
The real medium- and long-term challenge for China lies in the way it rebalances the domestic distribution of income. If it can raise household income fast enough and in a non-disruptive way, a declining working population is still consistent with...

1/6
SCMP: "Five provincial-level regions – the provinces of Shanxi and Sichuan, the Inner Mongolia and Xinjiang Uygur autonomous regions, and the southwestern megacity of Chongqing – increased their minimum wages recently."

via @scmpnewssc.mp/wa2vj?utm_sour… 2/6
By raising minimum wages, these regions are hoping to boost consumption in a sustainable way. Higher wages of course mean higher spending budgets which, in turn, mean more spending on consumption.

This is not an easy book to find, but it's a gem. Ragnan Nurkse's League of Nations study on distortions in the global balance of payments was apparently a fundamental text for those gathered at Bretton Woods. 2/5
In the book he discusses the capital and trade imbalances that plagued the global economy in the 1920s and 1930s with a special focus on how "disequilibrating" financial flows drove distortions in trade that in turn created distortions in domestic economies.

1/10
I always enjoy reading Noah Smith's always thoughtful and often brilliant pieces on macroeconomics, but while he doesn't always agree with me on trade (and vastly overstates my influence), this is the sort of discussion we should be having in the US.

noahpinion.blog/p/the-pettis-p… 2/10
Smith takes on the whole recent debate about tariffs and considers the various ways in which different aspects of the debate might be right or wrong, with his key point being that the issue is a very complicated one. He is right, of course.

1/16
"Free trade is perhaps the closest thing to a universally held value among economists."

The problem is not that "free trade" is in fact a bad thing. It is that most economists don't seem to have a sense of what "free trade" actually looks like.

nytimes.com/2025/01/10/bus… 2/16
In a world of free trade, countries exports goods in which they have a comparative production advantage in order to pay for the import of goods in which they don't. Trade, in that world, is broadly balanced, and international capital mostly funds trade finance and...

1/7
Gillian Tett: "Indeed, as an IMF blog recently noted, there are already signs that many non-American central banks are diversifying away from the dollar — albeit very slowly and modestly from a high base, and mostly into minor currencies."

ft.com/content/762c39… 2/7
I wish this were true, but I doubt it. If you count not just the official reserves of central banks but also hidden reserves held by state-affiliated entities, and certainly if you include all non-US entities, The amount of US assets held by foreigners is rising, not falling.

1/7
FT: "China’s government bond market has opened 2025 with a clear warning for policymakers: without more determined stimulus, investors expect deflationary pressures to become even more entrenched in the world’s second-largest economy."

via @ftft.com/content/6fe070… 2/7
In fact China does not need "more stimulus" nor even "more monetary easing" to boost inflation and raise bond prices, nor is that what the bond markets are saying. On the contrary, a quick glance at the debt numbers shows that China has had...

1/10
FT: "A cheaper renminbi would help Chinese exporters remain competitive in the face of higher tariffs in the US, but it could also leave China open to the accusation of currency manipulation, a charge levelled by the previous Trump administration."
ft.com/content/215e50… 2/10
It seems that traders are betting that the combination of an increasingly sluggish Chinese economy and a potential rise in US tariffs will force down the value of the RMB.

But I think this is a much more complicated issue than these traders might think.

1/6
“Automation, whether full or semi, replaces jobs and erodes the historical work functions we’ve fought hard to protect,” according to the head of the International Longshoremen’s Association, but while automation can...

via @ftft.com/content/eb11f6… 2/6
certainly be disruptive for workers in the short term, it is rising productivity that makes a country richer, and automation is a necessary part of this process.

The real problem for workers and overall employment is not automation but rather income inequality.

1/4
There were more signs today that domestic demand in China isn’t recovering. In spite of all the huffing and puffing over stimulus spending, consumer coupons, and shopping events, CPI inflation in December was flat month on month.

english.news.cn/20250109/da842… 2/4
Although this was much better at least than the -0.6% and -0.3% changes in November and October, it represents nonetheless the fourth month of zero to negative price changes.

On a year-on-year basis, CPI inflation was 0.1%, in line with expectations.

1/8
As always, Dani Rodrik presents a nuanced discussion of tariffs without the hysteria that usually surrounds any such discussion. He notes that "an import tariff is a specific combination of two different policies: a tax on...
project-syndicate.org/commentary/tru… 2/8
consumption of the imported good and a production subsidy for its domestic supply", and of course I fully agree. A tariff is just an industrial policy that works by taxing consumption and subsidizing production. In that sense, it is a lot like devaluing the currency.

1/6
Very interesting FT article: "Chinese venture capitalists are hounding failed founders, pursuing personal assets and adding them to a national debtor blacklist when they fail to pay up, throwing the country’s start-up funding ecosystem into crisis."
ft.com/content/38f1e5… 2/6
Around 80% of VC deals in the past included redemption provisions, which require issuers "to buy back investors’ shares plus interest if certain targets such as an initial public offering timeline, valuation goals or revenue metrics are not met."

1/16
Barry Naughton: "Japan spent almost a decade trying to painlessly restructure a financial system that had suffered a huge reduction in the value of its assets. And now China seems to be repeating some parts of that."
thewirechina.com/2025/01/05/bar… 2/16
Naughton is right, and on an issue that is widely misunderstood. The huge surge in China's debt burden has been an enormous problem, but not because the debt itself is the problem. It is just the symptom of the problem.
ft.com/content/630f82…

1/5
NYT: "“Our new approach to trade recognizes people as more than just consumers, but also producers,” Katherine Tai said in a 2023 speech."

This is a key point in any serious discussion of US trade or industrial policy.

nytimes.com/2025/01/04/us/… 2/5
Analysts usually explain the impact of tariffs and other policies on Americans primarily in terms of their effect on consumer prices, and argue that anything that raises prices for individual goods undermines American welfare by reducing overall consumption.

1/7
It is true that the 1930s were a period of beggar-thy-neighbor trade policies and declining global trade that left the global economy collectively worse off, and that this might hold lessons for us today, but it is important to get the story right.

bloomberg.com/news/newslette… 2/7
One possible story is that everything was going well until various economies, for political reasons, decided to intervene in trade, setting off a sequence of intervention and retaliation that left the global economy worse off.

1/7
Bloomberg discusses a decline in the USD value of RMB, arguing that "looking ahead, China’s economic fundamentals point to further depreciation", as if this were more about RMB depreciation than about USD appreciation.

via @marketsbloomberg.com/news/articles/… 2/7
Last week, Foreign Affairs published my article explaining why the Smoot-Hawley tariffs were contractionary for the US economy. When a county has weak domestic demand and relies on trade surpluses to clear...
foreignaffairs.com/united-states/…

1/6
Good WSJ article on the difficulty China might have in responding to an increase in global trade conflict. The more general point, as I explain in my recent Foreign Affairs article, is similar to the one Ragnar Nurkse made...
via @WSJwsj.com/economy/trade/… 2/6
in his classic 1944 book, International Currency Experience, when he pointed out that “the devaluation of a currency is expansionary in effect if it corrects a previous overvaluation, but deflationary if it makes the currency undervalued.”
foreignaffairs.com/united-states/…