1/12
Interesting article on the discussion within Washington on trade, but I disagree with the claim that manufacturing output "as a share of the U.S. economy hasn’t really declined much in the past 70 years, once you’ve factored in inflation."

via @politicopoliti.co/4be2XW9 2/12
That's not true. According to the World Bank, the manufacturing share of the US economy declined in from 16% in 1997 to to 11% today. That's a big drop. Manufacturing in 1997 was more than 50% larger as a share of US GDP than it is today.

data.worldbank.org/indicator/NV.I…

1/8
It's still surprising to me how so few economists have thought this through. Thanks to importing cheap goods from abroad, as the New York Times puts it, "economists knew some American workers would lose their...

nytimes.com/2024/05/18/bus… 2/8
jobs, but they said the economy would gain overall by offering consumers low-cost goods and freeing up companies to invest in higher-value industries where the United States had an innovation advantage."

1/10
We can't make too big a deal out of one month's data, but today's data release does seem to confirm that China's heavily supply-side response to what is mostly a demand-side problem is making the Chinese economy more unbalanced than ever.

stats.gov.cn/english/PressR… 2/10
In April, according to the NBS, the industrial output proxy rose by 6.7% year on year, and by an even heftier 0.97% month on month. These were above last month's numbers and well above market expectations. They suggest that China' strong production is getting even stronger.

1/5
If China is indeed selling off US assets ($53 billion is a little over 1% of its total direct and indirect reserves), this may be a good thing for China, but it's also a good thing for the US.

via @marketsbloomberg.com/news/articles/… 2/5
It means fewer foreign savings being dumped into US economy, less strength in the dollar, and a contracting US current account deficit. And contrary to what many believe, it would have no net impact on US interest rates.

1/4
Using Noah Smith's four reasons for protectionist policies, it is important to note that while the Biden tariffs may accomplish points 1 and 4, they will not resolve US trade imbalances (point 2).

https://twitter.com/Noahpinion/status/1790343804261695542

2/4
That's because as long as China retains its excess savings, and as long as the bulk of these are directly or indirectly invested in the US, China's overall surplus will be unchanged, as will the overall US deficit.

1/9
Adam Tooze responded to several recent articles and comments, and as always, his response is very thoughtful and very illuminating. As he says "clearly, Pettis and I are maneuvering around the same set of issues."

adamtooze.substack.com/p/chartbook-28… 2/9
He worries about the wrong sorts of tactical alliances in the name of economic sovereignty and, frankly, so do I, but I am much more pessimistic about the sustainability of the existing system of global imbalances than he is and, perhaps more importantly, we disagree on...

1/5
"Globally," Tyler Cowen notes, "the labor share, which is the fraction of an economy’s output that goes to workers, has declined by six percentage points since 1980."

@tylercowen via @opinionbloomberg.com/opinion/articl… 2/5
"If globalization were the culprit," he adds, "labor’s share should be rising in China and other major exporting countries — but the opposite is true."

I see it very differently, as Matt Klein and I argued in our book.

1/8
Adam Tooze is of course right to worry that any major adjustment in the global role of the US dollar is likely to be disruptive for the global financial system, but I think he, like others, grants too much agency to US control of the dollar.

via @ftft.com/content/ad0e04… 2/8
It is true that Washington and the Fed can affect the short-term performance of the dollar, both directly and by implementing industrial and trade policies that change the US role in the global economy. Ultimately, however, the outsized role of the dollar, and the…

1/6
Great essay by Perry Mehrling: "For Minsky, the boom is thus not at all a matter of irrationality but rather of profit seeking, of firms looking to reduce financing costs in competition with other firms which are also looking to reduce...

journals.openedition.org/oeconomia/16488 2/6
financing costs, and of banks accommodating them. Over time, as financing arrangements get ever more fragile, in the end it takes very little to prick the bubble and shift everything into reverse."

1/14
Here's a very good thread – linked to a very good essay – on Beijing's "technonationalism". I've long argued that, like the USSR in the 1960s, Beijing hopes that a technological breakthrough will drive a resolution of its economic problems.

https://twitter.com/Scholars_Stage/status/1788626541678670292

2/14
In his essay Greer lists various descriptions of the problems facing the Chinese economy and asks "China’s leadership is not stupid. If the conclusions of the western economists are so evidently true, why does the Politburo and its advisors not grasp something so obvious?"

1/7
"The main reason China has not built a stronger safety net for the elderly is that policymakers, fearing the economy might fall into the middle-income trap, prioritise growing the pie rather than sharing it, a government adviser told Reuters."

reuters.com/world/china/ra… 2/7
The irony is that Beijing refuses to shift from supply-side support to demand-side support because it fears falling into the middle-income trap, but it may well be the failure to make the shift that constitutes the trap.

1/9
"China denied generating overcapacity and accuses the EU of protectionism. Xi Jinping reiterated that position in talks with Macron, saying there is no capacity issue viewed from the perspective of comparative advantage or global market demand."

bloomberg.com/news/articles/… 2/9
Xi is right to argue that overcapacity in any particular industry can simply be an expression of comparative advantage. In a well-functioning global trade environment, countries will indeed "overproduce" those products in which they have...

1/6
In their article, Kate Mackenzie , Tim Sahay note that "in 2023, the private sector collected $68 billion more in interest and principal repayments than it lent to the developing world. International financial institutions and...

phenomenalworld.org/analysis/new-w… 2/6
assistance agencies extracted another $40 billion. The result is that as developing economies make exorbitant interest payments to their creditors, they are forced to cut spending on health, education, and infrastructure at home."

1/6
China’s steel industry has become a stand-in for the overall economy, with growing supply facing declining domestic demand. According to the World Steel Association, China produces roughly 55% of all the steel produced in the world.

sc.mp/u3x3q?utm_sour… 2/6
It produces nearly 80% more than the next nine biggest producers, which are, in order, India, Japan, the US, Russia, South Korea, Turkey, Germany, Brazil and Iran.

The article quotes the VP of the China Iron and Steel Association saying: "The biggest problem now is how...

1/10
In response to a question on Chinese overcapacity at this week's press conference, the Foreign Ministry's Lin Jian responded: "The “China overcapacity” accusation may look like an economic discussion, but the truth is, the accusation is built on...

fmprc.gov.cn/mfa_eng/xwfw_6… 2/10
false logic and ignores more than 200 years of the basic concept of comparative advantage in Western economics. All countries produce and export products of their comparative advantage and this is the nature of international trade."

1/8
Bloomberg: "Yen intervention alone cannot alter the wide gulf in interest rates that’s driving the currency’s decline."

This is a classic illustration of the Mundell-Fleming impossible trinity.

via @marketsbloomberg.com/news/articles/… 2/8
As long as the US maintains completely open capital accounts, the Fed cannot choose an appropriate interest rate for the US economy without having the economy affected (undermined, in this case) by the resulting impact on the currency.

1/9
An awful lot of prominent people still don't understand how the balance of payments works. The vice-dean of Renmin University’s School of International Studies, for example, has called for China to continue reducing its USD holdings.

via @scmpnewssc.mp/78xma?utm_sour… 2/9
In fact China isn't reducing its holdings of USD assets. It is increasing them. The PBoC may be selling part of its direct holdings of US government bonds, but Beijing overall continues to increase its holdings of USD governments, agencies and other assets.

1/8
Good FT article on China's intractably unbalanced economy: "China’s seeming reluctance to rebalance its economy is one of the great challenges facing global financial systems, threatening to worsen Beijing’s trade and diplomatic relations."

via @ftft.com/content/35471c… 2/8
The Chinese economy has locked itself into a system in which every economic problem is met by supply-side policies that expand investment or, more precisely, that force households to increase their indirect transfers to investment and manufacturing.

1/8
"High Fed rates, a response to stubborn inflation, mean that American assets offer better returns than much of the world, and investors need dollars to buy them."

This creates a double whammy for US producers.

nytimes.com/2024/04/29/bus… 2/8
High inflation rates mean that the prices of US-produced products are rising relative to those produced abroad or, which is the same thing, that the US dollar is appreciating in real terms. A nominally rising US dollar simply reinforces this process.

1/11
In my latest piece for the FT, I argue that there are two very different trade-related conflicts involving China that are too often conflated. On the one had is the problem of excess capacity in certain industries.

via @ftft.com/content/879f5d… 2/11
Beijing wants China to have a comparative advantage in producing certain products, like electric vehicles, solar panels, batteries and ships. Beijing has every right to support and protect these industries, but of course so do the US, the EU and other economies.

1/6
Bloomberg says that there is a small but rising expectation of an RMB maxi-devaluation: "Supporters of a sharp currency depreciation say it would allow Beijing boost exports and give the central bank room to cut interest rates."

via @marketsbloomberg.com/news/articles/… 2/6
The idea that China's economic problem is weak exports, and the way out of its slowdown is to accelerate exports further, is a strange one. China's biggest economic problem is clearly weak domestic demand.