“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
AI Summary.China's record goods trade surplus surpassed $1tn, driven by fierce domestic competition among manufacturers that investors describe as malignant but that yields high-quality products at prices rivals struggle to match. European leaders have called the surge of high-tech Chinese goods an existential threat to their continent's manufacturing.
Ryan McMorrow, Sam Fleming, Peter Foster and Joe LeahyFinancial Times
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As Chinese firms’ profits vanish in the face of “involution,” a second China Shock is underway. China boosted exports ~15% y/y in the first 3 months of 2026. China’s Jaecoo 7 SUV, with a starting price of £29,000, was the UK’s best-selling car in March.
Is domestic competition in China making its manufacturers unbeatable abroad?
Core argument: China recorded a record goods trade surplus surpassing $1tn in 2025, alongside a surge of high-quality Chinese goods sold at low prices.
“Companies that can survive in China are unbeatable anywhere else in the world,” says Huang He, an investor in Mega-Senway and more than a dozen other Chinese industrial groups. Chinese founders have to “use every possible means” to survive, he says, collectively creating the country’s unmatchable competitiveness. “China is full of engineers — tech barriers last six months to a year at most.” For Huang it feels like a whirlpool sucking his company downwards. “This is not a healthy situation,” he says. “There’s malignant competition.” The outside world sees unstoppable Chinese champions selling quality products at impossible prices. After racking up a record trade surplus in goods that surpassed $1tn in 2025. France’s President Emmanuel Macron, one of several European leaders to visit Beijing in the past six months, did not mince his words on a threat he sees as existential. The surge of high-quality Chinese goods, he said, represented nothing less than a “question of life or death” for manufacturing on his continent.
Takeaways by Macro Roundup® AI
China recorded a record goods trade surplus surpassing $1tn in 2025, alongside a surge of high-quality Chinese goods sold at low prices.
French President Emmanuel Macron called the surge of high-quality Chinese goods a "question of life or death" for manufacturing in Europe.
Chinese investor Huang He attributes China's competitiveness to founders using "every possible means" to survive and an abundance of engineers that limits technology barriers to six months to a year, calling the resulting "malignant competition" unhealthy.
Related Articles:
The Deflation Doom Loop Trapping China’s Economy— China's broad price gauge, the GDP deflator, has been negative since 2023, indicating weak domestic demand, with profits shrinking across industries from steel and electric vehicles to cosmetics and profit margins among publicly traded mainland firms at their lowest since 2009. Fixed-asset investment in homes, factories and roads fell for the first time on record.
What’s New About Involution?— China's cycle of relentless competition and price cutting stems from its long-standing growth model, with the latest phase driven by an engineered shift of investment from property into manufacturing that was not tied to expected demand growth. Administrative fixes and exports shift excess capacity between sectors rather than resolving it.
Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push— Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
AI Summary.Chinese exports rose nearly 22% year-over-year in the first two months of 2026, exceeding expectations and producing a record trade surplus for the period. Growth is concentrated in less labor-intensive goods such as batteries, cars and chips, while an alternative wage measure sits near its lowest level outside the pandemic.
Bloomberg StaffBloomberg
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In the first two months of the year, China’s exports were 22% above their level a year earlier. A Goldman analysis found that as of Q3 2025, wages had grown at close to their lowest y/y level on record, excluding the pandemic period.
Does surging export growth lift wages for China's factory workers?
Core argument: Chinese exports rose almost 22% from a year earlier in the first two months of 2026, exceeding expectations and producing a record trade surplus for the period, according to official data.
Official data on Tuesday showed Chinese exports surged almost 22% from a year earlier in the first two months of 2026, an increase that was more than expected and resulted in a record trade surplus for the period. Future technologies such as batteries, cars and chips — deemed essential for competing with the US — are taking a larger share of exports, but those products are less labor intensive. Perhaps more alarming for global trade, the trend only appears set to get worse in the short term as an explosion of AI and robotics spawns so-called dark factories that require no human workers. An alternative measure of China’s wage growth compiled by Goldman Sachs is hovering around the lowest level outside the pandemic in data going back to the beginning of the century. Further masking the pain is gig work, which now accounts for about 40% of urban employment.
Takeaways by Macro Roundup® AI
Chinese exports rose almost 22% from a year earlier in the first two months of 2026, exceeding expectations and producing a record trade surplus for the period, according to official data.
Batteries, cars and chips — technologies deemed essential for competing with the US — are taking a larger share of Chinese exports, but those products are less labor intensive, and AI and robotics are spawning dark factories requiring no human workers.
An alternative measure of Chinese wage growth compiled by Goldman Sachs is hovering near its lowest level outside the pandemic in data going back to the beginning of the century, with gig work now about 40% of urban employment.
Related Articles:
The True Cost of China’s Falling Prices— Prices fell for 51 of 67 consumer items tracked over a two-year period in China, while the broader GDP deflator, which includes upstream sectors, declined for 10 straight quarters, indicating deflation is more entrenched in industry. The share of "zombie" firms whose profits cannot cover debt interest rose from 19% to 34% over five years.
China’s Trade Surplus, Part I— China's very high investment rates, combined with a shrinking workforce and slowing productivity, produce sharply diminishing returns, making its decades-old high-savings, high-investment growth model unsustainable. The author argues China's leaders resist a pivot toward consumption because of ideology and geopolitical ambition, with the leadership rejecting welfare spending as breeding dependency.
Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push— Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
AI Summary.The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.
Vince Golle and Mark NiquetteBloomberg
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The US trade deficit was $901.5B in 2025, effectively unchanged from 2024 despite the new tariff regime. The US bilateral deficit with China fell to $202B, the smallest in 20 years, while the gap with Taiwan widened to a record $146.8B.
Is artificial intelligence investment driving a larger US trade deficit?
Core argument: The US goods and services trade deficit totaled $901.5 billion for the full year, one of the largest in Commerce Department data going back to 1960.
The US trade deficit widened in December, capping a turbulent year of erratic tariff policy. The goods and services trade gap expanded from the prior month to $70.3 billion, Commerce Department data showed Thursday. The shortfall culminated in a full-year deficit of $901.5 billion, still one of the largest in data back to 1960. Last year, US companies imported nearly $145 billion worth of computers and accessories more than they did in 2024. The acceleration in demand reflected the massive investment underway in artificial intelligence.
Takeaways by Macro Roundup® AI
The US goods and services trade deficit totaled $901.5 billion for the full year, one of the largest in Commerce Department data going back to 1960.
The monthly US trade gap widened to $70.3 billion in December from the prior month, according to Commerce Department data, capping a year of erratic tariff policy.
US companies imported nearly $145 billion more in computers and accessories than in 2024, an acceleration in demand that reflected the investment underway in artificial intelligence.
Related Articles:
The Dangerous Triumph Of Neo-Mercantilism— Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
China Blames US For Trade Imbalances As Surplus Hits Record $1.2tn— China reported a record annual goods trade surplus of $1.2tn, with monthly exports growing 6.6% year over year in dollar terms, more than double analysts' average forecast of 3.1%. Chinese customs officials argue that other countries' restrictions on high-tech exports to China are holding down China's imports.
The Budget and Economic Outlook: 2026 to 2036— The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
AI Summary.The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.
Mary Amiti, Chris Flanagan, Sebastian Heise, and David WeinsteinFederal Reserve Bank of New York
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A FRBNY analysis finds that ~90% of tariffs’ economic burden was borne by American firms and consumers in the first 8 months of 2025. Between January and November, however, that incidence declined 8pp as firms reorganised supply chains.
Are U.S. buyers bearing most of the cost of tariffs?
Core argument: U.S. buyers bore 94% of the 2025 tariff incidence during the first eight months of the year, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices.
94% of the tariff incidence was borne by the U.S. in the first eight months of 2025. This result means that a 10% tariff caused only a 0.6 percentage point decline in foreign export prices. The tariff pass-through into import prices has declined in the latter part of the year. That is, a larger share of the tariff incidence was borne by foreign exporters by the end of the year. In November, a 10% tariff was associated with a 1.4 percent decline in foreign export prices, suggesting an 86% pass-through to U.S. import prices. Given that the average tariff in December was 13% our results imply that U.S. import prices for goods subject to the average tariff increased by 11% (13 times 0.86) more than those for goods not subject to tariffs. These higher import prices caused firms to reorganize supply chains.
Takeaways by Macro Roundup® AI
U.S. buyers bore 94% of the 2025 tariff incidence during the first eight months of the year, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices.
Tariff pass-through into U.S. import prices declined later in 2025: in November a 10% tariff was associated with a 1.4% decline in foreign export prices, suggesting 86% pass-through.
With the average tariff at 13% in December, the results imply U.S. import prices for tariffed goods rose 11% more than for untariffed goods, prices that led firms to reorganize supply chains.
Related Articles:
A Note On Tariffs From The Real World— A large retailer reports that pre-tariff inventory is still being sold, so tariff costs will show up as margin hits later, and that prices must eventually rise roughly 10–15% to cover them. The retailer says its sector's tariff rate went from about 12% to about 33%, and that retailers are holding prices through the holiday season before raising them.
U.S. to Cut Tariffs on Bananas, Coffee and Other Goods From Four Countries— The U.S. announced joint statements with four Latin American countries under which it would reduce tariffs on a range of goods not produced domestically, including bananas and coffee from Ecuador and beef from Argentina. Officials said no government-sponsored beef shipments are planned, but tariff cuts on beef are expected.
Tariffs Are Generating Meaningful New Revenue— New U.S. tariffs are estimated to generate $1.3tn in net new revenue through the end of the current presidential term and $2.8tn through 2034 before economic effects, about $600bn more than previously enacted tariffs. If a court ruling striking down some tariffs is upheld, the remainder could raise as little as $800bn through 2034.
AI Summary.Purchasing managers' surveys show the US manufacturing contraction has extended into a third year, with factory employment down 0.6% over the year to November. Surveys indicate manufacturing export orders and import volumes contracted strongly following the announcement of high tariffs, and factory managers report confusion and difficulty making long-term plans.
Economist StaffThe Economist
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There is little evidence of reshoring as measured by the US manufacturing purchasing managers’ index, which shows that new export orders and imports have been contracting since 2022, and have downticked sharply since Liberation Day.
Have tariffs revived US manufacturing?
Core argument: U.S. manufacturing employment fell 0.6% in the year to November, and the manufacturing contraction indicated by purchasing managers' surveys is entering its third year after the two-year recession that preceded Trump's January inauguration.
By the time Mr. Trump took office in January, America had been in a two-year manufacturing recession, according to purchasing managers’ surveys. Nearly a year on, however, the Trumpian manufacturing renaissance is conspicuous by its absence. The two-year manufacturing contraction is now hitting its third year, and factories have continued to shed jobs; employment fell by 0.6% in the year to November. Surveys suggest that export orders and import volumes for manufacturing have registered a strong contraction since Mr. Trump announced high tariffs on “Liberation Day” in April, one that goes beyond the wider weakness in manufacturing. Factory bosses report confusion and difficulty making long-term plans.
Takeaways by Macro Roundup® AI
U.S. manufacturing employment fell 0.6% in the year to November, and the manufacturing contraction indicated by purchasing managers' surveys is entering its third year after the two-year recession that preceded Trump's January inauguration.
Surveys indicate manufacturing export orders and import volumes have contracted strongly since Trump announced high tariffs on "Liberation Day" in April, a decline beyond the broader weakness in manufacturing.
Factory bosses report confusion and difficulty making long-term plans, and the Trumpian manufacturing renaissance is absent nearly a year into Trump's term.
Related Articles:
Does Manufacturing Matter?— Manufacturing capacity carries military and geopolitical importance, as shown by economic warfare over products like semiconductors and magnets. The policy-relevant question is not whether manufacturing is geopolitically useful but how much should be spent boosting it given resource constraints, and whether to target defense, dual-use, chokepoint, or broad civilian production.
The Incidence of Tariffs: Rates and Reality— The authors estimate that tariff pass-through into US import prices was 80% in 2018–2019 and 94% more recently, while exchange-rate pass-through was low in both periods. Because imported inputs matter for US manufacturing, they argue much of the tariff burden falls on US producers, roughly a 1–2 percentage-point tax on manufacturing.
America is Losing Blue Collar Jobs— US industrial employment has fallen by 65,000 over the past year and is down 123,000 from its early-2025 peak, with manufacturing and transportation accounting for most losses and construction job gains slowing to 52,000 from 191,000 the prior year. The author attributes the decline to tariffs raising input costs, immigration enforcement hitting construction, and cuts to industrial policy subsidies.
AI Summary.New U.S. tariffs are estimated to generate $1.3tn in net new revenue through the end of the current presidential term and $2.8tn through 2034 before economic effects, about $600bn more than previously enacted tariffs. If a court ruling striking down some tariffs is upheld, the remainder could raise as little as $800bn through 2034.
Marc GoldweinCommittee For A Responsible Federal Budget
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The current tariff regime will raise ~$2.8T net new revenue through 2034, conventionally scored, according to a CRFB estimate. “Those who wish to reduce or reverse the tariffs should put forward alternative sources of deficit reduction to replace them.”
How much new revenue do the new tariffs generate?
Core argument: Tariffs introduced by the Trump Administration are estimated to generate $1.3 trillion of net new revenue through the end of his term and $2.8 trillion through 2034 before economic effects, about $600 billion more than the tariffs in effect as of May.
The new tariffs introduced by the current Trump Administration will generate an estimated $1.3 trillion of net new revenue through the end of his term and $2.8 trillion through 2034, before accounting for economic effects – about $600 billion more than the tariffs in effect as of May. The U.S. Trade Court has ruled some of these tariffs illegal, pending appeal. If the ruling is upheld, the remaining tariffs could raise as little as $800 billion through 2034. Depending on the legal outcome, recent tariff increases will generate 0.2 to 0.8 percent of GDP of net new revenue through 2034 under conventional scoring.
Takeaways by Macro Roundup® AI
Tariffs introduced by the Trump Administration are estimated to generate $1.3 trillion of net new revenue through the end of his term and $2.8 trillion through 2034 before economic effects, about $600 billion more than the tariffs in effect as of May.
The U.S. Trade Court has ruled some of these tariffs illegal, pending appeal, and if the ruling is upheld the remaining tariffs could raise as little as $800 billion through 2034.
Depending on the legal outcome, the recent tariff increases will generate 0.2 to 0.8 percent of GDP in net new revenue through 2034 under conventional scoring.
Related Articles:
State of U.S. Tariffs: August 7, 2025— The Budget Lab estimates U.S. consumers face an overall average effective tariff rate of 18.6%, the highest since 1933, falling to 17.7% after consumption shifts away from tariffed goods. The 2025 tariffs are projected to raise $2.7tn over 2026-35, or $2.2tn after $475bn in negative dynamic revenue effects.
Trump’s Tariffs Are Making Money. That May Make Them Hard to Quit— Tariff revenue may make future administrations of either party reluctant to roll back tariffs, since repeal would add to the federal debt and replacing the revenue with other taxes would require a politically risky vote in Congress. Democrats may also be tempted to use tariff revenue to fund new social programs.
Rapidly Growing Treasury Supply Crowding Out Other Types of Credit Growth— Roughly half of all fixed income issuance coming to market over the past year has been US Treasuries, meaning investors must allocate a growing share of dollars to financing the government. The argument is that lower government debt would free up more funds for consumer borrowing and business investment.
AI Summary.The authors argue the United States is a decade away from the scale of automated "lights-out" manufacturing needed to meet its own end-to-end demand at comparable cost. With 98% of US manufacturers being small or medium enterprises, low deployment of mature productivity technologies reflects limited commercial adoption and investment rather than technical readiness.
Danny DeBois, Aidan Madigan-Curtis, Kate Dunbar and Kenza WilksBridgewater Associates
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98% of manufacturers in the US are small-to-medium enterprises that are relatively underpenetrated by advanced technologies, including robots, additive manufacturing, and embodied AI, posing headwinds to rapid increases in US manufacturing productivity.
What limits automation adoption in US manufacturing?
Core argument: 98% of US manufacturers are small-to-medium enterprises that remain relatively underpenetrated by the technologies capable of driving significant growth in manufacturing productivity.
The United States is a decade away from the scale and scope of “lights-out” manufacturing that could enable it to rival the rest of the world’s manufacturing output to satisfy the US’s own end-to-end demand, at a similar or lesser cost. While the current scale and impact of advanced technologies in American industrial production is low outside of low-volume defense manufacturing, several key technological advances are having a positive impact on US industrial productivity. Unfortunately, 98% of manufacturers in the United States are small-to-medium enterprises and are relatively underpenetrated by technologies capable of driving significant growth in manufacturing productivity. Essentially, the low levels of deployment of these increasingly mature technologies in the US today are limited not by technical readiness or maturity, but by commercial adoption and willingness to invest in advanced capabilities and improved manufacturing throughput.
Takeaways by Macro Roundup® AI
98% of US manufacturers are small-to-medium enterprises that remain relatively underpenetrated by the technologies capable of driving significant growth in manufacturing productivity.
The United States is a decade away from the scale and scope of "lights-out" manufacturing that could rival the rest of the world's output in satisfying US end-to-end demand at similar or lesser cost.
Low deployment of increasingly mature manufacturing technologies in the US is limited by commercial adoption and willingness to invest in advanced capabilities and improved throughput, not by technical readiness or maturity.
Related Articles:
America Is Missing The New Labor Economy – Robotics Part 1— Building an identical robotic arm in the US costs about 2.2x more than in China, and US-labeled components still depend heavily on Chinese parts and materials with no scalable alternative. The author argues China is the only country positioned to capture full-scale intelligent robotic automation, which would let it outcompete the US across production.
Global Robot Density in Factories Doubled in Seven Years— Global factory robot density reached a record 162 robots per 10,000 manufacturing employees, more than double the level of seven years earlier. The European Union averages 219 units per 10,000 employees, North America 197, and Asia 182, with Korea, Singapore, mainland China and Japan among the ten most automated economies.
How AI & Robots are Smashing Economics, and Why It Matters— As artificial intelligence and robots make wages less responsive to employment conditions, the link between tight labor markets and inflation weakens, undermining central banks' inflation-targeting frameworks. The author argues central banks would then need far larger interest-rate moves to achieve the same effect, producing more volatile and less predictable outcomes.
AI Summary.The US imports roughly 40% of the goods it consumes, directly and through imported inputs, with labor-intensive goods like apparel almost entirely imported. The authors argue America's main comparative disadvantage is its cost of production, driven mainly by labor costs, with real estate costs and a strong dollar also contributing.
Danny DeBois, Aidan Madigan-Curtis, Kate Dunbar and Kenza WilksBridgewater Associates
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Bridgewater estimates that closing the ~$3T gap btw US manufacturing output and goods consumption will be an uphill battle. Largely due to manufacturing wages 7x that of China, the “US’s biggest comparative disadvantage is its cost of production.”
What holds back US manufacturing competitiveness against foreign producers?
Core argument: The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers' use of imported inputs.
The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers’ use of imported inputs. Certain goods consumption in the US, like apparel, is almost entirely imported, as labor is a large share of the total cost, and these goods can be produced much more cheaply outside the US. Tariffs on these kinds of goods are especially likely to be passed on to the consumer, given the lack of any viable competition from domestic producers any time soon. The US’s biggest comparative disadvantage is its cost of production. Globalization facilitated the offshoring of manufacturing in the US toward economies with much cheaper costs of production, particularly for goods with relatively low manufacturing value added that are also easy to ship internationally. Though US labor costs are the predominant driver of this cost differential, higher real estate costs also play a role. Energy prices, meanwhile, are a modest support. A secularly strong dollar has also effectively raised the cost of US-produced goods relative to foreign-produced goods and contributed to the decline of US manufacturing competitiveness.
Takeaways by Macro Roundup® AI
The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers' use of imported inputs.
The US's biggest comparative disadvantage in manufacturing is its cost of production, driven predominantly by labor costs with higher real estate costs also contributing, while energy prices offer a modest support.
Tariffs on goods like apparel, where US consumption is almost entirely imported because labor is a large share of total cost, are especially likely to be passed on to consumers given the absence of viable domestic competition.
Related Articles:
Why Is Manufacturing Productivity Growth So Low?— Manufacturing productivity growth fell behind other sectors after computer and semiconductor manufacturing productivity, which had grown at roughly 15% and 11% a year, decelerated substantially. The authors also present suggestive evidence that quality improvements are missed in price measures, estimating manufacturing productivity growth is understated by 0.8 percentage points, including 1.7 points for durable goods.
The Mysterious Slowdown in U.S. Manufacturing Productivity— US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States— The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
