Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, August 11, 2023

AI Summary. Excluding London's output and population would reduce British living standards by 14%, enough to fall below the poorest US state; by comparison, removing Amsterdam would cut the Netherlands by 5%, removing Munich would cut Germany by 1%, and removing the entire San Francisco Bay Area would cut US GDP per capita by 4%.

John Burn-Murdoch Financial Times
Date Posted:

A @jburnmurdoch analysis shows that excluding, London, per capita GDP of the rest of the UK would be lower than Mississippi, the poorest American state.

How dependent are British living standards on its capital city?

Core argument: Removing London's output and population would cut British living standards by 14%, enough to place the rest of the UK behind the last of the US states, though Britain in the aggregate is not as poor as Mississippi.

Removing London’s output and headcount would shave 14% off British living standards, precisely enough to slip behind the last of the US states. Britain in the aggregate may not be as poor as Mississippi, but absent its outlier capital it would be. By comparison, amputating Amsterdam from the Netherlands would shave off 5%, and removing Germany’s most productive city (Munich) would only shave off 1%. Most strikingly, for all of San Francisco’s opulent output, if the whole of the bay area from the Golden Gate to Cupertino seceded tomorrow, US GDP per capita would only dip by 4%.

Takeaways by Macro Roundup® AI

  1. Removing London's output and population would cut British living standards by 14%, enough to place the rest of the UK behind the last of the US states, though Britain in the aggregate is not as poor as Mississippi.
  2. Excluding Amsterdam would reduce Dutch living standards by 5%, and excluding Munich, Germany's most productive city, would reduce Germany's by only 1%, against London's 14% weight in British figures.
  3. Secession of the entire Bay Area from the Golden Gate to Cupertino would lower US GDP per capita by only 4%, despite San Francisco's opulent output.

Related Articles:

  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth
  • Europe Has Fallen Behind America and the Gap Is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.

AI Summary. German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano notes that Germany has achieved 0.5% cumulative GDP growth since late 2018, and industrial investment remains below 2018 levels.

Is weak industrial investment behind Germany's stagnant output?

Core argument: Germany has recorded less than 0.5% cumulative GDP growth since late 2018, with revised data placing output once again barely above pre-pandemic levels.

Germany’s economy has eked out extremely low growth over the last 5 years—recent revisions to GDP data mean its output is once again barely above pre-pandemic levels, but that still means the country has seen less than 0.5% cumulative GDP growth since late-2018. German industrial investments have not recovered to pre-pandemic levels at a time when countries like the US are pouring record amounts of resources into factory construction and equipment purchases. Real German fixed investment in equipment remains below 2018 levels nearly 5 years later, despite a strong recovery in late 2022 and early 2023.

Takeaways by Macro Roundup® AI

  1. Germany has recorded less than 0.5% cumulative GDP growth since late 2018, with revised data placing output once again barely above pre-pandemic levels.
  2. German industrial investment has not recovered to pre-pandemic levels, while countries such as the US pour record resources into factory construction and equipment purchases.
  3. Real German fixed investment in equipment remains below 2018 levels nearly five years later, despite a strong recovery in late 2022 and early 2023.

Related Articles:

  • Germany Is Running Out of Workers, Putting Growth in Jeopardy — Germany's labor supply is projected to shrink by 3m people, or 7%, over the next decade unless retirees are replaced by migrants, requiring about 400,000 newcomers a year just to hold steady. The offsetting trends of large-scale immigration and rising female employment are now fading as baby boomers retire.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Germany’s Niche Companies Are a Model for Life After Globalization — Germany had 28 companies in the Fortune 500 in 2020, fewer than China's 134, America's 130, Japan's 62 and France's 40, but it has more than a thousand mid-sized firms ranking in the top three of their global niches. These "Mittelstand" companies account for the overwhelming majority of German businesses and about 60% of all jobs.

AI Summary. Foreign investors purchased nearly $670bn of long-term U.S. securities and short-term Treasury bills in a single year, with net purchases by China, India, and Middle East oil exporters well above their average annual net purchases over the prior nine years. The authors argue that increased financial fragmentation would not produce such larger purchases of U.S. assets.

Colin Weiss Federal Reserve Board
Date Posted:

In 2022, purchases of US securities by Middle East oil exporters, China, India, and Mexico were significantly higher than their 2013-2021 averages, despite talk of “financial fragmentation.” @dismaleconomist

Do foreign purchases of U.S. securities show financial fragmentation?

Core argument: Foreign investors bought nearly $670 billion of long-term U.S. securities and short-term Treasury bills in 2022, with purchases by China, India, and Middle East oil exporters large relative to those of other countries.

In 2022, foreign investors purchased nearly $670 billion of long-term U.S. securities and short-term Treasury bills. Not only were the purchases by China, India, and the Middle East oil exporters in 2022 large compared to those by other countries, they were also sizable when measured against these countries' average purchases over the previous nine years. Net purchases in 2022 were well above average annual net purchases from 2013-2021 in every case. As before, under increased financial fragmentation, one would not expect these countries to be making larger purchases of U.S. assets compared to purchases in previous years.

Takeaways by Macro Roundup® AI

  1. Foreign investors bought nearly $670 billion of long-term U.S. securities and short-term Treasury bills in 2022, with purchases by China, India, and Middle East oil exporters large relative to those of other countries.
  2. Net purchases of U.S. assets by China, India, and Middle East oil exporters in 2022 were well above their average annual net purchases over 2013-2021 in every case.
  3. Under increased financial fragmentation, China, India, and Middle East oil exporters would not be expected to make larger purchases of U.S. assets than in previous years.

Related Articles:

  • How Was the U.S. Current Account Deficit Financed In 2022? — As the Federal Reserve allowed some bonds to mature under quantitative tightening, new buyers of Treasury debt were needed, and money-market funds shifted from Treasury bills and coupons into reverse repurchase agreements with the Federal Reserve. The entire net issuance was absorbed by two opaque sectors: households and nonprofit organizations, and the rest of the world.
  • The New Geopolitics of Global Finance — Trade surpluses of energy-exporting autocracies and China are projected to total roughly $1tn, with Russia's topping $250bn and Saudi Arabia's topping $200bn. Because these surplus countries are not adding to official foreign exchange reserves, private financial intermediaries globally must absorb U.S. Treasury bonds and the associated interest rate risk.
  • Saudi Arabia’s PIF and the New Petrodollar Recycling — Saudi Arabia's Public Investment Fund appears to have taken over a significant portion of the foreign asset allocation previously handled by the Saudi Central Bank, making its balance sheet a window into a new form of petrodollar recycling. Of roughly $777bn in total assets, $305bn were current and $472bn non-current, with $225bn of the latter held as investment securities.

AI Summary. China's annual births fell to 9.56mm, the lowest total in its modern history, and an academic at Peking University estimates the following year's births at roughly 7mm to 8mm. Wedding registrations declined for a ninth consecutive year to 6.83mm, the lowest level since the late 1970s.

Luna Sun South China Morning Post
Date Posted:

Chinese fertility has fallen by 40% over the past 5 years with a prominent researcher forecasting fewer than 8mm births in 2023, down from 9.56mm in 2022.

Chinese fertility has fallen by 40% over the past 5 years with a prominent researcher forecasting fewer than 8mm births in...

Are China's births falling to new lows as marriages decline?

Core argument: Qiao Jie, dean of the Health Science Centre at Peking University, estimates China's 2023 births at roughly 7 million to 8 million, down from the 9.56 million recorded last year.

Last year’s 9.56mm births in China represented the lowest total in modern history. “The expected number of births in 2023 is estimated to be around 7 million to 8 million,” Qiao Jie, dean of the Health Science Centre at Peking University, said on Tuesday. Last year, wedding registrations declined to 6.83 million, marking the ninth consecutive annual decline and reaching the lowest level since the late 1970s.

Takeaways by Macro Roundup® AI

  1. Qiao Jie, dean of the Health Science Centre at Peking University, estimates China's 2023 births at roughly 7 million to 8 million, down from the 9.56 million recorded last year.
  2. China's 9.56 million births last year were the lowest total in the country's modern history.
  3. Chinese wedding registrations fell to 6.83 million last year, a ninth consecutive annual decline and the lowest level since the late 1970s.

Related Articles:

  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
  • China and India Have Fewer People Than the UN Thinks — United Nations population figures for India exceed India's own census counts, which put the population at 1.03bn in 2001 and 1.21bn in 2011 versus UN figures of 1.08bn and 1.26bn. India's National Family Health Survey also reported a fertility rate of 1.99, below the UN's 2.1 estimate.
  • An Economic Hail Mary for China — A higher ratio of people aged 59 and over to children under 15 is strongly negatively correlated with GDP growth, as are higher median age and a larger share over 59. In China's northeastern provinces, where fertility fell a decade before the rest of the country, growth has stalled.

AI Summary. Antarctic sea-ice extent reached a level three times further from the average than any previously recorded in July, and only 0.2–0.4% of the continent is currently exposed above the ice. Further warming is likely to expose more land, reducing the surface's reflectivity and increasing the heat the planet absorbs.

Lara Williams Bloomberg
Date Posted:

Declining sea ice has contributed to warming in the Arctic four times faster than the rest of the planet. Record low Antarctic sea ice may contribute to a similar dynamic.

Does shrinking Antarctic ice increase the heat the planet absorbs?

Core argument: Antarctic sea-ice extent in July deviated from the average by three times the largest departure previously recorded.

In terms of sea ice extent, this year has been particularly unusual. July’s sea-ice levels were three times further from the average than what had ever been seen previously. At the moment, Antarctica’s ice reflects a large amount of solar radiation back into space, helping keep the world cool. Only 0.2-0.4% of the continent is exposed above the ice at the moment, but that proportion is likely to increase with further warming. That reduces the albedo – or reflectivity – of the surface and increases the heat absorbed by the planet. It’s an effect we’re already seeing in the Arctic, which is now warming four times faster than the rest of the planet.

Takeaways by Macro Roundup® AI

  1. Antarctic sea-ice extent in July deviated from the average by three times the largest departure previously recorded.
  2. Only 0.2–0.4% of Antarctica is currently exposed above the ice, and that share is likely to rise with further warming, lowering surface albedo and increasing the heat the planet absorbs.
  3. Antarctica's ice reflects a large amount of solar radiation back into space, while the Arctic, where the albedo effect is already visible, is warming four times faster than the rest of the planet.

Related Articles:

Monday, August 14, 2023

AI Summary. The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

David Mericle Goldman Sachs
Date Posted:

.@GoldmanSachs baseline forecast includes a rate cut in Q2 2024 with a terminal fed funds rate of 3-3.25% but notes a rising likelihood the Fed holds rates steady.

Why might the Fed hold off on cutting interest rates?

Core argument: The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.

Why might the FOMC not cut? The simplest reason is that inflation might not come down quite enough. Another possible reason is that even if it does, if GDP growth is above potential, the unemployment rate is pushing below its 50-year low, and financial conditions have eased further on enthusiasm about a soft landing, then stimulating an already-strong economy by cutting might seem like an unnecessary risk, especially with the memory of the recent inflation surge still fresh. In that scenario, the FOMC could say that the short-run neutral rate is higher than common estimates of the medium-run neutral rate, and as a result the monetary policy stance is actually not so restrictive and the need to cut is not so immediate.

Takeaways by Macro Roundup® AI

  1. The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.
  2. Even if inflation falls, GDP growth above potential, unemployment pushing below its 50-year low, and financial conditions eased on soft-landing enthusiasm could make cutting rates for an already-strong economy seem an unnecessary risk after the recent inflation surge.
  3. The FOMC could say the short-run neutral rate is higher than common estimates of the medium-run neutral rate, making the policy stance less restrictive and the need to cut less immediate.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • The Evolution of Short-Run r* After The Pandemic — A model estimates that the short-run neutral real interest rate — the rate consistent with the economy operating at potential — has increased notably, to some extent outpacing the large increase in the policy rate. The model attributes this change mainly to financial shocks, reflecting financial conditions such as corporate spreads remaining resilient despite the higher policy rate.
  • The Case for “Higher for Longer”: Prices are Disinflating, But Not Wages (Yet) — Occupations with the fastest pay gains have seen wage growth normalize while pay growth elsewhere remains persistently faster, with only modest deceleration from the peak. The author argues the neutral policy rate has risen as an investment drought ends, making 5.5% short-term rates unremarkable and 4% 10-year Treasury yields potentially too low.

AI Summary. Higher costs of capital following Federal Reserve rate increases have pushed more companies into bankruptcy, as some firms cannot obtain new loans or refinance existing debt. The author argues this rise in bankruptcies will continue as long as interest rates stay high, which is the intended mechanism for slowing the economy to return inflation to 2%.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes an uptick in bankruptcy filings since the start of the hiking cycle, consistent with his view that a default cycle is underway.

Are higher interest rates driving more companies into bankruptcy?

Core argument: Since the Federal Reserve began raising rates in March 2022, higher costs of capital have pushed a growing number of companies into bankruptcy, the intended effect of slowing the economy to return inflation to 2%.

The Fed started raising rates in March 2022, and the effects are clear. Higher costs of capital have pushed more and more companies into bankruptcy. This is the idea behind raising rates: to slow the economy down with the ultimate goal of getting inflation back to 2%. Every day there are companies that cannot get new loans or refinance, and this trend higher in bankruptcies will continue as long as interest rates stay high.

Takeaways by Macro Roundup® AI

  1. Since the Federal Reserve began raising rates in March 2022, higher costs of capital have pushed a growing number of companies into bankruptcy, the intended effect of slowing the economy to return inflation to 2%.

Related Articles:

  • A Default Cycle Has Started — Default rates on high-yield bonds and leveraged loans are rising as more companies default under a higher cost of capital, with the Federal Reserve signaling interest rates will stay at these levels for a couple of years. Tighter financing conditions are the channel through which monetary policy restrains the economy and capital markets.
  • Most Global Economies Remain in Disequilibrium, Requiring Policy Action — An investment framework holds that markets and economies are driven by three equilibriums — spending in line with output and capacity, incomes in line with debts, and normal risk premiums across assets — interacting with two policy levers, monetary and fiscal policy. When these conditions are absent, the resulting social, political, and business strains produce changes until equilibrium is restored.
  • Furman On Jobs Report — The unemployment rate fell to 3.5% and has stayed within a 3.4%–3.7% band for 17 consecutive months, while recovery in the age-adjusted participation rate has pushed the employment-population ratio for prime-age workers aged 25–54 above its pre-pandemic level. Average hourly earnings growth has picked back up from a 3.5% annual rate to about 5%.

AI Summary. Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that the “slight deterioration” in credit quality is a story of mean reversion, not the start of a default cycle.

Do weaker credit metrics signal normalization rather than financial distress?

Core argument: Excluding Treasuries, over $30t of debt securities are outstanding, and credit spreads have widened from their 2021 lows while remaining within historical ranges.

Excluding Treasuries, there are over $30t of debt securities outstanding. Credit spreads have widened since the lows of 2021, but remain within historical ranges. The slight deterioration seen recently in credit quality across a range of metrics most likely indicates normalization rather than the beginning of financial distress. Looking at bankruptcy filings, filings notably increased in 2023 but only from historically low levels. Given elevated inflation, nominal GDP growth remains high that thus supportive of further revenue growth to support interest expense payments. Interest expense burdens may also further ease next year as the Fed potentially cuts rates next year in line with declining inflation. The overall picture thus suggests a continued benign credit environment.

Takeaways by Macro Roundup® AI

  1. Excluding Treasuries, over $30t of debt securities are outstanding, and credit spreads have widened from their 2021 lows while remaining within historical ranges.
  2. The slight deterioration in credit quality across a range of metrics most likely indicates normalization rather than the onset of financial distress, with bankruptcy filings rising notably in 2023 only from historically low levels.
  3. Elevated inflation keeps nominal GDP growth high and supportive of revenue growth to cover interest expense, and interest burdens may ease further if the Fed cuts rates in line with declining inflation.

Related Articles:

  • A Default Cycle Has Started — Default rates on high-yield bonds and leveraged loans are rising as more companies default under a higher cost of capital, with the Federal Reserve signaling interest rates will stay at these levels for a couple of years. Tighter financing conditions are the channel through which monetary policy restrains the economy and capital markets.
  • How Is the Corporate Bond Market Functioning as Interest Rates Increase? — The Investment Grade Corporate Bond Market Distress Index has risen only modestly during the current interest-rate tightening cycle and has recently trended sideways, with its peak not substantially above the level reached during the earlier 2015 tightening cycle.
  • Settling Into 4% Inflation? — Job churn has been declining while nominal wage growth has remained around 5% a year. Based on the historical relationship between wages, output, and prices, this implies trend nominal gross domestic product growth of roughly 5–6% a year and trend inflation of about 4% a year.

AI Summary. Just 16 of the 100 commuter zones hit hardest by Chinese import competition have hosted any newly announced industrial projects, and those areas are projected to receive 11.4% of project value, or $57.4bn, of which a single IBM announcement accounted for $20bn. The White House counters that those zones hold only 4% of the US population.

Shawn Donnan Bloomberg
Date Posted:

A Bloomberg analysis shows the recent boom in American manufacturing investment is largely bypassing areas that bore the brunt of the “China Shock.” @sdonnan

Is the new factory boom reaching the communities hurt by import competition?

Core argument: Only 16 of the 100 US commuter zones hit hardest by the China Shock have been sites of any newly announced industrial projects over the past two years.

The new industrial boom has mostly bypassed the areas hit hardest by the China Shock. Just 16 of the 100 most affected commuter zones have been the sites of any newly announced projects over the past two years. These areas are projected to receive just 11.4% of the value of those projects, or $57.4 billion. And, of that sum, a lone IBM announcement accounted for $20 billion. White House spokesman Michael Kikukawae says those zones represent only 4% of the US population, so the analysis understates their impact.

Takeaways by Macro Roundup® AI

  1. Only 16 of the 100 US commuter zones hit hardest by the China Shock have been sites of any newly announced industrial projects over the past two years.
  2. The 100 commuter zones most affected by the China Shock are projected to receive 11.4% of announced project value, or $57.4 billion, of which a single IBM announcement accounts for $20 billion.
  3. White House spokesman Michael Kikukawae says the hardest-hit zones contain only 4% of the US population, so the analysis understates the boom's impact on them.

Related Articles:

  • The Geography of Work — Evidence presented here challenges the widely accepted view that deindustrialization drove the postwar decline in U.S. male labor force participation, and suggests the manufacturing job losses tied to China's entry into the World Trade Organization were temporary rather than lasting.
  • Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock — U.S. local labor markets more exposed to import competition from China saw substantially larger net reductions in their foreign-born populations, with no significant reduction among native-born residents. Within exposed areas, foreign-born and native-born workers had comparably sized declines in employment-to-population ratios.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. A Financial Times analysis found that more than 80% of pledged investment in large-scale clean energy and semiconductor manufacturing is destined for Republican congressional districts. The analysis attributes this partly to those districts' available land and cheap labor, and to state-level tax breaks and subsidies in states such as Georgia and Ohio.

Amanda Chu, Oliver Roeder, and Myles McCormick Financial Times
Date Posted:

.@FT finds that over 80% of large-scale clean energy and semiconductor manufacturing investment pledged since last year’s Inflation Reduction and Chips Acts is destined for Republican congressional districts.

Are Republican districts capturing most clean energy and semiconductor investment?

Core argument: More than 80% of investment pledged for large-scale clean energy and semiconductor manufacturing since passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, according to a Financial Times analysis.

More than 80% of investment in large-scale clean energy and semiconductor manufacturing pledged since last year’s passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, a Financial Times analysis found. Republicans’ success in attracting investment is partly due to their districts often having large swaths of available land and cheap labour, but states such as Georgia and Ohio have also rolled out their own hefty tax breaks and subsidies to attract developers, including through roadshows in Europe and Asia.

Takeaways by Macro Roundup® AI

  1. More than 80% of investment pledged for large-scale clean energy and semiconductor manufacturing since passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, according to a Financial Times analysis.
  2. Republican districts' success in attracting clean technology investment stems partly from their large swaths of available land and cheap labour.
  3. States including Georgia and Ohio have offered their own tax breaks and subsidies to attract developers, including through roadshows in Europe and Asia.

Related Articles:

  • Small Towns Chase America’s $3 Trillion Climate Gold Rush — About $1tn in US federal tax incentives and loans for green energy is drawing a flood of corporate investment into rural counties and reshaping local economies. Estimates of the total private and public spending driven over the next decade range from several hundred billion dollars to roughly $3tn.
  • ‘Transformational Change’: Biden’s Industrial Policy Begins to Bear Fruit — Financial Times research identified more than 75 large-scale US manufacturing announcements following the passage of American semiconductor and clean-energy subsidy laws, with companies committing roughly $204bn to boost semiconductor and clean-tech production and promising at least 82,000 jobs. That is almost double the capital spending commitments made in those sectors two years earlier.
  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

AI Summary. China's share of U.S. goods imports fell to 13.3% in the first half of the year, down from a 2017 peak of 21.6% and the lowest since 2003. A group of 25 other Asian nations supplied 24.6% of U.S. imports, and Mexico and Canada now rank as the top U.S. trading partners.

Anthony DeBarros and Yuka Hayashi Wall Street Journal
Date Posted:

China accounted for 13.3% of U.S. goods imports during the first six months of 2023, below a peak of 21.6% for 2017. China’s share is currently at the lowest level since 2003.

Is China's share of U.S. goods imports declining?

Core argument: China accounted for 13.3% of U.S. goods imports in the first six months of this year, down from a 21.6% peak for all of 2017 and the lowest share since 12.1% in 2003.

China accounted for 13.3% of U.S. goods imports during the first six months of this year, below a peak of 21.6% for all of 2017. The current level is the lowest since 12.1% for the year in 2003, two years after China’s accession to the WTO. Starting in early 2019, China’s share of U.S. imports fell below the total share from a basket of 25 other Asian nations including India, Thailand, and Vietnam. That group of nations accounted for 24.6% of U.S. imports in the 12 months ending in June, compared with 14.9% for China, according to census data. When the dollar values of exports and imports are combined, Mexico is now the U.S.’s No. 1 trading partner, followed by Canada, pushing China to third place.

Takeaways by Macro Roundup® AI

  1. China accounted for 13.3% of U.S. goods imports in the first six months of this year, down from a 21.6% peak for all of 2017 and the lowest share since 12.1% in 2003.
  2. A basket of 25 other Asian nations including India, Thailand, and Vietnam accounted for 24.6% of U.S. imports in the 12 months ending in June, versus 14.9% for China, according to census data.
  3. Mexico is the U.S.'s largest trading partner by combined export and import values, followed by Canada, with China in third place.

Related Articles:

  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • Setser On China’s Trade Surplus — China's trade data show manufacturing exports sharply higher, pushing its trade surplus up even as its commodity import bill hit record levels. The author argues China's currency remains managed, so a weaker yuan alongside a large surplus reflects policymakers' judgment that they must sustain export growth relative to GDP to offset domestic weakness.
  • Sester On Kearney Reshoring Index — US imports from Southeast Asia have risen, but China's reported exports to the US exceed recorded US imports from China by about 10%, reflecting incentives to shift final assembly and to avoid tariffs. Trade data cannot show how much Chinese content is embedded in rising Southeast Asian imports.

AI Summary. The authors argue that with large marginal propensities to consume and low substitutability between energy and domestic goods, higher energy prices depress real incomes and cause a recession even without monetary tightening. Energy price subsidies can shield individual importers but raise world energy demand and prices, imposing negative externalities on other economies.

Adrien Auclert, Hugo Monnery, Matthew Rognlie and Ludwig Straub National Bureau of Economic Research
Date Posted:

Using a model of energy price shocks, @ludwigstraub @a_auclert find that an increase in energy prices for energy-importing economies lowers aggregate demand and depresses real incomes.

Do energy price subsidies shift costs onto other economies?

Core argument: When marginal propensities to consume are large and the elasticity of substitution between energy and domestic goods is low, higher energy prices depress real incomes and cause a recession even without monetary tightening.

When MPCs [marginal propensities to consume] are realistically large and the elasticity of substitution between energy and domestic goods is realistically low, there is a direct link between high energy prices and aggregate demand: increases in energy prices depress real incomes and cause a recession, even if the central bank does not tighten monetary policy. When nominal and real wage rigidities are both present, imported energy inflation can spill over to wage inflation through a wage-price spiral; this, however, does not mitigate the decline in real wages.. Fiscal policy, especially energy price subsidies, can isolate individual energy importers from the shock, but it raises world energy demand and prices, imposing large negative externalities on other economies.

Takeaways by Macro Roundup® AI

  1. When marginal propensities to consume are large and the elasticity of substitution between energy and domestic goods is low, higher energy prices depress real incomes and cause a recession even without monetary tightening.
  2. With both nominal and real wage rigidities present, imported energy inflation can spill over into wage inflation through a wage-price spiral, which does not mitigate the decline in real wages.
  3. Energy price subsidies can isolate an individual energy importer from the shock, but they raise world energy demand and prices, imposing large negative externalities on other economies.

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  • Europe: Well-Positioned To Get Through Next Winter Without Major Gas Shortages — Under three scenarios — maintaining current import levels, a historically cold winter, or non-Russian imports falling back to their 2015–2021 average — Europe is projected to get through the coming winter without major natural gas shortages.
  • How Europe is Decoupling from Russian Energy — The European Union now imports more natural gas — and slightly more total energy by value, including oil, petroleum products and coal — from the United States than from Russia, following a buildout of US liquefied natural gas export capacity and a collapse in Russian gas supplies to Europe. The US became the world's largest exporter of liquefied natural gas.

AI Summary. Europe's trade surplus that emerged after the euro crisis has returned, with its distribution shifted as Germany's investment slump and flat consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since 1999, net fixed investment in Spain has exceeded Germany's despite Spain having half Germany's population.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes that Europe’s large current account surpluses are largely due to chronic German underinvestment in housing, public goods, and productive capacity.

How has the distribution of Europe's trade surplus shifted?

Core argument: Since the start of 1999, Spain has recorded more net fixed capital investment — buildings, equipment, R&D — than Germany, despite having half Germany's population and almost no net investment since 2010.

Trade surplus that had emerged in the wake of the euro crisis has returned with a vengeance, although the distribution of the surplus has shifted somewhat. At the European aggregate level, Germany’s investment slump and stagnant consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since the beginning of 1999, there has been more investment in fixed capital (buildings, equipment, R&D, etc) net of depreciation in Spain than in Germany, even though Spain has only half of Germany’s population and has had almost no net investment since 2010. There was just as much net investment in Italy from 1999 through 2011 as in Germany—and Italy was far from booming in the 2000s, as well as far smaller.

Takeaways by Macro Roundup® AI

  1. Since the start of 1999, Spain has recorded more net fixed capital investment — buildings, equipment, R&D — than Germany, despite having half Germany's population and almost no net investment since 2010.
  2. Europe's trade surplus, which emerged in the wake of the euro crisis, has returned with a shifted distribution, as Germany's investment slump and stagnant consumption were offset by building booms in Spain, Greece, and central and eastern Europe.
  3. Italy matched Germany's net fixed capital investment from 1999 through 2011, even though Italy is far smaller and was far from booming during the 2000s.

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  • The New Geopolitics of Global Finance — Trade surpluses of energy-exporting autocracies and China are projected to total roughly $1tn, with Russia's topping $250bn and Saudi Arabia's topping $200bn. Because these surplus countries are not adding to official foreign exchange reserves, private financial intermediaries globally must absorb U.S. Treasury bonds and the associated interest rate risk.
  • Germany’s Industrial Slowdown — German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.
  • Pettis On Pozsar — China's record trade surplus makes it more, not less, dependent on the world's willingness to hold dollars, since currency dominance requires allowing transparent foreign ownership of domestic assets and giving up control of capital and trade accounts. Because China's reserve accumulation runs indirectly through state-bank dollar purchases, whether its dollar holdings have fallen is unclear.

AI Summary. China has set a target of maintaining 120mn hectares of cultivated land, a level Beijing views as necessary for food self-sufficiency, and has reclaimed more than 170,000 hectares of farmland in a drive to cut reliance on imported food. Analysts say the effort reflects preparation for a scenario in which confrontation with the US disrupts global food supply chains.

Sun Yu Financial Times
Date Posted:

China has reclaimed at least 170,000 hectares of land since 2021 as part of a campaign to gain self-sufficiency in food supplies. Currently, ¾ of Chinese soybean supply comes from the US and Brazil.

Is China expanding farmland to reduce its reliance on imported food?

Core argument: Xi Jinping called for "hard measures that grow teeth" to maintain 120mn hectares of cultivated land in China, the level Beijing widely views as necessary to secure food self-sufficiency.

Xi Jinping said authorities must take “hard measures that grow teeth” to maintain 120mn hectares of cultivated land across the country — the level widely seen by Beijing as necessary to secure self-sufficiency. Authorities have reclaimed more than 170,000 hectares since 2021 as Beijing tries to reduce its reliance on imported food amid fears confrontation between China and the US could disrupt global supply chains. "China is preparing for the worst-case scenario in which it couldn’t buy any food from abroad”, said Yu Xiaohua, an agricultural economics professor at the University of Göttingen. “The authority is counting on the reclamation drive to improve the country’s grain self-sufficiency.”

Takeaways by Macro Roundup® AI

  1. Xi Jinping called for "hard measures that grow teeth" to maintain 120mn hectares of cultivated land in China, the level Beijing widely views as necessary to secure food self-sufficiency.
  2. Chinese authorities have reclaimed more than 170,000 hectares of farmland since 2021 as Beijing seeks to cut reliance on imported food amid fears that US-China confrontation could disrupt global supply chains.
  3. Yu Xiaohua, an agricultural economics professor at the University of Göttingen, said China is preparing for a worst-case scenario in which it could buy no food from abroad and is counting on reclamation to raise grain self-sufficiency.

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AI Summary. Researchers at the Chinese Academy of Sciences calculate that the extremely low frequency magnetic signal generated by the bubble trail of an advanced submarine could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude. The authors argue this offers a new approach to detecting and tracking submarines from long distances.

Stephen Chen South China Morning Post
Date Posted:

A well-regarded Chinese research center claims to have developed a new method of tracking American submarines. @SCMPNews

A well-regarded Chinese research center claims to have developed a new method of tracking American submarines. @SCMPNews

Can submarine bubble trails be detected from long distances?

Core argument: Researchers at the Chinese Academy of Sciences' Fujian Institute of Research on the Structure of Matter calculated that the extremely low frequency signal from a submarine's bubbles could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude.

Researchers from the Chinese Academy of Sciences’ Fujian Institute of Research on the Structure of Matter, found an ultra-sensitive magnetic detector could pick up traces of the most advanced submarine from long distances away. The result “provides a new solution for the detection and tracking of submarines”, according to the paper published on August 1 by the Chinese Journal of Ship Research. The journal is run by the China Ship Scientific Research Centre, which has a long and respected history of cutting-edge developments in ship and ocean engineering. The researchers calculated that the extremely low frequency (ELF) signal produced by a submarine’s bubbles could be stronger than the sensitivities of advanced magnetic anomaly detectors by three to six orders of magnitude.

Takeaways by Macro Roundup® AI

  1. Researchers at the Chinese Academy of Sciences' Fujian Institute of Research on the Structure of Matter calculated that the extremely low frequency signal from a submarine's bubbles could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude.
  2. A paper published August 1 in the Chinese Journal of Ship Research found that an ultra-sensitive magnetic detector could pick up traces of the most advanced submarine from long distances, offering "a new solution for the detection and tracking of submarines".
  3. The Chinese Journal of Ship Research is run by the China Ship Scientific Research Centre, which has a long history of developments in ship and ocean engineering.

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  • Nearly 40% of US Attack Submarines Are Out of Commission for Repairs — US Navy data show 18 of its 49 attack submarines — 37% — are out of commission for repairs because of naval shipyard delays, up from 28% and well above the 20% industry best practice. The report argues this leaves the US at a disadvantage against China's numerically larger fleet.
  • UK and Australia Urge Washington to Ease Secrecy Rules in Security Pact — The UK and Australia are pressing the US to ease secrecy rules that officials say are slowing cooperation on undersea capabilities and electronic warfare within their trilateral security pact. The obstacles include technology-transfer and arms-export licensing requirements and a classification barring information sharing with non-US nationals.