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


Wednesday, November 13, 2024

AI Summary. A study of China's Ming-to-Qing dynastic transition finds elite families in Central China lost influence in the short run but their descendants regained and tightened their hold on power under the new dynasty, even as the hardest-hit regions stayed worse off. The authors attribute the recovery to emphasis on portable civil-service exam skills.

Carol Shiue and Wolfgang Keller National Bureau of Economic Research
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Carol Shiue and Wolfgang Keller find that descendants of elites that lost status after the fall of the Ming Dynasty in 1644 regained elite status in subsequent generations by achievement in civil service exams, “the ultimate gateway to power.”

How do elite families regain power after regime collapse?

Core argument: Local Ming elite families in Central China lost influence in the short run after the dynasty's fall in 1644, but their descendants recovered and tightened their grip on power as elites of the new Qing Dynasty (1644–1911).

This paper documents persistence in the power of elite families in Central China despite dynastic change. We study the impact of the fall of the Ming Dynasty (1368-1644) on couples and theirdescendants, and present evidence on the response of multigenerational family lines to a big shock. Local Ming elites suffered a decline in influence in the short run, but inthe long-run their descendants recovered and tightened their grip on power as the elites of the new Qing Dynasty (1644-1911). In contrast to the recovery of family lines, the fall of Ming had a more persistently negative impact on the regions that historically were most strongly negatively affected by the shock. First-generation couples in treated villages experienced higher levels of loss in terms of lives, land, and property compared to other couples. Compared to land and property, the skills required to pass the keju [civil service exam] are a relatively portable form of wealth. We hypothesize that disproportionate trauma for first-generation treated couples led to a stronger emphasis on the keju, which these families transmitted from one generation to the next.

Takeaways by Macro Roundup® AI

  1. Local Ming elite families in Central China lost influence in the short run after the dynasty's fall in 1644, but their descendants recovered and tightened their grip on power as elites of the new Qing Dynasty (1644–1911).
  2. The fall of the Ming had a more persistently negative impact on the regions historically most strongly affected by the shock than on family lines, which recovered across generations.
  3. First-generation couples in treated villages lost more lives, land, and property than other couples, and the authors hypothesize this disproportionate trauma led families to emphasize the keju civil service exam, whose skills are a relatively portable form of wealth.

Related Articles:

  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.
  • For Whom the Bell Curve Tolls: A Lineage of 400,000 English Individuals 1750-2020 shows Genetics Determines Most Social Outcomes — A study of 402,000 English individuals across 1750–2020 estimates an intergenerational occupational status correlation of 0.88 and a genetic correlation between spouses of 0.76, which the authors interpret as a strong genetic basis for the persistence of social status. The authors argue that highly assortative mating around status genetics limits what policy can do to raise social mobility.
  • The Grandchildren of China’s Pre-Revolutionary Elite Are Unusually Rich — A survey of 36,000 Chinese residents found that grandchildren of China's pre-revolutionary elite, born between 1966 and 1990, were 6% more likely to finish high school and earned 12% more than their contemporaries, exceeding Communist Party members by 2%. An earlier generation, the children of the old elite, earned 5% less than other Chinese.

AI Summary. Real wage growth in no part of the income distribution outpaced its 2012-2020 rate during the Biden presidency, and the median individual's wage change was weaker than any period in 30 years except the Great Recession. Median growth in total income after taxes and transfers turned deeply negative, partly reflecting the timing of pandemic stimulus.

J. Zachary Mazlish A Zibaldone
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Zach Mazlish argues that households suffered a 1.7% median annualized decline in post-tax real income during Biden’s term, far more negative than alternative metrics of the real income trends, helping to explain the degree of discontent with Biden.

Did inflation leave the median voter worse off?

Core argument: In no part of the income distribution did wages grow faster during Biden's presidency than in 2012–2020, a gap visible in the raw data and starker after compositional adjustment, with median income change well below its 2012–20 run-rate.

Inflation did make the median voter poorer during Biden's term. In no part of the income distribution did wages grow faster while Biden was President than they did 2012-2020. This is true in the raw data, and even more stark after compositional adjustment. In particular, the change in median incomes was well below its 2012-20 run-rate. But, the change in median wages is not what matters; it is the median change in wages that does. And this metric was even weaker under Biden: lower than any period in the last 30 years other than the Great Recession. People do not feel wages, they feel total income. And median growth in total income — post taxes and transfers — was not just historically low: it collapsed and was deeply negative from 2021 onwards. Much of this decline is due to timing of pandemic stimulus and even less the “fault of Biden” than other things.

Takeaways by Macro Roundup® AI

  1. In no part of the income distribution did wages grow faster during Biden's presidency than in 2012–2020, a gap visible in the raw data and starker after compositional adjustment, with median income change well below its 2012–20 run-rate.
  2. The median change in wages — rather than the change in median wages — was weaker under Biden than in any period of the last 30 years other than the Great Recession.
  3. Median growth in total income after taxes and transfers collapsed and was deeply negative from 2021 onward, a decline attributed largely to the timing of pandemic stimulus rather than to Biden.

Related Articles:

  • Real Wage Growth: The Post-Pandemic Labor Market and Beyond — Real wage gains for non-managerial workers, roughly 80% of the private workforce, exceeded both those of all workers and projections based on pre-pandemic trends, which is attributed to labor market tightness and strong demand in low-wage sectors. This compression of wage inequality has persisted even as the labor market cooled and unemployment rose above 4%.
  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. Federal Reserve cuts to the federal funds rate target range were accompanied by falling short-term Treasury bill yields but rising longer-term yields, with the 10-year Treasury yield climbing from 3.63% to 4.42%. Deficit-increasing proposals from both presidential campaigns likely exacerbated the rise in longer-term yields.

CRFB Staff Committee for a Responsible Federal Budget
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Despite 75bps of FFR cuts since September, long-term yields have risen 79bps, including a 21bp rise as election results came in. @MarcGoldwein argues that worries about expanding deficits on top of high existing debt are driving the divergence.

Why are long-term Treasury yields rising as the Fed cuts rates?

Core argument: The 10-year Treasury yield rose from 3.63% on September 16 to 4.42%, moving opposite the federal funds rate after the FOMC cut its target range by 50 basis points in mid-September and 25 basis points in early November to 4.50–4.75%.

After holding the federal funds rate target range at 5.25 to 5.50 percent for over a year, the Federal Open Market Committee (FOMC) cut the range by 50 basis points to 4.75 to 5.00 percent in mid-September and by another 25 basis points to 4.50 to 4.75 percent in early November. As expected, yields on short-term Treasury bills fell in kind, with the 3-month yield dropping from 4.87 percent on September 16 to 4.54 percent today. But surprisingly, longer-term yields moved in the opposite direction of the federal funds rate, with the 10-year Treasury yield rising from 3.63 percent on September 16 to 4.42 percent today. The recent rise in yields has likely been exacerbated by the election and the fiscally irresponsible proposals by both presidential campaigns. As both candidates continued to add deficit-increasing proposals to their campaign agendas, yields rose. And the 10-year yield increased significantly by 21 basis points as election results came in, from the time polls started closing to when the election was called. (The 10-year yield has since fallen by 5 basis points, mainly due to the Fed announcing a 25-basis point cut).

Takeaways by Macro Roundup® AI

  1. The 10-year Treasury yield rose from 3.63% on September 16 to 4.42%, moving opposite the federal funds rate after the FOMC cut its target range by 50 basis points in mid-September and 25 basis points in early November to 4.50–4.75%.
  2. Short-term Treasury yields fell in line with the Fed's cuts, with the 3-month yield dropping from 4.87% on September 16 to 4.54%, after the FOMC had held the range at 5.25–5.50% for over a year.
  3. The rise in long-term yields has likely been exacerbated by the election and deficit-increasing proposals from both presidential campaigns, with the 10-year yield rising 21 basis points as election results came in and falling 5 basis points after the Fed's 25-basis point cut.

Related Articles:

AI Summary. Among male high school seniors, party identification once differed little by college plans, but young men not planning to attend college have become increasingly likely to identify as Republicans, reaching 77% versus 59% of those planning to attend. Young men with poorer high school grades have also shifted toward Republicans, a pattern not seen among young women.

Jean Twenge Generation Tech
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Men aged 18-29 favored Biden by 15pp in 2020 but went for Trump by 13pp in 2024. @jean_twenge notes that B/C high school students are increasingly Republican, and argues “young men who feel like they’re losing are now more likely to be Republicans.”

Are young men without college plans shifting toward Republicans?

Core argument: By 2023, 77% of male high school seniors who did not plan to attend college identified as Republicans, compared with 59% of those who planned to go to college, a gap that barely existed during the Obama years.

During the Obama years, male high school seniors who did and didn’t plan to go to college differed little in their political affiliation. In the years that followed, however, young men who did not plan to go to college became increasingly likely to identify as Republicans. By 2023 – the most recent data available – 77% were Republicans, compared to 59% of those who planned to go to college. Although the number of Republican young women also increased, the divide by college plans is not nearly as large as among young men. Even more intriguing, young men who have poorer grades in high school have also shifted hugely toward Republicans in the 2020s, after previously being less Republican than those with A averages. To put it in blunt terms, young men who feel like they’re losing are now more likely to be Republicans. The same is not true among young women, where those with poorer grades are still less likely to be Republicans than those with A averages.

Takeaways by Macro Roundup® AI

  1. By 2023, 77% of male high school seniors who did not plan to attend college identified as Republicans, compared with 59% of those who planned to go to college, a gap that barely existed during the Obama years.
  2. Young men with poorer high school grades shifted heavily toward the Republican Party in the 2020s, after previously being less Republican than those with A averages.
  3. Republican identification also rose among young women, but the divide by college plans is much smaller than among young men, and young women with poorer grades remain less likely to be Republicans than those with A averages.

Related Articles:

  • The Shattering of the Democratic Coalition — The Democratic presidential margin among women narrowed from 12 points to 7 while the Republican margin among men widened from 5 points to 10, leaving the overall gender gap unchanged at 17 points. Women under 30 shifted 14 points toward Republicans and men under 30 shifted 29 points.
  • Young Women Are Starting To Leave Men Behind — Across the developed world, the share of young men neither in education, employment, nor seeking work has climbed steadily for decades, and in the UK, France, Spain, and Canada young men now outnumber young women outside the economy for the first time. Over 80% of this group in the UK report long-term health problems.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.

AI Summary. The Chinese-built Port of Chancay on Peru's Pacific coast, developed by Cosco with local miner Volcan, uses Chinese-made automated cranes, vehicles and 5G towers, and its deep waters can accommodate larger vessels. Peruvian officials argue it will reshape maritime trade along South America's Pacific coast.

Joe Daniels and Steven Bernard Financial Times
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A Chinese-built megaport on Peru’s Pacific coast is set to transform regional trade in South America, reducing transit times from Peru to China by 10 days. China is Peru’s largest trading partner.

Is a Chinese-built megaport set to reshape South American trade?

Core argument: China is Peru's largest trade partner, taking $23.1bn of Peruvian exports in 2023 — largely copper, iron and fishmeal — versus $9.1bn bound for the United States.

Ahead of the ribbon-cutting at the Port of Chancay — a Chinese-built megaport on Peru’s Pacific coast that is set to transform regional trade — Chinese-made ZPMC unmanned cranes line the quay. BYD pick-up trucks sit ready to shuttle engineers around, while Huawei 5G internet towers have been freshly constructed to handle the automated operation. Peruvian officials argue the port, built by Cosco with local miner Volcan, will transform Peru — a big producer of copper and fruit — into the Singapore of South America, and will upend maritime trade along the continent’s Pacific coast as it can accommodate larger vessels in its deep waters. China is Peru’s largest trade partner, with copper, iron and fishmeal making up the bulk of exports worth a total of $23.1bn in 2023. US-bound exports amounted to $9.1bn.

Takeaways by Macro Roundup® AI

  1. China is Peru's largest trade partner, taking $23.1bn of Peruvian exports in 2023 — largely copper, iron and fishmeal — versus $9.1bn bound for the United States.
  2. The Port of Chancay, built by Cosco with Peruvian miner Volcan on Peru's Pacific coast, can accommodate larger vessels in its deep waters, and Peruvian officials say it will upend maritime trade along the continent's Pacific coast.
  3. Chancay's automated operation relies on Chinese equipment, including ZPMC unmanned cranes along the quay, BYD pick-up trucks to shuttle engineers and newly built Huawei 5G towers, with Peruvian officials arguing the port will make Peru the Singapore of South America.

Related Articles:

  • China Nears Record $1 Trillion Trade Surplus as Trump Returns — China's goods trade surplus reached a record $785bn in the first 10 months of a year, up almost 16% from the prior year, and Bloomberg calculates it would approach $1tn if it keeps widening at the same pace. Foreign direct investment liabilities fell over nine months, which would mark the first annual net outflow since 1990 if sustained.
  • China’s Ports Dominance Undermines Western Aims To Loosen Trade Ties — China has 76 port terminals able to handle large ships carrying more than 14,000 20ft containers, while south and south-east Asian countries have 31 between them, according to research group Drewry. This shortage of deep-water capacity elsewhere in Asia could make it harder for Western businesses to shift trade away from China.
  • Brazil Launches China Anti-Dumping Probes After Imports Soar — Brazil's industry ministry has opened at least half a dozen investigations into alleged dumping of Chinese industrial products, spanning metal sheets, pre-painted steel, chemicals and tyres. Brazilian steelmakers have asked for tariffs of 9.6% to 25% on imported steel, as Brazil's steel and iron imports from China rose from $1.6bn to $2.7bn.

Thursday, November 14, 2024

AI Summary. A review of the Manhattan Institute's model estimating that the average immigrant adds $10,000 in lifetime present value to the federal budget while less-educated immigrants are fiscally negative finds the result hinges on assumptions such as large immediate defense spending increases and no added corporate tax payments.

David Bier Cato Institute
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Challenging @DanielDiMartino’s estimates of the federal fiscal impact of low-skilled immigrants, @David_J_Bier finds that all education groups have a positive impact. Instead of costing $315,000, a 22-year-old high school dropout contributes $45,000.

Do modeling assumptions drive estimates of immigrants' lifetime fiscal impact?

Core argument: The Manhattan Institute's "The Lifetime Fiscal Impact of Immigrants" (2024) estimates the average new immigrant is fiscally positive by about $10,000 in present value over a lifetime, while immigrants without a bachelor's degree are extremely fiscally negative.

In “The Lifetime Fiscal Impact of Immigrants” (2024), the Manhattan Institute (MI) constructed a sophisticated model to estimate the likely lifetime fiscal e!ect of new immigrants on the US federal budget. MI concludes that the average immigrant will be fiscally positive a modest $10,000 in present value over a lifetime but that immigrants without a bachelor’s degree will be extremely fiscally negative. MI projects that the recent increase in migration will cost the federal government over $1.1 trillion over a century. A careful review of MI’s model finds that this result hinges on several unlikely assumptions, such as new arrivals causing large, immediate increases in defense spending, and no increase in corporate tax payments. When more realistic assumptions are adopted, MI’s model indicates that young, low-skilled immigrants will produce a positive lifetime contribution to the federal budget. After revisions, including accounting for lower rates of benefits usage by immigrants, the model predicts the new group of unlawful entrants will likely be positive an aggregate $4.9 trillion.

Takeaways by Macro Roundup® AI

  1. The Manhattan Institute's "The Lifetime Fiscal Impact of Immigrants" (2024) estimates the average new immigrant is fiscally positive by about $10,000 in present value over a lifetime, while immigrants without a bachelor's degree are extremely fiscally negative.
  2. The Manhattan Institute projects that the recent increase in migration will cost the federal government over $1.1 trillion over a century, a result that hinges on assumptions including large, immediate increases in defense spending and no increase in corporate tax payments.
  3. Revising the Manhattan Institute's model with more realistic assumptions, including lower rates of benefits usage by immigrants, indicates that young, low-skilled immigrants will contribute positively to the federal budget over their lifetimes and that new unlawful entrants will be positive an aggregate $4.9 trillion.

Related Articles:

  • The Lifetime Fiscal Impact of Immigrants — A report estimates that a selectionist U.S. immigration policy—securing the border, reducing low-skilled immigration, and expanding high-skilled immigration—would cut future federal debt by trillions of dollars, providing over $2tn in net present value in the first year and over $200bn annually thereafter. Under the proposal, annual legal immigration falls from about 1m to roughly 860,000.
  • How Immigration Remade the U.S. Labor Force — The Congressional Budget Office estimates more than 9m people have migrated on net to the U.S. in recent years, nearly matching the prior decade's total and lifting population growth to almost 1.2% a year. Fewer than 30% are lawful permanent residents; without immigration, growth would be 0.2%.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. About 6.5mn people moved to the 38 member countries of the Organisation for Economic Co-operation and Development through permanent migration routes in a record year, nearly 10% above the prior record of 6mn, with the US receiving 1.2mn permanent legal immigrants. New asylum seekers in those countries rose 30% to a record 2.7mn.

Delphine Strauss Financial Times
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In 2023, the US received more than 1mm asylum applications, more than the total asylum claims in all OECD European members combined. A total of 6.5mm people moved into the OECD’s 38 countries in 2023, a 10% increase over 2022.

Has migration to wealthy countries reached a record high?

Core argument: Roughly 6.5mn people moved to the 38 OECD member countries through permanent migration routes in 2023, an almost 10 per cent increase on the previous record of 6mn in 2022, according to a report by the Paris-based organisation.

Roughly 6.5mn people moved to the 38 countries that make up the membership of the OECD through permanent migration routes last year. That was an almost 10 per cent increase on the previous record of 6mn who moved in 2022, a report by the Paris-based organisation showed. About a third of OECD countries had record levels of immigration in 2023, including Canada, France and Japan. The US received 1.2mn permanent legal immigrants. The number of new asylum seekers in OECD countries rose 30% to a record 2.7mn, driven by a surge in the number of people arriving in the US from Venezuela, Colombia, Nicaragua and Haiti.

Takeaways by Macro Roundup® AI

  1. Roughly 6.5mn people moved to the 38 OECD member countries through permanent migration routes in 2023, an almost 10 per cent increase on the previous record of 6mn in 2022, according to a report by the Paris-based organisation.
  2. About a third of OECD countries recorded record immigration levels in 2023, including Canada, France and Japan, while the US received 1.2mn permanent legal immigrants.
  3. The number of new asylum seekers in OECD countries rose 30 per cent to a record 2.7mn, driven by a surge in arrivals to the US from Venezuela, Colombia, Nicaragua and Haiti.

Related Articles:

  • Democrats Join 2024’s Graveyard of Incumbents — Incumbent governing parties lost vote share in all 10 major countries tracked by the ParlGov research project that held national elections in the same year, the first such sweep in almost 120 years of records. The Democratic presidential ticket's popular-vote share fell nearly four percentage points, the steepest drop in Democratic support since 1980.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.

AI Summary. With US federal debt at 100% of GDP and primary deficits projected near 3%, the measures under consideration would add 1–2 points, implying a sustained 4–5% primary deficit and rapid debt growth. Stabilizing the debt ratio would require an adjustment worth 16–20% of the federal budget.

Olivier Blanchard Peterson Institute For International Economics
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.@ojblanchard1 argues that predictions of “catastrophe” due to lower taxes, deportations, and tariffs are overstated. However, if the Fed maintains its 2% inflation target, these policies will require higher interest rates, likely resulting in friction.

How large an adjustment would stabilizing the debt ratio require?

Core argument: U.S. federal debt stands at 100% of GDP, with a deficit of roughly 6.5% and a primary deficit of about 3.5%, and the measures Trump is considering would raise the primary deficit by roughly 1–2% of GDP.

The ratio of federal debt to GDP is 100%. The deficit is around 6.5% of GDP, and the primary deficit is around 3.5%. If the 2017 tax cuts were left to expire, that would shrink the deficit by roughly 1% of GDP in 2025. But even under this assumption, the Congressional Budget Office forecasts were for primary deficits of about 3% as far as the eye could see. The measures that Trump is considering would increase that number by roughly 1 to 2%, leading to a 4 to 5% sustained primary deficit and a rapid increase in the debt ratio. Were the interest rate and the growth rate to be roughly equal, which looks like a reasonable hypothesis, this would imply an adjustment of the primary deficit of 4 to 5% of GDP, or equivalently, 16 to 20% of the federal budget, to stabilize the debt ratio. It is likely, however, that a further fiscal expansion, starting from an economy close to full employment, will lead to inflation and, by implication, higher Fed policy rates and a stronger dollar.

Takeaways by Macro Roundup® AI

  1. U.S. federal debt stands at 100% of GDP, with a deficit of roughly 6.5% and a primary deficit of about 3.5%, and the measures Trump is considering would raise the primary deficit by roughly 1–2% of GDP.
  2. Stabilizing the debt ratio with a sustained primary deficit of 4–5% of GDP would require an adjustment of 4–5% of GDP, equivalent to 16–20% of the federal budget, if interest and growth rates are roughly equal.
  3. Further fiscal expansion, starting from an economy close to full employment, is likely to lead to inflation and, by implication, higher Fed policy rates and a stronger dollar.

Related Articles:

  • As the Fed Cuts Rates, Treasury Yields Are Rising — Federal Reserve cuts to the federal funds rate target range were accompanied by falling short-term Treasury bill yields but rising longer-term yields, with the 10-year Treasury yield climbing from 3.63% to 4.42%. Deficit-increasing proposals from both presidential campaigns likely exacerbated the rise in longer-term yields.
  • US Fiscal Outlook Starting to Play a Role for Long-Term Interest Rates — Long-term US interest rates are rising even as markets price in five Federal Reserve rate cuts over the coming 12 months and oil prices fall, disconnecting long rates from those drivers. This pattern suggests long rates are being pushed up by emerging concerns about US fiscal sustainability.
  • What Trump’s Win Means for the Economy — Tariffs during Trump's first term had no noticeable effect on inflation because they were relatively modest and coincided with subdued global demand, weak investment, and slack labor markets. Proposed tariffs of at least 60% on China and 10%–20% elsewhere would lift US tariff rates to their highest since the 1930s amid brisk demand, making them a greater inflation risk.

AI Summary. During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.

Stephen Miran Hudson Bay Capital
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.@SteveMiran cites the 2018-19 experience with tariffs on China and $/Yuan exchange rates and argues that increased tariffs will be largely offset by $/Yuan moves, resulting in little net change in after-tariff dollar import prices.

Does currency depreciation offset tariffs enough to prevent inflation?

Core argument: The effective U.S. tariff rate on Chinese imports rose 17.9 percentage points from the start of the 2018 trade war to its 2019 maximum, while the renminbi depreciated 13.7% against the dollar, leaving after-tariff USD import prices up 4.1%.

While in principle tariffs can be noninflationary, how likely is it? In the macroeconomic data from the 2018-2019 experience, the tariffs operated pretty much as described above. The effective tariff rate on Chinese imports increased by 17.9 percentage points from the start of the trade war in 2018 to the maximum tariff rate in 2019., The Chinese renminbi depreciated against the dollar over this period by 13.7%, so that the after-tariff USD import price rose by 4.1%. In other words, the currency move offset more than three-fourths of the tariff, explaining the negligible upward pressure on inflation. Measured PCE inflation went from slightly below the Fed’s target to further below the Fed’s target. Of course there were cross-currents like the Fed’s tightening cycle at the time, but any inflation from this trade war was small enough that it was overwhelmed by these cross-currents. This explains the Trump camp’s view that the first U.S.-China trade war was noninflationary.

Takeaways by Macro Roundup® AI

  1. The effective U.S. tariff rate on Chinese imports rose 17.9 percentage points from the start of the 2018 trade war to its 2019 maximum, while the renminbi depreciated 13.7% against the dollar, leaving after-tariff USD import prices up 4.1%.
  2. The currency move offset more than three-fourths of the tariff, which the author identifies as the explanation for the negligible upward pressure on inflation.
  3. Measured PCE inflation went from slightly below the Federal Reserve's target to further below it, with any inflation from the trade war small enough to be overwhelmed by cross-currents such as the Fed's tightening cycle.

Related Articles:

  • Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios — The authors estimate the modeled tariff proposals would raise $1.2tn–$4.4tn over 10 years, or 0.3–1.2% of average GDP, with foreign retaliation cutting that revenue by 12–26%. They project consumer prices initially rise 1.2–5.1%, equal to $1,900–$7,600 of lost disposable income per household, with real GDP contracting 0.5–1.4% in the medium term.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.

AI Summary. China has built legal tools to retaliate against US companies in a trade conflict, including an anti-foreign sanctions law, an "unreliable entity list" for foreign firms it deems to have undermined its national interests, and an expanded export control law. The export law lets Beijing leverage its dominance in supplying resources such as rare earths and lithium.

Edward White and Joe Leahy Financial Times
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China will likely hit back at Trump’s new round of tariffs with export controls exploiting its “global dominance of the supply of dozens of resources and tools…crucial to modern technologies,” and sanctions targeting specific individuals and entities.

Has China built legal tools to retaliate against US companies?

Core argument: China has prepared countermeasures to retaliate against US companies if President-elect Donald Trump reignites the trade war between the world's two biggest economies, according to Beijing advisers and international risk analysts.

China has prepared powerful countermeasures to retaliate against US companies if president-elect Donald Trump reignites a smouldering trade war between the world’s two biggest economies, according to Beijing advisers and international risk analysts. China now has at its disposal an “anti-foreign sanctions law” that allows it to counter measures taken by other countries and an “unreliable entity list” for foreign companies that it deems to have undermined its national interests. An expanded export control law means Beijing can also weaponise its global dominance of the supply of dozens of resources such as rare earths and lithium that are crucial to modern technologies.

Takeaways by Macro Roundup® AI

  1. China has prepared countermeasures to retaliate against US companies if President-elect Donald Trump reignites the trade war between the world's two biggest economies, according to Beijing advisers and international risk analysts.
  2. China's legal arsenal includes an "anti-foreign sanctions law" to counter measures taken by other countries and an "unreliable entity list" for foreign companies Beijing deems to have undermined its national interests.
  3. An expanded export control law allows Beijing to weaponise its global dominance in the supply of dozens of resources crucial to modern technologies, including rare earths and lithium.

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AI Summary. China's finance ministry sold $2bn of dollar bonds at yields just 0.01–0.03 percentage points above equivalent US Treasuries, drawing nearly $40bn of orders — the tightest spreads for Chinese sovereign dollar debt in 30 years, according to Bloomberg data. The sale was held in Saudi Arabia rather than Hong Kong.

Arjun Neil Alim, Cheng Leng, and Joseph Cotterill Financial Times
Date Posted:

China issued its first dollar bond in three years, selling $2B at yields on par with equivalent US Treasuries.

Can China borrow in dollars nearly as cheaply as the US?

Core argument: China's finance ministry sold $1.25bn of three-year dollar bonds at 4.274 per cent, just 0.01 percentage points above equivalent US Treasuries, and $750mn of five-year bonds at 0.03 points above Treasuries.

China has borrowed almost as cheaply as the US after returning to the global dollar bond market for the first time in three years. Investors placed nearly $40bn of orders to buy $2bn of bonds issued by China’s finance ministry on Thursday at yields only marginally above equivalent US Treasuries. The sale took place in Saudi Arabia — a break with a tradition of issuing bonds in Hong Kong — in a sign of Beijing’s push for closer financial links with the oil-rich kingdom. Chinese, US and other global banks arranged the sale. The $1.25bn of three-year debt was sold at 4.274 per cent — just 0.01 percentage points higher than Treasury equivalents. Yields on the $750mn of five-year bonds were 0.03 points higher than Treasuries. These represent the tightest spreads for any Chinese sovereign dollar issuance in the past 30 years, according to Bloomberg data. Yields on the debt fell further, to around 0.25 percentage points below US borrowing costs, as the new bonds began to be traded on Thursday.

Takeaways by Macro Roundup® AI

  1. China's finance ministry sold $1.25bn of three-year dollar bonds at 4.274 per cent, just 0.01 percentage points above equivalent US Treasuries, and $750mn of five-year bonds at 0.03 points above Treasuries.
  2. Investors placed nearly $40bn of orders for the $2bn issue, and the spreads were the tightest for any Chinese sovereign dollar issuance in the past 30 years, according to Bloomberg data.
  3. China's first sale in the global dollar bond market in three years took place in Saudi Arabia rather than Hong Kong, in a sign of Beijing's push for closer financial links with the oil-rich kingdom.

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AI Summary. DeepMind's AlphaFold3, which can model proteins together with other molecules, was initially released only through a web server that limited predictions, drawing criticism from scientists that withholding the code and model weights undermined reproducibility. The code is now downloadable for non-commercial use, with training weights available to academics on request.

Ewen Callaway Nature
Date Posted:

Academic researchers can now download the code underlying Google’s Nobel-prize-winning AlphaFold3 tool for modeling protein structures.

Is a leading AI protein-prediction tool now open to researchers?

Core argument: DeepMind has released AlphaFold3's software code for non-commercial download, while the training weights remain available only to scientists with an academic affiliation and only on request.

AlphaFold3, unlike its predecessors, is capable of modelling proteins in concert with other molecules. But instead of releasing its underlying code — as was done with AlphaFold2 — DeepMind provided access through a web server that restricted the number and types of predictions scientists could make. The company initially said that making AlphaFold3 available only through a web server struck the right balance between enabling access for research and protecting commercial interests. But the publication of AlphaFold3 without its code or model weights drew criticism from scientists, who said that the move undermined reproducibility. DeepMind swiftly reversed course and said it would make an open-source version of the tool available within half a year. Anyone can now download the AlphaFold3 software code and use it non-commercially. But for now, only scientists with an academic affiliation can access the training weights, and only on request.

Takeaways by Macro Roundup® AI

  1. DeepMind has released AlphaFold3's software code for non-commercial download, while the training weights remain available only to scientists with an academic affiliation and only on request.
  2. AlphaFold3, which models proteins together with other molecules, was initially offered only through a web server that limited the number and types of predictions scientists could make, unlike AlphaFold2, whose underlying code was released.
  3. DeepMind reversed course after scientists criticized the publication of AlphaFold3 without its code or model weights as undermining reproducibility, pledging an open-source version of the tool within half a year.

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  • Accurate Structure Prediction of Biomolecular Interactions With AlphaFold 3 — AlphaFold 3, a single deep learning model with a diffusion-based architecture, jointly predicts the structures of complexes containing proteins, nucleic acids, small molecules, ions, and modified residues. The authors report accuracy exceeding specialised tools for protein-ligand docking, protein-nucleic acid interactions, and antibody-antigen prediction.