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


Thursday, January 2, 2025

AI Summary. Fertility rates have fallen in nearly every country, but timing differed: some developed nations fell below the 2.1 replacement level as early as the 1970s, while others dropped to "lowest low" levels below 1.3. The author argues nations with rapid, discontinuous growth saw sharper declines as women's expectations outpaced tradition-bound men's willingness to share family time.

Claudia Goldin National Bureau of Economic Research
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.@PikaGold notes countries with birth rates now below 1.3 saw “rapid growth in GDP per capita after a long period of stagnation or decline” as women’s new labor market opportunities demanded more than the traditional male role in child-rearing.

Why have fertility rates fallen faster in rapidly growing economies?

Core argument: Fertility has fallen in virtually every nation, with some European, Asian, and North American countries dropping below the 2.1 replacement rate as early as the 1970s while others retained substantial rates into the 1990s.

Fertility levels have greatly decreased in virtually every nation in the world, but the timing of the decline has differed even among developed countries. In Europe, Asia, and North America, total fertility rates of some nations dipped below the magic replacement figure of 2.1 as early as the 1970s. But in other nations, fertility rates remained substantial until the 1990s but plummeted in the 1980s and 1990s becoming what is termed “lowest low,” with total fertility rates below 1.3. An important factor that distinguishes the two groups is their economic growth in the 1960s and 1970s. [Group 1] experienced relatively continuous economic growth in the twentieth century. [Group 2] experienced rapid economic growth in the post-1950s yet stagnant or declining economic activity before. Rapid economic growth has given women greater freedoms. But rapid economic change may lead to conflict when men are more swayed by traditions. What women require of men’s time to raise a family and be members of a modern labor market may exceed the time their more tradition-bound spouses, or future spouses, are willing to offer.

Takeaways by Macro Roundup® AI

  1. Fertility has fallen in virtually every nation, with some European, Asian, and North American countries dropping below the 2.1 replacement rate as early as the 1970s while others retained substantial rates into the 1990s.
  2. Countries whose fertility fell to "lowest low" levels below 1.3 in the 1980s and 1990s had rapid post-1950s economic growth preceded by stagnant or declining activity, unlike nations with relatively continuous twentieth-century growth.
  3. Rapid economic growth has given women greater freedoms, and rapid economic change may produce conflict when the time women require of men to raise a family while working in a modern labor market exceeds what more tradition-bound spouses will offer.

Related Articles:

  • The Global Fertility Crisis Is Worse Than You Think — Adjusting United Nations figures for lower recorded births, the author estimates the global fertility rate was 2.18, below the 2.21 replacement threshold. Population is not yet falling because women born in the 1990s and 2000s are having children while older generations live longer, so births still exceed deaths, with a projected peak in about 30 years.
  • The Age of Depopulation: Surviving a World Gone Gray — The United States remains the main outlier among developed countries resisting depopulation, with fertility of just over 1.6 births per woman — high for a rich country but below the 2.1 replacement threshold — plus steady immigration. The Census Bureau projects the U.S. population will peak around 2080 and decline continuously thereafter.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.

AI Summary. The US is projected to account for a growing share of the rich world's labor force, youth, and highly educated talent, with continuing population and labor force growth and only moderate aging through 2050. Its fertility, though below replacement, exceeds that of East Asian and nearly all European countries, and sustained legal immigration is essential to this demographic advantage.

Nicholas Eberstadt American Enterprise Institute
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Nicholas Eberstadt @AEIecon argues that given its relatively high fertility rate relative to both East Asia and Europe, the US is primed to be the world’s youthful powerhouse by 2050. But to maintain this edge, the US must continue welcoming newcomers.

Does the US hold a demographic advantage over other rich countries?

Core argument: The US is on track to account for a growing share of the rich world's labor force, youth, and highly educated talent, with no other population better situated to translate population potential into national power through 2050.

The US in short is on track to account for a growing share of the rich world’s labor force, youth, and highly educated talent. No other population on earth is better situated to translate population potential into national power than the US today—and it looks as if that American demographic edge will be at least as great in 2050. Although the US is a sub-replacement society, it boasts higher fertility levels than any East Asian country, and almost all European states as well. In conjunction with strong immigration inflows, America’s comparatively strong birth trends make for a very different demographic trajectory from most other affluent Western societies, with continuing population and labor force growth and only moderate population aging in store through 2050. Maintaining public support for continuing legal immigration is essential to maintaining the US's demographic advantage

Takeaways by Macro Roundup® AI

  1. The US is on track to account for a growing share of the rich world's labor force, youth, and highly educated talent, with no other population better situated to translate population potential into national power through 2050.
  2. Although the US is a sub-replacement society, its fertility exceeds that of every East Asian country and almost all European states, which combined with strong immigration inflows yields continuing population and labor force growth and only moderate aging through 2050.
  3. Maintaining public support for continuing legal immigration is essential to preserving the American demographic advantage.

Related Articles:

  • The Global Fertility Crisis Is Worse Than You Think — Adjusting United Nations figures for lower recorded births, the author estimates the global fertility rate was 2.18, below the 2.21 replacement threshold. Population is not yet falling because women born in the 1990s and 2000s are having children while older generations live longer, so births still exceed deaths, with a projected peak in about 30 years.
  • The Age of Depopulation: Surviving a World Gone Gray — The United States remains the main outlier among developed countries resisting depopulation, with fertility of just over 1.6 births per woman — high for a rich country but below the 2.1 replacement threshold — plus steady immigration. The Census Bureau projects the U.S. population will peak around 2080 and decline continuously thereafter.
  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.

AI Summary. Africa is experiencing more conflicts than at any point since at least 1946, with 28 state-based conflicts identified across 16 of its 54 countries, double the count of a decade and a half ago. The continent now hosts nearly half the world's internally displaced people, about 32.5m, triple the level 15 years earlier.

Gabriele Steinhauser, Andrew Barnett, and Emma Brown Wall Street Journal
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At least 10% of the land mass of sub-Saharan Africa is at war today; the region will have 25% of the world’s working-age population by 2050. There were at least 32.5mm internally displaced people across the continent at the end of 2023.

Is Africa experiencing more conflicts than at any time since 1946?

Core argument: Uppsala University data analyzed by Norway's Peace Research Institute Oslo identify 28 state-based conflicts across 16 of Africa's 54 countries, more than in any other region and double the count of a decade and a half ago.

This corridor of conflict stretches across approximately 4,000 miles and encompasses about 10% of the total land mass of sub-Saharan Africa, an area that has doubled in just three years, according to an analysis by Verisk Maplecroft. Africa is now experiencing more conflicts than at any point since at least 1946, according to data collected by Uppsala University in Sweden and analyzed by Norway’s Peace Research Institute Oslo. This year alone, experts at the two institutes have identified 28 state-based conflicts across 16 of the continent’s 54 countries, more than in any other region in the world and double the count just a decade and a half ago. That tally doesn’t include conflicts that don’t involve government forces, for instance between different communities, and whose number has also doubled since 2010. The intensifying conflicts have displaced a record number of Africans—most of them inside their own countries. The continent is now home to nearly half of the world’s internally displaced people, some 32.5 million at the end of 2023. That figure has tripled in just 15 years.

Takeaways by Macro Roundup® AI

  1. Uppsala University data analyzed by Norway's Peace Research Institute Oslo identify 28 state-based conflicts across 16 of Africa's 54 countries, more than in any other region and double the count of a decade and a half ago.
  2. Verisk Maplecroft's analysis finds Africa's corridor of conflict stretches roughly 4,000 miles and covers about 10% of sub-Saharan Africa's land mass, an area that has doubled in three years.
  3. Africa is home to nearly half of the world's internally displaced people, some 32.5 million at the end of 2023, a figure that has tripled in 15 years.

Related Articles:

  • 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.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.
  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.

AI Summary. NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.

Michael Cembalest J.P. Morgan
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Michael Cembalest argues that “hyperscalers” like Google, Microsoft, and Meta would need to generate an additional $400-500B in revenue to earn their traditional 50% gross margins on $250B in projected 2025 data center spending.

How much new revenue must AI data center spending generate?

Core argument: NVIDIA's share of all US capital spending is projected to approach the two 20th century peaks by 2026.

By 2026 NVIDIA’s share of all US capital spending will be close to the two 20th century peaks. Just as notable: the hyperscalers would need $400-$500 billion in new revenues to earn their traditional 50% gross margin on ~$250 billion of annual data center spending. The stakes are high. As a sign of what can go wrong after an era of excessive investment even when resulting infrastructure is eventually utilized in full, consider Corning and its fiber optic business. Corning earned ~$4 billion in the year 2000 in this segment, but after the dot-com collapse Corning didn’t surpass that revenue level again until 2018 in nominal terms, and revenues are still below year 2000 levels in real terms. Similarly, the number of undersea fiber optic cables deployed globally each year did not surpass year 2000 levels until 2020.

Takeaways by Macro Roundup® AI

  1. NVIDIA's share of all US capital spending is projected to approach the two 20th century peaks by 2026.
  2. Hyperscalers would need $400–$500 billion in new revenues to earn their traditional 50% gross margin on roughly $250 billion of annual data center spending.
  3. Corning earned about $4 billion from fiber optics in 2000 but did not surpass that level again until 2018 in nominal terms, with revenues still below 2000 levels in real terms.

Related Articles:

  • AI: To Buy, Or Not To Buy, That Is The Question — Valuations of AI-related stocks remain well below levels seen in past bubbles, with the median price-to-earnings and enterprise-value-to-sales ratios of the 7 largest technology companies roughly half those of the dominant 7 at the 2000 technology peak. But leading AI firms are no longer capital-light, and a major capital-spending boom threatens the high returns current valuations imply will continue.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. The average tenure of a Boeing engineer has fallen from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, with tenure shortening in almost every age bracket. Analysts, recruiters and union officials describe this "brain drain" as a drag on operations that could make launching a new plane harder.

Claire Bushey Financial Times
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The mean tenure of Boeing engineers has fallen from 16.4 to 12.6 years over the last decade as job cuts and competition from space firms increase; the brain drain is threatening the institutional knowledge needed to design and build a new plane.

Is shorter engineer tenure hurting a planemaker's ability to build new aircraft?

Core argument: The average tenure of a Boeing engineer fell from 16.4 years to 12.6 years over the past decade, according to data from the Society of Professional Engineering Employees in Aerospace, the union representing 12,000 Boeing engineers.

The average tenure of a Boeing engineer has fallen over the past decade from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, the Society of Professional Engineering Employees in Aerospace. Tenure shortened in almost every age bracket, with employees in their 20s and 30s averaging fewer years, as well as those in their late 40s through 65. The risk of this “brain drain”, as analysts, recruiters and union officials have described it, is that it drags on current operations and could make it harder for Boeing to launch its next new plane. “All of this experience is gone,” said Matt Kempf, SPEEA’s senior director for compensation and retirement. That raises concerns because “aerospace engineers aren’t made, they’re grown”. Boeing also held back on announcing a new plane, depriving engineers of a moonshot project to excite imaginations. The last “clean sheet” aeroplane was launched 20 years ago and became the 787.

Takeaways by Macro Roundup® AI

  1. The average tenure of a Boeing engineer fell from 16.4 years to 12.6 years over the past decade, according to data from the Society of Professional Engineering Employees in Aerospace, the union representing 12,000 Boeing engineers.
  2. Boeing engineer tenure shortened in almost every age bracket, including employees in their 20s and 30s and those from their late 40s through 65, according to SPEEA data.
  3. Analysts, recruiters and union officials have described a "brain drain" at Boeing that drags on current operations and could make launching its next new plane harder; Boeing's last "clean sheet" aeroplane was launched 20 years ago and became the 787.

Related Articles:

  • Space: The Missing Element of Your Strategy — Private-sector funding of space-related companies has topped $10bn, close to a tenfold rise over the past decade, though the US government remains the largest source of space funding. If current momentum continues, commercial funding for space ventures could surpass government funding within 20 years.
  • It’s Not a Space Race, It’s the Space Olympics — The US operates 81% of commercial satellites in orbit and 86% of global effective launch capacity, with NATO allies second in satellites at 11% and China second in launch capacity at 9%. China is pursuing mega satellite constellations and reusable rockets, in many cases copying approaches already proven by US companies.
  • Building an Enduring Advantage in the Third Space Age — The United States and China each logged their highest-ever annual launch rates, at 103 and 66 launches, while Russia fell to 19 and Europe recorded three. The US accounted for roughly half of global launches but 81% of effective launch capacity, since Falcon 9 and Falcon Heavy comprised 93% of US launches.

AI Summary. Tariffs raise the price of imported goods, transferring income from net importers to net exporters and taxing consumers to subsidize domestic producers. The author argues that tariffs on final goods would redirect U.S. demand toward domestic production, raising GDP, employment, and wages while lowering debt.

Michael Pettis Foreign Affairs
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.@michaelxpettis argues that tariffs would raise GDP: “By taxing consumption to subsidize production, modern-day tariffs would redirect a portion of US demand toward increasing the total amount of goods and services produced at home.”

Can tariffs on final goods raise GDP, employment, and wages?

Core argument: Tariffs transfer income from net importers to net exporters by raising the price of imported goods, which benefits the domestic producers of those goods.

Tariffs operate by transferring income from one part of the economy to another - in this case from net importers to net exporters - by raising the price of imported goods, which benefits the domestic producers of those goods. Because household consumers are net importers, tariffs are effectively a tax on consumers. But by raising the price of manufacturing and other tradable goods, tariffs [if levied on final goods rather than inputs] also act as a subsidy for domestic producers.By taxing consumption to subsidize production,modern-day tariffs would redirect a portion of U.S. demand toward increasing the total amount of goods and services produced at home. That would lead U.S. GDP to rise, resulting in higher employment, higher wages, and less debt. American households would be able to consume more, even as consumption as a share of GDP declined.

Takeaways by Macro Roundup® AI

  1. Tariffs transfer income from net importers to net exporters by raising the price of imported goods, which benefits the domestic producers of those goods.
  2. Because household consumers are net importers, tariffs function as a tax on consumers, while also acting as a subsidy for domestic producers when levied on final goods rather than inputs.
  3. By taxing consumption to subsidize production, tariffs would redirect a portion of U.S. demand toward domestic output, raising GDP, employment, and wages while lowering debt, with households consuming more even as consumption falls as a share of GDP.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — 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.
  • Can Trump Reduce the Trade Deficit? — A world of widespread tariffs would also shrink international capital flows, and because the US trade deficit is the counterpart of large capital inflows, reduced capital mobility would narrow that deficit. The author argues this would occur largely by reducing overall investment in the US economy.
  • 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.

AI Summary. A fiscal expansion is likely to push the Federal Reserve to hold interest rates higher for longer, which would strengthen the dollar and widen the U.S. trade deficit, with economic weakness in Europe adding further dollar strength. Tariffs that are not offset by foreign retaliation also tend to raise the dollar's value, negating any effect on the trade deficit.

Paul Krugman Krugman Wonks Out
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.@paulkrugman argues the extension of the 2017 tax cuts and tariffs suggests that interest rates will be “much higher for longer than most people were expecting a few months ago, which will translate into a stronger dollar and a bigger trade deficit.”

Does fiscal expansion strengthen the dollar and widen the trade deficit?

Core argument: The current fiscal shock, though smaller than Reagan's, is probably large enough to induce the Fed to keep interest rates higher for longer than expected, strengthening the dollar and widening the U.S. trade deficit.

We may not be looking at a fiscal shock as big as Reagan’s, but it’s still probably enough to induce the Fed to keep interest rates much higher for longer than most people were expecting a few months ago, which will translate into a stronger dollar and a bigger trade deficit. Also strengthening the dollar: what looks like a spreading economic funk in Europe. Look at the charts: we start from both a level of the dollar and a trade deficit comparable to their peaks under Reagan. To the extent that tariffs do happen, and they aren’t offset by foreign retaliation, they will tend to, guess what, raise the value of the dollar, negating any effect on the trade deficit. So Trump, who believes that U.S. trade deficits represent a subsidy to other countries — no, that doesn’t make any sense, but so what? — seems likely to find himself presiding over a rising, not falling trade deficit.

Takeaways by Macro Roundup® AI

  1. The current fiscal shock, though smaller than Reagan's, is probably large enough to induce the Fed to keep interest rates higher for longer than expected, strengthening the dollar and widening the U.S. trade deficit.
  2. The dollar's level and the U.S. trade deficit both start comparable to their peaks under Reagan, with an apparent spreading economic funk in Europe adding further upward pressure on the dollar.
  3. Tariffs that are not offset by foreign retaliation tend to raise the dollar's value and negate any effect on the trade deficit, leaving Trump likely to preside over a rising rather than falling deficit.

Related Articles:

  • Can Trump Reduce the Trade Deficit? — A world of widespread tariffs would also shrink international capital flows, and because the US trade deficit is the counterpart of large capital inflows, reduced capital mobility would narrow that deficit. The author argues this would occur largely by reducing overall investment in the US economy.
  • A User’s Guide to Restructuring the Global Trading System — 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.
  • Tariffs and Exchange Rates (and Stephen Miran) — The author argues that a universal tariff would prompt enough dollar appreciation to make US exports more expensive abroad, reducing trade flows in both directions while leaving the trade deficit roughly unchanged. Attempting to offset the export drag through deregulation would shift production away from import-competing goods, again leaving a similar trade deficit.

Friday, January 3, 2025

AI Summary. The authors present a model in which a dominant coalition's coercive power is nonlinear in the share of inputs it controls, so modest reductions in dependence can sharply cut that power. They estimate that the share of Russian financial imports controlled by the American Coalition fell from 94% to 84%, roughly halving its financial power over Russia.

Christopher Clayton, Matteo Maggiori and Jesse Schreger National Bureau of Economic Research
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.@chris_d_clayton, @m_maggiori, and @JSchrege warn that U.S. financial “hegemony” may be limited by nonlinearity. “Small reductions in American control of the international financial system come with significant reductions in American power.”

Do small cuts in dependence sharply reduce a coalition's coercive power?

Core argument: The share of Russian financial imports controlled by the American Coalition held at a stable 94% before 2014 and fell to 84% afterward as Russia fragmented from the global financial architecture.

We show that power is nonlinear in the share of inputs controlled by the hegemon. These nonlinearities are important. To illustrate this point in the data, we focus on the economic security policies Russia instituted after its invasion of Crimea in 2014. Russian leaders anticipated the possibility of future financial coercion by the American Coalition as they further invaded Ukraine in 2022. Anticipating the possibility of future sanctions, Russia actively reduced its financial dependence on the American Coalition. Figure 8 shows that the share of Russian financial imports controlled by the American Coalition was a stable 94% before 2014 and subsequently dropped to 84% as Russia started to fragment from the global financial architecture. As a consequence, [the model implies that] the American Coalition’s financial power over Russia was approximately halved. This large loss in power is in part responsible for the muted effect of the financial sanctions that the American Coalition imposed after 2022 since Russia, via its ex-ante policies, had already prepared some alternatives

Takeaways by Macro Roundup® AI

  1. The share of Russian financial imports controlled by the American Coalition held at a stable 94% before 2014 and fell to 84% afterward as Russia fragmented from the global financial architecture.
  2. The authors' model implies that this drop in controlled input share approximately halved the American Coalition's financial power over Russia, since power is nonlinear in the share of inputs the hegemon controls.
  3. The authors argue that Russia's economic security policies after its 2014 invasion of Crimea, which prepared some financial alternatives, are in part responsible for the muted effect of the sanctions imposed after 2022.

Related Articles:

  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.
  • Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves — Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly its level in the early 2000s. International Monetary Fund country data indicate most added official gold holdings came from a few central banks, with over half of reported accumulation from China and Russia and about a quarter from several emerging markets.
  • Power and Financial Interdependence — US-China financial interdependence creates what has been called a "balance of financial terror," in which the US relies on other countries' costs of not financing its current account deficit as assurance that financing continues. Chinese policymakers worry that dollar holdings expose China to financial sanctions, while the US has feared Chinese sales of Treasuries could threaten its financial stability.

AI Summary. The author argues US tariffs will function as more than a negotiating tool, since China's export-driven economic model and domestic employment goals make it unlikely to meet US demands, leaving lasting higher tariffs as the probable outcome. That tariff revenue could help finance tax cuts and industrial subsidies, though tariffs cannot replace the income tax.

Joseph Wang Fed Guy Blog
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.@FedGuy12 forecasts “enormous market volatility” as markets price in potential FX interventions and permanent tariffs, which “may return as a larger source of government revenue.”

Are higher tariffs likely to last rather than serve as leverage?

Core argument: Jamieson Greer, appointed as Trump's top trade advisor, recommended in congressional testimony much higher tariffs on China as a means to revitalize U.S. manufacturing.

Tariffs are likely to be used for more than a negotiation tool as the Administration’s goals push against immovable foreign interests. In addition to aggressive rhetoric on Chinese trade, Trump has appointed Jamieson Greer as his top trade advisor. Greer’s recent testimony before Congress recommends much higher tariffs on China as a means to revitalize U.S. manufacturing. The Chinese are unlikely to meet Trump’s demands, as their economic model is export driven with a political goal of creating domestic employment. The end result is likely permanently higher tariffs, which would provide needed revenue to finance anticipated tax cuts and industrial subsidies. Trump has recently floated replacing income taxes with tariffs and repeatedly touted the large revenues raised from tariffs during his first term. Tariffs cannot replace the income tax, but history suggests they could return as a larger source of government revenue. A permanent tariff wall and potential FX interventions suggest enormous market volatility. The market appears skeptical of Trump’s desire for radical change, but it has a long history of misunderstanding Trump.

Takeaways by Macro Roundup® AI

  1. Jamieson Greer, appointed as Trump's top trade advisor, recommended in congressional testimony much higher tariffs on China as a means to revitalize U.S. manufacturing.
  2. China is unlikely to meet Trump's demands because its economic model is export driven with a political goal of creating domestic employment, a standoff that points toward permanently higher tariffs.
  3. Tariff revenue could help finance anticipated tax cuts and industrial subsidies, and while tariffs cannot replace the income tax as Trump has floated, history suggests they could return as a larger source of government revenue.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — 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.
  • Tariffs and Exchange Rates (and Stephen Miran) — The author argues that a universal tariff would prompt enough dollar appreciation to make US exports more expensive abroad, reducing trade flows in both directions while leaving the trade deficit roughly unchanged. Attempting to offset the export drag through deregulation would shift production away from import-competing goods, again leaving a similar trade deficit.
  • How Tariffs Can Help America — Tariffs raise the price of imported goods, transferring income from net importers to net exporters and taxing consumers to subsidize domestic producers. The author argues that tariffs on final goods would redirect U.S. demand toward domestic production, raising GDP, employment, and wages while lowering debt.

AI Summary. Chinese AI company DeepSeek trained its Version 3 large language model for roughly $5.6m, about 100x cheaper than Meta's Llama 3, with performance comparable to Claude 3.5 Sonnet and interface access costing 12x less than Anthropic's. The author argues US chip export controls backfired by spurring leaner engineering, and that the gap between open-source and closed-source models is narrowing rapidly.

Azeem Azhar Exponential View
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Chinese company DeepSeek’s new AI model rivals Claude 3.5 Sonnet but cost just $5.6M to train—100x cheaper than Meta’s Llama 3. Given chip export controls, the team “delivered this superb model through ingenuity rather than brute force.” @azeem

Have US chip export controls spurred cheaper Chinese AI models?

Core argument: DeepSeek trained its Version 3 large language model for roughly $5.6m, about 100 times cheaper than Meta's Llama 3, while performing about as well as Claude 3.5 Sonnet, and its API costs 12 times less than Anthropic's.

DeepSeek, a Chinese AI company, released its Version 3 large language model. It performs about as well as Claude 3.5 Sonnet. The breakthrough is how cheap it was to train. At roughly $5.6m to train, DeepSeek v3 was about a hundred times cheaper than Meta’s Llama 3 and probably a similar magnitude cheaper than Claude. DeepSeek’s API costs 12 times less than Anthropics. Biden’s chip export controls have notionally hampered the team. But necessity is the mother of invention, and they delivered this superb model through ingenuity rather than brute force. The ramifications: As was reasonably likely, the export controls have backfired. The gap between open source (like DeepSeek) and closed source (like OpenAI) is narrowing rapidly. It calls into question efforts to constrain open-source AI development. China now has several world-class teams building AI systems, including Qwen, Kling (in video), Apollo (in self-driving) and, of course, Bytedance. The crucial significance of DeepSeek’s cheaper training methods lies in the path it opens up for wider adoption and innovation—particularly outside established tech hubs. If cutting-edge LLMs can be built on smaller budgets, then Western efforts to control or slow AI development may prove futile. Constraints breed ingenuity; ironically, export controls appear to have spurred Chinese AI teams to engineer leaner, more efficient solutions.

Takeaways by Macro Roundup® AI

  1. DeepSeek trained its Version 3 large language model for roughly $5.6m, about 100 times cheaper than Meta's Llama 3, while performing about as well as Claude 3.5 Sonnet, and its API costs 12 times less than Anthropic's.
  2. Biden's chip export controls appear to have backfired, spurring Chinese AI teams to engineer leaner, more efficient solutions through ingenuity rather than brute force.
  3. China has several world-class AI teams, including Qwen, Kling in video, Apollo in self-driving and Bytedance, and the gap between open-source and closed-source models is narrowing rapidly.

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AI Summary. China's state-backed planemaker Comac has its subsidised C919 single-aisle jet flying domestic routes with Air China, China Eastern and China Southern, and is expanding to a route between Shanghai and Hong Kong. Aviation consultancy IBA projects Comac can lift output from one to 11 aircraft a month, delivering almost 2,000 C919s by 2040.

Chan Ho-him Financial Times
Date Posted:

China is challenging the Boeing-Airbus duopoly for single-aisle aircraft with Comac’s heavily-subsidized C919. The jet is gaining domestic market share and seeking certifications to expand globally.

Can China's subsidised jetmaker challenge the Boeing-Airbus duopoly?

Core argument: Comac had delivered 16 of its heavily subsidised C919 single-aisle jets to Chinese airlines as of December, with Air China, China Eastern and China Southern flying the aircraft on domestic routes following its 2023 maiden commercial flight.

Comac’s heavily subsidised C919, which made its maiden commercial flight in 2023, is already flown on domestic routes by China’s three big state-owned carriers: Air China, China Eastern Airlines and China Southern Airlines. From this month, China Eastern will fly the C919 between Hong Kong and Shanghai, its first regular commercial route outside China’s mainland. The world will need 42,430 new aircraft over the next two decades, roughly 80% of which will be single-aisle aircraft, according to an Airbus forecast in 2024. Aviation consultancy IBA predicts that Comac can raise its output of C919s — 16 of which have been delivered to Chinese airlines as of December — from one to 11 a month by 2040, by which time it can deliver almost 2,000 units of the aircraft.

Takeaways by Macro Roundup® AI

  1. Comac had delivered 16 of its heavily subsidised C919 single-aisle jets to Chinese airlines as of December, with Air China, China Eastern and China Southern flying the aircraft on domestic routes following its 2023 maiden commercial flight.
  2. Aviation consultancy IBA predicts Comac can raise C919 output from one to 11 aircraft a month by 2040 and deliver almost 2,000 units by that year.
  3. Airbus forecast in 2024 that the world will need 42,430 new aircraft over the next two decades, roughly 80% of them single-aisle.

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AI Summary. The US government blocked Nippon Steel's $14.1bn takeover of US Steel, a victory for the United Steelworkers union's leadership, which opposed the deal even as some rank-and-file members backed it. The decision leaves US Steel potentially needing to restart a sale process, and it could struggle to find a buyer for the entire company.

Josh Wingrove and Joe Deaux Bloomberg
Date Posted:

Biden formally blocked Nippon’s purchase of US Steel; US Steel dropped to $30.80 a share, well under the $55 tender offer.

Does blocking a foreign steel takeover leave the target without buyers?

Core argument: President Biden blocked Nippon Steel's $14.1 billion takeover of US Steel, delivering a victory to United Steelworkers President David McCall and union leadership, who opposed the deal even as some rank-and-file members backed it.

Biden’s announcement was a massive victory for United Steelworkers President David McCall and his union’s leadership, who have been vocally opposed to the deal, even as some rank-and-file labor members spoke out in favor of it. Biden’s order raises difficult questions about the next steps for US Steel, which may have to restart the sale process, and could struggle to find a buyer for the entire company. Cleveland-Cliffs Inc., based in neighboring Ohio, pursued US Steel before Nippon Steel won the bidding, but it has since bought a Canadian producer and waffled on whether it would still want all or some of US Steel.

Takeaways by Macro Roundup® AI

  1. President Biden blocked Nippon Steel's $14.1 billion takeover of US Steel, delivering a victory to United Steelworkers President David McCall and union leadership, who opposed the deal even as some rank-and-file members backed it.
  2. Biden's order raises questions about US Steel's next steps, as the company may have to restart the sale process and could struggle to find a buyer for the entire company.
  3. Ohio-based Cleveland-Cliffs pursued US Steel before Nippon Steel won the bidding, but has since bought a Canadian producer and waffled on whether it still wants all or some of US Steel.

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AI Summary. Median inflation-adjusted wages for full-time workers ages 35–44 rose 16% from $58,522 to $67,652 between 2000 and 2024, and wealth of people in their thirties rose 66% from $62,000 to $103,000 between 1989 and 2022. Even so, the Institute for Family Studies projects 1/3 of today's young adults will never marry, versus under 1/5 in earlier cohorts.

Rachel Wolfe Wall Street Journal
Date Posted:

Despite earning more than their parents did at comparable points in their lifecycles, American 30-somethings are falling behind in milestones of adulthood. @kearney_melissa notes “expectations are so much higher today.”

Are young adults skipping marriage and children despite rising wages and wealth?

Core argument: The Institute for Family Studies projects that one-third of today's young adults will never marry, compared with less than one-fifth of those born in previous decades.

Median wages for full-time workers ages 35 to 44 are up 16% between 2000 and 2024, from $58,522 to $67,652 adjusted for inflation, according to the Labor Department. The overall wealth of 30-somethings, too, rose 66% between 1989 and 2022, according to the St. Louis Federal Reserve, from $62,000 to $103,000. 1/3 of today’s young adults will never marry, projects the Institute for Family Studies, compared to less than a 1/5 of those born in previous decades. The share of childless adults under 50 who say they are unlikely to ever have kids, meanwhile, rose 10 percentage points between 2018 and 2023, from 37% to 47%, according to Pew Research Center. “We’re moving from later to never,” says Richard Reeves. He notes that the longer people take to launch into a more conventional adulthood, the less likely they are to do it at all. Nearly 9% of those aged 30 to 40 still live with their parents, according to Pardue’s analysis of Census data, up from nearly 6% in 1990.

Takeaways by Macro Roundup® AI

  1. The Institute for Family Studies projects that one-third of today's young adults will never marry, compared with less than one-fifth of those born in previous decades.
  2. Median inflation-adjusted wages for full-time workers ages 35 to 44 rose 16% between 2000 and 2024, from $58,522 to $67,652, according to the Labor Department, while St. Louis Federal Reserve data show 30-somethings' wealth rose 66% from $62,000 to $103,000 between 1989 and 2022.
  3. The share of childless adults under 50 who say they are unlikely to ever have children rose 10 percentage points between 2018 and 2023, from 37% to 47%, according to Pew Research Center.

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AI Summary. In both the US and UK, the lowest earners have seen the fastest wage growth and aggregate inequality has not increased, as low-skilled workers gained and middle-skilled workers lost from the hollowing out of the middle of the jobs distribution. The author argues middle earners face both resentment and precarity.

John Burn-Murdoch Financial Times
Date Posted:

Overall US income inequality has been flat since 1994, but the ratio of the top 1% vs. the median has grown, while the median vs. the bottom 10% has declined. @jburnmurdoch suggests this yields a “dangerous cocktail” of “resentment and precarity.”

Why does inequality feel worse when it hasn't risen?

Core argument: Since the late 1990s, the lowest earners have seen the fastest wage growth in both the US and UK, and aggregate inequality has not increased.

Since the late 1990s, the lowest earners have seen the fastest wage growth in both the US and UK. In both countries, low-skilled workers have benefited (and middle-skilled workers suffered) from the hollowing out of the middle of the jobs distribution as well as a tight labour market more generally. So we have seen no increase in aggregate inequality. The story for the lowest-paid is unambiguously good but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for a decidedly uncomfortable situation. If the middle class looks upwards, the rich are pulling further away. A top-tier life feels further out of reach than ever. But look down, and the floor is coming up fast. This simultaneous rise of resentment and precarity is a dangerous cocktail, and could certainly have fed into recent political undercurrents.

Takeaways by Macro Roundup® AI

  1. Since the late 1990s, the lowest earners have seen the fastest wage growth in both the US and UK, and aggregate inequality has not increased.
  2. Low-skilled workers in the US and UK have benefited, and middle-skilled workers suffered, from the hollowing out of the middle of the jobs distribution and a tighter labour market.
  3. Middle earners face the rich pulling further away above them while the floor rises beneath them, a combination of resentment and precarity that the article argues could have fed into recent political undercurrents.

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