Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a 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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, January 16, 2025

AI Summary. The European Union has 30mm manufacturing jobs, and China has grown from a $4tn economy producing under 15% of global manufacturing output to an $18tn economy producing over a third, with well over 50% of global capacity in many sectors. European tariffs on Chinese electric vehicles limit import competition but do not offset lost export markets.

Sander Tordoir and Brad Setser Centre For European Reform
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.@Brad_Setser @SanderTordoir note that the EU has 30mm manufacturing workers, 2x what the US had before the 1st China Shock, and argue that for the EU a 2nd China Shock “will be associated with the loss of export markets, not just a surge in imports.”

Do tariffs on Chinese electric vehicles protect European manufacturing jobs?

Core argument: China has grown from a $4tn economy producing under 15% of global manufacturing output before the global financial crisis to an $18tn economy accounting for over a third of world manufacturing production, with well over 50% of global capacity in many important sectors.

The EU boasts 30mm manufacturing jobs: almost twice as many as the US had before the first China shock. The potential shock is also much larger this time. China was a $4T dollar economy before the global financial crisis, accounting for less than 15% of global manufacturing output; it is now a $18T economy that accounts for over a 1/3 of the world’s manufacturing production. In many important sectors, China makes up well over 50% of total global manufacturing capacity. The EU’s EV tariffs will help to protect European automotive production from Chinese imports, but they are no panacea. Even if the fairly modest tariffs limit China’s share of the EU market, they will not offset the loss of export markets. In other words, the second China shock will play out differently from the first because for many economies, including Germany, it will be associated with the loss of export markets, not just a surge in imports.

Takeaways by Macro Roundup® AI

  1. China has grown from a $4tn economy producing under 15% of global manufacturing output before the global financial crisis to an $18tn economy accounting for over a third of world manufacturing production, with well over 50% of global capacity in many important sectors.
  2. The EU has 30mn manufacturing jobs, almost twice as many as the US had before the first China shock, and the potential shock this time is much larger.
  3. The second China shock will play out differently for economies including Germany because it will be associated with the loss of export markets, not just a surge in imports, which the EU's fairly modest EV tariffs will not offset.

Related Articles:

  • Germany Is Unraveling Just When Europe Needs It Most — After five years of stagnation, Germany's economy is 5% smaller than if its pre-pandemic growth trend had continued, and Bloomberg Economics estimates most of that shortfall will be hard to recover given the loss of cheap Russian energy and German automakers struggling against Chinese rivals.
  • Will China Take Over the Global Auto Industry? — The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.
  • EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles — The European Union voted to impose tariffs of up to 45% on electric vehicles made in China, lasting five years, with China vowing to protect its companies. Chinese-made electric cars rose from around 3% to more than 20% of EU electric vehicle sales over three years, with Chinese brands accounting for about 8%.

AI Summary. China accounts for roughly 27% of global industrial production, up from 24% in 2018, and the United Nations projects its share will reach 45% by 2030, supported by cheap loans and subsidies that help manufacturers undercut foreign rivals on price. China's goods surplus with the US stood at $360bn, 23% larger in dollar terms than in 2018.

Jason Douglas Wall Street Journal
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China’s bilateral goods trade surplus with the US was $360B in 2024, 23% larger in $ terms than when Trump first imposed tariffs 7 years ago in January 2018.

Does China enter a tariff fight with a manufacturing advantage?

Core argument: China accounts for roughly 27% of global industrial production, up from 24% in 2018, according to United Nations data, with the U.N. predicting its share will reach 45% by 2030.

To shore up its position in global trade, China has poured support into its factories in the form of cheap loans and subsidies, bolstering manufacturers’ ability to keep selling at low prices and undercutting rivals abroad. China today accounts for around 27% of global industrial production, according to United Nations data, up from 24% in 2018. By 2030, the U.N. predicts, China’s share of industry will have risen to 45%—a level of dominance unmatched since the U.S.’s postwar manufacturing heyday or the U.K.’s in the 19th century. China’s goods surplus with the U.S. in 2024 was $360 billion, 23% larger in dollar terms than it was when Trump imposed tariffs in January 2018.

Takeaways by Macro Roundup® AI

  1. China accounts for roughly 27% of global industrial production, up from 24% in 2018, according to United Nations data, with the U.N. predicting its share will reach 45% by 2030.
  2. China's projected 45% share of global industry by 2030 would be a level of dominance unmatched since the U.S.'s postwar manufacturing heyday or the U.K.'s in the 19th century.
  3. China's goods surplus with the U.S. was $360 billion in 2024, 23% larger in dollar terms than when Trump imposed tariffs in January 2018, as cheap loans and subsidies bolstered manufacturers' ability to undercut rivals abroad.

Related Articles:

  • 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.
  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
  • The Surprising Resilience of Globalization: An Examination of Claims of Economic Fragmentation — China's exports have grown faster than its own economy, rising by about 3 percentage points as a share of its GDP, with a nearly $1tn surge over four years. Measured against the GDP of its trading partners, China's manufactured-goods surplus has increased by about three-quarters of a percentage point of world GDP to a record high.

AI Summary. China's high investment rates face diminishing returns and the government is unwilling to promote higher consumer spending, so it compensates for weak domestic demand with large trade surpluses supported by a weaker currency. The author argues this attempt to export its policy failure will provoke a protectionist backlash from Europe, the UK, and others.

Paul Krugman Krugman Wonks Out
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.@paulkrugman notes China’s $1T 2024 trade surplus and argues “The rest of the world just isn’t going to accept China’s attempt to export its way out of policy failure. Tariffs on China are unavoidable unless China makes major policy changes.”

Will China's large trade surpluses trigger a protectionist backlash abroad?

Core argument: China runs a trillion-dollar trade surplus as extremely high investment rates meet diminishing returns and the government remains unwilling to promote higher consumer spending.

The Chinese economy is having big problems adjusting to the prospect of slower economic growth; extremely high rates of investment are no longer sustainable in the face of diminishing returns, yet the government remains unwilling to do the obvious, and promote higher consumer spending. Running big trade surpluses is one way to compensate for weak domestic demand. And China has been promoting big trade surpluses by weakening the value of its currency (“real” means adjusted for international differences in inflation, “effective” means that we’re looking at a weighted average of exchange rates against China’s trading partners). China’s attempt to export its problems (for that’s what this amounts to) will meet a protectionist backlash; in fact, this would have happened even if Trump weren’t about to take office. The rest of the world just isn’t going to accept China’s attempt to export its way out of policy failure. Trump would probably slap high tariffs on China no matter what, but that giant trade surplus means that Europe, the UK, and probably everyone else will do the same.

Takeaways by Macro Roundup® AI

  1. China runs a trillion-dollar trade surplus as extremely high investment rates meet diminishing returns and the government remains unwilling to promote higher consumer spending.
  2. China has promoted large trade surpluses by weakening its real effective exchange rate, a weighted average against trading partners adjusted for international differences in inflation.
  3. China's attempt to export its way out of policy failure will meet a protectionist backlash from Europe, the UK and probably everyone else, which would have happened even without Trump taking office.

Related Articles:

  • Chinese Trade Surplus Soars to $1 Trillion Ahead of Trump Return — China's goods trade surplus reached a record $992bn, 21% above the prior year, driven by record exports alongside weak imports held down by sluggish domestic consumption and falling commodity prices. China sells more goods than it buys from more than 165 countries, with record surpluses versus Southeast Asian nations and nearly $250bn with the European Union.
  • China’s Stunning 2024 Export Growth — Chinese export volumes are up 13% year-over-year while import volumes are up only 2%, a gap that with exports at about 20% of GDP implies a net exports contribution to Chinese growth of close to 2% of GDP. Falling Chinese export prices mean export volumes are growing much faster than the dollar value of exports.
  • 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.

AI Summary. Rising earnings inequality is dominated by rising inequality between industries, with high-earning workers increasingly concentrated in high-earning industries and low-earning workers in low-earning ones. About 10% of 301 detailed industries account for almost all of the rising between-industry dispersion while employing less than 40% of workers.

John Haltiwanger, Henry Hyatt, and James Spletzer American Economic Review
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.@JHaltiwanger_UM finds rising US earnings inequality over 1996-2018 reflected both a rising gap in industry-specific wage premia and that “high-wage workers are increasingly sorted to high-wage industries with rising industry premia” and vice versa.

Does rising wage inequality come mainly from differences between industries?

Core argument: About 10% of the 301 detailed four-digit NAICS industries account for almost all of the rising between-industry earnings dispersion while employing less than 40% of workers, and rising between-industry inequality dominates rising earnings inequality.

Rising earnings inequality is dominated by rising between-industry inequality. High earnings workers are more likely to work in high earnings industries and with each other, and low earnings workers are more likely to work within low earnings industries and with each other. This polarization of the industry earnings and employment structure is concentrated in a relatively small number of industries. About 10% of the 301 detailed four-digit NAICS industries account for almost all of the rising between-industry dispersion, while accounting for less than 40% of employment. The top 19 high-paying industries, drawn from high-tech and STEM intensive industries, finance, mining, and selected industries in health, exhibit increases in industry pay induced by both increases in industry premia and average worker effects [reflecting human capital.] The top 11 low-paying industries, drawn from selected industries in retail and health, exhibit decreases in industry pay induced by both decreases in industry premia and average worker effects.

Takeaways by Macro Roundup® AI

  1. About 10% of the 301 detailed four-digit NAICS industries account for almost all of the rising between-industry earnings dispersion while employing less than 40% of workers, and rising between-industry inequality dominates rising earnings inequality.
  2. The top 19 high-paying industries — drawn from high-tech and STEM-intensive industries, finance, mining, and selected health industries — show increases in industry pay induced by both higher industry premia and average worker effects reflecting human capital.
  3. The top 11 low-paying industries, drawn from selected retail and health industries, show decreases in industry pay induced by both falling industry premia and falling average worker effects.

Related Articles:

  • Industries, Mega Firms, and Increasing Inequality — The authors estimate that differences between firms account for 62% of the rise in earnings inequality, driven by high-earning workers clustering in high-premium firms and industries. About 10% of detailed industries — high-tech and finance at the top, retail and some health sectors at the bottom — account for nearly all rising between-industry dispersion.
  • The Fall of the Labor Share and the Rise of Superstar Firms — The authors link the decline in labor's share of GDP in the U.S. and other countries to the rise of "superstar" firms with high markups and low labor shares, using U.S. Economic Census data showing industry sales increasingly concentrated in a few firms. The decline reflects reallocation toward these firms rather than falling labor shares within the typical firm.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. A simple model of the relationship between long-term interest rates and Federal Reserve policy expectations shows 10-year rates sitting 40 basis points above what those expectations would predict, consistent with increases in term premium measures from the New York and San Francisco Federal Reserve Banks. Markets worry this extra premium reflects fears about fiscal sustainability.

Torsten Sløk Apollo
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Torsten Sløk notes that “10-year rates are now 40 basis points higher than what Fed expectations would have predicted,” and argues that the rising term premium “is driven by fears about fiscal sustainability.”

Are long-term rates higher than central bank policy expectations predict?

Core argument: A simple model of the relationship between long rates and Fed expectations shows 10-year rates running 40 basis points above what Fed expectations alone would have predicted.

Long-term interest rates have disconnected from Fed expectations, and a simple model of the relationship shows that 10-year rates are now 40 basis points higher than what Fed expectations would have predicted. The rise in long rates above and beyond what has happened with Fed expectations is consistent with the observed increase in both the New York Fed’s measure of the term premium and the San Francisco Fed’s measure of the term premium. The worry in markets is that the additional premium in long-term interest rates is driven by fears about fiscal sustainability.

Takeaways by Macro Roundup® AI

  1. A simple model of the relationship between long rates and Fed expectations shows 10-year rates running 40 basis points above what Fed expectations alone would have predicted.
  2. The rise in long-term rates beyond what Fed expectations imply is consistent with observed increases in both the New York Fed's and the San Francisco Fed's measures of the term premium.
  3. Markets worry that the additional premium in long-term interest rates is driven by fears about fiscal sustainability.

Related Articles:

  • The Move in Long Rates Is Very Unusual — The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.
  • There Is No “Reverse Conundrum” Driving Up Bond Yields — Resilient growth, persistent residual inflation, and Federal Reserve officials' greater comfort about employment risks explain the rebound in market-implied forward interest rates, rather than a shift in the term premium tied to fiscal, central-bank-independence, or constitutional concerns. The simultaneous rise in long-term rates and fall in short-term rates is normalizing a long-inverted yield curve.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. The yield on the benchmark 10-year U.S. Treasury note has risen to about 4.8%, roughly 1 percentage point above its September level and well above the 2% that prevailed when Republicans enacted a $1.5tn deficit-financed tax cut. Each 0.1-percentage-point rise in Treasury borrowing costs adds more than $300bn in interest expenses over a decade.

Richard Rubin and Sam Goldfarb Wall Street Journal
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When the TCJA was passed in 2017 the 10-year yield was ~ 2%. Since September it has risen 100 bps to hover just under 5%. At these levels “every 0.1pp increase in Treasury borrowing costs adds more than $300B in interest expenses over a decade.” @WSJ

Do higher Treasury yields raise the cost of deficit-financed tax cuts?

Core argument: The 10-year U.S. Treasury yield reached 4.8% in recent days before slipping to 4.65% Wednesday after fresh inflation data, up roughly 1 percentage point from September.

Tumbling bond prices have driven up the yield on the benchmark 10-year U.S. Treasury note to 4.8% in recent days, though it slipped Wednesday to 4.65% after fresh inflation data. That is up around 1 percentage point from September and a far cry from the 2% yields that prevailed in 2017, when Republicans enacted a $1.5 trillion deficit-financed tax cut. At the new, higher interest rates, every decision to borrow more money costs even more money. Every 0.1-percentage-point increase in Treasury borrowing costs adds more than $300 billion in interest expenses over a decade.

Takeaways by Macro Roundup® AI

  1. The 10-year U.S. Treasury yield reached 4.8% in recent days before slipping to 4.65% Wednesday after fresh inflation data, up roughly 1 percentage point from September.
  2. Every 0.1-percentage-point increase in Treasury borrowing costs adds more than $300 billion in interest expenses over a decade, making each decision to borrow more money costlier.
  3. Current yields of 4.65% to 4.8% are a far cry from the 2% yields that prevailed in 2017, when Republicans enacted a $1.5 trillion deficit-financed tax cut.

Related Articles:

  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. The war in Ukraine has accelerated development of drones and other unmanned systems, and the US Air Force selected Anduril and General Atomics over Lockheed, Boeing and Northrop to build and test drone prototypes for a program aimed at fielding a fleet of unmanned aircraft.

Sylvia Pfeifer and Steff Chávez Financial Times
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Since Trump’s win shares in US major defense contractors have underperformed the S&P 500 as investors anticipate new entrants such as Anduril earning a larger share of DOD spending.

Are newer technology firms displacing traditional defense contractors in drone programs?

Core argument: The US Air Force selected Anduril and General Atomics over Lockheed, Boeing and Northrop to build and test drone prototypes for the next phase of its collaborative combat aircraft programme, a choice seen as a seminal moment for the industry.

The war in Ukraine has turbocharged the development of drones and other unmanned systems, all of which play to the strengths of the likes of Palantir and Anduril. The latter, along with General Atomics, was selected last year by the US Air Force to build and test drone prototypes for the next phase of the service’s collaborative combat aircraft programme, which seeks to build a fleet of unmanned aerial vehicles. The companies were chosen over Lockheed, Boeing and Northrop in what was seen as a seminal moment for the industry. Even before the war in Ukraine, the Pentagon had been working to diversify its industrial base. Two years ago it established an Office of Strategic Capital, which makes private capital available to companies with technological innovations that can be used for national security.

Takeaways by Macro Roundup® AI

  1. The US Air Force selected Anduril and General Atomics over Lockheed, Boeing and Northrop to build and test drone prototypes for the next phase of its collaborative combat aircraft programme, a choice seen as a seminal moment for the industry.
  2. The war in Ukraine has accelerated development of drones and other unmanned systems, which play to the strengths of companies such as Palantir and Anduril.
  3. The Pentagon, working to diversify its industrial base even before the war in Ukraine, established an Office of Strategic Capital that makes private capital available to companies with technological innovations usable for national security.

Related Articles:

  • Palantir and Anduril Join Forces with Tech Groups to Bid for Pentagon Contracts — Palantir and Anduril are in talks with about a dozen technology companies — including SpaceX, OpenAI, autonomous-ship builder Saronic, and Scale AI — to form a consortium that would jointly bid for US government work in an effort to disrupt the oligopoly of established "prime" defense contractors.
  • US Defence Tech Start-up Anduril Raises $1.5B at $14B Valuation — US defence technology start-up Anduril Industries raised $1.5bn at a $14bn valuation, double its valuation at its previous fundraising, amid surging investment in the sector. The company will fund new manufacturing facilities intended to mass produce tens of thousands of autonomous weapons systems for the US and its allies.
  • Pentagon Plans Vast AI Fleet to Counter China Threat — The Pentagon plans to field thousands of air-, land- and sea-based artificial-intelligence systems, drones and autonomous platforms within two years to counter threats from China and other adversaries, spending hundreds of millions of dollars on systems intended to be "small, smart, cheap.

Friday, January 17, 2025

AI Summary. Gallup polling finds that while roughly 80% of Americans say they are dissatisfied with the way things are going in the country, about 80% are satisfied with the way things are going in their own lives, including 90% satisfied with family life, 88% with housing, and 87% each with education and work.

Scott Winship American Enterprise Institute
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.@swinshi argues, “Whenever you read that 80% of Americans are dissatisfied with the way things are going in the US, you should remember that 80% are satisfied with the way things are going in their own life.”

Are Americans satisfied with their own lives but dissatisfied with the country?

Core argument: Gallup found in January 2023 that 90% of Americans were satisfied with their family life, 88% with their housing, 87% with their education, and 87% with their work.

Whenever you read that 80% of Americans are dissatisfied with the way things are going in the US, you should remember that 80% are satisfied with the way things are going in their own life. Gallup found in January 2023 that 90% were satisfied with their family life, 88% with their housing, 87% with their education, 87% with their work. These are mostly down from early 2019 but up from 1995.

Takeaways by Macro Roundup® AI

  1. Gallup found in January 2023 that 90% of Americans were satisfied with their family life, 88% with their housing, 87% with their education, and 87% with their work.
  2. While 80% of Americans report dissatisfaction with the way things are going in the US, 80% report satisfaction with the way things are going in their own life.
  3. The January 2023 Gallup satisfaction readings on family life, housing, education, and work are mostly down from early 2019 but up from 1995.

Related Articles:

  • You Are Right to Worry About the Economy — The Federal Reserve describes the US as on an unsustainable fiscal path, with federal debt up from 70% of GDP after the financial crisis to nearly 100% and spending at 23% of GDP versus 19% before. Heavy tax increases on top earners are estimated to yield under 2% of GDP.
  • How Do Electoral Votes, Presidential Approval, and Consumer Sentiment Respond to Economic Indicators? — The authors estimate that unemployment, current inflation, and a set of noneconomic factors explain much of the variation in US presidential approval ratings since 1956, with the economic indicators' combined contribution almost always negative. Once noneconomic effects are included, the Michigan Consumer Sentiment Index loses its advantage over the economic variables.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.

AI Summary. Semiconductor firms in Korea and Taiwan have launched large domestic capital spending programs backed by tax credits, with wafer capital spending projected at $716bn in Taiwan and $300bn in Korea over 2024-2032. Given lower Asian costs, these firms are likely to cut US spending before home spending if sales disappoint.

Gary Clyde Hufbauer, Megan Hogan and Mingsong Chen  Peterson Institute for International Economics
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A @PIIE report argues it is “unlikely that the magnitude of Korean and Taiwanese semiconductor capex on American territory will be sufficient to meet the [CHIPS Act] target of 20% of global capacity for advanced chips made on US soil by 2030”.

Will Asian chipmakers cut US investment before home investment?

Core argument: BCG and SIA project wafer capex in Taiwan will reach $716 billion over 2024–2032, almost entirely by Taiwanese firms dominated by TSMC, and $300 billion in Korea, entirely by Korean firms dominated by Samsung and SK Hynix.

The Asian chip giants in Korea and Taiwan have launched their own massive capex programs at home, spurred by generous tax credits designed to match the US offering. According to BCG and SIA projections, wafer capex in Taiwan between 2024 and 2032 is projected to reach $716 billion, almost entirely by Taiwanese firms (dominated by TSMC), and wafer capex in Korea is projected to reach $300 billion, entirely by Korean firms (dominated by Samsung and SK Hynix). Because chip firms are bigger players in the economic landscape of Korea and Taiwan than in the United States, current Asian incentive programs (centered on tax credits) seem more certain to be extended than the US investment tax credit. Moreover, capital and operating costs in Asia are lower than in the United States. These factors suggest that, if global chip sales flag by comparison with current projections, Asian giants are likely to pull back on US capex before they reduce home capex.

Takeaways by Macro Roundup® AI

  1. BCG and SIA project wafer capex in Taiwan will reach $716 billion over 2024–2032, almost entirely by Taiwanese firms dominated by TSMC, and $300 billion in Korea, entirely by Korean firms dominated by Samsung and SK Hynix.
  2. Chip giants in Korea and Taiwan have launched large domestic capex programs spurred by tax credits designed to match the US offering, and capital and operating costs in Asia are lower than in the United States.
  3. Because chip firms loom larger in Korea's and Taiwan's economies than in the US, their tax-credit incentives appear more certain to be extended than the US investment tax credit, suggesting Asian firms would pull back on US capex before home capex if chip sales flag.

Related Articles:

  • TSMC’s Arizona Chip Production Yields Surpass Taiwan’s in Win for US Push — Taiwan Semiconductor Manufacturing Co. reports that the share of usable chips produced at its Phoenix, Arizona plant is about 4 percentage points higher than at comparable factories in Taiwan. Yield is a critical industry measure because it determines whether companies can cover the enormous costs of a chip plant.
  • The Chips Act Has Been Surprisingly Successful So Far — The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.
  • With US Chips Act Money Mostly Divvied Up, the Real Test Begins — The US Chips Act is a bet that Intel, Micron, Taiwan Semiconductor Manufacturing, and Samsung can return advanced chip production to the US, with an explicit goal of making a fifth of the world's most advanced processors by 2030, up from roughly zero. Nearly 100 companies have pledged about $400bn in US facilities.

AI Summary. Citi analysts estimate reinsurers could absorb less than 3% of insured losses from the Los Angeles wildfires. Reinsurers' share of modelled catastrophe risk has fallen from about 46% over the past 25 years to 33%, following years of wildfire losses that led major reinsurers to reduce their appetite for such risks.

Lee Harris Financial Times
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Efforts by reinsurers to reduce their exposure to catastrophe risks seemingly worked in CA, with a Citi analysis finding reinsurers may absorb <3% of insured losses from the Los Angeles fires.

Have reinsurers reduced their share of wildfire catastrophe risk?

Core argument: Citi analysts estimate reinsurers could ultimately absorb less than 3% of insured losses from the Los Angeles fires.

Reinsurers, which provide insurance to frontline insurance companies, could ultimately absorb less than 3% of insured losses from the blazes, Citi analysts said. Last year, US reinsurance rates hit their highest level since at least 1990, according to a cost index published by Guy Carpenter, a reinsurance broker. Over the past 25 years, reinsurers assumed about 46% of modelled catastrophe risk, but that exposure has been cut to 33% since 2023, according to the reinsurance arm of broker Howden. Munich Re, the world’s biggest reinsurer which provides coverage to major US primary carriers, said in a 2020 investor presentation it had “reduced appetite” in reinsurance for so-called secondary perils such as wildfire. The reinsurers’ retreat followed years of painful losses. Munich Re booked €500mn of wildfire losses in 2017, the year when the Tubbs fire swept through Northern California, and €430mn of losses in 2018, following two other major fires in the state.

Takeaways by Macro Roundup® AI

  1. Citi analysts estimate reinsurers could ultimately absorb less than 3% of insured losses from the Los Angeles fires.
  2. Reinsurers assumed about 46% of modelled catastrophe risk over the past 25 years, but that exposure has been cut to 33% since 2023, according to broker Howden's reinsurance arm.
  3. Munich Re, the world's biggest reinsurer, said in a 2020 investor presentation it had "reduced appetite" in reinsurance for secondary perils such as wildfire, having booked €500mn of wildfire losses in 2017 and €430mn in 2018.

Related Articles:

  • Growing Costs of Natural Disasters are Stressing Property Insurance Markets — U.S. home insurers posted $15.2bn in net underwriting losses, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage. State "last-resort" public insurance plans, backed by a state's policyholders or taxpayers, reached a record of just over $1.3tn in exposure, signaling growing unavailability of private coverage.
  • Catastrophe Bonds Look Set to Dodge Losses as LA Fires Rage — Catastrophe bonds, which insurers use to transfer risk to capital markets and which pay out only when cumulative losses over a year exceed a preset threshold, are unlikely to incur significant losses from wildfires in Los Angeles. The Swiss Re Global Cat Bond Index gained more than 17% in 2024, following a record near-20% return in 2023.
  • The Uninsurable World: What Climate Change Is Costing Homeowners — Global insurance losses from natural catastrophes have topped $100bn for four straight years, a level once considered the mark of an exceptionally bad year, and US insurers have repriced risk with significant premium increases. Reinsurer Swiss Re predicts a growing number of areas where buying insurance becomes uneconomical.

AI Summary. U.S. Treasury Department data covering 246m home insurance policies from 330 insurers show that homeowners in areas most exposed to climate disasters are increasingly dropping coverage by failing to pay premiums. In more than 150 ZIP codes, insurers canceled at least 10% of home insurance policies for nonpayment.

Christopher Flavelle and Mira Rojanasakul New York Times
Date Posted:

In 2022, the last year data was available, insurers canceled at least 10% of home insurance policies in more than 150 ZIP codes due to homeowners failing to pay their premiums.

Are homeowners in disaster-prone areas dropping insurance coverage?

Core argument: In more than 150 U.S. ZIP codes, insurers canceled at least 10% of home insurance policies in 2022 because homeowners failed to pay their premiums, according to Treasury Department data.

Homeowners in places most exposed to climate disasters are increasingly giving up on paying their insurance premiums, leaving them exposed to financial ruin, according to sweeping new government data. The rising cancellation rates are part of a broader trend captured by the Treasury Department, which analyzed information for 246 million insurance policies issued by 330 insurers nationwide from 2018 through 2022. The result is the most comprehensive look yet at the effect of climate change on the American home insurance market. In more than 150 ZIP codes around the country, insurers canceled at least 10% of home insurance policies in 2022, the most recent year for which numbers are available, because homeowners failed to pay their premiums.

Takeaways by Macro Roundup® AI

  1. In more than 150 U.S. ZIP codes, insurers canceled at least 10% of home insurance policies in 2022 because homeowners failed to pay their premiums, according to Treasury Department data.
  2. The Treasury Department analyzed 246 million insurance policies issued by 330 insurers nationwide from 2018 through 2022, the most comprehensive look yet at climate change's effect on the American home insurance market.
  3. Homeowners in areas most exposed to climate disasters are increasingly giving up on paying their insurance premiums, leaving them exposed to financial ruin.

Related Articles:

  • Growing Costs of Natural Disasters are Stressing Property Insurance Markets — U.S. home insurers posted $15.2bn in net underwriting losses, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage. State "last-resort" public insurance plans, backed by a state's policyholders or taxpayers, reached a record of just over $1.3tn in exposure, signaling growing unavailability of private coverage.
  • Los Angeles Fires Become Existential Test for California’s Stopgap Insurer — California's largest property insurer declined to renew 72,000 home and apartment policies statewide, including 69% of policies in one Pacific Palisades ZIP code, pushing homeowners toward the state's FAIR Plan insurer of last resort, which listed $458bn in exposure against about $2.5bn in reinsurance and $200m in surplus cash.
  • The 30-Year Mortgage Wasn’t Designed For Climate Chaos — Economists warn that annual home insurance policies cannot always be reconciled with 30-year mortgages, noting that reinsurance costs rose more than 100% from 2017 to 2023 and insurers passed those costs to homeowners. The Insurance Information Institute reports insurers paid $1.11 in claims per dollar of premiums in 2023, with a fifth straight year of underwriting losses expected.

AI Summary. Blue Origin's 98-metre heavy-lift New Glenn rocket reached orbit on its maiden flight from Cape Canaveral, five years later than originally planned, positioning the company to compete with SpaceX in the satellite launch market. The attempt to land the booster on an ocean platform to demonstrate reusability failed.

Peggy Hollinger and Ian Bott Financial Times
Date Posted:

Jeff Bezos’s Blue Origin’s New Glenn rocket reached orbit on its maiden flight but the booster failed to return successfully. The firm seeks to challenge SpaceX’s hold on the satellite launch market.

Does a new heavy-lift rocket challenge the dominant satellite launch provider?

Core argument: Blue Origin's 98-metre heavy-lift New Glenn rocket reached orbit on its maiden flight from Florida's Cape Canaveral Space Force Station, five years later than originally planned.

Blue Origin’s New Glenn rocket has reached orbit on its maiden flight, boosting the ambitions of Jeff Bezos to challenge the hold of Elon Musk’s SpaceX on the satellite launch market. The 98-metre, heavy-lift rocket launched from Florida’s Cape Canaveral Space Force Station five years later than originally planned. New Glenn’s debut flight paves the way for a new era in space flight, pitting two of the world’s richest men against each other in a race to extend humanity’s reach to the Moon and beyond. However, the attempt to return the booster to an ocean platform to prove the rocket’s reusability failed.

Takeaways by Macro Roundup® AI

  1. Blue Origin's 98-metre heavy-lift New Glenn rocket reached orbit on its maiden flight from Florida's Cape Canaveral Space Force Station, five years later than originally planned.
  2. New Glenn's attempt to return its booster to an ocean platform, intended to prove the rocket's reusability, failed.
  3. New Glenn's debut boosts Jeff Bezos's ambitions to challenge SpaceX's hold on the satellite launch market, pitting Bezos against Elon Musk in a race to extend humanity's reach to the Moon and beyond.

Related Articles:

  • Boeing Battles Brain Drain As Engineers Chase the Allure of Space — 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.
  • 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. SpaceX's experimental Starship spacecraft separated from its booster as designed after liftoff but then exploded, with initial data pointing to a leak that built more pressure inside the vehicle than it could vent. SpaceX said a fire in the rear of the vehicle led it to break apart and fall into predefined hazard areas in the Atlantic Ocean.

Micah Maidenberg Wall Street Journal
Date Posted:

The 7th launch of SpaceX’s Starship rocket exploded after liftoff; however, its booster returned to the launchpad successfully.

What caused an experimental spacecraft to break apart after liftoff?

Core argument: SpaceX's Starship spacecraft exploded shortly after separating from its booster on the seventh test flight of the experimental vehicle, launched from the company's site in Texas.

SpaceX launched its Starship rocket from a company site in Texas the seventh mission of a powerful-but-still-experimental vehicle that consists of a booster that propels a spacecraft stacked on top. The spacecraft separated from the booster shortly after liftoff, as designed, but soon exploded. Initial data indicated a leak in part of the ship, which built up more pressure inside the vehicle than it could vent out. SpaceX said a fire began in the rear of the vehicle, leading it to break apart and fall into what the company said were predefined hazard areas in the Atlantic Ocean.

Takeaways by Macro Roundup® AI

  1. SpaceX's Starship spacecraft exploded shortly after separating from its booster on the seventh test flight of the experimental vehicle, launched from the company's site in Texas.
  2. Initial data indicated a leak in part of the Starship vehicle built up more internal pressure than it could vent out, and SpaceX said a fire began in the rear of the ship, leading it to break apart.
  3. SpaceX said the Starship debris fell into predefined hazard areas in the Atlantic Ocean.

Related Articles:

  • SpaceX Launches Starship Rocket as Trump and Musk Look On — SpaceX's Starship, the largest and most powerful rocket ever developed, is under contract as a lunar lander for NASA's effort to return people to the moon and is central to plans for a Mars settlement. SpaceX says the fully reusable design will be far cheaper to fly and will eventually replace its Falcon 9 and Falcon Heavy rockets.
  • 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.