Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, March 3, 2025

AI Summary. The US trade deficit with the euro area in goods and services combined is about €57bn, under 0.2% of US GDP, and the euro area pays roughly €49bn more in investment income and wages to the US than it receives. Counting these flows, the euro area's current account with the US is effectively balanced.

Jesper Rangvid Rangvid's Blog
Date Posted:

In the year to Sept. ‘24, the Euro area ran a goods surplus with the US of €203B, the US ran a services surplus of €146B. After adjusting for other income flows, the net current account deficit with the Euro area was only €8B, “effectively balanced.”

Is the US current account with the euro area balanced?

Core argument: The euro area's combined goods and services surplus with the US is €57 billion (€203 billion in goods minus €146 billion in services), less than 0.2% of the $29 trillion US GDP recorded in 2024.

While the US still runs a trade deficit with Europe when taking into account both goods and services, it is small, and when taking all items on the current account into account, the account balances. First, the overall US trade deficit (= the Europe trade surplus) of €57 billion (= €203 billion – €146 billion) is negligible relative to the size of the US economy. In 2024, US GDP amounted to $29 trillion, meaning the trade deficit with Europe accounts for less than 0.2% of US GDP. Moreover, when discussing international flows of funds, what truly matters is not just the trade balance in goods and services but the overall current account. This brings us to the final key component shown in Figure 1: primary income. Primary income includes wages earned by euro area residents from employment in the US, as well as income from financial investments (e.g., dividends), minus payments on those same items made to the US. For the euro area, this figure stands at a negative €49 billion, implying that Europe pays more financial income and wages to the US than it receives from the US. In total, the euro area’s current account with the US is effectively balanced (€8 = €203 billion – €146 billion – €49 billion).

Takeaways by Macro Roundup® AI

  1. The euro area's combined goods and services surplus with the US is €57 billion (€203 billion in goods minus €146 billion in services), less than 0.2% of the $29 trillion US GDP recorded in 2024.
  2. The euro area's primary income balance with the US, covering wages and investment income such as dividends, stands at negative €49 billion, as Europe pays more financial income and wages to the US than it receives.
  3. The euro area's overall current account with the US is effectively balanced at €8 billion once goods, services, and primary income flows are counted.

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.
  • Trump Widens Trade Fight to Include Global Taxes and Regulation — The US has directed economic officials to calculate new country-by-country "reciprocal" tariffs based on the total tariff, tax, regulatory, currency and other barriers facing US exports, treating value-added taxes as a trade barrier. If value-added tax rates are added to existing tariff rates, India would face the highest rate at 29%, followed by Brazil and the European Union.
  • 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. An International Monetary Fund study of 33 countries found that for a large economy like the U.S., each dollar of deficit reduction shifts the current account—trade in goods, services and investment income—by 30 to 50 cents. Applying that math, cutting the U.S. federal deficit from 6.4% of GDP to 3% would trim $300bn–$500bn from the roughly $900bn goods-and-services trade deficit.

Greg Ip Wall Street Journal
Date Posted:

Noting an IMF finding that $1 in fiscal consolidation improves the current account by 30-50 cents for a low-trade dependency country like the US, @greg_ip argues reducing the deficit from 6.4% to 3% of GDP could reduce the trade deficit by $300-500B.

How much would cutting the federal deficit shrink the trade deficit?

Core argument: A 2021 IMF study of 33 countries over 1978–2019 found that for a large economy like the U.S., $1 of fiscal consolidation subtracted 30 to 50 cents from the current account balance, a broad trade measure including goods, services and investment income.

Deliberately shrinking the budget deficit, via fiscal austerity, or expanding it, via fiscal stimulus, usually spills over to trade. A 2021 study of 33 countries from 1978 to 2019 by the International Monetary Fund found that for a big country like the U.S., one dollar of fiscal consolidation subtracted 30 to 50 cents from the current account balance (a broad measure of trade that includes goods, services and investment income). Last year, the U.S. ran a federal deficit of $1.8 trillion, or 6.4% of gross domestic product. Treasury Secretary Scott Bessent has proposed reducing that to 3% by the end of Trump’s term. Run that through the IMF’s math, and you knock $300 billion to $500 billion off the trade deficit in goods and services, which was more than $900 billion last year.

Takeaways by Macro Roundup® AI

  1. A 2021 IMF study of 33 countries over 1978–2019 found that for a large economy like the U.S., $1 of fiscal consolidation subtracted 30 to 50 cents from the current account balance, a broad trade measure including goods, services and investment income.
  2. The U.S. federal deficit was $1.8 trillion last year, or 6.4% of GDP, and Treasury Secretary Scott Bessent has proposed cutting it to 3% by the end of Trump's term.
  3. Applying the IMF's estimates to Bessent's proposed deficit reduction implies a $300 billion to $500 billion cut in the U.S. goods and services trade deficit, which exceeded $900 billion last year.

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.
  • 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.
  • 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. Modeling of tariffs and federal spending cuts using a framework similar to the Federal Reserve's model of the US economy projects inflation 0.2% higher and GDP 0.5% lower over the coming quarters. The authors characterize this as a modest, temporary stagflation shock rather than a recession.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk models the impact of tariffs and likely DOGE savings and projects that “over the coming quarters, inflation will be 0.2% higher and GDP will be 0.5% lower.”

Do tariffs and federal spending cuts push the economy into recession?

Core argument: Modeling tariffs and DOGE in a framework similar to the Fed's FRBUS, the authors estimate inflation will be 0.2% higher and GDP 0.5% lower over the coming quarters, a modest stagflation shock but not a recession.

[We model the likely] impact of tariffs and DOGE on GDP and inflation, using a model similar to the Fed’s model of the US economy, FRBUS. [We assume $100bn in DOGE savings resulting in 0.4% reduction in fiscal deficit, 5% appreciation of exchange rate, and 0.5% pt increase in inflation expectations shocks applied in Q1 2025.] The results show that over the coming quarters, inflation will be 0.2% higher and GDP will be 0.5% lower. In other words, DOGE and tariffs combined are a mild temporary shock to the economy that will put modest upward pressure on inflation and modest downward pressure on GDP. This is also what the incoming data is showing. This week, we saw inflation expectations move higher, a reversal of capex spending plans, and weakness in consumer confidence. Jobless claims also moved higher, likely driven by government contractors and also by federal workers who had not received forms SF-50 and SF-8 and decided to file for unemployment benefits anyway to get the process started. The bottom line for markets is that this is a modest stagflation shock to the economy but not a recession.

Takeaways by Macro Roundup® AI

  1. Modeling tariffs and DOGE in a framework similar to the Fed's FRBUS, the authors estimate inflation will be 0.2% higher and GDP 0.5% lower over the coming quarters, a modest stagflation shock but not a recession.
  2. The simulation assumes $100bn in DOGE savings cutting the fiscal deficit by 0.4%, a 5% exchange rate appreciation, and a 0.5 percentage point rise in inflation expectations, all applied as shocks in Q1 2025.
  3. Incoming data show higher inflation expectations, a reversal of capex spending plans, weaker consumer confidence, and rising jobless claims that the authors say were likely driven by government contractors and by federal workers who filed without receiving forms SF-50 and SF-8.

Related Articles:

  • 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.
  • The U.S. Economy Depends More Than Ever on Rich People — Moody's Analytics estimates the top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989, up from about 36% three decades ago, with their spending alone equal to almost one-third of gross domestic product.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

AI Summary. US federal spending rose to nearly $6.8tn in fiscal year 2024 from about $3.7tn in 2015, with revenue rising far more slowly. Adjusting for inflation and population growth shows spending still climbed, but by less than the raw dollar figures suggest.

Richard Rubin and Kara Dapena Wall Street Journal
Date Posted:

Adjusting for inflation and population growth, a WSJ analysis finds “Other health” including Medicaid became the second largest budget item after Social Security, increasing 36% between 2015-2025 to $2,736 per capita versus $4,385 for Social Security.

How much has federal spending grown after adjusting for inflation and population?

Core argument: Federal spending in unadjusted dollars rose to nearly $6.8 trillion in fiscal 2024 from about $3.7 trillion in 2015, while revenue rose but not nearly as fast as spending.

Measured in unadjusted dollars, spending has jumped to nearly $6.8 trillion in fiscal year 2024 from about $3.7 trillion in 2015. Revenue rose, but not nearly as fast as spending. A straight count of dollars doesn’t give an apples-to-apples comparison though. Growing population and recent inflation can skew the picture. We adjusted for inflation and population. The result, constant 2025 dollars per person, makes it easier to compare 2015 apples with 2024 apples. It still shows that spending climbed—but not by as much as it might seem. “Other health” spending includes Medicaid, the health-insurance program for low-income people, which has been expanding. That’s in part because of an Obamacare provision for individuals that has the U.S. pay a bigger share of costs in the federal-state program.

Takeaways by Macro Roundup® AI

  1. Federal spending in unadjusted dollars rose to nearly $6.8 trillion in fiscal 2024 from about $3.7 trillion in 2015, while revenue rose but not nearly as fast as spending.
  2. Adjusting federal spending for inflation and population growth into constant 2025 dollars per person still shows spending climbed from 2015 to 2024, but by less than the unadjusted totals suggest.
  3. The "other health" spending category includes Medicaid, the health-insurance program for low-income people, which has been expanding in part because of an Obamacare provision under which the U.S. pays a bigger share of costs in the federal-state program.

Related Articles:

  • The Budget and Economic Outlook: 2025 to 2035 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (6.2% of GDP) to $2.7tn by 2035, well above the 3.8% of GDP average of the past 50 years. Outlays are projected to rise to 24.4% of GDP, driven by growth in Social Security and Medicare spending and rising net interest costs, while revenues reach 18.3%.
  • Updated Warshawsky, Mantus, and Pang Model Projections: Analyzing the US Fiscal Outlook — The authors project US deficits reaching about 14% of GDP by 2053 and 25% by 2073, a gloomier path than earlier estimates largely because of a changed assumption about how deficits affect private saving. They estimate a sustainable US debt limit of 155%–210% of GDP.
  • 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.

AI Summary. Standard data sources disagree on whether inflation-adjusted US highway spending rose or fell, because they use different price measures. The author argues the National Highway Construction Cost Index is the better deflator since it tracks actual prices governments pay in construction bids, implying real highway investment probably did not increase.

Zachary Liscow Briefing Book
Date Posted:

.@ZLiscow notes @jasonfurman’s price index “takes the actual prices for specific items in the bids and tracks them over time,” supporting Furman’s conclusion that highway construction did not rise during the Biden years, and refuting @ernietedeschi.

Does the choice of price measure determine whether real highway spending rose?

Core argument: Jason Furman argues real highway spending declined under Biden, while Ernie Tedeschi and Eric Van Nostrand note that different standard data sources yield conflicting answers on whether highway investment rose.

An important debate is raging about whether real highway spending declined under Biden. Jason Furman says yes. Ernie Tedeschi and Eric Van Nostrand point out that different standard data sources say different things. This matters because we want to know how much we are getting for our infrastructure dollars (a major long-term issue in the US). The deflator that Jason uses, the National Highway Construction Cost Index (NHCCI), takes the actual prices for specific items in the bids and tracks them over time. The other measures that Ernie and Eric use track materials and labor input prices that are used for highways, but not the actual bids. The main reason that I’m inclined to think that the NHCCI is the best measure is exactly this: It is, by design, the price that governments are paying for the things they are actually building. Using the data series produced by the major statistical agencies, as Ernie and Eric do, is a good default – those agencies have tremendous expertise, but I think that the NHCCI is fit for purpose here.

Takeaways by Macro Roundup® AI

  1. Jason Furman argues real highway spending declined under Biden, while Ernie Tedeschi and Eric Van Nostrand note that different standard data sources yield conflicting answers on whether highway investment rose.
  2. The National Highway Construction Cost Index deflates highway spending using actual prices for specific items in bids, whereas the alternative measures Tedeschi and Van Nostrand use track materials and labor input prices rather than bids.
  3. The NHCCI is the better deflator for highway spending because it captures, by design, the prices governments pay for what they are actually building, even though the major statistical agencies' standard series carry tremendous expertise.

Related Articles:

  • The Post-Neoliberal Delusion — The author argues that Biden's post-neoliberal economic approach prioritized demand over supply and understated budget constraints, leaving inflation, unemployment, interest rates, and government debt higher than before the pandemic. Stimulus-driven demand fed inflation, construction costs erased real infrastructure gains, and industrial policy crowded out unsubsidized manufacturing without net job creation.
  • Has U.S. Infrastructure Investment Really Declined? — Whether real U.S. infrastructure investment rose or fell depends on the inflation index used: the Bureau of Economic Analysis's official price index implies real highway spending rose 11% since 2019, while the National Highway Construction Cost Index, an outlier showing much higher cost inflation, implies a decline. Physical measures of highway miles also show increases.
  • No Delusions: Bidenomics Wasn’t Perfect, But It Did Many Great Things — Evidence including the Council of Economic Advisers' own suggests US inflation would have peaked 1–2 percentage points lower without the $1.9tn American Rescue Plan, but the author argues a smaller package would still have left an inflation spike. The excess demand is credited with a quick return to full employment and a powerful expansion.

AI Summary. The authors estimate that US intergenerational human capital mobility rose between 1850 and 1950 as mass schooling replaced home education and weakened the transmission of parental human capital. Parental human capital accounted for 65% of the variation in children's human capital in cohorts born in the late 1860s, versus 35% for those born in the late 1910s.

Lukas Althoff, Harriet Brookes Gray and Hugo Reichardt Stanford University
Date Posted:

Prior to mass schooling in the US, @AlthoffLukas @ReichardtHugo find that the mother’s human capital accounted for 65% of the variance in the child’s human capital. School attendance weakened this link to 35%, boosting economic mobility.

Did mass schooling raise intergenerational human capital mobility?

Core argument: Parental human capital accounted for 65% of the variation in child human capital among Americans born in the late 1860s but only 35% among those born in the late 1910s, according to the authors' estimates.

This paper examines the evolution of intergenerational mobility in the US from 1850 to 1950, highlighting the role of maternal human capital and the expansion of mass schooling. Our findings reveal that human capital mobility rose sharply over this period, driven by a declining reliance on maternal human capital, which had been most predictive of child outcomes before widespread schooling. As schooling expanded, it replaced home education, weakening the intergenerational persistence of parental human capital and fueling gains in both human capital and income mobility. Historically, mass education played a key role in weakening the reliance on parental human capital, allowing mobility to rise. While parental human capital accounted for 65% of variation in child human capital in the earliest cohort (born in the late 1860s), it only accounted for 35% among children born in the latest cohort (born in the late 1910s). Access to quality schooling disproportionately benefits children whose parents have lower levels of human capital, which may not be easily substituted with income or wealth.

Takeaways by Macro Roundup® AI

  1. Parental human capital accounted for 65% of the variation in child human capital among Americans born in the late 1860s but only 35% among those born in the late 1910s, according to the authors' estimates.
  2. The authors attribute the rise in US human capital mobility from 1850 to 1950 to a declining reliance on maternal human capital, which had been most predictive of child outcomes before mass schooling spread.
  3. The authors find that access to quality schooling disproportionately benefits children whose parents have lower levels of human capital, an advantage they argue may not be easily substituted with income or wealth.

Related Articles:

  • Changing Opportunity: Sociological Mechanisms Underlying Growing Class Gaps and Shrinking Race Gaps in Economic Mobility — Across the 1978 to 1992 birth cohorts, adult household incomes fell for white children raised in low-income families and rose for those raised in high-income families, increasing the intergenerational persistence of income ranks among white children by 28%. Over the same cohorts, adult incomes rose for Black children at all parental income levels.
  • Intergenerational Mobility in American History: Accounting for Race and Measurement Error — Accounting for Black families, who historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked United States census data from 1850 to 1940. The author argues historical mobility was lower than previously estimated, implying greater equality of opportunity today than in the past.
  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.

AI Summary. European defence stocks and the euro rose as investors bet governments will increase military spending and take on more responsibility for the continent's security, with shares in major contractors including Rheinmetall, Leonardo, Thales, BAE Systems and Saab gaining. European government bonds sold off on expectations of higher spending.

Mari Novik, Sylvia Pfeifer and Ian Smith Financial Times
Date Posted:

European and UK defense stocks hit record highs Monday as investors bet on higher European defense spending. NATO members’ defense spending in Europe is up ⅓ in real terms since 2022.

Are investors betting on higher European military spending?

Core argument: The Stoxx Europe aerospace and defence index jumped 8.4%, on track for its biggest one-day gain since November 2020, as investors bet European governments will boost military spending.

Europe’s defence sector extended a blistering rally on Monday [3/3] and the euro surged as investors raised their bets that governments across the continent will have to boost military spending and shoulder more of the burden for their security. Shares in Rheinmetall, Germany’s largest defence company, jumped 14% while Leonardo climbed 15.4% in Milan. Paris-listed Thales surged 15%, BAE Systems gained 14.3% and Sweden’s Saab was up 11.3%. The Stoxx Europe aerospace and defence index jumped 8.4%, putting it on track for its biggest one-day gain since November 2020, while Germany’s Dax surged as much as 3.3%, on course for its largest gain in more than two years. European government bonds sold off on expectations of higher spending.

Takeaways by Macro Roundup® AI

  1. The Stoxx Europe aerospace and defence index jumped 8.4%, on track for its biggest one-day gain since November 2020, as investors bet European governments will boost military spending.
  2. Rheinmetall rose 14%, Leonardo 15.4%, Thales 15%, BAE Systems 14.3% and Saab 11.3%, while Germany's Dax surged as much as 3.3%, on course for its largest gain in more than two years.
  3. The euro surged and European government bonds sold off on expectations of higher spending, with investors anticipating that the continent will shoulder more of the burden for its own security.

Related Articles:

  • Can Europe Defend Itself Without America? — European members of NATO have increased defense spending by almost a third in real terms to $476bn, with 23 of NATO's 32 members meeting the alliance's target of spending 2% of GDP on defense, according to NATO. NATO's secretary-general argues the 2% target is insufficient, though tight budgets, high public debt, and competing priorities constrain further increases.
  • America, Jump-Started: World War II R&D and the Takeoff of the US Innovation System — From 1940 to 1945, the US Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 research contracts worth over $9bn in 2022 dollars, despite no pre-war tradition of funding externally performed research. At the war's height, the US government funded the research behind nearly 1 in 8 US patents.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.

Tuesday, March 4, 2025

AI Summary. An energy use must be electrified before green grid electricity can decarbonize it, and while US grid decarbonization continues at a steady pace, the electricity share of final US energy consumption has grown little. Transmission line growth runs well below Department of Energy targets for 2030 and 2035, and transformer delivery times have stretched from 4–6 weeks to 2–3 years.

Michael Cembalest J.P. Morgan
Date Posted:
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Over the past 10 years, $9T has been spent globally on electrification, however Michael Cembalest points out that renewables’ share of final energy consumption is still advancing at only 0.3-0.6% per year.

What is holding back electrification's share of US energy consumption?

Core argument: US transformer delivery times have stretched from 4–6 weeks in 2019 to 2–3 years, straining a grid that relies on roughly 70 million transformers requiring special steel to limit power losses.

Remember this key aspect of the energy transition: until an energy use is electrified, it’s hard to decarbonize it using green grid electrons. And while grid decarbonization is continuing at a steady pace, the US has made little progress increasing the electricity share of final energy consumption. One major obstacle: transmission line growth is stuck in a rut, way below DoE targets for 2030 and 2035. Another obstacle: shortages of transformer equipment, whose delivery times have extended from 4-6 weeks in 2019 to 2-3 years. Around 70 million transformers step voltages up and down across the US grid and require special steel to reduce power losses. Half of all US transformers are near the end of their useful lives and will need replacing, along with replacements in areas affected by hurricanes, floods and wildfires. Transformer manufacturing investment by Schneider Electric and Hitachi North America should help, eventually.

Takeaways by Macro Roundup® AI

  1. US transformer delivery times have stretched from 4–6 weeks in 2019 to 2–3 years, straining a grid that relies on roughly 70 million transformers requiring special steel to limit power losses.
  2. US transmission line growth remains far below Department of Energy targets for 2030 and 2035, and the electricity share of final energy consumption has increased little even as grid decarbonization proceeds at a steady pace.
  3. Half of all US transformers are near the end of their useful lives and will need replacing, alongside replacements in areas hit by hurricanes, floods and wildfires, with manufacturing investment by Schneider Electric and Hitachi North America helping eventually.

Related Articles:

  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
  • Electricity 2025 — US electricity demand is projected to grow about 2% annually over 2025-2027, an upward revision from an earlier 1% forecast. A study commissioned by the US Department of Energy found data centre electricity use rose from about 60 TWh in 2014 to 176 TWh in 2023, and could reach 325-580 TWh by 2028.
  • How Tariffs Could Shock America’s Power System — US electricity prices have risen at a compound annual rate of 5.7% over five years, after being roughly flat in the prior five years. Transformers could become a chokepoint: analysts estimate only about 20% of US transformer demand can be met domestically, with prices up 70%–100% on higher electrical steel and copper costs.

AI Summary. The US imposed 25% tariffs on imports from Canada and Mexico, with Canadian oil and energy at 10%, and added a 10% tariff on Chinese imports on top of an earlier 10% levy. China responded with 10–15% tariffs on US agricultural goods plus company blacklists and export controls, while Canada announced tariffs on $107bn of US imports.

Arjun Neil Alim, Joe Leahy, Ryan McMorrow and Mari Novik Financial Times
Date Posted:

Beijing will levy a 10-15% tariff on US agricultural goods, and Canada unveiled tariffs on $107B of US imports in response to US tariffs. Mexican countermeasures will be announced over the weekend.

How are US trading partners responding to new American tariffs?

Core argument: President Donald Trump imposed a 25% tariff on imports from Canada and Mexico, with Canadian oil and energy products at 10%, and added a further 10% tariff on Chinese imports atop a 10% levy imposed the prior month.

In the most sweeping trade measures since returning to the White House in January, the US president hit imports from Canada and Mexico with a 25% tariff. The White House also imposed an additional 10% tariff on Chinese imports on top of a 10% levy imposed last month. The moves drew an immediate response from Beijing, which said it would levy a 10 to 15% tariff on US agricultural goods, ranging from soybeans and beef to corn and wheat, from March 10. Canada also unveiled tariffs on $107bn of US imports, starting with $21bn of imports immediately. Mexican President Claudia Sheinbaum said on Tuesday that the government would wait until Sunday to unveil countermeasures, which would include both tariffs and other actions. The levies against Ottawa are set at 25% except for Canadian oil and energy products, which face a 10% tariff. Canada accounts for about 60% of US crude imports. In its response, China also targeted US companies, placing 10 companies on a national security blacklist and slapping export controls on 15 others.

Takeaways by Macro Roundup® AI

  1. President Donald Trump imposed a 25% tariff on imports from Canada and Mexico, with Canadian oil and energy products at 10%, and added a further 10% tariff on Chinese imports atop a 10% levy imposed the prior month.
  2. Beijing responded with tariffs of 10–15% on US agricultural goods including soybeans, beef, corn and wheat from March 10, placed 10 US companies on a national security blacklist, and imposed export controls on 15 others.
  3. Canada unveiled tariffs on $107bn of US imports, starting with $21bn immediately, while Mexican President Claudia Sheinbaum said countermeasures including tariffs and other actions would be announced Sunday.

Related Articles:

  • Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios — The authors estimate the modeled tariff proposals would raise $1.2tn–$4.4tn over 10 years, or 0.3–1.2% of average GDP, with foreign retaliation cutting that revenue by 12–26%. They project consumer prices initially rise 1.2–5.1%, equal to $1,900–$7,600 of lost disposable income per household, with real GDP contracting 0.5–1.4% in the medium term.
  • 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.
  • Message to President Trump: We (Europe) Take As Much From You (The US) As You Take From Us — The US trade deficit with the euro area in goods and services combined is about €57bn, under 0.2% of US GDP, and the euro area pays roughly €49bn more in investment income and wages to the US than it receives. Counting these flows, the euro area's current account with the US is effectively balanced.

AI Summary. The authors estimate that 25% tariffs on Canada and Mexico plus 20% tariffs on China raise the US effective tariff rate by 7 percentage points to its highest since 1943, lifting the price level 1.0–1.2% and costing households an average $1,600–2,000. They project the economy is persistently 0.3–0.4% smaller.

Ernie Tedeschi Yale University
Date Posted:

.@ernietedeschi estimates that 20% tariffs on China and 25% on Canada/Mexico will decrease real GDP growth by 0.6pp in 2025, cost the average household $1.6-2.0k/year, and raise $1.4-1.5T over 2026-35 conventionally scored, and $300-360B less if scored dynamically.

How much do new tariffs cost households and the economy?

Core argument: The modeled 25% tariffs on Canada and Mexico plus 10% tariffs on China amount to a 7 percentage point rise in the US effective tariff rate, raising it to the highest level since 1943.

[We] modeled the total effect of the planned 25% Canada & Mexico tariffs and the 10% China tariffs, as well as the 10% China tariffs already in effect. The policy is the equivalent of a 7 percentage point hike in the US effective tariff rate, raising it to the highest since 1943. The price level rises by 1.0-1.2%, the equivalent of an average per household consumer loss of $1,600–2,000 in 2024$. Real GDP growth is 0.6 lower in 2025. In the long run, the US economy is persistently 0.3-0.4% smaller, the equivalent of $80-110 billion annually in 2024$. The tariffs to date raise $1.4-1.5 trillion over 2026-35 conventionally-scored, and $300-360 billion less if dynamic revenue effects are taken into account. Tariffs are regressive taxes. Losses for households at the bottom of the income distribution would range between $900–1,100.

Takeaways by Macro Roundup® AI

  1. The modeled 25% tariffs on Canada and Mexico plus 10% tariffs on China amount to a 7 percentage point rise in the US effective tariff rate, raising it to the highest level since 1943.
  2. The tariffs are projected to raise the price level by 1.0–1.2%, equivalent to an average per-household consumer loss of $1,600–2,000 in 2024 dollars, and to lower 2025 real GDP growth by 0.6.
  3. The tariffs to date are estimated to raise $1.4–1.5 trillion over 2026–35 as conventionally scored, $300–360 billion less accounting for dynamic revenue effects, while leaving the US economy persistently 0.3–0.4% smaller, or $80–110 billion annually in 2024 dollars.

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.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. The U.S. goods trade deficit reached a record $1.2tn in 2024, with deficits run against more than 100 countries; a steady surplus in services left the combined goods and services gap at about $918bn. Gaps with Vietnam and India have grown as businesses shifted supply chains away from China.

Anthony DeBarros and Peter Santilli Wall Street Journal
Date Posted:

The US ran a record $1.2T trade deficit in goods in 2024. The US ran a $0.3T services trade surplus, leaving the overall deficit of goods and services at $918B.

Which countries account for the record US goods trade deficit?

Core argument: The U.S. goods trade deficit hit a record $1.2 trillion in 2024, with a steady services surplus leaving the combined goods and services deficit at about $918 billion.

The U.S. imported $1.2 trillion more in goods in 2024 than it exported, a record annual deficit and a major economic irritant for President Trump. The nation’s biggest trading partners—Mexico, Canada and China—contribute a sizable share of the gap. But the U.S. last year ran a trade deficit with more than 100 countries, according to Census Bureau data. Gaps with some of those nations, including Vietnam and India, have grown as businesses shifted supply chains away from China. The monthly goods deficit has been on a tear—to the downside. Preliminary census numbers for January show that, after hitting a record $123 billion in December, it rocketed to $153 billion as businesses raced to import goods ahead of tariffs. The U.S. runs a steady trade surplus in services, which in 2024 left the overall goods and services deficit at about $918 billion.

Takeaways by Macro Roundup® AI

  1. The U.S. goods trade deficit hit a record $1.2 trillion in 2024, with a steady services surplus leaving the combined goods and services deficit at about $918 billion.
  2. The U.S. ran goods trade deficits with more than 100 countries in 2024, according to Census Bureau data, with gaps widening with Vietnam and India as businesses shifted supply chains away from China.
  3. The monthly U.S. goods deficit rose from a record $123 billion in December to $153 billion in January, according to preliminary Census figures, as businesses raced to import goods ahead of tariffs.

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.
  • Message to President Trump: We (Europe) Take As Much From You (The US) As You Take From Us — The US trade deficit with the euro area in goods and services combined is about €57bn, under 0.2% of US GDP, and the euro area pays roughly €49bn more in investment income and wages to the US than it receives. Counting these flows, the euro area's current account with the US is effectively balanced.
  • Budget Cuts Can Solve Trump’s Trade Deficit Problem — An International Monetary Fund study of 33 countries found that for a large economy like the U.S., each dollar of deficit reduction shifts the current account—trade in goods, services and investment income—by 30 to 50 cents. Applying that math, cutting the U.S. federal deficit from 6.4% of GDP to 3% would trim $300bn–$500bn from the roughly $900bn goods-and-services trade deficit.

AI Summary. The authors find that a supply-demand model of education and technology characterizes the U.S. college wage premium since the early 1960s, with skill-biased technological change and slower growth in the relative supply of college-educated labor raising the premium over time. They identify a diminished, recently negative demand-side contribution from skill-biased technological change as the main factor behind the premium's stagnation.

Leila Bengali, Robert Valletta and Cindy Zhao Federal Reserve Bank of San Francisco
Date Posted:

Bengali et al. find the stagnation in the college wage premium since 2005 “is largely due to demand-side changes: a slowdown in the pace of skill-biased technological change and rising substitutability between college and high school educated workers.”

Why has the college wage premium stopped rising?

Core argument: The authors find that the demand-side contribution of skill-biased technological change to the U.S. college wage premium was large early in their sample but diminished over time and appears to have turned negative in recent years, the main factor explaining the premium's stagnation over the past decade or so.

A supply-demand model of the race between education and technology accurately characterizes the dynamics of the U.S. college wage premium since the early 1960s. This approach emphasizes the role of skill-biased technological change and slower growth of the relative supply of college-educated labor, particularly starting in the 1980s, in increasing the college wage premium over time. We focus on assessing the contributions of demand and supply factors to the recent stagnation in the college wage premium. The demand-side contribution of skilled-biased technological change was large early in our sample frame but diminished over time and appears to have turned negative in recent years. This is the main factor explaining the stagnation in the college wage premium over the past decade or so. Through about 2005, changes in supply put downward pressure on changes in the college wage premium, with large effects evident in the early part of the sample prior to the 1980s. A slowdown in growth of the relative supply of college educated labor starting in the 1980s allowed the college wage premium to increase more rapidly

Takeaways by Macro Roundup® AI

  1. The authors find that the demand-side contribution of skill-biased technological change to the U.S. college wage premium was large early in their sample but diminished over time and appears to have turned negative in recent years, the main factor explaining the premium's stagnation over the past decade or so.
  2. A supply-demand model of the race between education and technology characterizes the dynamics of the U.S. college wage premium since the early 1960s, emphasizing skill-biased technological change and slower growth in the relative supply of college-educated labor from the 1980s.
  3. Through about 2005, changes in the relative supply of college-educated labor put downward pressure on the college wage premium, with large effects before the 1980s, after which slower supply growth allowed the premium to rise more rapidly.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Falling College Wage Premiums by Race and Ethnicity — The college wage premium is largest for Asian workers, whose college graduates earn more than twice what high school graduates earn — about a 120% premium versus roughly 70–80% for Black, Hispanic, and White workers. The premium has edged down slightly for all groups except Hispanic workers since the pandemic recession.
  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.

AI Summary. S&P Global Ratings estimates global government borrowing will reach a record $12.3tn, a 3% rise in sovereign bond issuance across 138 countries that would lift the total debt stock to a record $76.9tn, or 70.2% of global GDP. S&P attributes the increase to higher defence and other spending by major economies alongside higher interest rates.

Ian Smith Financial Times
Date Posted:

S&P forecasts global government borrowing will hit a record of $12.3T in 2025, raising the total debt stock to a record $76.9T.

Are higher defense spending and interest rates pushing government borrowing to records?

Core argument: S&P Global Ratings estimates global government borrowing will reach a record $12.3tn this year, a 3% rise in sovereign bond issuance across 138 countries, as higher defence and other spending combines with higher interest rates.

Global government borrowing is expected to reach a record $12.3tn this year, as a rise in defence and other spending by major economies and higher interest rates combine to push up debt levels. The 3% rise in sovereign bond issuance across 138 countries would take the total debt stock — which has been pushed higher by the global financial crisis, coronavirus pandemic and now the need for greater European defence spending — to a record $76.9tn, according to estimates by S&P Global Ratings. Overall, the stock of debt will reach 70.2% of global GDP, according to S&P. This has risen steadily since 2022 but is below the 73.8% hit during 2020, when governments responded to the pandemic with huge spending programmes.

Takeaways by Macro Roundup® AI

  1. S&P Global Ratings estimates global government borrowing will reach a record $12.3tn this year, a 3% rise in sovereign bond issuance across 138 countries, as higher defence and other spending combines with higher interest rates.
  2. The total stock of government debt will hit a record $76.9tn, pushed higher by the global financial crisis, the coronavirus pandemic and the need for greater European defence spending, according to S&P Global Ratings.
  3. Government debt will reach 70.2% of global GDP, up steadily since 2022 but below the 73.8% reached in 2020, when governments responded to the pandemic with huge spending programmes, according to S&P Global Ratings.

Related Articles:

  • 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.
  • The US Borrowing Surge: Outpacing Europe for the Foreseeable Future — Public debt in the euro area is projected to rise 11 percentage points to 100% of GDP by 2034, while US public debt is projected to rise twice as much, 25 percentage points, to 122% of GDP.
  • CBO Releases January 2025 Budget and Economic Outlook — The Congressional Budget Office projects federal debt held by the public will climb from about 98% of GDP to 118% by 2035, with deficits totaling $22tn over the decade and interest costs rising to 4.1% of GDP. Real growth is projected to average 1.8%, with inflation near 2%.

AI Summary. Years of European defence underspending have created a stock problem—depleted weapons, hardware, and technology, plus gaps in operational capacity, full-spectrum battlefield capability, and personnel—that higher spending can only fill slowly. Europe's cumulative shortfall against NATO's 2% of GDP target is about €850bn, and exceeds €2,650bn measured against US spending near 3.5% of GDP.

Chris Marsh Money: Inside and Out
Date Posted:

Since 2014 the US has spent $8.4T on defense, more than double the rest of NATO’s $3.8T. Europe’s shortfall relative to the 2% target since 2014 was €2.65T. @GeneralTheorist notes that increased flows may not address the underlying “stock” issue.

Can higher defense spending quickly close Europe's accumulated military stock gap?

Core argument: European NATO members' cumulative defence spending shortfall relative to the 2% of GDP target since 2014 totals EUR850bn, with Germany's gap largest in absolute terms at above EUR200bn and Italy's about EUR150bn.

Much of the discussion about increasing defence spending in light of recent geopolitical developments fails to acknowledge that this protracted underspend has left a stock problem—a depleted stock of weapons, other hardware, and technology; but also gaps in operational capacity, full spectrum battlefield capability, and personnel. As such, while increasing defence spending today is welcome, it will only fill the “stock” gap slowly. Consider the cumulative underspend by NATO countries over the past decade relative to the 2% target and relative to US spending in % of GDP. Data provided by NATO only begins in 2014. Germany’s shortfall to 2% is largest in absolute terms and cumulates to above EUR200B, Italy about EUR150B, etc. The aggregate shortfall for Europe is EUR850B. To reach further and “catch-up” with the US spending closer to 3.5% of GDP Germany would need to spend an additional EUR550B (or EUR800B in total), Italy and France would need to spend above EUR400B in total, and so on. The aggregate shortfall for Europe since 2014 exceeds EUR2,650B.

Takeaways by Macro Roundup® AI

  1. European NATO members' cumulative defence spending shortfall relative to the 2% of GDP target since 2014 totals EUR850bn, with Germany's gap largest in absolute terms at above EUR200bn and Italy's about EUR150bn.
  2. Matching US defence spending closer to 3.5% of GDP would require Europe to have spent more than EUR2,650bn since 2014, including EUR800bn in total for Germany and above EUR400bn in total each for Italy and France.
  3. Protracted underspending has left a stock problem—depleted weapons, hardware, and technology, plus gaps in operational capacity, full spectrum battlefield capability, and personnel—that higher defence spending will fill only slowly.

Related Articles:

  • European Defence Shares Jump As Blistering Rally Gathers Pace — European defence stocks and the euro rose as investors bet governments will increase military spending and take on more responsibility for the continent's security, with shares in major contractors including Rheinmetall, Leonardo, Thales, BAE Systems and Saab gaining. European government bonds sold off on expectations of higher spending.
  • America, Jump-Started: World War II R&D and the Takeoff of the US Innovation System — From 1940 to 1945, the US Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 research contracts worth over $9bn in 2022 dollars, despite no pre-war tradition of funding externally performed research. At the war's height, the US government funded the research behind nearly 1 in 8 US patents.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.