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
  • “…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 provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “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
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, March 31, 2025

AI Summary. Housing production intensity has fallen substantially, especially in fast-growing Sunbelt markets once known for building, converging toward the low rates long seen on the coasts and in declining industrial centers. The authors argue incumbent-controlled regulation explains the weakening link between high prices, high demand areas, and new construction.

Edward Glaeser and Joseph Gyourko Brookings Papers on Economic Activity
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Why are constant-quality house prices 15% above their pre-2007 peak? Ed Glaeser notes that US housing grew just 0.6% annually in the 2010s, down from 4% in the 1950s. Sun Belt metros now mirror coastal markets: supply-constrained and high-priced.

Why has homebuilding slowed even in high-demand, high-price markets?

Core argument: The intensity of U.S. housing production has dropped substantially over time, especially in expanding Sunbelt markets that were once housing market superstars, with Miami now resembling Los Angeles in its pace of unit production.

The key driver appears to be that the intensity of housing production has dropped substantially over time, especially in many expanding Sunbelt markets that were once housing market superstars. There is a marked convergence in the pace of housing unit production across markets throughout the country: Miami has become far more like Los Angeles. Our analysis suggests that there has been an economically important flattening of the empirical housing supply curve in these places. [As in] other markets on the coasts and in declining industrial centers in earlier decades. Within metropolitan areas across the country, we now build less often in the highest demand areas. We also found relatively weak relationships between density and the construction of single family detached housing. To us, this suggests that insiders increasingly control regulations to protect their own rents. If so we should expect to see a decreasing link between high prices and new construction, which is exactly what the data shows.

Takeaways by Macro Roundup® AI

  1. The intensity of U.S. housing production has dropped substantially over time, especially in expanding Sunbelt markets that were once housing market superstars, with Miami now resembling Los Angeles in its pace of unit production.
  2. The authors' analysis suggests an economically important flattening of the empirical housing supply curve in Sunbelt markets, as occurred in coastal markets and declining industrial centers in earlier decades.
  3. Within metropolitan areas across the country, less building now occurs in the highest demand areas, and the authors interpret the weakening link between high prices and new construction as a sign that insiders increasingly control regulations to protect their own rents.

Related Articles:

  • Homes For Young Families: A Pro-Family Housing Agenda — The authors' Young Family Median Multiple, comparing median incomes of 20-34 year-olds to local median home values, finds that virtually every US metro area met a basic affordability standard in 1969 versus just 21% in 2018-2022. New housing completions trailed new household formations by 3.8m units.
  • Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation — Homes built per construction worker boomed after World War II and fell after 1970, a decline the authors link to local land-use regulation that limits project size and keeps construction firms small and less productive. They estimate US residential builders would be roughly 60% more productive if their size distribution matched manufacturing.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.

AI Summary. Research from Peking University finds China was the target of 198 trade investigations alleging dumping or illegal subsidies, double the prior year's tally and nearly half of all such measures reported to the global trade body. More than half of these cases were initiated by developing countries, including 37 from India, 19 from Brazil and nine from Turkey.

Ryan McMorrow and Wenjie Ding Financial Times
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As WTO members reeled from China’s ~ $1T surplus, China became the subject of 198 trade investigations in 2024, 2x that of 2023.

Are developing countries driving the surge in trade cases against China?

Core argument: China faced 198 trade investigations alleging dumping or illegal subsidies in 2024, double the prior year's tally and nearly half of all measures reported to the global trade body, according to Peking University economist Lu Feng.

Beijing was the subject of 198 trade investigations alleging dumping or illegal subsidies by partners in 2024, double the tally the previous year and accounting for nearly half of all measures reported to the global trade body, according to research by Peking University economics professor Lu Feng. The European Commission launched 21 trade defence investigations into Chinese products in 2024 — including steel cylinders, plywood, candles and decorative paper, among others — up from nine the previous year, according to Chinese data. More than half of the trade cases against China last year were initiated by developing countries, indicating that western countries’ objections to Chinese overproduction were widely shared. The data showed 117 cases were initiated by emerging economies, including 37 from India, 19 by Brazil and nine from Turkey.

Takeaways by Macro Roundup® AI

  1. China faced 198 trade investigations alleging dumping or illegal subsidies in 2024, double the prior year's tally and nearly half of all measures reported to the global trade body, according to Peking University economist Lu Feng.
  2. More than half of the 2024 trade cases against China — 117 — were initiated by emerging economies, including 37 from India, 19 from Brazil and nine from Turkey, indicating objections to Chinese overproduction were widely shared.
  3. The European Commission launched 21 trade defence investigations into Chinese products in 2024, up from nine the previous year, covering goods including steel cylinders, plywood, candles and decorative paper, according to Chinese data.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • A New ‘China Shock’ Is Destroying Jobs Around the World — Indonesia's textiles and apparel industry lost roughly 250,000 jobs over two years, with an industry association estimating another 500,000 at risk, amounting to one in four jobs in the sector. Researchers describe this as a new "China Shock," faster than the earlier wave that eliminated as many as 2.4m US jobs.
  • 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.

AI Summary. Foreign purchases of U.S. debt are mostly long-term securities rather than the short-term assets typically held as reserves, and large capital flows also move both into and out of the U.S. outside bond markets. The author argues reduced demand for dollar reserves would have little effect on net capital inflows, which mainly reflect perceived U.S. investment opportunities.

Paul Krugman Krugman Wonks Out
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Krugman challenges the notion that US trade deficits result from the dollar’s reserve currency role. “Most annual purchases of U.S. securities are of long-term bonds, not the short-term securities usually used as reserve assets.”

Would falling demand for dollar reserves shrink net capital inflows?

Core argument: Foreign purchases of U.S. debt securities partly reflect the dollar's reserve-currency role, though most of those purchases are of long-term securities rather than the short-term securities typically held as reserve assets.

It’s true that foreigners buy a lot of U.S. debt securities every year, which to some extent reflects the role of the dollar as a reserve currency — although most of those purchases are of long-term securities, not the short-term securities usually used as reserve assets. But there’s also a lot of capital inflow to the U.S. that doesn’t involve buying bonds, while at the same time there’s a lot of capital flowing out of the country as American individuals and companies invest abroad. Here’s the picture for 2024. Suppose that we were able somehow to force foreign governments to stop buying U.S. bonds. The balance of payments always balances, so something else would have to change in response. But why should all or even most of the adjustment involve a reduction in the trade deficit? Why couldn’t it involve an increase in other kinds of capital inflow, or a reduction in capital outflows? In fact, I’d argue that the best bet is that a reduced demand for dollar reserves would have little effect on net capital flows to the United States, which mostly reflect the perception that the U.S. economy offers good investment opportunities.

Takeaways by Macro Roundup® AI

  1. Foreign purchases of U.S. debt securities partly reflect the dollar's reserve-currency role, though most of those purchases are of long-term securities rather than the short-term securities typically held as reserve assets.
  2. Capital flows to the U.S. include large inflows that do not involve buying bonds, alongside substantial outflows as American individuals and companies invest abroad.
  3. Krugman argues that if foreign governments stopped buying U.S. bonds, the adjustment need not fall mainly on the trade deficit, and reduced demand for dollar reserves would likely leave net capital flows to the U.S. little changed.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
  • Pettis on Obstfeld — Pettis argues that saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are driven by their own domestic policies and conditions, and in turn drive the US saving rate. He notes the US has an open capital account, deep financial markets, and limited intervention in credit allocation.

AI Summary. Federal Reserve data show European investors held about $9tn in US stocks, roughly 17% of the total value of the US market. After inflation, a dollar invested in the US at the start of 2000 was worth $3.28 by the end of 2024, versus $1.63 for the rest of the world.

Katie Martin Financial Times
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European investors held ~$9T in US equities at the end of 2024, ~17% of US market cap, on par with the market cap of all European equities. “Trillions of dollars can leave the US if the rest of the world chooses to get back towards a neutral position.”

Are European investors heavily overweight US stocks?

Core argument: European investors held about $9tn in US stocks at the end of last year, roughly 17% of the total value of the US market and not far off the combined market capitalisation of all European equities, according to Federal Reserve data.

Data from the US Federal Reserve shows that European investors held about $9tn in US stocks at the end of last year — around 17% of the overall value of the US market and not far off the market capitalisation of all the equities in Europe. A dollar invested in the US at the start of 2000 was worth $3.28 by the end of 2024, again, after inflation. For the rest of the world, you end up at a rather humdrum $1.63. As a rule, non-US investors who have failed to make a significant allocation to the US have not been doing their jobs properly. Trillions of investment dollars can leave the US if the rest of the world chooses to get back towards a neutral position.

Takeaways by Macro Roundup® AI

  1. European investors held about $9tn in US stocks at the end of last year, roughly 17% of the total value of the US market and not far off the combined market capitalisation of all European equities, according to Federal Reserve data.
  2. A dollar invested in US stocks at the start of 2000 was worth $3.28 after inflation by the end of 2024, versus $1.63 for the rest of the world.
  3. Trillions of investment dollars can leave the US if the rest of the world moves back towards a neutral allocation, after a period in which non-US investors lacking a significant US allocation were not doing their jobs properly.

Related Articles:

  • A Visualization of Europe’s Non-Bubbly Economy — The Draghi report notes that no European Union company with a market capitalization above €100bn was founded from scratch in the past fifty years, while all six US companies valued above €1tn were. The 13 EU companies founded in that period and worth at least $10bn total about $400bn, versus nearly $30tn for their US counterparts.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • European vs. US Stocks: Which Market Comes Out On Top? — Since MSCI data began in 1970, US stocks have outperformed European stocks by an average of 0.8 percentage points per year, with $1 invested in 1970 growing to $268 in the US versus $141 in Europe over 55 years. Before the financial crisis the ranking was reversed, with the US gain equal to 57% of the European gain.

AI Summary. Household and banking sector leverage in the US have declined significantly since 2008, while corporate leverage has moved sideways and federal government leverage has risen significantly. On this measure, the US private sector is in strong financial shape.

Torsten Sløk Apollo
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​​Torsten Sløk notes that US household and banking sector debt has fallen to its lowest level in decades as a % of GDP, while corporate leverage has moved sideways. “The bottom line is that the private sector in the US is in incredibly good shape.”

Is the US private sector in strong financial shape?

Core argument: US household sector leverage and banking sector leverage have both declined significantly since 2008, leaving the US private sector in what the author characterizes as incredibly good shape.

Household sector leverage and banking sector leverage have declined significantly since 2008. Over the same period, federal government leverage has increased significantly, and corporate leverage has moved sideways. The bottom line is that the private sector in the US is in incredibly good shape.

Takeaways by Macro Roundup® AI

  1. US household sector leverage and banking sector leverage have both declined significantly since 2008, leaving the US private sector in what the author characterizes as incredibly good shape.
  2. US federal government leverage has increased significantly since 2008, moving in the opposite direction from the deleveraging in the household and banking sectors.
  3. US corporate leverage has moved sideways since 2008, neither declining like household and banking leverage nor rising like federal government leverage.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • The Long-Term Budget Outlook: 2025 to 2055 — The Congressional Budget Office projects the 10-year Treasury note interest rate will average 3.8% over 2025–2055, close to its 3.7% average over the prior three decades, with the inflation-adjusted rate averaging 1.5%. It assesses that long-run rates are largely set by structural factors including demographics, saving and investment behavior, and federal debt.
  • 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.

Tuesday, April 1, 2025

AI Summary. The author argues that US trade deficits have funded debt-financed consumption rather than domestic business investment, noting that since 2000 real interest rates have tended to fall as trade deficits widen while business investment has been uncorrelated with both. If tariffs shrink trade deficits, interest rates could rise and worsen America's fiscal balance.

Edward Conard Wall Street Journal
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For 25 yrs, trade deficits funded debt-fueled consumption, not business investment, addicting voters to government spending without higher taxes (or inflation). If tariffs reduce trade deficits, it could raise interest rates, worsening this imbalance.

Have trade deficits funded consumption rather than business investment?

Core argument: Over 25 years, U.S. trade deficits and the mistaken belief that they chiefly fund business investment fueled a debt-financed rise in American consumption that contributed to the 2008 financial crisis and unsustainable deficit spending, with little boost to domestic investment or production.

For 25 years, trade deficits and the mistaken belief that they chiefly fund business investment have fueled a debt-financed increase in American consumption. This contributed to the 2008 financial crisis and unsustainable growth of deficit spending, while doing little to boost domestic investment or production. If the demand for business investment primarily drove trade deficits, real interest rates and trade deficits would rise with the demand for domestic business investment. But since 2000, real interest rates have tended to fall as trade deficits expand, and business investment has been uncorrelated with both, at least not until fiscal deficits started to devour savings. Unproductive spending slows growth, not the means necessary to fund it—greater taxes, interest expense, inflation, and future government spending cuts. If tariffs reduce trade deficits, it could raise interest rates, sending America’s precarious fiscal balance spiraling out of control.

Takeaways by Macro Roundup® AI

  1. Over 25 years, U.S. trade deficits and the mistaken belief that they chiefly fund business investment fueled a debt-financed rise in American consumption that contributed to the 2008 financial crisis and unsustainable deficit spending, with little boost to domestic investment or production.
  2. Since 2000, real interest rates have tended to fall as U.S. trade deficits expand, and business investment has been uncorrelated with both, contrary to the view that demand for domestic business investment drives trade deficits.
  3. If tariffs reduce U.S. trade deficits, interest rates could rise and send America's precarious fiscal balance spiraling out of control, since unproductive spending slows growth rather than the taxes, interest expense, inflation, and future spending cuts needed to fund it.

Related Articles:

  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
  • Pettis on Obstfeld — Pettis argues that saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are driven by their own domestic policies and conditions, and in turn drive the US saving rate. He notes the US has an open capital account, deep financial markets, and limited intervention in credit allocation.
  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.

AI Summary. The U.S. manufactures trade deficit of about 4% of GDP, if eliminated, is estimated to raise manufacturing value-added by roughly 2.5 percentage points of GDP — about a quarter larger than the current 10% share — because manufacturers also buy many services. That would reverse only about 2.5 of the roughly 17-point fall in manufacturing's employment share since 1970.

Paul Krugman Paul Krugman
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Paul Krugman notes that since 1970 US manufacturing employment has declined from 25% of the workforce to 8% at the end of 2024. He calculates that closing the US trade deficit would likely increase US manufacturing share by only 2.5pp.

How much would eliminating the trade deficit restore manufacturing's share?

Core argument: The U.S. manufactures trade deficit ran about 4% of GDP last year, and a rough estimate suggests eliminating it entirely would raise manufacturing value-added by roughly 2.5 percentage points from 10% of GDP, since manufacturers buy many services.

Last year the U.S. ran a manufactures trade deficit of around 4% of GDP. Suppose we assume that this deficit subtracted an equal amount from spending on U.S. manufactured goods. In that case what would happen if we somehow eliminated that deficit? Well, it would raise the share of manufacturing in GDP — currently 10%— by less than 4 percentage points, because manufacturing firms buy a lot of services. A rough estimate is that manufacturing value-added would rise by around 60% of the change in sales, or 2.5 percentage points, implying that the manufacturing sector would be around a quarter larger than it is. Manufacturing as a share of employment has fallen about 17 points since 1970. Complete elimination of the trade deficit would undo only around 2.5 points of that decline. So even if tariffs “worked,” which they won’t, they would fall far short of restoring manufacturing to its former glory. [Likewise, even] Germany’s huge trade surpluses haven’t been enough to avoid a big shift away from manufacturing,

Takeaways by Macro Roundup® AI

  1. The U.S. manufactures trade deficit ran about 4% of GDP last year, and a rough estimate suggests eliminating it entirely would raise manufacturing value-added by roughly 2.5 percentage points from 10% of GDP, since manufacturers buy many services.
  2. Manufacturing's share of U.S. employment has fallen about 17 percentage points since 1970, and completely eliminating the trade deficit would undo only around 2.5 points of that decline.
  3. Germany's large trade surpluses have not prevented a big shift away from manufacturing, and even tariffs that "worked" would fall far short of restoring U.S. manufacturing to its former glory.

Related Articles:

  • China is Suffering its Own ‘China Shock’ — Academic analysis of 12 labour-intensive Chinese manufacturing industries estimates average employment fell about 14%, or nearly 4mn jobs, between 2011 and 2019, with textile roles down 40%; a further analysis of the same sectors found 3.4mn more jobs lost through 2023. Researchers argue industrial upgrading and automation are cutting demand for lower-skilled workers and depressing their wages.
  • America Is Missing The New Labor Economy – Robotics Part 1 — Building an identical robotic arm in the US costs about 2.2x more than in China, and US-labeled components still depend heavily on Chinese parts and materials with no scalable alternative. The author argues China is the only country positioned to capture full-scale intelligent robotic automation, which would let it outcompete the US across production.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.

AI Summary. Bloomberg Economics estimates a maximalist tariff approach could add up to 28 percentage points to the average US tariff rate, cutting US output by 4% (over $1tn) and raising prices by nearly 2.5% over two to three years. The estimate assumes foreign retaliation and excludes indirect costs such as deferred investment and spending.

Shawn Donnan, Enda Curran, and Maeva Cousin Bloomberg
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Imports of goods and services are ~14% of US GDP. “Maximalist” tariffs would cut GDP by ~4% and lift prices by ~ 2.5% over the next 2-3 years, per Bloomberg Economics. For context, the global financial crisis left US GDP ~6% below trend after 3 years.

How much would maximalist tariffs cost US output and prices?

Core argument: Bloomberg Economics estimates a maximalist tariff approach could add up to 28 percentage points to the average US tariff rate, cutting US GDP by 4% and lifting prices by close to 2.5% over two to three years.

An analysis by Bloomberg Economics found that a maximalist approach could add up to 28 percentage points to the average US tariff rate — resulting in a hit of 4% to US GDP and lifting prices by close to 2.5% over a two- to three-year period. This would be equivalent to lopping more than $1 trillion off US output, or roughly the GDP of Pennsylvania. For comparison, this would be nearly as bad as the impact of the global financial crisis — which left the economy roughly 6% smaller after 3 years than its pre-crisis trend. Trump's vocal concerns about value-added tax in Europe and non-tariff barriers in China mean they could face a major tariff shock, and potentially lose much of their exports to the US, Bloomberg Economics found. But because a limited share of GDP is exposed, the economic hit would likely be manageable. Canada and countries in Southeast Asia would likely feel a bigger disruption. The Bloomberg Economics forecast assumes retaliation by other countries in the form of tariffs on US imports. It doesn’t capture indirect economic costs of the policies, such as how uncertainty about the future might lead companies to shelve investment plans and consumers to put off purchases.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics estimates a maximalist tariff approach could add up to 28 percentage points to the average US tariff rate, cutting US GDP by 4% and lifting prices by close to 2.5% over two to three years.
  2. The estimated hit of more than $1 trillion to US output, roughly the GDP of Pennsylvania, would be nearly as bad as the global financial crisis, which left the economy about 6% below its pre-crisis trend after three years.
  3. Bloomberg Economics finds Europe and China could face a major tariff shock and lose much of their exports to the US, though limited GDP exposure would likely keep the hit manageable, while Canada and Southeast Asia would likely feel bigger disruption.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. 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.
  • Steel Productivity has Plummeted Since Trump’s 2018 Tariffs — Output per hour in the U.S. steel industry has fallen 32% since 2017, following the imposition of 25% tariffs on steel imports, while output per hour for the economy as a whole rose 15%. U.S. steel-using firms, which employ roughly 45x as many Americans as steel producers, pay about 75% more for steel than global competitors.

AI Summary. The authors estimate that after a rise in regional labor demand, about 80% of added employment initially comes from lower state unemployment, but at a five-year horizon more than 60% comes from population growth through migration. They find no evidence that migration's responsiveness to employment changes has declined.

Andrea Foschi, Christopher House, Christian Proebsting, and Linda Tesar Brookings Papers on Economic Activity
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In response to labor demand shocks, ~80% of initial job gains come from lower unemployment. But after 5 years, >60% is driven by net migration, per Foschi et al. Migration’s share of adjustment has held steady since the 1950s.

How do workers respond to regional labor demand increases over time?

Core argument: Following an increase in regional labor demand, roughly 80% of the resulting employment gain comes from a reduction in state unemployment, with in-migration and higher labor participation accounting for the remaining 20%.

We examine the responsiveness of labor participation, unemployment and labor migration to exogenous variations in [regional] labor demand. We find that labor migration is a significant margin of adjustment for all our instruments. Following an increase in regional labor demand, roughly 80% of the increased employment is accounted for by a reduction in state unemployment. In-migration and increased labor participation account for the remaining 20 percent. As time passes, however, these shares switch. At the five-year horizon, more than 60% of the estimated increase in employment is due to increased state population, while only 20-25% comes from reduced unemployment. [While] the [overall] rate of migration between U.S. states has declined over the last 40 years, based on historical data back to the 1950s, we find no evidence of a decline in the elasticity of migration to changes in employment.

Takeaways by Macro Roundup® AI

  1. Following an increase in regional labor demand, roughly 80% of the resulting employment gain comes from a reduction in state unemployment, with in-migration and higher labor participation accounting for the remaining 20%.
  2. At the five-year horizon, more than 60% of the estimated employment increase is attributed to increased state population, while only 20–25% comes from reduced unemployment.
  3. Although the rate of migration between U.S. states has declined over the last 40 years, historical data back to the 1950s show no evidence of a decline in the elasticity of migration to changes in employment.

Related Articles:

  • Places versus People: The Ins and Outs of Labor Market Adjustment to Globalization — Analysis of U.S. register data finds that employment levels in places exposed to Chinese import competition more than fully rebound, while employment-to-population ratios stay depressed and manufacturing employment continues to shrink. The authors find the recovery comes almost entirely from young adults and foreign-born immigrants taking first jobs in lower-wage service sectors, with both in- and out-migration remaining depressed.
  • The Determinants Of Declining Internal Migration — A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.
  • Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock — U.S. local labor markets more exposed to import competition from China saw substantially larger net reductions in their foreign-born populations, with no significant reduction among native-born residents. Within exposed areas, foreign-born and native-born workers had comparably sized declines in employment-to-population ratios.

AI Summary. Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.

Ian Smith and Olaf Storbeck Financial Times
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Germany’s defense buildup is pushing 10-year Bund yields toward 3%, lifting borrowing costs across the Eurozone. Point72 estimates Italy’s debt-to-GDP could rise to 153% by 2030 (from 140%), and France’s to 122% (from 115%).

Does higher German defense spending raise borrowing costs across the eurozone?

Core argument: Ten-year German Bund yields have risen to close to 3%, the first time since the 2023 global bond sell-off, amid Germany's planned defence spending spree.

A surge in Eurozone government borrowing costs as a result of Germany’s planned defence spending spree will intensify debt pressures on other countries in the bloc and could make it harder for them to mount borrowing campaigns of their own, investors have warned. Ten-year Bund yields have risen to close to 3% this month for the first time since a global bond sell-off in 2023. That has pushed other government borrowing costs higher, thanks to German debt’s role as the de facto benchmark for the bloc’s market, prompting warnings about the impact on the finances of more heavily indebted economies. A simulation by Point72, factoring in higher defence spending as well as higher yields, shows that without spending cuts elsewhere, or a boost to growth, Italy’s debt-to-GDP ratio could rise to 153% by 2030, and France’s to 122%, from about 140% and 115% respectively.

Takeaways by Macro Roundup® AI

  1. Ten-year German Bund yields have risen to close to 3%, the first time since the 2023 global bond sell-off, amid Germany's planned defence spending spree.
  2. A Point72 simulation factoring in higher defence spending and higher yields shows Italy's debt-to-GDP ratio could rise to 153% by 2030 from about 140%, and France's to 122% from about 115%, absent spending cuts elsewhere or a boost to growth.
  3. Investors warn that because German debt serves as the de facto benchmark for the Eurozone market, rising Bund yields have pushed other governments' borrowing costs higher and could make it harder for them to mount borrowing campaigns of their own.

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