Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, April 3, 2025

AI Summary. The authors estimate that all US tariffs enacted in 2025 bring the average effective tariff rate to 22.5%, the highest since 1909, raising the short-run price level by 2.3% — an average consumer loss of $3,800 per household, or $1,700 for the lowest-income households. They project US real GDP growth 0.9 percentage points lower and $3.1tn in revenue.

Ernie Tedeschi Yale University
Date Posted:

The new round of tariffs leaves the mean US effective tariff rate at 22.5%, the highest level since 1909. All 2025 tariffs to date raise $3.1 trillion over 2026-2035, at the cost of a persistent 0.6% yearly reduction in real GDP. @ernietedeschi.

How much do new tariffs cost households, growth, and revenue?

Core argument: All 2025 U.S. tariffs bring the average effective tariff rate to 22.5%, the highest since 1909, with the April 2 action alone equivalent to a 11.5 percentage point rise in the effective rate.

The April 2nd action is the equivalent of a rise in the effective US tariff rate of 11 ½ percentage points. The average effective US tariff rate after incorporating all 2025 tariffs is now 22 ½%, the highest since 1909. The price level from all 2025 tariffs rises by 2.3% in the short-run, the equivalent of an average per household consumer loss of $3,800 in 2024$ [$1,700 at the bottom of the income distribution]. The price level from the April 2nd announcement alone rises by 1.3% in the short run, the equivalent of an average per household loss of $2,100 in 2024$ [$980 at the bottom]. Both the April 2nd tariffs alone and all 2025 tariffs together disproportionately affect clothing and textiles, with apparel prices rising 17% under all tariffs. US real GDP growth is -0.5pp lower in 2025 from the April 2nd announcement and -0.9pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.4% and -0.6% smaller respectively. All tariffs to date in 2025 raise $3.1 trillion, including the effect of retaliation to date, with $582 billion in negative dynamic revenue effects.

Takeaways by Macro Roundup® AI

  1. All 2025 U.S. tariffs bring the average effective tariff rate to 22.5%, the highest since 1909, with the April 2 action alone equivalent to a 11.5 percentage point rise in the effective rate.
  2. All 2025 tariffs raise the price level by 2.3% in the short run, an average per-household consumer loss of $3,800 in 2024 dollars and $1,700 at the bottom of the income distribution, with apparel prices rising 17%.
  3. U.S. real GDP growth is 0.9 percentage points lower in 2025 from all 2025 tariffs and 0.5 points lower from the April 2 announcement alone, leaving the economy persistently 0.6% and 0.4% smaller in the long run.

Related Articles:

  • 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.
  • 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.
  • Without Spending Cuts, Brace for Slow Growth — 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.

AI Summary. US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance as a share of its imports, with a 10% floor, so they bear little relation to standard measures of trade distortions. Because rates track bilateral deficits, the author argues negotiations are unlikely to deliver quick tariff reductions.

Alex Etra Money: Inside and Out
Date Posted:

Trump’s “reciprocal” tariffs have been set to target bilateral trade deficits: rates are ~50% of the bilateral deficit-to-imports ratio, with a 10% floor. @EtraAlex suggests “negotiations should not be expected to deliver any quick tariff reductions.”

Are reciprocal tariff rates based on bilateral deficits rather than trade barriers?

Core argument: The US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance-to-imports ratio, with a 10% floor, rather than from measured tariff and non-tariff barriers.

The calculation of the effective tariff and non-tariff barriers was rather simple: linked to the bilateral trade balance-to-imports. The US reciprocal tariff was then set at roughly half this bilateral balance—with 10% as a lower bound. The reciprocal tariffs therefore bear little relation to perceived barriers. In other words, there isn’t any logic to the announced reciprocal tariffs when compared with standard metrics of “trade distortions.” And the focus on bilateral balances is quite remarkable in itself. With tariff rates set in proportion to bilateral trade deficits, it seems clearer now that the goal is simply to reduce such deficits (in line with Trump's long-standing rhetoric). This in turn may mean that negotiations should not be expected to deliver any quick tariff reductions—something many still hope for.

Takeaways by Macro Roundup® AI

  1. The US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance-to-imports ratio, with a 10% floor, rather than from measured tariff and non-tariff barriers.
  2. Because the tariff formula rests on bilateral trade balances, the announced reciprocal tariffs bear little relation to standard metrics of trade distortions.
  3. Setting tariff rates in proportion to bilateral trade deficits suggests the goal is simply to reduce those deficits, which may mean negotiations will not deliver quick tariff reductions.

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.
  • Redacted: Straight Talk From the CEO Front Lines On Liberation Day — Steel tariffs added about 1,000 jobs among protected steelmakers while cutting 75,000 jobs in steel-using industries such as autos and construction, and across all tariffed industries duties raised factory employment 0.4% but reduced payrolls 2%. Tariffs on Chinese furniture and appliances raised US prices and were borne by US importers and consumers.
  • Tariffs: Making the U.S. Exceptional, But Not In A Good Way — Broad 25% tariffs are projected to cut Canadian and Mexican GDP by about 5% and 7% respectively, and US GDP by over 2%, as intermediate goods like steel grow more expensive and export industries suffer. Measured by total goods trade with the US as a share of GDP, the US is 3-4x more exposed than most of its trading partners.

AI Summary. Bilateral tariffs mostly divert trade rather than shrink the overall US trade deficit, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them. After an earlier round of US tariffs, the US deficit with China fell while both the overall US deficit and China's overall surplus rose.

Michael Pettis @michaelxpettis
Date Posted:

Bilateral tariffs mostly divert trade and do not alter the “internal” imbalances creating excess savings in the surplus countries, argues @michaelxpettis. “I continue to expect the US to run large trade deficits over the next year or two.”

Do bilateral tariffs reduce the overall US trade deficit?

Core argument: Michael Pettis argues bilateral tariffs mostly divert trade and, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them, will shift bilateral balances without changing the overall US trade deficit.

Bilateral tariffs mostly divert trade, but because they don't address the internal imbalances in the surplus countries that drive their trade surpluses, nor do they address the US role in accommodating these surpluses, they will most likely just shift bilateral balances without changing the overall US trade deficit. This, remember, is what happened after the first round of US tariffs in 2018, when the US deficit with China declined, but the overall US deficit and the overall Chinese surplus both rose. [Another] problem with the latest round of tariffs is that they target the wrong countries. Trump focuses on whether or not a country has a trade surplus with the US rather than on whether or not that country is running large, persistent surpluses overall. Countries like Canada, Mexico and Japan are not part of the overall problem because they run overall trade deficits that help absorb some of the global imbalances. I continue to expect the US to run large trade deficits over the next year or two.

Takeaways by Macro Roundup® AI

  1. Michael Pettis argues bilateral tariffs mostly divert trade and, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them, will shift bilateral balances without changing the overall US trade deficit.
  2. Pettis points to the 2018 round of US tariffs, after which the US deficit with China declined while both the overall US deficit and the overall Chinese surplus rose.
  3. Pettis contends the tariffs target the wrong countries because Trump focuses on whether a country runs a surplus with the US rather than large, persistent overall surpluses, while Canada, Mexico and Japan run overall deficits that absorb some global imbalances.

Related Articles:

  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • 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.
  • 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.

AI Summary. The announced "reciprocal" tariff policy would set a weighted average tariff rate of 18.2%, though roughly one-third of imports would be exempt, reducing the effect to a 12.5pp rise in the effective tariff rate. The authors estimate all tariffs announced would raise the US effective tariff rate by 18.7pp, with risk of further escalation from retaliation and sectoral tariffs.

Jan Hatzius, Alec Phillips and Elsie Peng Goldman Sachs
Date Posted:

Jan Hatzius @GoldmanSachs estimates that Trump’s “reciprocal” tariff plan, plus other tariffs announced year-to-date, will raise the US effective tariff rate by 18.7pp from the 2024 baseline of 2.5%, the largest hike since the 1930s.

How much do announced reciprocal tariffs raise the effective tariff rate?

Core argument: President Trump's announced "reciprocal" tariff policy would impose a weighted average tariff rate of 18.2%, about 3pp above expectations, though exemptions covering roughly one-third of total imports cut the impact to a 12.5pp rise in the effective tariff rate.

The “reciprocal” tariff policy President Trump announced would impose a weighted average tariff rate of 18.2%, around 3pp higher than we expected. However, roughly 1/3 of total imports would be exempt, which reduces the impact to a 12.5pp increase in the effective tariff rate. We estimate this and other tariffs announced year-to-date would raise the US effective tariff rate by 18.7pp. While we assume that negotiations with trading partners will lead to somewhat lower “reciprocal” rates than announced today, the prospect for escalation following retaliatory tariffs and a high probability of further sectoral tariffs suggests a risk that the US effective tariff rate rises more than the 15pp increase we assume in our economic forecast.

Takeaways by Macro Roundup® AI

  1. President Trump's announced "reciprocal" tariff policy would impose a weighted average tariff rate of 18.2%, about 3pp above expectations, though exemptions covering roughly one-third of total imports cut the impact to a 12.5pp rise in the effective tariff rate.
  2. The "reciprocal" tariffs plus other tariffs announced year-to-date are estimated to raise the US effective tariff rate by 18.7pp.
  3. Negotiations with trading partners are assumed to yield somewhat lower "reciprocal" rates than announced, but retaliatory tariffs and a high probability of further sectoral tariffs pose a risk that the US effective tariff rate rises more than the 15pp increase assumed in the economic forecast.

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.
  • Where We Stand: The Fiscal, Economic, and Distributional Effects of All U.S. Tariffs Enacted in 2025 Through April 2 — The authors estimate that all US tariffs enacted in 2025 bring the average effective tariff rate to 22.5%, the highest since 1909, raising the short-run price level by 2.3% — an average consumer loss of $3,800 per household, or $1,700 for the lowest-income households. They project US real GDP growth 0.9 percentage points lower and $3.1tn in revenue.
  • Liberation Day — US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance as a share of its imports, with a 10% floor, so they bear little relation to standard measures of trade distortions. Because rates track bilateral deficits, the author argues negotiations are unlikely to deliver quick tariff reductions.

AI Summary. The yield on 10-year US Treasury notes fell as much as 13 basis points to dip briefly below 4%, as investors weighed concerns that US trade conflict will leave the American economy worse off.

Michael Mackenzie, Alice Atkins, and Ruth Carson Bloomberg
Date Posted:

10-year Treasury yields dipped briefly below 4% for the first time since October.

Are trade war worries pushing long-term Treasury yields below 4%?

Core argument: The 10-year Treasury yield fell as much as 13 basis points to dip briefly below 4%, its lowest level since October and since before President Donald Trump's election last year.

The yield on benchmark Treasuries fell briefly below 4% for the first time since October as Wall Street fretted that the US economy will end up worse off from President Donald Trump’s trade war. Ten-year yields declined as much as 13 basis points on Thursday to dip below 4%, the lowest level since before Trump was elected last year.

Takeaways by Macro Roundup® AI

  1. The 10-year Treasury yield fell as much as 13 basis points to dip briefly below 4%, its lowest level since October and since before President Donald Trump's election last year.
  2. The decline in 10-year Treasury yields below 4% came as Wall Street fretted that the US economy will end up worse off from Trump's trade war.

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.

AI Summary. The authors find scant evidence of lingering pandemic effects on macroeconomic dynamics or on aggregate and sectoral growth, with the COVID shock and its anomalous dynamics largely gone. Estimated trend growth rates for consumption and employment in periods with a 4.1% unemployment rate are highly correlated, while industrial production reflects a long-term growth slowdown.

James Stock and Mark Watson Brookings Papers on Economic Activity
Date Posted:

The short, sharp contraction in 2020 resulted in lasting increases in work-from-home and the government debt, but Stock and Watson “find scant evidence of any long COVID effects at the level of macro dynamics or aggregate, and even sectoral, growth.”

Have pandemic shocks left lasting effects on economic growth trends?

Core argument: The authors find scant evidence of lingering COVID effects on macro dynamics or aggregate and sectoral growth, concluding the COVID shock and anomalous COVID dynamics largely disappeared by late 2022.

The COVID shock and anomalous COVID dynamics largely disappeared by late 2022. It appears that macrodynamics have returned to normal and that the structural shifts wrought by the pandemic have had limited effects on the underlying economic trends of key indicators, despite notable changes like the prevalence of remote work and the large increase in the debt-GDP ratio. Figure 16 provides the comparison of estimates of the instantaneous trend growth rate for 2019:IV and 2029:III, two quarters during which the unemployment rate was 4.1%, at or near for multiple sectors of consumption, employment, and industrial production. For consumption and employment, the smoothed values in 2024:III v. 2019:IV are highly correlated and fall along the 45° line, consistent with there being no substantial lingering changes. For industrial production, the correlation is also high but with a slope less than 1, reflecting the long-term slowdown of industrial production growth. In short, we find scant evidence of any long COVID effects at the level of macro dynamics or aggregate, and even sectoral, growth.

Takeaways by Macro Roundup® AI

  1. The authors find scant evidence of lingering COVID effects on macro dynamics or aggregate and sectoral growth, concluding the COVID shock and anomalous COVID dynamics largely disappeared by late 2022.
  2. Comparing two quarters with 4.1% unemployment, consumption and employment trend growth estimates in 2024:III versus 2019:IV are highly correlated and fall along the 45° line, consistent with no substantial lingering changes.
  3. Industrial production trend growth is also highly correlated across the two comparison quarters but with a slope below 1, which the authors attribute to the long-term slowdown of industrial production growth.

Related Articles:

  • Productivity During and Since the Pandemic — Total factor productivity growth since early 2021 has run only slightly above its 2010–19 average, suggesting the 2020 productivity surge reflected cyclical dynamics layered on a continuation of the slow pre-pandemic trend. Productivity has since grown somewhat faster than the authors' analysis predicted, but remains well below the 1995–2004 pace.
  • The New Geography of Labor Markets — Matched employer-employee data show the mean distance from an American worker's home to their employer's worksite rose from 15 miles to 26 miles, with 12% of recent hires living at least 50 miles away, triple the earlier share. Separation and hiring rates are higher for distant employees.
  • The Curious Surge of Productivity in U.S. Restaurants — After roughly 30 years of flat productivity, real labor productivity at U.S. restaurants rose over 15% during the COVID pandemic and has persisted. The authors find this gain is strongly correlated with shorter customer dwell times, and the aggregate decline in dwell time can explain almost all of the increase.

Friday, April 4, 2025

AI Summary. China announced 34% tariffs on all US imports in retaliation for new US duties on Chinese goods, which bring total US levies above the 60% Trump threatened during his campaign. China also banned exports of seven types of rare earths and added US drone makers to an "unreliable entity" list barring Chinese suppliers from selling them components.

Eleanor Olcott, Edward White, and Aime Williams Financial Times
Date Posted:

China announced a 34% tariff on all imports of American goods, which in 2024 totaled $143B. China also announced export bans on seven types of rare earths and a ban on selling parts to drone manufacturers, in retaliation.

Is China retaliating against US tariffs with duties and export bans?

Core argument: China announced 34% tariffs on all US imports in retaliation for President Donald Trump's duties, moving the world closer to a full-blown trade war.

China has announced tariffs of 34% on all US imports in retaliation for duties unveiled by President Donald Trump this week, moving the world closer to a full-blown trade war. Trump’s announcement this week of the 34% tariff on Chinese imports to the US will take Washington’s total levies on Chinese goods to more than the 60% he threatened during last year’s election campaign. China announced export bans on seven types of rare earths on Friday, while US tech companies, including drone makers Skydio and Brinc Drones, were added to its “unreliable entity” list, which bans Chinese suppliers from selling components to them.

Takeaways by Macro Roundup® AI

  1. China announced 34% tariffs on all US imports in retaliation for President Donald Trump's duties, moving the world closer to a full-blown trade war.
  2. Trump's 34% tariff on Chinese imports takes Washington's total levies on Chinese goods above the 60% he threatened during last year's election campaign.
  3. China imposed export bans on seven types of rare earths and added US drone makers Skydio and Brinc Drones to its "unreliable entity" list, barring Chinese suppliers from selling them components.

Related Articles:

  • Where We Stand: The Fiscal, Economic, and Distributional Effects of All U.S. Tariffs Enacted in 2025 Through April 2 — The authors estimate that all US tariffs enacted in 2025 bring the average effective tariff rate to 22.5%, the highest since 1909, raising the short-run price level by 2.3% — an average consumer loss of $3,800 per household, or $1,700 for the lowest-income households. They project US real GDP growth 0.9 percentage points lower and $3.1tn in revenue.
  • Liberation Day — US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance as a share of its imports, with a 10% floor, so they bear little relation to standard measures of trade distortions. Because rates track bilateral deficits, the author argues negotiations are unlikely to deliver quick tariff reductions.
  • Pettis On New Round Of American Tariffs — Bilateral tariffs mostly divert trade rather than shrink the overall US trade deficit, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them. After an earlier round of US tariffs, the US deficit with China fell while both the overall US deficit and China's overall surplus rose.

AI Summary. The article argues that basing tariffs on bilateral trade deficits is mistaken, since bilateral balances reflect product mix, geography, and corporate tax optimization rather than a country's net contribution to global demand or supply, which only its overall balance of payments reveals. U.S. export data record where goods first land, not their final destination.

Matt Klein The Overshoot
Date Posted:

Focus on bilateral balances is misguided. @M_C_Klein argues a country’s trade should be measured by the aggregate balance of payments with all countries, as bilateral relationships are “affected by product mix, geography, and corporate tax optimization.”

Should tariffs be based on bilateral trade deficits?

Core argument: The April 2 tariff schedule assumes the aggregate U.S. trade deficit equals the sum of bilateral deficits, an assumption that fails because trade crosses borders for many reasons, including product mix, geography, and corporate tax optimization.

The tariff schedule published on April 2 is predicated on the assumption that the aggregate U.S. trade deficit should be understood as the sum of U.S. bilateral trade deficits with individual countries. This assumption makes no sense, because trade occurs across borders for all sorts of different reasons. The only way to determine whether a country is contributing more on net to global demand or supply is by looking at its aggregate balance of payments with all countries, not individual bilateral relationships that are more often affected by product mix, geography, and corporate tax optimization. One big clue that bilateral balances are meaningless is that the U.S. runs large trade surpluses with the Netherlands, the UAE, Hong Kong, and Singapore, even though all of those countries have massive trade surpluses with the world as a whole. The reason is simply that there are major ports in all of those places, and the U.S. data only show where exports land before they are shipped elsewhere. Cambodians and Vietnamese were hit with some of the highest “reciprocal” tariff rates even though they almost certainly import some goods from the U.S. via Singapore, as do Indonesians, Malaysians, and Thais. Yet those are wrongly counted as “Singaporean” imports.

Takeaways by Macro Roundup® AI

  1. The April 2 tariff schedule assumes the aggregate U.S. trade deficit equals the sum of bilateral deficits, an assumption that fails because trade crosses borders for many reasons, including product mix, geography, and corporate tax optimization.
  2. The U.S. runs large trade surpluses with the Netherlands, the UAE, Hong Kong, and Singapore even though each runs massive surpluses with the world, because U.S. data record only where exports land at major ports before onward shipment.
  3. Cambodia and Vietnam received some of the highest "reciprocal" tariff rates though they almost certainly import some U.S. goods via Singapore, as do Indonesia, Malaysia, and Thailand, with those shipments counted as Singaporean imports.

Related Articles:

  • Liberation Day — US "reciprocal" tariff rates were set at roughly half of each country's bilateral trade balance as a share of its imports, with a 10% floor, so they bear little relation to standard measures of trade distortions. Because rates track bilateral deficits, the author argues negotiations are unlikely to deliver quick tariff reductions.
  • Pettis On New Round Of American Tariffs — Bilateral tariffs mostly divert trade rather than shrink the overall US trade deficit, because they address neither the internal imbalances driving surplus countries' surpluses nor the US role in accommodating them. After an earlier round of US tariffs, the US deficit with China fell while both the overall US deficit and China's overall surplus rose.
  • 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.

AI Summary. The US goods trade deficit, 4.2% of GDP in 2024, reflects Americans spending more than they produce and will persist until spending falls relative to income, such as through a narrower federal budget deficit. Targeting bilateral deficits can only shift them between countries while curtailing gains from trade.

Maurice Obstfeld Peterson Institute for International Economics
Date Posted:
Is Database:
Database

Obstfeld argues without reducing America’s spending relative to its income via fiscal consolidation, efforts “to eliminate all bilateral deficits [are] doomed to failure” and will result in a game of “whack-a-mole” and a sharp loss of efficiency gains.

Can targeting bilateral trade deficits shrink the overall trade deficit?

Core argument: The US goods trade deficit was 4.2% of GDP in 2024, which the author attributes to Americans spending more than they produce and importing the difference from abroad.

Behind Trump's tariff initiative is his stated desire to reduce the overall US trade deficit in goods, which was 4.2% of GDP in 2024. [The United States has a service export surplus equal to 1.1% of GDP. However, this figure likely understates the true surplus in services owing to the profit-shifting strategies of some multinationals.] This [goods] deficit reflects that Americans spend more than they produce, obliging them to import the difference from abroad. Until the United States reduces its spending relative to its income—for, example, by narrowing the federal budget deficit—the US overall trade deficit will not go away. Since the overall trade deficit is the sum of US surpluses and deficits with all trade partners, the administration's attempt to eliminate all bilateral deficits is doomed to failure. At best, it will be able to shuffle them around, in a game of whack-a-mole where a smaller deficit with one country is matched by higher bilateral deficits with others. In the process, however, the efficiency gains from international trade are sharply curtailed.

Takeaways by Macro Roundup® AI

  1. The US goods trade deficit was 4.2% of GDP in 2024, which the author attributes to Americans spending more than they produce and importing the difference from abroad.
  2. The US services export surplus equals 1.1% of GDP, a figure the author argues understates the true services surplus because of profit-shifting strategies by some multinationals.
  3. The author argues the administration's attempt to eliminate all bilateral deficits is doomed to fail, at best shuffling deficits among trade partners while sharply curtailing the efficiency gains from international trade.

Related Articles:

  • Without Spending Cuts, Brace for Slow Growth — 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.
  • 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. Trade restrictions strengthen the dollar all else equal, so the dollar's depreciation after new tariffs is best explained by reduced investor confidence in the U.S. economic outlook. That same loss of confidence is reflected in U.S. stocks declining relative to foreign markets and risks an unwinding of overweight positions in U.S. assets.

Greg Mankiw Greg Mankiw’s Blog
Date Posted:

Greg Mankiw notes all things being equal, tariffs should strengthen the $; however the $ is depreciating in the wake of the new tariffs. “Other things are not equal. In particular, the policy has reduced investor confidence in the U.S. economy.”

Why is the dollar depreciating despite new trade restrictions?

Core argument: The author argues the dollar is depreciating after Trump's tariff announcement because the policy has reduced investor confidence in the U.S. economy, offsetting the dollar-strengthening effect that trade restrictions would otherwise have.

[Previously] I noted, other things being equal, trade restrictions strengthen the dollar. Why then is the dollar depreciating in the wake of the newly announced Trump tariffs? The answer, I believe, is that other things are not equal. In particular, the policy has reduced investor confidence in the U.S. economy. That's also why the U.S. stock market is declining relative to stock markets abroad. The WSJ explains the dollar depreciation as follows: "The dollar’s sharp fall after President Trump’s tariff announcement raises concerns about the risk of a broader confidence crisis, Deutsche Bank’s George Saravelos says in a note. “Developments since the start of the year make us worried about a broader undermining of confidence in the U.S. economic outlook and the medium-term desirability of dollar allocations.” This risks an unwinding of overweight positions in U.S. assets from countries that have exported capital to the U.S. over the past decade."

Takeaways by Macro Roundup® AI

  1. The author argues the dollar is depreciating after Trump's tariff announcement because the policy has reduced investor confidence in the U.S. economy, offsetting the dollar-strengthening effect that trade restrictions would otherwise have.
  2. The author attributes the U.S. stock market's decline relative to stock markets abroad to the same loss of investor confidence in the U.S. economy.
  3. Deutsche Bank's George Saravelos warns that the dollar's sharp fall raises concerns about a broader confidence crisis and risks an unwinding of overweight positions in U.S. assets by countries that have exported capital to the U.S. over the past decade.

Related Articles:

  • Risk Rising of a Foreign Pullback from the S&P 500 — Large inflows from abroad have left foreign investors significantly overweight US equities. Combined with the dollar's decline and what the author characterizes as overvaluation of the largest US technology stocks, this creates significant downside risk to the S&P 500 if foreign investors sell.
  • The Great European Disentanglement From US Stocks Has Only Just Started — 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.
  • 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.

AI Summary. US assets have boomed relative to the rest of the world since the global financial crisis, with European holdings of US stocks growing substantially as inflows lifted the dollar and raised returns for foreign investors, drawing in more funds. Foreign investors now have an incentive to take those considerable profits.

John Authers Bloomberg
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The dollar’s weakness risks driving a flight from US equities, “US stocks, particularly Big Tech, have been a kind of piggy bank for the world. The risk now is that foreign investors will smash the piggy bank.” @johnauthers

Will foreign investors cash out their profits from US stocks?

Core argument: US assets have boomed relative to the rest of the world since the Global Financial Crisis, with European holdings of US stocks growing at a pace described as breathtaking.

The greatest issue concerns the dollar. Relative to the rest of the world, US assets have boomed ever since the Global Financial Crisis. The growth in European holdings of US stocks has been breathtaking. This has been helped by a virtuous circle. The flows push up the dollar, which increases the returns for foreign investors and fosters confidence that the US is unstoppable, thus drawing in more funds. It’s a classic example of what George Soros calls reflexivity, or the ability of the market to create its own reality. The profits European investors are still sitting on are considerable, and they’ll now have an incentive to take those profits, which could be needed for investing in a much more difficult trade war environment at home. US stocks, particularly Big Tech, have been a kind of piggy bank for the world. The risk now is that foreign investors will smash the piggy bank. If trade flows are going to fall, as is more or less inevitable if these tariffs are imposed for any period of time, the risk is that capital flows will have to follow.

Takeaways by Macro Roundup® AI

  1. US assets have boomed relative to the rest of the world since the Global Financial Crisis, with European holdings of US stocks growing at a pace described as breathtaking.
  2. A virtuous circle drove those flows, as inflows pushed up the dollar, raised returns for foreign investors and fostered confidence in the US, drawing in more funds — an example of what George Soros calls reflexivity.
  3. European investors sitting on considerable profits in US stocks, particularly Big Tech, have an incentive to take them for investing in a harder trade-war environment at home, and if tariffs cut trade flows, capital flows risk following.

Related Articles:

  • Why the Dollar is Depreciating Today — Trade restrictions strengthen the dollar all else equal, so the dollar's depreciation after new tariffs is best explained by reduced investor confidence in the U.S. economic outlook. That same loss of confidence is reflected in U.S. stocks declining relative to foreign markets and risks an unwinding of overweight positions in U.S. assets.
  • The Trade War Will Pound Stocks — Efforts to cut U.S. trade deficits and escalate tensions with allies risk deterring foreign capital, and foreigners need only stop buying U.S. assets to hit prices, as China and Russia already have. Bridgewater estimates nonfinancial U.S. firms capture 39% of global profits though the U.S. is 15% of world output.
  • The Great European Disentanglement From US Stocks Has Only Just Started — 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.

AI Summary. Microsoft has halted talks for or delayed data center projects in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin. It is unclear how much of the pullback reflects expectations of weaker demand for artificial intelligence and cloud services versus construction constraints such as shortages of power and building materials.

Brody Ford, Dawn Lim, Olivia Solon, and Faris Mokhtar Bloomberg
Date Posted:

Microsoft has paused construction on data centers across six countries. Bloomberg notes it’s unclear whether the pullback reflects demand concerns or “shortages of power and building materials.”

Is a pullback on data centers a sign of weaker AI demand?

Core argument: Microsoft has halted talks for or delayed data center development in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin, according to people familiar with the situation.

Microsoft has pulled back on data center projects around the world, suggesting the company is taking a harder look at its plans to build the server farms powering artificial intelligence and the cloud. The software company has recently halted talks for, or delayed development of, sites in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin, according to people familiar with the situation. It’s hard to know how much of the company’s data center pullback reflects expectations of diminished demand versus temporary construction challenges, such as shortages of power and building materials. Some investors have interpreted signs of retrenchment as an indication that projected purchases of AI services don’t justify Microsoft’s massive outlays on server farms.

Takeaways by Macro Roundup® AI

  1. Microsoft has halted talks for or delayed data center development in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin, according to people familiar with the situation.
  2. It is unclear how much of Microsoft's data center pullback reflects expectations of diminished demand versus temporary construction challenges such as shortages of power and building materials.
  3. Some investors have interpreted signs of Microsoft's retrenchment as an indication that projected purchases of AI services do not justify the company's outlays on server farms.

Related Articles:

  • Microsoft Abandons Data Center Projects, TD Cowen Says — Microsoft has walked away from new US and European data center projects totaling about 2 gigawatts of electricity capacity, which TD Cowen analysts attribute to an oversupply of computing capacity relative to current AI demand forecasts. Google and Meta picked up some of the freed European capacity, the analysts wrote.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. The world is undergoing an energy addition rather than an energy transition: renewables have grown as a share of supply while fossil fuel production has also risen in absolute terms, leaving total energy supply and greenhouse gas emissions at all-time highs.

Karen Karniol-Tambour, Carsten Stendevad, Daniel Hochman and Jeremy Ng Bridgewater Associates
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Bridgewater notes that a shift from climate leadership to energy pragmatism is driving capital to “the most economically viable energy sources.” In 2024, high-cost emerging technologies like hydrogen, CCS, and clean industry saw 40–50% investment drops.

Is renewable growth adding to fossil fuel use rather than replacing it?

Core argument: Renewables have grown as a share of total energy supply while fossil fuel production has risen in absolute terms, leaving total energy supply and greenhouse gas emissions at all-time highs — an energy addition rather than a transition.

We are looking at an energy addition, not an energy transition. Despite the last decade’s ambitious goals of investing in renewable energy and phasing out fossil fuels, what we’ve seen so far has been an addition of renewable energy supply, not a transition away from fossil fuels. With climate goals increasingly deprioritized and total demand for power continuing to increase, we would expect this trend to continue. While renewables have increased as a share of total energy supply, in absolute terms fossil fuel production has been rising as well. This nets out to total energy supply and greenhouse gas emissions being at all-time highs, reflecting the “all of the above” demand for greater quantity and redundancy in energy supply chains. The shift in policy priorities away from climate leadership will also drive a shift in investment toward the most economically viable energy sources—but renewables aren’t dead.

Takeaways by Macro Roundup® AI

  1. Renewables have grown as a share of total energy supply while fossil fuel production has risen in absolute terms, leaving total energy supply and greenhouse gas emissions at all-time highs — an energy addition rather than a transition.
  2. With climate goals increasingly deprioritized and total power demand continuing to rise, the pattern of adding renewable supply alongside fossil fuels is expected to continue.
  3. The shift in policy priorities away from climate leadership is expected to push investment toward the most economically viable energy sources, though renewables are not dead.

Related Articles:

  • Heliocentrism — 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.
  • The New Joule Order — Ample physical capacity keeps inflation low and stable and allows lower interest rates, but when demand catches up to capacity constraints, better returns in the physical economy pull capital back to fund expansion, making a commodity super-cycle a capital-expenditure cycle. In real terms, total energy investment is below its level 15 years ago.
  • The Climate Short: Hedge Funds Pile Up Huge Bets Against Green Future — An analysis of positions voluntarily disclosed by roughly 500 hedge funds found more funds are net short batteries, solar, electric vehicles and hydrogen than long them, while more are net long fossil fuels than short oil, gas and coal. This comes despite large green stimulus programs in the US, Europe and China.