Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, April 10, 2025

AI Summary. The authors estimate that 2025 tariffs bring the average effective tariff rate on consumers to 27%, the highest since 1903, raising short-run prices by 2.9%, equivalent to an average household loss of $4,700. They project the US economy remains 0.6% smaller over the long run and that the tariffs raise $2.4tn over 2026–35.

Ernie Tedeschi Yale University
Date Posted:

The revised tariffs brought the mean effective US tariff rate to 27%, implying an average annual cost to households of $4,700 in 2024$. Apparel prices rise 64% in the short-run, and stay 27% higher in the long-run. @ernietedeschi.

How much do 2025 tariffs cost households and the economy?

Core argument: Consumers face an overall average effective tariff rate of 27%, the highest since 1903, with all 2025 tariffs raising the short-run price level by 2.9%, equivalent to an average consumer loss of $4,700 per household in 2024 dollars.

Consumers face an overall average effective tariff rate of 27%, the highest since 1903. The price level from all 2025 tariffs rises by 2.9% in the short-run, the equivalent of an average per household consumer loss of $4,700 in 2024$. The post-substitution price increase settles at 1.7%, a $2,700 loss per household. Tariffs are a regressive tax, especially in the short-run. The average annual cost to households in the 2nd, 5th, and top decile rise to $2,100; $3,700; and $10,000 respectively. The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 64% higher apparel prices in the short-run. Apparel prices stay 27% higher in the long-run. US real GDP growth is -1pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.6% smaller respectively, the equivalent of $170 billion annually in 2024$. The unemployment rate rises 0.6 percentage point by the end of 2025, and payroll employment is 740,000 lower. All tariffs to date in 2025 raise $2.4 trillion over 2026-35, with $587 billion in negative dynamic revenue effects.

Takeaways by Macro Roundup® AI

  1. Consumers face an overall average effective tariff rate of 27%, the highest since 1903, with all 2025 tariffs raising the short-run price level by 2.9%, equivalent to an average consumer loss of $4,700 per household in 2024 dollars.
  2. Tariffs are a regressive tax, especially in the short run, with average annual household costs of $2,100 in the 2nd decile, $3,700 in the 5th, and $10,000 in the top decile; apparel prices rise 64% in the short run and remain 27% higher in the long run.
  3. All 2025 tariffs lower US real GDP growth by 1 percentage point and leave the economy persistently 0.6% smaller, equivalent to $170 billion annually in 2024 dollars, with unemployment 0.6 percentage point higher by the end of 2025 and payroll employment 740,000 lower.

Related Articles:

  • 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.
  • Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age — Using digitized industry-level US tariff data from 1870–1900 matched to state-level manufacturing census data for over 80 industries, the authors estimate that tariffs reduced labor productivity. They argue the results are consistent with weaker international competition allowing less efficient firms to survive, reduced incentives to innovate, and lobbying for protection misallocating resources.

AI Summary. The U.S. goods trade deficit reached a record $1.21tn while its services trade surplus rose to $295bn from $77bn in 2000, reversing a mid-20th-century pattern of goods surpluses and services deficits.

Konrad Putzier and Alana Pipe Wall Street Journal
Date Posted:

The US ran a service surplus of $295B in 2024 up from $77B in 2000. While it’s hard to tariff services, if the trade war escalates, countries could “tax, fine or even ban U.S. companies.”

Does the trade deficit in goods overlook a growing services surplus?

Core argument: The U.S. goods trade deficit reached a record $1.21 trillion in 2024 as imports of foreign manufactures rose and domestic factories closed.

For decades, the U.S. and the rest of the world had a deal: Other countries sent cars, phones, clothes and food to the U.S., and in return they got bonds, software and management consultants. As the U.S. imported more goods from abroad and domestic factories closed, its goods trade deficit swelled to a record $1.21 trillion by 2024. At the same time, the U.S. services trade surplus grew to $295 billion last year, up from $77 billion in 2000. This is a stark reversal from the mid-20th century, when the U.S. was a manufacturing giant and had a goods export surplus, but had a services trade deficit.

Takeaways by Macro Roundup® AI

  1. The U.S. goods trade deficit reached a record $1.21 trillion in 2024 as imports of foreign manufactures rose and domestic factories closed.
  2. The U.S. services trade surplus grew to $295 billion in 2024, up from $77 billion in 2000, with exports including bonds, software and management consulting.
  3. The current U.S. trade pattern reverses that of the mid-20th century, when the U.S. was a manufacturing giant running a goods export surplus alongside a services trade deficit.

Related Articles:

  • 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.
  • Magnificent 7 Hit Harder by Global Slowdown and Potential Retaliation — About 50% of earnings at the seven largest US technology companies come from abroad, versus 41% for the S&P 500, leaving them more exposed to a trade war that weighs more heavily on economies where trade is a bigger share of output. European retaliation via a digital services tax could further reduce their earnings.
  • 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.

AI Summary. Leading AI labs require tens of $bn in capital spending to keep improving their systems, and a rising cost of capital could produce a short-term slowdown in AI infrastructure buildout. GPU servers are largely exempt from tariffs, and datacenter construction cost increases likely raise operators' total cost of ownership by under 2%.

Dylan Patel, Jeremie Eliahou Ontiveros, Maya Barkin, Patrick Zhou, Jeff Koch, Sravan Kundojjala, Reyk Knuhtsen, Christopher Seifel and Wega Chu Semianalysis
Date Posted:

Tariffs are unlikely to have a major impact on American hyperscalers who in fact contribute to the US service surplus. Total cost of ownership impact for GPU cloud operators is likely < 2%, according to @SemiAnalysis.

How much do tariffs and capital costs affect AI buildout?

Core argument: Datacenter construction costs could rise by mid-to-high single digits from tariffs, but the total cost of ownership impact for GPU cloud operators is likely under 2%, with GPU servers largely exempted.

With Scaling Laws still very much alive, tens of billions of dollars of capital expenditures are required by leading AI Labs to keep improving the quality of their products & systems at this incredible pace. Cost of capital is rising, with soaring 10-year interest rates, and the tightening of financial conditions could likely lead to a short-term slowdown in the AI infrastructure buildout. Retaliatory tariffs targeting US Big Tech are possible but unlikely to have a major short-term impact on US hyperscalers. Despite running large trade deficits on goods, the US actually runs surpluses with services – helped by its technology giants. GPU servers are largely exempted from tariffs. Mexico is already a large assembly hub and will take a central role in this new world order. Datacenter construction costs could increase by mid-to-high single digits – but the total coast of ownership impact for GPU cloud operators is likely less than 2%.

Takeaways by Macro Roundup® AI

  1. Datacenter construction costs could rise by mid-to-high single digits from tariffs, but the total cost of ownership impact for GPU cloud operators is likely under 2%, with GPU servers largely exempted.
  2. Leading AI labs require tens of billions of dollars of capital expenditures to keep improving their products under still-intact scaling laws, and soaring 10-year interest rates plus tightening financial conditions could lead to a short-term slowdown in the AI infrastructure buildout.
  3. Retaliatory tariffs aimed at US Big Tech are possible but unlikely to have a major short-term impact on US hyperscalers, as the US runs services surpluses helped by its technology giants despite large goods trade deficits.

Related Articles:

  • Microsoft Pulls Back on Data Centers From Chicago to Jakarta — 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.
  • 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.
  • 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.

AI Summary. Foreign investors hold $19tn in US equities, $7tn in Treasuries, and $5tn in US credit, corresponding to 20% of US equities and 30% each of Treasuries and credit outstanding.

Torsten Sløk Apollo
Date Posted:

Foreigners own 20% of US equities, 30% of Treasuries, and 30% of credit outstanding.

How much of US equities, Treasuries, and credit do foreigners own?

Core argument: Foreign investors hold $19 trillion in US equities, equal to 20% of US equities outstanding.

Foreigners own $19 trillion in US equities, $7 trillion in Treasuries, and $5 trillion in US credit. That corresponds to 20% of US equities, 30% of Treasuries, and 30% of credit outstanding.

Takeaways by Macro Roundup® AI

  1. Foreign investors hold $19 trillion in US equities, equal to 20% of US equities outstanding.
  2. Foreign investors hold $7 trillion in US Treasuries and $5 trillion in US credit, each equal to 30% of the respective amount outstanding.

Related Articles:

  • 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.
  • 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. JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.

Greg Ip Wall Street Journal
Date Posted:

JPM estimates Treasury yields rise 33 bps for each $300B decline in foreign official holdings. Jason Thomas of Carlyle notes that since the start of 2022, gold has outperformed TIPS, suggesting Treasuries are now less appealing as a safe haven asset.

Is gold replacing Treasuries as the world's preferred safe-haven asset?

Core argument: Jay Barry, head of global rates strategy at JPMorgan Chase, estimates that Treasury yields rise by a third of a percentage point for every $300 billion decline in foreign official holdings of Treasuries.

Jay Barry, head of global rates strategy at JPMorgan Chase, estimates that yields rise a third of percentage point for each $300 billion decline in foreign official holdings of Treasuries. Jason Thomas, head of global research at Carlyle Group, noted that since early 2022, gold has strongly outperformed inflation-protected Treasuries, suggesting that gold is now the world’s preferred safe-haven asset. Thomas said that after Russia invaded Ukraine, the U.S. and its allies froze the Russian central bank’s foreign-exchange reserves. In recent months, Trump’s policies suggest the U.S. will play a less central role in global trade, making the dollar less important for invoicing exports and imports, he added. As a result, Thomas said, “The global community and central bank reserve managers are just a bit more hesitant when it comes to adding to Treasury exposure.”

Takeaways by Macro Roundup® AI

  1. Jay Barry, head of global rates strategy at JPMorgan Chase, estimates that Treasury yields rise by a third of a percentage point for every $300 billion decline in foreign official holdings of Treasuries.
  2. Jason Thomas, head of global research at Carlyle Group, notes that gold has outperformed inflation-protected Treasuries since early 2022, suggesting gold is now the world's preferred safe-haven asset.
  3. Thomas links the U.S. and allied freeze of Russian central bank reserves after the invasion of Ukraine, and Trump policies pointing to a less central U.S. role in global trade, to reserve managers' greater hesitance to add Treasury exposure.

Related Articles:

  • The Move in Long Rates Is Very Unusual — The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually eliminate US imports from China over the medium term. Companies including BASF, Ford, Ingersoll Rand and Tesla have filed more than 1,100 requests for exemptions on Chinese machinery they say they need to set up or expand US production lines.

Enda Curran, James Mayger and Shawn Donnan Bloomberg
Date Posted:

Bloomberg Economics estimates “Capital and intermediate goods make up around 43% of total imports from China,” which will force American manufacturers to pay the tariffs until substitutes can be found and “may mean a loss of US jobs in the short run.”

Would 100% tariffs eliminate US imports from China?

Core argument: Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually wipe out all US imports from China over the medium term.

Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually wipe out all US imports from the Asian manufacturing powerhouse over the medium term. Businesses big and small are already anticipating a hit and asking for exemptions from the China tariffs. Companies including global giants like BASF, Ford, Ingersoll Rand and even Tesla have filed more than 1,100 requests already for exemptions from tariffs on machinery from China that they say they need to set up or expand production lines in the US. Capital and intermediate goods make up around 43% of total imports from China, meaning “there is the perverse possibility that if those goods do not come into the US, it may slow down manufacturing in the US, and it may mean a loss of jobs in the short run,” said Olu Sonola, head of US economic research at Fitch Ratings.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually wipe out all US imports from China over the medium term.
  2. Companies including BASF, Ford, Ingersoll Rand and Tesla have filed more than 1,100 requests for exemptions from tariffs on Chinese machinery they say they need to set up or expand US production lines.
  3. Capital and intermediate goods account for around 43% of total US imports from China, which Fitch Ratings' Olu Sonola says raises the perverse possibility of slower US manufacturing and short-run job losses if those goods stop arriving.

Related Articles:

  • Trump Pauses Higher Duties on Most Nations, Hikes China Rate — The US paused higher reciprocal tariffs on dozens of trade partners for 90 days, lowering the rate to a 10% baseline, while raising duties on Chinese imports to 125%. The reversal followed market turmoil and recession fears after the higher duties took effect, and pressure from business leaders and investors.
  • 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.
  • China’s Stunning 2024 Export Growth — Chinese export volumes are up 13% year-over-year while import volumes are up only 2%, a gap that with exports at about 20% of GDP implies a net exports contribution to Chinese growth of close to 2% of GDP. Falling Chinese export prices mean export volumes are growing much faster than the dollar value of exports.

Friday, April 11, 2025

AI Summary. Standard expectations hold that long-term interest rates fall when the stock market falls, but rates have moved higher alongside falling equities. The author suggests this reflects some combination of foreign selling of US Treasuries, risk reduction and hedging by large asset managers, and an unwinding of the roughly $1tn hedge fund basis trade.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk argues US long-term rates are moving higher due to a combination of foreigners selling Treasuries, an unwinding of the basis trade, and broader risk reduction among asset managers.

Why are long-term rates rising as stocks fall?

Core argument: US long-term interest rates are rising while the stock market falls, contrary to the textbook expectation that yields decline alongside equities.

The textbook would be saying that when the stock market is going down, long-term interest rates should also be going down. But this is not what is happening at the moment. What could be the reasons why long-term interest rates are moving higher when the stock market is moving lower? 1) With the yen, euro, and Canadian dollar strengthening at the same time, this could be foreigners selling US Treasuries. 2) With the VIX at elevated levels around 50, there is a lot of hedging activity going on, and it could, therefore, be risk reduction among large asset managers managing rates, credit, and equities. 3) With almost $1 trillion in the basis trade, it could be an unwinding of the basis trade among levered hedge funds. The answer is likely some combination of these three forces.

Takeaways by Macro Roundup® AI

  1. US long-term interest rates are rising while the stock market falls, contrary to the textbook expectation that yields decline alongside equities.
  2. Simultaneous strengthening of the yen, euro, and Canadian dollar suggests foreigners selling US Treasuries as one possible explanation for higher US long-term yields.
  3. With the VIX around 50 and almost $1 trillion in the basis trade, risk reduction by large asset managers across rates, credit, and equities and an unwinding of the basis trade among levered hedge funds are further possible explanations.

Related Articles:

  • Foreign Ownership of US Equities, Treasuries, and US Credit — Foreign investors hold $19tn in US equities, $7tn in Treasuries, and $5tn in US credit, corresponding to 20% of US equities and 30% each of Treasuries and credit outstanding.
  • What Is the Basis Trade? — The Treasury basis trade — leveraged hedge fund bets, sometimes up to 100x, on convergence between Treasury cash and futures prices — stands at roughly $800bn within $2tn of outstanding prime brokerage balances. An exogenous shock could force a rapid unwind of these positions, disrupting broker-dealer market functions.
  • Treasury Market Dysfunction and the Role of the Central Bank — The authors argue the Federal Reserve could relieve Treasury market strain by buying cash Treasuries while fully hedging with offsetting short positions in Treasury derivatives, taking the other side of hedge funds' unwinding of hedged positions. Because this removes no net duration from the market, it distinguishes market-functioning purchases from quantitative easing.

AI Summary. US stocks, bonds and the dollar fell in unison, adding to concern that foreign investors are retreating from US assets. Thirty-year Treasury yields reached as high as 4.96%, more than 50 basis points above their level a week earlier, while the dollar fell to a six-month low.

Ye Xie, Liz Capo McCormick, and Michael Mackenzie Bloomberg
Date Posted:

Long-term Treasuries are not behaving like safe haven assets; 10-year yields have risen to 4.48% and the 30-year yield touched 4.99% before declining to 4.86%.

Are foreign investors pulling back from US stocks, bonds, and the dollar?

Core argument: Thirty-year Treasury yields rose to as high as 4.96%, more than 50 basis points above where they started the week, while the dollar fell to a six-month low.

Stocks, bonds and the dollar continued to slide in unison Friday, only adding to concerns that foreign investors are retreating from US assets en masse. Thirty-year Treasury yields surged to as high as 4.96%, more than 50 basis points above where they started the week, while the greenback fell to a six month low. So painful has the trade been that Treasuries have never lost out as much to German bonds as this week.

Takeaways by Macro Roundup® AI

  1. Thirty-year Treasury yields rose to as high as 4.96%, more than 50 basis points above where they started the week, while the dollar fell to a six-month low.
  2. Treasuries lost more ground to German bonds this week than in any prior week on record.
  3. US stocks, bonds and the dollar slid in unison Friday, adding to concerns that foreign investors are retreating from US assets en masse.

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 Dollar and the Bond Market’s Ominous Message for Trump — JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.
  • 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. The dollar fell more than 3% against the Swiss franc, widely regarded as the safest haven currency, reaching a level last seen during the 2011 US debt ceiling standoff. The moves in bond and currency markets point to a significant loss of confidence in the US.

John Authers Bloomberg
Date Posted:

The dollar fell to its lowest level against “the safest of havens,” the Swiss franc, since the S&P downgrade of US Treasury debt in the summer of 2011. @johnauthers

Do bond and currency moves signal lost confidence in the US?

Core argument: The dollar fell more than 3% against the Swiss franc in its worst day since 2015, reaching a level last touched during the August 2011 debt ceiling crisis.

The Swiss franc is regarded as the safest of havens. So it’s significant that the dollar just endured its worst day compared to the Swissie since 2015, falling more than 3% to take it to a level last touched during the debt ceiling debacle of August 2011. On that occasion, dysfunctional policymaking in Congress prompted Standard & Poor’s to downgrade Treasury debt, and that briefly led to an exodus. It’s hard to cast this as anything other than a significant loss of confidence in the US. It doesn’t have to be terminal. The shock of the debt-ceiling crisis in 2011 turned out to be a major turning point that was followed by a decade of American Exceptionalism. But the moves in the bond and currency markets — to a far greater extent than stocks— ram home that a lot is at stake. And the US is currently embarked on what appears to be a wholesale change in foreign policy, not struggling to get things back to normal as Barack Obama tried in 2011.

Takeaways by Macro Roundup® AI

  1. The dollar fell more than 3% against the Swiss franc in its worst day since 2015, reaching a level last touched during the August 2011 debt ceiling crisis.
  2. The 2011 episode, when dysfunctional congressional policymaking prompted Standard & Poor's to downgrade Treasury debt and briefly triggered an exodus, proved a turning point followed by a decade of American Exceptionalism.
  3. Moves in bond and currency markets, to a far greater extent than in stocks, are hard to cast as anything other than a significant loss of confidence in the US, which appears embarked on a wholesale change in foreign policy.

Related Articles:

  • The Dollar and the Bond Market’s Ominous Message for Trump — JPMorgan Chase estimates Treasury yields rise a third of a percentage point for each $300bn decline in foreign official holdings of US Treasuries. Carlyle Group notes gold has strongly outperformed inflation-protected Treasuries, suggesting gold is now the world's preferred safe-haven asset as reserve managers grow more hesitant to add Treasury exposure.
  • 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.
  • Political Risks to the U.S. Safe Harbor Premium — The authors estimate a "shadow" country risk premium for the US of 25–35 basis points rather than the zero conventionally assumed, reflecting US political and institutional risk. If the US premium rose to current UK levels, they project real equity wealth per household would be $50,000 lower and real GDP 1% smaller after 10 years.

AI Summary. Economists argue the tariffs will shrink the US trade deficit by making the country an unattractive destination for capital, since foreign capital inflows require a trade deficit. They warn the policies could mark a break for the dollar comparable to the Suez crisis for the British pound, portending higher borrowing costs, less investment and more stagnation.

Oren Cass, Jason Furman, Rebecca Patterson and Lawrence Summers New York Times
Date Posted:

If the more dramatic tariffs swing back into play, @LHSummers warns, “We will get the trade deficit down with the same basic economic force that Venezuela uses, by making ourselves very unattractive as a place to put capital.”

Do tariffs shrink the trade deficit by deterring foreign capital?

Core argument: Economists argue Trump's tariffs would shrink the U.S. trade deficit by the same force Venezuela uses — making the country unattractive as a place to put capital — undoing much of the economy's relative progress over the past generation.

Sledgehammers and delicate machinery are a very bad combination. We will get the trade deficit down with the same basic economic force that Venezuela uses, by making ourselves very unattractive as a place to put capital. That will undo much of the relative progress of the economy over the past generation. You can’t have much-needed foreign capital flow into our country without having a trade deficit. There is a real chance that Mr. Trump’s trade policies will be to the dollar what the 1956 Suez crisis was to the British pound — a dramatic break that ultimately portends higher borrowing costs, less investment and more stagnation.

Takeaways by Macro Roundup® AI

  1. Economists argue Trump's tariffs would shrink the U.S. trade deficit by the same force Venezuela uses — making the country unattractive as a place to put capital — undoing much of the economy's relative progress over the past generation.
  2. Much-needed foreign capital cannot flow into the United States without a trade deficit, according to the economists.
  3. Economists see a real chance Trump's trade policies become for the dollar what the 1956 Suez crisis was for the British pound, a dramatic break portending higher borrowing costs, less investment and more stagnation.

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 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. China raised its retaliatory tariffs on US goods from 84% to 125%, and said it would not respond to further US tariff increases because there is no market acceptance for US goods in China at current tariff levels. US duties on Chinese imports have reached as high as 145%.

Thomas Hale, Barney Jopson and Ryan McMorrow Financial Times
Date Posted:

China increased its retaliatory tariffs on US goods to 125%, and will ignore further American tariffs, as “at the current tariff level, there is no market acceptance for US goods exported to China.”

Has China stopped matching further US tariff increases?

Core argument: China raised its retaliatory tariffs on US goods to 125% from 84%, effective April 12, escalating the trade war between the world's two largest economies.

China said it would increase its retaliatory tariffs on US goods to 125%, in the latest escalation of the trade war between the world’s two biggest economies. China’s finance ministry said the increase from current additional levels of 84% would take effect from April 12. But the ministry added that it would ignore any further US tariff rises on Chinese exports, “given that at the current tariff level, there is no market acceptance for US goods exported to China.” Trump’s latest escalation this week has raised US duties on Chinese imports as high as 145%. China’s average tariff on US imports now stands at 147.6%, according to Chad Bown, senior fellow at the Peterson Institute.

Takeaways by Macro Roundup® AI

  1. China raised its retaliatory tariffs on US goods to 125% from 84%, effective April 12, escalating the trade war between the world's two largest economies.
  2. China's average tariff on US imports stands at 147.6%, according to Chad Bown of the Peterson Institute, while Trump's escalation raised US duties on Chinese imports as high as 145%.

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  • The Fiscal and Economic Effects of the Revised April 9 Tariffs — The authors estimate that 2025 tariffs bring the average effective tariff rate on consumers to 27%, the highest since 1903, raising short-run prices by 2.9%, equivalent to an average household loss of $4,700. They project the US economy remains 0.6% smaller over the long run and that the tariffs raise $2.4tn over 2026–35.

AI Summary. Analysts at JPMorgan Chase estimate that every $300bn decline in official foreign holdings of US Treasury bonds would push the five-year yield up by about 33 basis points, with China's reported holdings at $700bn. Lags in reserve and portfolio flow data mean it cannot yet be confirmed whether China sold any Treasuries.

Ruth Carson and Masaki Kondo Bloomberg
Date Posted:

As Treasury yields rise there is little evidence that China is selling Treasuries or agencies at scale. A JPM analysis found “that every $300 billion decline in official foreign holdings of US bonds would push the five-year yield higher by about 33bps.”

How much would foreign selling of Treasuries lift yields?

Core argument: JPMorgan Chase analysts including Jay Barry calculate that every $300 billion decline in official foreign holdings of US bonds would push the five-year Treasury yield higher by about 33 basis points.

While Chinese authorities will release April foreign-exchange reserves data on May 7, investors will have to wait until May 30 to see an actual change in securities held in reserves. A clearer indication can be found from the US government’s portfolio flow data due June 18, meaning as of now, no one can tell for sure if some of China’s Treasuries holdings have been sold. Analysts at JPMorgan Chase & Co. including Jay Barry, calculated that every $300 billion decline in official foreign holdings of US bonds would push the five-year yield higher by about 33 basis points, in a note earlier this week. China’s latest official holdings amount to $700 billion, suggesting a sizeable chunk would have had to have been sold if Beijing was indeed behind the move.

Takeaways by Macro Roundup® AI

  1. JPMorgan Chase analysts including Jay Barry calculate that every $300 billion decline in official foreign holdings of US bonds would push the five-year Treasury yield higher by about 33 basis points.
  2. China's latest official holdings amount to $700 billion, suggesting a sizeable chunk would have had to be sold if Beijing was behind the move.
  3. Chinese foreign-exchange reserves data arrives May 7, an actual change in securities held in reserves on May 30, and US portfolio flow data on June 18, leaving Chinese Treasury sales unconfirmed until then.

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  • China’s Holdings of US Treasuries Fall to Lowest Level Since 2009 — Chinese investors' holdings of US government debt fell by $57bn to $759bn, the lowest level since 2009 according to US Treasury data, which excludes Chinese-owned Treasuries held in accounts in other countries. The reported decline was likely exaggerated by assets shifting to securities depositaries in Belgium and Luxembourg.
  • 10 Facts About the US Treasury Market: Monitoring Demand For US Government Debt — US government debt is projected to rise from 100% to 200% of GDP, with deficits above $1tn annually over the next decade and $9tn of debt maturing within 12 months. Debt servicing costs equal 12% of total government outlays, and interest payments have doubled from about $1bn per day before the pandemic to nearly $2bn per day.

AI Summary. Russia is an exception to the global correspondence between educational attainment and human capital, combining an advanced educational profile with strikingly poor health outcomes and only weak contributions to knowledge production and skills-intensive service exports. World Health Organization estimates put male life expectancy at age 15 near that of the world's least developed countries.

Nicholas Eberstadt American Enterprise Institute
Date Posted:

In 2019 – prior to the pandemic and the current stage of the Russo-Ukraine War – life expectancy for a 15-year-old Russian man was on par with his Haitian counterparts, despite Russian education levels mirroring European averages.

Can high educational attainment coexist with weak human capital?

Core argument: As of 2019, Russian male life expectancy at age 15 sat solidly in the middle of the range for the UN's roster of least developed countries, and about half of those countries posted higher life expectancies than Russia.

In Russia today, we see an exception to the seemingly global correspondence between educational attainment and human capital. Russia presents the curious counterexample of a country where high levels of education coexist with strikingly poor health profiles—where the population’s considerable schooling contributes only feebly to its “knowledge production” and skills-intensive international service sector. The Russian Federation is a European country, and it shares important sociodemographic characteristics with other European countries. One of these is its relatively advanced educational profile. As of 2019, Russian male life expectancy at age 15 looks to be solidly in the middle of the range for UN’s official roster of least developed countries (LDCs)—the immiserated and fragile states designated as “the most disadvantaged and vulnerable members of the UN family.” If WHO calculations were correct, life expectancy for a young man in Russia was all but identical to that of his Haitian counterpart at that time—and practically half of the world’s LDCs in Figure 3 had higher life expectancies than Russia!

Takeaways by Macro Roundup® AI

  1. As of 2019, Russian male life expectancy at age 15 sat solidly in the middle of the range for the UN's roster of least developed countries, and about half of those countries posted higher life expectancies than Russia.
  2. By WHO calculations, life expectancy for a young man in Russia was all but identical to that of his Haitian counterpart in 2019, despite Russia's relatively advanced educational profile.
  3. Russia is a counterexample to the apparent global correspondence between educational attainment and human capital, with its population's considerable schooling contributing only feebly to knowledge production and a skills-intensive international service sector.

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  • Putin’s Existential Problem: Not Enough Russians — Russia's population has been declining for years, with Western estimates of at least 150,000 Russian battlefield deaths in Ukraine, nearly a million people leaving the country after the war began, and births at their lowest level in more than two decades. Russia has pledged to spend up to $157bn over six years on measures supporting families and children.
  • Russia’s Population Nightmare is Going to Get Even Worse — Russia lost an estimated 1.9m–2.8m people beyond its normal demographic decline over a roughly three-year span, combining pandemic deaths, war casualties and emigration. Life expectancy for Russian males aged 15 fell by nearly five years, and women now outnumber men by at least 10m.