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


Tuesday, May 6, 2025

AI Summary. The US dollar was exceptionally strong at a level implying an ever-shrinking export base and an ever-growing trade deficit, requiring continually larger foreign inflows at ever more inflated dollar and US equity valuations to sustain. Even after its recent slide, the dollar remains strong by almost all measures.

Brad Setser Council On Foreign Relations
Date Posted:
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Despite its recent slide, the dollar “is still quite strong by almost all measures,” @Brad_Setser notes. Aside from recent American policy, mean reversion would suggest a weaker dollar.

Was the dollar overvalued enough that a decline was likely anyway?

Core argument: The dollar was exceptionally strong, making a decline likely at some point, and even after its slide it remains quite strong by almost all measures.

There is also the simple fact that the dollar was exceptionally strong and thus the odds were that it would fall at some point. The flow equilibrium around the dollar required ever increasing inflows from the rest of the world at ever more inflated values of the dollar and U.S. equities -- the so-called U.S. exceptionalism trade. The 2023-24 dollar was at a level that implied an ever-shrinking U.S. export base. It was also at a level that implied an ever-growing trade deficit. Even with the recent slide, the dollar is still quite strong by almost all measures.

Takeaways by Macro Roundup® AI

  1. The dollar was exceptionally strong, making a decline likely at some point, and even after its slide it remains quite strong by almost all measures.
  2. Sustaining the dollar's flow equilibrium required ever-increasing inflows from the rest of the world at ever more inflated values of the dollar and U.S. equities, the so-called U.S. exceptionalism trade.
  3. The dollar's 2023-24 level implied an ever-shrinking U.S. export base and an ever-growing trade deficit.

Related Articles:

  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • What the Weak Dollar Means for the Global Economy — The dollar has weakened to fresh lows against the euro, Japanese yen and Swiss franc, with the ICE U.S. Dollar Index down 8% this year, the worst start to a year in its four-decade history. Some on Wall Street worry China will push the yuan lower to offset trade-war effects.
  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.

AI Summary. The projected US debt path is higher than was projected under 2007 law because of large tax cuts and two major recessions and the policy responses to them, not larger-than-expected aging and health care costs; health care spending has risen less than projected. Near-term crisis odds remain unclear, with 10-year Treasury yields near 2007 levels.

Karen Dynan and Douglas Elmendorf National Bureau of Economic Research
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CBO’s upward revisions in projected Federal debt since 2007 reflect two major unforecasted recessions and tax cuts, not unexpected cost increases due to health and aging. Yields are near those of 2007 when debt-to-GDP was ⅓ of today’s level.

Why is the projected US debt path higher than earlier projections?

Core argument: The projected path of US federal debt is notably higher than was projected under current law in 2007, a shift attributed to large tax cuts in 2012 and 2017 and to two major recessions and the policy responses to them.

The projected path of debt is notably higher today than was projected under current law in 2007. That shift occurred not because aging and health care spending have had larger effects than expected; indeed, health care spending has risen less than projected in 2007 and accounts for some of the downward pivot in projected debt growth between 2020 and 2025. Instead, the jump owes to large tax cuts—in 2012 (making permanent most of the tax cuts enacted on a temporary basis in 2001 and 2003) and in 2017—and two major recessions and the policy responses to them. The probability of a US fiscal crisis in the near term remains very unclear. The yield on 10-year Treasury notes and the yield on 10-year inflation-indexed Treasury securities are both close to their levels in 2007 when the debt-to-GDP ratio was about one-third what it is now. Interest rates [may] increase significantly at some point because of high and rising federal debt, [which] could make voters unhappy enough [to] push their elected representatives to restrain debt growth. If the increase in rates is so sudden and sizable as to constitute a fiscal crisis, policymakers might have no choice but to raise taxes and cut spending sharply.

Takeaways by Macro Roundup® AI

  1. The projected path of US federal debt is notably higher than was projected under current law in 2007, a shift attributed to large tax cuts in 2012 and 2017 and to two major recessions and the policy responses to them.
  2. Health care spending has risen less than projected in 2007 and accounts for some of the downward pivot in projected debt growth between 2020 and 2025, rather than aging and health care costs exceeding expectations.
  3. Yields on 10-year Treasury notes and 10-year inflation-indexed Treasury securities are both close to their 2007 levels, when the debt-to-GDP ratio was about one-third of its present level, and the near-term probability of a US fiscal crisis remains very unclear.

Related Articles:

  • Can Treasury Markets Add and Subtract? — The authors estimate that Treasury yields rise on days when official cost estimates reveal deficit-increasing legislation, with a one-time 1 percentage point increase in the deficit-to-GDP ratio raising the 10-year yield by 0.75 basis points, or 6.75 basis points for a persistent deficit shock. The response reflects higher expected inflation and term premia alongside lower convenience yields.
  • 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.
  • Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements — Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.

AI Summary. Because sectoral savings and investment balances must sum to zero, the domestic counterpart of chronic US current account deficits has been chronic government budget deficits, with foreigners, US businesses, and US households all running savings surpluses. Since real interest rates have been low, the author argues foreign savings inflows made large fiscal deficits necessary to sustain domestic demand.

Martin Wolf Financial Times
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Martin Wolf notes that chronic Federal deficits have offset surpluses run by both the American domestic business and household sectors as well as foreign investment in the US.

Do foreign savings inflows make chronic US budget deficits necessary?

Core argument: Because U.S. sectoral balances must sum to zero, the domestic counterpart of chronic U.S. current account deficits has been chronic fiscal deficits, with foreigners running a substantial savings surplus with the U.S. for decades.

The counterpart of external deficits tends to be unsustainable domestic borrowing. Combined with financial fragility, the latter can lead to huge financial crises, as it did between 2007 and 2015. Sectoral savings and investment balances are revealing indicators of this last challenge. Foreigners have been running a substantial savings surplus with the US for decades. US businesses have also been in balance or surplus since the early 2000s, while US households have been in surplus since 2008. Since these sectoral balances have to add to zero, the domestic counterpart of US current account deficits has been chronic fiscal deficits. If real interest rates had been high, fiscal deficits might have been driving the chronic external deficits. But the opposite has been true: real interest rates have been either low or very low. The Keynesian hypothesis looks right: the inflow of net foreign savings, shown in capital account surpluses (and current account deficits) made big fiscal deficits necessary, because domestic demand in the US would otherwise have been chronically inadequate.

Takeaways by Macro Roundup® AI

  1. Because U.S. sectoral balances must sum to zero, the domestic counterpart of chronic U.S. current account deficits has been chronic fiscal deficits, with foreigners running a substantial savings surplus with the U.S. for decades.
  2. U.S. businesses have been in balance or surplus since the early 2000s and U.S. households in surplus since 2008, leaving the government sector as the deficit counterpart to foreign savings inflows.
  3. Real interest rates have been low or very low rather than high, which Martin Wolf argues supports the Keynesian hypothesis that inflows of net foreign savings made large U.S. fiscal deficits necessary to avoid chronically inadequate domestic demand.

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.
  • The Global Trading System Was Already Broken — The authors argue globalization requires a new trade regime in which countries resolve their production, consumption, and investment imbalances domestically rather than exporting them to trade partners. They propose starting with a customs-union-style bloc of major deficit countries, which would force surplus countries to raise domestic consumption or investment or cut overproduction.
  • China’s Edge in the “Trade Struggle” is More Theoretical than Real — China's nominal consumer spending per person has grown about 5.5% a year since late 2019, versus a pre-pandemic average of roughly 8.5%, leaving spending about 13.5% below the pre-pandemic trend while industrial production is 6-7% below trend. Weak domestic demand has left Chinese imports barely growing as extra production is sold abroad.

AI Summary. Chinese firms have narrowed the gap with foreign competitors across targeted industries, with China's share of global patents rising by more than 4 percentage points in electric vehicles, new materials, electronics, and robotics. Gaps remain in areas such as advanced semiconductors, where Chinese firms still lag the global frontier.

Camille Boullenois, Malcolm Black and Daniel Rosen Rhodium Group
Date Posted:

The PRC’s “China 2025” industrial policy, though far from achieving self-sufficiency, has moved target firms closer to the technological frontier. Btw 2015 and 2020, China gained a 4pp share of global patents in robotics and electric vehicles.

Has China's industrial policy closed the technology gap with foreign firms?

Core argument: China's share of global top publications rose by an average of 18 percentage points between 2015 and 2023, and its share of global patents increased across most industries, with gains exceeding 4 percentage points in electric vehicles, new materials, electronics, and robotics.

Chinese companies have made significant strides in closing the gap with foreign firms and advancing toward the technological frontier, with several sectors already demonstrating signs of parity or even leadership. China’s share of global patents has risen across most industries, with notable gains in electric vehicles, new materials, electronics, and robotics, where its share grew by more than 4 percentage points. In basic research, China’s output is equally remarkable, with its share of global top publications increasing by an average of 18 percentage points between 2015 and 2023. Despite this rapid progress, Chinese firms have yet to achieve parity in many MIC25 sectors, with 62% of foreign firms surveyed predicting that their Chinese competitors would catch up within 5 to 10 years. Key gaps remain in areas such as advanced semiconductors, where Chinese firms still lag significantly behind the global frontier.

Takeaways by Macro Roundup® AI

  1. China's share of global top publications rose by an average of 18 percentage points between 2015 and 2023, and its share of global patents increased across most industries, with gains exceeding 4 percentage points in electric vehicles, new materials, electronics, and robotics.
  2. Chinese firms have yet to reach parity in many Made in China 2025 sectors, with advanced semiconductors remaining a key gap where they lag significantly behind the global frontier.
  3. Among foreign firms surveyed, 62% predict their Chinese competitors will catch up within five to ten years, while several sectors already show signs of parity or Chinese leadership.

Related Articles:

  • US Efforts to Contain Xi’s Push for Tech Supremacy Are Faltering — Research by Bloomberg Economics and Bloomberg Intelligence finds that of 13 key technologies tracked, China has reached global leadership in five and is catching up in seven others, with clear leads in electric vehicles, automotive software and lithium battery technology. China still struggles to develop manufacturing processes for advanced semiconductors, the main focus of US export controls.
  • How Do U.S. Firms Withstand Foreign Industrial Policies? — U.S. firms in industries targeted for encouragement by China's Five-Year Plans show significant declines in employment, investment, and output beginning a year after a plan's release, with plant closures following a year later. The authors find firms with existing operations upstream or downstream of encouraged industries, or able to offshore into them, fare better.
  • America Is Missing The New Labor Economy – Robotics Part 1 — Building an identical robotic arm in the US costs about 2.2x more than in China, and US-labeled components still depend heavily on Chinese parts and materials with no scalable alternative. The author argues China is the only country positioned to capture full-scale intelligent robotic automation, which would let it outcompete the US across production.

AI Summary. Christian Democrat Friedrich Merz became Germany's chancellor after securing 325 votes in Germany's 630-member parliament on a second ballot, having unexpectedly fallen short in the first round. He has angered parts of his conservative bloc by loosening Germany's constitutional borrowing limit to fund a €1tn debt-financed program for the military and infrastructure.

Anne-Sylvaine Chassany and Laura Pitel Financial Times
Date Posted:

Friedrich Merz became Germany’s chancellor after surprisingly falling short on the first round vote, which highlighted the tensions inherent in the coalition of Christian and Social Democrats established to keep the AFD out of the government.

Has Germany's new chancellor won parliamentary approval despite conservative opposition to borrowing?

Core argument: Friedrich Merz secured 325 votes in a secret ballot of the 630-member Bundestag on his second attempt of the day, after falling short in the first round in a shock setback.

Friedrich Merz has won a second-round parliamentary vote to become Germany’s chancellor after falling short earlier on Tuesday in a shock setback. The 69-year-old Christian Democrat, who won elections in February and has teamed up with the Social Democrats to form a majority government, had been expected to triumph in the first round. However, he secured a majority of the 630-member Bundestag only in his second attempt of the day, with 325 votes in a secret ballot. Merz has angered some within the more conservative wing of his CDU/CSU grouping by loosening the constitutional borrowing limit and embarking on a €1tn debt-fuelled spending programme to modernise the country’s military and its ageing infrastructure.

Takeaways by Macro Roundup® AI

  1. Friedrich Merz secured 325 votes in a secret ballot of the 630-member Bundestag on his second attempt of the day, after falling short in the first round in a shock setback.
  2. Merz, the 69-year-old Christian Democrat who won February's elections, formed a majority government with the Social Democrats and had been expected to win the chancellorship in the first round.
  3. Merz has angered some in the more conservative wing of his CDU/CSU grouping by loosening the constitutional borrowing limit and embarking on a €1tn debt-fuelled spending programme to modernise Germany's military and ageing infrastructure.

Related Articles:

  • Germany’s Spending Push Drives Up Borrowing Costs Across Eurozone — Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.
  • From Trains to Tanks: Germany’s Rearmament Marks Industrial Shift — Germany's defense spending has risen almost 80% since 2020 to over €90bn, according to NATO estimates, offering hiring growth in a country where nearly 250,000 manufacturing jobs have disappeared since the pandemic began. Four major defense contractors added more than 16,500 employees over three years, a gain exceeding 40%, and plan roughly 12,000 more hires.
  • German Army Struggles to Get Gen Z Recruits ‘Ready for War’ — Germany's armed forces commissioner warned the country is not moving closer to its target of 203,000 active troops by 2031, as the military slightly shrank amid high dropout rates, with a quarter of new recruits leaving within six months. Conscientious objector applications reached 2,998, up from 200 in 2021.

AI Summary. U.S. startups have flown a reusable hypersonic test aircraft, the Talon-A, on fully autonomous flights exceeding five times the speed of sound, according to the Defense Department. The U.S. military had not flown a reusable hypersonic aircraft since closing its X-15 program, while China built some of the most advanced hypersonic missiles.

Heather Somerville Wall Street Journal
Date Posted:

Two small US startups successfully completed a test flight of a reusable hypersonic rocket-powered aircraft. Though the US invented the technology in the first place, American hypersonic efforts have lagged those of the PLA.

Are U.S. startups closing the hypersonic gap with China?

Core argument: The Talon-A hypersonic test aircraft exceeded five times the speed of sound in fully autonomous flights in December and March, the Defense Department said.

Two startups conducted the test flights of a vessel called the Talon-A: Stratolaunch, the company making the hypersonic test aircraft and based in the Mojave Desert, and Ursa Major, a Colorado-based builder of liquid rocket engines. The fully autonomous flights occurred in December and March, the Defense Department said on Monday, and exceeded five times the speed of sound—the generally accepted designation of hypersonic speed. The U.S. military hasn’t flown a reusable hypersonic-speed aircraft since 1968. That is when it shuttered the X-15 program, a superfast human-piloted aircraft lauded as a gold standard for experimental programs. As the Pentagon dawdled, China plowed ahead, building some of the most state-of-the-art hypersonic missiles.

Takeaways by Macro Roundup® AI

  1. The Talon-A hypersonic test aircraft exceeded five times the speed of sound in fully autonomous flights in December and March, the Defense Department said.
  2. The U.S. military had not flown a reusable hypersonic-speed aircraft since 1968, when it shuttered the human-piloted X-15 program, lauded as a gold standard for experimental programs.
  3. Two startups conducted the Talon-A flights: Stratolaunch, the Mojave Desert-based maker of the test aircraft, and Ursa Major, a Colorado-based builder of liquid rocket engines.

Related Articles:

  • US Adds 36 Chinese Companies to Trade Blacklist — The US Commerce Department added 36 Chinese companies to its "entity list" trade blacklist, requiring American firms to obtain hard-to-get licenses to export critical technologies to them. The move extends US efforts to slow China's development of advanced chips and military technologies such as hypersonic weapons.
  • From Rockets to Ball Bearings, Pentagon Struggles to Feed War Machine — The Pentagon is offering suppliers multiyear contracts and sending teams to resolve supply bottlenecks as procurement budgets grow, while abandoning post-Cold War cost-cutting practices such as just-in-time delivery and consolidation of the defense industry. The Defense Production Act is also being used to accelerate new missile programs, including hypersonic weapons.
  • US Eases Tech Curbs To Boost Aukus Security Pact With UK and Australia — The US is easing arms-export restrictions so that the UK and Australia no longer need licences for roughly 80% of their defence-related trade with the US, removing barriers to trilateral defence cooperation under the Aukus pact. The State Department says the change is critical to allied work on hypersonics, artificial intelligence, and undersea military capabilities.

Wednesday, May 7, 2025

AI Summary. The Congressional Budget Office projects the 10-year Treasury yield will average 4.1% and decline gradually to 3.8%; if it instead averaged 4.4% with other Treasury yields rising equally, analysts estimate an additional $1.8tn in debt over a decade. Under that scenario interest costs would more than double to $2.1tn, approaching 5% of GDP.

Marc Goldwein Committee For A Responsible Federal Budget
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CBO’s current forecast has the 10-year yield falling to 3.8% over the next 6 years. If the 10-year Treasury yield settles at ~4.4%, it would add $1.8T to the debt over the next decade. @MarcGoldwein.

How much would modestly higher Treasury yields add to federal debt?

Core argument: If the 10-year Treasury yield averaged 4.4% instead of the Congressional Budget Office's projected 4.1% in 2025 falling to 3.8% by 2031, with other Treasury yields rising equally, the analysis estimates an additional $1.8 trillion in debt over the decade.

In its current law projections, the Congressional Budget Office estimates the 10-year yield will average 4.1% in 2025 and fall gradually to 3.8% by 2031. If 10-year yields were instead to average 4.4% over that period (and the yield of all other Treasuries increased by an equal amount), we estimate it would add an additional $1.8 trillion to the debt over the next decade. This roughly matches our estimate of the revenue that would be raised from reciprocal tariffs, assuming they are made permanent. Interest payments on the debt are already projected to exceed the record 3.2% of GDP this year and grow past $1 trillion next year. If long-term yields were to remain at 4.4% and all other yields increased equally, interest costs would more than double to $2.1 trillion by 2035, approaching 5% of GDP. Costs would rise even further if Congress were to enact a costly reconciliation bill.

Takeaways by Macro Roundup® AI

  1. If the 10-year Treasury yield averaged 4.4% instead of the Congressional Budget Office's projected 4.1% in 2025 falling to 3.8% by 2031, with other Treasury yields rising equally, the analysis estimates an additional $1.8 trillion in debt over the decade.
  2. The estimated $1.8 trillion in added debt roughly matches the analysis's estimate of revenue raised from reciprocal tariffs, assuming they are made permanent.
  3. Interest payments on the debt are projected to exceed the record 3.2% of GDP this year and grow past $1 trillion next year, and would more than double to $2.1 trillion by 2035, approaching 5% of GDP, if long-term yields remained at 4.4% and other yields increased equally.

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.
  • 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. Investment firm Eurizon SLJ argues that Asian exporters have hoarded much of their trade surpluses in dollar deposits rather than repatriating them, creating an overhang the firm roughly estimates at $2.5tn in China plus more from Taiwan, Malaysia, and Korea, growing about $500bn a year. It predicts this raises the risk of a non-linear dollar sell-off.

Robin Wigglesworth Financial Times
Date Posted:

Stephen Jen warns of a potential “Avalanche’” of USD deposits. He argues dollar weakness could trigger large-scale, “non-linear” movement of up to $2.5T in dollar holdings to home currencies, particularly in East Asia.

Do hoarded Asian export dollars raise the risk of dollar sell-off?

Core argument: Eurizon SLJ's Stephen Jen conservatively guesstimates there could be $2.5tn of liquid dollar holdings in China, plus more from Taiwan, Malaysia, and Korea, rising by about $500bn a year.

Eurizon SLJ’s Stephen Jen reckons that the Taiwanese dollar's recent rollercoaster is a harbinger of a wider, violent repricing of Asian currencies; "We continue to believe the risks of investors being blindsided by such a non-linear sell-off in the dollar continue to rise. The sharp sell-off in USDTWD last week is such an example. There will be others, we predict. We have long warned about the ‘Avalanche’ risk for the dollar. There could be USD2.5 trillion worth of ‘snow’ in China and more from the likes of Taiwan, Malaysia, and Korea, rising at a pace of USD 500 billion a year — we conservatively guesstimate. Only a modest proportion of the very large trade surpluses these countries have earned have been repatriated back home, with the bulk of the export earnings being hoarded by exporters in USD deposits. The overhang of liquid dollar holdings is just too large if the dollar weakens, the Fed cuts interest rates, and China stages a cyclical rebound. In other words, both the push and pull factors that kept the export earnings in dollars outside the home countries in the past years will potentially flip signs in the coming quarters."

Takeaways by Macro Roundup® AI

  1. Eurizon SLJ's Stephen Jen conservatively guesstimates there could be $2.5tn of liquid dollar holdings in China, plus more from Taiwan, Malaysia, and Korea, rising by about $500bn a year.
  2. Jen argues that only a modest proportion of these countries' large trade surpluses has been repatriated, with the bulk of export earnings hoarded by exporters in USD deposits.
  3. Jen predicts further episodes like the sharp sell-off in USDTWD, warning that the push and pull factors keeping export earnings in dollars could flip signs if the dollar weakens, the Fed cuts rates, and China stages a cyclical rebound.

Related Articles:

  • Why Didn’t Tariffs Push up the U.S. Dollar? — The US dollar was exceptionally strong at a level implying an ever-shrinking export base and an ever-growing trade deficit, requiring continually larger foreign inflows at ever more inflated dollar and US equity valuations to sustain. Even after its recent slide, the dollar remains strong by almost all measures.
  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.

AI Summary. China accounts for about 7% of total annual revenue at S&P 500 companies, with US firms generating $1.2tn selling to Chinese consumers — roughly 4x the size of the US-China goods trade deficit. US exposure to China runs through in-country sales as well as goods trade, including McDonald's 6,820 Chinese restaurants and 43m iPhones sold there in a year.

Torsten Sløk Apollo
Date Posted:

US companies generated $1.2T in revenue selling to Chinese consumers, ~4X the trade deficit in goods between China and the US. “If the US has to decouple completely from China, it would result in a significant decline in earnings for S&P 500 companies.”

How large is US corporate revenue exposure to China?

Core argument: US companies generated $1.2 trillion in revenue selling to Chinese consumers, about four times the size of the US-China goods trade deficit.

The trade war is all about goods. However, the US is also connected with China via sales of American products in China to Chinese consumers. For example, McDonald’s has 6,820 restaurants in China, Walmart operates 364 stores in China, and Apple sold 43 million iPhones in China in 2024. Calculations from FactSet’s Geographic Revenue Exposure Database show that China makes up about 7% of total annual revenue in S&P 500 companies. Comparing the magnitude of the trade deficit with the revenue generated by S&P 500 companies in China shows that US companies made $1.2 trillion in revenue selling to Chinese consumers—about four times more than the size of the trade deficit in goods between China and the US.

Takeaways by Macro Roundup® AI

  1. US companies generated $1.2 trillion in revenue selling to Chinese consumers, about four times the size of the US-China goods trade deficit.
  2. China accounts for about 7% of total annual revenue at S&P 500 companies, according to calculations from FactSet's Geographic Revenue Exposure Database.
  3. US corporate presence in China includes McDonald's 6,820 restaurants, Walmart's 364 stores, and the 43 million iPhones Apple sold in China in 2024.

Related Articles:

  • Our Outlook and the Threats We See to Portfolios, with Co-CIO Karen Karniol-Tambour — Recent moves in stocks, bond yields, the yield curve, and the dollar are small relative to the 15-year run in asset prices and to the scale of underlying shifts underway. The US share of world stock market value went from 50% to almost 75%, and recent underperformance barely undoes a couple of months of that gain.
  • Bear Market Anatomy – The Path and Shape of the Bear Market — Cyclical and event-driven bear markets have both averaged declines of roughly 30%, but cyclical ones last about two years and take five to recover, versus about eight months and one year for event-driven; structural bear markets average 60% declines over three-plus years and take a decade to recover.
  • 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.

AI Summary. The authors model a 10 percentage point tariff increase and estimate US output falls 3% on impact—5% if other countries retaliate—converging to a steady state 1% lower, with the US trade balance deteriorating rather than improving. A unilateral tariff raises US welfare through better terms of trade, but retaliation eliminates that gain.

Stéphane Auray, Michael Devereux, and Aurélien Eyquem National Bureau of Economic Research
Date Posted:

A calibrated New Keynesian model suggests that unilateral tariffs can increase US welfare due to sharply lower prices for imported goods, despite lower GDP and higher inflation. Retaliation would negate the welfare gain.

How do tariffs and foreign retaliation affect US output and welfare?

Core argument: In the authors' model, a 10 percentage point tariff increase lowers US output by 3% on impact — 5% under global retaliation — and converges to a steady state GDP 1% lower, with smaller output declines in the rest of the world.

We consider an arbitrary 10 percentage point increase in tariffs. The tariff is contractionary, whether imposed unilaterally by the US or by all countries as part of global retaliation. In the baseline case, output falls by 3% on impact in the US – 5% under retaliation - and converges to a lower steady state GDP by 1%. Output also falls in the rest of the world, but to a lesser extent than in the US. While the aim of the tariffs is to eliminate the US trade balance, in our model the US trade balance deteriorates on impact. This holds true – and is further amplified – when the rest of the world retaliates with equal tariffs to the US. While a unilateral tariff improves overall welfare for the US, as it generates a strong terms-of-trade improvement, this welfare gain is fully eliminated in the case of tariff retaliation, and global welfare is lower in the long run. The response to a permanent tariff is much larger in the short run than in the long run, due to a response of monetary policy to the burst of CPI inflation following the tariff shock. Finally, the presence of global supply chains in the form of imported intermediate goods is critical for the scale effect of the tariff response.

Takeaways by Macro Roundup® AI

  1. In the authors' model, a 10 percentage point tariff increase lowers US output by 3% on impact — 5% under global retaliation — and converges to a steady state GDP 1% lower, with smaller output declines in the rest of the world.
  2. The authors find the US trade balance deteriorates on impact despite the tariff's aim of eliminating it, an effect amplified when the rest of the world retaliates with equal tariffs.
  3. A unilateral US tariff raises overall US welfare through a strong terms-of-trade improvement, but that gain is fully eliminated under retaliation, and global welfare is lower in the long run, per the authors' model.

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  • 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.
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AI Summary. China has discontinued public reporting of weekly tuberculosis vaccination data, which economists had used as an alternative gauge of births because every newborn in China is required to be vaccinated. In one year 5.4m such vaccines were administered, while Chinese authorities reported 12.1m births.

Rebecca Feng and Jason Douglas Wall Street Journal
Date Posted:

China has stopped publishing hundreds of data points including land sales measures, foreign investment data, and unemployment indicators. Soy sauce production reports and vaccination data have also been culled.

Is China withholding data used to estimate its birth numbers?

Core argument: China administered 5.4 million tuberculosis vaccines in 2020, according to data compiled by the private Chinese think tank Forward Business and Intelligence, against the 12.1 million births Chinese authorities reported for that year.

The country’s low fertility rate has become a major economic liability—and some data pointing to it is gone, too. In the mid-2000s, an economist named Yi Fuxian questioned the accuracy of China’s population data and argued that tuberculosis vaccinations were a better measure of population growth because every newborn in China is required to be vaccinated. In 2020, 5.4 million such vaccines were administered, according to data compiled by the private Chinese think tank Forward Business and Intelligence. Chinese authorities said the country recorded 12.1 million births that year. A year later, the National Institutes for Food and Drug Control discontinued the weekly data release of tuberculosis vaccines administered, along with other vaccine data.

Takeaways by Macro Roundup® AI

  1. China administered 5.4 million tuberculosis vaccines in 2020, according to data compiled by the private Chinese think tank Forward Business and Intelligence, against the 12.1 million births Chinese authorities reported for that year.
  2. Economist Yi Fuxian questioned the accuracy of China's population data, arguing that tuberculosis vaccinations are a better measure of population growth because every newborn in China is required to be vaccinated.

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  • Xi Jinping Calls for Quality Jobs for Youth Instead of ‘Bitterness’ — China's leadership has ordered that providing "high-quality full employment" be an economic priority, with youth unemployment running at nearly three times the overall rate. Unemployment among 16-24 year-olds, excluding students, stood at 14.7% against an urban unemployment rate of 5%.
  • Was Made in China 2025 Successful? — Chinese firms have narrowed the gap with foreign competitors across targeted industries, with China's share of global patents rising by more than 4 percentage points in electric vehicles, new materials, electronics, and robotics. Gaps remain in areas such as advanced semiconductors, where Chinese firms still lag the global frontier.

AI Summary. Florida home prices are 3% below their peak and falling about 3% year over year, the fastest decline of any state, while most other states that slipped below their peaks are seeing prices rise again. The author argues the factors behind Florida's downturn are idiosyncratic enough that it likely does not foreshadow a national decline.

Aziz Sunderji Home Economics
Date Posted:

While Florida home prices continue to decline as prices in most other states rise, @AzizSunderji argues “Florida’s downturn is unlikely to be a harbinger of things to come” nationally, due to factors idiosyncratic to the state.

Does one state's falling home prices signal a national decline?

Core argument: Florida home prices stand 3% below their May 2024 peak and are falling 3% y/y, the fastest rate among the handful of states where prices are still declining.

Home prices in Florida are now 3% below the peak they reached in May 2024. This in itself is not particularly meaningful. About half of the states are now below their recent peaks. What does make Florida uniquely worrying is that—while most states that have fallen below their peaks are now recovering, with prices rising y/y—prices in Florida continue to decline and by much more than everywhere else. In only a handful of states are home prices falling y/y. In Florida they’re falling at the fastest rate (-3%). Our sense is that the factors responsible for the downturn in Florida [rising new supply, higher insurance costs, and weakening demand] are sufficiently idiosyncratic that it's more likely than not that the price pressures we see there are not a sign of what's to come for the rest of the country. But it’s a close call.

Takeaways by Macro Roundup® AI

  1. Florida home prices stand 3% below their May 2024 peak and are falling 3% y/y, the fastest rate among the handful of states where prices are still declining.
  2. About half of U.S. states sit below their recent home-price peaks, but most are recovering with prices rising y/y, leaving Florida's continued decline an outlier.
  3. The author attributes Florida's downturn to rising new supply, higher insurance costs, and weakening demand, judging it more likely than not that these idiosyncratic factors do not signal what's to come nationally, while calling it a close call.

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  • Snow Belt to Sun Belt Migration: End of an Era? — The correlation between US county population growth or net migration and historical extreme heat and cold days has declined over roughly the past 50 years, and in 2010–2020 was essentially zero. The authors argue this pivoting is likely to continue and reverse the 20th-century Snow Belt to Sun Belt migration pattern.
  • Inflation Adjusted House Prices 0.8% Below 2022 Peak — Inflation-adjusted US house prices stand 0.8% below their 2022 peak, according to an affordability index built from median income, a 15% down payment, the Case-Shiller National Index, and 30-year fixed mortgage rates. With prices up 36% over four years and rates at 6.84%, the monthly payment on the same house rose 117%.

AI Summary. Investment in European defense and related technology start-ups rose 24% to $5.2bn, defying a broader downturn in European venture capital funding. Global aerospace and defense deal value rose 37% to $36.8bn, with 274 transactions marking the highest deal count of the past decade, according to PitchBook data.

Sylvia Pfeifer, Alexandra Heal and Ivan Levingston Financial Times
Date Posted:

Investment in European start-ups working on defence and related technologies jumped 24% y/y to $5.2B. A Bain & Company analysis finds venture investment in defence has increased 18-fold globally over the past decade.

Is private capital increasing its funding of defense start-ups?

Core argument: Investment in European defence and related-technology start-ups rose 24% last year to $5.2bn, with companies such as AI software group Helsing and drone maker Tekever defying the broader downturn in European venture capital funding.

Investment in European start-ups working on defence and related technologies jumped 24% last year to $5.2bn as investor appetite for companies such as software AI group Helsing and drone maker Tekever defied the broader downturn in European VC funding. The funding gap in Europe was “growing because of current questions around America’s commitments to Nato and there is also a European desire to fund more of Ukrainian defence”, said Michael Sion, partner at consultants Bain & Co, and author of a recent report that showed the value of venture capital deals in the defence sector has increased 18-fold in the past decade. Recent data from PitchBook showed that the deal count in the global aerospace and defence sector increased last year, with 274 transactions — the most of any year in the past decade. The total value of the deals in the sector in 2024 was $36.8bn — up $10bn, or 37%, from 2023.

Takeaways by Macro Roundup® AI

  1. Investment in European defence and related-technology start-ups rose 24% last year to $5.2bn, with companies such as AI software group Helsing and drone maker Tekever defying the broader downturn in European venture capital funding.
  2. Bain & Co partner Michael Sion said Europe's defence funding gap is growing because of questions around America's commitments to Nato and a European desire to fund more of Ukrainian defence; his report showed defence venture capital deal value up 18-fold over the past decade.
  3. PitchBook data showed 274 global aerospace and defence transactions last year, the most of any year in the past decade, with 2024 deal value reaching $36.8bn, up $10bn or 37% from 2023.

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  • U.S. Advances Toward China in Hypersonic Weapons Race — U.S. startups have flown a reusable hypersonic test aircraft, the Talon-A, on fully autonomous flights exceeding five times the speed of sound, according to the Defense Department. The U.S. military had not flown a reusable hypersonic aircraft since closing its X-15 program, while China built some of the most advanced hypersonic missiles.
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