Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, May 15, 2025

AI Summary. US Treasuries serve as both a crisis hedge and a store of value investors sell to raise cash, but the market has grown too large to rely on dealers alone to intermediate trades. The authors call for broader central clearing, greater price transparency, "all-to-all" trading venues, and less reliance on leverage-based capital requirements.

Darrell Duffie Journal of Economic Perspectives
Date Posted:

Treasuries must be an asset that “can be quickly liquidated for cash” in a crisis. Treasury markets are “growing too large to rely exclusively on dealers to intermediate” these trades, and require central clearing and “all-to-all” trading, Duffie argues.

How can the Treasury market keep functioning as a safe haven?

Core argument: Treasuries serve two safe-haven roles — a crisis hedge and a store of value that can be liquidated quickly for cash, as in March 2020 — and the second requires the market to intermediate huge volumes of selling.

Treasuries serve two distinct safe-haven roles: [that of] a crisis hedge, and [that of a] store of value that can be quickly liquidated for cash once a crisis actually hits [as in March 2020]. For this, the market must be able to quickly intermediate huge volumes of demand by investors to sell Treasuries. When dealer balance sheets are filled to capacity by crisis selling, trading costs soar, allocative efficiency suffers, and investors who had purchased Treasuries in order to quickly and efficiently raise cash in a crisis are likely to be thwarted. The market for Treasury securities is simply growing too large to rely exclusively on dealers to intermediate investor trades. The decision by the SEC to extend the scope of required central clearing was a major step forward. Large improvements in price transparency and market structure are also needed. Regulations should promote (although not mandate) “all-to-all” trade venues, which would allow direct trade between Treasury market participants of all types. The role of leverage-based [as opposed to risk-based] capital requirements should be reduced. The Fed should prepare to settle trades at a clearinghouse.

Takeaways by Macro Roundup® AI

  1. Treasuries serve two safe-haven roles — a crisis hedge and a store of value that can be liquidated quickly for cash, as in March 2020 — and the second requires the market to intermediate huge volumes of selling.
  2. When dealer balance sheets fill to capacity during crisis selling, trading costs soar and allocative efficiency suffers, likely thwarting investors who bought Treasuries to raise cash quickly in a crisis.
  3. The Treasury market is growing too large to rely exclusively on dealers, and proposed remedies include the SEC's extension of required central clearing, greater price transparency, regulations promoting rather than mandating all-to-all trading venues, a reduced role for leverage-based capital requirements, and Fed preparation to settle trades at a clearinghouse.

Related Articles:

  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • 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.
  • Liquidity Event — U.S. Treasuries remain the world's most liquid security, but daily cash trading volumes have not kept pace with the growth in issuance, leaving the market structurally less liquid. Principal trading firms account for 20% of cash market volumes yet withdraw when volatility rises, making their liquidity provision illusory.

AI Summary. McKinsey estimates that dynamic reallocation of employees from less productive to more productive firms contributed 0.9 of 2.1 percentage points of productivity growth in its US sample, while the contribution was negligible in Germany and the United Kingdom. The report attributes this to highly dynamic US factor markets that allow quick entry, exit, scale-up, and restructuring.

James Pethokoukis American Enterprise Institute
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Citing McKinsey, @JimPethokoukis notes that reallocation of workers from less to more productive firms accounted for 0.9pp of the 2.1% US productivity growth between 2011 and 2019, relative to .2% in Germany and almost zero in the UK.

How much does shifting workers to more productive firms boost productivity?

Core argument: McKinsey finds that dynamic reallocation, including shifts across subsector boundaries, contributed 0.9 of the 2.1 percentage points of productivity growth in its US sample—slightly less than half—while the contribution in Germany and the United Kingdom was negligible.

[McKinsey finds] "Firms in the US sample had more reallocation of employees from less productive to more productive firms. Leaders grew faster, and underperforming firms more swiftly restructured or exited....Overall, dynamic reallocation, including reallocation across subsector boundaries, added 0.9 of 2.1 percentage points—slightly less than half—to productivity growth in the US sample. In contrast, the contribution of reallocation was negligible in Germany and the United Kingdom. This may be explained by the fact that the United States has highly dynamic factor markets, allowing for quick entry and exit as well as fast scale-up and restructuring." The policy lesson is straightforward enough: countries with flexible labor markets transform creative destruction into widespread prosperity. Those that preserve the status quo guarantee decline.

Takeaways by Macro Roundup® AI

  1. McKinsey finds that dynamic reallocation, including shifts across subsector boundaries, contributed 0.9 of the 2.1 percentage points of productivity growth in its US sample—slightly less than half—while the contribution in Germany and the United Kingdom was negligible.
  2. Firms in McKinsey's US sample reallocated more employees from less productive to more productive firms, with leading firms growing faster and underperforming firms restructuring or exiting more swiftly.
  3. McKinsey suggests the US reallocation result may be explained by highly dynamic factor markets that allow quick entry and exit as well as fast scale-up and restructuring.

Related Articles:

  • The Power of One: How Standout Firms Grow National Productivity — An analysis of 8,300 large firms accounting for two-thirds of gross value added in Germany, the UK, and the US finds that fewer than 100 firms generated about two-thirds of positive labor productivity gains in each country. A still smaller group of 55 firms accounted for 50–65% of the firm-level productivity drag.
  • The Spacetime of the US Economy — An analysis of US company market values finds that roughly 62% of net market-cap growth across all US companies since 2000 came from a narrow cluster of young West Coast technology firms, including Uber, Meta, Amazon, Netflix, NVIDIA, Apple and Microsoft. The author argues this concentration shows how fast, broad, and deep the shifts in US value creation have been.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. The Federal Reserve Bank of New York finds the employment-rate gap between college-educated and non-college workers is larger than gaps by race/ethnicity or sex, and wider than before the pandemic. Most of that gap reflects differences in labor force participation rather than unemployment rates.

Rajashri Chakrabarti, Thu Pham, Beckett Pierce, and Maxim Pinkovskiy Federal Reserve Bank of New York
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The gap in employment rates between workers 25–54 who have completed college and workers who have not is 13pp, up from 12.2pp pre-pandemic.

Is the employment gap by education larger than by race or sex?

Core argument: Using the New York Fed's Economic Heterogeneity Indicators, the authors find the employment rate gap between workers who have completed college and those who have not exceeds the gaps between racial/ethnic groups or between men and women.

We document profound differences in labor market outcomes by educational attainment. Drawing on the [New York Fed] Economic Heterogeneity Indicators, we find that the gap in employment rates between workers who have completed college and workers who have not is larger than the employment gaps between workers of different races/ethnicities or between men and women—and is wider than the pre-pandemic gap. Moreover, most of this gap and its recent movements are driven by differences in labor force participation rates rather than by differences in unemployment rates. Fostering higher labor force participation of workers without a college degree, thus, would be quite helpful in promoting maximum employment.

Takeaways by Macro Roundup® AI

  1. Using the New York Fed's Economic Heterogeneity Indicators, the authors find the employment rate gap between workers who have completed college and those who have not exceeds the gaps between racial/ethnic groups or between men and women.
  2. The college/non-college employment gap is wider than the pre-pandemic gap, and most of the gap and its recent movements reflect differences in labor force participation rather than unemployment rates.
  3. The authors argue that fostering higher labor force participation among workers without a college degree would help promote maximum employment.

Related Articles:

  • Technological Disruption in the Labor Market — The authors measure US labor market structure since 1880 and find 1990–2017 less disruptive than any earlier period, because past changes from general-purpose technologies like steam and electricity were so profound. They identify four recent signs of accelerating change, including a 50%+ rise in science and technology employment share since 2010.
  • Something Alarming Is Happening To The Job Market — Young college graduates have almost always had a lower unemployment rate than the overall labor force over the past four decades, but that gap recently hit an all-time low. One interpretation is that firms are replacing young workers with machines, though the surge in productivity growth such a shift would imply is hard to find in the data.
  • The Middle/Working Class Has Not Been “Hollowed Out” — Inflation-adjusted median weekly earnings for full-time workers with a high school diploma and no college degree reached their highest level on record in the latest data, rising 11% since 2000. Every US state recorded positive real median wage growth over that period.

AI Summary. The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease. The Commonwealth Fund reports about a third of U.S. adults have had multiple chronic conditions, the highest share among peer nations, and U.S. rates of high blood pressure and chronic lung disease also exceed those countries'.

Brianna Abbott and Josh Ulick Wall Street Journal
Date Posted:
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The US obesity rate is almost double the average of peer nations, rising 126% since 1990. A third of US adults have multiple chronic conditions, the highest among peer nations, and the share of adults with diabetes increased by 78% over that period.

Do Americans have higher rates of chronic disease than peer nations?

Core argument: The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease.

The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease. Around a third of U.S. adults have had multiple chronic conditions, the highest rate among our peers, according to the Commonwealth Fund. Rates for conditions including hypertension and chronic obstructive pulmonary disease have held relatively steady in recent decades, and the rising prevalence of diabetes is in part because people are living longer with the disease, researchers say. But the U.S. still has higher rates of these conditions compared with peer nations.

Takeaways by Macro Roundup® AI

  1. The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease.
  2. Around a third of U.S. adults have had multiple chronic conditions, the highest rate among peer nations, according to the Commonwealth Fund.
  3. U.S. rates of hypertension and chronic obstructive pulmonary disease have held relatively steady in recent decades, and researchers attribute rising diabetes prevalence in part to people living longer with the disease, though U.S. rates remain above those of peer nations.

Related Articles:

  • Today’s Most Important Technology — The share of patients taking semaglutide for weight control rather than type 2 diabetes rose from under 10% in 2019 to 41.7%. Obesity and overweight, affecting 1 in 8 people worldwide, cost the global economy $2tn — nearly 70 cents on the dollar from premature mortality and lost productivity — an impact projected to double by 2035 absent intervention.
  • We May Have Passed Peak Obesity — Newly released data show the US adult obesity rate fell by about two percentage points between 2020 and 2023, with the steepest decline among college graduates. The author argues the new generation of diabetes and weight-loss drugs is highly likely behind the reversal, as one in eight US adults have used them.
  • National-Level and State-Level Prevalence of Overweight and Obesity Among Children, Adolescents, and Adults in the USA — An estimated 15.1m US children aged 5–14, 21.4m older adolescents aged 15–24, and 172m adults aged 25 and over had overweight or obesity, with adult prevalence highest in North Dakota for males (80.6%) and Mississippi for females (79.9%). Obesity prevalence among adolescents rose roughly 158–186% over three decades.

AI Summary. China's trade surplus with the European Union reached a record $90bn over four months, fueling concerns that the bloc could become a dumping ground for cheap Chinese goods facing higher US import barriers. Most rerouting of Chinese exports currently passes through Latin America and Southeast Asia.

Malcolm Scott, James Mayger, and William Horobin Bloomberg
Date Posted:
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China’s goods trade surplus with the EU reached a record $90B for the first four months of the year, driven in part by rapidly rising EV exports which are up 17x since 2019.

Is Europe becoming a dumping ground for cheap Chinese goods?

Core argument: China's trade surplus with the European Union reached a record $90 billion in the first four months of this year, fueling concerns the 27-nation bloc could become a dumping ground for cheap goods amid the US-China tariff confrontation.

China’s widening trade surplus with the European Union is fueling fresh concerns that the 27-nation bloc risks becoming a dumping ground for cheap goods in the volatile tariff confrontation between Washington and Beijing. As European officials step up vigilance to ward off a flood of Chinese goods facing higher barriers to get into the US, data already indicate that China’s surplus with the EU reached a record $90 billion in the first four months of this year. For now, most of the rerouting of Chinese goods is passing through Latin America and Southeast Asia. But the quantity of Chinese exports already flowing to Europe since the pandemic raises alarm bells that the influx may accelerate as America’s higher import taxes take root.

Takeaways by Macro Roundup® AI

  1. China's trade surplus with the European Union reached a record $90 billion in the first four months of this year, fueling concerns the 27-nation bloc could become a dumping ground for cheap goods amid the US-China tariff confrontation.
  2. Most rerouting of Chinese goods currently passes through Latin America and Southeast Asia rather than Europe.
  3. European officials are stepping up vigilance against a flood of Chinese goods, with the quantity of Chinese exports flowing to Europe since the pandemic raising concern that the influx may accelerate as higher US import taxes take root.

Related Articles:

  • EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles — The European Union voted to impose tariffs of up to 45% on electric vehicles made in China, lasting five years, with China vowing to protect its companies. Chinese-made electric cars rose from around 3% to more than 20% of EU electric vehicle sales over three years, with Chinese brands accounting for about 8%.
  • How German Industry Can Survive the Second China Shock — The European Union has 30mm manufacturing jobs, and China has grown from a $4tn economy producing under 15% of global manufacturing output to an $18tn economy producing over a third, with well over 50% of global capacity in many sectors. European tariffs on Chinese electric vehicles limit import competition but do not offset lost export markets.
  • Will China Take Over the Global Auto Industry? — The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.

AI Summary. Germany has backed the US demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target. Berlin signalled it would meet the goal via the NATO secretary-general's proposal of 3.5% of GDP on hard military spending plus 1.5% on related areas such as infrastructure and cyber security.

Anne-Sylvaine Chassany and John Paul Rathbone Financial Times
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Germany will aim to raise spending on defense to 5% of GDP by 2032 by increasing “hard military spending” from this year’s 2% to 3.5%, while adding 1.5% of GDP of “related spending, including infrastructure and cyber security.”

Will Germany back a higher NATO defence spending target?

Core argument: German foreign minister Johann Wadephul said in Antalya that Berlin is "following" Donald Trump's demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target.

Speaking at a meeting in Antalya on Thursday, German foreign minister Johann Wadephul said Berlin was “following” Trump on his demand that Nato allies reach a 5% goal. Currently the alliance has a 2% spending target. Wadephul also signalled that the way the country would meet the target would be by embracing a proposal by Nato secretary-general Mark Rutte. The Dutchman has called for Nato members to reach 3.5% of GDP on “hard military spending” by 2032, to which he has suggested adding 1.5% of GDP on “related spending” including infrastructure and cyber security.

Takeaways by Macro Roundup® AI

  1. German foreign minister Johann Wadephul said in Antalya that Berlin is "following" Donald Trump's demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target.
  2. NATO secretary-general Mark Rutte has called for members to reach 3.5% of GDP on "hard military spending" by 2032, and has suggested adding 1.5% of GDP on "related spending" including infrastructure and cyber security.
  3. Wadephul signalled that Germany would meet the 5% goal by embracing Rutte's proposal.

Related Articles:

  • Friedrich Merz Wins Second Vote to Become Germany’s Chancellor — 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.
  • 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.

Friday, May 16, 2025

AI Summary. U.S. artificial intelligence agreements with the United Arab Emirates and Saudi Arabia bypass prior export-control rules, unlocking large-scale Gulf capital for AI infrastructure both in the region and in the United States. The author argues the deals tie both states more closely to American technology and position the energy-rich Gulf as a major AI hub.

Dylan Patel, Jeremie Eliahou Ontiveros, AJ Kourabi, Ivan Chiam, et al. Semianalysis
Date Posted:

The Semianalysis team argues the US-KSA/UAE AI deals are “complete wins,” helping American AI work around the energy bottleneck. They forecast 6 GW of ME operational data center capacity by 2030.

Do Gulf AI deals unlock capital and deepen reliance on US technology?

Core argument: The U.S. AI pacts with the UAE and Saudi Arabia bypass the AI-Diffusion export-control framework, opening a trillion-dollar flow of capital for AI infrastructure that, in the author's view, outweighs any drag from looming tariff fights and also funds U.S. build-outs.

The new U.S. pacts with the UAE and Saudi Arabia reshape the AI landscape on three fronts: Macro. By sidestepping the old AI‑Diffusion export‑control framework, Washington has opened a trillion‑dollar floodgate of capital for AI infrastructure. That inflow outweighs any drag from looming tariff fights and will finance build‑outs not only in the Gulf but back home, putting more racks of GPUs on U.S. soil. Geopolitical. Abu Dhabi and Riyadh are now tied more closely to U.S. technology stacks. If Washington enforces tight security protocols, the alliances will deepen the region’s reliance on American hardware and software and pull both states further into the U.S. orbit. Infrastructure. Energy‑rich Gulf nations join the roster of trusted partners just as U.S. data‑center grids hit their physical limits. Europe could have relieved the bottleneck but stumbled on power shortages and slow permitting. The Middle East, flush with cheap energy and capital, is poised to become the next regional AI hub.

Takeaways by Macro Roundup® AI

  1. The U.S. AI pacts with the UAE and Saudi Arabia bypass the AI-Diffusion export-control framework, opening a trillion-dollar flow of capital for AI infrastructure that, in the author's view, outweighs any drag from looming tariff fights and also funds U.S. build-outs.
  2. The agreements tie Abu Dhabi and Riyadh more closely to U.S. technology stacks, and the author argues that if Washington enforces tight security protocols, the alliances will deepen the region's reliance on American hardware and software.
  3. Energy-rich Gulf states join the roster of trusted AI partners as U.S. data-center grids hit physical limits and Europe stumbles on power shortages and slow permitting, leaving the Middle East poised, in the author's view, to become the next regional AI hub.

Related Articles:

  • Back to our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.
  • Electricity 2025 — US electricity demand is projected to grow about 2% annually over 2025-2027, an upward revision from an earlier 1% forecast. A study commissioned by the US Department of Energy found data centre electricity use rose from about 60 TWh in 2014 to 176 TWh in 2023, and could reach 325-580 TWh by 2028.
  • After More Than a Decade of Little Change, U.S. Electricity Consumption is Rising Again — U.S. electricity consumption is projected to rise to new record highs, growing an average 1.7% per year, in contrast with the relatively flat demand from the mid-2000s to the early 2020s. The commercial sector, which includes data centers, and the industrial sector are projected to grow faster, at 2.6% and 2.1% per year, versus 0.7% for households.

AI Summary. The authors estimate that all 2025 US tariffs raise the short-run price level by 1.7%, equal to an average consumer loss of $2,800 per household, cut real GDP growth by 0.7 percentage points, and leave the economy persistently 0.4% smaller, or $110bn annually. They project the tariffs raise $2.7tn over 2026-35, $300bn more than under a 145% China rate.

Ernie Tedeschi Yale University
Date Posted:

The revised tariffs raise the U.S. price level by 1.4% in the short run, down from 1.7%, per Yale Lab simulations by @ernietedeschi. They reduce long-run US GDP by 0.4%, with a 1.5–2% increase in manufacturing and a 3% decline in construction.

How much do 2025 tariffs cost households, growth, and raise in revenue?

Core argument: All 2025 U.S. tariffs raise the price level by 1.7% in the short run, equal to an average consumer loss of $2,800 per household in 2024$, with $1,300 in annual pre-substitution losses for households at the bottom of the income distribution.

Judged by effects on the price level and GDP, the May 12 changes to the China rate alone reduce the negative economic impact of all 2025 tariffs to date by 40%; the US-UK trade deal and auto tariff rebate have only minor impacts. The price level from all 2025 tariffs rises by 1.7% in the short-run, the equivalent of an average per household consumer loss of $2,800 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $1,300. The post-substitution price increase settles at 1.4%, a $2,300 loss per household. US real GDP growth is -0.7pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.4% smaller respectively, the equivalent of $110 billion annually in 2024$. All tariffs to date in 2025 raise $2.7 trillion over 2026-35, with $394 billion in negative dynamic revenue effects. This is $300 billion more than under the higher 145% China tariffs, showing how far from revenue-optimal levels those rates were.

Takeaways by Macro Roundup® AI

  1. All 2025 U.S. tariffs raise the price level by 1.7% in the short run, equal to an average consumer loss of $2,800 per household in 2024$, with $1,300 in annual pre-substitution losses for households at the bottom of the income distribution.
  2. The May 12 reduction in the China tariff rate alone cuts the negative price-level and GDP impact of all 2025 tariffs to date by 40%, while the US-UK trade deal and auto tariff rebate have only minor impacts.
  3. All 2025 tariffs to date raise $2.7 trillion over 2026–35, with $394 billion in negative dynamic revenue effects, $300 billion more than under the higher 145% China tariffs, indicating how far those rates were from revenue-optimal levels.

Related Articles:

  • De-Escalation — New U.S. tariffs act like a sudden corporate tax increase worth hundreds of billions, and with the dollar weakening and a global minimum tariff limiting substitution toward other suppliers, importing companies likely absorb much of the cost through higher input prices and lower sales volumes. Forward earnings estimates remain elevated, suggesting this hit is not priced in.
  • 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.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. A 90-day pause in the US-China trade war is projected to leave the increase in the US effective tariff rate at +13 percentage points, down from a prior estimate of +15, assuming reviewed pharmaceutical and semiconductor tariffs take effect. At very high tariff levels, import substitution and rerouting limit further increases.

Jan Hatzius, Alec Phillips, David Mericle and Ronnie Walker Goldman Sachs
Date Posted:

Goldman has lowered its 2025 recession odds to 35% from 45%. Its baseline had already reflected a significant reduction of tariffs on China.

Does a trade war pause meaningfully lower the effective tariff rate?

Core argument: Goldman Sachs expects the 90-day US-China trade war pause to leave the US effective tariff rate increase at +13pp in 2025, down from its previous baseline of +15pp, assuming sectoral tariffs on pharmaceuticals and semiconductors under review take effect.

We expect [the 90 day Trade War pause] to leave the US effective tariff rate increase at +13pp in 2025 vs. our previous baseline of +15pp, assuming that sectoral tariffs (pharma and semis) the Trump administration is reviewing take effect. The limited change to our baseline for the effective tariff rate reflects 1) that we had already assumed in our forecasts that both sides would reduce their very high tariff rates and 2) that at very high levels of tariffs, substitution and rerouting of imports toward lower-tariff countries limit the impact of further increases on the overall effective tariff rate.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs expects the 90-day US-China trade war pause to leave the US effective tariff rate increase at +13pp in 2025, down from its previous baseline of +15pp, assuming sectoral tariffs on pharmaceuticals and semiconductors under review take effect.
  2. Goldman Sachs raised its US growth forecast and lowered its recession odds following the US-China trade deal.
  3. The limited revision to Goldman Sachs' effective tariff rate baseline reflects its prior assumption that both sides would reduce very high tariff rates and that, at very high tariff levels, substitution and rerouting of imports toward lower-tariff countries limit the impact of further increases.

Related Articles:

  • What Are US Tariffs On China Now? — The average effective US tariff rate on Chinese goods is estimated at about 48%, up roughly 30 percentage points from about 18%. The increase reflects two 10-percentage-point hikes the US linked to fentanyl plus an additional 10-percentage-point universal tariff, with exclusions and metals and auto tariffs roughly offsetting.
  • Global Views: On the Precipice — Strategists argue risk asset markets have already priced in a modest economic upside surprise and warn against chasing the rally ahead of what they expect to be significant price increases, supply chain disruptions, and job losses. Their strongest market views are a weaker dollar and a higher gold price.
  • It Takes Time to Rebuild Trust — A US-China trade deal removes the tail risk of a complete collapse in trade between the two countries, with the probability of a US recession estimated at 30%. Tourism into the US accounts for 10% of GDP, and a 30%-40% decline in visitor arrivals from Canada and Europe is weighing on US airlines, hotels, and restaurants.

AI Summary. The US accounts for nearly half of global trade deficits, and together with the UK and Canada roughly two-thirds, while China accounts for nearly half of global surpluses. Either global surpluses must fall — meaning China's surplus must fall — or Europe must run the large deficits needed to offset them.

Finbarr Bermingham South China Morning Post
Date Posted:

Noting that the US absorbs ~ half of global surpluses (~⅔ when joined by the UK and Canada), Europe risks becoming a “shock absorber” of surpluses if the Anglosphere reduces trade deficits. @michaelxpettis

Must Europe absorb global surpluses if China's surplus does not shrink?

Core argument: Michael Pettis notes the US accounts for nearly half of global trade deficits, and together with the UK and Canada roughly two-thirds.

[Michael Pettis said] “Europe might not become a pole at all, but rather a shock absorber – forced to adjust to the choices of others without shaping the outcomes. I say this because of some pretty simple arithmetic. The US currently represents nearly half of global deficits, and with the UK and Canada they together comprise roughly two-thirds of all deficits. Either global surpluses must come down – and with China accounting for nearly half of global surpluses, this means that China’s surplus must come down – or some other part of the world must run the large deficits needed to balance global surpluses, and for all practical purposes this mostly means Europe.”

Takeaways by Macro Roundup® AI

  1. Michael Pettis notes the US accounts for nearly half of global trade deficits, and together with the UK and Canada roughly two-thirds.
  2. Pettis argues that because China accounts for nearly half of global surpluses, either China's surplus must fall or another region—for practical purposes Europe—must run the large deficits needed to balance global surpluses.
  3. Pettis warns Europe might not become a pole at all but rather a shock absorber, forced to adjust to the choices of others without shaping the outcomes.

Related Articles:

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AI Summary. As women's earnings and full-time employment rates converge with men's, geographic mobility would be expected to decline, since couples with similar earnings are less likely to relocate than those with unequal earnings. The convergence may also raise child care needs, encouraging families to locate near relatives who can help.

Urvi Neelakantan, John Bailey Jones and Yue Li Federal Reserve Bank of Richmond
Date Posted:
Is Database:
Database

Btw 1996 and 2024, geographic mobility as measured by interstate migration declined for all age groups, particularly the 25–34 cohort. A FRBR note argues the decline is driven by the rise of dual earning couples and aging.

Does the convergence of men's and women's earnings reduce geographic mobility?

Core argument: As women's earnings and full-time employment rates approach those of men, geographic mobility would be expected to fall, in part because dual-earner couples with similar incomes become more common.

As the earnings and full-time employment rates of women approach those of men, we should expect geographic mobility to fall for a few reasons. First, dual-earner couples with similar incomes would become more common [and] couples with similar earnings are less likely to relocate than those with unequal earnings. The convergence of earnings and employment between men and women may also increase the need for child care. This in turn could affect geographic mobility by encouraging individuals or couples with children to locate near relatives who can help with child care.

Takeaways by Macro Roundup® AI

  1. As women's earnings and full-time employment rates approach those of men, geographic mobility would be expected to fall, in part because dual-earner couples with similar incomes become more common.
  2. Couples with similar earnings are less likely to relocate than couples with unequal earnings.
  3. The convergence of earnings and employment between men and women may increase the need for child care, which could encourage individuals or couples with children to locate near relatives who can help.

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  • Americans Are Still Adventurous. They Just Hate Moving — The share of Americans moving across state lines each year has stopped declining, and by a measure tracking where 30-somethings were born, interstate mobility never fell much. In 2022, 49% of US residents in their 30s were born outside their state of residence — slightly below 2010 but above any point in the 20th century.
  • Where is Standard of Living the Highest? Local Prices and the Geography of Consumption — The authors estimate that geographical differences in cost of living are especially large for low-income US households, and that expensive cities offer college graduates a standard of living similar to affordable cities while offering less-educated households a lower one. A high school dropout household moving from the most affordable to the most expensive commuting zone would see consumption fall 18.5%.
  • Household Mobility and Mortgage Rate Lock — The authors estimate that mortgage rate lock-in reduced cumulative household moves across ZIP codes from about 7.3% to 6.1% over a year, preventing roughly 800,000 moves. They calculate the resulting deadweight loss at about $296 per household, or around $20bn in aggregate.