Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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
  • “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


Wednesday, July 9, 2025

AI Summary. The European Central Bank's trade-weighted euro index against 41 countries is setting record highs, rising faster than the euro's gain against the dollar alone. Because China has effectively re-pegged the yuan to the dollar, the euro is strengthening not only against the dollar but against China and much of Asia.

Robin Brooks Robin Brooks Substack
Date Posted:

The EUR/$ has risen from 1.04 to 1.17 since January 2025. Robin Brooks warns: “Rapid strengthening in the Euro should worry ECB policy makers…because it constitutes a substantial deflationary shock.”

Is the euro rising faster in trade-weighted terms than against the dollar?

Core argument: The ECB's trade-weighted Euro index, covering 41 countries, is setting new all-time highs practically every day.

Many countries peg their currencies to the Dollar these days, most obviously China. This means that any rise in the Euro is turbocharged and results in an even bigger rise in the Euro in trade-weighted terms. The chart shows this. The white line is EUR/$ (the number of Dollars per Euro, so - as this number goes up - Euro strengthens against the Dollar). The orange line is the trade-weighted Euro against 41 countries - the broadest index for the Euro - and is put together by the ECB. This trade-weighted Euro is making new all-time highs practically every day. That’s in large part because China has de facto re-pegged the Yuan to the Dollar, so that the Euro isn’t just rising against the Dollar but also against China and much of the rest of Asia.

Takeaways by Macro Roundup® AI

  1. The ECB's trade-weighted Euro index, covering 41 countries, is setting new all-time highs practically every day.
  2. China's de facto re-pegging of the Yuan to the Dollar means the Euro is appreciating not only against the Dollar but also against China and much of the rest of Asia.
  3. Widespread pegging of currencies to the Dollar turbocharges any rise in the Euro, producing a larger appreciation in trade-weighted terms than against the Dollar alone.

Related Articles:

  • ECB Wonders Whether Euro Rally Will Turn From Blessing to Curse — The euro is up about 14% against the dollar this year, helping curb price gains that now match the European Central Bank's inflation goal. The risk is that further appreciation pushes inflation below the target and damages European competitiveness, with the central bank warning that a move past $1.20 would be problematic.
  • German Fiscal Policy On The Move — Germany's budget raises defence spending to €152.8bn by 2029, more than doubling it to 3.5% of GDP. Using International Monetary Fund growth projections and today's yield curve, the author estimates German gross debt rises from 64% of GDP to 76% by 2029, with net debt supply for private investors approaching €250bn a year.

AI Summary. The authors introduce a benchmark for the neutral level of overall financial conditions that would close expected output gaps, and find it often diverges in sign from the interest-rate-based measure of policy stance. By this measure financial conditions were effectively contractionary during 2010–2020 even though real interest rates sat well below neutral.

Ricardo Caballero, Tomás Caravello and Alp Simsek National Bureau of Economic Research
Date Posted:

FCI*, a measure of policy neutrality, accounts for financial conditions overall. Post GFC, FCI-FCI* suggests far greater tightness than the FFR. In mid-2022, reflecting mortgage rates, the FCI-FCI* tightens even relative to the higher FFR.

Do interest rates understate how tight financial conditions actually are?

Core argument: The authors introduce FCI*, the neutral level of overall financial conditions that closes expected output gaps, and find the FCI-based stance and the real rate stance differ in sign over long periods, with the largest discrepancy during the Global Financial Crisis.

We introduce FCI*, the neutral level of [overall] financial conditions that closes expected output gaps. We analyze the historical evolution [of FCI- FCI* vs. r and r*, and the effects of these gaps on the output gap]. The two measures differ in sign during long periods of time.The GFC period shows the largest discrepancy. The real rate stance suggests monetary policy was running the economy hot throughout 2010-2020 by setting interest rates well below r*. In contrast, financial conditions suggest the effective stance was contractionary. In the COVID period, both measures initially show highly accommodative monetary policy, peaking around 2021Q4, [when the] FCI stance reverses sharply and becomes contractionary, reflecting mainly how mortgage rates and stock prices reacted to the abrupt policy shift during 2022. The series reaches its most contractionary point in 2023Q1, after which stock prices begin rallying again (driven by the MAG7 and AI narratives). In contrast, the real rate-based stance suggests monetary policy remained accommodative well into 2023, turning only mildly contractionary in 2023Q3. Although nominal interest rates peaked around mid-2023, high inflation expectations kept ex ante real rates low.

Takeaways by Macro Roundup® AI

  1. The authors introduce FCI*, the neutral level of overall financial conditions that closes expected output gaps, and find the FCI-based stance and the real rate stance differ in sign over long periods, with the largest discrepancy during the Global Financial Crisis.
  2. Throughout 2010–2020, the real rate stance suggests monetary policy ran the economy hot by setting interest rates well below r*, while financial conditions suggest the effective stance was contractionary.
  3. The FCI-based stance turned sharply contractionary after peaking in accommodation around 2021Q4 and reached its most contractionary point in 2023Q1, whereas the real rate stance suggests policy stayed accommodative into 2023, turning mildly contractionary only in 2023Q3.

Related Articles:

  • Demographics, Wealth, and Global Imbalances in the Twenty-First Century — Because the elderly hold much more wealth than the young and on average do not draw it down much as they age, the authors' model projects no "great demographic reversal": population aging is estimated to push global rates of return down by about 1.07pp and raise global wealth from 456% to 498% of world GDP.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.

AI Summary. The author argues that if U.S. business investment is not constrained by a shortage of savings, net foreign capital inflows must be absorbed through lower domestic saving via higher unemployment or higher debt rather than higher investment. On this view, inflows expand the supply of U.S. debt alongside demand and so do not lower American interest rates.

Michael Pettis China Financial Markets
Date Posted:
Is Database:
Database

If US business investment is not “saving-constrained,” Michael Pettis argues, “the American economy will not adjust to net foreign inflows with higher domestic investment, and therefore it must adjust with lower domestic saving.”

Do foreign capital inflows lower U.S. interest rates?

Core argument: Foreign capital inflows into the United States need not lower U.S. interest rates, because they can force the creation of additional U.S. debt so that increased demand for American debt is matched by increased supply.

If American business investment is not saving-constrained, the American economy will not adjust to net foreign inflows with higher domestic investment, and therefore it must adjust with lower domestic saving. The most likely adjustments that reduce domestic saving involve either higher unemployment or higher debt. Foreign inflows, in other words, can force the creation of additional U.S. debt so that the overall increased demand for American debt is matched by an overall increased supply—and in which case it will not drive down U.S. interest rates. If foreign capital inflows are not driven by the inability of American businesses to fund domestic investment, they must be driven by distortions abroad. That is why not only are these inflows unlikely to lower borrowing costs, they may also, paradoxically, force unwanted changes in the structure of the U.S. economy that create the conditions under which more borrowing becomes necessary just to sustain demand.

Takeaways by Macro Roundup® AI

  1. Foreign capital inflows into the United States need not lower U.S. interest rates, because they can force the creation of additional U.S. debt so that increased demand for American debt is matched by increased supply.
  2. If American business investment is not constrained by a shortage of saving, the U.S. economy adjusts to net foreign inflows not through higher domestic investment but through lower domestic saving, most likely via higher unemployment or higher debt.
  3. Foreign capital inflows not driven by American businesses' inability to fund domestic investment must be driven by distortions abroad, and may force changes in the structure of the U.S. economy that make more borrowing necessary to sustain demand.

Related Articles:

  • Why Global Imbalances Do Matter — From 2008 to 2023 the US household and corporate sectors ran average savings surpluses of 3.5% and 1.6% of GDP respectively, leaving the federal government as the dominant net borrower in the US economy. This suggests the benefit of persistent net capital inflows is the ability to run larger fiscal deficits and grow public debt.
  • Foreign Treasuries Holdings Held Near a Record in April Turmoil — Foreign holdings of US Treasuries totaled $9.01tn, the second-highest on record and down $36bn from the prior month, with the decline mainly reflecting net sales of US notes and bonds by foreign private investors while official entities were net buyers of longer-term Treasuries. Japan remained the largest foreign holder at $1.13tn.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

AI Summary. China's trade surplus has soared over the past five years, including a shift from a deficit to a large surplus in autos, with net vehicle exports exceeding 6m units, and dominance in renewables manufacturing. Its export volume growth has consistently exceeded global trade growth, consistent with economies leaning on exports after a real estate crisis weakens domestic demand.

Brad Setser Council on Foreign Relations
Date Posted:
Is Database:
Database

Brad Setser argues that China’s BoP surplus, which now ~ equals Europe’s, misrepresents its true surplus. China masks exports through foreign subsidiaries and investments, as evidenced by its customs surplus growth.

How has China's trade surplus grown over the past five years?

Core argument: China's net vehicle exports are projected to top 6 million this year and net passenger car exports to exceed 5 million, a reversal from the auto trade deficit China ran as recently as five years ago.

China’s trade surplus has soared in the last five years. That basic statement maps to a host of well-known and easily verified realities. China now runs, for example, a large trade surplus in autos, when it ran a deficit as recently as five years ago. Net vehicle exports will top 6 million vehicles this year, net passenger car exports will easily top 5 million cars. It dominates renewables manufacturing (so much so that President Trump decided to essentially give up and take the U.S. back to the age of fossil fuels). China's export volume growth has consistently exceeded global trade growth. Moreover, it maps to standard economic theory: a large real estate crisis typically leads countries to rely more on exports to make up for the fall in internal demand (ask the IMF…) yet that surplus often seems to disappear when it comes to the statistics on global imbalances.

Takeaways by Macro Roundup® AI

  1. China's net vehicle exports are projected to top 6 million this year and net passenger car exports to exceed 5 million, a reversal from the auto trade deficit China ran as recently as five years ago.
  2. China's trade surplus has soared over the last five years, with export volume growth consistently exceeding global trade growth and China dominating renewables manufacturing.
  3. Standard economic theory holds that a large real estate crisis leads countries to rely more on exports to offset falling internal demand, yet China's surplus often seems to disappear in the statistics on global imbalances.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • Trade With China Is Becoming a One-Way Street — China's import volumes have shown no growth since the end of 2022 while its export volumes rose 33%, according to data from the Netherlands Bureau of Economic Policy Analysis. In dollar terms, Chinese imports fell 11% from the US, 17% from Japan, and 18% from Germany, as Chinese companies replace overseas suppliers with domestic ones.
  • US Trade Policies and the Activity of US Multinational Enterprises in the Euro Area — Euro area affiliates of US multinational companies account for over 5% of euro area value added and 2% of employment, with higher shares in Ireland. The European Central Bank estimates these affiliates were involved in almost 30% of the euro area goods surplus with the US and about 90% of its services deficit.

AI Summary. Americans cut time spent attending or hosting social events by 50% over two decades, with those aged 15-24 spending 70% less time at parties. The decline coincided with a drop in teen drinking: fewer than 50% of high school seniors report ever having had a drink, down from more than 90%.

Derek Thompson Derek Thompson Substack
Date Posted:

In 2024, Americans aged 15–24 spent 70% less time attending or hosting parties than they did in 2003 according to the American Time Use Survey.

Are Americans spending far less time at parties than two decades ago?

Core argument: Americans cut the time spent attending or hosting social events by 50% between 2003 and 2024, with nearly every age group halving its party time over the two decades.

Between 2003 and 2024, the amount of time that Americans spent attending or hosting a social event declined by 50%. Almost every age group cut their party time in half in the last two decades. For young people, the decline was even worse. Last year, Americans aged 15-to-24 spent 70% less time attending or hosting parties than they did in 2003. I cannot ignore the fact that the great American party deficit has coincided with an extraordinary decline in teen drinking. Last year was the first on record, going back to 1975, that fewer than 50% of high school seniors said they’d ever had a drink of alcohol. As recently as 1989, the share was higher than 90%. Eighth graders in the 1980s were more likely to say they had a sip of alcohol in the previous month than today’s 12th graders.

Takeaways by Macro Roundup® AI

  1. Americans cut the time spent attending or hosting social events by 50% between 2003 and 2024, with nearly every age group halving its party time over the two decades.
  2. Americans aged 15–24 spent 70% less time attending or hosting parties in 2024 than in 2003, a steeper decline than other age groups.
  3. Fewer than 50% of U.S. high school seniors reported ever having had a drink of alcohol in 2024, the first such year in records going back to 1975, down from more than 90% in 1989.

Related Articles:

  • The Anti-Social Century — Americans spend less time with other people than in any period with reliable data back to 1965, with in-person socializing down more than 20% from 2003 to 2023 according to the Bureau of Labor Statistics' American Time Use Survey. Among unmarried men and people under 25, the decline exceeded 35%.
  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

Thursday, July 10, 2025

AI Summary. The authors argue US trade deficits persist because foreign investors find US financial assets attractive, but the current deficit level is not sustainable. They estimate that stabilizing the US net foreign liability position requires improving the trade balance by about 2% of GDP, or over 3% if low-cost borrowing privileges are lost.

Tamim Bayoumi and Joseph Gagnon Peterson Institute for International Economics
Date Posted:
Is Database:
Database

Persistent trade deficits at current levels would push our net international investment position beyond levels sustained in any advanced economy. Stabilization will require an adjustment of at least 2% of GDP, implying real exchange depreciation of ~15–20%.

How much must the US trade balance improve to be sustainable?

Core argument: Setting the US net international investment position on a sustainable path requires a trade balance improvement of about 2% of GDP if the dollar's "exorbitant privilege" is maintained, implying a real effective exchange rate depreciation of some 15–20%.

The most persistent driver of US deficits is the attractiveness of US financial assets to foreign investors owing to the central role of the dollar in international transactions and to the perceived safety and creativity of US financial markets. The US net liability position is likely overstated, [but] the present level of the trade deficit is not likely to be sustainable, as it would push the net international investment position [NIIP] (as a ratio to GDP) beyond levels that have been sustained in any advanced economy. The tariff war may reduce the trade deficit by slowing US growth, depreciating the dollar, [but] puts at risk the ability of the United States to finance external debt at low cost [the “exorbitant privilege”], increasing the burden on future generations. Setting the NIIP on a sustainable path requires a substantial but not unprecedented increase in the US trade balance. If exorbitant privilege is maintained, the adjustment is some 2% of GDP, implying a depreciation in the real effective exchange rate of some 15 to 20%. Were the United States to lose its exorbitant privilege, the adjustment rises to over 3% of GDP, implying a larger depreciation and faster accumulation of debt for the same level of the trade balance.

Takeaways by Macro Roundup® AI

  1. Setting the US net international investment position on a sustainable path requires a trade balance improvement of about 2% of GDP if the dollar's "exorbitant privilege" is maintained, implying a real effective exchange rate depreciation of some 15–20%.
  2. Were the United States to lose its exorbitant privilege, the required adjustment rises to over 3% of GDP, implying a larger depreciation and faster debt accumulation for the same level of the trade balance.
  3. The present US trade deficit is not likely sustainable, as it would push the net international investment position relative to GDP beyond levels sustained in any advanced economy, with the most persistent driver being foreign investors' attraction to US financial assets.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • United States’ Changing Net IIP — The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.
  • Sucking The World Dry (The US Dependence on Foreign Inflows) — The author argues that negative net national savings means the United States is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds and by not replacing aging capital. With a negative net international investment position, the author contends U.S. spending depends on continued foreign inflows and that potential growth is declining.

AI Summary. Elevated US 30-year government bond yields are not unique: yields in Japan and the UK have risen sharply, and the US trade-weighted yield differential against its main trading partners has been stable, unlike Japan's and the UK's. The author argues this is inconsistent with a building US political risk premium in long-term yields.

Robin Brooks Robin Brooks Substack
Date Posted:
Is Database:
Database

The rise in long-term Treasury yields likely reflects the global rise in rates rather than a US-specific “Trump risk premium,” Robin Brooks argues, citing the stability of the US trade-weighted yield differential relative to other advanced economies.

Are rising long-term US bond yields a sign of political risk?

Core argument: The US 30-year yield differential versus its main trading partners has been stable this year, which the author argues is inconsistent with a building "Trump risk premium" in long-term yields.

The left chart shows yields on 30-year government bonds for the US (black), the Euro zone (red), Japan (blue), the UK (orange) and Switzerland (pink). For the Euro zone, I construct a GDP-weighted average yield for all countries that issue 30-year debt. This chart already shows that elevated US yields aren’t happening in a vacuum. Yields in many other places - notably Japan and the UK - have been rising sharply, making US yields look well behaved in comparison. The right chart formalizes this. It looks at the trade-weighted yield differential for each country vis-à-vis its main trading partners, where I use trade weights from each central bank’s G10 currency index. The US yield differential is stable so far this year, in contrast to Japan or the UK where it has risen sharply. If a Trump risk premium were building, you’d expect to see the 30-year differential for the US to be rising sharply. That just isn’t the case.

Takeaways by Macro Roundup® AI

  1. The US 30-year yield differential versus its main trading partners has been stable this year, which the author argues is inconsistent with a building "Trump risk premium" in long-term yields.
  2. Thirty-year government bond yields in Japan and the UK have risen sharply, making US long-term yields look well behaved by comparison.
  3. The author constructs a GDP-weighted 30-year yield for Euro zone countries that issue 30-year debt, and trade-weighted yield differentials using trade weights from each central bank's G10 currency index.

Related Articles:

  • Treasury Issuance Growing — US Treasury auction metrics show no current weakness in demand, with stable bid-to-cover ratios and no systematic tailing, even as debt-to-GDP rises, the term premium increases, and the government must refinance $9tn over the next year. The author argues Treasury issuance will keep outgrowing the economy, likely pushing long-term interest rates higher.
  • A Trump Risk Premium in the Dollar — Movements in the trade-weighted US dollar against other major currencies map almost entirely onto changes in forward interest-rate differentials, with the same positive relationship holding across periods despite noisier data. The author argues this leaves no discernible evidence of a separate political risk premium in the dollar.
  • 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.

AI Summary. Americans with more close friends express greater confidence that others behave fairly: 59% of those with no close friends say most people would take advantage of them, versus 29% of those with at least six close friends.

Daniel Cox American Enterprise Institute
Date Posted:

America remains a high-trust society, though Americans with fewer friends report lower trust levels. 79% of Americans with at least 6 friends say strangers would help them if their car broke down, relative to 58% of respondents with no friends.

Do Americans with more close friends trust others more?

Core argument: 59% of Americans with no close friends say most people would try to take advantage of them if given the chance, compared with 29% of Americans reporting at least six close friends.

Americans with more close friends have much higher confidence that people behave fairly in their dealings with others. For instance, nearly six in 10 (59%) Americans with no close friends say that most people would try to take advantage of them if given the chance. Americans with at least six close friends are far less likely to express this view—only 29% say people would try to take this advantage. Most Americans with more close friends believe people generally try to be fair. Similarly, a majority (54%) of Americans with at least six close friends believe that “most of the time people try to help others,” a view shared by only 33% of Americans with no close friends.

Takeaways by Macro Roundup® AI

  1. 59% of Americans with no close friends say most people would try to take advantage of them if given the chance, compared with 29% of Americans reporting at least six close friends.
  2. 54% of Americans with at least six close friends believe that most of the time people try to help others, versus 33% of Americans with no close friends.
  3. Americans with more close friends express higher confidence that people behave fairly in their dealings with others, and most of them believe people generally try to be fair.

Related Articles:

  • Americans’ Trust in One Another — The share of US adults saying "most people can be trusted" fell from 46% in 1972 to 34% in 2018 and stood at 34% in a later survey. Trust is associated with neighborhood characteristics beyond individual demographics, and people who see their neighbors as similar to them racially, politically, and educationally report trusting them more.
  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.
  • Life Under Two: Debt, Deficits, and the AI Discontinuity — The United States averaged annual GDP growth above 3% for decades, but 2% or less is now more likely. Over ten years, the author estimates that gap amounts to a $3.36tn larger economy, $3.7tn more tax revenue, and 6m more jobs, shifting public psychology from abundance toward scarcity.

AI Summary. Under a deal with the largest U.S. rare earths miner, the Defense Department will take a 15% stake, commit billions of dollars to investment and output purchases, and guarantee a price floor for rare earth minerals and magnets. The agreement calls for a new magnet factory, expected online in 2028, at a scale far exceeding current U.S. magnet production.

Jon Emont Wall Street Journal
Date Posted:

The Defense Department is taking a 15% stake in MP Materials, the US’s largest rare earths miner. In exchange, DoD will guarantee a price floor, protection against the possibility that China will flood the market with minerals, depressing world prices.

Can government stakes and price floors build U.S. rare-earth production?

Core argument: The Defense Department will take a 15% stake in MP Materials, America's largest rare earths miner, and commit billions of dollars to investing in the company and purchasing its output.

MP Materials America’s largest rare earths miner has reached a deal under which the Defense Department will take a 15% stake in the company. The government is committing to spending billions of dollars investing in MP Materials and purchasing its output. The deal calls for MP Materials to build a new factory to make rare-earth magnets at a scale that vastly exceeds current U.S. magnet production. It is expected to come online in 2028. In its deal with MP Materials, the Department of Defense is guaranteeing a price floor for rare earth minerals and magnets. That means the company is protected against a scenario in which China fully withdraws its restrictive export policies and the minerals flood into the market, lowering global prices.

Takeaways by Macro Roundup® AI

  1. The Defense Department will take a 15% stake in MP Materials, America's largest rare earths miner, and commit billions of dollars to investing in the company and purchasing its output.
  2. MP Materials will build a rare-earth magnet factory at a scale that vastly exceeds current U.S. magnet production, expected to come online in 2028.
  3. The Defense Department is guaranteeing a price floor for rare earth minerals and magnets, protecting MP Materials if China fully withdraws its restrictive export policies and the minerals flood the market, lowering global prices.

Related Articles:

  • China’s Weaponisation of Rare Earths is a New Kind of Trade War — China's export controls on rare earth materials and magnets threatened to halt production across the auto industry, the largest manufacturing sector in most advanced economies, and forced Washington to negotiate on tariffs. Despite China's well-known dominance of rare earth production, Western governments and companies have not developed alternative suppliers.
  • China Found World’s Pain Point on Trade – and Will Use It Again — China's export permitting system for rare earths and other critical minerals is detailed enough that Beijing is developing a granular understanding of where every kilogram it produces ends up and why. Bottlenecks emerged as China slowed approvals for magnets containing even minuscule amounts of seven rare earths, alongside limits on sales of the raw elements.
  • China Fast Tracks Rare Earth Export Licences for European Companies — China has agreed to fast-track rare earth export licence approvals for some European companies after its export controls on the critical minerals disrupted global supply chains and slowed deliveries for manufacturers of goods from cars to washing machines. China's commerce minister urged the European Union to facilitate trade in high-tech products to China.