Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
  • “…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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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 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
  • “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
  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, July 17, 2025

AI Summary. The average rich-country government runs a fiscal deficit above 4% of GDP, well above the norm of the 1990s and 2000s, alongside large off-balance-sheet contingent liabilities that in the US exceed 5x GDP. With governments backstopping so much of the economy, recessions have become infrequent.

Economist Staff The Economist
Date Posted:
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“Many countries now have vast ‘contingent liabilities’ – off-balance-sheet commitments that nonetheless represent an enormous potential outlay.” The U.S. government “is on the hook for contingent liabilities worth more than 5X the country’s GDP.”

Are large government deficits and backstops making recessions rare?

Core argument: The average rich-country government runs a fiscal deficit of over 4% of GDP, far above the norm in the 1990s and 2000s, with politicians spending big even absent bad news.

Even when there is no bad news, politicians spend big just to be sure. The average rich-country government now runs a fiscal deficit of over 4% of GDP, far above the norm in the 1990s and 2000s. Their support goes beyond budget deficits, which are simple to measure. Many countries now have vast “contingent liabilities”—off-balance-sheet commitments that nonetheless represent an enormous potential outlay. America’s federal government is on the hook for contingent liabilities worth more than five times the country’s GDP. When the feds are backstopping the entire economy, it is hardly surprising that recessions are few and far between.

Takeaways by Macro Roundup® AI

  1. The average rich-country government runs a fiscal deficit of over 4% of GDP, far above the norm in the 1990s and 2000s, with politicians spending big even absent bad news.
  2. The American federal government carries contingent liabilities—off-balance-sheet commitments representing an enormous potential outlay—worth more than five times the country's GDP.
  3. With the federal government backstopping the entire economy, recessions are few and far between.

Related Articles:

  • The World Is Getting Riskier. Americans Don’t Want to Pay for It — Americans' resistance to paying to insure against risks from illness, old age, and natural and financial disasters is growing alongside those risks; JPMorgan estimated wildfires around Los Angeles caused $50bn in losses, of which only $20bn were insured. Socializing risk removes the price signal that encourages the insured to mitigate their own exposure.

AI Summary. Monthly core goods inflation — a category making up about 25% of the core consumer price index basket — ran roughly 80 basis points above its typical seasonal level, which the author attributes to tariffs. The author argues this effect will keep building as pre-tariff inventories are depleted and transshipments are curbed.

Robin Brooks Robin Brooks Substack
Date Posted:

“Monthly core goods inflation in June 2025 was ~80bps above where it normally is at this time of year.” Robin Brooks notes that as pre-tariff inventories are depleted and the administration cracks down on transshipments, goods prices will rise.

Are tariffs beginning to push core goods inflation above normal?

Core argument: Monthly core goods inflation in June 2025 ran about 80 basis points above its normal level for that time of year, compared with 2023, 2024, and the median monthly path across 2000–2019.

The tariff inflation shock looks like it really got going in [this weeks] CPI data for June. The top left chart shows monthly inflation for core goods, a category that makes up about 25% of the core CPI basket. The chart shows monthly inflation so far in 2025 (purple line), along with monthly inflation rates in 2024 (blue line) and 2023 (red line) as well as the median inflation rate throughout the calendar year for 20 years of data from 2000 to 2019. Monthly core goods inflation in June 2025 was around 80 bps above where it normally is at this time of year, which is substantial. This effect will keep building in intensity as pre-tariff inventories are depleted and as the administration cracks down on transshipments, as in the trade deal with Vietnam.

Takeaways by Macro Roundup® AI

  1. Monthly core goods inflation in June 2025 ran about 80 basis points above its normal level for that time of year, compared with 2023, 2024, and the median monthly path across 2000–2019.
  2. Core goods, the category showing the June 2025 inflation jump, makes up roughly 25% of the core CPI basket.
  3. The tariff inflation effect is expected to keep building in intensity as pre-tariff inventories are depleted and as the administration cracks down on transshipments, as in the trade deal with Vietnam.

Related Articles:

  • How China Gets Around US Tariffs — China's exports to Indonesia, Malaysia, Thailand and Vietnam hit record highs while its imports from them stayed subdued, which the author reads as evidence of transshipment to circumvent US tariffs. The author argues that as long as US demand stays strong, Chinese goods will reach the US, and decoupling would require curbing domestic demand.
  • Vietnam Trade Deal Takes Aim at Back Door for Chinese Goods — A US trade deal with Vietnam applies a 40% tariff to goods transshipped through Vietnam, twice the 20% rate on regular Vietnamese imports. The US goods trade deficit with Vietnam has grown to more than $120bn, behind only China and Mexico, while Vietnam's imports from China rose 28% and its exports to the US rose 26% year over year.
  • China Emerges From Trade Chaos With Record Exports, Surplus — China posted a record half-year trade surplus of about $586bn, with exports up 5.8% year-over-year to $325bn and imports up 1.1%. Shipments to the US fell 16.1% from a year earlier, while exports to the 10 Southeast Asian nations in the Asean group rose 17%.

AI Summary. The estimated population of predominantly rural European Union regions fell by nearly 8mn, or 8.3%, over a decade while urban population rose by more than 10mn, or 6%. Regions covering about 40% of the EU's land area and holding almost one-third of its population are seeing sustained resident declines.

Valentina Romei and Barney Jopson Financial Times
Date Posted:

Between 2014 and 2024, rural areas in the EU lost 8.3% of its population due to falling birth rates and internal migration. The OECD warns this “creates political discontent.”

Are Europe's rural regions losing population while cities grow?

Core argument: The estimated population of predominantly rural EU regions fell by nearly 8mn in the decade to 2024, a drop of 8.3%, while the urban population rose by over 10mn, or 6%.

In the decade to 2024, the estimated number of people living in predominantly rural EU regions fell by nearly 8mn, an 8.3% drop, while the urban population rose by over 10mn, or 6%. Regions making up about 40% of the EU’s land area and containing almost one-third of its population, are experiencing a sustained drop in residents. This is not simply a concern for those left behind in the emptying rural communities, says Lamia Kamal-Chaoui, director at the OECD’s Centre for Regions and Cities. Depopulation threatens Europe’s cultural heritage, local languages, cuisines, crafts, farmland, traditions and even national security. It carries a wider cost to society, generating “a geography of discontent, which in turn creates political discontent, social discontent, putting our democracy in danger”, says Kamal-Chaoui.

Takeaways by Macro Roundup® AI

  1. The estimated population of predominantly rural EU regions fell by nearly 8mn in the decade to 2024, a drop of 8.3%, while the urban population rose by over 10mn, or 6%.
  2. Regions covering about 40% of the EU's land area and holding almost one-third of its population are experiencing a sustained decline in residents.
  3. Lamia Kamal-Chaoui, director at the OECD's Centre for Regions and Cities, says depopulation threatens Europe's cultural heritage, local languages, cuisines, crafts, farmland, traditions and national security, and generates "a geography of discontent" that puts democracy in danger.

Related Articles:

  • Italy’s Exodus of Young Talent Worsens Population Squeeze — Italy's official statistics agency reports that nearly 191,000 people left the country in a year, the highest in 25 years, with the share of emigrants holding at least a college degree rising from one in three a decade earlier to half. Italy's working-age population is forecast to fall another 5mn by 2040.
  • The Economic and Political Dynamics of Rural America — Population growth in the average rural US county reached 0.4% and surpassed that of the average urban county, while the share of rural counties losing population fell from two-thirds in 2012 to under half. The growth is concentrated in rural counties near major urban centers and in recreation and retirement destinations.
  • Germany Joins EU’s ‘Ultra-Low’ Fertility Club — Germany's fertility rate fell to 1.35 children per woman, below the United Nations' "ultra-low" threshold of 1.4, a level at which falling birth rates become difficult to reverse. Estonia and Austria also dropped below 1.4, joining nine European Union countries including Spain, Greece, and Italy, while France's rate fell to a record-low 1.67 and Finland's to 1.26.

AI Summary. TSMC says it is accelerating construction of its second and third Arizona plants by several quarters to meet strong U.S. customer demand for smartphone and AI computing chips. The company has committed an additional $100bn to build five more facilities in the state and expects around 30% of its 2-nanometer and more advanced capacity to be located in Arizona.

Cheng Ting-Fang and Lauly Li Nikkei Asia
Date Posted:

TSMC will attempt to accelerate construction of its second and third Arizona plants to meet American demand; the plants will enable TSMC to manufacture ~30% of its most advanced chips in Arizona.

Is US demand for AI chips accelerating advanced chip manufacturing onshore?

Core argument: TSMC is accelerating construction of its second and third Arizona plants by "several quarters" to meet demand from U.S.-based customers for smartphone and AI computing chips.

TSMC. says it is speeding up construction of its second and third plants in Arizona "by several quarters" to meet robust demand from U.S.-based customers for smartphone and AI computing chips. The world's largest contract chipmaker committed earlier this year to an additional $100 billion investment to build five more facilities in the state, including two chip packaging plants and the industry’s most advanced chip production of 2-nanometers and better. "After completion, around 30% of our 2-nanometer and more advanced [chip] capacity will be located in Arizona, creating an independent, leading-edge semiconductor manufacturing cluster in the U.S.,” TSMC Chairman and CEO C.C. Wei told investors and reporters in an earnings conference on Thursday.

Takeaways by Macro Roundup® AI

  1. TSMC is accelerating construction of its second and third Arizona plants by "several quarters" to meet demand from U.S.-based customers for smartphone and AI computing chips.
  2. TSMC committed an additional $100 billion to build five more Arizona facilities, including two chip packaging plants and production of 2-nanometer and more advanced chips.
  3. TSMC Chairman and CEO C.C. Wei said around 30% of the company's 2-nanometer and more advanced chip capacity will be located in Arizona after completion, creating an independent, leading-edge semiconductor manufacturing cluster in the U.S.

Related Articles:

  • TSMC’s Arizona Chip Production Yields Surpass Taiwan’s in Win for US Push — Taiwan Semiconductor Manufacturing Co. reports that the share of usable chips produced at its Phoenix, Arizona plant is about 4 percentage points higher than at comparable factories in Taiwan. Yield is a critical industry measure because it determines whether companies can cover the enormous costs of a chip plant.
  • The Chips Act Has Been Surprisingly Successful So Far — The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.

Friday, July 18, 2025

AI Summary. Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.

Paul Kedrosky Applied Complexity
Date Posted:
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Kedrosky estimates capex related to the datacenter buildout is ~20% of the railroad buildout in the 1880s and rising, though he cautions AI datacenter depreciation is high: “we aren’t building century-long infrastructure…datacenters are short-lived.”

How does AI data center spending compare with past infrastructure booms?

Core argument: AI data center capital expenditures run at roughly 20% of the peak spending on railroads as a share of GDP and are still rising quickly, having already surpassed the dot-com-era peak in telecom spending.

Capital expenditures on AI data centers is likely around 20% of the peak spending on railroads, as a percentage of GDP, and it is still rising quickly. And we've already passed the decades ago peak in telecom spending during the dot-com bubble. Regardless of what one thinks about the merits of AI or explosive datacenter expansion, the scale and pace of capital deployment into a rapidly depreciating technology is remarkable. These are not railroads—we aren’t building century-long infrastructure. AI datacenters are short-lived, asset-intensive facilities riding declining-cost technology curves, requiring frequent hardware replacement to preserve margins. And this surge has unintended consequences. Private capital expenditures don't, for the most part, come from nowhere. While governments can print money to spend, companies generally can't. Capital is being aggressively reallocated—from venture funding to internal budgets—at the expense of other sectors.

Takeaways by Macro Roundup® AI

  1. AI data center capital expenditures run at roughly 20% of the peak spending on railroads as a share of GDP and are still rising quickly, having already surpassed the dot-com-era peak in telecom spending.
  2. Unlike century-long railroad infrastructure, AI data centers are short-lived, asset-intensive facilities on declining-cost technology curves that require frequent hardware replacement to preserve margins.
  3. Private capital for the AI buildout is being reallocated from venture funding to internal corporate budgets at the expense of other sectors, since companies, unlike governments, cannot print money to spend.

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.
  • AI Adoption Is Accelerating In 2025 — Nvidia's data center revenue growth is used as a simple extrapolation to project the broader capital-expenditure impact of AI-specific investment on GDP. The aim is not precision but a timely sense of whether the growth contribution from AI capital spending is accelerating or potentially peaking.
  • SPVs, Credit, and AI Datacenters — Companies funding AI data centers through jointly owned special purpose vehicles keep the borrowing off their own balance sheets while retaining shared control and use of the facilities. AI data center spending already exceeds telecom spending during the dot-com bubble, and weak returns would quickly wipe out the thin equity cushion above the vehicles' debtholders.

AI Summary. The US unemployment rate for recent male graduates has risen from below 5% to 7% over the past year while the rate for recent female graduates is unchanged or slightly lower, leaving young male graduates jobless at the same rate as non-graduates. Entry-level coding employment, however, has rebounded.

John Burn-Murdoch Financial Times
Date Posted:
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The unemployment rate for recent male college graduates (22–27) has risen from <5% to 7%. Recent male graduates “are now unemployed at the same rate as their non-graduate counterparts,” while the rate for their female peers is unchanged.

Is rising graduate unemployment concentrated among young men?

Core argument: Unemployment among recent male US graduates has risen from under 5% to 7% over the past 12 months, while joblessness for recent female graduates is unchanged or slightly falling.

The unemployment rate for recent male graduates has risen steeply from less than 5% to 7% over the past 12 months. For young female graduates in the US, joblessness is unchanged over the same period, if not falling slightly. Most striking of all, recently graduated young men are now unemployed at the same rate as their non-graduate counterparts, completely erasing the college employability premium. At first glance, this lines up neatly with the theory that we’re looking at the leading edge of a wave of AI-driven job displacement. But drill down into sector-specific employment, and the evidence doesn’t seem to fit the narrative. The much-remarked-upon contraction in hiring entry-level programmers and software developers in the US has sharply reversed in recent months. In fact, relative to the pre-generative AI era, early-career coding employment is now tracking ahead of the rest of the economy.

Takeaways by Macro Roundup® AI

  1. Unemployment among recent male US graduates has risen from under 5% to 7% over the past 12 months, while joblessness for recent female graduates is unchanged or slightly falling.
  2. Recently graduated young men in the US are unemployed at the same rate as their non-graduate counterparts, erasing the college employability premium.
  3. The contraction in US hiring of entry-level programmers and software developers has sharply reversed, with early-career coding employment now tracking ahead of the rest of the economy relative to the pre-generative-AI era.

Related Articles:

  • Educated but Unemployed, a Rising Reality for College Grads — Recent college graduates aged 22–27 account for 12% of the 60 basis-point rise in US unemployment, more than twice their 5% share of the labor force. In computer and mathematical occupations, employment for that age group has fallen 8% since 2022 while older workers' employment grew 0.8%.
  • 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.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.

AI Summary. Nominal wage income is growing about 1–1.5 percentage points faster than before the pandemic, implying somewhat more inflation than in 2017–2019 if most of that extra income is spent and businesses cannot ramp up production. Cutting interest rates enough to reverse the budget deficit increase, without offsetting fiscal tightening, would be extraordinarily inflationary.

Matt Klein The Overshoot
Date Posted:

Wage growth for the typical US worker has been steady at 1–1.5pp above the pre-pandemic level, paralleling inflation. Matt Klein argues Trump’s desired 300bp drop in the FFR to lower the costs of debt service would be “extraordinarily inflationary.”

Does faster nominal wage growth mean more inflation ahead?

Core argument: Nominal wage income is rising about 1–1.5 percentage points faster than before the pandemic, which implies somewhat more inflation than in 2017–2019 so long as most of that extra income is spent and businesses have not improved their ability to ramp up production.

Nominal wage income is still rising about 1-1.5 percentage points faster than before the pandemic. That means somewhat more inflation relative to 2017-2019 as long as the bulk of this extra income is spent on goods and services, and as long as businesses have not magically improved their ability to ramp up production of goods and services significantly since the pandemic. In theory, there is a set of interest rates on federal government debt that would reverse the increase in the budget deficit and potentially prevent public debt from rising relative to national income. The problem is that lowering interest rates by that much [Trump has said the FFR is "at least 3 points too high"] without an offsetting fiscal tightening would be extraordinarily inflationary. If interest rates fell, spending would likely pop as households saved less and monetized a big chunk of the wealth that has been built up over the past five years.

Takeaways by Macro Roundup® AI

  1. Nominal wage income is rising about 1–1.5 percentage points faster than before the pandemic, which implies somewhat more inflation than in 2017–2019 so long as most of that extra income is spent and businesses have not improved their ability to ramp up production.
  2. Cutting interest rates enough to reverse the increase in the budget deficit, without offsetting fiscal tightening, would be extraordinarily inflationary, though in theory a set of rates on federal debt exists that could keep public debt from rising relative to national income.
  3. Trump has said the federal funds rate is "at least 3 points too high," but lower interest rates would likely cause spending to pop as households saved less and monetized a large share of the wealth built up over the past five years.

Related Articles:

  • U.S. Inflation Still Robust Even Before Tariff Impact — U.S. consumer price inflation has run at a 2.3% annualized rate, close to the pre-pandemic average of 2.1%, but personal consumption price and hourly pay data suggest underlying inflation is stuck 1–1.5 percentage points above its pre-pandemic pace. Producer price data for manufactured goods point to upside inflation risk from higher input costs.
  • The Tariff Inflation Shock Starts To Hit — Monthly core goods inflation — a category making up about 25% of the core consumer price index basket — ran roughly 80 basis points above its typical seasonal level, which the author attributes to tariffs. The author argues this effect will keep building as pre-tariff inventories are depleted and transshipments are curbed.
  • 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.

AI Summary. France's government proposed a €44bn fiscal package for 2026 that freezes spending across government except defence, freezes pensions and welfare benefits, tightens unemployment benefit eligibility, and scraps two national holidays to raise an estimated €4.2bn. The plan aims to narrow a deficit of 5.85% of GDP to 4.6%, a target analysts doubt will be met.

Leila Abboud Financial Times
Date Posted:

A fiscal package spearheaded by French premier Bayrou and intended to reduce the government’s budget deficit from 5.8% of GDP to 4.6% will likely result in a no confidence vote. Socialists “cannot accept” cuts and freezes to welfare programs.

Can a spending freeze and scrapped holidays narrow France's deficit?

Core argument: French premier François Bayrou outlined a €44bn fiscal package for 2026 that freezes spending across all areas of government except defence, including pensions and social welfare benefits, and tightens unemployment benefit eligibility.

French premier François Bayrou unveiled the outlines of a €44bn fiscal package for 2026 that includes a spending freeze on all areas of government, excluding defence, as well as on pensions and social welfare benefits. Among a raft of measures, he also said he wanted to scrap two days of national holiday to generate an estimated €4.2bn more revenue, an idea that prompted howls across the opposition. He suggested cutting Easter Monday and Victory in Europe Day on May 8. Another pledge was to tighten eligibility for unemployment benefits, which has been done twice since 2019 under Macron. The country’s deficit ballooned to 5.85% of GDP last year, the second worst in the Eurozone after Slovakia. The aim is to begin to narrow the deficit to 4.6% next year, although the overall national debt will continue to rise in the coming years. Analysts doubt that Bayrou will hit the 2026 target. Borrowing costs have ticked higher and risk squeezing out other areas of government spending. Interest paid on the national debt reached €44.5bn last year, according to the finance ministry, which is roughly the size of the defence budget.

Takeaways by Macro Roundup® AI

  1. French premier François Bayrou outlined a €44bn fiscal package for 2026 that freezes spending across all areas of government except defence, including pensions and social welfare benefits, and tightens unemployment benefit eligibility.
  2. Bayrou proposed scrapping two national holidays, Easter Monday and Victory in Europe Day on May 8, to generate an estimated €4.2bn in additional revenue, drawing objections across the opposition.
  3. France's deficit reached 5.85% of GDP last year, the second worst in the Eurozone after Slovakia, and Bayrou aims to narrow it to 4.6% next year, a target analysts doubt he will hit.

Related Articles:

  • French Government Under Pressure as Pension Talks Stumble — Talks between French labor unions and business groups on revising the law raising the minimum retirement age from 62 to 64 ended in deadlock, with some opposition parties calling for a no-confidence vote. The government says France needs another €40bn ($46bn) of savings in its 2026 budget, mainly from spending cuts.
  • 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.
  • Why Denmark is Raising its Retirement Age to 70, Europe’s Highest — Denmark's state pension age is tied to life expectancy under a parliamentary agreement that sets adjustments every five years with 15 years' notice and caps increases at one year at a time. Under this system the pension age is set to rise from 67 to 70, keeping public finances healthy long term.

AI Summary. The author argues China has been resisting pressure for the yuan to appreciate against the dollar, citing state bank foreign asset accumulation, balance of payments data, a yuan trading strong relative to its official fix, and positive foreign exchange settlement. Inflows from China's large trade surplus exceed private capital outflows.

Brad Setser Council on Foreign Relations
Date Posted:

China’s state commercial banks added $47 billion to their net foreign asset position in June. Brad Setser argues “the preponderance of evidence suggests that China has been resisting pressure on its currency to appreciate” against the dollar.

Is China resisting upward pressure on its currency?

Core argument: China's state commercial banks added $47 billion to their net foreign asset position in June, which the author reads as evidence that China has been resisting pressure for the yuan to appreciate against the dollar for most of the past year.

For a while now the smart take on China’s currency has been that, if anything, China has been propping its currency up. But the overarching conclusion that the yuan is under pressure to depreciate against the dollar is now, in my view, out of date. The preponderance of evidence suggests that China has been resisting pressure on its currency to appreciate (against the dollar) for most of the past year (the main exception is the month of April, when the U.S. briefly raised tariffs on China to 145%). Consider the following: a) China’s state commercial banks added $47 billion to their net foreign asset position in the month of June. b) The balance of payments data, which covers the policy banks as well, tells a similar story. The yuan is now trading strong relative to the fix. c) FX settlement, which lagged the formal balance sheet numbers, has also now turned positive. These data points all paint a consistent picture: one where the inflows from China’s massive trade surplus ($115 billion of goods in June, which translates to roughly $100 billion in goods and services if June services trade maps to trend) are even larger than the desire of private Chinese firms and investors to get money out of China.

Takeaways by Macro Roundup® AI

  1. China's state commercial banks added $47 billion to their net foreign asset position in June, which the author reads as evidence that China has been resisting pressure for the yuan to appreciate against the dollar for most of the past year.
  2. China's June goods trade surplus of $115 billion, roughly $100 billion in goods and services if June services trade maps to trend, exceeds the desire of private Chinese firms and investors to move money out of China, in the author's assessment.
  3. Balance of payments data covering the policy banks, a yuan trading strong relative to the fix, and FX settlement turning positive together suggest appreciation pressure, with the main exception the month of April, when the U.S. briefly raised tariffs on China to 145%.

Related Articles:

  • China Chooses Deflation — China's headline consumer price inflation has fallen below zero and core inflation is little better, and the author argues US tariffs will hasten this deflationary dynamic. Because easing monetary policy would weaken the Yuan against the Dollar, China is accepting deflation instead, which the author argues means rising real interest rates.
  • Asia’s $7.5 Trillion Bet on US Assets Is Suddenly Unravelling — Asia's 11 largest economies have accumulated $7.5tn in US stocks and bonds, but their annual capital flows into the US fell to $68bn, equal to just 11% of their trade surpluses with the US. Their major currencies, including the yen and yuan, trade on average 57% below exchange rates adjusted for living-cost differences.

AI Summary. China plans to pay a national subsidy of 3,600 yuan (about $500) per child annually until age 3, totaling roughly 100bn yuan, or less than 0.1% of its economic output. Researchers involved in the policy discussions say the amount is half or less of what demographers and economists proposed.

Liyan Qi Wall Street Journal
Date Posted:

To increase China’s fertility rate of 1, Beijing is planning a child subsidy of $500 a year for the first three years of a child’s life. The number of newborns will likely drop to <9mm this year, less than 50% of the 2016 level.

Is China's new birth subsidy large enough to raise fertility?

Core argument: Beijing plans a basic national subsidy of 3,600 yuan (about $500) per child each year until age 3, costing about 100 billion yuan, or less than 0.1% of China's GDP, with no clear start date.

Beijing plans to pay a basic national subsidy of 3,600 yuan (about $500) per child each year until the age of 3. It is unclear when the subsidies would start. Huang Wenzheng, chief researcher of YuWa Population Research Institute, a think tank that was involved in the policy discussions, said the planned subsidy is half or less of what Chinese demographers, economists and researchers proposed. Huang thinks that the planned spending—about 100 billion yuan, or less than 0.1% of China’s GDP—must be 50 times higher to return the fertility rate to the replacement level of around 2.1. The number of newborns in China had plunged for six straight years before a slight, short-term rebound last year following Beijing’s end to Covid-19 restrictions. But only 6.1 million couples registered their marriages in 2024, a 21% fall from the previous year, the latest official data show, marking a record low since the government started releasing such statistics in 1986. The number of newborns will likely drop further this year, below nine million, demographers say, less than half the level of 2016, when China allowed couples to have two children for the first time since the one-child policy was implemented nationwide in 1980.

Takeaways by Macro Roundup® AI

  1. Beijing plans a basic national subsidy of 3,600 yuan (about $500) per child each year until age 3, costing about 100 billion yuan, or less than 0.1% of China's GDP, with no clear start date.
  2. Huang Wenzheng of YuWa Population Research Institute says the planned subsidy is half or less of what Chinese demographers, economists and researchers proposed, and that spending must be 50 times higher to return fertility to the replacement level of about 2.1.
  3. Only 6.1 million Chinese couples registered marriages in 2024, a 21% fall from the previous year and a record low since 1986, and demographers say newborns will likely drop below nine million this year, less than half the 2016 level.

Related Articles:

  • The Power of Demography and the Fate of East Asia — East Asia's total population has peaked and is projected to decline for at least a generation, with the pace of decline likely accelerating each decade, while US population is projected to keep growing for decades. The author argues such sustained divergence can shift the global balance of power.
  • ‘No Marriage, No Children’ Is China’s Ticking Timebomb — China registered about 6.1m marriages in its most recent year, the lowest since public records began in 1986 and less than half the 2013 peak, with roughly 30% of 30-year-olds unmarried versus 15% a decade earlier. Births of 9.54m were the second-lowest since the People's Republic of China was founded in 1949.
  • China Steps Up Campaign For Single People to Date, Marry and Give Birth — Local officials in China are calling married women in their 20s and early 30s to ask about family plans, urge prenatal check-ups, and offer subsidies for additional children, with one resident reporting an Rmb100,000 ($14,000) offer for a second child. State-run outlets have promoted claims that childbirth benefits maternal health.