Edward Conard

Top Ten New York Times Bestselling Author

  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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
  • “…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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, July 21, 2025

AI Summary. In a randomized trial, parents receiving $1,000 per month in unconditional cash for three years spent more on their children monthly and reported better parenting behaviors, such as closer supervision, than parents receiving $50 per month. The transfer had no meaningful effect on most educational outcomes, the home environment, child food security, homelessness, or parental satisfaction.

Patrick Krause, Elizabeth Rhodes, Sarah Miller, Alexander Bartik, et al. National Bureau of Economic Research
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A randomized experiment giving 1,000 parents an unconditional $1K/month over 3 years found essentially no differences in family outcomes; treated children showed no significant gains in well-being or education.

Do unconditional cash transfers improve children's outcomes?

Core argument: Parents randomly assigned a $1,000 per month unconditional cash transfer for three years spent more on their children monthly and reported better parenting behaviors, such as closer supervision, than parents receiving $50 per month.

Parents who were randomly selected to receive a $1,000 per month unconditional cash transfer for three years spent more on their children each month and reported better parenting behaviors (such as supervising their children more closely) compared to those randomized to receive $50 per month. The transfer did not have a meaningful effect on most educational outcomes measured in school administrative records, nor did it affect characteristics of the home environment, child food security, exposure to homelessness, or parental satisfaction. Figure A3 shows no significant effect of the transfer on the home environment overall in any year, nor on the probability a child is unhoused. It appears that child food insecurity is [actually] significantly worse for transfer recipients in the third year of the transfer and close to zero in the first two years, [though] this third year effect on child food security does not remain significant after adjusting inference for False Discovery Rates due to repeated testing. Among adult participants, food security improves significantly as a result of the transfer in the first year but worsens over time. Treated families were more likely to move, [but] we did not detect changes in most measures of neighborhood quality,

Takeaways by Macro Roundup® AI

  1. Parents randomly assigned a $1,000 per month unconditional cash transfer for three years spent more on their children monthly and reported better parenting behaviors, such as closer supervision, than parents receiving $50 per month.
  2. The $1,000 monthly transfer had no meaningful effect on most educational outcomes in school administrative records, nor on the home environment, child food security, exposure to homelessness, or parental satisfaction.
  3. Adult food security improved significantly in the first year of the transfer but worsened over time, and child food insecurity was significantly worse for recipients in year three, a result that does not survive False Discovery Rate adjustment.

Related Articles:

AI Summary. Bank of America internal data show median household property insurance payments (auto and home) rose 6% year-over-year and more than 40% over five years, lifting such payments to 5% of income. Younger generations saw the largest increases, though Gen X payments also rose 45%.

David Michael Tinsley and Taylor Bowley Bank of America
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According to Bank of America internal data, median annual property insurance (auto and housing) payments have risen from 4% of household income to 5% over the past four years.

Are rising property insurance costs taking a bigger share of household income?

Core argument: Median property insurance payments for auto and housing rose 6% year-over-year in the year through May 2025 and by over 40% since June 2020–May 2021, according to Bank of America internal data.

Property [auto and housing] insurance payment growth slowed in the year through May 2025, according to Bank of America internal data. But median payments still rose 6% year-over-year and by over 40% since the period June 2020-May 2021. This has taken household property insurance payments as a percentage of income up to 5%. It is not a surprise, perhaps, that younger generations have seen the largest property insurance payment increase. These younger groups, especially Gen Z and Millennials, may be at a stage in their life where they need more space, leading them to buy bigger and more expensive homes and vehicles. But it is noteworthy, in our view, that even Gen X has seen a rise in property insurance payments of 45% relative to June 2020-May 2021.

Takeaways by Macro Roundup® AI

  1. Median property insurance payments for auto and housing rose 6% year-over-year in the year through May 2025 and by over 40% since June 2020–May 2021, according to Bank of America internal data.
  2. Household property insurance payments have reached 5% of income, with Bank of America internal data showing payment growth slowed in the year through May 2025 even as levels kept rising.
  3. Gen Z and Millennials recorded the largest property insurance payment increases, which Bank of America suggests may reflect a life stage requiring more space and thus bigger homes and vehicles, while Gen X payments rose 45% relative to June 2020–May 2021.

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.
  • Catastrophe Bond Sales Hit Record as Insurers Offload Climate Risks — Insurers are issuing catastrophe bonds, which transfer risk from events such as wildfires, hurricanes and earthquakes to bondholders, at a record pace, with issuance reaching $18.1bn against a prior full-year record of $17.7bn. A Swiss Re index of total returns on these bonds has risen 14% over the past year.
  • Reinsurers Little Exposed to LA Fires After Retreat From Disaster Risks — Citi analysts estimate reinsurers could absorb less than 3% of insured losses from the Los Angeles wildfires. Reinsurers' share of modelled catastrophe risk has fallen from about 46% over the past 25 years to 33%, following years of wildfire losses that led major reinsurers to reduce their appetite for such risks.

AI Summary. A revamped wage tracker estimates China's wage growth slowed to 4.2% year-over-year in the first quarter and 3.9% in the second, down from 4.5% in the prior fourth quarter and about 1 percentage point below official figures. The authors argue sluggish wage growth may weigh on consumption growth.

Andrew Tilton, Hui Shan, Lisheng Wang, Xinquan Chen, et al. Goldman Sachs
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A GS analysis finds as of Q2, Chinese wages grew 3.9% y/y, ~ 1pp lower than the official level. The Goldman estimates would be the lowest Chinese wage growth on record, excluding the pandemic period.

Is China's wage growth slowing more than official figures show?

Core argument: A revamped wage tracker puts China's wage growth at 4.2% yoy in Q1 and 3.9% in Q2, down from 4.5% in Q4, with the Q2 reading the lowest outside the Covid pandemic.

Our revamped wage tracker suggests the wage growth has been trending down since 2023Q1 when China exited its zero-Covid policy. Most recently, China’s wage growth slowed to 4.2% yoy and 3.9% yoy in Q1 and Q2, respectively, from 4.5% yoy in Q4 last year. These are around 1pp lower than the official wage growth so far this year (vs. 5.2% and 4.7% yoy in Q1 and Q2, respectively, according to the wage component of NBS disposable income). The 3.9% yoy wage tracker in Q2 is the lowest reading outside of the Covid pandemic. Despite the 5.2% real GDP growth in Q2, our wage tracker suggests that sluggish wage growth may impose headwinds to consumption growth in the second half of 2025.

Takeaways by Macro Roundup® AI

  1. A revamped wage tracker puts China's wage growth at 4.2% yoy in Q1 and 3.9% in Q2, down from 4.5% in Q4, with the Q2 reading the lowest outside the Covid pandemic.
  2. The revamped tracker runs around 1pp below official figures, which show wage growth of 5.2% yoy in Q1 and 4.7% in Q2 according to the wage component of NBS disposable income.
  3. Wage growth has trended down since 2023Q1, when China exited its zero-Covid policy, and despite 5.2% real GDP growth in Q2 the tracker suggests sluggish wages may impose headwinds to consumption growth in the second half of 2025.

Related Articles:

  • 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%.
  • Why China’s White-and Blue-Collar Workers Are Worried About Losing Their Shirts — Chinese workers across industries, age groups, and income brackets report fear of layoffs, shrinking wages, and few alternative job options. China's urban unemployment rate was 5%, below the government's 5.5% official target, while joblessness among those aged 16 to 24 excluding students was 14.9%, up from 14.2% a year earlier.
  • China is Suffering its Own ‘China Shock’ — Academic analysis of 12 labour-intensive Chinese manufacturing industries estimates average employment fell about 14%, or nearly 4mn jobs, between 2011 and 2019, with textile roles down 40%; a further analysis of the same sectors found 3.4mn more jobs lost through 2023. Researchers argue industrial upgrading and automation are cutting demand for lower-skilled workers and depressing their wages.

AI Summary. China's growth in its share of global manufacturing has slowed from roughly 1.5 percentage points per year in the early 2010s to just over 0.5 percentage points annually, about one-third the earlier pace. The author argues China's share of global manufacturing is likely near its peak.

Jonathan Sine Cogitations
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Jonathan Sine argues China’s global manufacturing share is likely near its peak as growth has slowed from 1.5% to 0.5% btw 2010 and today due to deglobalization and intensified countermeasures against Chinese industrial policy.

Is China's share of global manufacturing near its peak?

Core argument: China's gains in global manufacturing share have slowed to just over 0.5 percentage points per year on a five-year rolling average, about one-third the roughly 1.5 points annually recorded in the early 2010s.

China’s share of global manufacturing is likely near its peak. China’s growth in global manufacturing share has slowed dramatically. In the early 2010s, China was gaining roughly 1.5 percentage points per year (based on a five-year rolling average); today, that rate has fallen to just over 0.5 percentage points annually—about one-third the previous pace. Using manufacturing value added, as I did, is actually generous to UNIDO: China's global share of industrial value add is lower than its global share of manufacturing value add.

Takeaways by Macro Roundup® AI

  1. China's gains in global manufacturing share have slowed to just over 0.5 percentage points per year on a five-year rolling average, about one-third the roughly 1.5 points annually recorded in the early 2010s.
  2. The author argues China's share of global manufacturing is likely near its peak, citing the slowdown in its rate of share gains.
  3. Measuring by manufacturing value added is generous to UNIDO's figures, since China's share of global industrial value added is lower than its share of global manufacturing value added.

Related Articles:

  • 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%.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • China is Suffering its Own ‘China Shock’ — Academic analysis of 12 labour-intensive Chinese manufacturing industries estimates average employment fell about 14%, or nearly 4mn jobs, between 2011 and 2019, with textile roles down 40%; a further analysis of the same sectors found 3.4mn more jobs lost through 2023. Researchers argue industrial upgrading and automation are cutting demand for lower-skilled workers and depressing their wages.

AI Summary. US inflation stayed stable for months after tariff rates rose steeply, which the author attributes to firms stockpiling imports ahead of the tariffs, importers absorbing some added cost through lower profits, and easing inflationary pressures elsewhere. The author argues the first two factors will fade as inventories deplete, pushing consumer prices higher.

Jesper Rangvid Rangvid’s Blog
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Rangvid argues that on top of the slowing of rental-based housing inflation, tariff-driven price increases have been delayed by firms buying ahead of tariffs and stockpiling, basing pricing on historic rather than replacement cost.

Why did inflation stay stable for months after tariffs rose?

Core argument: US inflation remained stable for several months after April's steep tariff increase, which the author attributes to firms front-loading imports early in the year, importers absorbing some tariff costs through lower profits, and an easing of other inflationary pressures.

Despite the steep increase in tariff rates in April, US inflation has remained stable for several months, up until June. I see three main explanations for this. First, US firms significantly increased imports early in the year in anticipation of the new tariffs. Second, firms that have imported goods since the tariffs rose appear to have absorbed some of the additional cost, accepting lower profits instead of passing the burden directly to customers. Finally, other inflationary pressures in the economy have eased, counteracting the effect from higher prices due to higher tariffs. Looking ahead, the first two factors are likely to fade. The stockpiled inventories purchased before tariffs were hiked will eventually be depleted. When firms must start importing again at the new, much higher tariff rates, their costs will rise—costs they are then likely to pass on to consumers. Likewise, while many firms that have imported goods during the new high-tariff regime have so far absorbed these costs, it is unlikely they will do so indefinitely. Taken together, these factors suggest that tariffs will continue to push prices higher. The first signs of this appeared in June—and this trend is likely to persist for some time.

Takeaways by Macro Roundup® AI

  1. US inflation remained stable for several months after April's steep tariff increase, which the author attributes to firms front-loading imports early in the year, importers absorbing some tariff costs through lower profits, and an easing of other inflationary pressures.
  2. The author argues the first two buffers will fade as pre-tariff stockpiles are depleted and firms stop absorbing costs indefinitely, leaving them importing at much higher tariff rates and likely passing costs to consumers.
  3. The author sees the first signs of tariffs pushing prices higher in June and expects that trend to persist for some time.

Related Articles:

  • 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.
  • Donald Trump Reaps $50bn Tariff Haul As World ‘Chickens Out’ — Most US trading partners have not retaliated against sweeping US tariffs, with only China and Canada hitting back at a minimum 10% global tariff, 50% levies on steel and aluminium, and 25% on autos. US customs duty revenues reached a record $64bn in the second quarter, $47bn more than a year earlier.
  • Are Businesses Absorbing the Tariffs or Passing Them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.

Tuesday, July 22, 2025

AI Summary. Using longitudinal data with extensive controls for family background, ability, and personality, the authors estimate that college varsity athletes from disadvantaged backgrounds—including women and men from low-income families and Black men—earn more after graduation than comparable non-athletes. The authors conclude that participation in college sports promotes social mobility, with no evidence of adverse outcomes.

James Heckman, Colleen Loughlin and Haihan Tian National Bureau of Economic Research
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Heckman et al, using two longitudinal data sets with a rich set of controls, find that participation in varsity athletics raises rates of high school and college attendance and graduation, as well as earnings, especially for disadvantaged students.

Does college athletic participation raise earnings for disadvantaged students?

Core argument: Female college varsity athletes from low-income families show an earnings premium relative to non-athlete peers in both longitudinal datasets, with controls for family background, individual abilities, and personality traits.

Using longitudinal data, we study the impact of participation in scholastic athletics on a number of important life outcomes, including graduation from high school and college and wages after schooling is completed. The rich data we have on family backgrounds, individual abilities and personality traits allow us to effectively estimate counterfactual outcomes for student-athletes, controlling for a rich variety of traits and background variables. Table 12 presents and compares the estimated effect of college varsity athletes from disadvantaged backgrounds on post-graduate earnings in the two datasets. Female varsity athletes from low-income families earn premium premiums in both datasets. Black male college varsity athletes and male college varsity athletes from low-income families in the NELS:88 data have higher post-graduate earnings compared to their non-athlete peers. The results suggest that participating in college varsity sports promotes social mobility among the disadvantaged groups, conferring higher earnings. There is no evidence of adverse outcomes.

Takeaways by Macro Roundup® AI

  1. Female college varsity athletes from low-income families show an earnings premium relative to non-athlete peers in both longitudinal datasets, with controls for family background, individual abilities, and personality traits.
  2. Black male college varsity athletes and male college varsity athletes from low-income families in the NELS:88 data have higher post-graduate earnings than their non-athlete peers.
  3. The authors conclude that participation in college varsity sports promotes social mobility among disadvantaged groups by conferring higher earnings, and find no evidence of adverse outcomes.

Related Articles:

  • No Revenge for Nerds? Evaluating the Careers of Ivy League Athletes — Ivy League athletes are far more likely than non-athlete classmates to enter business and finance jobs, and the authors estimate they attain higher terminal wages, greater cumulative career earnings, and more senior positions, controlling for school, graduation year, major, and first job. The authors argue this suggests non-academic human capital developed through athletics is valued in the labor market.
  • High School Sports Build or Reveal Character? — An analysis of high school sports participation finds no consistent evidence of positive effects on wages, labor force participation, or college attendance, attributing strong correlations largely to self-selection, since athletes tend to come from families with higher cognitive test scores and parental education. Male athletes exercise more as adults without lower obesity.

AI Summary. The dollar depreciated by more than interest-rate differentials alone would predict, and regression analysis attributes the gap to the trade war and economic policy uncertainty, including foreign investors' concerns about proposed taxes on foreign holders of US assets and a possible currency accord. The author expects the dollar to appreciate as these uncertainties resolve.

Torsten Sløk and James Thomas Apollo
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Interest rate parity suggests the USD is undervalued by 9.5%, Torsten Sløk finds, but a richer model points to much milder undervaluation. Noting renewed interest in US assets, he expects the dollar to appreciate as the trade war fades.

Did trade war and policy uncertainty drive the dollar's depreciation?

Core argument: The US dollar depreciated more in the first half of 2025 than yield differentials alone would have predicted.

The dollar has depreciated more in the first half of 2025 than yield differentials would have predicted. Regression models indicate that this was due to the trade war and economic policy uncertainty, including concerns among foreign investors about Section 899 and the Mar-a-Lago Accord. Looking ahead, with Section 899 behind us and the trade war likely to be resolved within the next couple of weeks, the US dollar is expected to appreciate again. Renewed strong appetite for US assets after Liberation Day is also visible in the TIC data for May.

Takeaways by Macro Roundup® AI

  1. The US dollar depreciated more in the first half of 2025 than yield differentials alone would have predicted.
  2. Regression models attribute the dollar's excess depreciation to the trade war and economic policy uncertainty, including foreign investors' concerns about Section 899 and the Mar-a-Lago Accord.
  3. With Section 899 behind and the trade war expected to be resolved within weeks, the dollar is expected to appreciate, and May TIC data show renewed strong appetite for US assets after Liberation Day.

Related Articles:

  • Dollar Positioning — The dollar is having its worst year since 1973, and the author argues that persistent large fiscal deficits and challenges to Federal Reserve independence imply significant further downside for a currency still trading above historical averages. Foreign investors hold very large dollar asset exposure, so a shift from currency hedging to outright selling could spur a self-reinforcing cycle of declines.
  • 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.
  • 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. Net foreign capital inflows into advanced economies are more likely to fund higher household or government debt than rising investment, and the US, UK, and Canada — which absorb large inflows — are distinguished from peers by faster credit growth rather than lower interest rates. The author argues taxing capital inflows would shrink trade deficits without raising domestic interest rates.

Michael Pettis Financial Times
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Pettis asserts that in countries running chronic trade deficits, investment isn’t constrained by a lack of domestic saving, and that restricting capital inflows would not raise interest rates, while protecting domestic demand from currency appreciation.

Do foreign capital inflows fund debt rather than investment?

Core argument: Since the 1970s, net capital inflows have not accommodated rising investment but are more likely to set off an increase in household or fiscal debt.

Since the 1970s net capital inflows do not accommodate rising investment — they are more likely to set off an increase in household or fiscal debt. This is also why the advanced economies that consistently absorb large net foreign capital inflows — the US, UK, and Canada — are distinguished among their peers not by lower interest rates, but by faster credit growth. Because capital inflows into these economies are not financing productive new investments that generate the returns needed to service the debt, they instead fund higher household or fiscal debt designed to prevent recessions caused by the leakage of demand abroad. In the long run, this dynamic is unsustainable. It leaves recipient countries with a legacy of rising debt and the distorted economic structures needed to accommodate persistent deficits. More importantly, it also means that while taxing capital inflows will indeed reduce trade deficits for countries like the US, it will not do so while raising domestic interest rates.

Takeaways by Macro Roundup® AI

  1. Since the 1970s, net capital inflows have not accommodated rising investment but are more likely to set off an increase in household or fiscal debt.
  2. The advanced economies that consistently absorb large net foreign capital inflows — the US, UK, and Canada — are distinguished among their peers by faster credit growth rather than lower interest rates.
  3. Taxing capital inflows would reduce trade deficits for countries like the US without raising domestic interest rates, because those inflows fund household or fiscal debt rather than productive investment.

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.
  • The US Trade Deficit and Foreign Borrowing — 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.
  • Foreign Capital Inflows Don’t Lower U.S. Interest Rates — 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.

AI Summary. China's exports to the US have fallen sharply while its exports to the rest of the world have risen by an almost offsetting amount. The author argues both adjustments are deflationary for China: routing goods through third countries raises transport costs and squeezes exporter margins, while redirecting goods to new markets requires cutting prices to generate demand.

Robin Brooks Robin Brooks Substack
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US tariffs may amplify deflation in China. As it seeks to replace falling US demand, China is ramping up exports to new markets at lower prices.

Do US tariffs create deflationary pressure on China's exports?

Core argument: China's exports to the US have fallen sharply while its exports to the rest of the world have risen in an almost one-for-one offset, which the author argues is a deflationary shock for China either way.

China’s exports to the US have fallen sharply this year, while its exports to the rest of the world have soared in an almost one-for-one offset. Either option is a deflationary shock for China. The first option - transshipment - should be obvious. Having to export via third countries adds to transportation costs, which cuts into margins and profitability of China’s exporters. The second option - exporting goods to new markets - is also a deflationary shock for China, because the price of exported goods needs to be lowered to generate demand. If China is redirecting goods that would have gone to the US to the rest of the world, this equates to a shift down and to the right of the supply curve. The rest of the world didn’t ask for this rise in supply, so China has to cut the price of its exports to generate demand. This is a move down the demand curve, which means falling prices, and could explain why exports to the rest of the world have risen.

Takeaways by Macro Roundup® AI

  1. China's exports to the US have fallen sharply while its exports to the rest of the world have risen in an almost one-for-one offset, which the author argues is a deflationary shock for China either way.
  2. Transshipment of Chinese goods through third countries adds transportation costs that cut into the margins and profitability of China's exporters.
  3. Redirecting goods intended for the US to other markets shifts China's supply curve down and to the right, so exporters must cut prices to generate demand the rest of the world did not ask for.

Related Articles:

  • 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%.
  • 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.
  • Our Revamped China Wage Tracker Shows Gradual Softening in Wage Growth — A revamped wage tracker estimates China's wage growth slowed to 4.2% year-over-year in the first quarter and 3.9% in the second, down from 4.5% in the prior fourth quarter and about 1 percentage point below official figures. The authors argue sluggish wage growth may weigh on consumption growth.

AI Summary. Nearly half of passenger vehicles sold in China last year were all-electric or plug-in hybrids, up from 6% in 2020, while domestic oil output rose 13% from 2018 to 2024 to about 4.3m barrels a day. China still imports roughly 11m barrels a day, about 70% of what it consumes.

Brian Spegele Wall Street Journal
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Enormous government subsidies for EVs are reducing Chinese oil demand, which is expected to peak in 2027.

Is China reducing its reliance on imported oil?

Core argument: Nearly half of passenger vehicles sold in China last year were all-electrics or plug-in hybrids, up from 6% in 2020, as locally designed and produced electric models replace Volkswagen and Hyundai taxicabs.

Across China, fleets of gas-guzzling Volkswagen and Hyundai taxicabs are being replaced by electric models designed and produced locally. Last year, nearly half of passenger vehicles sold in the country were either all-electrics or plug-in hybrids, compared with 6% in 2020. In a remote corner of China called the “sea of death” for its harsh conditions, oil workers are trying to coax more crude out of the ground by drilling holes as deep as Mt. Everest is high. State-owned PetroChina reported $38 billion of capital expenditures last year, nearly as much as Exxon Mobil’s and Chevron’s combined. China boosted oil output by 13% from 2018 to 2024, to around 4.3 million barrels a day. Crude imports fell nearly 2% last year, though they have rebounded slightly this year as some Chinese companies built stockpiles. China won’t stop importing oil. It still brings in roughly 11 million barrels a day, about 70% of what it consumes, up from less than three million a day 20 years ago. And overall oil consumption is likely to decline only gradually as China’s demand for oil to make petrochemicals continues to grow.

Takeaways by Macro Roundup® AI

  1. Nearly half of passenger vehicles sold in China last year were all-electrics or plug-in hybrids, up from 6% in 2020, as locally designed and produced electric models replace Volkswagen and Hyundai taxicabs.
  2. China raised domestic oil output 13% from 2018 to 2024 to around 4.3 million barrels a day, and state-owned PetroChina reported $38 billion of capital expenditures last year, nearly as much as Exxon Mobil's and Chevron's combined.
  3. China still imports roughly 11 million barrels of oil a day, about 70% of what it consumes and up from less than three million a day 20 years ago, with crude imports down nearly 2% last year.

Related Articles:

  • How Xi Sparked China’s Electricity Revolution — Electricity has risen to 30% of China's final energy use while plateauing near 22% in Europe and the US, supported by a decades-long grid expansion and upgrade program projected to cost as much as $800bn by 2030. Chinese grid investment is forecast to grow about 5% annually through 2030, faster than projected economic growth.
  • Heliocentrism — An energy use must be electrified before green grid electricity can decarbonize it, and while US grid decarbonization continues at a steady pace, the electricity share of final US energy consumption has grown little. Transmission line growth runs well below Department of Energy targets for 2030 and 2035, and transformer delivery times have stretched from 4–6 weeks to 2–3 years.
  • A Spendthrift Saudi Arabia Can’t Finance the World Anymore — Saudi Arabia has become a net consumer of foreign capital rather than a provider, accumulating $142bn in foreign debt as heavy spending on economic transformation outpaces oil revenue, with its sovereign wealth fund scaling back some projects. Estimates put the oil price needed to balance its budget near $96 a barrel.