Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, October 30, 2025

AI Summary. New York state's share of US taxpayers reporting over $1m in income fell from 12.7% in 2010 to 8.7% in 2022, and the Citizens Budget Commission estimates state and city income tax receipts from that group would have been $13bn higher had the share held. Job growth has concentrated in lower-paid health care and social assistance.

The Economist Economist Staff
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Since January 2020, private sector real hourly earnings have fallen 9% in New York City, while increasing 3% nationally, as large firms based in NYC move jobs to lower-cost states. JP Morgan now has more workers in Texas than in New York.

Is a shrinking share of high earners weakening New York's tax base?

Core argument: New York state's share of U.S. taxpayers reporting more than $1m in income fell from 12.7% in 2010 to 8.7% in 2022, according to the Citizens Budget Commission.

According to the Citizens Budget Commission New York state’s share of American taxpayers reporting more than $1m in income declined from 12.7% in 2010 to 8.7% in 2022. Such people paid $34bn in income tax to the state and city in 2022, a figure that would have been $13bn higher if New York’s share of millionaires had held up. Estimates from Goldman Sachs suggest that fully 10% of households in New York City with incomes of more than $10m established residency elsewhere between 2018 and 2023. As the ultra-rich have headed for the exit, the city’s employment growth has become concentrated in much worse-paid industries than finance. Since the end of 2019, New York has added more than 268,000 jobs in health care and social assistance, particularly home health care. Employment as a whole rose by just 220,000 over the same period, meaning that, if it was not for that industry, overall employment would have shrunk.

Takeaways by Macro Roundup® AI

  1. New York state's share of U.S. taxpayers reporting more than $1m in income fell from 12.7% in 2010 to 8.7% in 2022, according to the Citizens Budget Commission.
  2. Taxpayers reporting more than $1m in income paid $34bn in New York state and city income tax in 2022, a figure that would have been $13bn higher had the state's share of millionaires held up.
  3. New York added more than 268,000 health care and social assistance jobs since the end of 2019, against total employment growth of 220,000, meaning overall employment would have shrunk without that industry.

Related Articles:

  • The Stationary Bandits of New York City — New York City's construction costs exceed international benchmarks: Paris installs metro platform edge doors for about €3.7m per station while the Metropolitan Transportation Authority says it needs $55m per station. The author argues stringent crane operator licensing and sidewalk shed regulations protect a small number of unionized contractors from competition.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

AI Summary. New York City's top 1%, those earning at least $900,000, receive roughly 40% of city income — about twice the inequality of the US overall — and contribute about two-fifths of the city's $18bn in annual income tax revenue. Their homes and offices also cover a large share of roughly $34bn in yearly property levies.

Ben Steverman and Emily Flitter Bloomberg
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“Even a few billionaires or marquee employers packing up their bags” could put a significant hole in NYC’s budget, given that the city’s top 1% earners pay 40% of the city’s income tax and a significant portion of property taxes.

How dependent is New York City's budget on its wealthiest residents?

Core argument: New York City's wealthiest 1% earn roughly 40% of the city's income, about twice the income inequality of the US as a whole and higher than any other country, according to the World Inequality Database.

The city’s wealthiest 1% earn roughly 40% of its dollars, a share that fluctuates based on financial and market conditions. That’s about twice the income inequality in the US as a whole and also higher than any other country in the world, according to the World Inequality Database. Almost 35,000 year-round city residents earned at least $1 million in 2023, the latest tax data show. Of the world’s 500 wealthiest people, 23 call New York City home, with a combined net worth of nearly $450 billion, and many more come through town as often as time and their tax situations allow. Depleting this resource could devastate the city. Each year, NYC’s top 1%—those with incomes of at least $900,000—contribute about two-fifths of the city’s $18 billion in annual income tax revenue. Their lavish homes and sleek offices cover a large share of the city’s roughly $34 billion in annual property levies as well. Even a few billionaires or marquee employers packing up their bags could put a noticeable dent in the municipal budget.

Takeaways by Macro Roundup® AI

  1. New York City's wealthiest 1% earn roughly 40% of the city's income, about twice the income inequality of the US as a whole and higher than any other country, according to the World Inequality Database.
  2. New York City's top 1%, those with incomes of at least $900,000, contribute about two-fifths of the city's $18 billion in annual income tax revenue, and their homes and offices cover a large share of roughly $34 billion in annual property levies.
  3. Almost 35,000 year-round New York City residents earned at least $1 million in 2023, and 23 of the world's 500 wealthiest people call the city home, with a combined net worth of nearly $450 billion.

Related Articles:

  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.
  • Ed Conard Debates Furman On “The Expected Value of Risk Taking” — A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.

AI Summary. Higher-income American households have raised their cash relative to liabilities far more than lower-income households, with the top 1% up 37 percentage points and the bottom 60% up 8 percentage points since late 2019. Lower-income households instead increased holdings of housing and durable goods, and the ratio of nonfinancial assets to liabilities reached 299%, its highest since 1985.

Matt Klein The Overshoot
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At ~3:1, the ratio of nonfinancial assets to liabilities is at its highest level since 1985. Since Covid, Americans in the bottom 60% have seen an ~43% rise in the value of durable goods owned relative to consumer credit owed, the highest across cohorts.

How do household balance sheet gains differ across income groups?

Core argument: U.S. households in the 80th–99th income percentiles have raised their cash-to-liability ratio by about 60 percentage points since the 2006 trough, versus about 20 percentage points for the bottom 60% of earners.

Americans in the 80th-99th percentiles of the household income distribution have increased their holdings of cash relative to liabilities by about 60 percentage points since the trough in 2006, while Americans in the bottom 60% increased their debt coverage by about 20 percentage points. Similarly, Americans in the top 1% of the income distribution increased their cash/liability ratio by 37 percentage points since 2019Q4, those in the 80-99% income cohort increased their debt coverage by 16 percentage points, and those in the bottom 60% did so by 8 percentage points. Lower-income Americans have instead focused on increasing their holdings of housing and durable goods—and limiting the growth in debt relative to income while spending more. The ratio of nonfinancial assets to liabilities has increased by 58 percentage points (to 299%) since 2019Q4, and is now at its highest since 1985. The increase in the ratio of real assets to liabilities is broadly similar across income cohorts, although the number for the top 1% is skewed by the relatively low levels of debt carried by the highest-earners. Americans in the bottom 60% have experienced the biggest increase in the value of durable goods owned vs. consumer credit owed.

Takeaways by Macro Roundup® AI

  1. U.S. households in the 80th–99th income percentiles have raised their cash-to-liability ratio by about 60 percentage points since the 2006 trough, versus about 20 percentage points for the bottom 60% of earners.
  2. Since 2019Q4, the top 1% of U.S. earners increased their cash/liability ratio by 37 percentage points, the 80–99% cohort by 16 percentage points, and the bottom 60% by 8 percentage points.
  3. The U.S. ratio of nonfinancial assets to liabilities rose 58 percentage points to 299% since 2019Q4, its highest since 1985, with the bottom 60% seeing the largest increase in durable goods owned versus consumer credit owed.

Related Articles:

  • Top 10% of Earners Drive a Growing Share of US Consumer Spending — An analysis of Federal Reserve data found the top 10% of US earners accounted for 49.2% of total consumer spending, up from 48.5% the prior quarter and the highest share in data going back to 1989. Spending by the bottom 80%, those making under roughly $175,000, has merely kept pace with inflation.
  • US Households and Firms Are in Great Shape — Household and banking sector leverage in the US have declined significantly since 2008, while corporate leverage has moved sideways and federal government leverage has risen significantly. On this measure, the US private sector is in strong financial shape.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. A proposal would replace the 7.65% employer-side payroll tax with a flat Employer Compensation Tax levied on each firm's total annual compensation costs, leaving worker-side taxes and benefit formulas unchanged. The Urban Institute estimates such a tax could close two-thirds of Social Security's funding gap and half of Medicare's, but would not restore full solvency on its own.

Marc Goldwein Committee for a Responsible Federal Budget
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Both the Social Security retirement and Medicare HI trust funds face insolvency in 7 years. Goldwein proposes an Employer Compensation Tax that would “generate enough revenue to close two-thirds of Social Security’s funding gap and half of Medicare’s.”

Can taxing employers' total compensation costs close Social Security's funding gap?

Core argument: The proposed Employer Compensation Tax would replace the 7.65% employer-side payroll tax with a flat tax on each firm's total annual compensation costs, leaving the worker-side payroll tax and benefit calculations unchanged from current law.

This Trust Fund Solution would replace the 7.65% employer-side payroll tax with a new flat Employer Compensation Tax (ECT) imposed on the full cost of all compensation firms pay each year. The worker-side payroll tax and benefit calculations would remain the same as under current law. The ECT would be imposed on each employer’s total compensation costs rather than each worker’s pay. The Urban Institute modelled two ECT options to improve trust fund solvency. A Full ECT that maintains the current combined tax rate of 15.3% and uses the revenue for solvency, and a Rate-Cut ECT that uses about half the revenue to reduce the combined tax rate by 1 percentage point to 14.3% and the remaining revenue to improve solvency. The ECT could generate enough revenue to close two-thirds of Social Security’s funding gap and half of Medicare’s. Alternatively, it could close one-third of Social Security’s shortfall and one-eighth of Medicare’s while also cutting taxes for the bottom 60% of American workers. The ECT alone would not be sufficient to restore solvency to Social Security and Medicare at the current payroll tax rate.

Takeaways by Macro Roundup® AI

  1. The proposed Employer Compensation Tax would replace the 7.65% employer-side payroll tax with a flat tax on each firm's total annual compensation costs, leaving the worker-side payroll tax and benefit calculations unchanged from current law.
  2. The Urban Institute modelled a Full ECT that maintains the combined 15.3% tax rate and directs the revenue to solvency, which could close two-thirds of Social Security's funding gap and half of Medicare's.
  3. The Urban Institute's Rate-Cut ECT option would use about half the revenue to lower the combined rate by 1 percentage point to 14.3%, closing one-third of Social Security's shortfall and one-eighth of Medicare's while cutting taxes for the bottom 60% of American workers.

Related Articles:

  • What Progressives Should Be Thinking About Social Security Reform — Other English-speaking countries such as the UK, Canada, Australia, Ireland and New Zealand direct more pension spending toward preventing old-age poverty and far less toward middle- and upper-income retirees, with maximum US Social Security benefits running two to four times higher in dollar terms. One proposed reform would base benefits on years worked rather than contributions.
  • Social Security and Trends in Wealth Inequality — The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
  • Trends in the Distribution of Family Wealth, 1989 to 2022 — The Congressional Budget Office estimates that the top 10% of U.S. families held 60% of all wealth in 2022, up from 56% in 1989, with the top 1% holding 27%, up from 23%. The rest of the top half saw its share fall from 37% to 33%, while the bottom half held 6% in both years.

AI Summary. Inflation-adjusted US house prices are 2.8% below their 2022 peak, based on the Case-Shiller National Index. An affordability estimate using median income, a 15% down payment and 30-year fixed mortgage rates finds that the monthly principal-and-interest payment on the same $500,000 house rose 90% over four years, as prices climbed 23% and mortgage rates went from 2.84% to 6.59%.

Bill McBride Calculated Risk
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Nationally, real house prices are now 2.8% below the 2022 peak and 9.6% above the 2006 peak. “Affordability” remains at levels last seen in the early 1980s, when 30-year mortgage rates were over 14%.

How much have house prices and mortgage rates raised monthly payments?

Core argument: Inflation-adjusted U.S. house prices stand 2.8% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.

I’ve put together my own affordability index [using] median income from the Census Bureau (estimated 2025), assumed a 15% down payment, and used a 2% estimate for property taxes, insurance and maintenance. This is probably low for high property tax states like New Jersey and Texas, and too high for lower property tax states. For house prices, I used the Case-Shiller National Index, Seasonally Adjusted (SA). Also, for the down payment - there wasn’t a significant difference between 15% and 20%. For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates). Here is what the index looks like (lower is more affordable). In August 2021, the payment on a $500,000 house, with a 20% down payment and 2.84% 30-year mortgage rates, would be around $1,652 for principal and interest. The monthly payment for the same house, with house prices up 23% over four years and mortgage rates at 6.59% in August 2025, would be $3,131 - an increase of 90% for the same house!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted U.S. house prices stand 2.8% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.
  2. The monthly principal-and-interest payment on a $500,000 house rose 90%, from about $1,652 in August 2021 to about $3,131 in August 2025, as house prices climbed 23% and 30-year mortgage rates went from 2.84% to 6.59%.
  3. The affordability index uses Census Bureau median income (estimated for 2025), a 15% down payment, a 2% estimate for property taxes, insurance and maintenance, and Freddie Mac PMMS 30-year fixed rates, with little difference between 15% and 20% down.

Related Articles:

  • The State of Housing (Un)Affordability in the US — A slowdown in housing supply growth has weighed on affordability, with the share of housing stock available for sale or rent below its historical average, implying a gap between supply and demand. The analysis estimates that restoring affordability would require roughly 3–4mn additional units, or 2–2.6% of current stock, with California and Florida facing the largest shortages.
  • America’s Housing Affordability Crisis and the Decline of Housing Supply — Housing production intensity has fallen substantially, especially in fast-growing Sunbelt markets once known for building, converging toward the low rates long seen on the coasts and in declining industrial centers. The authors argue incumbent-controlled regulation explains the weakening link between high prices, high demand areas, and new construction.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.

Friday, October 31, 2025

AI Summary. Wages at age 50 rise more steeply with cognitive skills measured at age 16 than with cognitive skills measured at age 50; for women, moving from average to two standard deviations above average raises expected hourly wages from £11 to £22 using age-16 skills, versus £12 to £15 using age-50 skills.

Uta Bolt The Economic Journal
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Data from a British birth cohort followed since 1958 show that cognitive skills early in life predict wages at age 50 better than cognitive skills at age 50. Early cognitive skills likely allow for higher educational attainment or on-the-job learning.

Do teenage cognitive skills predict midlife wages better than adult skills?

Core argument: For women, moving from mean cognitive skills at age 16 to two standard deviations above the mean raises expected age-50 wages from £11 to £22, while the same move in age-50 cognitive skills raises wages only from £12 to £15.

Figure 2 shows the relationship between expected wages at age 50 and cognitive skills at ages 16 and 50, respectively. To construct the figure, I first regress wages at age 50 on a cubic polynomial of cognitive skills at 16. Next, I regress wages at age 50 on a cubic polynomial of cognitive skills at 50. I then use the estimated coefficients from the two regressions to predict the expected wage at age 50 at different values of cognitive skills. For both men and women, we can see a much steeper gradient of age-50 wages in cognitive skills at age 16 than in cognitive skills at age 50. Moving from mean cognitive skills at age 16 to two standard deviations above the mean increases the expected wage for women from £11 to £22. In contrast, moving from mean cognitive skills at age 50 to two standard deviations above the mean only increases wages from £12 to £15. For men, the patterns are similar, albeit somewhat less stark. Having high cognitive skills at the end of childhood is more important than having high cognitive skills in the middle of adulthood, as high early cognitive skills allow for higher educational attainment or learning on the job that is associated with higher wages.

Takeaways by Macro Roundup® AI

  1. For women, moving from mean cognitive skills at age 16 to two standard deviations above the mean raises expected age-50 wages from £11 to £22, while the same move in age-50 cognitive skills raises wages only from £12 to £15.
  2. Regressions of age-50 wages on cubic polynomials of cognitive skills show a steeper wage gradient in skills measured at age 16 than in skills measured at age 50 for both men and women, with men's patterns somewhat less stark.
  3. The author argues that high cognitive skills at the end of childhood matter more than in middle adulthood because early skills allow higher educational attainment or learning on the job associated with higher wages.

Related Articles:

  • Standardized Test Scores and Academic Performance at Ivy-Plus Colleges — An analysis of admissions and transcript records at Ivy-Plus colleges finds standardized test scores predict first-year college grades with a normalized slope 4x greater than high school grade point average, controlling for race, gender, and socioeconomic status. The authors find no evidence test scores underpredict college performance for students from less advantaged backgrounds.
  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
  • Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth — Only 17% of firms are "transformative" entrepreneurs, defined as those hiring a research-and-development worker at some point; higher IQ and educational attainment strongly predict transformative entrepreneurship, though the likelihood of becoming an entrepreneur overall declines with IQ. The authors argue education subsidies address financial constraints more effectively than uniform startup or research subsidies.

AI Summary. Off-balance-sheet structures such as special purpose vehicles and asset-tied joint ventures are becoming the standard financing route for AI data center deals. Morgan Stanley estimates tech firms will need as much as $800bn from private credit by 2028, with roughly $1.5tn of external financing required across the AI ecosystem.

Carmen Arroyo Bloomberg
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Morgan Stanley estimates $2.9T will be spent on the datacenter buildout globally by 2028; $1.5T will require debt financing, $800B of which will be raised from private credit in deals tied to specific assets, including SPVs.

Are off-balance-sheet vehicles becoming the standard way to finance AI data centers?

Core argument: Morgan Stanley estimates tech firms will need as much as $800 billion from private credit by 2028, and its global head of debt capital markets, Anish Shah, said around $1.5 trillion of external financing is needed across the AI ecosystem.

Off-balance-sheet debt, through a special purpose vehicle or joint venture tied to assets, is becoming the go-to for AI data center deals, with Morgan Stanley estimating that tech firms will need as much as $800 billion from private credit by 2028. “We are in the very early stages of capital being raised,” said Anish Shah, Morgan Stanley’s global head of debt capital markets. Across the AI ecosystem, “around $1.5 trillion of external financing is needed, and issuers are going to tap a broad range of financing sources.” That may require some creativity in who holds the debt. Elon Musk’s xAI for instance, is pursuing a $20 billion SPV deal for its data center where its commitment will just be to pay rent on the Nvidia chips.

Takeaways by Macro Roundup® AI

  1. Morgan Stanley estimates tech firms will need as much as $800 billion from private credit by 2028, and its global head of debt capital markets, Anish Shah, said around $1.5 trillion of external financing is needed across the AI ecosystem.
  2. Off-balance-sheet debt structured through special purpose vehicles or joint ventures tied to assets is becoming the go-to financing route for AI data center deals at firms including Meta and xAI.
  3. Elon Musk's xAI is pursuing a $20 billion special purpose vehicle deal for its data center under which its commitment will be limited to paying rent on the Nvidia chips.

Related Articles:

  • Minsky Moments and AI CapEx — Capital-spending forecasts for the four largest cloud providers rose nearly 50% over the year, and AI data centers are increasingly funded through leveraged and off-balance-sheet structures, including $3.2bn in senior secured notes and a roughly $30bn asset-backed financing. The author argues this marks a speculative-finance phase where borrowers must roll over principal.
  • The Blob: Capital, China, Chips, Chicago and Chilliwack — Data center construction spending has eclipsed office construction, and the specialized power rates most data centers pay fall short of covering the cost of a new natural gas plant, leaving other customers to bear part of the bill. In the PJM grid region, data center demand accounted for 70% of the increase in electricity costs over the past year.
  • Why We Are Not In A Bubble….Yet — The 5 largest US technology companies are worth about 16% of the global public equity market, and the top 10 US stocks nearly 25%, almost $25tn. The author argues valuations are high but not bubble-level, with the "Magnificent 7" median forward price-to-earnings ratio at 27x, roughly half that of the late-1990s leaders.

AI Summary. Substrate, a Bay Area startup, has emerged from stealth claiming its newly invented X-ray lithography tool can produce leading-edge logic chip wafers at 50% below the cost of existing options. Evidence for the claim remains scarce, though third-party reports support the tool's legitimacy.

Dylan Patel, Jeff Koch, Gerald Wong, and Andrew Wagner Semianalysis
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Substrate, a US startup, has invented a new X-ray lithography tool; if its performance claims are borne out, “leading edge wafers [could be] produced at 50% less than existing options,” disrupting both ASML’s and TSMC’s effective monopolies.

Can a new X-ray lithography tool halve advanced chip wafer costs?

Core argument: Substrate, a Bay Area startup recently out of stealth, claims its X-ray lithography tool will produce leading-edge wafers at 50% less cost than existing options, as part of a mission to power next-generation foundries.

Substrate is a recently out-of-stealth Bay Area startup inventing “technology to power next-generation foundries” with the mission to substantially reduce the cost of advanced logic wafers. The first major step towards this mission is a new X-ray lithography (XRL) tool that the company has invented. Their performance claims are stunning. Leading edge wafers will be produced at 50% less than existing options. [This is an] extraordinary claim and thus demands extraordinary evidence. Evidence so far is scarce, so we repeat these claims with some healthy skepticism. But we should also note, external contacts and 3rd party reports are all telling us the same story: the litho tool is legit.

Takeaways by Macro Roundup® AI

  1. Substrate, a Bay Area startup recently out of stealth, claims its X-ray lithography tool will produce leading-edge wafers at 50% less cost than existing options, as part of a mission to power next-generation foundries.
  2. Evidence for Substrate's X-ray lithography performance claims remains scarce, warranting skepticism of an extraordinary claim that demands extraordinary evidence.
  3. External contacts and third-party reports indicate that Substrate's lithography tool is legitimate.

Related Articles:

  • China Seeks To Triple Output Of AI Chips In Race With The US — China is preparing three new fabrication plants dedicated to producing Huawei's artificial intelligence processors, and people familiar with the effort say their combined capacity, once fully ramped up, could exceed current output from comparable lines at SMIC, China's leading chipmaker. Huawei denies having plans to launch its own fabrication plants.
  • TSMC To Speed Up Construction Of US Chip Plants By ‘Several Quarters’ — 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.
  • Crises at Boeing and Intel Are a National Emergency — Intel and Boeing, once benchmarks for high-quality, demanding manufacturing, declined because of their own mistakes rather than cheap foreign competition. Because leading U.S. tech firms' software and devices depend on advanced semiconductors fabricated under contract, especially by Taiwan Semiconductor Manufacturing Co., Chinese subjugation of Taiwan could leave the U.S. tech sector at Beijing's mercy.

AI Summary. The US and China agreed to suspend recently announced export controls for a year, with the US cutting 10 percentage points from fentanyl-related tariffs to an average 45% levy and China resuming soybean purchases. China has repeatedly used retaliatory tariffs and rare earth export controls to force Washington back to negotiations.

Joe Leahy and Demetri Sevastopulo Financial Times
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The US and China have agreed to de-escalate the trade war, with China delaying implementation of new export controls on rare earths for a year in exchange for the US postponing expansion of additional American export controls on chips.

Has China established itself as an equal negotiating power with Washington?

Core argument: The US cut 10 percentage points off fentanyl-related tariffs on Chinese goods, reducing the average levy to 45%, while Beijing agreed to resume soybean purchases and both sides suspended recently announced export controls and new shipping levies for one year.

[China and the US] agreed to suspend recently announced export controls for one year as well as new levies on shipping. The US, meanwhile, cut 10 percentage points off tariffs on Chinese goods related to fentanyl, reducing the average levy to 45%, while Beijing agreed to resume soyabeans purchases. Since Trump announced his “liberation day” tariffs in April, Beijing has on at least three occasions blocked Washington from carrying out punitive measures and forced it back to the negotiating table. The first clash came when Trump increased reciprocal tariffs on China to 145%. Beijing matched these and eventually forced Washington to suspend the levies. Then the two sides clashed over China’s export controls on rare earths, the production and refining of which it dominates. The rules threatened to shut down US industry and led to another round of talks. This month, after Washington extended export controls on semiconductors to thousands of subsidiaries of Chinese companies, Beijing announced sweeping new controls on rare earths that again had the US pressing for a truce.

Takeaways by Macro Roundup® AI

  1. The US cut 10 percentage points off fentanyl-related tariffs on Chinese goods, reducing the average levy to 45%, while Beijing agreed to resume soybean purchases and both sides suspended recently announced export controls and new shipping levies for one year.
  2. Since Trump announced his "liberation day" tariffs in April, Beijing has on at least three occasions blocked Washington from carrying out punitive measures and forced it back to the negotiating table, beginning when China matched US reciprocal tariffs of 145%.
  3. China dominates rare earth production and refining, and its export controls threatened to shut down US industry, prompting talks; after Washington extended semiconductor export controls to thousands of subsidiaries of Chinese companies, Beijing announced sweeping new rare earth controls.

Related Articles:

  • Why China Keeps Winning The Trade War — Governments seeking supply-chain leverage face limited visibility into their own supply chains, and China's rare earth licensing requirements for multinationals may be partly intended to give Beijing that visibility and allow more precise targeting of future restrictions. Effective measures must impose asymmetric costs, and keeping foreign manufacturers dependent on drip-fed supply is central to Beijing's strategy.
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AI Summary. Trade diversion signals deep distress in China's export sector, and the author argues a sustained 10% tariff hike would be more credible than larger ones and could counter China's rare earths leverage. Easing up on Chinese exporters instead signals weakness and discourages Europe from coordinating with the US.

Robin Brooks Robin Brooks Substack
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Given that deflation is becoming entrenched in China, Robin Brooks argues that the US has the upper hand in the trade war. He cautions that easing up on China’s exporters while China’s hold on rare earths is undiminished, undermines the US position going forward.

Are smaller sustained tariff hikes more credible than larger ones against China?

Core argument: A 10% tariff hike on China would be more credible than a larger one because it can be sustained indefinitely, and paired with threats of further increases could go a long way to countering China's rare earths leverage, the author argues.

Trade diversion is a sign of deep distress in the export sector, which the US should exploit. A smaller tariff hike of 10% has the advantage that it can be sustained indefinitely, making it more credible. Given all the damage we’re already seeing to exporters, such a hike could go a long way to countering the rare earths threat, especially if coupled with threats of further tariff hikes. This steady - but measured - escalation is how to stare down China. President Trump yesterday did the opposite. He eased up on China’s exporters, even as China’s hold on rare earths is undiminished. If China needed any validation that it’s found a weak spot, this was it. Yesterday’s deal will also reinforce European fears that joining forces with the US - say by imposing secondary tariffs - is a bad idea, because there’s no guarantee Trump won’t suddenly cut a deal and leave Europe hanging. All in all, it’s hard to see how the US put itself in a better position with [recent] concessions.

Takeaways by Macro Roundup® AI

  1. A 10% tariff hike on China would be more credible than a larger one because it can be sustained indefinitely, and paired with threats of further increases could go a long way to countering China's rare earths leverage, the author argues.
  2. Trade diversion signals deep distress in China's export sector that the US should exploit, yet Trump eased up on Chinese exporters while China's hold on rare earths remained undiminished.
  3. The deal with China will reinforce European fears that joining the US in measures such as secondary tariffs is a bad idea, since Trump could suddenly cut a deal and leave Europe hanging, the author argues.

Related Articles:

  • Deflationary Pressure Builds In China — China's producer price inflation for durable consumer goods — the category most exposed to US tariffs — dropped sharply alongside the imposition of substantial US tariffs, consistent with exporters marking down prices to sell goods at home. Because limited warehouse capacity forces exporters to keep goods moving, discounting to generate new demand cuts into their profitability.
  • China’s Youth Unemployment Soars To 2-Year High As Job Crunch Deepens — China's urban unemployment rate for 16- to 24-year-olds excluding students rose to 18.9% from 17.8%, the highest since the National Bureau of Statistics revised its calculation method for the series. A record 12.2m university students graduated into a job market strained by deflationary pressures and external uncertainties, with many struggling to find roles matching their education and skills.
  • China’s “Anti-Involution” Campaign: Global Implications — China's economy has slowed as domestic investment stagnates and consumer spending stays weak, with the shortfall partly offset by rising net exports. The author argues these internal problems are being passed to the rest of the world, since export values are rising about 6% a year while import values are down 2.2%.