Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, December 9, 2025

AI Summary. The authors estimate that Brexit reduced UK GDP by 6% to 8%, investment by 12% to 18%, and employment and productivity each by 3% to 4%, with effects accumulating gradually. Survey data indicate these impacts reflect elevated uncertainty, reduced demand, diverted management time, and greater misallocation of resources.

Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, et al. National Bureau of Economic Research
Date Posted:

Firm-level data from Bloom et al’s Decision Maker Survey Panel, as well as macrodata, suggest that the Brexit process reduced GDP by 6-8% and TFP by ~3-4% as of 2025. The effects were much larger for firms with higher pre-referendum exposure to the EU.

How much has leaving the EU reduced UK output?

Core argument: Estimates combining macro simulations with Decision Maker Panel micro data suggest that by 2025 Brexit had reduced UK GDP by 6–8%, investment by 12–18%, employment by 3–4% and the level of productivity by 3–4%, accumulating gradually over time.

We combine simulations based on macro data with estimates derived from micro data collected through our Decision Maker Panel survey. These estimates suggest that by 2025, Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating gradually over time. We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and [the level] of productivity by 3% to 4%. [The survey data indicate that] these large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process. Firms with a higher level of pre-referendum exposure to the EU (based on our six-measure average) experienced higher investment growth than less exposed firms in the pre-referendum period between 2011 and 2015. But after 2016, investment growth was lower for these more exposed firms. [Likewise], firms with higher pre-referendum exposure to the EU had faster TFP growth prior to the referendum, but lower TFP growth afterwards - a firm with an EU exposure index of 0.1 (~ the mean), rather than 0, experienced [total factor] productivity growth of around 0.5 percentage points a year less after 2016 than it would have otherwise done.

Takeaways by Macro Roundup® AI

  1. Estimates combining macro simulations with Decision Maker Panel micro data suggest that by 2025 Brexit had reduced UK GDP by 6–8%, investment by 12–18%, employment by 3–4% and the level of productivity by 3–4%, accumulating gradually over time.
  2. Decision Maker Panel survey data indicate these negative impacts reflect elevated uncertainty, reduced demand, diverted management time and increased misallocation of resources from a protracted Brexit process.
  3. Firms with higher pre-referendum EU exposure had faster investment and total factor productivity growth in 2011–2015 but slower growth after 2016, with a firm at the mean exposure index of 0.1 estimated to see about 0.5 percentage points a year less TFP growth.

Related Articles:

  • Rule, Britannia! — UK small-cap companies previously earned higher profit margins and traded at higher price-to-book valuations than continental European peers, but the margin gap has almost entirely disappeared and UK stocks now trade at a discount. The analysis uses small-caps in both regions because such firms earn most of their income domestically.
  • The Force Shaping Western Politics — The foreign-born share of the population has risen sharply since 1990 in nearly every large Western country. As mainstream politicians from the center-right to the left dismissed voters' concerns about immigration, many voters drifted toward extreme-right parties that promised to reduce it.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.

AI Summary. European Union home affairs ministers agreed to allow failed asylum seekers to be sent to "return hubs" outside the bloc, alongside harsher rules for detaining and deporting migrants without the right to stay. The measures also make it easier to deny entry to people who can be sent to countries the EU deems "safe.

Laura Dubois Financial Times
Date Posted:

EU ministers have agreed on a plan to send failed asylum seekers to “hubs” outside the bloc. The Netherlands has already signed an agreement with Uganda to send rejected asylum seekers there.

Is Europe tightening migration policy with offshore return hubs?

Core argument: EU home affairs ministers agreed measures to send failed asylum seekers to "hubs" outside the bloc, echoing the crackdown on immigration in the United States.

EU ministers have agreed measures to send failed asylum seekers to “hubs” outside the bloc, as Brussels drastically tightens its migration policies, echoing the crackdown on immigration in the US. Home affairs ministers on Monday agreed harsher rules to detain and deport migrants who do not have a right to stay in the EU, and measures making it easier to deny entry to people who can be sent to countries outside the bloc the EU deems ‘‘safe.’’ “It’s a turning point in European migration and asylum policy altogether,” EU migration commissioner Magnus Brunner said on the sidelines of a meeting of home affairs ministers in Brussels.

Takeaways by Macro Roundup® AI

  1. EU home affairs ministers agreed measures to send failed asylum seekers to "hubs" outside the bloc, echoing the crackdown on immigration in the United States.
  2. The agreed rules impose harsher terms for detaining and deporting migrants without a right to stay in the EU and make it easier to deny entry to people who can be sent to non-EU countries the bloc deems "safe.".
  3. EU migration commissioner Magnus Brunner called the agreement "a turning point in European migration and asylum policy altogether.".

Related Articles:

  • Africa Needs 1 Billion Jobs by the End of the Century. Where Will It Find Them? — Africa's population, now about 1.5bn, is projected to reach 4bn by 2100, with sub-Saharan Africa approaching 3.5bn and Nigeria's working-age population forecast to exceed 320m. Between 2005 and 2020, Congo, Nigeria, Ethiopia and other large states averaged only one job created for every two entrants to the working-age population.
  • 21st-Century Africa Governance and Growth — Sub-Saharan Africa's GDP per capita has fallen relative to the world average over three decades, from 30% to 22%, reflecting the region's inability to sustain growth. Had it grown at the global pace since 1990, income per capita would be over 40% higher; at emerging East Asia's pace, nearly 3x higher.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.

AI Summary. The H200 chip is roughly 6x as powerful as the H20, which requires an export license for China and has been approved only in limited quantities. The authors estimate the US would hold a 21–49x advantage in AI compute produced in a coming year absent chip exports to China, shrinking to between 6.7x and 1.2x with unrestricted H200 exports.

Saif Khan, Tao Burga, Tim Fist and Georgia Adamson Institute for Progress
Date Posted:

In a break from current policy, Trump will allow NVIDIA’s H200 chips to be sold to China. Assuming some smuggling, the US would have had a 2026 compute advantage vis-a-vis China of 10–12x; H200 sales will decrease that to 1.2–6.7x.

Would exporting advanced AI chips to China shrink America's compute advantage?

Core argument: The authors estimate the US would hold a 21–49x advantage in AI compute produced in 2026 if there were no AI chip exports to China and no smuggling.

The H200 (Hopper) [is] almost 6x as powerful as the H20 — a chip that requires an export license to China and has been approved for export in only limited quantities. Exporting Hopper chips would significantly erode America’s expected AI compute advantage over China. With no AI chip exports to China and no smuggling, we estimate the US would hold a 21–49x advantage in 2026-produced AI compute. This advantage would translate into a much greater American capacity to train frontier models, support more and better-resourced AI and cloud companies, and run more powerful inference workloads for more capable AI models and agents. Unrestricted H200 exports would shrink this advantage to between 6.7x and 1.2x, depending on the scale of Chinese demand.

Takeaways by Macro Roundup® AI

  1. The authors estimate the US would hold a 21–49x advantage in AI compute produced in 2026 if there were no AI chip exports to China and no smuggling.
  2. Unrestricted exports of H200 Hopper chips would shrink the projected US compute advantage to between 6.7x and 1.2x, depending on the scale of Chinese demand.
  3. The H200 is almost 6x as powerful as the H20, a chip that requires an export license for China and has been approved for export only in limited quantities.

Related Articles:

  • America’s Chip Restrictions Are Biting in China — Shortages of advanced semiconductors in China are acute enough that authorities have begun intervening in how output from Semiconductor Manufacturing International, the country's largest contract chip maker, is distributed, prioritizing Huawei's artificial-intelligence chip production. Chinese firms also smuggle Nvidia chips or access them remotely through cloud computing abroad.
  • China Has Its Own Concerns About Nvidia H20 Chips — China's leaders cite security concerns, including suspicion of hidden back doors in US-designed chips, as a rationale for their drive toward chip self-sufficiency. The dilemma extends beyond chips: US intelligence reportedly found extra modems on Chinese-made port cranes, and the US has banned Chinese components from connected auto systems.
  • 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.

AI Summary. Japan has reduced its reliance on Chinese rare earths, with industry estimates putting China's share of Japanese rare-earth imports at roughly 60% to 70%, down from 90% or more. Japan's alternative chain runs from an Australian open-pit mine through a separation plant in Malaysia to Japanese magnet makers supplying automakers.

River Akira Davis and Kiuko Notoya New York Times
Date Posted:

Following a 2010 trade dispute with China, Japan built a supply chain that reduced its dependence on Chinese rare earths from 90% to 60–70% today. The “toughest bottleneck” was refining, given the associated environmental issues.

How can a country reduce its dependence on Chinese rare earths?

Core argument: Japan's rare-earth imports from China stand closer to 60–70%, down from industry estimates of 90% or more during the 2010 trade dispute.

Japan has significantly bolstered its supply chain resilience. While industry estimates placed Japanese rare-earth imports from China at 90% or more during the 2010 trade dispute, that figure now stands closer to 60% to 70%. Today, in Western Australia, workers on the remote Mount Weld volcanic plug are flown out from Perth on rotations to extract rare-earth ore from an open-pit mine owned by Lynas [an Australian mining company]. The partially purified concentrate is then shipped 5,000 miles to the company’s facility in Kuantan, Malaysia — until this year, the only large-scale rare-earth separation plant operating outside China. There, the materials are refined through a chemical process into individual rare-earth oxides pure enough to use in manufacturing. From Malaysia, the metals are transported another 3,000 miles to Japan, where Sojitz [a Japanese conglomerate] manages distribution to domestic magnet makers. In Japan, the magnets are used in a number of products, including vehicles produced by automakers like Toyota.

Takeaways by Macro Roundup® AI

  1. Japan's rare-earth imports from China stand closer to 60–70%, down from industry estimates of 90% or more during the 2010 trade dispute.
  2. Lynas mines rare-earth ore at Mount Weld in Western Australia and ships partially purified concentrate 5,000 miles to Kuantan, Malaysia, which until this year housed the only large-scale rare-earth separation plant outside China.
  3. Refined rare-earth oxides travel another 3,000 miles from Malaysia to Japan, where Sojitz manages distribution to domestic magnet makers whose magnets go into products including Toyota vehicles.

Related Articles:

  • Mad Libs: Just Fill In The Blanks — China expanded its rare earth export controls to require licenses for any product containing more than 0.1% by value of Chinese rare earths or made with equipment containing them, with a presumption of denial for military uses and scrutiny of advanced semiconductor uses. Aggressive enforcement would affect industries from chips and autos to aerospace, defense and medical equipment.
  • 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.
  • China Hatches Plan to Keep U.S. Military From Getting Its Rare-Earth Magnets — China is designing a "validated end-user" system that would fast-track rare-earth and other restricted material export approvals for U.S. firms while excluding companies tied to the U.S. military. The arrangement would let China ease export flows while keeping the materials away from U.S. military suppliers.

AI Summary. Japan is installing missile batteries, radar towers, ammunition storage and other combat facilities across the 160-island Ryukyu chain, whose southern end lies about 110km east of Taiwan. It is also deploying F-35 fighter jets and long-range missiles on Kyushu and expanding its amphibious rapid deployment force.

Alastair Gale Bloomberg
Date Posted:

Japan is rapidly fortifying the Ryukyu island chain with major military assets such as F-35s, surface-to-air missiles and anti-ship missile batteries, including anti-ship missiles on Yonaguni, an island 68 miles east of Taiwan.

Is Japan turning its southern islands into a missile chain?

Core argument: Japan is installing missile batteries, radar towers, ammunition storage sites and other combat facilities across the 160-island Ryukyu chain, whose tail end, Yonaguni, lies 110 kilometers (68 miles) east of Taiwan.

Sitting just 110 kilometers (68 miles) east of Taiwan, Yonaguni marks the tail end of [the Ryukyu island chain], an archipelago stretching north to Japan’s main islands, a distance roughly equivalent to the length of the California coastline. Up and down the 160-strong island chain, Japan is quickly putting in place missile batteries, radar towers, ammunition storage sites and other combat facilities. It’s also beginning to deploy major military assets on Kyushu, the southernmost of Japan’s four main islands, including F-35 fighter jets and long-range missiles, as well as expanding its version of the US Marine Corps, known as the Amphibious Rapid Deployment Brigade.

Takeaways by Macro Roundup® AI

  1. Japan is installing missile batteries, radar towers, ammunition storage sites and other combat facilities across the 160-island Ryukyu chain, whose tail end, Yonaguni, lies 110 kilometers (68 miles) east of Taiwan.
  2. The Ryukyu archipelago stretches from Yonaguni north to Japan's main islands, a span roughly equivalent to the length of the California coastline.
  3. Japan is beginning to deploy F-35 fighter jets and long-range missiles on Kyushu, the southernmost of its four main islands, and expanding its Amphibious Rapid Deployment Brigade, its version of the US Marine Corps.

Related Articles:

  • Japan PM Takaichi Vows To Boost Defense Spending To 2% of GDP by March — Japan plans to raise defense-related spending to 2% of gross domestic product in the fiscal year ending March 2026, two years ahead of the existing target date of March 2028. The government also set economic goals it says require no tax increases and prioritized domestic energy sources including nuclear power and Japanese-developed perovskite solar cells.
  • Australia, Japan and US Sign ‘Historic’ Agreement on Naval Logistics — Australia, Japan, and the United States signed an agreement to boost logistical interoperability among their forces, letting their navies refuel, reload missile systems, repair ships, and share maintenance data, including flexible refueling at sea. Indo-Pacific militaries depend on sea and air transport for supplies, while fixed seaports and airports can be difficult to defend from attack.
  • U.S. Seeks To ‘Integrate’ Japan Into Defense Industrial Base — The U.S. and Japan are formalizing arrangements for U.S. Navy warships to undergo maintenance, repair, and overhaul at Japanese private shipyards, initially limited to the roughly two dozen ships forward-deployed to Japan. Expanding the work to U.S.-based ships, which could ease American maintenance bottlenecks, may require congressional action.

Wednesday, December 10, 2025

AI Summary. Transformational technologies have historically generated excessive enthusiasm and investment, producing more infrastructure than needed, asset prices that prove too high, and losses for those funding them, while also accelerating adoption. AI enthusiasm is argued to fit this pattern, with debt financing having the potential to magnify the effects.

Howard Marks Oaktree Capital
Date Posted:

Like previous “transformational technologies,” Marks writes, AI is going through a period of excess enthusiasm, valuations, and investment given the unfeasibility of knowing “which [firms] will emerge as winners.” Today, these dynamics are amplified by debt financing.

Does AI enthusiasm follow the historical pattern of technology investment bubbles?

Core argument: Transformational technologies have consistently generated excessive enthusiasm and investment, leaving more infrastructure than needed and asset prices that prove too high, and AI failing to follow that pattern would be a first.

There’s a consistent history of transformational technologies generating excessive enthusiasm and investment, resulting in more infrastructure than is needed and asset prices that prove to have been too high. These excesses accelerate the adoption of the technology in a way that wouldn’t occur in their absence. AI is currently the subject of great enthusiasm. If that enthusiasm doesn’t produce a bubble conforming to the historical pattern, that will be a first. Bubbles created in this process usually end in losses for those who fuel them. The losses stem largely from the fact that the technology’s newness renders the extent and timing of its impact unpredictable. This in turn makes it easy to judge companies too positively amid all the enthusiasm and difficult to know which will emerge as winners when the dust settles. There can be no way to participate fully in the potential benefits from the new technology without being exposed to the losses that will arise if the enthusiasm and thus investors’ behavior prove to have been excessive. The use of debt in this process – which the high level of uncertainty usually precluded in past technological revolutions – has the potential to magnify all of the above this time.

Takeaways by Macro Roundup® AI

  1. Transformational technologies have consistently generated excessive enthusiasm and investment, leaving more infrastructure than needed and asset prices that prove too high, and AI failing to follow that pattern would be a first.
  2. Losses from technology bubbles stem largely from the newness of the technology making the extent and timing of its impact unpredictable, which makes companies easy to judge too positively and eventual winners hard to identify.
  3. The use of debt, which high uncertainty usually precluded in past technological revolutions, has the potential to magnify the excesses and the resulting losses in the case of AI.

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.
  • On Benchmark Games, Gemini, and Declining Returns to Scale — Composite benchmarks show Google's Gemini roughly in line with GPT-5-class models, with any gap small, and the author argues it does not lead on strict low-leakage reasoning exams. The pattern reflects growing training costs yielding modest gains concentrated in vision, video, and some coding rather than broad reasoning advances.
  • 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. Private economists and Federal Reserve officials disagree about the level of the "neutral" interest rate—the inflation-adjusted short-term rate expected to prevail with the economy at full strength and stable inflation. Averaging model-based and market-based estimates puts the neutral real rate near 1.5%, and with expected inflation above the Federal Reserve's 2% target, the neutral nominal rate is correspondingly higher.

Tom Lawler Calculated Risk
Date Posted:

The average of various models of the real natural short rate and the “market’s” assessment has R* very close to 1.5%. With expected inflation > 2%, today’s 25bp cut will leave the funds rate “very close to the neutral nominal policy rate.”

How high is the neutral interest rate?

Core argument: Averaging model-based and market-based estimates puts the best guess for the neutral real short-term interest rate (R*) at very close to 1.5%, though private economists and Federal Reserve members disagree considerably about its level.

There is a considerable disagreement among both private economists and Federal Reserve members about the level of the so-called “neutral” rate of interest (which some label R*), which is the real (or inflation-adjusted) short-term interest rate expected to prevail if the economy is at full strength and inflation is stable. Some folks look to economic “models” to estimate R*, while other folks look to “the markets” for the “market’s” estimate of R*. If one takes the approach that the “best guess” estimate of R* is found by looking at the average of various models and the “market’s” assessment of R*, one would come to the conclusion that the current “best guess” estimate of the neutral real rate of interest is very close to 1.5%. “Consensus” forecasts as well as “market-based” measures suggest that expected inflation over the next year is above the Federal Reserve’s targeted inflation rate of 2%. As such, the current “neutral” nominal interest rate would be above a neutral real interest rate estimate where expected inflation was at 2%. If that is the case, and if, as expected, the FOMC decides to cut its federal funds rate target by 25 bp tomorrow, then the resulting level of the federal funds rate will be very close to the neutral nominal policy rate.

Takeaways by Macro Roundup® AI

  1. Averaging model-based and market-based estimates puts the best guess for the neutral real short-term interest rate (R*) at very close to 1.5%, though private economists and Federal Reserve members disagree considerably about its level.
  2. Consensus forecasts and market-based measures place expected inflation over the next year above the Federal Reserve's 2% target, which puts the neutral nominal interest rate above an estimate built on 2% expected inflation.
  3. A 25 basis point cut in the federal funds rate target by the FOMC would leave the resulting rate very close to the neutral nominal policy rate.

Related Articles:

  • Trump’s Interest Rate Obstacle Is Bigger Than Powell — Bloomberg Economics estimates the natural interest rate has climbed from a low of 1.7% in 2012 to about 2.5%, and projects 2.8% by 2030 as baby boomers retire, foreign savings gluts fade, and government borrowing rises — keeping ten-year Treasury yields between 4.5% and 5%.
  • The Race Between Asset Supply and Asset Demand — The authors estimate that demand for assets has outpaced supply by roughly 400% of GDP versus 100%, making rising asset demand the leading contributor to falling interest rates. They project that debt sustainability requires fiscal consolidation exceeding 10% of GDP, though debt could reach 250% of GDP without raising interest rates.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

AI Summary. China redirected domestic savings toward de-Westernizing its industrial supply chains through tighter capital controls, suspended stock listings, and concentrated bank lending, which the author argues was deflationary and produced poor investor returns. The author argues that if the US pursues comparable supply-chain separation from China, capital would shift into lower-return activities.

Louis-Vincent Gave Gavekal
Date Posted:

Gave argues that post-2018, China undertook a painful process of de-Westernizing its supply chain. To de-Sinify American supply chains, the US would have to redeploy capital into activities with lower returns, which is politically unpalatable.

How does redirecting national savings toward supply-chain separation affect investor returns?

Core argument: China spent seven years capturing domestic savings through tighter capital controls, suspended IPOs, and concentrated bank lending, redirecting the money toward de-Westernizing its industrial supply chains.

For China, saving the economy’s long term prospects meant rapidly de-Westernizing its supply chains. Concretely, this meant capturing the massive pool of Chinese savings and redirecting the money away from everything but the single goal of de-Westernizing supply chains. This was massively deflationary for China, and for the world. Essentially, for seven long years China went on a diet, and went to the CrossFit gym. And as all of China’s savings were captured—through tighter capital controls, the suspension of IPOs, and the concentration of bank lending—and redirected towards China’s industrial supply chains, returns for investors were dreadful. The capital markets serving the world’s second largest economy became “uninvestible.” Meanwhile, over the same period, the US did absolutely nothing to de-Sinify its own supply chain. While China hit the gym, the US partied. If US policymakers really are serious about de-Sinifying supply chains, will America’s elites accept the redeployment of capital into activities with lower returns on invested capital, and that in consequence the stock market will struggle and the US dollar roll over?

Takeaways by Macro Roundup® AI

  1. China spent seven years capturing domestic savings through tighter capital controls, suspended IPOs, and concentrated bank lending, redirecting the money toward de-Westernizing its industrial supply chains.
  2. The redirection of Chinese savings into supply-chain de-Westernization was deflationary for China and the world, leaving investor returns dreadful and the capital markets of the world's second-largest economy "uninvestible.".
  3. The United States did nothing to de-Sinify its own supply chains, raising the question of whether American elites would accept capital redeployed into activities with lower returns on invested capital, a struggling stock market, and a falling dollar.

Related Articles:

  • China’s Trade Surplus Tops $1 Trillion After Exports Rebound — China's trade surplus reached $1.1tn in 11 months, exceeding its previous full-year record, as strong export growth to the European Union and Africa more than offset a 29% drop in shipments to the US. France's president has warned the EU may impose tariffs if Beijing does not address the imbalance.
  • The Fracturing Of The World Economy — The US would gain relative to China from a fracturing world economy because its bloc of allies includes nearly all advanced countries, accounting for 68% of world GDP at market prices versus 26% for China's bloc. China's structural current account surplus also leaves it reliant on the US and its allies as safe places to invest those funds.
  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.

AI Summary. Goldman Sachs estimates the Chinese yuan is about 25% undervalued on a weighted average of two of its models: one based on productivity and terms of trade puts fair value at 5 per US dollar versus roughly 7.06 in the market, while a current-account-based model finds it 12% undervalued.

Srinivasan Sivabalan Bloomberg
Date Posted:

The weighted mean of two GS models, one based on terms of trade and productivity, the other on the current account, have the yuan 25% undervalued. “The strengthening we project would still leave the currency comfortably in inexpensive territory.”

Is the yuan undervalued relative to its economic fundamentals?

Core argument: Goldman Sachs puts the yuan 25% below fair value on a weighted average of two models, against a traded level of about 7.06 per US dollar on Wednesday.

The Goldman Sachs Dynamic Equilibrium Exchange Rate (GSDEER), which posits that exchange rates will eventually reflect differences in productivity and terms of trade, has the yuan’s fair value pegged at 5 per US dollar. The currency traded at around 7.06 on Wednesday. Meanwhile, the Goldman Sachs Fundamental Effective Exchange Rate (GSFEER) framework, which tracks the current account’s influence on exchange rates, finds the yuan 12% undervalued. The weighted average of the two models has the currency pegged at 25% below its fair value. Forwards contracts for the fourth quarter of 2026 price the currency offshore at 6.91 per dollar, or about 2% stronger than its current level, according to data compiled by Bloomberg.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs puts the yuan 25% below fair value on a weighted average of two models, against a traded level of about 7.06 per US dollar on Wednesday.
  2. Goldman Sachs's GSDEER model, which posits exchange rates eventually reflect differences in productivity and terms of trade, pegs the yuan's fair value at 5 per US dollar, while its current-account-based GSFEER framework finds the currency 12% undervalued.
  3. Forward contracts for the fourth quarter of 2026 price the offshore yuan at 6.91 per dollar, about 2% stronger than its current level, according to data compiled by Bloomberg.

Related Articles:

  • The Case that China is Now Actively Resisting Pressure on the Yuan to Appreciate — 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.
  • 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%.
  • 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.

AI Summary. Chinese AI developer DeepSeek used Nvidia Blackwell chips that were smuggled into China through countries where their sale was permitted, according to a report citing unnamed sources. The chips were installed in data centers abroad, then dismantled and shipped to China after clearing inspection by server-equipment companies.

Mark Bergen Bloomberg
Date Posted:

DeepSeek has been developing its upcoming model with Nvidia’s Blackwell chips that were smuggled into the country after being removed from datacenters in third countries.

Are Chinese AI developers obtaining banned chips through smuggling routes?

Core argument: DeepSeek used Nvidia Blackwell chips barred from export to China, which were smuggled in through countries where their sale was permitted, The Information reported, citing unnamed sources.

Nvidia’s Blackwell chips were smuggled into China through countries that permitted their sale, The Information reported, citing unnamed sources. More specifically, DeepSeek tapped chips that were installed in data centers in unspecified countries, then dismantled and shipped to China after clearing inspection by companies developing server equipment. A representative for DeepSeek didn’t immediately respond to a request for comment.

Takeaways by Macro Roundup® AI

  1. DeepSeek used Nvidia Blackwell chips barred from export to China, which were smuggled in through countries where their sale was permitted, The Information reported, citing unnamed sources.
  2. The chips were installed in data centers in unspecified countries, then dismantled and shipped to China after clearing inspection by companies developing server equipment, according to The Information.
  3. A representative for DeepSeek did not immediately respond to a request for comment on the report.

Related Articles:

  • America’s Chip Restrictions Are Biting in China — Shortages of advanced semiconductors in China are acute enough that authorities have begun intervening in how output from Semiconductor Manufacturing International, the country's largest contract chip maker, is distributed, prioritizing Huawei's artificial-intelligence chip production. Chinese firms also smuggle Nvidia chips or access them remotely through cloud computing abroad.
  • The Geopolitics of AI: Decoding the New Global Operating System — The performance gap between the top American and Chinese AI models narrowed from 9.3% to 1.7%, with Chinese firms relying on cheaper open-source models—DeepSeek prices usage 20-40x below OpenAI's ChatGPT. This price advantage could win adoption in developing countries and build dependency on Chinese AI ecosystems.
  • DeepSeek Debates: Chinese Leadership On Cost, True Training Cost, Closed Model Margin Impacts — Estimates put algorithmic progress in artificial intelligence at roughly 4x per year, meaning the compute needed for a given capability level falls 4x annually, with some industry leaders arguing improvements run closer to 10x. The Bank of China announced a $140bn (1tn yuan) five-year subsidy for the AI industry chain aimed at making China self-reliant in science and technology.