The Tariff Inflation Shock Starts To Hit
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Showing 56 database articles primarily about Trade (not deficits)
The Global Economy Is Threatened Again by Trade Imbalances
AI Summary. Global trade imbalances have reached 3.7% of world economic output, the highest since the 2008 financial crisis, as deficits and surpluses have become more persistent and structurally entrenched across economies.
Greg Ip The Wall Street Journal- Date Posted:
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Greg Ip warns that while global imbalances are “narrower” than they were pre-crisis, “they are more persistent and more entrenched in national behavior,” pointing to China’s trade surplus and chronic US fiscal deficits.
Are persistent trade imbalances becoming a structural threat to global stability?
Core argument: Global trade imbalances reached 3.7% of GDP last year, up from a post-2008 low, driving renewed financial stability risks across.
The IMF calculates that deficits plus surpluses reached 3.7% of global gross domestic product last year after falling steadily from around the global financial crisis. Until the early 2000s, they fluctuated between 1% and 3%. This is worrisome. Current-account deficits played a part in the crises that swept Latin America in the early 1980s, East and Southeast Asia in the late 1990s, the U.S. in 2007-09, and the eurozone from 2009 on. Today’s imbalances look different. While annual deficits are narrower than 15 years ago, they are more persistent and more entrenched in national behaviour. Take the U.S., whose current-account deficit of $1.1 trillion is by far the largest single imbalance. Last year, tariffs did reduce some imports, but because the AI boom sucked in foreign-made tech equipment, the current-account deficit narrowed only slightly. The bigger contributor to the U.S. current-account deficit is its budget deficit, which sustains excessive U.S. spending and inadequate saving. The IMF estimates a budget deficit of 2% of GDP increases the current-account deficit by 0.5% of GDP.Takeaways by Macro Roundup® AI
- Global trade imbalances reached 3.7% of GDP last year, up from a post-2008 low, driving renewed financial stability risks across.
- Current-account deficits have narrowed vs. 15 years ago but grown more persistent, leading to entrenched structural imbalances that amplify systemic.
- Trade imbalances fluctuated 1–3% of GDP through the early 2000s before spiking post-crisis, indicating a structural shift in savings behavior.
Related Articles:
- Understanding Global Imbalances — Four economies—the United States, China, Germany, and Japan—account for roughly two-thirds of global imbalances, with current account surpluses and deficits now lasting twice as long as they did in the 1980s. Persistent imbalances have accumulated into large foreign asset and liability positions, with the United States holding net foreign liabilities
- Why Global Imbalances Matter — Surplus economies depend on deficit countries as buyers of excess goods, giving deficit nations structural leverage despite appearing financially weak.
- The U.S. Trade Deficit: Myths and Realities — Obstfeld @PIIE argues that current account deficits have not been forcibly “imposed” on the US from abroad since 2002. Rejecting Pettis’ tax on capital flows…
Japan, South Korea and Taiwan Are Suffering Industrial Rot
AI Summary. North-east Asian manufacturing has become almost entirely dependent on AI-related production, with all 15% of the region's industrial output growth since 2019 driven by AI-linked goods. Output at factories unrelated to AI has shrunk, leaving chips and data-centre hardware accounting for 40–80% of exports across South Korea and Taiwan.
Economist Staff The Economist- Date Posted:
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The industrial production of Japan, South Korea and Taiwan has risen 15% since 2019 – entirely driven by AI-related demand. Apart from chip-making, IP has shown no trend since 2011. The fall in non-chip output is likely due to Chinese competition.
Is North-East Asia's economy becoming dangerously dependent on AI manufacturing?
Core argument: Japan, South Korea and Taiwan Are Suffering Industrial Rot.
North-east Asian manufacturing is getting narrower. Chips and other gear related to AI make up over 40% of South Korean exports, more than double their share just two years ago. In Taiwan it is 80% of exports, compared with about half before the pandemic. After accounting for firms not neatly captured as AI-linked in official statistics, like Japan’s Advantest (which makes chip-testing gear) and Taiwan’s Foxconn (which produces data-centre servers, among other electronics), The Economist finds that all 15% of the region’s rise in industrial output since 2019 is thanks to AI. In Japan, South Korea and Taiwan output at factories unrelated to AI has shrunk in recent years.Takeaways by Macro Roundup® AI
- Japan, South Korea and Taiwan Are Suffering Industrial Rot.
- North-east Asian manufacturing is getting narrower.
- In Taiwan it is 80% of exports, compared with about half before the pandemic.
Related Articles:
- China’s Next-Generation Industrial Policy — China's exports are shifting away from consumer goods and toward intermediate inputs and capital goods, with those categories rising 26% and 32% respectively over three years. This reflects a strategy of progressively localizing entire supply chains, embedding China deeper into global manufacturing systems as a supplier of components and machinery
- China Is Making Trade Impossible — Robin Harding argues, “China is making trade impossible. If it will buy nothing from others but commodities and consumer goods, they must prepare to do…
- Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — GS estimates that for every 1pp export-driven increase in Chinese GDP, advanced economies experience a 0.1–0.3pp drag. “China Shock 2.0 is likely to crowd out…
State of U.S. Tariffs: February 21, 2026
John Iselin Yale University- Date Posted:
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The new 15% tariffs under Section 122 bring the mean effective tariff rate to 13.7%, down from 16.9% prior to the SCOTUS ruling that the IEEPA tariffs were illegal. Section 122 tariffs will expire in 150 days unless extended by Congress.
Related Articles:
- US Notches One of Its Biggest Annual Trade Gaps Since 1960 — The US trade deficit was $901.5B in 2025, effectively unchanged from 2024 despite the new tariff regime. The US bilateral deficit with China fell to $202B, the…
- Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — Tariffs implemented during the 2018-2019 trade war were “at best a wash, and may have been mildly negative” in terms of employment, but increased political…
- Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age — In a study of over 80 US manufacturing industries from 1870-1909 @cmicmeissner concludes that higher tariff rates reduced labor productivity. “The era’s high…
Trump’s Options After the Supreme Court Said His Tariffs Are Illegal
Isabel Gottlieb Bloomberg- Date Posted:
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Trump has at least five tools he can use to offset the IEEPA tariffs; however, none of them offer the latitude that Trump’s interpretation of IEEPA allowed. Section 338 of Smoot-Hawley, which has never been used, likely has the broadest scope.
Related Articles:
- Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — Tariffs implemented during the 2018-2019 trade war were “at best a wash, and may have been mildly negative” in terms of employment, but increased political…
- The Incidence of Tariffs: Rates and Reality — Actual 2025 tariff rates are, to date, far less than statutory rates, but the costs of the tariffs are mostly borne by the US – estimated tariff…
- Who Is Paying for the 2025 U.S. Tariffs? — A FRBNY analysis finds that ~90% of tariffs’ economic burden was borne by American firms and consumers in the first 8 months of 2025. Between January and…
State of U.S. Tariffs: February 20, 2026
John Iselin Yale University- Date Posted:
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Without the IEEPA tariffs, the mean effective tariff rate is 9.1%, down from 16.9%. The previous tariff regime was projected to raise ~$2.7T over 2026–35 ($2.3T dynamically). The SCOTUS decision will cut revenue by about 50% to ~$1-1.2T with or without refunds.
Related Articles:
- US Notches One of Its Biggest Annual Trade Gaps Since 1960 — The US trade deficit was $901.5B in 2025, effectively unchanged from 2024 despite the new tariff regime. The US bilateral deficit with China fell to $202B, the…
- China Is Making Trade Impossible — Robin Harding argues, “China is making trade impossible. If it will buy nothing from others but commodities and consumer goods, they must prepare to do…
- Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — GS estimates that for every 1pp export-driven increase in Chinese GDP, advanced economies experience a 0.1–0.3pp drag. “China Shock 2.0 is likely to crowd out…
Industrial Policies, Global Imbalances and Technological Hegemony
Ambrogio Cesa-Bianchi, Andrea Ferrero, Luca Fornar, and Martin Wolf Bank of England- Date Posted:
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Cesa-Bianchi et al show that countries (primarily in East Asia) that make more intensive use of industrial policies have had more rapid growth in manufacturing employment, total factor productivity, and exports, but not larger trade surpluses.
Related Articles:
- The Dangerous Triumph Of Neo-Mercantilism — China’s refusal to address its excess saving will likely fracture the global economy, Wolf argues. He suggests reviving Keynes’ attempt, rejected by the US at…
- Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — GS estimates that for every 1pp export-driven increase in Chinese GDP, advanced economies experience a 0.1–0.3pp drag. “China Shock 2.0 is likely to crowd out…
- Europe Has No Choice But To Intervene On Trade — Pettis argues that unless the EU is “willing to dismantle its welfare system and force down wages relative to productivity to restore competitiveness,” it must…