“…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
“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
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“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
“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
“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
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Research on international trade beyond headline deficit figures, including specialization, tariffs, industrial policy, supply chains, productivity, wages, and consumer gains. Coverage examines how trade reshapes firms, workers, and national economies.
AI Summary.China's exports rose 36% from a year earlier and imports 31%, widening its monthly trade surplus to almost $134bn and putting the annual surplus on track to exceed the $1.2tn record. High-tech shipments jumped almost 64%, which Bloomberg Economics estimates accounted for about half of total export growth.
James Mayger and Paul AbelskyBloomberg
Date Posted:
China’s goods trade surplus is on track to exceed 2025’s $1.2T. China’s trade surplus with the EU is up 21% y/y.
Is China's trade surplus heading to a new record on export growth?
Core argument: China’s exports rose 36% year-over-year in September, the fastest pace since February, while imports rose 31%, widening the monthly trade surplus to almost $134 billion and exceeding every forecast in a Bloomberg survey of economists.
China’s export growth surged the most since February to drive global imbalances to new highs, with its trade surplus this year on track to exceed the $1.2 trillion record set in 2025. Shipments abroad soared 36% last month from a year earlier and imports jumped 31%, data released by China’s General Administration of Customs showed on Wednesday. As a result, the surplus for September widened to almost $134 billion, exceeding every forecast in a Bloomberg survey of economists. The imbalance has continued to balloon since US President Donald Trump ramped up tariffs soon after reclaiming the White House at the start of last year, showing the limits of the policy in the middle of the AI buildout. Shipments of high-tech products soared almost 64% in September, which Bloomberg Economics estimates contributed around half of China’s total export growth.
Takeaways by Macro Roundup® AI
China’s exports rose 36% year-over-year in September, the fastest pace since February, while imports rose 31%, widening the monthly trade surplus to almost $134 billion and exceeding every forecast in a Bloomberg survey of economists.
China’s trade surplus this year is on track to exceed the $1.2 trillion record set in 2025, with the imbalance continuing to grow after US President Donald Trump raised tariffs at the start of last year.
Chinese shipments of high-tech products soared almost 64% in September, contributing around half of total export growth, according to Bloomberg Economics estimates.
Related Articles:
The World Should Not Ignore China’s Undervalued Currency— China's reported current account surplus of about 4% of GDP is roughly 3 percentage points above the International Monetary Fund's estimated norm, implying a currency undervaluation of about 20%. Adjusting for surging gold imports and a misreported investment income deficit would lift the surplus to about 6% of GDP and the estimated undervaluation to 30–35%.
World Economic Outlook: Resilience Under Strain, Urgent Choices— Global current account balances widened to about 3.8% of world GDP, driven mainly by a rise in China's surplus to about 0.6% of world GDP (3.7% of China's GDP) and larger surpluses across other Asian economies, while the United States remained the largest deficit economy at about 1% of world GDP. Imbalances are projected to remain elevated.
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
AI Summary.The United States generates almost twice as much economic output per dollar invested as China, the opposite of what would be expected from a mature developed economy versus a fast-growing economy catching up. The gap points to overexuberance in Chinese investment.
Robin Rivaton and Ben SouthwoodWorks In Progress
Date Posted:
The US generates ~2x as much output per dollar of capital as China. Rivaton and Southwood argue that relentless competition among Chinese subnational governments, who account for ~85% of public expenditure, drives industrial growth at the cost of reduced capital efficiency.
Does China get less economic output per dollar invested than America?
Core argument: The United States obtains nearly twice as much GDP from every dollar invested as China does, measured by the capital efficiency ratio of output to invested capital stock.
Overexuberance is visible in economic data. Interest rates that banks pay to depositors are capped, giving banks artificially cheap capital. Entrepreneurs may be backed to attempt extremely unlikely, borderline schemes. The capital efficiency ratio measures how much output a country gets out of the capital stock it has invested – how many dollars of GDP a country can buy with a dollar of investment. The United States gets almost twice as much economic output out of every dollar it invests as China does, precisely the opposite of what we would expect from a developed country with a mature economy versus a rapidly growing country playing catch up.
Takeaways by Macro Roundup® AI
The United States obtains nearly twice as much GDP from every dollar invested as China does, measured by the capital efficiency ratio of output to invested capital stock.
China’s capital efficiency inverts the expected pattern, in which a rapidly growing catch-up economy would extract more output per dollar of investment than a mature developed economy.
Overexuberance is visible in Chinese macroeconomic data, with China’s investment generating less economic output per dollar than that of the United States.
Related Articles:
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
Xi’s Superpower Ambitions Fuel a Dangerous Debt Spiral in China— China's credit to the nonfinancial sector—corporate, government and household borrowing—topped 300% of gross domestic product, 60 percentage points above its end-2019 level and larger than in the US, according to the Bank for International Settlements. The International Monetary Fund estimates broad Chinese government debt, including local financing vehicles, reached 127% of GDP, up from 98% in 2020.
Is China’s High-Quality Investment Output Economically Viable?— China's technological progress and infrastructure do not refute claims of overinvestment, since overinvestment often produces real physical assets and technological gains yet still counts as overinvestment when it generates less real value than the resources, subsidies, and transfers it consumes. When such losses are capitalized, assets are carried above their real economic value.
AI Summary.China's export growth accelerated after its currency depreciated, which the author argues is evidence that exchange rate moves, not just domestic demand, drive its trade surplus. Because Chinese domestic demand growth no longer pulls in imports, the author contends there is no realistic path to balanced trade without a stronger renminbi.
Brad SetserCouncil on Foreign Relations
Date Posted:
China’s export growth accelerated following the RMB’s depreciation in 2022, underscoring the role of exchange rates as a factor in external adjustment. Since rising domestic demand no longer lifts imports, Setser argues, reducing China’s trade surplus will require a stronger RMB.
Does balancing China's trade require a stronger currency?
Core argument: China requires a 1.5 percentage point contribution from net exports to growth each year, putting it on a collision course with trading partners absent a currency correction that supports more balanced trade even without trade restrictions.
The best evidence that exports responded to changes in the currency, and not simply to changes in the path of China’s internal demand, is the acceleration in China’s export growth after the RMB’s depreciation over the course of 2022. Those who believe the path of internal demand is critical to rebalancing and that exchange rate moves are secondary need to explain how an acceleration in domestic demand would, on its own, lead China’s external accounts to adjust. One important, stylized fact about China is that domestic demand growth is no longer feeding over to import growth (ex-gold, that is). Bottom line: China, which needs a 1.5 percentage point contribution from net exports every year, is on a collision course with its trading partners without a currency correction that provides the basis for more balanced trade even in the absence of trade restrictions. And there isn’t a realistic path towards balance that doesn’t involve a stronger RMB; there aren’t, as Paul Krugman once put it, immaculate transfers.
Takeaways by Macro Roundup® AI
China requires a 1.5 percentage point contribution from net exports to growth each year, putting it on a collision course with trading partners absent a currency correction that supports more balanced trade even without trade restrictions.
The acceleration in China’s export growth following the renminbi’s depreciation over 2022 is the best evidence that exports responded to the currency rather than to the path of China’s internal demand.
Domestic demand growth in China no longer feeds through to import growth, excluding gold, and no realistic path toward external balance avoids a stronger renminbi.
Related Articles:
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
Why the World Needs to Force China’s Yuan to Revalue— Goods prices have fallen in China since the pandemic while rising in developed markets, driving the inflation-adjusted yuan exchange rate sharply lower and increasing China's competitiveness. Goldman Sachs economists estimate China's price discount versus foreign peers at 32% in electric vehicles, 38% in refrigerators and 53% in shoes.
The World Should Not Ignore China’s Undervalued Currency— China's reported current account surplus of about 4% of GDP is roughly 3 percentage points above the International Monetary Fund's estimated norm, implying a currency undervaluation of about 20%. Adjusting for surging gold imports and a misreported investment income deficit would lift the surplus to about 6% of GDP and the estimated undervaluation to 30–35%.
AI Summary.Federal Reserve Bank of New York researchers estimate that about 26% of a uniform tariff passes through into non-oil consumer goods prices over twelve months, with roughly 64% of that effect coming directly from higher import prices and the rest through domestic producers' input costs and markups. Pass-through into import prices is nearly immediate, while domestic price responses build gradually.
Mary Amiti,Sebastian Heise and David WeinsteinFederal Reserve Bank of New York
Date Posted:
Is Database:
Database
FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.
How much of a tariff reaches consumer prices within a year?
Core argument: Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
Tariff pass-through into U.S. import prices is nearly complete. Instrumenting realized duty rates with statutory tariffs to account for endogenous sourcing and exemptions, tariff pass-through into consumer-goods import prices is about 90.5%; a 10% increase in the duty rate raises import prices about 9.1%. At twelve months, a uniform 10% tariff raises consumer-goods prices 2.639%: 1.694pp through the direct channel, 0.770pp through marginal costs, and 0.175pp through strategic complementarity. Import-price pass-through is essentially immediate, while domestic prices adjust gradually; the contribution of the two indirect channels roughly doubles between six and twelve months, with much of the overall adjustment occurring within nine to twelve months. For the actual 2025–26 tariffs, the direct channel accounts for about 70% of the estimated effect; the marginal-cost channel accounts for about 22%, with strategic complementarity accounting for the remainder. Because the regressions include date fixed effects, the tariff contribution is identified relative to less-exposed goods and should be read as illustrative rather than as the absolute contribution to aggregate goods CPI.
Takeaways by Macro Roundup® AI
Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
The two indirect channels — marginal costs from imported inputs (0.77 percentage points) and strategic complementarity in domestic markups (0.17 points) — account for 36 percent of the total effect and roughly double between six and twelve months after tariff implementation.
Applied to the actual 2025–26 tariff schedule, the authors estimate the cumulative tariff contribution to goods CPI reached about 2.9 percentage points by February 2026, with import-price pass-through near 90 percent and retail pass-through of 0.56.
Related Articles:
The State of U.S. Tariffs July 24, 2026— The average statutory US tariff rate stands at 11.1% and, under current law including scheduled increases, is projected to reach 11.8% by year-end. The authors estimate current-law tariffs will raise consumer prices by about 0.7% and generate roughly $1.9tn over ten years, with revenue somewhat lower after accounting for tariffs' negative effect on economic output.
Who Is Paying for the 2025 U.S. Tariffs?— The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.
Demand-Driven Inflation— Demand and supply curves estimated from pre-pandemic data imply relatively flat demand curves in the US and euro area, so adverse supply shifts would produce large output losses but comparatively little inflation. The authors argue explaining the observed combination of high inflation and output requires outward demand shifts, including accommodative monetary policy alongside fiscal expansion.
AI Summary.Japan, China, South Korea and Taiwan together hold just under $30tn in gross foreign assets, a five-fold rise over two decades, and about $10tn in net foreign assets. The author argues a current account surplus dominated by investment income, which tends to be reinvested abroad, generates less currency appreciation pressure than one driven by trade.
Udith SikandGavekal
Date Posted:
Northeast Asia’s ~$10T in net foreign assets would yield $400B annually at 4%, versus its ~$600B mean current-account surplus. Unlike export earnings, much investment income is reinvested abroad, creating less appreciation pressure.
Does investment income create less currency appreciation pressure than trade surpluses?
Core argument: Japan, China, South Korea and Taiwan together hold just under $30tn in gross foreign assets, a five-fold increase over the past two decades, with net foreign assets of about $10tn after liabilities to foreigners.
Japan, China, South Korea and Taiwan now hold nearly US10T net. At a 4% return, those net assets would generate roughly $600B over the past decade. The composition matters for exchange rates: exporters typically convert more of their foreign earnings into local currency to meet domestic costs, while foreign investment income is more likely to be reinvested abroad. A current-account surplus increasingly driven by investment income therefore creates less appreciation pressure than an equivalent trade surplus.
Takeaways by Macro Roundup® AI
Japan, China, South Korea and Taiwan together hold just under $30tn in gross foreign assets, a five-fold increase over the past two decades, with net foreign assets of about $10tn after liabilities to foreigners.
At the current 4% federal funds rate, $10tn of net foreign assets would imply roughly $400bn a year in net investment income for the four Northeast Asian economies, against a combined current account surplus averaging about $600bn over the last decade.
A current account surplus dominated by investment income generates less appreciation pressure than one dominated by trade, as exporters are more likely to repatriate and convert dollar earnings to cover domestic input costs while investment-income earners are more likely to reinvest abroad.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
Who Will Win The War Of Neo-Mercantilists?— China's manufacturing export surplus is around 2% of world GDP, roughly twice the largest surplus Japan ever ran, while domestic demand has stalled. Unexplained negative net income of about $125bn on its $4tn in net foreign assets, versus an expected $100bn surplus, supports the argument that the renminbi is about 30% undervalued.
The Real Problem With Global Trade— Asia's $1.5tn trade surplus is larger as a share of world output than at any point since 1945 and is the only large surplus in the global economy. Exchange rates have a meaningful impact on trade balances: China's surplus reached about 10% of its output amid renminbi depreciation, then fell below 2% after a 40% real appreciation.
AI Summary.The U.S.-bound shipping network once turned about 89% of potential fleet capacity into effective service, but utilization fell below 70% as ships waited at anchor, slowed steaming, or sailed around maritime bottlenecks, and has not recovered. Diverting vessels around the Cape of Good Hope drives much of the loss.
Xiwen Bai, Jesús Fernández-Villaverde, Yiliang Li, Ricardo Marto and Francesco ZanettiNational Bureau Of Economic Research
Date Posted:
US-bound shipping can fall far short of potential after disruptions. Pandemic queuing and slow steaming drove effective capacity from ~89% of potential to <70%. Later, Houthi attacks left it near 79% as ships rerouted around the Cape of Good Hope.
Why has shipping capacity to America not regained its prior utilization?
Core argument: The U.S.-bound shipping network converted about 89% of potential fleet capacity into effective service in 2016–2019, but aggregate utilization fell below 70% in 2021–2022 as ships waited at anchor, steamed slowly, or sailed around maritime bottlenecks.
In 2016–2019, the U.S.-bound shipping network turned about 89% of the fleet’s potential capacity into effective service [Figure 3.5]. During 2021–2022, effective capacity declined despite potential capacity reaching record highs. Pandemic-era port congestion and slower steaming pushed aggregate utilization below 70%. On the Asia-Pacific–U.S. West Coast route, utilization fell from about 92% before 2020 to 53% by late 2021. The route has since recovered but remains below its old peak. The network as a whole has not regained its pre-pandemic utilization. More recently, rerouting after the 2023–2024 Houthi attacks in the Red Sea held aggregate utilization near 79%. Utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via Suez fell to 48% and 61%, respectively, largely because diversion around the Cape of Good Hope lengthened voyages without increasing cargo delivered.
Takeaways by Macro Roundup® AI
The U.S.-bound shipping network converted about 89% of potential fleet capacity into effective service in 2016–2019, but aggregate utilization fell below 70% in 2021–2022 as ships waited at anchor, steamed slowly, or sailed around maritime bottlenecks.
Utilization on the Asia-Pacific–U.S. West Coast route dropped from 92% before 2020 to 53% by late 2021 amid port congestion and slower steaming, recovering since but remaining well below its old peak.
Since late 2023, utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via the Suez Canal has fallen to 48% and 61%, with diversions around the Cape of Good Hope driving much of the loss as ships travel longer distances without delivering additional cargo.
Related Articles:
How to Fight an Economic War— China earned about $3.4bn from exporting rare-earth elements and magnets in a year, while the U.S. Geological Survey estimates a 30% disruption to U.S. supply of the rare-earth element neodymium alone would cut U.S. GDP by 2.2%, over $600bn. This asymmetry gives Chinese export controls their leverage.
Industrial Policy and Economic Security— Industrial policy justified on national security grounds requires weighing how much economic inefficiency is worth tolerating, since costs incurred today make a country poorer and therefore less able to project power later. The calculation is difficult because security gains are probabilistic and long-term economic costs are speculative.
The Rise Of The Security Premium— Energy security concerns, not environmentalism, are argued to drive the buildout of solar, wind, and nuclear power, since domestic generation avoids chokepoints like Hormuz, the Red Sea, and the Panama Canal. China and India are expected to demand higher strategic stockpiles of energy and other critical commodities, repricing security above efficiency.
AI Summary.China faces three options as external demand weakens: shift a larger share of national income to households so consumption absorbs more output, keep relying on investment despite weak returns, or let production and growth slow. The first requires substantial changes in income distribution and saving incentives; the second risks more debt and excess capacity; the third implies higher unemployment.
Michael PettisChina Financial Markets
Date Posted:
“Beijing cannot choose whether China will adjust; one way or another, it will.” Pettis warns Zhongnanhai against postponing rebalancing with another round of debt-financed investment “despite increasingly weak returns.”
What choices does China face as external demand weakens?
Core argument: China faces three options: shift a larger share of national income to households so consumption absorbs more output, keep relying on investment despite weak returns, or allow production and growth to slow.
What it can choose is how painful that adjustment will be. If weaker external demand is met by encouraging more borrowing and domestic investment, regardless of whether that investment is economically justified, China risks postponing the inevitable. China therefore faces the same basic choice Japan confronted, but with deeper imbalances and less accommodating global conditions. It can shift a larger share of national income toward households and allow consumption to absorb more of what the economy produces; or it can continue relying on investment, despite increasingly weak returns; or it can allow production and growth to slow. The first choice requires a substantial change in the domestic distribution of income and the incentives to save. The second risks still more debt and excess capacity and, ultimately, a more painful adjustment. The third implies higher unemployment and weaker growth.
Takeaways by Macro Roundup® AI
China faces three options: shift a larger share of national income to households so consumption absorbs more output, keep relying on investment despite weak returns, or allow production and growth to slow.
China confronts the same basic choice Japan faced, but with deeper imbalances and less accommodating global conditions, and can choose only how painful the adjustment will be.
Meeting weaker external demand with more borrowing and domestic investment, regardless of whether it is economically justified, risks further debt and excess capacity and a more painful adjustment, while slower growth implies higher unemployment.
Related Articles:
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
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.
Record Influx Of University Graduates Pushes China’s Youth Unemployment Rate To 18.9%— China's urban unemployment rate for 16- to 24-year-olds excluding students reached 18.9%, the highest since the statistics agency revised its methodology to exclude students. A record influx of university graduates is entering a job market weighed down by weak domestic demand and growing adoption of artificial intelligence.
AI Summary.East Asian economies accumulated large US dollar and euro reserves by building export machines based on undervalued currencies, a strategy one analyst argues has run its course. He contends China should revalue aggressively and return to market-determined prices, since the resulting accounting losses reflect real losses already incurred.
Charles GaveGavekal
Date Posted:
Charles Gave argues that East Asia’s post-1997 model of undervalued currencies, which has generated >5T in FX reserves, has run its course. His prescription is aggressive China-led revaluation to shift purchasing power toward Asian consumers.
Should China revalue its currency aggressively and let markets set prices?
Core argument: Gave argues that East Asia’s strategy of building export machines on undervalued currencies to accumulate large US dollar and euro reserves has run its course.
To accumulate their huge reserves of US dollars and euros, [East Asia] built formidable export machines based on undervalued currencies. [Gave sees] only one solution: to return to market-determined prices as quickly as possible. As the leading economy in the region, China should bite the bullet and say the time has come to revalue aggressively. Yes, Asia will take accounting losses. But that does not greatly matter; the actual losses have already been taken a long time ago.
Takeaways by Macro Roundup® AI
Gave argues that East Asia’s strategy of building export machines on undervalued currencies to accumulate large US dollar and euro reserves has run its course.
Gave sees a return to market-determined prices as quickly as possible as the only solution, with China, as the region’s leading economy, revaluing aggressively.
Gave contends that the accounting losses Asia would take on revaluation do not greatly matter because the actual losses were taken long ago.
Related Articles:
The World Should Not Ignore China’s Undervalued Currency— China's reported current account surplus of about 4% of GDP is roughly 3 percentage points above the International Monetary Fund's estimated norm, implying a currency undervaluation of about 20%. Adjusting for surging gold imports and a misreported investment income deficit would lift the surplus to about 6% of GDP and the estimated undervaluation to 30–35%.
Who Will Win The War Of Neo-Mercantilists?— China's manufacturing export surplus is around 2% of world GDP, roughly twice the largest surplus Japan ever ran, while domestic demand has stalled. Unexplained negative net income of about $125bn on its $4tn in net foreign assets, versus an expected $100bn surplus, supports the argument that the renminbi is about 30% undervalued.
The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism— About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
