YouSaid · the spoken record

Brad Setser

lines on the record: 45
first: 2023-06-09
most recent: 2023-06-09
sittings or episodes: 1
sources: podcast

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“Has to be using up some of the dollars you generate and lending them out. And that mechanism of recycling in complex ways seems to have included the policy banks and the Belt and Road loans. That is the best explanation I can come up with. But it is a mystery, and you would think that China would have made more of an effort, not just to use the Yuan to settle bilateral trade to make that trade a bit removed from sanctions, but would have made an effort to kind of make the yuan into a global currency of denomination for debt contracts in the easiest way.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“To some degree, the money trail has gotten a little faint, a little harder to follow. But I think a lot of the funding for XM and CDB coming from various internal funds, some of which have support from China's reserves, probably CDB gets some swaps from someone in China, Bank of China, PBOC would be the logical ones in dollars. So if you're taking in dollars, you got to lend out dollars. And so it becomes necessary in order to recycle China's global surplus. Chinese reserves have been flat roughly since 2016, so seven-ish years. During that period, the net foreign asset position of both the state commercial banks and the policy banks has probably gone up by 1.5 trillion. So if you're recycling a big surplus, someone in the economy”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Why in dollars? I presume because at the origin this was an effort to recycle China's dollar surplus, its trade surplus, and to use dollars in a way that didn't add to the formal reported reserves of China's central bank. We know that was the case in some of the early first steps in the Belt and Road. There was something called an entrusted loan, which money from China is foreign exchange reserves that was entrusted with XM or CDB, and they would lend it out and just get a spread. They would provide a service to safe the holder of the reserves without necessarily having it 100% on their balance sheet. So it was clearly in dollars because it was a dollar. They'd taken a dollar from Safe and they lent out that dollar and they needed to get repaid in dollars. A lot of those entrusted loans were converted into capital.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't have a full answer. I find it a mystery. I find it a puzzle. I have a set of theories, but they're contingent on getting confirmation from actual Chinese sources. It would have made sense to have the Belt and Road in Yuan because there was a whole push for R&B internationalization at the time. It is strange that when you go into the sometimes secret loan docks, you discover they're all not only in dollars, they're LIBOR linkers with a spread and they typically amortize after five years. There's a certain standard structure to them. The fact that they're LIBOR linkers actually really now Matters because LIBOR is quite US short-term rates have gone up a lot.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“TSMC and Samsung. And it seems obvious to me that until the US is comfortable that it is back at the cutting edge, there's going to be some reluctance to allow China to move ahead too fast, in part because there are military applications that are real. So that is one place where parts of global trade have become hostages to a geopolitical settlement.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“On some of the lagging edge chips that the lagging edge chips are cheap and a combination of lagging chips put together can produce an effective substitute for some of the cutting edge ships. So it's complex, but clearly When China decided it wanted to catch the technological frontier and semiconductors that caught the United States attention, and one of the things the U.S. discovered was that it was no longer at the cutting edge of semiconductor manufacturing, not because of China, but because Intel was lagging.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“C nine hundred nine it will be a marginal player for a while. China doesn't have the capacity to produce that many, but maybe ten or twenty years down the road there will be enough capacity for that for China to have moved not only into the front of the EV transportation sector, but also to be making inroads in aviation. On chips, China is not at the cutting edge. There are enormous sanctions to keep China from the cutting edge. There still produces a lot of lagging edge chips, and those chips play a big roles in a lot of supply chains. So vulnerability from China is not limited to Chinese production capacity and cutting edge. And I think it will be interesting to see if some of these Chinese subsidies do generate enough capacity.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“And then obviously it's an area where Chinese orders for new seven hundred thirty sevens are a bit of a geopolitical hostage and there just haven't been any after the trade war may facilitated by the fact that Boeing, the max crash, has provided ample opportunity for the C919 to show that it could be a safer alternative to Boeing, which no one would have considered possible. But it also highlighted that the biggest risk that the C nine hundred nine faces is that it crashes. So I think it's made the Chinese a little bit more. More conservative. But there is evolution there. Right now the evolution is mostly Boeing own goals, giving Airbus a big advantage and giving Airbus an opportunity, which is right now only limited by Airbus's capacity to scale up production.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Show how close they are to mapping to the 320, the seven hundred thirty seven, their main competitors. I mean, I think actually the biggest change, and this is not what anyone on anyone's mind, has not been the C919, which has been slow. I mean, for all of China's success in electric vehicles, they've done something amazing in electric vehicles and they've lagged expectations on aircraft are, I guess, harder. China didn't have as well-developed a supply chain. The safety concerns are bigger. But the biggest shock has been that Boeing's made a series of major errors. And so independent of the success of the C-919, the 737 has essentially been frozen out of the Chinese market, the safety concerns after The max been hard to just hasn't come back.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“That's your world, Joe. It's not mine. I'm hesitating because I'm honestly not sure. I mean, the C919 has taken forever, but it is now in service. China can't build very many of them. I don't think there's yet data on their operational and fuel efficiency that will.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's just been this, yes, there's been a shift. Russia and China are no longer trading with each other in a currency from the rival bloc. dollars, euros, or yin. But there's also been big limits on how far Russia has been able to go in moving its trade to pure yuan settlement or pure settlement in more sanctions remote currencies. And, you know, it is funny to me that, you know, the GCC countries end up acting as financial hubs and you denominate trade in their currency. That is a dollar just guaranteed by their central bank.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“But the Russians didn't want to build up a big rupee balance because it isn't a global currency. The only place you can really use rupee is to buy in India to buy Indian goods. They wanted something that was more global. So they have ended up relying still on the dollar, weirdly, and on the Emirati Durham, which is pegged to the dollar.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Insulating its economy and its ability to pay for resources, securing China's supply chains in a financial sense will likely require greater use of the yuan in settlement. So that it doesn't surprise me that we're seeing this debate now. It is a natural consequence to really significant sanctions, sanctions that in effect forced Russia to move off the euro, to denominate its global trade, that showed that the euro is not a full substitute for the dollar in most purposes. I think it's also shown that there are limits to what you can do in yuan. It was striking to me that the Indians in Russians have spent a lot of time discussing how they're going to settle the now quite large oil trade between India and Russia. And India doesn't like the yuan. They don't have the best relationship with China. So they weren't really talking about yuan. They wanted to pay.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Consequential, but cutting off the biggest Russian banks except for Gazprom bank from the European financial system. There's some narrow carve outs. It's not full. But it clearly is much riskier now for China to be paying for its oil and gas from Europe and Europe. No shock. There's been a move towards settling that trade in Yuan. China sees the G7 sanctions and realizes that”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Essentially showed Russia that putting your reserves in euros and putting denominating your trade with China in euros didn't offer significantly more protection than doing the same thing in dollars. So to me it isn't really a de-dollarization question. It should be a move away from using G7 currencies question because the easy alternative for people who are worried about U.S. sanctions used to be the euro and the sanctions against Russia, which were completely appropriate. You had to do the euro or it wasn't going to be meaningful. Russia did violate all sorts of norms, that laws, expectations, name it when it invaded Ukraine. So you should be taking steps that are bold and”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I guess I like pointing out ironies. And to me, the ironies were debating de dollarization when the best evidence is of deuroization. And the DRI's trade was trade that Europe sanctioned. Europe made it more or less impossible, not completely impossible, but narrowed the channels to use euros to pay for trade between China and Europe. Russia moved away from the dollar to settle trade with China after the 1415 sanctions in Crimea. it would be safer to denominate trade in Europe. And then this last round of sanctions”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“It's more of a planning and more done through the electricity companies. But I think in the US, because we have cheap gas, there's just a tendency to think the energy security and future climate commitments can be met in the short run by burning gas and not burning coal. Whereas in Europe, there is a much stronger effort to think 20 years ahead and think of an energy system that really doesn't rely on imported fossil fuels, including LNG. But it is a challenge. It is a threat. And the fact that Europe was paying like two to three times the energy equivalent per barrel of oil for imported gas just tells you how extreme the shock was.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Production of the most energy intensive chemicals towards the US. Aluminum is another one. There's a huge difference between Norwegian aluminum made with trapped hydro and some of the other aluminum factories which are run off either gas or coal. And the US ain't actually a cheap place for producing aluminum either for different reasons. You know, I think there is a threat there. There's a challenge to European industry coming from the auto industry, which isn't as energy intensive, coming from China. There's a challenge from Europe's very ambitious climate goals. And how do you produce steel in a way that doesn't use coal? It's a challenge. But I think to Europe's credit, Europe probably more than the US has thought seriously about all the changes to Europe's energy system that would”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“It is a modest challenge to the parts of European industry. It's the most significantly it's a challenge to the German chemical industry. And there's certain other energy-intensive parts of the European economy that, broadly speaking, don't make sense if you have to pay really high costs to import natural gas. It makes more sense to move the industry closer to cheap sources of gas. So there's a part of particularly German, but more broadly, European industry that was built up around a steady supply of Russian pipeline gas at a relatively low cost. And if that goes away, in the short run, you can keep the plants running by importing expensive LNG. In the long run, you probably want to reallocate.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“And so this was an attempt to highlight the limits of trying to think about the world in those terms. But it was also just an attempt to say, look, there's a set of financial flows that have to be occurring through parts of the global economy that bring China's surplus to the US and the UK without a buildup of reserves, without a formal, without obvious purchases of treasuries. And we need to do a better job of trying to understand that. But I also look, there's a risk, and I think the risk is that we have a global economy which has quite large financial and trade interconnections between the different blocks. And there isn't a political consensus on either part of the block that they want to maintain that level of interconnection. But it is costly to move away. So there's a tension between the world as it is and the world is somewhere.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“deficits was a big flow from China, Saudi Arabia, Russia, And the other GCC countries to the US and the UK. I'm going to leave India out because we know India finances current account deficit last year by selling reserves. But you didn't see that in the buildup of reserves or a buildup in their holdings of treasuries. So it was sort of a hidden financial flow that you can infer from the global balance of payments. So I think it is interesting in a lot of ways. One is that it just, there are so many things that happened over the past several years in the global economy that don't easily fit into a narrative of fragmentation into rival blocks, that don't easily fit into a deglobalization narrative, that don't fit into a dellarization narrative”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it was an FX Channeling money into private equity funds through their sovereign wealth fund, building up deposits, maybe getting ready to make sure that they had so much money in the bank they could pay Messi and Ronaldo in cash. And the Chinese have a longstanding now for 10 years, close to 10 years, policy of more or less not adding to their formal reserves. And instead, when there's appreciation pressure, that pressure shows up in a buildup of assets in the state banking system. And then when there's depreciation pressure, exporters just seem to hoard dollars. So unlike in the past, when you had this big buildup of foreign assets and autocracies, and you would see it in their reserves and you could track the flow back to the US, and people would say, oh my God, China's buying up the U.S. treasury market. We had implicit in this constellation of surpluses.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Because some MBS has a checkered history, let's say. And clearly, the political systems differ, even if there's a military alliance. So you have a world where the autocracies had surpluses, the big deficits were in the US, UK, and India democracies. And we were talking about fragmentation. There was clearly a limit to how much fragmentation is possible when all the autocracies are running surpluses with all the democracies. There is a trade flow implied by the deficit, and there is a financial flow that is also implied.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I did probably was a conscious choice to make that one of my first. Blog post because I did think it was something worth noting and something that hadn't been noticed. Last year, oil prices shot up and this Chinese current account surplus also increased. And the European Japanese, Korean current account surplus either shrank in the case of Japan, swung briefly into deficit for Korea, or really swung into deficit for Europe. So we were in a unique period when despite all the talk about fragmentation and limiting trade and financial flows to flows within blocs who share values, who share similar political systems, all the big autocracies around the world, China, Saudi Arabia, Russia, the GCC monarchies, and the GCC is a bit separate because they're kind of militarily allied with the US, but they're kind of at least the Saudi case, they're also a little scared of some US sanctions.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't rebound back up. The Saudi's got $150 billion windfall last year, though, from their oil exports. The Gulf countries generally got about a $300 billion windfall. They had been relatively conservative, I would say, over the past 10 years. I kept expecting some of the splashy policy shifts, the cities, all the other MBS. Yeah. Investments to really change the macro numbers and it didn't happen until the last two quarters. But I think you've really seen a big increase in Saudi spending. So Saudi Arabia structurally is either going to be drawing on its accumulated savings, which it has a lot, or it needs somehow to orchestrate higher oil prices.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Ronaldo Messi in the desert or something like that Look, I think what it actually means is that Saudi Arabia's current account surplus isn't going to last much longer. Oil prices have adjusted down and oil in the 70s or 80s. Now in my calculations just covers Saudi import bill. And expensive soccer players are kind of a luxury good import and they're the kind of luxury good import that quickly reduces your current account surplus. So, I think Saudi Arabia is heading towards at current oil prices. And if you want to build cities in the desert. Sponsor global golf tours and hire the best soccer players to come play in the desert so they probably need air conditioned stadiums. You're going to run a current account deficit if oil”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“The investment engine of China's economy maybe had three sources, three or four sources. One is sort of, call it private investment to meet global demand for exports. One is sort of government-directed investment in key sectors aimed at import substitution. So building a Chinese aircraft, expanding China's indigenous semiconductor manufacturing capacity, so forth and so on. But the biggest ones were building real estate for folks in China and building out China's infrastructure. And both the real estate and the infrastructure engines are now facing strain. And if you take away those engines, China's economy looks disequilibrated. It looks weak.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“So, a lot of that was born out of budgets. Infrastructure, financing, and expansion is done through local governments and local government vehicles. But local governments also get a lot of money from land sales and land sale revenue has been hit by the turn in China's property market. So the weaker local governments are really in a bit of a bind. They have limited capacity to collect revenue. Some key revenue sources have been falling. They don't get as much help from the center as probably is needed to cover their legacy debts. And it's just always harder to service debts when your economies start slowing, even if overall interest rates are pretty low. For some, it's going to be, it's hard to refinance in the market. So you end up, rather than having defaults, you have informal negotiations to stretch out payment. But it is a problem.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“The revenue raising capacity is much higher at the central government level. It's much weaker at the local government level, and a lot of the shocks that have hit China over the past several years have been shocks to local governments. COVID, I mean, I was sort of surprised to read this, that the central government didn't provide large checks to local governments to cover the cost of implementing zero cofin.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's certainly something worth paying attention to. China's central government has almost no debt by global standards. I think numbers are about 25% of GDP. US and France are more like 100%. The Chinese provinces, municipalities, localities have a very large pool of debt, direct debt. They have more direct debt, formally recognized debt than the central government. The local government financing vehicles, which are not, they're supported by local governments. They're local government adjacent, so to speak. They have even more. So you sum those up and you get numbers of total debt above about 100% of GDP. That's not such a high level that it implies, in my view, that China is forced to do nothing except consolidate. China saves a lot. It can mobilize a lot of money through its financial system to support the”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“And so there has been a discrepancy, I would say, between how Europe formally has responded to the electric vehicle shock coming from China, largely by complaining about US policies. That said, there is undoubtedly A shift underway in Europe. The fact that VW's losing market share in China has not escaped their attention. And the increase in imports is quite significant. And it is generating pressure on the European side to replicate some aspects of US policy. But the Europeans find the China a bit harder to handle because the measures that would insulate the European market from a wave of Chinese exports are likely a little bit WTO inconsistent. And the European complaint about the US is that we're WTO inconsistent. So they've sort of let formalism overwhelm pragmatism.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“They're designed for the US market. They're not designed for export. And while the Europeans were complaining about the formal protection in the inflation reduction act, they had ignored the informal protection that China had extended to its electric vehicle industry that had sort of successfully nurtured an infant industry, created very successful supply chain for up and down the electric vehicle process, batteries to drive chains, et cetera. And it suddenly become a big exporter. The Chinese did wall off their market, no imported vehicle ever qualified for China's electric vehicle subsidies, but they didn't do it by writing that into the law. They did it by setting up a list and no import happened to qualify.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Reduction Act was designed, and Europe really did display a lot of a surprise at how the inflation reduction act was constructed and a lot of concern about how it was going to de-industrialize Europe. The irony, to me, is that there's almost no possibility any of the big SUVs Our electric SUVs that U.S. manufacturers or others are planning to make in the US are going to invade the European market.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I mean, in some sense, I think the US, you know, and the administration, which I was a part of, was very conscious that the transition to electric vehicles should not be a transition to Chinese-made electric vehicles, very conscious of the fact that if you're going to close down factories making internal combustion engines, you wanted there to be new factories being built in the United States to make batteries, to make the components of an electric car. And I think, you know, the U.S. had, in a sense, anticipated that there could potentially be a shock and move more proactively to manage it. Now, in the process, you introduced some measures that are debatable in their WTO consistency, subsidies that didn't extend to all of America's friends because of the way the inflation”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“The pandemic made the world more not less dependent on Chinese manufacturing, but there clearly is a little bit of a reaction to that, a sense of vulnerability and a policy effort in the U.S. increasingly in Europe to make sure that that manufacturing dependence isn't permanent and doesn't extend to too many strategic products.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Maintaining its productive capacity and didn't provide much direct household income support. And China's gotten a quite substantial boost to growth over the past three or four years from that exports. So that's to me like the irony. We talk about deglobalization when on most measures China's economy actually regobilized. The political debate around trade overwhelmed the discourse, but in a quantitative sense. Exports as a share of GDP have gone up in China. China's getting as much of a contribution from net exports over the past four years as it got during the China shock. Manufacturing's manufacturing surplus is back close to 10% of China's GDP after a dipped a bit. So there's just all sorts of measures that suggest China. The overall policy response to this”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“It slows because everyone, because Chinese policymakers worry that the debt growth has been too fast and that there's pockets of excess, and some people are borrowing that won't be able to pay the money back, and they clamp down, and then they clamp down too hard, and then there's pressure to restart the investment engine. And then frankly, over the past couple of years, there was sort of a complementarity between the US and European policy response to the pandemic, which emphasized supporting demand, supporting household income, using the government's balance sheet to insulate households from the impact of the shock, to some degree in the process insulating firms, but a great deal of emphasis on protecting households. And then China, which emphasized”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“between the center and the provinces in that allows more policy support for consumption. Demand in China was generated through investment. And there's a sense in China. That handing checks to consumers doesn't generate any productive activity. It doesn't generate any assets. It doesn't build anything. Whereas authorizing lending through the state banks to support construction of a lot of new semiconductor manufacturing facilities, you're obviously investing in your obviously building things. And even if there's maybe overinvestment, you end up with assets. Whereas what do you end up when you write a check to consumers other than the debt? There's been a bit of reluctance, I would say, to borrow, to support household consumption. There hasn't been a reluctance to borrow to support infrastructure or other investment. And so what China tends to do when the economy slows.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, at this point, I think my operating hypothesis is that President Xi doesn't really believe in providing direct support to households. That would be the simplest, most straightforward explanation for why China, in the face of shocks that seem to call for direct support for households, has not done so. The other measure, and people often talk about difficult structural reforms, and usually they mean laying people off or cutting back on subsidies. But in China, it strangely seems to be a very difficult structural reform to change a very regressive system of taxation, move away from very hefty contributions organized through the payroll system with a big lump sum when you enter the formal labor force so that your marginal tax rate for low-income formal work is incredibly high. And to shift to a different system of tax and a system that provides a better balance of revenues.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Negative escalation around the Taiwan Straits, their thoughts would go quite quickly to what happens to semico supplies, where that would not have been as prominent in people's thinking in 2019. The other thing I keep coming back to this, China is exporting a trillion dollars more than it was before the pandemic. It depends on what you want to do, but it hasn't had a lot of strength since 2014. The evolution of the competitive auto industry in China, all these things in the end mattered more, whether we were tariffed one-third, two-thirds, or all of our trade with China, which was the debate back in 2018.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“EVs weren't that big. The notion that all critical materials for batteries were processed in China wasn't part of common knowledge. Joe Manchin had not determined that that was a future national security threat for the United States. Probably in 2019, it wasn't widely recognized that Intel was falling behind the leading edge. Semiconductor manufacturing technology and the vulnerabilities that were associated with reliance on TSMC weren't kind of front and center. Now, I think if you go to ask anyone at the NSC, what would happen if there were”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“On may twenty nineteen we would have been debating whether Trump was going to raise tariffs or not raise tariffs. It would have been at the fight over tariffs would have been at its peak. I mean, I think the biggest... Difference now is we've largely, it's not like the tariffs have gone away, but the tariffs didn't drive as big a shift in trade as some expected. And the tools that are being employed to try to change the structure of the relationship have evolved. The inflation reduction act introduced a set of Requirements for eligibility for electric vehicle subsidies that have an impact on continued use of the Chinese battery critical mineral supply chain, none of that would have been on anyone's radar screens back in 2019. Right.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“It now produces a lot of capital goods, it's now producing and exporting a ton of electric vehicles. I think some of those trends were quite clear before the pandemic. They're now more apparent. And it's also fair to say that while it hasn't changed global trade, there is a new concern about weaponizing supply chains that's leading to policy shifts that maybe or maybe won't have a big future impact.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“And then you have the shocks from Russia's invasion and oil markets, the closing of the pipelines to Europe. So, you know, there have been enormous shifts. But, you know, as you alluded to, some of the basic patterns of the global economy didn't immediately change, or in some cases they reasserted themselves more strongly. So China's trade surplus is way bigger than it was before the pandemic. The US trade deficit is slightly bigger. Some of the trajectories that were probably emerging even before the pandemic, China is no longer just a location of final assembly. China produces a lot of key intermediate goods.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source
“Where to begin? I mean, the world economy didn't completely come to a halt in the first few months of the pandemic, but it did sort of stall intentionally. Enormous stimulus packages were passed. There was a real effort to protect people's income during the pandemic induced slowdown. And then I think a series of shocks have unfolded after that. I don't think when the pandemic initially struck, people realized there was going to be this enormous shift in the composition of demand towards goods and away from services. Which really was quite enormous and it gummed up global trade routes for a while. There was just more demand for goods than there was capacity even in places where we thought there was tons of capacity.”
2023-06-09 · Odd Lots · Brad Setser on How World Trade Changed In the Last Three Years · IDENTIFIED FROM THE TRANSCRIPT · source