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Michael Pettis

lines on the record: 96
first: 2024-07-18
most recent: 2024-07-18
sittings or episodes: 1
sources: podcast

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“My website, and I'm starting a new one in Junction. The new one will be more occasional pieces. They're both at the Carnegie Endowment site. So if you go on to the Carnegie site, not Carnegie Mellon, Carnegie Endowment, the think tank, you'll find both of them.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Affects spending that much. Its biggest impact may just be window dressing as a bellweather. When it goes up, everybody may feel a little bit more confident about the future. And when it goes down, that seems to reinforce whatever your nervousness about the future happens to be.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, if you were certain that that was going to happen, it would make a lot of sense. In the long term, fundamentals always assert themselves, but in the short term, you can have prices driven by fundamentals or driven by speculation. And in China, it's a very, very speculative market. Now, does it matter? Beijing seems to think it matters because of its impact on confidence. When you see a rising stock market, you tend to be more confident. Maybe you go out and, you know, buy that a higher priced restaurant dinner or whatever, and that's good for the economy. But aside from the impact of confidence, it has very little impact on the Chinese economy because high stock prices don't mean a low cost of capital. Most Chinese companies get their financing through the banking system, not by issuing equity. So it has a very limited impact on the real economy and it's small enough that it doesn't even”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“The fundamentals do have to match up with the reality, right? If China is trading at the stock market is trading at one time's earnings and you can get all of your money back in a year if they paid out dividends at 100%, which they don't, that would be a good investment, right?”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“That's the impact of the decline in Chinese real estate prices. What about the Chinese stock market, which I know from your work is nowhere near as big of a role in the Chinese economy as the stock market is in the US. However, TenCent Alibaba, these very large companies, their market values have declined and they are trading at historically cheap multiples, some of them or relative to history as well as the foreign investment in China has dried up either because self-imposed by investors or in some cases they are not allowed to invest as in the case of semiconductors. Well, actually, I don't know if that's the stock market. I believe in our previous conversation you said that the Chinese stock market trades based on sentiment and liquidity from the People's Bank of China much less so on earnings. But at some point,”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“So the problem there is that in the short term, a decline in real estate prices is bad for the economy because it reduces spending, even though in the longer term, assuming no hysteresis effects, it is probably net positive. So declining real estate prices in China are actually good for China prices were so high that it was completely distorting the economy. But in the short term, it's going to be painful. There's no way around that.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“China isn't getting poorer. What's happening is that there is a big shift of income from people who are long real estate to people who are short real estate or a shift of wealth. Overall, there's been very little change in wealth. So does that matter to the economy? In the long term, it's probably good for the economy because generally the losers are richer than the winners, so you get a downward shifting of wealth and income, which is good for growth. But to use a technical term, there is a convexity in the impact on spending. If my income goes up by $100 and your income goes down by $100, you might say nothing's happened. But in fact, you are probably going to cut your spending much more sharply than I raise my spending. It may take me a couple of years of higher income before I'm comfortable raising my consumption rate.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“But it's important to understand how the wealth effect works. Rising real estate prices doesn't make a country richer, and falling real estate prices doesn't make a country poorer. The wealth of a country, as Adam Smith told us a long time ago, is basically the value of goods and services it produces. So what matters in the long term is whether high prices or low prices generate more growth. And I think most of us would agree low real estate prices are better for the economy than high real estate prices. However, when real estate prices go up, certain groups get rich. The country doesn't get richer, but certain groups get rich. So by definition, other groups are getting poorer, and it's not hard to figure out who that is. Whoever's short real estate, young people, the unemployed, poor people, etc., you get the reversal.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“You're not going to get popular unrest and popular unhappiness because consumption growth, household income growth will continue rising at a reasonable pace.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Rate in China, basically, you have to make crazy assumptions. Like, you know, at some point, China's trade surplus is equal to 50% of global GDP. That's never going to happen. I don't know where the limit is, but it's probably not much greater than where it is now. And if that's the case, it's very hard for the trade surplus to generate a lot of growth. So I would say, you know, the easiest thing is really to work out a simple model, make a couple of assumptions, and just see what does it take to get to different states. And you'll see they're quite difficult. The most likely case is much slower GDP growth and not too much slowing of the growth in household income and the growth in consumption, which is what happened in Japan, and which means, among other things, even if GDP growth drops a lot.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“In that case, China's GDP will grow at 4% and it will rebalance as we've defined it within 10 years. Now, consumption growing at 7% is really hard to imagine. Pre-COVID it was growing at roughly 4%. So let's say it grows at 4%. In that case, GDP growth drops to around 2% and China rebalances as we've defined painting consumption historically has been never the case. It always drops either a little or a lot. So you can play with different levels of consumption growth. And what that does is it tells you what it requires for the rebalancing to take place. And one of the variables you can work with is a growing trade surplus. And if you want a growing trade surplus to generate high levels of growth.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Rather than make predictions, I prefer to try to think about it systemically. And so just work out the possible paths. And it's not so hard to do. If you assume that China cannot maintain this share of investment of its GDP, which by the way, no other country has ever done that it has to bring it down, then you can make some simple assumptions. Let's say China has 10 years, I don't think it has, but let's just say 10 years to bring its investment share of GDP down by 10 percentage points, right? Which would still make it one of the highest investing countries in the world. So I think it'll have to come down by a lot more than that. But again, just to sort of box out the options, you can then easily work through the various assumptions in order for that to happen, GDP growth.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“It's a single system, and you can get small defaults here and there in the corners, but basically you're not going to get major defaults on depositors. And as long as that doesn't happen, and as long as depositors believe that won't happen, then you won't see runs on the bank. The way there has been a lot of mergers and acquisitions, particularly of smaller banks. You've noticed that. And that's something, you know, several years ago, I said, was almost inevitable. Most people agree that China has too many banks, including too many small banks, that did some pretty crazy stuff. And my guess is that over time, more and more of those banks will be merged into the larger banking system.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Yes and no. I'm concerned because a lot of that has been used to fund investment or spending that would be really hard to call productive, which means that it created economic activity today, which will be removed in the future. So as we saw in the case of Japan, many years of much lower growth to reverse all of that false growth. If concerns you mean a crisis, no, you know, if you follow me on Twitter, you'll notice that I rarely talk about the components of debt every month when the debt numbers come out. I just talk about the aggregate number because ultimately almost all of the debt in China one way or another goes through the banking system. So you can think about it as a single very large bank with lots of wobbly pieces, but ultimately.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Bank in America. It was called Manufacturers Hanover. And if you mark to market correctly, it was bankrupt. In fact, of the 10 largest banks in America, probably only JPMorgan wouldn't have been bankrupt. And yet there were no bank runs because of faith in the implicit or in the explicit deposit guarantee. So what really matters is if faith disappears and then you get a bank run. And I think that's very unlikely in China.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“What you would worry about is that depositors look at that negative equity number and say, you know, last one out loses, so I'm taking my money out. But depositors in China assume, particularly with the big banks, that deposit, that the deposits are guaranteed. And in fact, we've seen in cases of non-guaranteed deposits for some small banks in Hunan, for example, they defaulted on deposits that were very explicitly not guaranteed. And yet they were all fully paid out. So there is a perception in China that it's very hard to lose money if you've got your money in the banks. And the government will always mail you out, so you'll never have a bankrupt. And if you don't have a bank run, you can have negative equity for a long time. You know, I always remind my students that when I started working, I worked for what was the fourth largest.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“A financial crisis is very unlikely. It's not impossible. Confidence matters and all these other things matter. But as long as the regulators are very credible and they are, then I think a banking crisis is just very unlikely.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“China is very unlikely to have a banking crisis. You know, a crisis is caused by an asset liability mismatch. And although on paper there are huge asset liability mismatches in China, in the end, the regulators can restructure liabilities at will. So in practice, there's no asset liability mismatch. Again, Japan becomes an interesting way of thinking about this because remember after the 1990s we talked about the zombification of the Japanese banking system. The banks didn't go under. I think it was 1997 before the first Citibank went under, and that was, I think, the smallest of the citibanks. But until then, basically you just had these large institutions struggling to maintain profitability with very little likelihood of a financial crisis. And I think that's even more true in China.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Investing in expanding manufacturing capacity, and Europe is doing nothing, so it's going to take the brunt of that expansion.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Well, the inflation reduction act may not have much of an impact on the overall deficit, right? To change that, you have to either change the savings investment imbalance in China, Germany, South Korea, and the rest of the world, or you have to change their ability to invest the excess savings in the US. And the IRA didn't do either of those things. But what it does seem to have done is it seems to have focused this very rapid expansion in Chinese auto manufacture, not just DVs, but also internal combustion engines, away from the US and into the rest of the world. And the most likely rest of the world is, of course, Europe. And I think that's why there's been so much concern in Europe about what the US has done. The general feeling in Europe is that both China and the US are very aggressive.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“And the reason that China's moved from investment driven growth in real estate and infrastructure to China's investment-driven growth in manufacturing, the reason that impacts the rest of the world, just to put a bow on this conversation, is because you can't export a building or a bridge, but you can export an electric vehicle or something that you produce.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Percent in June, year on year retail sales, which is a proxy, a rough proxy, but a proxy for consumption, were expected to be up much less, around 3.3%. In fact, they were up 2%. Again, a huge gap between the growth in production and the growth in consumption. And this shows up either or both as an increase in domestic investment or an increase in the trade surplus. And in June, we had the highest monthly trade surplus in history, perhaps in the whole world. I don't think any country has ever run a $99 billion trade surplus in a single month. That's what we need to be watching. That's the gap that China has to close. And hopefully over the rest of this year, we'll see that gap narrow.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“That came out yesterday and last week are pretty depressing. So for example, one proxy for production is exports and a proxy for consumption would be imports, right? And on Friday or Thursday, we were told that June's exports were up 8.6% year-on-year. We expected a big jump, but nowhere near that level. Imports, we expected a very weak 3% growth. In fact, imports dropped by 2.3%. Now that may have been an exceptional month, but that gap is enormous, and that's what we're watching to understand the rebalancing process. Yesterday, we were told that industrial production, which is, again, a proxy for total production in China, was up, I believe, 5.3%.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Only if the rest of the world accommodates it, right? Because it requires a growing Chinese share of global manufacturing. In fact, if you do the calculations, they're quite easy to do China's share of global manufacturing has to rise at roughly twice the rate of China's share of global GDP and at three to four times the rate of China's share of global consumption. So if China were a small economy, it wouldn't matter much to the rest of the world, but it's already 31% of total manufacturing. So the rest of the world has to be willing to accommodate that kind of shift. And whether it is or whether it isn't still a bit of an open question. What I would say when you look at the Chinese numbers, you should look at proxies for production versus proxies for consumption. And there, the most recent data.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Yes, you're exactly right. That's a residual. The growth in the trade surplus is a residual of this investment driven low consumption model because this model does two things. It makes exports more competitive and it reduces domestic demand. The inevitable result is a large and growing trade surplus.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Those are politically sensitive topics. And I'd rather not discuss differences between the Trump team and the Biden team. What I can say is that if I could. Senior people in the Biden administration have said we prefer industrial policy, but we're very sympathetic to trade policy. And senior people in the Trump administration have said we prefer trade policy, but we're very sympathetic to industrial policy. The point that I would make is that there is no meaningful distinction between trade policy or industrial policy and ultimately both groups seem to be pretty committed to changing the US role in the global imbalances.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Wild Street will hate it. The Foreign Affairs establishment won't be crazy about it either because it would mean reducing the role of the dollar as the global super currency, which creates big problems for the US economy, but it's great for Wall Street and it's great for the imposition of American power abroad. So I think there's no such thing as something that's universally good. But I think Americans should have a discussion about Do we want a policy that benefits businesses, workers, and the overall economy at the expense of our financial industry and maybe of our global, of our ability to exert power globally, which is more important and then let that make the decision. But I guarantee you Wall Street will really oppose this idea.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“That becomes much less contentious because no country can criticize you for putting capital controls. Many countries have capital controls. And what's more, it's the financial system that pays the burden of the cost rather than consumers. So generally, I prefer taxes on capital inflows. I know that this is used to be such a wild idea. I thought it would never be accepted. I'm surprised at how many people accept it now. And I think eventually that's the direction we're going to go in.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Is that you go directly to the problem? You say, we will not absorb your savings imbalances, either find somebody else to absorb them and nobody will, or resolve them domestically, reduce your savings rate or increase your investment rate. And that will force a much more direct adjustment. Now, it's important to understand that if you put taxes on capital inflows or if you put tariffs not on one country, but on all countries, they have exactly the same effect. But there's also a cosmetic difference. If you put tariffs, you will let loose incredible trade conflicts, retaliation, et cetera, et cetera. And the problem is it will seem that the cost of tariffs are being borne by consumers, right? If you put taxes on capital inflow.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Not that they're doomed to fail. What's doomed to fail are bilateral tariffs? Because the reason Germany, Japan, South Korea, China have trade surpluses is because savings exceeds investment. And if you put tariffs on one of those countries, even the biggest one, China, that's not going to change the savings investment imbalances in all of those countries. And as long as those countries can continue to invest those imbalances, the savings imbalances in the US, the US will run a trade deficit. It's a deficit with the country on which it imposed tariffs might go down. We saw that under Trump. The American deficit with China went down, but automatically the American deficit with the rest of the world went up. That has to happen unless you change the savings, investment imbalances. The advantage of taxes on capital inflows.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“And so option one do nothing has been the status quo in the United States for 30 years. It may be the case that the U.S. now is doing under Trump and now Biden option two of selective tariffs on selective goods. But you say that that won't be successful in increasing the manufacturing share of GDP. Why not? And why wouldn't just tariffs in general, in other words, restricting the movement of goods trade is not necessary to impact the level of manufacturing? Why do you have to have capital controls, which I believe we had in the reference Bretton Woods in 1944, we had that until capital controls were loosened around the 1970s, but now China does have capital controls. So why does there have to be capital controls? In other words, why are tariffs doomed to fail to increase importers manufacturers? Percentage of GDP.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Decline of your manufacturing sector or refuse to play the accommodating role, the balancing role in the great global imbalances.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Foreigners are saying we value American safe assets so much that we will do whatever. We'll buy them at a zero interest rate because we value the safety of these assets. This creates a cost for the American economy and what the U.S. economy can do is say we ship the costs back to you by taxing those inflows. And as you tax the inflows, you move it up and down until the capital account balances, in which case the current account will balance. When that happens, the US economy will be driven by domestic factors. It'll no longer be a hyper-globalized economy in which conditions are driven by external factors. So those are the three options. Do nothing and pretend that it's the free market. Support strategically important industries, but resign yourself to a gradual...”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Continue to run these large deficits. And the consequence is that the strategically important sector grows, but at the expense of overall manufacturing. The third option is to say like China, like all these other countries, we refuse to play this accommodating role. We want to regain control of our capital account and our trade account, which is the same thing, in order to regain control of the domestic economy.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Is that as long as the rest of the world is able freely to export its savings into its excess savings into the US, the US will continue running a trade deficit. So many people think about trade as an increments. So if we have a trade deficit, which includes imports of BVs, import fewer EVs $100 fewer EVs, the trade deficit goes down by $100. That's not true at all. What determines the U.S. trade deficit is the U.S. capital account surplus, which is completely independent of whether or not the U.S. imports EVs. So what will happen in that case is that the US will produce more EVs at home, but its overall manufacturing sector will continue to decline because it'll”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“So, one you can do nothing, which is basically what we've done, and you can call it the free trade or the free market option. It's not. It means the US economy is distorted by policies not designed in the US, but designed abroad. And so you don't really change anything. And one of the consequences will be a continuing decline in the manufacturing share of the US economy. Option number two is to say that certain industries are very important to us, and we're going to support them with very explicit industrial policy so we can decide electric vehicles are important, we can decide batteries are important, we can decide whatever, and support those industries. And in fact, to a certain extent, that's what the Biden administration has done very successfully, by the way. For me, the problem with that option.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“So, if the US thinks that it has no industrial policy, it really is subject to the policy policies of other countries if Japan has a very competitive sector and is subsidizing exports and has a very cheap local currency, then the US, that's the US's industrial policy. Would be the same as if the US was trying to promote a stronger dollar. It's just Japan is doing it instead. So in that piece that you have coming out soon, which we will link and which will be live by the time this interview airs, I believe you talk about three different things that policymakers can do. The first one I'll just give a spoiler is nothing, and that is what is called free trade and what has reigned for 30 to 40 years in the US. So tell us about those three options”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“A gift of God or a gift of Satan, but rather is the US economy subject to the type of industrial policies that we would choose, and if not, then we have to at the very least reverse them and at most move into the type of industrial policies we would choose.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Impose industrial policies, whether that's good for the economy or bad for the economy, is quite silly for two reasons. Reason number one, again, the idea that industrial policy is good or bad is not economics. It's a form of religion. It's good under certain specified conditions. It's bad under other specified conditions. We should be trying to specify those conditions. Problem number one. But problem number two is that the U.S. is affected by industrial policy. It's just affected by, in my example, industrial policy in Japan. Japan has decided that for whatever reason it wants to do X, and that means automatically the US does the opposite of X, whether it wants to or not. So I would argue that the real debate in the US should not be industrial policy.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“See that all the time. If you line up the 10 largest advanced economies by trade balance, what you'll find is that all the surplus countries, the manufacturing sector as a share of GDP is higher than the global average, and all the trade deficit countries, the manufacturing sector as a share of GDP, is lower than the global average. And that shouldn't surprise us. When the surplus countries put into place industrial policies specifically designed to expand their share of global manufacturing, then that share must come from somewhere. And there is automatically a contraction in the global share in the deficit countries. So what I would argue is that this whole discussion about whether the US should”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Its household sector, it's subsidizing its consumers at the expense of its producers. So notice what happened. An industrial policy in Japan automatically calls the obverse industrial policy in the US. And this can happen in many ways. The only requirement you need for this to work is that global trade must balance. And we know that it balances. So anything that causes the manufacturing sector in Japan to expand or the manufacturing of a particular type of product, let's say electric vehicles, to expand, because total demand is unchanged. In fact, it's actually gone down given the way Japan caused the expansion in the manufacturing sector. That means manufacturing must contract in the trade partner, in this case in the US.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Not many people will think that's a domestic policy. How does it work? A lower yen raises the cost of imports so it penalizes importers, households are all net importers, and it subsidizes exporters, the manufacturing sector is an export. So by depreciating its yen, Japanese industrial policy was designed to expand manufacturing at the expense of domestic demand. But it doesn't end there because the yen dollar is not a Japanese internal condition. It's also an American condition. So to the extent that Japan depreciates the yen, it is also appreciating the dollar. So now the US, whether it wants to or not, is doing the exact opposite of what Japan did. It is sub-”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Policy. It gets to decide whether that industrial policy is designed in Washington or whether it's designed in Beijing, Berlin, Moscow, you know, Riyadh, wherever, in the surplus countries. And I say that because in a globalized world, in a hyper-globalized world, there is no way unless you control your trade in capital account, there is no way that policies in one country won't affect policies in your country. To take a very simple and obvious example, let's assume there are only And to make it less politicized, let's call them the US and Japan. And everything is in equilibrium. And then the Japanese decide to improve their international competitiveness by depreciating the yen.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, one of the big debates in the US, and again, I don't want to make this about China because it's not just China. There are a number of other countries that are doing it. But one of the big debates that we're having in the US, and we've been having this for over 200 years, is whether or not industrial policy works. And you'll often hear people say industrial policy consists of coddling inefficient industries. That's simply not true. Industrial policy in the U.S. has a very long, successful history. The airline industry in the 1920s, I can go on and on. An awful lot of US manufacturing came out of industrial policy. But the point that I would make, and I have a piece coming out tomorrow on the Carnegie website that makes this point, is that the U.S. doesn't get to decide whether or not its economy is subject to industrial policy.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Code FG10. Back to the episode. What is China doing now to subsidize and assist its manufacturers that result in the very large trade surplus that China has with the rest of the world, particularly the United States? Earlier you mentioned a few things, direct transfers, restrictions on wage growth, low interest rates, and currency devaluation. Tell us about that and how can America or what is America doing to counteract those measures? What is the US industrial policy? What does that mean?”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Welcome to industry argument. Call it something different the infant manufacturing or the infant producer or something like that, but it's basically the infant industry. Sometimes you need to protect an industry to the point where it develops a comparative advantage and then you stop protecting it.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Good for the economy under many conditions. Under some conditions, it's been bad for the economy. And what we should be doing is thinking about when does trade intervention help? When does trade intervention hurt? And to say that it always hurts, that's just silly. That makes no sense.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“So, in the 1930s, when one country depreciated its currency by depreciating against gold, all the other countries did the same thing. And to say that their intervention was bad for trade is silly. It was the first intervention that was bad for trade. And the second set of interventions that tried to return to the original equilibrium. So, you know, to me, whenever an economist said tariffs are bad, I think, you know, this guy is a priest, not an economist. Tariffs can't be bad except under one set of conditions. They can be good under a different set of conditions. By the way, you know, the whole idea of infant industry, which the US exploited to a tremendous extent, was invented by an American, by Alexander Hamilton. We've done it in the past and it's been pretty”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“Now, let's say we live in a world of equilibrium, and then one country decides to break that equilibrium by forcibly depreciating its exchange rate in order to gain a trading advantage over the rest of the world. And let's say the rest of the world says, no, we're going to impose tariffs or we're going to force our currencies down against you. We're going to reverse the impact of your depreciation. In that case, the first trade intervention made the trading system suboptimal and the second trading intervention returned it to its original equilibrium, right? This is a very abstract example, but my point is that it's impossible to say that tariffs are always bad for trade. It depends on the conditions, the underlying conditions.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT
“The very fact that you mention economic orthodoxy sort of suggests what the problem is, right? The idea that tariffs are bad or tariffs are good, deficits are bad, deficits are good, inequality is bad, inequality is good, that belongs in the category of religion. In economics, all of those things can be good or bad depending on the underlying conditions. And we have to specify the underlying conditions.”
2024-07-18 · Forward Guidance · China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle · IDENTIFIED FROM THE TRANSCRIPT