1/10 Good IMF blog that reminds us that trade imbalances are...
Michael Pettis@michaelxpettis
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Sep 17, 2024
~2 min read
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1/10
Good IMF blog that reminds us that trade imbalances are largely driven by domestic macro forces rather than by incremental price effects. It notes that China’s growing trade surpluses were driven by a rise in Chinese savings caused both by the...
imf.org/en/Blogs/Artic…
Good IMF blog that reminds us that trade imbalances are largely driven by domestic macro forces rather than by incremental price effects. It notes that China’s growing trade surpluses were driven by a rise in Chinese savings caused both by the...
imf.org/en/Blogs/Artic…
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2/10
weak household income share of GDP and the rise in precautionary savings as property prices crashed and economic uncertainty rose, while US deficits are caused by fiscal policies that drove down US savings.
weak household income share of GDP and the rise in precautionary savings as property prices crashed and economic uncertainty rose, while US deficits are caused by fiscal policies that drove down US savings.
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3/10
But I have two problems with this analysis. First, the authors claim that while subsidies associated with Chinese industrial policy “do play some role in generating international trade spillovers in the respective sectors, the estimated effects are however modest, suggesting that…
But I have two problems with this analysis. First, the authors claim that while subsidies associated with Chinese industrial policy “do play some role in generating international trade spillovers in the respective sectors, the estimated effects are however modest, suggesting that…
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4/10
industrial policies have a limited impact on aggregate external balances.”
I disagree. Subsidies are transfers, and transfers to one sector of the economy must come from some other sector.
industrial policies have a limited impact on aggregate external balances.”
I disagree. Subsidies are transfers, and transfers to one sector of the economy must come from some other sector.
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5/10
In China’s case, they clearly come from the household sector. That is why they explain both China’s competitive success in a wide range of sectors and China’s persistently weak domestic demand and high trade surpluses.
In China’s case, they clearly come from the household sector. That is why they explain both China’s competitive success in a wide range of sectors and China’s persistently weak domestic demand and high trade surpluses.
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6/10
My second problem is with their argument that US trade deficits, like Chinese surpluses, are the result of imbalances driven by domestic policies and conditions. But if trade balances globally, it cannot be that every country has its own independent set of domestic imbalances.
My second problem is with their argument that US trade deficits, like Chinese surpluses, are the result of imbalances driven by domestic policies and conditions. But if trade balances globally, it cannot be that every country has its own independent set of domestic imbalances.
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7/10
They then recommend that “for the United States, external balances will benefit from a significant fiscal adjustment, including raising indirect taxes, progressively increasing income taxes, eliminating a range of tax expenditures, and reforming entitlement programs.”
They then recommend that “for the United States, external balances will benefit from a significant fiscal adjustment, including raising indirect taxes, progressively increasing income taxes, eliminating a range of tax expenditures, and reforming entitlement programs.”
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8/10
The IMF likes recommending austerity, but if the US did these things, is the IMF suggesting that China’s (and the world’s) excess savings would decline, or that foreigners would then become more reluctant to invest their excess savings in the US?
The IMF likes recommending austerity, but if the US did these things, is the IMF suggesting that China’s (and the world’s) excess savings would decline, or that foreigners would then become more reluctant to invest their excess savings in the US?
