Speaker 1: Hello, and welcome to another episode of the Authoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Jill Whysantal. Joe, can you
Speaker 1: remember the last time we had Brad Setser on.
Speaker 2: It's been too long. I don't know the exact time.
Speaker 2: I think we had it on once since the pandemic,
Speaker 2: but obviously he did his stint at the administration, so
Speaker 2: it sort of like disappeared from public view for a while,
Speaker 2: and it's just like, it's been too long without a
Speaker 2: Brad sets Or episode.
Speaker 1: Well, you are absolutely right that it has been too long,
Speaker 1: But the last time we had him on the show
Speaker 1: was it was actually April twenty twenty, so it's sort
Speaker 1: of firmly in the death right there right at the
Speaker 1: start of the pandemic economic experience.
Speaker 2: This over three years ago, now.
Speaker 1: I know, and a lot has happened since then. As
Speaker 1: you mentioned, he did leave the Council on Foreign Relations
Speaker 1: CFR to join the Biden administration as a trade representative.
Speaker 1: He's since come back, which means we get to enjoy
Speaker 1: his blog posts again, his tweeting, but also setting aside
Speaker 1: Brad's personal experience over the past three years, there's just
Speaker 1: a lot that's happened with global trade, with the economy,
Speaker 1: and the weird thing is a lot's happened, but a
Speaker 1: lot has kind of stayed the same as well well.
Speaker 2: So it's really well put because I think that, you know,
Speaker 2: one of the expectations during probably the last time we
Speaker 2: talked in April twenty twenty or middle of twenty twenty
Speaker 2: years like everyone's like, oh, near shoring or you know,
Speaker 2: great separation or and I don't think that really is
Speaker 2: the story. So on some level, I don't, you know,
Speaker 2: I do think maybe at the margins, like we're still
Speaker 2: trading a lot with China, right for all of the clock,
Speaker 2: We're still trading a lot with China's part. But it
Speaker 2: does feel like on the other hand, big things are
Speaker 2: changing with the nature of Chinese exports, the auto industry,
Speaker 2: and then all of these things with like EVS and
Speaker 2: the Inflationial Reduction Act and the Chips Act. So big
Speaker 2: things are happening on the global trade level, tensions between
Speaker 2: the US and the EU. Big things are happening on
Speaker 2: the global trade level, even if some of the immediate
Speaker 2: predictions didn't exactly like unfold yet how people thought back then.
Speaker 1: Yeah, I mean the US is still running a current
Speaker 1: account deficit, China is still running a current account surplus.
Speaker 1: But things are sort of changing within those broad categories.
Speaker 1: So we need to check in with Brad. We need
Speaker 1: to get his take on stuff that has changed or
Speaker 1: hasn't changed over the past three years in the global
Speaker 1: economy and global trade, in the balance of payments. And
Speaker 1: I'm very pleased to say that he's going to join
Speaker 1: us now. Brad Setzer, Senior Fellow at the Council on
Speaker 1: Foreign Relations. It's so good to have you back on
Speaker 1: the show.
Speaker 3: Thanks for bringing me back.
Speaker 1: Setting aside some of the job change that you had,
Speaker 1: what's been your impression of the past three years, Like
Speaker 1: broad stroke has happened?
Speaker 3: Where to begin? I mean, the world economy did didn't
Speaker 3: completely come to a halt in the first few months
Speaker 3: of the pandemic, but it did sort of stall intentionally
Speaker 3: enormous stimulus packages or pat or passed. There was a
Speaker 3: real effort to protect people's income during the pandemic induced
Speaker 3: slow down, and then I think, you know, a series
Speaker 3: of shocks have unfolded after that. I don't think when
Speaker 3: the pandemic initially struck, people realized there was going to
Speaker 3: be this enormous shift in the composition of demand towards
Speaker 3: goods and away from services, which really was quite enormous,
Speaker 3: and it gummed up global trade routes for a while.
Speaker 3: There was just more demand for goods than there was capacity,
Speaker 3: even in places where we thought there was tons of capacity.
Speaker 3: And then you have the shocks from Russia's invasion and
Speaker 3: oil markets, the closing of the pipelines to Europe. So
Speaker 3: you know, there have been enormous shifts. But you know,
Speaker 3: as you as you alluded to the basic some of
Speaker 3: the basic patterns of the global economy didn't immediately change,
Speaker 3: or in some cases they reasserted themselves more strongly. So
Speaker 3: you know, China's trades are plus is way bigger than
Speaker 3: it was before the pandemic. The US trade deficit is
Speaker 3: slightly bigger. Some of the trajectories that were probably emerging
Speaker 3: even before the pandemic China. China is no longer just
Speaker 3: a location of final assembly. China produces a lot of
Speaker 3: key intermediate goods. It now produces a lot of capital goods.
Speaker 3: It's now producing and exporting a ton of electric vehicles.
Speaker 3: I think some of those trends were quite clear before
Speaker 3: the pandemic, they're now more apparent. And it's also fair
Speaker 3: to say that while while it hasn't changed global trade,
Speaker 3: there is a new concern about weaponizing supply chains that's
Speaker 3: leading to policy chefs that you know, maybe or maybe
Speaker 3: won't have a big future impact.
Speaker 2: So what do you know, Let's talk about China or
Speaker 2: the US China trade relationship. You know, people have talked
Speaker 2: about decoupling, but it doesn't really seem like that it's
Speaker 2: happened or it's happening, but there is this impulse, maybe
Speaker 2: partly for national security reasons, maybe partly for just competitive
Speaker 2: reasons other you know, to change the nature of the relationship.
Speaker 2: How is it different you know here in May twenty
Speaker 2: twenty three versus say, if we had been talking about
Speaker 2: this US China relationship in May twenty nineteen.
Speaker 3: Well, May twenty nineteen, we would have been debating whether
Speaker 3: Trump was going to raise tariffs or not raised terrorists.
Speaker 3: Not sure I would have been at the fight over
Speaker 3: tariffs would have been at its peak. I mean, I
Speaker 3: think the biggest difference now is we've largely it's not
Speaker 3: like the tariffs have gone away, but the tariffs didn't
Speaker 3: drive as big as shift in trade as some expected,
Speaker 3: and the tools that are being employed to try to
Speaker 3: change the structure of the relationship have evolved. So, you know,
Speaker 3: the Inflation Reduction Act introduced a set of requirements for
Speaker 3: eligibility for electric vehicle subsidies that have an impact on
Speaker 3: continued use of the Chinese battery critical mineral supply chain.
Speaker 3: None of that would have been on anyone's radar screens
Speaker 3: back in twenty nineteen. You know, evs weren't that big.
Speaker 3: The notion that all critical materials for batteries were processed
Speaker 3: in China wasn't part of common knowledge. Joe Manchin had
Speaker 3: not determined that that was a future national security threat
Speaker 3: for the United States. You know, probably in twenty nineteen,
Speaker 3: it wasn't widely recognized that Intel was falling behind the
Speaker 3: leading edge of semi conductor manufact string technology, and the
Speaker 3: vulnerabilities that were associated with reliance on TSMC weren't kind
Speaker 3: of front and center. Now. I think if you go
Speaker 3: to ask anyone at the NSC, you know, what would
Speaker 3: happen if there were a negative escalation around the Taiwan Straits.
Speaker 3: Their thoughts would go quite quickly, what happens to Semicocter supplies,
Speaker 3: where that would not have been as prominent in people's
Speaker 3: thinking in twenty nineteen about Look, the other thing I
Speaker 3: keep coming back to this, China is exporting a trillion
Speaker 3: dollars more than it was before the pandemic. It's exporting
Speaker 3: a trillion dollars more than it did when Trump started
Speaker 3: his trade war. A whole bunch of large, you know,
Speaker 3: kind of policy measures that were designed to make trade
Speaker 3: less attractive didn't have the effect of making China less
Speaker 3: dependent on trade. Other thing, other forces had a bigger impact,
Speaker 3: the shift towards global demand for good, The fact that
Speaker 3: you know, the Chinese yuan is still basically where it was.
Speaker 3: It depends on what you want to do it, but
Speaker 3: you know, it hasn't had a lot of strength since
Speaker 3: twenty fourteen, the evolution of the competitive of a competitive
Speaker 3: auto industry in China. All these things, in the end
Speaker 3: mattered more whether we were tariffed one third, two thirds,
Speaker 3: or all of our trade with China, which was the
Speaker 3: debate back in twenty.
Speaker 1: Two You know, you mentioned the idea that China is
Speaker 1: still very much dependent on trade, and you see that
Speaker 1: even internally from a policy perspective, we know, for instance,
Speaker 1: the Chinese economy has been a little weaker than it
Speaker 1: has been historically. Recently, they've been experiencing a much lower
Speaker 1: level of inflation than a lot of other places in
Speaker 1: the world, And as part of the policy response, China
Speaker 1: seems to be trying to boost supply side support and capacity,
Speaker 1: which will inevitably just feed into an even bigger trade surplus.
Speaker 1: Despite the stated ambition of trying to build up domestic
Speaker 1: demand shift more to a services led economy, why does
Speaker 1: that transition seem to be so difficult and why does
Speaker 1: it feel like China often falls back on supply side
Speaker 1: support policies.
Speaker 3: Well, at this point, I think my operating hypothesis is
Speaker 3: that President she doesn't really believe in providing direct support
Speaker 3: to households. That would be the simplest, most straightforward explanation
Speaker 3: for why China, in the face of shocks that seem
Speaker 3: to call for direct support for households, has not done
Speaker 3: so the other measure. And people to often talk about
Speaker 3: difficult structural forms, and usually they mean laying people off
Speaker 3: or cutting back on subsidies, But in China, it strangely
Speaker 3: seems to be a very difficult structural reform, to change
Speaker 3: a very regressive system of taxation, move away from very
Speaker 3: hefty contributions organized through the payroll system with a big
Speaker 3: lump sum when you enter the formal labor force, so
Speaker 3: that your marginal tax rate for low income formal work
Speaker 3: is incredibly high, and to shift to a different system
Speaker 3: of tax and a system that provides a better balance
Speaker 3: of revenues between the center and the provinces, and that
Speaker 3: allows more policy support for consumption. You know, demand in
Speaker 3: China was generated through investment, and there's a there's a
Speaker 3: sense in China that handing checks to consumers doesn't generate
Speaker 3: any productive activity, it doesn't generate any any assets, it
Speaker 3: doesn't build anything. Whereas you know, authorizing lending to through
Speaker 3: the state banks to support construction of a lot ice
Speaker 3: of new semiconductor or manufacturing facilities, you're obviously investing. You're
Speaker 3: obviously building things, and even if there's maybe over investment,
Speaker 3: you end up with assets. Whereas what do you end
Speaker 3: up when you write a check to consumers other than
Speaker 3: the debt. So there's there's been a bit of reluctance,
Speaker 3: I would say, to borrow to support household consumption. There
Speaker 3: hasn't been a reluctance to borrow to support infrastructure or
Speaker 3: other investment, and so what China tends to do when
Speaker 3: the economy slows, and sometimes it slows because everyone because
Speaker 3: Chinese policy makers worry that the debt growth has been
Speaker 3: too fast and that there's pockets of excess, and some
Speaker 3: people are borrowing that won't be able to pay the
Speaker 3: money back, and they clamp down, and then they clamp
Speaker 3: down too hard, and then there's pressure to restart the
Speaker 3: investment engine. And then frankly, over the past couple of years,
Speaker 3: there was sort of a complementarity between the US and
Speaker 3: European policy response to the pandemic, which emphasized supporting demands,
Speaker 3: supporting household income, using the government's balance sheet to insulate
Speaker 3: households from the impact of the shock to some degree
Speaker 3: in the process insulating firms, but a great deal of
Speaker 3: emphasis on protecting households, and then China, which emphasized maintaining
Speaker 3: its productive capacity and didn't provide much direct household income support.
Speaker 3: And China's gotten a quite substantial boost to growth over
Speaker 3: the past three or four years from that exports. So
Speaker 3: that's to me, like the irony we talk about deglobalization,
Speaker 3: when on most measures China's economy actually reglobilized. The political
Speaker 3: debate around trade overwhelmed the discourse, but in a quantitative sense,
Speaker 3: exports is a shriff. GDP have gone up in China.
Speaker 3: China's getting as much of a contribution from net exports
Speaker 3: over the past four years as it got during the
Speaker 3: China Shock. Manufacturing, China's manufacturing surplus is back close to
Speaker 3: ten percent of China's GDP after a dipped a bit.
Speaker 3: So there's just all sorts of measures that suggest China
Speaker 3: the overall policy response to the pandemic made the world more,
Speaker 3: not less dependent on Chinese manufacturing. But there clearly is
Speaker 3: a little bit of a reaction to that, a sense
Speaker 3: of vulnerability, and a policy effort in the US, increasingly
Speaker 3: in Europe to make sure that that manufacturing dependence isn't
Speaker 3: permanent and doesn't extend to too many strategic products.
Speaker 2: I don't know if there's like a really elegant way
Speaker 2: to ask this question, how freaked out are they in Europe?
Speaker 1: By I don't even think you tried, Jeff No, I
Speaker 1: was like, I just like, how is.
Speaker 3: It on my mind?
Speaker 2: By what the power of the Chinese exports auto exports,
Speaker 2: because I mean, I feel like there was this sort
Speaker 2: of view that well, like they were cheap cars, they
Speaker 2: weren't really like global quality. They certainly weren't going to
Speaker 2: be like global brands, and the sort of perception that
Speaker 2: China wouldn't create global brands. And my impression is that
Speaker 2: at least at the margins, and maybe more than at
Speaker 2: the margins, Chinese evs are increasingly of global quality and
Speaker 2: maybe some brand awareness, particularly in Europe. And when you
Speaker 2: sort of factor in the you know, lower production costs
Speaker 2: and they skilled that the Chinese manufacturers have in batteries,
Speaker 2: stuff like that, Like how big of a threat is
Speaker 2: this to some one of the big industrial giants of
Speaker 2: Europe and the sort of business model of Europe.
Speaker 3: Well, strangely enough, at a political level, the Europeans freaked
Speaker 3: out about the Inflation Reduction Act.
Speaker 2: I was wondering if I should go the like which
Speaker 2: direction I was going to, whether I should ask about
Speaker 2: the US policy respond to the Chinese cars. But anyway,
Speaker 2: keep going.
Speaker 3: You know, I mean, like in some sense, I think
Speaker 3: the US, you know, and you know, the administration which
Speaker 3: I was a part of, had had was very conscious
Speaker 3: that the transition to electric vehicles should not be a
Speaker 3: transition to Chinese made electric vehicles. Very conscious of the
Speaker 3: fact that if you're going to close down factories making
Speaker 3: internal combustion engines, you wanted there to be new factories
Speaker 3: being built in the United States to make batteries to
Speaker 3: make the components of an electric car. And I think
Speaker 3: you know, the US had in a sense anticipated that
Speaker 3: there could potentially be as shocked and move more pro
Speaker 3: actively to manage it now in the process that you
Speaker 3: introduced some measures that are debatable in their wto consistency
Speaker 3: subsidies that didn't extend to all of America's friends because
Speaker 3: of the way the Inflation Reduction Act was designed, and
Speaker 3: Europe really did display a lot of a surprise at
Speaker 3: how the Inflation Reduction Act was constructed and a lot
Speaker 3: of concern about how it is going to de industrialize Europe.
Speaker 3: The irony to me is that there's almost no possibility
Speaker 3: any of the big SUVs or electric SUVs that US
Speaker 3: manufacturers or others were planning to make in the US
Speaker 3: are going to invade the European market. They're designed for
Speaker 3: the US market, they're not designed for export. And while
Speaker 3: the Europeans were complaining about the formal protection in the
Speaker 3: Inflation Reduction Act. They had ignored the informal protection that
Speaker 3: China had extended to its electric vehicle industry, that had
Speaker 3: sort of successfully nurtured in infant industry, created a very
Speaker 3: successful supply chain for up and down the electric vehicle process,
Speaker 3: batteries to drive chains, et cetera, and had suddenly become
Speaker 3: a big, big exporter. The Chinese did wall off their market.
Speaker 3: No imported vehicle ever qualified for Chize and electric vehicle subsidies.
Speaker 3: But they didn't do it by writing that into the law.
Speaker 3: They did it by setting up a list, and no
Speaker 3: import happened to qualify. And so there has been a discrepancy,
Speaker 3: I would say, between how Europe formally has responded to
Speaker 3: the electric vehicle shock coming from China, largely by complaining
Speaker 3: about US policies. That said, there is undoubtedly a shift
Speaker 3: underway in Europe. The fact that VW's losing market share
Speaker 3: in China has not escaped their attention and the increase
Speaker 3: in imports is quite significant and it is generating pressure
Speaker 3: on the European side to replicate some aspects of US policy.
Speaker 3: But that the Europeans find the China a bit harder
Speaker 3: to handle because the measures that would insulate the European
Speaker 3: market from a wave of Chinese exports are likely a
Speaker 3: little bit wto inconsistent, And the European complaint about the
Speaker 3: US is that we're wto inconsistent, so they've sort of
Speaker 3: let formalism overwhelm pragmatism.
Speaker 1: Maybe everyone can just agree to be wto adjacent, so.
Speaker 3: That would be somewhat helpful for solving a bunch of
Speaker 3: trade disputes. But set that aside.
Speaker 1: So since we're the theme of this discussion is sort
Speaker 1: of the more things change, the more they stay the same.
Speaker 1: I thought maybe we could talk a little bit about
Speaker 1: China debt issues, and specifically in recent months, there's been
Speaker 1: more attention paid to the local Chinese debt so stuff
Speaker 1: issued by municipalities basically, and these are headlines that I
Speaker 1: can remember, you know, from ten or fifteen years ago,
Speaker 1: this idea of a China local debt time bomb. The
Speaker 1: numbers have changed, so I've seen twenty three trillion dollars
Speaker 1: worth mentioned relatively recently, but the overall thesis is the same,
Speaker 1: this idea that eventually these local authorities aren't going to
Speaker 1: be able to sell bonds or they're going to have
Speaker 1: to default on their debt, and the assumption always seems
Speaker 1: to be that the Chinese central government is going to
Speaker 1: step in and backstop them. So I guess my question
Speaker 1: is is this something worth paying attention to? Why does
Speaker 1: this matter?
Speaker 3: Well, it's certainly something worth paying attention to. You know,
Speaker 3: China's central government has almost no debt by global standards.
Speaker 3: Latest I think numbers are about twenty five percent of GDP.
Speaker 3: You know, US and France are more like one hundred.
Speaker 3: But the Chinese provinces, municipalities, localities have a very large
Speaker 3: pool of debt, direct debt. They have more direct debt
Speaker 3: formally recognized debt than the central government. And then the
Speaker 3: local government financing vehicles, which are not they're supported by
Speaker 3: local governments. They're local government adjacent, so to speak. They
Speaker 3: have even more. So you know, you sum those up
Speaker 3: and you get numbers of total debt of about one
Speaker 3: hundred percent of GDP. That's not such a high level
Speaker 3: that it implies, in my view, that China is forced
Speaker 3: to do nothing except consolidate. China saves a lot, can
Speaker 3: mobilize a lot of money, through its financial system to
Speaker 3: support the government activity at various levels, but the distribution
Speaker 3: of debt is strange. It is strange that China has
Speaker 3: so little debt at the central government and so much
Speaker 3: debt at the local government. The revenue raising capacity is
Speaker 3: much higher at the central government level, it's much weaker
Speaker 3: at the local government level, and a lot of the
Speaker 3: shocks that have hit China over the past several years
Speaker 3: have been shocks to local governments COVID. I mean, I
Speaker 3: was sort of surprised to read this that the central
Speaker 3: government didn't didn't provide large checks to local governments to
Speaker 3: cover the cost of implementing zero COVID. So a lot
Speaker 3: of that was born out of budgets. Infrastructure financing and
Speaker 3: expansion is done through local governments and local government vehicles.
Speaker 3: But local governments also get a lot of money from
Speaker 3: land sales, and land sale revenue has been hit by
Speaker 3: the turn in China's property market, so the weaker local
Speaker 3: governments are really in a bit of a bind. They
Speaker 3: have limited capacity to collect revenue. Some key revenue sources
Speaker 3: have been falling. They don't get as much help from
Speaker 3: the center as probably as needed to cover their legacy debts,
Speaker 3: and it's just always harder to service debts when your
Speaker 3: economy starts slowing, even if overall interest rates are pretty low,
Speaker 3: and for some it's going to be it's hard to
Speaker 3: refinance in the market, so you end up, rather than
Speaker 3: having defaults, you have informal negotiations to stretch out payment.
Speaker 3: But it is a problem. It's you know, the investment
Speaker 3: engine of China's economy maybe had three sources, three or
Speaker 3: four sources. One is sort of call it private investment
Speaker 3: to meet a global demand for exports. One is sort
Speaker 3: of government directed investment in key sectors aimed at import substitution,
Speaker 3: so building a Chinese aircraft, expanding China's indigenous semiconductor manufacturing capacity,
Speaker 3: so forth, and so on. But the biggest ones were
Speaker 3: building real estate for folks in China and building out
Speaker 3: China's infrastructure. And both the real estate and the infrastructure
Speaker 3: engines are now facing strain. And if you take away
Speaker 3: those engines, China's economy looks disequilibriated, it looks it looks weak.
Speaker 2: I want to pivot to something random. One of the
Speaker 2: reasons I like talking to brand is I feel like
Speaker 2: I can throw things out about anywhere in the world,
Speaker 2: and he'll probably have some understanding of what's going on.
Speaker 2: I want to pivot to something that I thought that
Speaker 2: was in the news recently that just popped into my head,
Speaker 2: and I want to get your take on it. What
Speaker 2: is the macroeconomic significance of Saudi Arabia offering Lionel Messi
Speaker 2: four hundred million dollars a year to play soccer there?
Speaker 2: And what is a you know, at a time of
Speaker 2: like booming evs, I would not necessarily think this, like
Speaker 2: oil giant has all this money to splash around on
Speaker 2: like a competing golf tour to the PGA and offering
Speaker 2: someone half a billion dollars a year to play some
Speaker 2: soccer games. What is going on there? And how big
Speaker 2: of a force is like this money emanating out of
Speaker 2: the Saudi Radio Saudi.
Speaker 1: Arabia state sponsored soccer.
Speaker 3: I didn't didn't Saudi Arabia also give a contract to Ronaldo,
Speaker 3: So that's probably right, Runaldo Messy in the desert or
Speaker 3: something like that. Look, I think what it actually means
Speaker 3: is that Saudi Arabia's current account surplus isn't gonna last
Speaker 3: much longer. You know, oil prices have adjusted down and
Speaker 3: oil in the seventies or eighties now in my calculations,
Speaker 3: just covers Saudi import bill and expensive soccer players are
Speaker 3: kind of kind of kind of a luxury good import,
Speaker 3: and they're the kind of luxury good import that quickly
Speaker 3: reduces your current account surplus. So I think Saudi Arabia
Speaker 3: is heading towards at current oil prices. And if you
Speaker 3: want to build cities in the desert, sponsored global golf
Speaker 3: tours and hire the best soccer players to come play
Speaker 3: in the desert, so they probably need air conditioned stadiums,
Speaker 3: you're going to run a current account deficit if oil
Speaker 3: doesn't rebound back up. The Saudi's got one hundred and
Speaker 3: fifty billion dollars windfall last year, though from their oil exports.
Speaker 3: The golf countries were like generally got about a three
Speaker 3: hundred billion dollar windfall. They had been relatively conservative, I
Speaker 3: would say over the past ten years. I kept expecting
Speaker 3: some of the splashy policy chiefts, the cities, all the
Speaker 3: other MBS investments to really changed the macro numbers, and
Speaker 3: it didn't happen until the last two quarters. But I
Speaker 3: think you've really seen a big increase in Saudi spending.
Speaker 3: So Saudi Arabia structurally is either going to be drawing
Speaker 3: on its accumulated savings, which it has a lot, or
Speaker 3: it needs somehow to orchestrate higher outpices.
Speaker 1: So just on this note, you wrote a piece. I
Speaker 1: can't remember when exactly you did it, but it might
Speaker 1: have been one of the first ones that you wrote
Speaker 1: after you returned to CFR. But you made the point
Speaker 1: that most of these surplus countries in the world nowadays
Speaker 1: seem to be countries that may not necessarily be that
Speaker 1: friendly to the US, or maybe attitudes are shifting, so
Speaker 1: places like China, Saudi Arabia, Russia would be an obvious one.
Speaker 1: What does that mean for global trade as geopolitics kind
Speaker 1: of seeps in and adds presumably some complexity to you know,
Speaker 1: deficit surplus relationships.
Speaker 3: Well, I did probably probably was a conscious choice to
Speaker 3: make that one of my first blog posts, because I
Speaker 3: did think it was something worth noting than something that
Speaker 3: hadn't been noticed. You know, last year, oil prices shot
Speaker 3: up and this Chinese current account surplus also increased, and
Speaker 3: the European, Japanese, Korean current account surplus either shrank. In
Speaker 3: the case of Japan, swung briefly into deficit for for Korea,
Speaker 3: or really swung into deficit for Europe. So we were
Speaker 3: in a unique period when, despite all the talk about
Speaker 3: fragmentation and limiting trade and financial flows too, flows within
Speaker 3: blocks who share values, who share similar political systems. All
Speaker 3: the big autocracies around the world, China, Saudi Arabia, Russia,
Speaker 3: the GCC monarchies, and you know, the GCC is a
Speaker 3: bit separate because they're kind of militarily allied with the US,
Speaker 3: so they're but they're kind of, at least the Saudi case,
Speaker 3: they're also a little scared of some US sanctions because
Speaker 3: some you know, MBS has has a checkered history, let's say.
Speaker 3: And then clearly the political systems differ even if there's
Speaker 3: a military alliance. So you have a world where the
Speaker 3: autocracies had surpluses. The big deficits were in the US,
Speaker 3: UK and India democracies, and we were talking about fragmentation.
Speaker 3: There was clearly a limit to how much fragmentation is
Speaker 3: possible when all the autocracies are running surpluses. With all
Speaker 3: the democracies, there has to be there is a trade
Speaker 3: flow implied by the deficit, and there is a financial
Speaker 3: flow that is also implied.
Speaker 1: So this would be like FX reserves and things like that.
Speaker 3: Well it wasn't FX reserve. So that's the other interesting
Speaker 3: thing is that Russia literally could not accumulate assets in
Speaker 3: his reserves. The Saudis had decided they had plenty of
Speaker 3: reserves and were channeling money into private equity funds through
Speaker 3: their sovereign Wealth Fund, building up deposits, maybe getting ready
Speaker 3: to make sure that they had so much money in
Speaker 3: the bank they could pay Messi and Ronaldo and cash.
Speaker 3: And the Chinese have a long standing now for ten years,
Speaker 3: close to ten years, policy of more or less not
Speaker 3: adding to their formal reserves and instead, when there's appreciation pressure,
Speaker 3: that pressure shows up in a build up of assets
Speaker 3: in the state banking system. And then when there's depreciation pressure,
Speaker 3: exporters just seemed to hold hoard dollars. So unlike in
Speaker 3: the past when you had this big build up of
Speaker 3: foreign assets and autocracies and you would see it in
Speaker 3: their reserves and you could track the flow back to
Speaker 3: the US, and you know, people would say, oh my god,
Speaker 3: China's buying up the US treasury market. We had implicit
Speaker 3: in this constellation of surpluses and deficits. Was a big
Speaker 3: flow from China, Saudi Arabia, Russia and the other GCC
Speaker 3: countries to the US and the UK. I'm gonna leave
Speaker 3: India out because we know India finance it's current account
Speaker 3: deficit last year by selling reserves, but you didn't see
Speaker 3: that in the build up of reserves or a build
Speaker 3: up in their holdings of treasure. So it's sort of
Speaker 3: a hidden financial flow that you can infer from the
Speaker 3: global balance of payments. So I think it is interesting
Speaker 3: in a lot of ways. One is that there are
Speaker 3: so many things that happened over the past several years
Speaker 3: in the global economy that don't easily fit into a
Speaker 3: narrative of fragmentation into rival blocks, that don't easily fit
Speaker 3: into a deglobalization narrative, that don't fit into a dedollarization narrative.
Speaker 3: And so this was an attempt to highlight the limits
Speaker 3: of trying to think about the world in those terms.
Speaker 3: But it was also just an attempt to say, look,
Speaker 3: there's a set of financial flows that have to be
Speaker 3: occurring through parts of the global economy that bring China
Speaker 3: surplus to the US and the UK without a build
Speaker 3: up of reserves without a formal without obvious purchases of treasuries,
Speaker 3: and we need to do a better job of trying
Speaker 3: to understand that. But I also look, there's a risk,
Speaker 3: and I think the risk is that we have a
Speaker 3: global economy which has quite large financial and trade interconnections
Speaker 3: between the different blocks, and there isn't a political consensus
Speaker 3: on either part of the block that they want to
Speaker 3: maintain that level of interconnection, but it is costly to
Speaker 3: move away. So there's a tension between the world as
Speaker 3: it is and the world as some would like attain.
Speaker 2: You know, I want to go back actually to the
Speaker 2: US Europe tension, but in terms of like some of
Speaker 2: these things that have changed. You know, this might sound
Speaker 2: like sort of like a Winter twenty twenty two questions,
Speaker 2: So maybe a little late, but maybe it made sense
Speaker 2: when electricity prices in Europe were higher. But obviously, like
Speaker 2: there's still I think a sort of big long term
Speaker 2: question mark about energy security in Europe, especially given the
Speaker 2: you know, the obvious questions about the Russia relationship. And
Speaker 2: then at the same time, the US spent a lot
Speaker 2: of US you know, several years like building up export
Speaker 2: capacity and we're like swimming in a floating in natural gas,
Speaker 2: maybe is a way to put it. How meaningful is
Speaker 2: this that there's tons of cheap energy in the US,
Speaker 2: and is this sort of like going to be a
Speaker 2: source of marginal investment decisions to go towards the US
Speaker 2: out of Europe. That's sort of further threat to the
Speaker 2: European industrial economy that can move to the US and
Speaker 2: get a lot of cheap energy and there's no threat
Speaker 2: of it being cut off.
Speaker 3: It is a it is a modest challenge the parts
Speaker 3: of European industry. It's it's the most significantly it's a
Speaker 3: challenge to the German chemical industry, and there's certain other
Speaker 3: energy intensive parts of the European economy that that broadly speaking,
Speaker 3: don't make sense. If you have to pay really high
Speaker 3: cost to import natural gas, it makes more sense to
Speaker 3: move the industry closer to cheap sources of gas. So
Speaker 3: there are there's a there's a part of particularly German,
Speaker 3: but more broadly European industry that was built up around
Speaker 3: you know, a steady supply of Russian pipeline gas at
Speaker 3: a relatively low cost, and if that goes away, you know,
Speaker 3: in the short run, you can keep the plants running
Speaker 3: by importing an expensive LNG. In the long run, you
Speaker 3: probably want to reallocate production of the most energy intensive
Speaker 3: chemicals towards the US. Aluminum is another one, you know,
Speaker 3: but like there's a huge difference between Norwegian aluminum made
Speaker 3: with trapped hydro and some of the other aluminum factories
Speaker 3: which are you know, run off either gas or coal.
Speaker 3: And the US ain't ain't actually a cheap place for
Speaker 3: producing alumini either for different reasons. But uh, you know,
Speaker 3: I think there's there, there is a threat there. There's
Speaker 3: a challenge to European industry coming from the auto industry,
Speaker 3: which isn't as energy intensive, coming from China. Uh, there's
Speaker 3: a challenge from Europe's very ambitious climate goals and how
Speaker 3: do you produce steel in a way that doesn't use coal.
Speaker 3: It's it's it's it's a challenge. But I think to
Speaker 3: Europe's credit, Europe, probably more than the US, has thought
Speaker 3: seriously about all the changes to Europe's energy system that
Speaker 3: would needed to that would eventually be needed to decarbonize
Speaker 3: the economy. It's it's more of a planning and more
Speaker 3: done through the electricity companies but I think the you know,
Speaker 3: in the US, because we have cheap gas, there there's
Speaker 3: a tendency to think the energy, energy security, and future
Speaker 3: climate commitments can be met in the short run by
Speaker 3: burning gas and not burning coal, whereas in Europe you
Speaker 3: have there is a much stronger effort to think twenty
Speaker 3: years ahead and think of an energy system that really
Speaker 3: doesn't rely on imported fossil fuels, including energy. So but
Speaker 3: it is a challenge, it is a threat. And you
Speaker 3: know the fact that Europe was paying like two to
Speaker 3: three times the energy equivalent per barrel of oil for
Speaker 3: imported gas just tells you how extreme the shock was.
Speaker 1: You know, you touched on this already a little bit.
Speaker 1: But one of the things that has happened recently is
Speaker 1: there does seem to be growing attention paid to the
Speaker 1: idea of dedollarization, and to some extent, these conversations have
Speaker 1: been going on for a long time. This is also
Speaker 1: in the more things change, the more they stay the
Speaker 1: same category. People have been talking about usurping the dollar's
Speaker 1: role in the global financial system for decades now. But
Speaker 1: I'm curious how seriously, if at all, you are taking
Speaker 1: some of those concerns at the moment.
Speaker 3: Well, I guess I like pointing out ironies, and to me,
Speaker 3: the ironies were debating dedollarization when the best evidence is
Speaker 3: of deuroization, and the deuised trade was trade that Europe sanctioned.
Speaker 3: Europe made it more or less impossible, not completely impossible,
Speaker 3: but narrowed the channels to use euros to pay for
Speaker 3: trade between China and Europe. Russia moved away from the
Speaker 3: dollar to settle trade with China after the fourteen fifteen
Speaker 3: sanctions in Crimea. They thought it would be safer to
Speaker 3: denominate trade in euros. And then this last round of sanctions,
Speaker 3: you know, essentially showed Russia that putting your reserves in
Speaker 3: euros and putting denominating your trade with China in euros
Speaker 3: didn't offer significantly more protection than doing the same thing
Speaker 3: in dollars. So to me, it is a isn't really
Speaker 3: a de dollarization question. It should be a move away
Speaker 3: from using G seven currencies question. Because the easy alternative
Speaker 3: for people who are worried about US sanctions used to
Speaker 3: be the euro and the sanctions against Russia, which were
Speaker 3: completely appropriate, you had to do the euro or it
Speaker 3: wasn't going to be meaningful. And you know, Russia did
Speaker 3: violate all sorts of norms, laws, expectations, name it when
Speaker 3: it invaded Ukraine, So you should be taking steps that
Speaker 3: are bold and consequential. But cutting off the biggest Russian
Speaker 3: banks except for Gazprom Bank, from the European financial system
Speaker 3: to you know, there's some narrow carveouts. It's not full,
Speaker 3: but it truly is much riskier now for China to
Speaker 3: be paid for its oil and gas from Europe and
Speaker 3: euro So, you know, no shock, there's been a move
Speaker 3: towards settling that trade in yuan. China sees the G
Speaker 3: seven sanctions and realizes that insulating its economy and its
Speaker 3: ability to pay for resources, securing China's supply chains in
Speaker 3: a financial sense will likely require greater use of the
Speaker 3: yuan in settlement. So that it doesn't surprise me that
Speaker 3: we're seeing this debate now. It is a natural consequence
Speaker 3: to really significant sanctions, sanctions that in effect forced Russia
Speaker 3: to move off the euro to denominate its global trade.
Speaker 3: That showed that the euro is not a full substitute
Speaker 3: for the dollar in most purposes. I think it's also
Speaker 3: shown that there are limits to what you can do
Speaker 3: in yuan. It was striking to me that the Indians
Speaker 3: and Russians have spent a lot of time discussing how
Speaker 3: they're going to settle the now quite large oil trade
Speaker 3: between India and Russia. And you know, India doesn't like
Speaker 3: the yuan. They don't have the best relationship with China,
Speaker 3: so they weren't really talking about yuan. They wanted to
Speaker 3: pay in rupee, but the Russians didn't want to build
Speaker 3: up a big rupee balance because that you know, it
Speaker 3: isn't a global currency. The only place you can really
Speaker 3: use rupee is to buy in India, to buy Indian goods.
Speaker 3: They wanted something that was more global, so they have
Speaker 3: ended up relying still on the dollar, weirdly in on
Speaker 3: the Imorati durham, which is pegged to the dollar.
Speaker 2: I didn't realize the settlements.
Speaker 3: Yeah, so's it's it's just been this. Yes, there's been
Speaker 3: a shift. Russia and China are no longer trading with
Speaker 3: each other in a currency from the rival block or dollars,
Speaker 3: euros or yen. But there's also been big limits on
Speaker 3: how far Russia has been able to go in moving
Speaker 3: its trade to pure yuan settlement. Or pure settlement and
Speaker 3: more sanctions remote currencies. And you know, it is funny
Speaker 3: to me that, you know, the GCC countries end up
Speaker 3: acting as financial hubs and you denominate trade in their
Speaker 3: currency when you know that is a dollar just guaranteed
Speaker 3: by their central bank.
Speaker 2: They should trade and tether.
Speaker 3: It is your world, Joe, it's not mine. You know.
Speaker 2: Actually I want to go back to something we were
Speaker 2: talking about, you know, or you you brought up with
Speaker 2: China and the sort of like the strides that they've
Speaker 2: made on some of this advanced manufacturing. I don't remember what.
Speaker 2: You know, We've talked to several times over the years.
Speaker 2: I know that one at least in one of those
Speaker 2: conversations we talked about the failure of China's passenger plane
Speaker 2: industry or to build up a competitor to blowing an airbus.
Speaker 2: And I believe in twenty twenty three that's still basically
Speaker 2: the case, that they have not made much progress in
Speaker 2: that area. And then of course they're there's the semiconductors,
Speaker 2: and obviously lots of sanctions and efforts to constrain China's
Speaker 2: ability to make advanced chips on its own. Do what
Speaker 2: is like going on there. Like the question is kind
Speaker 2: of on my mind because I was rereading a transcript
Speaker 2: of an episode we recently did with Dan Wong. But
Speaker 2: what you know, do you see like in some of
Speaker 2: these like very like difficult complex industries like passenger jet,
Speaker 2: like is there a change in the trajectory there?
Speaker 3: I'm hesitating because I'm I'm honestly not sure. I mean,
Speaker 3: the the C nine to one nine has taken forever,
Speaker 3: but it is now in service. China can't build very
Speaker 3: many of them. I don't think there's yet data on
Speaker 3: their operational and fuel efficiency that will show how close
Speaker 3: they are to mapping to the three twenty, the seven
Speaker 3: thirty seven, their main main competitors. I mean, I think
Speaker 3: actually the biggest change, and this is not what is
Speaker 3: ane on anyone's mind, has not been the C nine
Speaker 3: one nine, which has been slow. I mean, for all
Speaker 3: of China's success in electric vehicles, they've done something amazing
Speaker 3: in electric vehicles, and they've wagged expectations on aircraft. Aircraft
Speaker 3: are I guess harder. China didn't have as well developed
Speaker 3: a supply chain. The safety concerns are bigger, But the
Speaker 3: biggest shock has been that Boeing's done a made a
Speaker 3: series of major errors, and so independent of the success
Speaker 3: of the C nine one nine, the seven thirty seven
Speaker 3: has essentially been frozen out of the Chinese market the
Speaker 3: safety concerns after the MAX, it's been hard to just
Speaker 3: hasn't come back. And then obviously it's an area where
Speaker 3: Chinese orders for new seven thirty sevens are a bit
Speaker 3: of a geopolitical hostage, and there just haven't been any
Speaker 3: after the trade war, may facilitated by the fact that Boeing,
Speaker 3: you know, the MAX crashes provided ample opportunity for the
Speaker 3: C nine one nine to show that it could be
Speaker 3: a safer alternative to Boeing, which no one would have
Speaker 3: considered possible. But it also highlighted that the biggest risk
Speaker 3: that the C nine one nine faces is that it crashes.
Speaker 3: So I think it's made the Chinese a little bit
Speaker 3: more more conservative, But there is evolution there right now.
Speaker 3: The evolution is mostly boeing own goals, giving Airbus a
Speaker 3: big advantage and giving Airbus an opportunity which is right
Speaker 3: now only limited by Airbus's capacity to scale up production
Speaker 3: C nine one nine. It will be a marginal player
Speaker 3: for a while China doesn't have the capacity to produce
Speaker 3: that many, but maybe ten or twenty years down the
Speaker 3: road there will be enough capacity for that, you know,
Speaker 3: for China to have moved not only into the front
Speaker 3: of the ev transportation sector, but also to be making
Speaker 3: in roads in aviation. You know, on chips, I have
Speaker 3: a you know, China is not at the cutting edge.
Speaker 3: There are enormous sanctions to keep China from the cutting edge.
Speaker 3: There are still China still produces a lot of lagging
Speaker 3: edge chips, and those chips play big roles in a
Speaker 3: lot of supply chains. So vulnerability from China is not
Speaker 3: limited to Chinese production capacity and cutting edge and I
Speaker 3: think it will be interesting to see if some of
Speaker 3: these Chinese subsidies do generate enough capacity on some of
Speaker 3: the lagging edge chips that the lagging edge chips are
Speaker 3: are cheap, and a combination of lagging chips put together
Speaker 3: can produce an effective substitute for some of the cutting
Speaker 3: edge chips. So it's it's complex, but clearly, you know,
Speaker 3: when China decided it wanted to catch the technological frontier
Speaker 3: and semiconductors, that caught the United States attention. And one
Speaker 3: of the things the US discovered was that it was
Speaker 3: no longer at the cutting edge of semiconductor manufacturing, not
Speaker 3: because of China, but because Intel was lagging TSMC and Samsung.
Speaker 3: And it seems obvious to me that until the US
Speaker 3: is comfortable that it is back at the cutting edge,
Speaker 3: there's going to be some reluctance to allow China to
Speaker 3: move ahead too fast, in part because there are there
Speaker 3: are military applications that are real. So it's become that
Speaker 3: is one place where parts of global trade have become
Speaker 3: hostages to a geopolitical settlement.
Speaker 1: Could I ask you about something that Karthik Sanchron brought
Speaker 1: up on a recent episode, which is basically he mentioned
Speaker 1: that none of the Belt and Road debt that various
Speaker 1: countries owe to China is actually denominated in UN but
Speaker 1: all of it's and dollars. Why is that, because that
Speaker 1: would have seemed to be, you know, an obvious one
Speaker 1: for China to try to do, assuming you know that
Speaker 1: it wants a greater role for the UN in the system.
Speaker 3: I don't have a full answer. I find it a mystery.
Speaker 3: I find it a puzzle. I have a set of theories,
Speaker 3: but they're contingent on getting confirmation from actual Chinese sources.
Speaker 3: But my, I mean it does. It would have made
Speaker 3: sense to have the Belton Road in you on, because
Speaker 3: there was a whole push for R and B internationalization
Speaker 3: at the time. Right. It is strange that when you
Speaker 3: go into the sometimes secret loan docs you discover they're
Speaker 3: all they're all not only in dollars, they're libor linkers
Speaker 3: with a spread, and they typically amortize after five years.
Speaker 3: There's a certain standard structure to them. And you know,
Speaker 3: the fact that they're libor linkers actually really now matters
Speaker 3: because libor is quite you know, US short term rates
Speaker 3: have gone up a lot hy in dollars, I presume
Speaker 3: because at the origin this was an effort to recycle
Speaker 3: China's dollar surplus as trade surplus and to use dollars
Speaker 3: in a way that didn't add to the formal reported
Speaker 3: reserves of China's Central bank. We know that was the case.
Speaker 3: In some of the early first steps in the Belton Road.
Speaker 3: There was something called an entrusted loan, which was save
Speaker 3: money from China's foreign exchange reserves that was entrusted with
Speaker 3: XM or CDB, and they would lend it out and
Speaker 3: just get a spread. They would provide a service to Safe,
Speaker 3: the holder of the reserves, without necessarily having it one
Speaker 3: hundred percent on their balance sheets. So it was clearly
Speaker 3: in dollars because it was a dollar they had. They'd
Speaker 3: taken a dollar from Safe and they lint out that
Speaker 3: dollar and they needed to get repaid in dollars. A
Speaker 3: lot of those entrusted loans were converted into capital, and
Speaker 3: to some degree, the money trail has gotten a little faint,
Speaker 3: a little harder to follow. But I think a lot
Speaker 3: of the funding for XM and CDB coming from various
Speaker 3: internal funds, some of which have support from China's reserves.
Speaker 3: Probably CDB gets some swaps from someone in China. Bank
Speaker 3: of China PBOC would be the logical ones en dollars.
Speaker 3: So if you're taking in dollars, you got to lend
Speaker 3: out dollars, and so it becomes necessary in order to
Speaker 3: recycle China's global surplus. You know, Chinese reserves have been
Speaker 3: flat roughly since twenty sixteen, so seven is years. During
Speaker 3: that period, the net foreign asset position of both the
Speaker 3: state commercial banks and the policy banks has probably gone
Speaker 3: up by one point five trillion. So if you're recycling
Speaker 3: a big surplus, someone in the economy has to be
Speaker 3: using up some of the dollars you generate and lending
Speaker 3: them out. And that mechanism of recycling in complex ways
Speaker 3: seems to have included the policy banks and the Belton
Speaker 3: Road loones. That is the best explanation I can come
Speaker 3: up with, but it is a mystery. And you would
Speaker 3: think that China would have made more of an effort
Speaker 3: not just to use the yuan to settle bilateral trade,
Speaker 3: to make that trade a bit remove from sanctions, but
Speaker 3: would have made an effort to kind of make the
Speaker 3: yuan into a global currency of denomination for debt contracts.
Speaker 3: And the easiest way would be to say that countries
Speaker 3: that wanted to borrow money from China needed to borrow
Speaker 3: a yuan, But that didn't happen.
Speaker 2: And I have one last question for me. So the
Speaker 2: last time we had you on Tracy mentioned is April
Speaker 2: twenty twenty, and we are specifically talking then about the
Speaker 2: engulfing crisis that emerging markets were facing. First obviously just
Speaker 2: the pure like the econ shock due to everything shutting
Speaker 2: down with the pandemic, but then numerous things on top
Speaker 2: of that, including the inflation and the commodity surge, etcetera.
Speaker 2: Within the China context. I know this is not something
Speaker 2: I follow closely, but I know that like China and
Speaker 2: the rest of the world, the IMF etc. Have not
Speaker 2: been on the same page with respect to restructuring or
Speaker 2: forgiving or lessening in some way the em debt burden.
Speaker 2: Can you explain just like what we should understand about
Speaker 2: like that gap and where those talks are.
Speaker 3: I can try whether that's probably a whole episode. Look,
Speaker 3: I guess you know, there's a question of terminology. Most
Speaker 3: of the big emerging markets are in pretty solid financial
Speaker 3: shape India, Brazil, Mexico, Indonesia, nothing to worry about. There's
Speaker 3: a set of what I would consider as emerging markets,
Speaker 3: or some at the cutting edge of what are called
Speaker 3: frontier markets, that are in a bit of trouble. Turkey
Speaker 3: Egypt Neither has been a big recipient of Chinese credit, Okay,
Speaker 3: they have different issues. Both have been recipients of golf
Speaker 3: bailout money. Some of the Saudi surplus that didn't go
Speaker 3: to Messi and Ronaldo did go to Egypt and Turkey,
Speaker 3: to Urduwan and others Urwan and Sici and then Pakistan
Speaker 3: which has been a big recipient of Chinese money. So
Speaker 3: the current debate isn't around some of the bigger, more
Speaker 3: systemically important emerging economies. It's around some of the smaller
Speaker 3: economies frontier markets that both borrowed heavily from China and
Speaker 3: borrowed from the bond market. And the basic difficulty is
Speaker 3: that we these countries can't pay. They've most cases stopped paying.
Speaker 3: Sri Lanka, Gona, Zambia have stopped paying. There clearly needs
Speaker 3: to be a restructuring, and the Chinese and to some
Speaker 3: degree the bond mark bond investors haven't entirely accepted the
Speaker 3: IMF judgment on the amount of debt relief that is needed.
Speaker 3: There is no need, consistent with China's preferences, for China
Speaker 3: to write down the face value of their loans, but
Speaker 3: there probably is a need in some of the specific
Speaker 3: cases for XM and CDB to accept a very concessional
Speaker 3: interest rate, and there just isn't a model whereby they have,
Speaker 3: with scrutiny, with visibility to other creditors and to other borrowers,
Speaker 3: accepted obviously concessional interest rates on what they view as
Speaker 3: originally commercial loans, so that is the core IMPASS. That
Speaker 3: IMPASS because China, because official creditors have a role to
Speaker 3: play in improving IMF lending, has meant that it has
Speaker 3: been difficult for the IMF to lend after a country defaults.
Speaker 3: And because traditionally the restructuring of bilateral official credits proceeds
Speaker 3: bond restructurings, the bond restructurings have been held up. So
Speaker 3: for a set of lower middle income cories, they've fallen
Speaker 3: into default. The number of countries into fault keeps growing
Speaker 3: and there aren't any exits through restructurings. So there's hope
Speaker 3: maybe that either in Sri Lanka or Zambia or Aghana,
Speaker 3: someone will come up with a model for restructuring the
Speaker 3: XM and CDB loans and like people talk about China,
Speaker 3: but the bulk of the loans are from those two institutions,
Speaker 3: and you'll find a model, a model that works, and
Speaker 3: then you can kind of move on. But right now,
Speaker 3: you know, the Chinese have been contesting every technical detail
Speaker 3: of the traditional restructuring process. Whether that's because they feel
Speaker 3: like the restructuring process was designed by their geopolitical enemies
Speaker 3: and they are being forced to accept a dictate of
Speaker 3: how to restructure debts or whether because they're just stalling
Speaker 3: because their banks aren't willing to take losses. We don't know.
Speaker 1: All right, Well, Brad, I feel like we could throw
Speaker 1: out some more of the great financial mysteries of our
Speaker 1: time at you and you listen to you to try
Speaker 1: to tackle them all, but we're gonna have to leave
Speaker 1: it there. Thank you so much for coming back on
Speaker 1: the show. It was really great to have you.
Speaker 3: Oh thanks, Maybe next time we'll pick some narrower topics.
Speaker 2: Yes, we had this.
Speaker 1: This is our jumping off.
Speaker 2: This is what happens when you go three years went
Speaker 2: out a brand, So the next time we could go.
Speaker 1: Now, Joe, so much to pick out of that conversation.
Speaker 1: I'm kind of having a hard time focusing on just
Speaker 1: one or two things. I did think the point about
Speaker 1: de euroisation versus de dollarization was a really interesting one.
Speaker 2: There's no one you could talk about, you could talk
Speaker 2: to in which the conversation includes Lionel Messi, the COMAC
Speaker 2: C nine one nine, and how trade denominated in the
Speaker 2: Mrodi Durham is really dollar denominated trade in disguise and
Speaker 2: have it all be coherent, but that's why we like
Speaker 2: touring the bread.
Speaker 1: It's true. I do you think next time we need
Speaker 1: to choose one thing? That episode we did on the
Speaker 1: Taiwanese life insurance is still one of my all time
Speaker 1: favorite episodes. Next time we need to do a whole
Speaker 1: episode on em debt restructuring or maybe the structure of
Speaker 1: a similar topic, but the structuring of China's belt and
Speaker 1: road liabilities. That would be interesting.
Speaker 2: And we got to do a like a really deep
Speaker 2: dive into Chinese EV exports and what it's doing to
Speaker 2: the European car manufacturers in particular, because that feels like
Speaker 2: like an Earth quick story. Just something that I don't
Speaker 2: think was on anyone's radar a few years ago, is
Speaker 2: something that could have happened.
Speaker 1: Yeah, this was a macro conversation that has led to
Speaker 1: like eighteen different micro episodes to do.
Speaker 3: All right, the.
Speaker 2: Fuel efficiency of the sea, and it was not you know,
Speaker 2: it's like where that stands versus the air?
Speaker 1: You know, I can't wait? All right, shall we leave
Speaker 1: it there for a Okay? This has been another episode
Speaker 1: of the Odd Lots podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe Wisenthal.
Speaker 2: You can follow me on Twitter at The Stalwart. Follow
Speaker 2: our guest Brad Setser on Twitter. He's Brad Underscore Setser.
Speaker 2: Follow our producers Carman Rodriguez at Carmen Arman and dash
Speaker 2: O Bennett at dashbot. And check out all of the
Speaker 2: Bloomberg podcasts under the handle at podcasts. And for more
Speaker 2: Oddlots content, go to Bloomberg dot com slash odd Lots,
Speaker 2: where we have a blog, we post transcripts, and we
Speaker 2: have a newsletter that comes out every Friday. And for
Speaker 2: more check out our discord. It's a really fun place
Speaker 2: to hang out and chat. People are in their twenty
Speaker 2: four to seven talk about all of these topics. They'll
Speaker 2: definitely be talking about this episode. Discord dot gg, slash Odlogs.
Speaker 2: Thanks for listening in