The idea that trade imbalances are more likely to be the result of credit imbalances than of savings imbalances ignores the role of savings imbalances in creating credit imbalances. When a surplus country demands to be paid for its trade surplus with claims on American assets, the U.S. economy must adjust to create these assets—and one of the most common ways it does so is by expanding credit.

China Financial Markets provides in-depth analysis of one of the world’s largest and most vital economies. Edited by Carnegie Senior Fellow Michael Pettis based in Beijing, China Financial Markets offers monthly insights into income inequality, market structures, and other issues affecting China and other global economies. A noted expert on China’s economy, Pettis is a professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets.

Learn more

  • Why Foreign Debt Forgiveness Would Cost Americans Very Little

    4
    October 19, 2020

    It is easy to assume that sovereign debt forgiveness involves a collective transfer of wealth from the creditor country to the debt-owing country, but this is only true under specific—and unrealistic—conditions. In today’s environment, sovereign debt forgiveness mainly represents a transfer within the creditor country. It benefits farmers and manufacturers in the creditor country at the expense of the country’s nonproductive savers.

  • Why Does It Matter If Interest Rates Are Below the GDP Growth Rate?

    8
    August 31, 2020

    There is a widespread belief that a country’s national debt burden is sustainable if the interest rate on its debt is less than its expected GDP growth rate. But, in fact, the relationship between interest rates and the GDP growth rate reveals more about the distribution of income in a country than about the sustainability of its debt.

  • China’s Economy Needs Institutional Reform Rather Than Additional Capital Deepening

    36
    July 24, 2020

    It is a mistake to assume that there is a global capital and technology frontier toward which every country must strive to acquire development. Economic development requires, above all, the right set of formal and informal institutions.

  • Why Higher U.S. Savings Won’t Save the Pandemic-Hit Economy

    27
    May 21, 2020

    U.S. households will likely respond to the shocks of the pandemic by increasing their savings rates, as will foreign households. If the U.S. government does not decisively increase spending, higher American household savings will force either American debt or unemployment to rise even more.

  • Why It Won’t Matter Who Pays for Trade Protection

    32
    December 17, 2019

    The debate about whether it is U.S. consumers or Chinese businesses that pay for American tariffs on Chinese-produced goods reveals absolutely nothing about whether the tariffs harm or benefit the U.S. economy.

  • MMT Heaven and MMT Hell for Chinese Investment and U.S. Fiscal Spending

    69
    October 11, 2019

    There are conditions under which governments can create money—or debt—without fear of inflation or excessive debt burdens. There are other conditions under which debt or money creation can lead to inflation and balance sheet problems.

  • Washington Should Tax Capital Inflows

    81
    August 06, 2019

    Taxing capital inflows is a far better way to balance trade than imposing tariffs. This would address the root causes of trade imbalances, improve the productive investment process, and shift most of the adjustment costs onto banks and speculators.

  • Facebook’s Libra: Does the World Need Frictionless Money?

    23
    June 27, 2019

    Facebook seems to think its new digital currency Libra will be used mainly for purchasing goods and services and for current account transactions. But it will probably be used mainly for capital account transactions. Do we really want to eliminate frictional costs on the capital account?

  • Wealth Should Trickle Up, Not Down

    34
    June 19, 2019

    Income inequality in the United States hampers growth and forces up debt. In advanced economies in which investment is not constrained by scarce savings, high levels of income inequality lead automatically to either more unemployment or more debt. Such inequality undermines not only the health of the economy, but eventually also the rich.

  • Does the UK Benefit From Chinese Investment?

    26
    June 05, 2019

    While foreign investment usually benefits developing economies and creates local economic benefits in advanced economies, it generally does not benefit advanced economies on the whole except in very limited cases. On the contrary, foreign investment in advanced economies is more likely to lead to higher unemployment or rising debt.

More

The Carnegie
Podcast

President Trump has made it clear that he wants to reduce the U.S trade deficit with China. If he follows through on his campaign promises to impose tariffs, how would China react? Is a trade deficit with China necessarily a bad thing for the US? One of the most thought-provoking economists on China, Michael Pettis examines the trade relationship between Washington and Beijing, and explains how the Chinese growth model is facing unique challenges.

The Carnegie Podcast is an occasional series featuring commentary and analysis from Carnegie experts on critical global issues.

Recent comments

Please note...

You are leaving the website for the Carnegie-Tsinghua Center for Global Policy and entering a website for another of Carnegie's global centers.

请注意...

你将离开清华—卡内基中心网站,进入卡内基其他全球中心的网站。