Nolan, you are correct, there is an export boom in cars. I also think China is likely to continue exporting more and more cars in the next few years.
The simple accounting identity helps us understand whether this export surge is good for China and the world as a whole and whether it is sustainable.
Let me rewrite it here:
Production = Comsumption + Investment + (Exports - Imports)
By itself the identity does not tell us what causes what. For instance, if consumption increases by some amount and investment decreases by the same amount, what caused that change?
However it tells us what to focus on when we read economic and financial news about China. If we always keep in mind these 4 components we’ll soon start to develop an intuition for the direction of causality.
As I write in the post, China puts upward pressure on production (GDP growth target) does not push up consumption very much (large unemployment among recent college graduates, no stimmy checks) and tries to be careful with investment (too much unproductive investment has already been made). Mathematically, it follows the trade surplus must surge.
This is not the sign of a healthy economy. There’s nothing “marvelous” in these imbalances within China and between China and the rest of the world. 16 years ago, in 2007, then premier Wen Jiabao famously said China development was “unstable, unbalanced, uncoordinated and unsustainable.” It is even more so today.
Thank you for reading Christoph! I can't speak to people's motivations. It might be simply that what I'm writing here is not intuitive. It "feels" much more correct to say that Americans consume too much because of some cultural flaw and Chinese export a lot because of business acumen or work ethic. But the math at a global level is simple: if China exports a lot (because it doesn't consume much and already has enough infrastructure), the rest of the world needs to import exactly as much.
That there is that simple identity does not in fact mean that China is not having an export boom in cars.
Nolan, you are correct, there is an export boom in cars. I also think China is likely to continue exporting more and more cars in the next few years.
The simple accounting identity helps us understand whether this export surge is good for China and the world as a whole and whether it is sustainable.
Let me rewrite it here:
Production = Comsumption + Investment + (Exports - Imports)
By itself the identity does not tell us what causes what. For instance, if consumption increases by some amount and investment decreases by the same amount, what caused that change?
However it tells us what to focus on when we read economic and financial news about China. If we always keep in mind these 4 components we’ll soon start to develop an intuition for the direction of causality.
As I write in the post, China puts upward pressure on production (GDP growth target) does not push up consumption very much (large unemployment among recent college graduates, no stimmy checks) and tries to be careful with investment (too much unproductive investment has already been made). Mathematically, it follows the trade surplus must surge.
This is not the sign of a healthy economy. There’s nothing “marvelous” in these imbalances within China and between China and the rest of the world. 16 years ago, in 2007, then premier Wen Jiabao famously said China development was “unstable, unbalanced, uncoordinated and unsustainable.” It is even more so today.
https://www.scmp.com/week-asia/opinion/article/2085815/wen-and-now-chinas-economy-still-unsustainable
I wonder whether that is really a misunderstanding rather than deliberately arguing in bad faith, sensationalising for clicks and likes.
Unfortunately, people like Noah Smith get away with it, most of the time.
Please keep denouncing them!
Thank you for reading Christoph! I can't speak to people's motivations. It might be simply that what I'm writing here is not intuitive. It "feels" much more correct to say that Americans consume too much because of some cultural flaw and Chinese export a lot because of business acumen or work ethic. But the math at a global level is simple: if China exports a lot (because it doesn't consume much and already has enough infrastructure), the rest of the world needs to import exactly as much.