Edit | Su Qi
Value chain trade and financial globalization have made the economies of all countries in the world interdependent to an unprecedented extent. The internal policies of any country will affect the national economic situation of almost all other countries, and the policy spillover effect of China, the United States and Germany, the central countries of the global value chain, is more obvious. On the contrary, it is difficult for any country, especially China, the United States and Germany, to adjust the imbalance of internal and external economic structure by its own efforts.
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Globalization before 2008 is true, and anti-globalization since 2008 is also true, but the global imbalance represented by trade balance is not true. We call it the "trade illusion". The current account surplus is not equal to the added value surplus, and the figure of bilateral trade balance has lost its original meaning. All this began with the rise of foreign direct investment and value chain trade since the 1980s. Before the financial crisis in 2008, the share of imported intermediate products in global manufactured goods production exceeded 25%, and then it continued to decline. At the same time, global foreign direct investment also reached its peak in 2007 (3. 1 trillion USD). With the acceleration of import substitution, the trend of industrial chain contraction and regionalization will continue.
China is the second largest economy and the largest exporter in the world, and it is one of the three central nodes of the global value chain. With the opening up of China, the spillover and feedback effects of China's economic development and policies will become more and more obvious. Faced with the once-in-a-century great change, the "July 30" meeting of the Political Bureau in 2020 proposed to "accelerate the formation of a new development pattern with domestic macro-cycle as the main body and domestic and international dual-cycle mutual promotion" (referred to as "the new development pattern of dual-cycle"). The new pattern of dual-cycle development is a new formulation, but the trend force, blueprint and reform path have been formed. The key word on the supply side is scientific and technological innovation, and the key word on the demand side is consumption. The transition to a new pattern of dual-cycle development conforms to the law of economic evolution and the staged characteristics of China's economic development, and will also help to alleviate global imbalances. Judging from the general equilibrium of the open economy, compared with the United States imposing tariffs on China goods, the new pattern of China's dual-cycle development is more conducive to restoring the balance of payments of the United States.
Global imbalance is the mirror image and result of internal economic structural imbalance between surplus countries and deficit countries, which is closely related to the differences in economic development stages of different economies and the unipolar international monetary system. Therefore, the adjustment of global imbalances can only be ended if big countries simultaneously adjust internal imbalances and rebuild the global governance system through consultation. There is only one way for the balanced development of the global economy: cooperation.
To understand the reasons behind this, it is necessary to establish a general equilibrium analysis framework. National income account and cash flow statement are commonly used tools to establish macroeconomic general equilibrium analysis. Total output is always equal to total demand, which is often divided into "troika": consumption, investment and net export (export import). According to the national income identity, we can get:
Total output, consumption, investment and net exports.
Total national savings investment+net export
Total investment in national savings, net export of national savings.
Savings surplus must correspond to current account surplus, which can be understood as the inevitable result of savings surplus, and it can also be understood that in order to obtain current account surplus, domestic savings surplus must be maintained. If you want to make high investment at the same time, there are only two ways to achieve it: first, curb consumption, increase national savings and increase the savings rate; Secondly, the investment rate should be lower than the savings rate.
The identity of the balance of payments is:
Current account balance ≡ capital account balance+missing account balance
Regardless of the errors and omissions in the account, as well as the primary income and secondary income in the current account, we can get:
Trade balance of goods and services = capital account balance
Namely: trade surplus = net capital outflow or trade deficit = net capital inflow.
The identity of national income and expenditure requires "net lending", that is, the sum of income MINUS expenditure of four departments (family, enterprise, government and foreign departments) must be equal to zero:
(resident savings-resident investment)+(enterprise savings-enterprise investment)+(government savings-government investment)+(foreign savings-foreign investment) ≡ 0
Net household investment+net enterprise investment+net government investment+net foreign investment 0
Every department has three states: net investment, balance and net debt. However, in any period (for example, one year), it is impossible for all departments to have net investment or net liabilities at the same time (but they can be in a balanced state at the same time). So, * * * has 62 combinations. The financial assets of the surplus sector will increase, and the liabilities of the deficit sector will increase. If domestic expenditure (the sum of household, enterprise and government expenditure) is greater than domestic income, it can only be indebted externally. On the other hand, if the domestic expenditure is less than the domestic income, there will be net foreign investment, thus increasing the foreign investment position (regardless of asset revaluation). Therefore, net savings, net capital outflow and current account surplus are equivalent and are nested and mirror images of internal and external cycles.
Figure 1 shows the capital flow relationship between the four sectors of the American real economy. Above the horizontal axis, it means that the income of the department is greater than the expenditure-the net supplier of funds, while below the horizontal axis, it means that the income is less than the expenditure-the net demander of funds. The top and bottom are symmetrical, indicating the equivalence of capital inflow and outflow. The capital flow (brown line) and current account balance (black line) of foreign departments are also symmetrical, which is the balance of international payments.
From the perspective of capital flow, the housing sector has been in surplus for a long time, but the deficit often appears during the financial crisis from the end of last century to 2008, which is closely related to the prosperity of the real estate mortgage market and is also an important reason for the financial crisis in 2008. In the last three decades of the last century, the enterprise sector was basically in deficit, and since the 20th century, it has been in surplus (0.65%), of which 2000-201.5% was surplus and 20 12 was deficit (-0.27%). Government departments are basically in deficit, with only short-term surplus on the eve of the bursting of the internet bubble; On the contrary, the foreign sector has been in a state of net capital inflow for a long time, starting from the mid-1980s (during which there were occasional deficits in some quarters). However, it can be seen that after the financial crisis in 2008, the current account deficit in the United States continued to decline. Correspondingly, the current account deficit in the United States is also shrinking, and it has now fallen below 3% of GDP.
Figure 1: the capital flow relationship of four departments in the United States and its mirror image relationship with the balance of payments.
Note: The data are all GDP standardized, and the data of capital flow are all processed by (backward) moving average (MA4).
It is generally believed that the current account balance accounts for less than 3% (or more than -3%) of GDP, indicating that the international balance of payments is in a balanced state. So, can we think that the process of rebalancing and anti-globalization in the United States has come to an end?
The answer is no, for the following reasons: first, because the United States has been running a deficit for nearly half a century, only the reduction of the deficit is not enough to restore balance; Second, the current account deficit structure of the United States remains unbalanced, and the bilateral trade deficit with China accounts for a high proportion. Although this is the result of value chain trade and China's status as a factory in the world, structural rebalancing can only be achieved through the reconstruction of the industrial chain; Third, the "current account balance" in the United States is defined as: in any five-year period, the current account surplus or deficit does not exceed 0.5% of GDP on average. It can be seen that if we consider the game between China and the United States again, anti-globalization may take another ten years.
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On a global scale, the trade balance between any country and all countries needs to satisfy the following equation:
The former means that the trade balance of any country can be expressed by the sum of its bilateral trade balance with other countries; The latter said that the sum of the trade balance of all countries in the world is equal to zero.
People are used to obsessing about the causal relationship between internal and external imbalances. For example, is the current account deficit in the United States caused by the fact that American consumption and investment expenditures exceed national income, or is it caused by other countries' savings exceeding investment? If it is the former, internal imbalance is the cause of external imbalance; On the other hand, if it is the latter, internal imbalance is the result of external imbalance. Academically, the former is called "pull" and the latter is called "push". Generally speaking, these two forces will coexist and it is difficult to distinguish them.
The price can provide valuable information for distinguishing the pulling force from the pushing force. From the perspective of capital flow, if the pull is dominant, that is, the demand side is dominant, then the price-real interest rate should rise. On the other hand, if the thrust is dominant, the price will fall (Klein and Pettis, 2020). Judging from the situation in the United States, in the past 30 years, while the net inflow of funds, the real interest rate has been declining, which is an evidence that the thrust is dominant. Especially from the beginning of this century to the financial crisis in 2008, the exchange rate of the US dollar continued to depreciate, exceeding 40%. This can also be understood from the logic of the shortage of safe assets.
Global imbalance is the sum of internal structural imbalances in countries, which is closely related to national policies. Any policy that affects the relationship between domestic production, savings and investment will be reflected in the balance of payments account. Any policy of widening the scissors gap between investment and savings will aggravate the imbalance between current account and capital account. In this sense, almost all economic policies will affect a country's current account balance, even including imperfect labor laws and lax environmental laws, because this is equivalent to an invisible subsidy to the production sector, which reduces production costs and helps to increase investment and output, while increasing residents' savings and reducing consumption (Pettis, 20 14). From this perspective, we can understand why Navarro, Trump's trade policy adviser, strongly criticized the China administration for its lack of protection of workers' rights in his book Fatal China.
The relationship between internal equilibrium and external equilibrium can be represented by "swan model" (Figure 2). The horizontal axis is the actual domestic demand, which is equal to the sum of consumption, investment, government expenditure and net export. When it is equal to the total output (y), the internal equilibrium is reached. The horizontal axis can also be used to indicate policy stimulus. The farther to the right, the greater the stimulation. The vertical axis is the real exchange rate, which is equal to the nominal exchange rate multiplied by the ratio of domestic and foreign prices. The decline of real exchange rate indicates the improvement of domestic competitiveness, which may be caused by the depreciation of nominal exchange rate, or by the decline of domestic costs and commodity prices relative to foreign countries.
Figure 2: Swan model and internal and external double cycle
Full employment without inflation is considered as an internal equilibrium state, which is indicated by an upward sloping curve, which means that the economy is in a natural growth path, which is an important goal of national policy. External equilibrium requires that the net outlet is equal to zero, which is represented by a downward sloping curve. Both internal equilibrium and external equilibrium correspond to the combination of real exchange rate and real domestic demand. Two curves divide the plane into four parts, and only at the intersection can the internal and external balance be realized at the same time. This shows that imbalance is the norm.
Theoretically, in the absence of friction, any unbalanced state has a natural force that converges to equilibrium. For example, point A in Figure 2 is located in the lower right corner of the internal equilibrium curve and the upper right corner of the external equilibrium curve, indicating that the actual domestic demand is overheated and the real exchange rate is overvalued, so the economy is in a state of inflation and balance of payments deficit. On the one hand, the currency exchange rate is under the pressure of depreciation, on the other hand, the direction of countercyclical policy regulation is tightening. Two forces will push point a to the equilibrium position. In reality, because of friction, non-equilibrium does not necessarily converge to equilibrium. For example, China and the United States have long been in a state of external imbalance and internal (relative) balance.
Combined with the operating characteristics of the real economy, the situation of China and the United States can be represented by point B and point C respectively (Figure 3). For the United States, tight fiscal and monetary policies or the depreciation of the US dollar exchange rate help to promote external balance, while China is just the opposite. It is worth emphasizing that after the financial crisis in 2008, the overall external imbalance in China has been significantly alleviated. The external imbalance in the United States gradually eased after reaching its peak in 2006, and greatly improved after the financial crisis in 2008, but it did not continue to converge like China.
Figure 3: Sino-US dual-cycle pattern
Judging from the bilateral trade between China and the United States, since 2009, the US trade deficit with China has remained above 50% (Figure 4). This is why the United States regards China as the main target country to reverse the trade deficit. In fact, because China is in the middle and lower reaches of the value chain, China's surplus with the United States is not equal to China's income (added value) earned from the United States. Although China has a surplus with the United States, China has a deficit with Japan, South Korea and Taiwan Province Province of China. Moreover, any policy of the United States to reverse the imbalance may be hedged, which may be other policies of the United States or policies of other countries. For example, the current depreciation of the US dollar will partially offset the policy of stimulating domestic demand. Even if the net effect of American domestic policies helps to narrow the balance of payments deficit, it may not necessarily appear, and it is necessary to cooperate with American surplus countries.
Figure 4: The mirror image of the external imbalance between China and the United States
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As far as the linkage between general equilibrium and internal and external equilibrium is concerned, as long as the United States does not change the structural imbalance of national savings, investment and consumption, its balance of payments deficit will not change, and the trade war with China will only change the target of its deficit, that is, turn the deficit with China into a deficit with Vietnam, Mexico and other countries, just like the story after the Plaza Accord in the 1980s. The US balance of payments deficit did shrink after the depreciation of the US dollar exchange rate and the appreciation of the Japanese yen, but it continued to expand in the early 1990s, only the trade deficit with Japan gradually shifted to China, and Japan did not turn into a surplus because of this, but gradually shifted its surplus with the United States to China and other Asian countries. The balanced development between China and the United States requires cooperation, not conflict.
Global imbalances are rooted in the global governance system. The global governance system established after World War II includes three important dimensions: currency, finance and trade. Global imbalances began with the collapse of the 197 1 Bretton Woods system. It opened the era of cheap dollars and triggered the butterfly effect. It paved the way for the price increase of oil and other commodities, which directly led to stagflation in the 1970s and set off a wave of financial liberalization in the 1980s. Since the mid-1980s, with the rise of FDI and the warming of value chain trade, global imbalances have intensified. In 200 1 year, China joined the WTO, which made unbalanced globalization enter a bright period and reached its peak in 2008, followed by the so-called "anti-globalization", which is still in an accelerated stage.
From the perspective of general equilibrium, rebalancing can only be achieved through cooperation. Throughout history, human society can only progress through cooperation. Therefore, after anti-globalization, globalization based on a new governance system will continue. Like David? Hume said: "Among the governments that have made some commercial progress, the most common thing is to look at the progress of their neighbors with suspicion, treat all trading countries as rivals, and take it for granted that unless their interests are sacrificed, their neighbors will not be prosperous and strong. Contrary to this narrow and malicious view, I will boldly assert that the growth of wealth and commerce in any country is usually beneficial to the wealth and commerce of all its neighbors, not harmful. When all neighboring countries are plagued by ignorance, laziness and ignorance, a country can rarely go too far in trade and industry. "
Yu Shao is the chief economist in orient securities and Chen Dafei is a macro researcher in orient securities. This paper is a phased achievement of the national social science fund's major project "Comparative Study on the History of the World Monetary System" (18ZDA089).