The World Needs a Buyer of Last Resort
Very important to understand this.
This is based on an email I sent out back in 2019, pre-covid, which feels like another era. Sadly, none of the core issues have changed.
China still exports way more than it imports, which means they cannot be a source of global demand—they can’t be the buyer of last resort. And more importantly Xi doesn’t want to be.
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The problem is people think all we need are good trade deals. No. All we need is someone willing to run large current account deficits. — Michael Pettis
Globalization model quietly stopped working
If someone asked, where will future global demand come from? The instinctive answer might be: globalization. That it will continue spreading, lifting people out of poverty and increasing trade and consumption.
But that model quietly stopped working a decade ago.
In June 2019 Catherine Mann was on Bloomberg Surveillance (overcast).1 Tom Keene asked her about global inter-dependencies—the way one country’s policies are often blunted by those of others. Her response:
"The trade relationship we have right now with China is emblematic of
10[now 15] years of stagnation in terms of global integration. Earlier in my career we talked about more deeply integrated global supply chains, a greater variety of products crossing borders, lower prices available to both businesses and consumers. And all that stopped about10[now 15] years ago."
So if globalization is no longer driving demand, what about growth-driven imports?
, Council on Foreign Relations, November 2018 wrote a blog post entitled "China should import more." He included this chart, showing the declining trend in China's trade in manufactures with the US as a share of GDP.
Brad updated a version of this chart on March 31, 2025 that shows China’s trade in manufactures as a share of GDP. Non-processing imports are manufactured goods that are not going to be processed and re-exported. The updated chart includes non-processing imports from all countries. Quoting Mr. Setser:
Xi's vision of openness seems to be a world that is open to Chinese exports, not a China that is open to imports of manufactures