Follow the Money

Tax is often the biggest factor in the balance of payments. U.S. firms operating in Bermuda paid $229 billion in dividends back to their U.S. parents in 2018. That’s more than the United States earned from exporting to China before the trade war, and more than Boeing and GE generated by exporting aircraft and their engines even before the new 737 was grounded.

I am taking a few days off— If you are desperate for analysis of China’s balance of payments, I would recommend my disaggregation of China’s current account adjustment last year—and my analysis of the sources of the recent rise in China’s trade surplus (even as Trump’s tariffs have reduced China’s exports to the United States). I continue to think that that there is a risk that China, given its still exceptionally high national savings rate, goes back to running a substantial external surplus—the common argument at the turn of the year that China was poised to run a balance of payments deficit looks a tad premature. Perhaps because China hasn’t gone all out with its stimulus this year… I continue to think, particularly after the release of the most recent BEA data on U.S. direct investment abroad, that tax related distortions are central to understanding the U.S. balance of payments—and for that matter a portion of the U.S. trade deficit. See this piece, and of course my New York Times op-ed. Finally, a teaser—I am determined to come back to the topic of the risks posed by Asia’s insurers searching for yield abroad. They have gotten a tad too big to ignore—stay tuned.