While Donald Trump has suspended his broad tariffs on the rest of the world for 90 days (though maintaining a 10% rate) he has escalated tensions with China by imposing a staggering 145% tariff, effectively launching a full-blown trade war. China responded with a 125% tariff of its own. It is difficult to foresee how the confrontation will unfold, primarily due to the unpredictability of the President of the United States and, I would add, the absence of any discernible economic plan grounded in empirical evidence and rational analysis, rather than slogans and a ultrasimplified vision of “how the world works”. The so-called “adults in the room” who restrained the President during his first administration seem to have all but disappeared. At least for now.

In this paper, co-authored with Marco Veronese Passarella and Dongna Zhang and just published in “Structural Change and Economic Dynamics”, we aim to contribute to a more informed, evidence-based discussion on international macroeconomic imbalances. Titled “Balance of Payments and Currency Policy in China’s Development”, the paper offers a summary and evaluation of China’s development strategy over the past four decades, focusing on its transition to an open economy. On the one hand, it underscores the role played by international trade and the shift from central planning to market-driven resource allocation. On the other hand, it highlights the role of active government intervention, particularly in managing the balance of payments and contributing to China’s success. The paper also addresses the controversies surrounding China’s exchange rate policy, including accusations of “currency manipulation”. The model presented suggests that the scope for a quick nominal revaluation of the Renminbi with respect to the US dollar during the initial stages of the reform era was limited. Link to the paper here.