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Brad Setser

Brad Setser

Jan 20
13 tweets

Apparently, the folks at Davos debated whether the world is deglobalziing or reglobalizing … I actually have a great deal of sympathy for the argument made by Niall Ferguson – namely that it is hard to “reglobalize” when there hasn’t yet been any real deglobalization … 1/x

Take one, for example, important measure of globalization: China’s trade. And scale it to output in China’s trading partners rather than China’s own output … 2/x
So, to be a bit polemical, I would argue that the world will start deglobalizing when – American pharmaceutical firms stop taking drugs developed, sometimes with support from the NIH, in the US, and then entering into R&D cost shares and other tax arrangements ... 3/x
with subsidiaries located in offshore financial centers with favorable tax rates, and then and producing patent protected drugs in Ireland, Switzerland, Singapore and Belgium for sale back to the US. (Puerto Rico too, but that is complicated) 4/
With the majority of their global profits, of course, booked outside the US even though the majority of their sales are in the US. 5/
When the world’s most profitable firm no longer produces the bulk of its consumer products in a few cities in China, using chips produced mostly in Taiwan using intellectual property often licensed from a US firms' tax subsidiary in say Singapore ... 6/…
And then notionally sells its consumer goods to its subsidiary in Ireland before reexporting those goods globally -- and, of course, booking the majority of its global profit outside both the US and China ... 7/…
So the world will start deglobalizing when – Chinese support of global manufactures is no longer at a record level relative to global output – and when China no longer needs to draw a record amount of net demand from the world to sustain its unbalanced economy. 8/
And when Ireland is not the United States biggest export market for a range of services – from software to research and development … and when Caribbean tax centers aren't the biggest US export market for financial services ... 9/…
Brad Setser

Brad Setser

A common comment I receive, in public and in private, is that I don’t understand trade in services. The U.S. after all, is a big exporter of high-end services, and runs a big trade surplus in services. But, well, I actually have looked pretty closely at the data. 1/many
And if and when the world starts to reglobalize, I would hope that it does so in a way that isn’t quite as distorted by tax avoidance … 10/
And of course, I also wish that proponents of globalization would recognize the many ways in which the globalization observed over the last 20ys was -- and still is -- distorted by tax avoidance and often indirect subsidies to certain kinds of global trade ... 11/11
p.s. Here is the link to the Davos session with Ferguson's remarks -- and also his now well known exchange with Tooze on the polycrisis (it was actually an interesting session)…
this should be "Chinese [support] EXPORTS of global manufactures [is] ARE no longer at a record level relative to global output ... " too much self editing = garbled prose. Graph is clear; China never deglobalized.
Brad Setser

Brad Setser

CFR senior fellow. Views are my own. Retweets are not endorsements. Writes on sovereign debt and capital flows.
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