Joseph Gagnon

Prospects for global imbalances in 2026 and beyond: Another China shock? Global current account imbalances widened in the past two years, led by growing surpluses in China and deficits in the United States. Most forecasters expect imbalances to stabilize or even narrow in ...

My latest paper with Tam Bayoumi on the second China Shock is now out. Other commentators have been writing on this trend, but the IMF and professional forecasters still don’t see it. www.piie.com/publications...

The changing dollar regime: An update This event revisits and expands on themes from PIIE’s spring discussion, “Does changing the trade regime change the dollar regime? To Mar-a-Lago and beyond.” Against the backdrop of shifting trade pol...

Starting soon www.piie.com/events/2025/...

The New Economic Geography Who profits in a post-American world?

My article The New Economic Geography is out today in @foreignaffairs.com
Please read!
(Ungated link, suitable for sharing)

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The Fed’s September dilemma The Federal Reserve’s September 16-17 policy meeting may well be one of the most contentious in years. Although financial market investors see a 25 basis point interest rate cut as close to a lock, so...

My latest blog post with Steve Kamin explores the dilemma of the Fed’s next meeting. Markets expect a cut, but inflation expectations are rising. www.piie.com/blogs/realti...

I’ll be working on that next month. First priority is to cut the budget deficit. Also get foreign countries to boost their domestic spending, including on US exports, in exchange for tariff reductions.

The US trade deficit and foreign borrowing: How long can it continue? The United States has run significant external deficits for half a century and the associated net international liabilities have been growing, especially recently. Yet, in contrast to earlier periods ...

My latest with Tam Bayoumi on the real causes of the US trade deficit (not foreign tariffs or barriers) and why it is not sustainable. www.piie.com/publications...

Fed projected to turn profitable again after three years of losses

My colleague Asher Rose just posted a nice chart showing the Fed’s projected return to profitability after 3 years of losses. QE raises Fed profits and makes them more variable. www.piie.com/research/pii...

This result holds up with dozens of different auxiliary variables to control for an array of possible omitted factors and in many different country samples.

Surprising fact. The most important variable in explaining differences across countries in the rise of inflation under COVID is where inflation was decades earlier. This is true for both advanced and developing economies. Even true within the euro area!

The role of long histories of "lived experience" in the COVID-era inflationary surge A rough consensus has evolved around the causes of the COVID-era inflationary spike: the disruption in supply chains; the shift in demand from services to goods; the surge in commodity prices that fol...

My paper with Steve Kamin on long memory in COVID inflation is now on the PIIE website. www.piie.com/publications...

Finally, the President's ability to negotiate exceptions to the tariffs in exchange for financial or political support creates a threat to democracy and the rule of law that Congress should oppose. n/n

The odds of a recession just went way up. That would reduce our trade deficit (unless the whole world goes into recession--a distinct possibility). Is that worth it? 4/n

Even more importantly, tariffs are a horrible tool for this purpose. They will not reduce our trade deficit unless they persuade investors to dump US assets because our government is pursuing harmful policies. 3/n

Second, overall trade surpluses are a better (but not perfect) indicator of foreign policies that contribute to the US trade deficit than bilateral surpluses. 2/n

There is so much wrong with the new tariff policy, it is hard to begin. First of all, it makes no sense to tariff something we will never produce in the US. I don't see bananas and coffee on the exempted list. 1/n

With reported US net international liabilities having reached an astonishing 90% of GDP, continued foreign borrowing (i.e., trade deficit) is not on a sustainable path.

Back from March vacation. My take on a Mar-a-Lago Accord is included in this symposium with other observers. I focused my remarks on what I would like to see, not what is likely to happen (which is not much in the near term). international-economy.com/TIE_F24_Mara...

The hidden costs of Trump’s tariffs: productivity loss and market uncertainty - EuroFinance | The global treasury community On March 5, US President Donald Trump addressed Congress, opening his speech with the statement, "America is Back." During his address, Trump asserted that other nations have long imposed tariffs on ...

In case anyone wants to read more about the effects of tariffs! www.eurofinance.com/news/the-hid...

Yesterday I discussed why tariffs will not reduce the US trade deficit. Today I show 2 policies that can do so and I link to the latest paper backing up these results in a more complete model. www.piie.com/research/pii...

Trump pushes for lower interest rates alongside reciprocal tariffs US presidents traditionally avoid even the appearance of meddling with monetary policy

Does it make sense to raise tariffs and cut interest rates now? No. www.voanews.com/a/trump-push...

Argentina clearly has comparative advantage in agriculture. But we know from Lerner that barriers to imports are also barriers to exports. So the result you cite--loss of grain exports in favor of import-substituting products--is exactly as expected.

I talk tariffs, trade deficits, and a lot more with @scclemons.bsky.social. t.co/5aT8g0WGSV

I agree with Dani, but he omits the point that even he lists as Trump's first objective: to reduce the trade deficit. Tariffs do nothing for the deficit. I blogged that back in 2017 and a great 2019 IMF WP by Furceri, Hannan, Ostry, and Rose documents it convincingly. www.piie.com/blogs/trade-...

It is something I have focused on a lot but often felt I was the only economist who did. Trying to increase net exports makes more sense when below potential at the zero bound than when at full employment.

I described how and why to do this back in 2020. The fiscal deficit and the trade deficit are much larger now, making this advice all the more important. A weaker dollar can offset the drag on growth from budget cuts. n/n www.piie.com/publications...

In 2021, Madi Sarsenbayev and I updated my earlier work showing that there are 2 main policies to shrink the trade deficit. They work well together. Reduce the fiscal deficit and push down the dollar. 3/n www.piie.com/publications...

I pointed out 8 years ago that we know what causes trade deficits. I predicted Trump's tariffs would not reduce the trade deficit and I was right. The deficit continued to grow during his first term. 2/n www.piie.com/blogs/trade-...

America First Trade Policy – The White House January 20, 2025 MEMORANDUM FOR THE SECRETARY OF STATE THE SECRETARY OF THE TREASURY THE SECRETARY OF DEFENSE THE SECRETARY OF COMMERCE THE SECRETARY OF

On his first day in office, President Trump published a memo titled "America First Trade Policy." His first item of business, similar to 8 years ago, is to find out what causes our "trade deficits in goods". 1/n www.whitehouse.gov/presidential...

My paper with Asher Rose on a 75 year perspective on COVID inflation is out. www.piie.com/publications...