Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

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RMB Globalization, Once “Unstoppable,” Heads Into Reverse

by Benn Steil and Emma Smith

“The globalisation of the [Chinese RMB] seems remorseless and unstoppable,” the Economist pronounced in April 2014.  A year later, a research-grant foundation asked me (Benn) to review a proposal to investigate three scenarios for RMB globalization: more, much more, and way more.  I suggested the authors needed to add a fourth one: de-globalization.  I suspect they thought I was nuts. Read more »

Trump’s NATO Spending Demands Will Spur an EU Deficit Battle

by Benn Steil and Emma Smith

President Trump and Defense Secretary Mattis are putting unprecedented pressure on European NATO members to boost military spending, threatening to reduce America’s support for the alliance if it is not forthcoming.  Whereas the United States spent 3.6 percent of GDP on defense in 2016, its European allies spent a mere 1.3 percent—well below the 2 percent minimum they agreed to in 2006.  Among EU NATO members, only Greece, Estonia, and Poland meet the target. (We’ve left out the UK owing to impending Brexit.) Read more »

Why Does the Fed Keep Lowering Its Unemployment Threshold?

by Benn Steil and Emma Smith

For years, Fed watchers have been getting antsy as unemployment falls toward NAIRU—the Fed’s estimate of the bound below which inflation rises.  But as shown in the graphic above, each time unemployment has threatened to break through NAIRU the Fed has lowered NAIRU rather than raise interest rates.  Why? Read more »

Mini Mac Trumps the Big Mac

by Benn Steil and Emma Smith

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But how well does it actually hold internationally? The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to measure the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

China’s Exorbitant Detriment, Mirror Image of America’s Exorbitant Privilege, Is Costing It Dearly

by Benn Steil and Emma Smith

The so-called Exorbitant Privilege of the United States, the power to conjure the world’s primary reserve currency, is reflected in the unique combination of being deeply in debt to the rest of the world (that is, having a massive negative net international investment position, or NIIP) while earning far more income abroad than it pays out in interest (that is, having massive positive annual net investment income, or NII).  The U.S. NIIP averaged negative $7.5 trillion over FY15/16, while its NII was positive $167 billion, as shown in the top left of the graphic above.  Basically, foreigners are willing to accept a trivial return to hold dollar-denominated assets. Read more »

Is the Emerging Market Currency Plunge Really About Trade?

by Benn Steil and Emma Smith

Emerging market (EM) assets have taken a beating since Donald Trump’s surprise election victory on November 8.  EM bond prices are down 4.4 percent, equities 4.6 percent, and currencies 4.1 percent.  But is this really, as the Financial Times proclaimed, about “fears of trade protectionism”? Read more »

China’s Bond Market Can’t Handle a Global RMB

by Benn Steil and Emma Smith

The Chinese RMB’s ascension into the IMF’s SDR currency basket in October has been widely seen as an important first step on its path to becoming a global reserve currency.  But we would argue that the path is a very long one, and that even rivaling the euro for the number two spot may, without implausible reforms to China’s political economy, be beyond the RMB’s reach. Read more »

History Shows Trump’s Trade Policy Is a Recipe for Recession

by Benn Steil and Emma Smith

The central theme of Donald Trump’s economic policy is trade.  He promises to slash America’s trade deficit by tearing up international agreements and imposing massive new tariffs on imports from China (45%) and Mexico (35%).  By cutting the trade deficit from $500 billion to zero, according to his senior economic advisers, $1.74 trillion in new tax revenue will accrue to the Treasury over the next decade.  Trump will use this massive windfall to fund two-thirds of his proposed tax cuts.  If true, this will indeed go some way toward Making America Great Again. Read more »