The trade deficit will find another level but the situation is actually worse once people step back and think about sht for more than a degenerate price tick. The underlying problem with this disorderly “Flood the Zone” manner in which the current ‘rebalancing’ of US trade is being conducted is that trade disruptions are happening faster than the US is able to reduce its reliance on foreign capital. The surplus is recycled, but the sudden stop is being felt up chain “over there” first.
In other words, by crashing Chinese/Vietnamese/Japanese exports into a sudden stop at a time when Bessent has to draw down the TGA in the coming months due to debt ceiling (and thereby inject liquidity no different than the Fed would by increasing bank reserves via QE — liquidity is liquidity), we are injecting money into the teeth of a USD selloff, which all but ensures an inflationary spiral.

But yea sure, it’s all gonna be a price pop followed by a disinflationary recession cuz that’s what Wall St careers know for 40 years.
The trade deficit will find another level but the situation is actually worse once people step back and think about sht for more than a degenerate price tick. The underlying problem with this disorderly “Flood the Zone” manner in which the current ‘rebalancing’ of US trade is… https://t.co/zVzgTBrMDa
— Paulo Macro (@PauloMacro) May 11, 2025