5/5 In a world in which everyone is struggling to access greater demand, debt forgiveness is a way of creating additional demand from countries that need help the most, and this demand benefits workers, farmers and businesses in the debt-forgiving country.

4/5 The less these very poor countries have to recycle their export earnings in the form of debt repayments, in other words, the more they will pay for imports, and ultimately the imports come directly or indirectly from the country that granted the debt relief.

3/5 There's actually a very important fourth dividend that too many analysts forget. All external inflows into a country (for very poor countries these typically come mostly from exports) must be recycled externally, in the form either of capital outflows (in this case, mainly

2/5 their balance sheets without complex restructurings; investors receive market returns while delivering social impact; and crisis-affected communities gain access to sustained, predictable funding for life-saving services."

1/5 David Miliband argues that a program that reduces the external debt of very poor countries "is financial engineering that provides a triple dividend: governments can get breathing room on... @DMiliband @RESCUEorg https://t.co/YAOnmI6jT1 via @ft

9/9 My understanding is that at least some top officials in Washington believe the US is indeed in a stronger position, although ultimately what matters is if Trump believes it. I guess we will soon see how much the stock market drives Trump's policy decisions.

8/9 All this suggests that the key to how the latest events are resolved depends on whether Washington believes that it is in a stronger position to weather a 1-2 year trade conflict than Beijing thinks it is, especially if it is successful in reducing its trade deficit.

7/9 That is why I suspect that an escalation of global trade conflict is likely to be more difficult for China in the medium term, even if its ability to control the financial system and ignore short-term pain puts it in a stronger position in any short-term conflict.

6/9 With investment levels already so high, the only way China can get debt under control is to reduce investment growth, but if it wants to maintain current growth rates, it cannot do this without generating a surge in consumption growth, something it has found very difficult to

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5/9 One very obvious example, of course, is the very different impacts the global trade contraction during the 1930s had on the US, the world's leading trade surplus nation at the time, and the UK, one of the world's leading trade deficit nations.

4/9 So which is better, to have excess supply or to have excess demand? The historical precedents are pretty clear: in a global trade conflict, the persistent surplus countries have always been more vulnerable to a contraction in trade than the persistent deficit countries.

3/9 But if you were to rewrite the sentence as: "With hiring slowing, domestic demand stagnant and prices declining, many economists say China isn’t positioned to absorb another major trade fight with US", it would no less true.

2/9 If true, this could be a very high-risk strategy. According to the WSJ, "With hiring slowing, manufacturing contracting and prices rising, many economists say the U.S. isn’t positioned to absorb another major trade fight with China."

1/9 WSJ: "According to the people close to Beijing’s decision-making process, Xi’s hard-line strategy is based on the belief that Trump will ultimately fold and offer concessions rather than deploy Washington’s own significant leverage." https://t.co/5GrO1W7Wfn via @WSJ

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Yicai: "In the nine months ended Aug. 31, trade rose 4% to CNY33.61 trillion. Exports gained 7.1% to CNY19.95 trillion, while imports dipped 0.2% to CNY13.66 trillion. Measured in US dollars, exports were up 6.1% at USD2.8 trillion and imports down 1.1% at USD1.9 trillion."

7/7 To the extent that it is in other manufacturing sectors, this will mostly shift price-cutting from the involuted manufacturing sectors to the non-involuted sectors, in which case we are likely to see deflationary pressures revive, perhaps next year. https://t.co/txjnH2qQF0

6/7 By now cutting back on investment in involuted industries, Beijing must decide where else to increase investment in order to achieve the GDP growth target. To the extent that it is in infrastructure. this should boost domestic demand and keep deflation at bay for a few years.

5/7 was to meet the GDP target, Beijing engineered a sharp expansion in manufacturing capacity in a world already suffering from excess. This led to explosive growth in capacity in the preferred industries into which much of the additional investment flowed.

4/7 So is deflation behind us? It depends on how China balances the fight against involution. Remember that involution was a consequence of Beijing's response to the sharp drop in property investment after 2021-22. Because it couldn't let overall investment growth decline if