The Toy Giraffe At The End of Globalisation
What happens when you can’t even make your own tat.
Grüezi!
The price of a giraffe and the structure of the world economy.
1. Sophie’s Choice
Close to where I live in the French Alps, a small factory turns out Sophie la Girafe – a giraffe-shaped rubber teething toy, found in almost every pram in France.
Last month a French investigative outlet revealed that Vulli, the company that makes Sophie, had quietly shifted production to Shenzhen over a decade ago.
Sophie’s packaging went from ‘made in France’ to ‘born in Paris.’
Vulli’s factory near Annecy was run as a post-industrial Potemkin village, with locals hurriedly placed in the workshop when someone was due to visit.
Vulli’s profits rose from €18m in 2019 to €22.5m in 2022 – nearly twice as fast as revenue.
You don’t need an MBA to see why. An hour of manufacturing labour costs $9.5 in China and $48.2 in France. In 1990, manufacturing was 20 per cent of euro-area GDP; it’s 14 per cent now. France’s share is below ten.
2. Economists vs Giraffe
Sophie is a test case for a debate that played out on X this week between three economists.
Michael Pettis has spent two decades arguing that Chinese imbalances will end the way Japan’s did.
Brad Setser, ex-US Treasury, now at the Council on Foreign Relations, has documented the gap between China’s reported and actual surpluses.
Jostein Hauge, a Cambridge development economist, treats the language of ‘imbalance’ as protectionism pretending to be macro.
The thing they were arguing about? Whether China runs structural macroeconomic imbalances or, in plainer terms, exports too much – and what to do about it.
How do you correct a manufacturing labour gap of this size when the system of cooperation or coercion that managed such gaps no longer exists?
3. Three Wise Guys
Pettis says history is repeating itself. Forty years ago Japan was the global export machine making everyone nervous.
The Japanese produced an apologetic report, then did nothing.
Pettis reckons the same pattern is reproducing itself in China: senior officials recognise the imbalance, but the political establishment always picks industrial policy over redistribution.
Setser says no need for analogies. China decided to make the rest of the world pick up the tab for spiralling real estate losses.
‘China’s policy decision to juice exports to make up for the lost demand from the property sector had negative spillovers to the rest of the world.’
To his point, even Goldman Sachs, which has spent twenty years talking up the Chinese consumer, is now forecasting 4.8 per cent GDP growth in 2026 on the basis that China keeps taking market share.
Goldman’s bullishness used to be based on the potential for winning in the Chinese market; now it’s about the rest of the world’s manufacturers losing.
Hauge agrees China consumes too little and overbuilt its property sector. His argument is about framing.
‘China is not “unfairly flooding” the world with goods … If you think China is a competitive threat and that wealthy nations should actively use industrial policy to keep it at bay, say so.’
Sophie the giraffe is evidence for all three.
For Pettis, Sophie is Japan in miniature. Japan faked it while making it. So did Sophie’s owners. The faking lets the making continue.
Setser would see it as proof that the renminbi is undervalued and that Chinese consumption is suppressed.
Hauge would view it simply as the consequence of a fivefold cost differential.
And there’s plenty more room for opinions.
4. Inside The Gap
The 5x labour-cost differential is what makes headlines in France. Beneath it is a structure that did not happen by accident.
China is a super-sized savings heavyweight. Its gross national saving rate is around 45 per cent of GDP. Only Norway, which saves its oil receipts as a matter of policy, and Singapore, which is a city-state, come close.
But on consumption, China has an Ozempic-style appetite. Household consumption is just 53 per cent of GDP against a global average above 70 per cent. Investment runs above 40 per cent.
A country that produces more than it consumes runs an external surplus, and that surplus has to be exported to whoever else will consume it.
For three decades those consumers were mostly the United States and Europe.
China’s 2025 goods trade surplus reached $1.2 trillion, the largest ever recorded for any country, against $295bn for Germany and a US deficit of about $1.2 trillion. Exports grew 6.1 per cent in 2025 to $3.77 trillion; imports edged up 0.5 per cent to $2.58 trillion.
Brad Setser’s CFR series shows Chinese export volumes growing about 12 per cent annually since 2022, four times faster than world trade.
In January and February 2026, Chinese exports rose over a fifth in dollar terms year on year – the highest since 2022 – with semiconductors up nearly three quarters, cars up over two thirds, and ships up over a half.
China publishes two different numbers for what it sells the world.
The customs figure tracks what physically crosses the border – every container, every manifest. The current account number is supposed to capture the same thing in payments terms.
China’s numbers stopped tracking each other in 2021, when its foreign exchange regulator – quietly switched from compiling the current account out of customs data to compiling it out of an internal payments database it doesn’t publish.
The customs surplus kept growing. The reported current account surplus didn’t. Several hundred billion dollars a year disappeared between the two numbers.
This matters because the current account number is what the IMF and the US Treasury use to judge whether a country is running an excessive imbalance. Suppress that number and you avoid the trigger.
Setser’s work has reverse-engineered what the surplus would be if China still used the old method. His 2023 estimate: $720 billion, or 4 per cent of GDP. The reported figure was $265 billion. A gap of $455 billion.
The IMF spent two years accepting China’s reported numbers. Its 2024 figure put the surplus at 2 per cent of GDP. By October 2025 it had revised to 3.3 per cent – still below Setser, but moving toward him.
Meanwhile, the renminbi has fallen 17 per cent in real terms since late 2021, against a 7 per cent rise for both the dollar and the euro. China’s state banks continue to accumulate foreign assets. There is no public commitment to raising the renminbi.
None of this is accidental. China’s high savings, low household consumption and managed exchange rate are not the result of foreign manipulation or natural advantage. They are policy choices, and they have been policy choices through three administrations of two parties in Beijing.
A renminbi appreciation of 18 to 30 per cent, which is what Setser argued for in 2025, would be the largest coordinated currency move since Plaza – and would still leave the Rumilly–Shenzhen ratio at roughly 4 to 1.
5. China’s Maekawa Moment
Japan’s 1986 Maekawa report recommended expanding domestic demand through tax and labour reform, restructuring production from manufacturing toward services, relaxing agricultural import restrictions, liberalising tariffs and standards, and coordinating macro policy with the G5.
In May 1986, Reagan told Japanese reporters that Nakasone had committed to ‘a fundamental shift in Japan’s economy: a shift from reliance on exports for growth to a more balanced economy’.
A CIA memo the month before had been a little more sceptical:
‘Tokyo largely sees this concept as a version of industrial policy designed to encourage economic shifts – such as phasing out of depressed industries and development of technologically advanced ones – that will enhance long-run competitiveness.’
Maekawa had been dead nearly twenty years by the time Japan’s consumption share of GDP reached the global average. By that time Japan’s share of world GDP had fallen from 15 to under 8 per cent. It rebalanced by receding.
In the 1980s some commentators – people like Chalmers Johnson, Karel van Wolferen, and Clyde Prestowitz – argued that Japan was special. It was a developmental state that Western economics struggled to understand because it wasn’t measuring the right things.
Some China commentators make similar arguments now. Justin Yifu Lin says China will keep growing because it won’t give up on industrial policy. Glenn Luk argues that overcapacity is a feature, not a bug. And Ha-Joon Chang, who supervised Jostein Hauge’s PhD, has spent a career arguing that rich countries protected their way to wealth before preaching free trade.
Same claim each time: this country isn’t what the textbook describes, so the textbook critique doesn’t apply.
The 1980s revisionists were right about important things. Western complaints did contain hegemonic anxiety. Japan’s model had produced extraordinary growth.
They were also wrong about what mattered. Could Japan absorb its own surplus through domestic demand? It could not.
The establishment coalition that benefited from suppressed wages and external surplus couldn’t be unwound even by insiders, even when that diagnosis was endorsed at the highest level of government.
6. The Hard Case
In 1985 Japan was a security client of the United States. The Plaza Accord of 22 September that year was the work of five finance ministers in a New York hotel, all of them beholden to American protection.
The yen appreciated against the dollar from 240 to 127 inside of three years. Japan’s surplus fell from 4.3 per cent of GDP in 1986 to 2.1 per cent by 1990 and bounced around 2-3 per cent through the 1990s.
Plaza did what it was designed to do on the currency side. What it didn’t do – what no monetary instrument could do – was unwind the domestic politics that had produced the surplus.
Japan’s asset bubble of 1987-89 came after the currency appreciation, not during it, and it was a product of the Bank of Japan stimulus into an economy whose domestic demand structure remained unreformed.
Plaza fixed Japan’s currency. Maekawa was supposed to deliver the domestic adjustment that would have made it durable. The lost decades were in part the price of doing the first without the second.
This matters for the China case because Korea, Taiwan, and Singapore are not what Hauge and Lin need them to be.
None is a case of a large developmental state rebalancing without external pressure on the surplus side.
Korea ran current account deficits through most of its high-growth period and only entered sustained surplus after the 1997 IMF crisis broke the chaebol-bank credit complex. The rebalancing that followed was forced by external creditors, not chosen by Seoul.
Taiwan ran surpluses but at one-tenth China’s current scale, and did so inside a US security guarantee that gave Washington direct policy leverage on Taipei – leverage Washington used through the 1980s to compel currency appreciation and market opening.
Singapore is a city-state with its own idiosyncratic institutions; its Central Provident Fund forces saving in a way no continental-scale economy can replicate.
Developmental states have rebalanced under three conditions:
when America had a chance to twist people’s arms,
when a crisis at home blew apart the consensus holding the surplus together,
or when the country was small enough that nobody else had to swallow what it produced.
Japan in 1985 had the first. Korea in 1997 had the second. Taiwan and Singapore have versions of the first and third.
China has none.
It is not inside a US security perimeter; the relationship runs the other way.
The 2008 crisis came and went without breaking the domestic coalition – on the contrary, it was used to consolidate state-bank credit allocation through the four-trillion-yuan stimulus and the subsequent property cycle.
The scale problem is the most serious: at 17 per cent of world GDP and 17 per cent of world population, China cannot reroute its surplus through smaller markets the way Taiwan and Korea did when they hit their ceilings.
Currency is the clearest measure of how stuck this is.
There is no Plaza hotel suite for Beijing. China’s state banks are intervening to prevent appreciation. The Trump tariff regime is the opposite of a coordinated currency adjustment. The G20 hasn’t produced a substantive coordination communiqué since 2016.
The American leverage that made Japan yield is not available for China.
7. Who Captures The Gap?
Inside China, it’s the wage-crushing industrial compact, the hukou system, financial repression and local-government’s land-finance model that produce the high savings rate.
In deficit countries, a different coalition has captured the gains.
The Alpine family that make Sophie are one example. They pocket the millions of euros that is the difference between French branding and Chinese production.
Apple is another. It runs the same model at an epic scale: 157 of its 187 listed suppliers are based in China, in the decade up to 2024 it booked $227 billion in operating profit attributed to Chinese production, according to Kyle Chan.
Sean Starrs’ work on US corporate dominance shows that American firms remain dominant in most global industries and that far from being undermined by Chinese production, this dominance has been sustained by it.
Between the 1980s and the early 2010s, US import prices for manufactured goods fell more than 40 per cent relative to non-traded prices. Corporates and consumers both gained from the gap.
Western workers making tradable-goods did not. David Autor, David Dorn and Gordon Hanson’s ‘China shock’ papers documented the labour-market and political effects. Their original 2013 paper showed that import competition from China between 1990 and 2007 cost about a million US manufacturing jobs.
Their 2020 follow-up traced the political consequences directly, showing an ideological realignment in vulnerable regions that began before the 2016 election.
In Europe the same dynamic appears too. Even for teething toys.
This is the part of the answer Pettis and Klein got right in Trade Wars Are Class Wars: surplus and deficit balances are held in place by class-distributional politics inside countries, not by abstract macro identities between them.
It is also the part of the answer Hauge insists on when he writes that Western corporations were the greatest beneficiaries of China’s integration.
Western corporates captured the upside of Chinese production, a lot of western workers and small retailers got kicked on the way down.
Thanks for reading!
Bis bald,
Adrian