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Unbalanced
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Unbalanced

The Codependency of America and China

Stephen Roach
Yale UP, 2014
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Editorial Rating

8

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Recommendation

Economist and China hand Stephen Roach takes America the consumer and China the exporter to task for three decades of growth-at-any-cost policies. He cites imbalance as the price of codependency – the US sags with debt as China acquires foreign exchange assets. With government encouragement, China’s people must become consumers who buy goods and services from the US. If China reforms and the US does not, America will lose China’s cheap capital. The US Congress’s “China Gripe” – which blames China for the results of its own misguided policies – might start a disastrous trade war. Roach issues his wake-up call in a sanguine tone, though he could have given more details showing how well or badly China and its leaders are really doing. While always politically neutral, getAbstract recommends Roach’s informative, contemporary view to executives, investors, manufacturers and service providers with interests in China.

Summary

Codependency

The basic problem for both the United States and China, is the US’s unsustainable consumer frenzy, which Chinese exports feed. If the US does not borrow from China, it must seek other financial sources because Americans habitually do not save, but they must start. If they do not, the US faces continuing dependency. With its savings rate at 12 times that of the US, China is in the opposite position. With its mounting foreign exchange reserves, China must commit to buying dollar-valued investments to protect its renminbi, thereby supporting US growth. US policy makers duck their responsibility – for bubbles, lack of oversight and the erosion of workforce skills – by blaming China. If China revalues the renminbi, the price of its goods would rise, resulting – in effect – in a tax on US consumers. Or China could sell its US Treasury bills, to devastating effect.

Politics and “False Prosperity”

China and the US have been committed to growth as “the elixir of prosperity.” Growth was no problem for America after the end of World War II. The nation first failed to tighten its fiscal policies during the Vietnam War and the 1960s Great Society. Growth at...

About the Author

Stephen Roach, former chairman of Morgan Stanley Asia, is a senior fellow at Yale University’s Jackson Institute for Global Affairs and a senior lecturer at the Yale School of Management.

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