Stephen Roach proposes to remake the two largest economies on the globe, U.S.’s and China’s. For decades, he writes, the United States and China relied too much on a “marriage of convenience” that guaranteed China a huge market for its exports. In exchange, China gave American consumers a cornucopia of inexpensive products, while creating a willing buyer of the U.S. government’s swollen debt. But that marriage has played out, Mr. Roach says; it has warped the two economies, leaving them ill-equipped for further growth.
In Unbalanced: The Codependency of America and China , Mr. Roach asserts that it’s time for the two nations to switch identities: that the United States should change its emphasis from consuming to producing, and that China should do the opposite.
Mr. Roach suggests that the way for the two nations to prosper is jointly. If China is to build a consumer society and find jobs for millions of peasants flooding into cities looking for work, it must create a robust services sector. The trick for the United States is to build its exports by helping China meet that need, exploiting American expertise in everything from running retail chains to overnight delivery to professional services.
China is the third-largest importer of U.S. products. It has gobbled up U.S. producer goods, so prospects for broader U.S. exports are good. Mr. Roach calculates that a $4 trillion market is opening up for foreign providers. The alternative, he worries, might be more fist-shaking toward China and, conceivably, a devastating trade war that nobody wants.
Mr. Roach is a global affairs senior fellow at Yale. A top Wall Street global economist, he was struck by how adroitly China dodged being drawn into the Asian financial crisis in the 1990s (by pushing cheap exports to finance huge dollar reserves). “It didn’t take long for me to get hooked on the Chinese development miracle,” he writes.
And hooked he remains. Much of his book is devoted to defusing hostility toward China. He notes, for instance, that though Chinese exports ravaged U.S. manufacturing, their low prices reduced consumer inflation in the United States. (Some 70 per cent of what Wal-Mart sells comes from China.)
And though China gets a black eye for excessive exports to the United States, Mr. Roach sees it as wrongly blamed. China is often just the final link in a long supply chain, assembling parts made elsewhere. Yet under accounting rules, the entire value of such products is recorded as Chinese exports, though much of their value was produced in other countries.
China’s enormous holdings of U.S. Treasury debt are a grave worry, he acknowledges. If China were abruptly to stop buying Treasury debt, Uncle Sam would be hard put to find buyers for so much volume and almost certainly would have to pay higher interest.
The root problem, Mr. Roach says repeatedly, is America’s inability to save enough at home to finance its growth — a situation that is hardly China’s fault. And a day of reckoning is coming. If China devotes more of its surplus savings to funding a decent pension plan or health care for its citizens, it will spend that much less at Treasury auctions. He walks a line between explaining China and excusing it. He stresses that its modern economy, barely three decades old, is still learning the game.
And, yes, the Internet is censored, often heavy-handedly, but it does exist and even thrive in China; it has by far the world’s largest Internet community, which plays a vital role in creating the new consumer economy.
Mr. Roach understands that China, in many ways still a poor country, differs vastly from the United States. He acknowledges the Chinese Communist Party’s many flaws. And he is terribly pessimistic about political myopia and paralysis in Washington.
But “the endgame provides enormous opportunity for each,” he writes. “The challenge is for both to see it.”