Stephen Roach, senior fellow at Yale’s Jackson Institute for Global Affairs and School of Management and former Chairman of Morgan Stanley Asia and Chief Economist of Morgan Stanley, is the author of Unbalanced: The Codependency of America and China.
From his Q & A at the Yale University Press blog:
Yale University Press: Who has the upper hand in the codependency of America and China?--Marshal Zeringue
Stephen Roach: As is the case in human relationships, codependency for economies is not sustainable. It can lead to imbalances, a loss of identity, and a broad array of tensions and frictions. As I argue in Unbalanced, there are visible manifestations of all of these characteristics now at work in both America and China. It’s hard to say who has the upper hand in this relationship. The United States, with its dominant military power and the world’s largest economy, certainly has a commanding position today. But a rising China, with a huge reservoir of domestic saving – some 51 percent of its GDP in 2013, or fully three times the 17 percent national saving rate in the U.S. – certainly has the wherewithal to go its own way in the years ahead and break the shackles of its dependence on the United States if it choses to do so. Saving-short America, still heavily dependent on surplus saving from abroad, has far less latitude in that key regard.
YUP: How has the U.S. and China’s unbalanced relationship created a false sense of prosperity?
SR: Beginning in the late 1990s, the income-strained U.S. economy drew increasing support from the so-called wealth effects of surging asset markets – first from equities, then from residential property and finally from cheap credit. The problem was that each of these asset-dependent underpinnings ended in bubbles – bubbles that ultimately drew support from Chinese purchases of dollar-denominated assets. Washington, Wall Street, and Main Street collectively deluded themselves into thinking ...[read on]