Editor's Note:

When Joe Biden was confirmed President-elect in November 2020, many on both sides of the Pacific Ocean were hopeful for a shift in China-US trade ties that had become mired in a tariff war. But to the disappointment of many, bilateral tensions have only escalated under Biden. Stephen Roach, a senior fellow at Yale University's Jackson Institute of Global Affairs and former Chairman of Morgan Stanley Asia, was one of them. Why Biden has not moved to roll back the punitive tariffs? What actions need to be taken to ease trade tensions? In an interview with the Global Times' Song Lin (GT), Roach, whose new book focuses on how to improve the bilateral ties, offered his views.

Stephen Roach, a senior fellow at Yale University's Jackson Institute of Global Affairs and former Chairman of Morgan Stanley Asia Photo: courtesy of Roach

GT: How do you view the current US-China trade relations? The previous Trump administration launched a trade war, much of which has remained in place during the Biden administration. Do you think the trade war has widened?

Roach: The US-China relationship is in serious trouble. Like many, I was very hopeful a year ago, when we got the results of the 2020 presidential election, that there would be a significant shift in US policy toward China under the Biden administration. On the first day that President Biden took office [on] January 20th, 2021, he signed approximately 17 executive orders, reversing many of the most unpopular actions of the Trump administration. 

But he did nothing to change US policy with respect to China. This is a major disappointment. If anything, the tensions have escalated with respect to putting more Chinese technology companies on the so-called entity list or "blacklist" of the US Commerce Department. 

There was some indication by the new US Trade Representative Katherine Tai, when she finally spoke about the relationship in early October that there might be some selective rollback in tariffs, but that is still yet to be specified and appears to be very limited in scope. So my overall sense of the relationship is one of disappointment and one of great concern going forward.

A container terminal of Yangshan Port in Shanghai Photo: VCG

GT: US senior officials have spoken about the possibility of phasing out some of the tariffs, especially given current inflationary pressure in the US. But there has been no concrete action or plan. Why do you think that is? 

Roach: [US Treasury Secretary Janet Yellen] thinks it would be a desirable [outcome] to roll back some of the tariffs, and I completely agree with Secretary Yellen on that. But you asked why [there has been no action]. The answer is one word: politics. President Biden has a very narrow majority of representation in the US House and a virtual tie in terms of representation in the US Senate. There's no margin for him to exercise bold political leadership on key controversial issues. 

The second point is that US public opinion polling shows widespread negative views on China. The negative sentiment is shared by Republicans and Democrats, old and young, college educated and uneducated. This is a very clear indictment of any actions that US politicians, especially someone with a very narrow margin of support like Joe Biden, might take in changing the China policy. It's this set of the very difficult political circumstances that is preventing the President from really rethinking or changing the US' policy with respect to China. I think that's wrong, and I wish it were different. But we live in a highly political climate in the US. It is difficult to imagine how the US is going to change this dynamic in a short period of time.

US President Joe Biden speaks during the National Thanksgiving Turkey Pardoning Ceremony at the White House in Washington, DC Nov 19, 2021.Photo:Xinhua

GT: In the meantime, is there anything that can be done? Any areas where the two sides can pursue dialogue to resolve certain issues?



Roach: There are plenty areas of mutual interest that the US and China should engage on, and I would just list three of them. One, climate change; two, global health; and three, cybersecurity. The US and China did engage in some positive dialogue on climate change at the COP26 meetings in Glasgow last month, and this is mildly encouraging. There was no major breakthrough, but at least the two sides are talking. 

On global health, there's been nothing but allegations going back and forth on the origins of [COVID-19], and this is unfortunate because a pandemic is global in scope, and the world needs global leadership to address the current and prospects for a future pandemic. And that has not occurred between the US and China.

On the issues of cybersecurity, similarly, there are plenty of allegations, but really no constructive indications of progress in jointly addressing that. So there's plenty of opportunity, but very little has been done to move these discussions in a more constructive direction.

GT: What about trade? Are there any areas in trade where both countries can pursue dialogue, if not agreement?

Roach: My views on trade are pretty well-known and they're not widely accepted on the US side. The logic behind [the phase one framework] is flawed. The consensus believes that American middle-class workers are suffering largely because of big trade deficits. The biggest piece of the trade deficit is with China, and allegations of unfair Chinese trading practices imply that we must penalize China with tariffs. That's the argument that politicians make both on the Democrat and Republican sides, and the American public has bought and agreed with that argument. The view, however, is completely incorrect. 

The US last year had trade deficits with 96 countries. That's a multilateral problem, not a bilateral problem. And the reason it's a multilateral problem is because we have a serious deficit of domestic savings, which is brought about in large part by massive budget deficits in the US. When a country like the US doesn't save but wants to grow, it has to import surplus savings from abroad and run a massive current account and multilateral trade deficits to attract the foreign saving. That's the way economics works. And so if politicians put pressure on one trading partner like China without addressing the savings problem, then all that occurs is trade diversion — deficits shifting from China to other producers, most likely higher-cost producers.

GT: On China's economic outlook in 2022, a recent meeting of China's top leadership stressed stability as a priority for economic policy in 2022. How do you view China's economic growth next year?



Roach: I've been following the Chinese economy very closely for close to 30 years. And I must say, China is very consistent and always focusing on stability. So I'm not surprised, especially going into the Party Congress [next year] that remains a high priority of the senior leadership. 

But it's a balancing act. The Chinese leadership now for about five and a half years has been very worried about excess debt and the need to avoid a Japanese-like problem. And so the deleveraging campaign, especially aimed at the property sector, has become an increasingly important objective of the government. 

I'm hopeful that even though the combination of the deleveraging and supply chain issues have led to a slowdown of economic activity in China recently, that the government will not back away from its efforts to address the deleveraging.

I do think that there's still plenty of room to provide some near term monetary stimulus. The recent cut in the [reserve requirement ratio] indicates that the People's Bank of China takes that risk very seriously. And I think that's possibly a hint of more to come. All in all, I think the Chinese economy will perform better than expected in 2022.

GT: The global economy at large has been hit hard by COVID-19 and is still struggling to find a path to recovery. Do you think there should be some coordination between China and the US on macro policies? 



Roach: Coordination is great in theory, but in practice it really only happens when there is a severe crisis. And even then, sometimes the coordination is more of a coincidence rather than an explicit agreement between two sides. I do think that the US and China need a better framework though, for the two economies to work together in addressing not just shocks during periods of crisis, but in working through tough issues that we jointly face on a regular basis. 

In my new book, which will be coming out hopefully later this year, I propose the establishment of a full-time US-China Secretariat, an office that is staffed jointly by US and Chinese officials and researchers and is located in a neutral country like Switzerland, where the full-time efforts of the Secretariat would be to work on all aspects of the relationship, from economic policy coordination, data sharing to efforts sharing on climate and health and cybersecurity. 

This relationship is too important to be left to infrequent exchanges. It needs a full-time organization to staff, develop and build the relationship much more effectively than is the case right now. I detail this proposal in my new book.

Photo taken on July 15, 2020 shows an exterior view of the World Trade Organization (WTO) headquarters in Geneva, Switzerland. (Photo by Li Ye/Xinhua)

GT: My last question is on the WTO issue. December 11 marks the 20th anniversary of China's entry into the WTO. Do you think the WTO still plays the role it was supposed to play in global trade? Has that role been undermined? What needs to be done to improve that role?



Roach: The WTO is the guardian of the rules-based global trading system, and it's been rendered largely dysfunctional by the US' resistance to nominate new judges to the dispute resolution process. So the WTO is not functioning as it should. And the US needs to, I think, be more open and willing to restart the WTO dispute resolution mechanism from its side as being the best framework to adjudicate disputes. Without dispute resolution, the WTO lacks teeth to enforce the rules that it defends. This is an issue that needs a very urgent priority to be addressed from the US side. 

But again, go back to the political point I made earlier. The politics of trade liberalization are in trouble in the US right now, and this is unfortunate. And both Democrats and Republicans believe that trade is US' enemy rather than trade can be used to improve our standard of living and economic growth. And until we change that mistaking view, it's going to be very difficult to push the US back into embracing a new round of WTO reforms.