Unbalanced: The Codependency of America and China

Stephen Roach
Copyright Date: 2014
Published by: Yale University Press
Pages: 288
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  • Book Info
    Book Description:

    The Chinese and U.S. economies have been locked in an uncomfortable embrace since the late 1970s. Although the relationship initially arose out of mutual benefits, in recent years it has taken on the trappings of an unstable codependence, with the two largest economies in the world losing their sense of self, increasing the risk of their turning on one another in a destructive fashion.InUnbalanced: The Codependency of America and ChinaStephen Roach, senior fellow at Yale University and former chairman of Morgan Stanley Asia, lays bare the pitfalls of the current China-U.S. economic relationship. He highlights the conflicts at the center of current tensions, including disputes over trade policies and intellectual property rights, sharp contrasts in leadership styles, the role of the Internet, the recent dispute over cyberhacking, and more.A firsthand witness to the Asian financial crisis of the late 1990s, Roach likely knows more about the U.S.-China economic relationship than any other Westerner. Here he discusses:

    Why America saving too little and China saving too much creates mounting problems for bothHow China is planning to re-boot its economic growth model by moving from an external export-led model to one of internal consumerism with a new focus on service industriesHow America, shows a disturbing lack of strategy, preferring a short-term reactive approach over a more coherent Chinese-style planning frameworkThe way out: what America could do to turn its own economic fate around and position itself for a healthy economic and political relationship with China

    In the wake of the 2008 crisis, both unbalanced economies face urgent and mutually beneficial rebalancings.Unbalancedconcludes with a recipe for resolving the escalating tensions of codependence. Roach argues that the Next China offers much for the Next America-and vice versa.

    eISBN: 978-0-300-18846-2
    Subjects: Business, History, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-xvi)
    • [PART I Introduction]
      (pp. 1-3)

      ECONOMIC GROWTH DEFINES the road to prosperity. But that road can have many twists and turns. The rise and fall of nations speak to its unexpected detours. In the early nineteenth century, China was the world’s dominant economy. Courtesy of forensic accounting metrics, we know that the Chinese economy in 1820 accounted for about one-third of world gross domestic product (GDP)—more than fifteen times the share of the United States, which accounted for less than 2 percent. By 1950 there had been a stunning reversal: the U.S. share had risen to 27 percent, whereas China’s slice had shriveled to...

    • 1 The Political Economy of False Prosperity
      (pp. 4-22)

      In 1933, one out of every four Americans was out of work. Karl Marx appeared to be right—the capitalist model was on the brink of failure. Forty years later, China was in the throes of the Cultural Revolution and its economy was in shambles. Famines had killed thirty million of its citizens, poverty was rampant, and joblessness was soaring. Socialism wasn’t the answer either.

      Both nations were determined to find that ever-elusive answer. Seared by these wrenching experiences, the United States and China vowed never again to allow their economies to go to the brink. The U.S. Congress formalized...

    • 2 Who Depends on Whom?
      (pp. 23-38)

      Relationships between economies are difficult to disentangle. They can be both constructive and contentious, comforting and prickly. It is often arguable who has the upper hand. That said, there is a natural tendency to simplify complex relationships between economies. In part, that’s to make them understandable, but it’s often done to drive home an agenda. The finger-pointing of recent years is a case in point—especially when it comes to the relationship between the United States and China.

      The U.S. Congress blames China and its undervalued currency for many of the problems facing hard-pressed American workers. Senior officials at America’s...

    • [PART II Introduction]
      (pp. 39-42)

      WAS IT STRATEGY THAT primarily drove America and China on their recent journeys? Vision or leadership? Strong or weak institutions?

      Or is the how just as important as the why? Strategies are fine on paper, but they are vacuous intellectual exercises if they don’t meet the tests of commitment and implementation. It takes both leadership and power to make the leap between goals, the framework for achieving those goals, and execution. For China and the United States over the past few decades, there have been both strengths and weaknesses in leadership and power. Contrasts on both counts explain an important...

    • 3 The Boss and the Maestro: GREENSPAN AND ZHU
      (pp. 43-62)

      Each man grew up without a strong father figure. Zhu Rongji’s father died before he was born, and Alan Greenspan lived with his mother after his parents divorced when he was five years old. Coming of age in the 1930s, each developed a keen sense of self-reliance and intellectual curiosity. These qualities defined their tenures as leading architects of economic policy for China and the United States in the 1990s.

      Seared by the Cultural Revolution in his forties, Zhu Rongji eventually emerged as the tough guy. Known as “the Boss,” he was the incorruptible reformer who led the marketization of...

    • 4 The Great Stability Debate: WEN VS. BERNANKE
      (pp. 63-82)

      Assessing economic policy is useless without understanding the context of its formulation. For most nation-states, irrespective of their systems of government, social and political considerations have long been critical in shaping economic policy choices. U.S. Federal Reserve Chairman Ben Bernanke and Chinese Premier Wen Jiabao, the successors to Alan Greenspan and Zhu Rongji, certainly had those considerations in common.

      Wen Jiabao personified modern China’s political balancing act. He was in many respects a transitional leader, positioned in the segue from reforms to sustainability. He brought a very human face to the leadership of the Chinese government, which during his tenure...

    • 5 Two Takes on Strategy: WASHINGTON AND THE NDRC
      (pp. 83-102)

      Successful economies require far more than astute policy makers. They also need strategies—explicit or implicit—as well as the commitment and means to implement them. That requires institutions that exercise some degree of oversight in developing and monitoring the strategy function in their respective economies. On this count, the United States and China stand in particularly sharp contrast.

      Since 1953, China has maintained a Soviet-style five-year planning process. For forty years, the State Planning Commission was charged with drawing up detailed targets and implementation directives for the allocation of resources in the state-owned Chinese economy. As ownership started to...

    • [PART III Introduction]
      (pp. 103-105)

      HOW DO YOU KNOW WHEN there is too much of a good thing? Or, more indelicately, how do you know when a seemingly good thing isn’t good? Few were asking these questions in the years before the Great Crisis of 2008–9, when tensions were mounting in the United States, China, and the rest of an unbalanced world.

      But the precrisis warning signs were not limited to asset and credit markets—or even to the real economies that had grown increasingly dependent on such markets. The very fabric of globalization—the glue and shock absorbers of interconnectedness that were supposed...

    • 6 A New Globalization
      (pp. 106-124)

      The conceptual case for globalization is hard to argue with. The “win-win” mantra of expanding trade sounds great for poor and rich countries alike. Underpinned by the early-nineteenth-century theories of David Ricardo, cross-border commerce has long been viewed as a major engine of economic growth and development.

      But in practice, globalization is much tougher. It pits nations against one another in the rough-and-tumble arena of global competition, putting pressure on companies and their workers. The theory assures us that it will all work out in the end. Sometimes that consolation rings hollow.

      An earlier globalization of the late nineteenth and...

    • 7 Bilateralism in a Multilateral World
      (pp. 125-144)

      At the top of the list of contradictions plaguing an unbalanced global economy is the stubborn insistence on bilateral remedies for multilateral problems. Persistent trade tensions between the United States and China are a case in point. They provide only a narrow and distorted window into far broader problems for both of these codependent economies.

      There is little dispute on the facts. The official data show that a large trade imbalance exists between the United States and China. But saying this masks a deeper and more significant point: the true breadth and scope of the U.S. trade deficit and its...

    • 8 The China Gripe
      (pp. 145-168)

      In May 2012, a few weeks after the annual Strategic and Economic Dialogue (S&ED) between the United States and China, a subcommittee of the Senate Banking Committee held yet another hearing on the U.S.-China relationship.¹ It was hoping to get advice from a panel of experts on the usefulness of the S&ED as a high-level forum of engagement on key policy issues in the economic and foreign affairs arenas. What emerged instead was a bit of classic Washington theater.

      I was one of those providing testimony that day, as was an old friend, C. Fred Bergsten, founder of the Peterson...

    • [PART IV Introduction]
      (pp. 169-171)

      THE MARRIAGE BETWEEN China and the United States was never blissful. Now they are at risk of going their separate ways. That’s due as much to America’s angst as to China’s newfound strength. Sustainable codependency, especially a version based on trust and mutual respect, is a tall order for any two economies. The dream of a lasting partnership—a new symbiosis in a globalized world—was at best a passing fancy. But unless China and the United States establish a more mature and constructive relationship, there is a real risk of a major breakup—the ultimate betrayal of codependency.


    • 9 Imbalances and the Great Crisis
      (pp. 172-189)

      It was the ultimate consumer who hit the wall first. In the aftermath of the Lehman Brothers bankruptcy in September 2008, a festering economic crisis turned into a catastrophic meltdown. Two bursting bubbles—property and credit—fed on each other and U.S. consumer demand plunged as never before. It was a capitulation heard around the world. An interdependent, unbalanced global economy was brought to its knees.

      For the vast majority of policy makers and politicians, who had come to believe that imbalances either didn’t matter or were sustainable indefinitely, the Great Crisis came as an especially rude awakening. With the...

    • 10 Smoot-Hawley Redux
      (pp. 190-208)

      When it comes to the intersection of politics and economics, never say never. That’s especially true in tough times, when economic pressures invariably create a clamor for political action. Bad policy decisions in such circumstances have had profound and lasting implications for many economies.

      The U.S.-China economic relationship is hardly immune to such a possibility. Since 2005, America’s Congress has repeatedly threatened anti-China trade and currency initiatives. The good news is that no such legislation has yet become law. The bad news is that past performance may not be a good predictor of future decisions.

      The Smoot-Hawley Tariff Act of...

    • [PART V Introduction]
      (pp. 209-212)

      Left untreated, codependency can become a destructive psychological force that leads to identity crises and mounting frictions between partners. For the United States and China, the economics of codependency offers the possibility of a different endgame, especially if rebalancing brings new identities. For China, this will entail a transformation from the producer model to an emerging consumer society. The United States must move in the opposite direction, pulling back from excess consumption and rediscovering its competitive prowess by tilting its growth model toward capital spending, human capital, and export-led growth. America must wean itself from a deficit savings culture, while...

    • 11 Rebalancing
      (pp. 213-232)

      Breaking bad habits is a struggle for any economy, but the United States and China no longer have any choice. While strong on the surface, they suffer similar maladies: They are the most unbalanced major economies in the world today. As opposite sides of the same coin, China and the United States are in a league of their own.

      No unbalanced economy is ultimately sustainable. It is just a matter of how and when that message finally sinks in. The most dramatic wake-up call of modern times—the Great Crisis and Recession of 2008–9—sends a very strong message...

    • 12 The Next America Meets the Next China
      (pp. 233-249)

      The rebalancing of two codependent economies will require a role reversal. If all goes according to the script presented in the previous chapter, the United States will change from a consumer into more of a producer. China will experience the opposite conversion.

      Yet the shifts will not be black and white, complete switches from one model to another. Rebalancing is a far more subtle transformation. The U.S. and Chinese economies should emerge from this process with broader and more solid foundations of sustainable growth—drawing support from both consumption and production, from internal as well as external demands.

      Given the...

    • 13 Codependency, the Internet, and a Dual Identity Crisis
      (pp. 250-268)

      Globalization stands for connectivity and interdependence. It reflects an integration of economies and markets woven together by cross-border flows in trade, financial capital, technology, and information. Globalization implies growing assimilation—a blurring of distinctions in the economic roles and identities of nations, companies, and people.

      But globalization can also breed a new economic disorder—the “relationship addiction” of codependency.¹ The relationship between the U.S. and Chinese economies, with the world’s ultimate consumer locked in a tight embrace with the world’s ultimate producer, exemplifies this syndrome—not just in the cross-border transfer of goods but also in the exchange of financial...

  9. NOTES
    (pp. 269-308)
    (pp. 309-312)
  11. INDEX
    (pp. 313-326)