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Posts Tagged ‘Roach’

A Bilateral Foil for America’s Multilateral Dilemma

Posted by hkarner - 25. Mai 2018

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

The May 19 deal between the US and China seems to have reduced tensions between the two countries. But, given the global nature of America’s trade deficit, any effort to impose a solution focusing on one country will likely backfire.

NEW HAVEN – The good news is that the United States and China appear to have backed away from the precipice of a trade war. While vague in detail, a May 19 agreement defuses tension and commits to further negotiation. The bad news is that the framework of negotiations is flawed: A deal with any one country will do little to resolve America’s fundamental economic imbalances that have arisen in an interconnected world.

There is a longstanding disconnect between bilateral and multilateral approaches to international economic problems. In May 1930, some 1,028 of America’s leading academic economists wrote a public letter to US President Herbert Hoover urging him to veto the pending Smoot-Hawley tariff bill. Hoover ignored the advice, and the global trade war that followed made a garden-variety depression “great.” President Donald Trump has put a comparable spin on what it takes to “make America great again.” Den Rest des Beitrags lesen »

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China as Seen from a Glass House

Posted by hkarner - 21. März 2018

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

The removal of presidential term limits in China sent shock waves around the world. But the real issues that should be confronted – not just in China, but also in the US – concern the quality of a country’s leadership.

NEW HAVEN – The removal from the Chinese constitution of the provision limiting presidents to two five-year terms came as a shock to many. For China, the institutionalization of leadership succession was one of Deng Xiaoping’s most important legacies, signaling an end to the wrenching instability of the chaotic leadership cult of Mao Zedong. For the West, the term limit was an ideological bridge that led to a path of engagement. Could its abolition be the tipping point for an already precarious Sino-American relationship?

Start with China and what the move means for its future. To figure out what will change under a different framework for leadership succession, it is important to cut through the authorities’ opaque rhetoric – the “moderately well-off society” transitioning into the “new era” – and stress-test their basic development strategy. Den Rest des Beitrags lesen »

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How to Lose a Trade War

Posted by hkarner - 29. Januar 2018

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

The Trump administration’s imposition of so-called safeguard tariffs on imports of solar panels and washing machines is directed mainly at China and South Korea. But, while neither country is responsible for America’s large trade deficit, further protectionist measures seem certain – and will leave US consumers worse off.

NEW HAVEN – Protectionist from the start, US President Donald Trump’s administration has now moved from rhetoric to action in its avowed campaign to defend US workers from what Trump calls the “carnage” of “terrible trade deals.” Unfortunately, this approach is backward-looking at best. At worst, it could very well spark retaliatory measures that will only exacerbate the plight of beleaguered middle-class American consumers. This is exactly how trade wars begin.

China is clearly the target. The January 23 imposition of so-called safeguard tariffs on imports of solar panels and washing machines under Section 201 of the US Trade Act of 1974 is directed mainly at China and South Korea. Significantly, the move could be the opening salvo in a series of measures.

Last August, the US Trade Representative launched Section 301 investigations against China in three broad areas: intellectual property rights, innovation, and technology development. This is likely to lead to follow-up sanctions. Moreover, a so-called Section 232 investigation into the national security threat posed by unfair steel imports also takes dead aim at China as the world’s largest steel producer.

These actions hardly come as a surprise for a president who promised in his inaugural address a year ago to “…protect [America’s] borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs.” But that’s precisely the problem. Notwithstanding the Trump administration’s cri de coeur of America First, the US could well find itself on the losing side of a trade war.

For starters, tariffs on solar panels and washing machines are hopelessly out of step with transformative shifts in the global supply chains of both industries. Solar panel production has long been moving from China to places like Malaysia, South Korea, and Vietnam, which now collectively account for about two-thirds of America’s total solar imports. And Samsung, a leading foreign supplier of washing machines, has recently opened a new appliance factory in South Carolina.

Moreover, the Trump administration’s narrow fixation on an outsize bilateral trade imbalance with China continues to miss the far broader macroeconomic forces that have spawned a US multilateral trade deficit with 101 countries. Lacking in domestic saving and wanting to consume and grow, America must import surplus saving from abroad and run massive current-account and trade deficits to attract the foreign capital.

Consequently, going after China, or any other country, without addressing the root cause of low saving is like squeezing one end of a water balloon: the water simply sloshes to the other end. With US budget deficits likely to widen by at least $1 trillion over the next ten years, owing to the recent tax cuts, pressures on domestic saving will only intensify. In this context, protectionist policies pose a serious threat to America’s already-daunting external funding requirements – putting pressure on US interest rates, the dollar’s exchange rate, or both.

In addition, America’s trading partners can be expected to respond in kind, putting export-led US economic growth at serious risk. For example, retaliatory tariffs by China – the third-largest and fastest-growing US export market – could put a real crimp in America’s leading exports to the country: soybeans, aircraft, a broad array of machinery, and motor vehicles parts. And, of course, China could always curtail its purchases of US Treasuries, with serious consequences for financial asset prices.

Finally, one must consider the price adjustments that are likely to arise from the inertia of existing trade flows. Competitive pressures from low-cost foreign production have driven down the average cost of solar installation in the US by 70% since 2010. The new tariffs will boost the price of foreign-made solar panels – the functional equivalent of a tax hike on energy consumers and a setback for efforts to boost reliance on non-carbon fuels. A similar response can be expected from producers of imported washing machines; LG Electronics, a leading foreign supplier, has just announced a price increase of $50 per unit in response to the imposition of US tariffs. American consumers are already on the losing end in the Trump administration’s first skirmishes.

Contrary to Trump’s tough talk, there is no winning strategy in a trade war. That doesn’t mean US policymakers should shy away from addressing unfair trading practices. The dispute-resolution mechanism of the World Trade Organization was designed with precisely that aim in mind, and it has worked quite effectively to America’s advantage over the years. Since the WTO’s inception in 1995, the US has filed 123 of the 537 disputes that have been brought before the body – including 21 lodged against China. While WTO adjudication takes time and effort, more often than not the rulings have favored the US.

As a nation of laws, the US can hardly afford to operate outside the scope of a rules-based global trading system. If anything, that underscores the tragedy of the Trump administration’s withdrawal from the Trans-Pacific Partnership, which would have provided a new and powerful framework to address concerns over Chinese trading practices.

At the same time, the US has every right to insist on fair access for its multinational corporations to operate in foreign markets; over the years, more than 3,000 bilateral investment treaties have been signed around the world to guarantee such equitable treatment. The lack of such a treaty between the US and China is a glaring exception, with the unfortunate effect of limiting of US companies’ opportunities to participate in the rapid expansion of China’s domestic consumer market. With trade tensions now mounting, hopes of a breakthrough on a US-China investment treaty have been all but dashed.

Trade wars are for losers. Perhaps that is the ultimate irony for a president who promised America it would start “winning” again. Senator Reed Smoot and Representative Willis Hawley made the same empty promise in 1930, leading to protectionist tariffs that exacerbated the Great Depression and destabilized the international order. Sadly, one of the most painful lessons of modern history has been all but forgotten.

 

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China’s Contradictions

Posted by hkarner - 24. Oktober 2017

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

Notwithstanding all the self-congratulatory flourishes in Chinese President Xi Jinping’s political report to the 19th National Congress, there is good reason to believe that the Chinese economy is only in the early stages of its long-heralded structural transformation. To reach its goal, China will have to resolve three contradictions.

NEW HAVEN – China’s quinquennial Communist Party congresses are that rare event where ritual and dogma combine with introspection and strategy. The 19th National Congress, which began on October 18, is no exception.

Notwithstanding the suspense over potential changes in Party leadership, which typically occur at the end of the meeting, President Xi Jinping’s political report, delivered on the opening day, was a high-impact event. Significantly, it says as much about the Party as it does about Xi. As Alice Miller, a leading Sinologist at Stanford’s Hoover Institution, emphasizes, the report was carefully crafted over a one-year period to convey the consensus of the Party’s highest organ, the 205-member Central Committee. Den Rest des Beitrags lesen »

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Deciphering China’s Economic Resilience

Posted by hkarner - 26. Juli 2017

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Rethinking the Next China

Posted by hkarner - 26. Mai 2017

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A World Turned Inside Out

Posted by hkarner - 27. April 2017

 

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Desperate Central Bankers

Posted by hkarner - 27. September 2016

Photo of Stephen S. Roach

Stephen S. Roach

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

SEP 26, 2016,, Project Syndicate

NEW HAVEN – The final day of the summer marked the start of yet another season of futile policymaking by two of the world’s major central banks – the US Federal Reserve and the Bank of Japan. The Fed did nothing, which is precisely the problem. And the alchemists at the BOJ unveiled yet another feeble unconventional policy gambit.

Both the Fed and the BOJ are pursuing strategies that are woefully disconnected from the economies they have been entrusted to manage. Moreover, their latest actions reinforce a deepening commitment to an increasingly insidious transmission mechanism between monetary policy, financial markets, and asset-dependent economies. This approach led to the meltdown of 2008-2009, and it could well sow the seeds of another crisis in the years ahead.

Lost in the debate over the efficacy of the new and powerful tools that central bankers have added to their arsenal is the harsh reality of anemic economic growth. Japan is an obvious case in point. Stuck in what has been essentially a 1% growth trajectory for the last quarter-century, its economy has failed to respond to repeated efforts at extraordinary monetary stimulus. Den Rest des Beitrags lesen »

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The Globalization Disconnect

Posted by hkarner - 26. Juli 2016

Photo of Stephen S. Roach

Stephen S. Roach
Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

JUL 25, 2016, Project Syndicate

NEW HAVEN – While seemingly elegant in theory, globalization suffers in practice. That is the lesson of Brexit and of the rise of Donald Trump in the United States. And it also underpins the increasingly virulent anti-China backlash now sweeping the world. Those who worship at the altar of free trade – including me – must come to grips with this glaring disconnect.

Truth be known, there is no rigorous theory of globalization. The best that economists can offer is David Ricardo’s early nineteenth-century framework: if a country simply produces in accordance with its comparative advantage (in terms of resource endowments and workers’ skills), presto, it will gain through increased cross-border trade. Trade liberalization – the elixir of globalization – promises benefits for all.

That promise arguably holds in the long run, but a far tougher reality check invariably occurs in the short run. Brexit – the United Kingdom’s withdrawal from the European Union – is just the latest case in point. Den Rest des Beitrags lesen »

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Central Banking Goes Negative

Posted by hkarner - 19. Februar 2016

Photo of Stephen S. Roach

Stephen S. Roach

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

FEB 18, 2016, Project Syndicate

NEW HAVEN – In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.

The adoption of negative interest rates – initially launched in Europe in 2014 and now embraced in Japan – represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand – primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets. But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation – in effect, urging banks to make new loans regardless of the demand for such funds. Den Rest des Beitrags lesen »

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