Some people view the US and China as being in fierce competition: for jobs, for technology, for sea lanes and ultimately for control. Others see a symbiotic relationship between a Chinese producer and a US consumer, between a US provider of technology, know-how and branding and a Chinese provider of cheap labour and lax pollution laws.
Stephen Roach, Yale professor and former chairman and chief economist of Morgan Stanley, sees something more like an old married couple in serious need of counselling. He uses the word “codependency”, a psychologists’ term for an inherently unstable relationship that keeps getting worse over time. This is the idea – only a bit of a stretch, he says – that forms the subtitle of his new book Unbalanced: The Codependency of America and China.
In a talk in Hong Kong on Thursday he elaborated. The US he says has been the “ultimate consumer”, trapped in an unhealthy relationship with China, the “ultimate producer”. In the 1970s and 1980s, the US was suffering from stagflation and its living standards were treading water . But cheap goods from China – coupled with US monetary and fiscal policies that were “locked into pro-growth settings” – postponed the day of reckoning. US consumers bought more and converted an asset bubble – via stock market investments and mortgage refinancing – into higher incomes. China, fresh from the disaster of the Cultural Revolution, was also tied into the relationship. It prospered through an export bubble, selling to a US consumer who, if truth be told, couldn’t really afford all the gear.