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Unbalanced: The Codependency of America and China
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.
In The Codependency of America and China Stephen 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 In the wake of the 2008 crisis, both unbalanced economies face urgent and mutually beneficial rebalancings. Unbalanced concludes 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.
In The Codependency of America and China Stephen 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 In the wake of the 2008 crisis, both unbalanced economies face urgent and mutually beneficial rebalancings. Unbalanced concludes 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.
344 pages, Hardcover
First published January 1, 2014
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Displaying 1 - 10 of 10 reviews
November 11, 2016
So I read this book for old times’ sake.
I’ve traded fixed income out of a good ten addresses, but not (yet??) Morgan Stanley. A decade ago, under Stephen Roach, they had the Street’s undisputed #1 economics department. So my weekend would invariably start with the musings of Stephen Roach, Joachim Fels, Andy Xie and Robert Alan Feldman, with special attention given to avoiding anything Eric Chaney had to say, in case it inspired me to trade Sterling, where I have a solid record in losing money.
I’m happy to report he has not changed much. Others have tried to write this book (example: Michael Pettis) and failed. Stephen Roach has one story and he lays it out over 250 pages. Twenty five would have probably done the trick, but hey, he’s got spare time out in Asia where they parked him once his perma-bearish outlook had become too uncomfortable for management. And if I read this right, he seems to be totally gone now and working out of New Haven. Yikes!
The story is not rocket science, but somebody had to write it: China has spent the last thirty years moving its population from the countryside to the megacities of the coast, where they assemble (but increasingly also design) consumer products that we buy in the West. It was a gamble and it’s paid off, with China becoming the world’s second largest economy, manufacturer and exporter. Perhaps even the largest on at least a couple of these measures. The model of the Chinese economy has become export-and-investment led, the two representing 72% of the economy (don’t worry, imports bring the number back down somewhat), at the expense of the Chinese consumer, who’s stuck at 36% of GDP and of the Chinese worker, who is having to look for work in the part of the economy (manufacturing) that is most open to advances in productivity.
Conversely, the US has completely given up on investment, has totally unlearnt how to save (at the government, corporate and personal level), has run a budget deficit since the Reagan years (a couple years of surplus at the height of the Clinton / Greenspan tech bubble notwithstanding), a savings deficit since 2008 and a negative current account balance since (you guessed it) the Reagan years and has made consumption (at almost 70% of GDP) the cornerstone of its growth story (perhaps even the whole planet’s, at 17% of its GDP), most recently fuelled by a good 2 trillion of Treasury purchases by the Chinese central bank.
So the two states have become, in Stephen Roach’s words, “codependent”
The book is a story of
• how we got here (It was an explicit and well executed strategy on the part of the Chinese, and a combination of 1. The politics of “growth addiction” and 2. Alan Greenspan’s blind faith in markets on the part of the US)
• why we need to stop blaming the Chinese for allegedly stealing American jobs when (i) America shares at least half the responsibility and (ii) the US has a current account deficit with 102 economies, of whom China merely happens to be the largest but by no means the naughtiest on WTO measures
• how we can cause a 1930’s style disaster if we unilaterally start a trade war
• what comes next (rebalancing, whether we want it or not, since we’ve reached the end of the road for both the US model and the Chinese model with the crisis of 2008)
• what specific measures both sides must take (the Chinese should promote labor-intensive services such as transport, retail, financial services etc., while the US must prepare to export such services to China, must cut its budget deficit, must give up on consumption that’s never coming back because the middle class has either totally lost the assets that once drove its spending or is busy servicing the associated debt, must stop the Fed from further inflating assets because they belong to the class that does not spend anyway and must find ways to invest more, both in areas where it used to lead in, like education, healthcare and infrastructure, but also in growth areas of the future)
No doubt there are some contradictions here. Either the US government must cut the deficit or it must invest. Either the citizens should spend or they should chase even further into the sky via their saving money the very assets the Fed has inflated with its sundry bubblicious activities. But Stephen Roach loves a moan, so it’s up to you the reader to draw the line somewhere; he won’t.
And that, of course, is what we fanatics love about Steve Roach!
I’ve traded fixed income out of a good ten addresses, but not (yet??) Morgan Stanley. A decade ago, under Stephen Roach, they had the Street’s undisputed #1 economics department. So my weekend would invariably start with the musings of Stephen Roach, Joachim Fels, Andy Xie and Robert Alan Feldman, with special attention given to avoiding anything Eric Chaney had to say, in case it inspired me to trade Sterling, where I have a solid record in losing money.
I’m happy to report he has not changed much. Others have tried to write this book (example: Michael Pettis) and failed. Stephen Roach has one story and he lays it out over 250 pages. Twenty five would have probably done the trick, but hey, he’s got spare time out in Asia where they parked him once his perma-bearish outlook had become too uncomfortable for management. And if I read this right, he seems to be totally gone now and working out of New Haven. Yikes!
The story is not rocket science, but somebody had to write it: China has spent the last thirty years moving its population from the countryside to the megacities of the coast, where they assemble (but increasingly also design) consumer products that we buy in the West. It was a gamble and it’s paid off, with China becoming the world’s second largest economy, manufacturer and exporter. Perhaps even the largest on at least a couple of these measures. The model of the Chinese economy has become export-and-investment led, the two representing 72% of the economy (don’t worry, imports bring the number back down somewhat), at the expense of the Chinese consumer, who’s stuck at 36% of GDP and of the Chinese worker, who is having to look for work in the part of the economy (manufacturing) that is most open to advances in productivity.
Conversely, the US has completely given up on investment, has totally unlearnt how to save (at the government, corporate and personal level), has run a budget deficit since the Reagan years (a couple years of surplus at the height of the Clinton / Greenspan tech bubble notwithstanding), a savings deficit since 2008 and a negative current account balance since (you guessed it) the Reagan years and has made consumption (at almost 70% of GDP) the cornerstone of its growth story (perhaps even the whole planet’s, at 17% of its GDP), most recently fuelled by a good 2 trillion of Treasury purchases by the Chinese central bank.
So the two states have become, in Stephen Roach’s words, “codependent”
The book is a story of
• how we got here (It was an explicit and well executed strategy on the part of the Chinese, and a combination of 1. The politics of “growth addiction” and 2. Alan Greenspan’s blind faith in markets on the part of the US)
• why we need to stop blaming the Chinese for allegedly stealing American jobs when (i) America shares at least half the responsibility and (ii) the US has a current account deficit with 102 economies, of whom China merely happens to be the largest but by no means the naughtiest on WTO measures
• how we can cause a 1930’s style disaster if we unilaterally start a trade war
• what comes next (rebalancing, whether we want it or not, since we’ve reached the end of the road for both the US model and the Chinese model with the crisis of 2008)
• what specific measures both sides must take (the Chinese should promote labor-intensive services such as transport, retail, financial services etc., while the US must prepare to export such services to China, must cut its budget deficit, must give up on consumption that’s never coming back because the middle class has either totally lost the assets that once drove its spending or is busy servicing the associated debt, must stop the Fed from further inflating assets because they belong to the class that does not spend anyway and must find ways to invest more, both in areas where it used to lead in, like education, healthcare and infrastructure, but also in growth areas of the future)
No doubt there are some contradictions here. Either the US government must cut the deficit or it must invest. Either the citizens should spend or they should chase even further into the sky via their saving money the very assets the Fed has inflated with its sundry bubblicious activities. But Stephen Roach loves a moan, so it’s up to you the reader to draw the line somewhere; he won’t.
And that, of course, is what we fanatics love about Steve Roach!
November 14, 2020
There are two different competing viewpoints in economics over Chinese & American imbalances.
One of them, led by Michael Pettis, posits that China’s domestic policies –aimed at increasing the investment share of GDP at the expense of the consumption share of GDP- forces America to increase its consumption share of GDP at the expense of its investment share of GDP. In effect, America is being subject to a “financial Dutch disease” forcing it to become a consumer not a producer because of China’s policies, in a flip-side accounting identity fashion.
According to Pettis the “exorbitant privilege” is in reality an “exorbitant burden”.
The other viewpoint, somewhat lead by Stephen Roach, instead lies the blame on the increasing lack of American competitiveness, as well as congress’s incapability to pass the necessary bills to increase consumer savings, invest in education & repair depleted infrastructure.
According to Roach, a great part of the causes of this obstruction are ideological in nature: the fusion of Ayn Rand’s Objectivist philosophy with Neo-liberalism created a toxic mix of laissez-faire capitalism and an aversion to planning. Nowadays, American society actively promotes small government, individual liberty and private enterprise. These ethos are in stark contrast with the collectivist, big-government, and socialist-market in nature policies urgently in need of approval to repair the neglected infrastructure & damaged caused by the GFC.
In other words, to rebalance and to grow economically again America needs to adopt inherently top-down, big state solutions. It needs to become more like China, not less.
Roach uses the contrast in response (or lack of) between Alan Greenspan, head of the American Federal Reserve and ardent Objectivist, and China’s Premier Wen Jiabao, a pure pragmatist, to the various crisis that plagued the global economy during the 21st century. When faced with a crisis the American Fed allowed bubbles to pop, and promoted “market equilibrium” and “market rationality” rather than an increase of interest rates or direct intervention. China on the other hand swiftly intervened to stop bubbles from popping, socialized loses and regulated heavily afterwards.
The results are there for all to see: China hasn't had a recession for over 30 years, the US has had 47. It has a trade deficit with 127 countries, including other industrialized nations such as Germany, Canada, France and Italy. Yet it singles out China, despite it's trade deficit per capita is a third of that of Germany and half of that of Canada.
- - -
Both “The great Rebalancing” and “Unbalanced: The co-dependency of America and China” are tough reads with conflicting viewpoints. Stephen Roach’s endless rambling and utter chaos in his arguments doesn’t make the reading enjoyable. But while Michael Pettis’s framework is more compelling than Stephen Roach’s rambling madness, I think the latter’s arguments are more realistic.
Roach also warned that if American society did not change course, it will continue to suffer economically.
Apart his main thesis, Roach made some other interesting points:
1. Current account surpluses & imbalances are a better explainer to international trade than international trade economic theory. Having had an international trade theory class, I can only agree on this. It felt more like studying Latin rather than a real-world language.
2. White collar jobs are at the forefront of globalization 4.0. The newest form of globalization is enabled by ICT technologies who in turn make the export of high value services possible. While this means that America can stand to gain from exporting its financial and technological services to China, the reverse is also true. Populism isn’t just blue collar workers protesting about displacement, but white collar workers joining too.
3. The increasing fusion of monetary and fiscal policy is bound to question the principle of an independent central bank. Roach was right on this one too. The increasing use of QE to finance the global financial system gave birth to Modern Money Theory. The idea of an independent central bank will come increasingly under fire.
4. The internet is fulling American radicalism. There again, a no-brainer. The US should seriously consider Chinese-style censorship of websites that peddle conspiracy and political extremism.
One of them, led by Michael Pettis, posits that China’s domestic policies –aimed at increasing the investment share of GDP at the expense of the consumption share of GDP- forces America to increase its consumption share of GDP at the expense of its investment share of GDP. In effect, America is being subject to a “financial Dutch disease” forcing it to become a consumer not a producer because of China’s policies, in a flip-side accounting identity fashion.
According to Pettis the “exorbitant privilege” is in reality an “exorbitant burden”.
The other viewpoint, somewhat lead by Stephen Roach, instead lies the blame on the increasing lack of American competitiveness, as well as congress’s incapability to pass the necessary bills to increase consumer savings, invest in education & repair depleted infrastructure.
According to Roach, a great part of the causes of this obstruction are ideological in nature: the fusion of Ayn Rand’s Objectivist philosophy with Neo-liberalism created a toxic mix of laissez-faire capitalism and an aversion to planning. Nowadays, American society actively promotes small government, individual liberty and private enterprise. These ethos are in stark contrast with the collectivist, big-government, and socialist-market in nature policies urgently in need of approval to repair the neglected infrastructure & damaged caused by the GFC.
In other words, to rebalance and to grow economically again America needs to adopt inherently top-down, big state solutions. It needs to become more like China, not less.
Roach uses the contrast in response (or lack of) between Alan Greenspan, head of the American Federal Reserve and ardent Objectivist, and China’s Premier Wen Jiabao, a pure pragmatist, to the various crisis that plagued the global economy during the 21st century. When faced with a crisis the American Fed allowed bubbles to pop, and promoted “market equilibrium” and “market rationality” rather than an increase of interest rates or direct intervention. China on the other hand swiftly intervened to stop bubbles from popping, socialized loses and regulated heavily afterwards.
The results are there for all to see: China hasn't had a recession for over 30 years, the US has had 47. It has a trade deficit with 127 countries, including other industrialized nations such as Germany, Canada, France and Italy. Yet it singles out China, despite it's trade deficit per capita is a third of that of Germany and half of that of Canada.
- - -
Both “The great Rebalancing” and “Unbalanced: The co-dependency of America and China” are tough reads with conflicting viewpoints. Stephen Roach’s endless rambling and utter chaos in his arguments doesn’t make the reading enjoyable. But while Michael Pettis’s framework is more compelling than Stephen Roach’s rambling madness, I think the latter’s arguments are more realistic.
Roach also warned that if American society did not change course, it will continue to suffer economically.
Apart his main thesis, Roach made some other interesting points:
1. Current account surpluses & imbalances are a better explainer to international trade than international trade economic theory. Having had an international trade theory class, I can only agree on this. It felt more like studying Latin rather than a real-world language.
2. White collar jobs are at the forefront of globalization 4.0. The newest form of globalization is enabled by ICT technologies who in turn make the export of high value services possible. While this means that America can stand to gain from exporting its financial and technological services to China, the reverse is also true. Populism isn’t just blue collar workers protesting about displacement, but white collar workers joining too.
3. The increasing fusion of monetary and fiscal policy is bound to question the principle of an independent central bank. Roach was right on this one too. The increasing use of QE to finance the global financial system gave birth to Modern Money Theory. The idea of an independent central bank will come increasingly under fire.
4. The internet is fulling American radicalism. There again, a no-brainer. The US should seriously consider Chinese-style censorship of websites that peddle conspiracy and political extremism.
March 8, 2022
First the way Roach presented his narrative. On that front his book is an enjoyable read; he starts with a comparison of the main actors, then pivots to how China and America has mirroring problems and how they can benefit from each other. Somewhat equal attention is given to both countries, so he shows his ability to assess the China-America codependency as a system rather than just two countries.
Now on the narrative. My most generous reading of Roach's perspective is he follows the adage "the grass is greener on the other side." (Less generous readings have to do with being "influenced" so I won't go there.) While his narratives of the Chinese premiers vs the Fed chairmen is interesting, they usually go like this: look how honorable the path the premiers took, meanwhile look how political (almost self-serving) the path the chairmen had. And in laying out the progress both countries made, China is always "aww look how far they have come" and America is always "look how much of nothing they have done." The apex of this is how he addressed the accusations that US politicians had of China: it's a mixture of wrong scorekeeping, impact downplaying, pleading that "China has done a lot, look," and in his weakest moments, generous doses of whataboutism (especially in the intellectual property discussion).
Thus I had to dock a star off what would have been a great book. Still a good book with an effective narrative, especially if the reader knew nothing of China. Too bad the narrative itself is wanting.
Now on the narrative. My most generous reading of Roach's perspective is he follows the adage "the grass is greener on the other side." (Less generous readings have to do with being "influenced" so I won't go there.) While his narratives of the Chinese premiers vs the Fed chairmen is interesting, they usually go like this: look how honorable the path the premiers took, meanwhile look how political (almost self-serving) the path the chairmen had. And in laying out the progress both countries made, China is always "aww look how far they have come" and America is always "look how much of nothing they have done." The apex of this is how he addressed the accusations that US politicians had of China: it's a mixture of wrong scorekeeping, impact downplaying, pleading that "China has done a lot, look," and in his weakest moments, generous doses of whataboutism (especially in the intellectual property discussion).
Thus I had to dock a star off what would have been a great book. Still a good book with an effective narrative, especially if the reader knew nothing of China. Too bad the narrative itself is wanting.
November 21, 2020
Started to read this book by chance and what a nice surprise for a non economics aficionado (yes, some technical details were “though” to mull and I think repeatedly used with different intertwined combinations, which I think makes sense giving the complexity of the topics).
Being this said, It was enlightening to get to know some of the back stage architects such as Wen Jiabao (father of the four Uns) and Rongji Zhu on Chinese side, the lack of reliable retirement security, unbalanced urban/rural and other details which shed some light into the recent social and economic history.
Reading this book today also gives the opportunity to think about the author opinions and measure the success of the last Chinese 5yr plans (success in services % growth in economy and not so good internal consumption share boost).
As a side comment, we, all being part of the globalization, should be in dire straits since the last USA administration didn’t took much of the 1930s lessons into consideration, and we are all still ok. Guess there’s more into play than just this codependent relationship to make or break a country.
In resume, the consumer-led or producer-led codependency comparison and balancing suggestions are very insightful and maybe the point is to focus on quality of growth instead of trying to beat one another in the export/import business.
Being this said, It was enlightening to get to know some of the back stage architects such as Wen Jiabao (father of the four Uns) and Rongji Zhu on Chinese side, the lack of reliable retirement security, unbalanced urban/rural and other details which shed some light into the recent social and economic history.
Reading this book today also gives the opportunity to think about the author opinions and measure the success of the last Chinese 5yr plans (success in services % growth in economy and not so good internal consumption share boost).
As a side comment, we, all being part of the globalization, should be in dire straits since the last USA administration didn’t took much of the 1930s lessons into consideration, and we are all still ok. Guess there’s more into play than just this codependent relationship to make or break a country.
In resume, the consumer-led or producer-led codependency comparison and balancing suggestions are very insightful and maybe the point is to focus on quality of growth instead of trying to beat one another in the export/import business.
July 4, 2025
Funny to read this 10 years after it came out. The “Bad Dream” scenario did indeed come to fruition in April 2025, but has so far failed to resolve itself in any sort of economic rebalancing. But this book is essential to understand how the United States got to “liberation day,” and how the Chinese political and economic system has propped up the United States economy for the past few decades. Definitely recommend
June 6, 2020
too dry
October 28, 2013
As this book opens with rather clear historical explanations for the codependency that tightly binds the United States and China, I would have preferred a greater ability to forecast the future and especially greater clarity with regard to all the U.S. debt that China has purchased. But maybe these explanations were there and I just do not I have understood .....
Per quanto questo libro apra a spiegazioni storiche piuttosto chiare per la codipendenza che lega strettamente Stati Uniti e Cina, avrei preferito una maggiore capacitá di previsione per il futuro e soprattutto una maggiore chiarezza riguardo a tutti i debiti americani che la Cina si é comprata. Ma magari queste spiegazioni c'erano e sono io che non le ho capite.....
THANKS TO NETGALLEY AND YALE UNIVERSITY PRESS FOR THE PREVIEW!
Per quanto questo libro apra a spiegazioni storiche piuttosto chiare per la codipendenza che lega strettamente Stati Uniti e Cina, avrei preferito una maggiore capacitá di previsione per il futuro e soprattutto una maggiore chiarezza riguardo a tutti i debiti americani che la Cina si é comprata. Ma magari queste spiegazioni c'erano e sono io che non le ho capite.....
THANKS TO NETGALLEY AND YALE UNIVERSITY PRESS FOR THE PREVIEW!
August 28, 2015
Excellent overview of the codependent relationship of America (world's consumer) and China (world producer).
Logiclly spells out the historical conditions, policy choices and leaderhship regimes that contributed to the ever tigther coupling of the two economies. Concludes by articulating the case for how the codependency may wind down in the coming years ... a gradual reversal of roles as US produces and saves while China consumption engine takes off or a more gloomier scenario of coming unhinged before decoupling occurs with ensnaring the global economy.
Good economic support data to back up the claims, would have preferred to see more charts, data to drive the point home about how interwined and reliant both sides are on eachother at this point.
Logiclly spells out the historical conditions, policy choices and leaderhship regimes that contributed to the ever tigther coupling of the two economies. Concludes by articulating the case for how the codependency may wind down in the coming years ... a gradual reversal of roles as US produces and saves while China consumption engine takes off or a more gloomier scenario of coming unhinged before decoupling occurs with ensnaring the global economy.
Good economic support data to back up the claims, would have preferred to see more charts, data to drive the point home about how interwined and reliant both sides are on eachother at this point.
June 6, 2015
Write by a former chief economist of Morgan Stanley, this often repetitive book explains clearly that while both the United States and China have benefited from the former's excessive consumption and the latter's cheap labor and excessive saving, this arrangement is clearly unsustainable. Rectifying these are easier said than done. However, they are far from impossible and the author suggests how the United States can grasp the opportunity to reap benefits from assisting China to increase its private consumption and rebalance its economy. Crass protectionism is the last thing we want and will inevitably lead to catastrophe. Timely and well written. Four stars.
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August 25, 2014337.73051 R6282 2014
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