Why the U.S. needs to "break up" with China
It's Valentine's Day -- and if you want to talk about relationships, global-economy style, perhaps there is none more important, yet more dysfunctional, than that of the U.S. and China.
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"It started in a very innocent way ... a little bit of mutual attraction," says Stephen Roach, senior fellow at the Yale University's Jackson Institute of Global Affairs and author of Unbalanced: The Codependency of America and China. "And then it becomes convenient to rely on one party, in this case one economy on the other, and it sort of builds and intensifies."
The U.S. is dependent on China to produce cheap goods so "hard-pressed American consumers can stretch their incomes" and to buy Treasurys because America has big deficits to fund, argues Roach.
China needs the U.S. -- the biggest consumer market in the world -- to buy its exports and that's what helps them grow as rapidly as they have over the last 30 years.
It's a mutual dependency that Roach says is detrimental to both, and in the accompanying video he lays out the case. For one, if China moves to a consumer-led economy from an investment and manufacturing one, then China will be buying fewer U.S. Treasurys and "Who's going to fund us?" asks Roach.
He sees signs that China is willing to change and rebalance its economy, but Roach doesn't see signs of the same willingness from the U.S. He explains that the U.S. needs to "spend less and save more," and find other ways to grow beyond consumer spending.
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