Only by rebalancing, can both the United States and China enjoy the opportunity to share in the mutual benefits of a far more constructive interdependency

People’s Daily: Could you talk a bit on US and China economic relationship. In your new book Unbalanced: The Codependency of America and China, you argue the codependency of America and China is unhealthy, and both unbalanced economies face urgent and mutually beneficial rebalancing. Do you think both sides should and can cooperate and help each other in rebalancing?

Roach: Codependency depicts an inherently unhealthy and unstable relationship between economies. It usually starts out innocently enough – China’s dependence on external demand made in America and saving-short America’s dependence on Chinese surplus saving and cheap goods that helped out income-constrained US families. But the deeper this reliance becomes, the greater the risk of imbalances and frictions. In China’s case, this has been visibly manifested in the form of the excesses of export- and industrial-led growth that I have addressed above – excesses that have, in turn, underscored the imperatives of an urgent structural rebalancing. In the United States, a similar outcome is evident – imbalances in the form of asset bubbles, debt, and deficits that send a strong signal for an urgent US rebalancing.

Both nations – China and the United States – became unwitting victims of the complacency of codependency. They thought incorrectly that their dependency on one another could allow them to sustain the unbalanced growth of a false prosperity for an indefinite period of time. The Great Crisis and its aftermath was an unmistakable wake-up call that those days are now over.

I believe that there is great potential for both nations to turn an increasingly destructive and unsustainable codependency into a more constructive and sustainable interdependency. Unlike codependency, interdependency would allow both nations to responsibly satisfy their own needs and enjoy better the mutual benefits of their partnership. That would arise as China shifts more to a growth model that draws support from internal demand. It would also arise as the United States, conversely, begins the long overdue process of rebuilding its depleted saving – thereby boosting its competitiveness and enabling it to re-invest new found saving in human capital, infrastructure, and manufacturing capacity that could then be directed at export-led growth opportunities that are likely to emerge in economies such as China.

A deepening codependency would push China and the United States down the same treacherous roads they have been on. And as is the case in human codependent relationships, they would start to blame each other for their mounting problems – a blame game which is already apparent in the trade and geopolitical frictions that have been increasingly evident in recent years. Only by rebalancing, can both the United States and China enjoy the opportunity to share in the mutual benefits of a far more constructive interdependency.