Our next guest wrote this book, which I'm holding in my hands and I read it
while flying across the Pacific. Interesting dialogue obviously going on
in this book. We're going to have here.
It's called Accidental Conflict America, China and the Class of False Narratives.
It's Stephen Roach, the former Morgan Stanley chairman in Asia Pacific.
And now, I believe Yale Law School senior fellow.
You dedicated this to your students? I did.
It's all about the narratives and competing narratives, false narratives.
You say you talked in your previous book.
I remember you wrote about the co-dependent right between China and the
United States. And as that co-dependency aged, it might
not age well and could lead to way. I ended the last book.
Exactly. So how are we going to get back?
Not necessarily the co-dependent, but to constructive dialogue where the United
States and China, two worlds, biggest superpowers, the biggest economies can
actually coexist. Well, that's a great question and one
that was grating on me as I went through the book.
The basic premise of this book, Steve, is that we are in the danger zone right
now. Last five years, trade, war, tech war
now are early stages of a new Cold War. And it would not have happened were it
not for the false narrative that both nations embrace toward one another.
So how to recapture any semblance of a constructive relationship?
I offer three things in the book. One, simple things to rebuild trust,
like opening consulates and restarting foreign exchange programs, relaxing visa
requirements, but tougher things, too, like global health, global climate
change, cyber. Secondly, I am a strong advocate of
going back to finishing up negotiations on a bilateral investment treaty to
lower investment barriers and allow both nations to focus on growth.
And thirdly, I want a new architecture of engagement.
I call it the U.S. China Secretariat, a full time
organization working 24/7 on all aspects of the relationship, from trade and
economics to climate industrial policy, innovation policy.
And I want collaboration from two large, well-trained, professional teams of
Chinese and American experts to work full time on this road.
That takes a lot of political capital on both sides to spend at a time when it
serves politicians better to, you know, amplify the false narrative that you
want to call them that. And because, look, even Biden did not
back down from the tariffs on China. He kept them in place from the Trump
administration. It's easy to understand that he's done
worse than that because there is a chapter in here and you've read the
book. So you probably know exactly what
chapter I'm talking about. Chapter 7 From Trump to Biden Dash, the
plot thickens. It's gotten worse under Joe Biden
because not only did he keep the tariffs in place, but he has identified China
now as a peer competitor on technology and has taken actions in early October
of 2022 to sanction China. All of China's access to advance
semiconductor chips, which is aimed at stifling there their very important
efforts on A.I. and quantum computing.
Does it hinder them completely or does it just spur China's domestic
innovation? That remains to be seen.
I think for the near term, this is a major impediment to China because to
build a domestic advanced semiconductor chip industry is something they have
been trying to do for over a decade. They've poured hundreds of billions of
dollars into it and they have not yet been able to do it.
They can take Taiwan. That's a big fear because Chapter 6 is
about Cold War 2.0. Yes, I've read the book as well.
What is the real likelihood that this kind of confrontation, economic,
geopolitical and narrative wane false narratives leads to actual military
conflict? Well, that's why I chose the title of
the book, Accidental Conflict. These false narratives come together
and I would describe them collectively as
the functional equivalent of a high octane fuel of conflict escalation.
Any spark can ignite the fuel. Taiwan could do it.
South China Sea could do. China's role as a partner with Russia in
this horrible war in Ukraine. A global recession could do it.
So it is critical to take these pre-emptive actions now before it's too
late. Before the accident actually happens
along the lines of. You described her what others fear.
Yeah, I mean, that is what sidling up to Moscow has not helped the narrative for
China in the West. They say not at all.
And what's your take on the opening up? Because the West and those who have not
spent as much time in the Asia-Pacific as you have and as I have, would say
these policy moves on such a U-turn, such a pinpoint and now just dropping
Covid 0 after saying it was the biggest threat facing the nation now all of a
sudden downgrading it. It's sad.
It's staggering. It really is.
I mean, and look, zero Covid was an unsustainable, impractical, ridiculous
policy. But to go from no Covid to all Covid,
the flick of a switch is disruptive, chaotic and certainly indicative of a
Chinese policy move. That is not nearly as well planned as
they want to give themselves credit. Foreigners we typically give them credit
for. So now you've got Covid raging at a time
when the nation does not have herd immunity.
The elderly are unvaccinated. The vaccines that they have are inferior
and the hospital system is inadequate to deal with the problems.
All of that ahead of the Chinese New Year holiday, with
affected urban residents rushing back to their rural countryside where the
hospitals are particularly lousy. Serious problems.
So was Covid 0 a complete waste of time? And was it all because of the party
Congress and his cementing his third consecutive term?
Hardly on the spot. It's hard to know the motives, but this
was a signature policy Xi Jinping.
He was unflinching in doing that and unflinching in boasting
of China's superior approach to dealing with a horrific pandemic.
But one worked in addressing the strain that came out of Wu on did not work at
all with this highly contagious strain of Mark Crumpton.
Speaking of narratives, whether it's false or not, what about the Fed?
Are they doing the right thing? I mean, inflation's come down to six and
a half percent. Do you think that the Fed's got, you
know, the right handle on this situation?
Finally, they do. I mean, the reason the Fed has had to
move as aggressively as they have and this is the most aggressive monetary
tightening we have seen really since Paul Volcker's days is because they
really made a terrible blunder in leaving policy too easy for too long in
a 20 second after 2020 and throughout 2021.
So they were in a deep hole with the federal funds rate at zero and inflation
surging past 8 percent at one point peaking at nine point one percent.
So the real interest rates were in negative territory, more so than they've
ever been. They have moved aggressively, but real
interest rates, the nominal federal funds rate less.
The inflation rate is still negative today.
And so the Fed knows that they have more work to do and they'll do maybe
another few tightening before it's over. But what the markets refuse to accept is
that once they get the federal funds rate where they want it, they're going
to hold it there for a long time to make certain they re anchor inflationary
expectations very quickly. Does China rescue the US and the rest of
the world from recession? No, it doesn't.
I go back to the period after the global financial crisis.
China was surging at seven and a half percent there.
And that really cushioned the world that was close to going back into recession.
They're not going to do seven and a half percent.