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American economist Stephen Roach believes there is a strong chance the United States will impose trade sanctions on China before the end of the year.
"The biggest challenge facing the world economy that I can see is the trade protectionism that is building up between the United States and China," he said in an interview with Xinhua during a visit to Beijing in his new role as chairman of Morgan Stanley's Asia operations.
Roach has testified in the US Congress three times from February to May on US-China trade issues. "This is very rare. It shows me that the American Congress is very serious about taking actions against China," he said.
The Chinese government protested solemnly on Friday against the "indiscriminate and automatic" detention of some of China's aquatic products by the United States, the latest in a line of food safety issues that have arisen between the two countries and one that Chinese analysts feel might be a prelude to a twist in the China-US trade ties.
"We don't have a bilateral problem with China. We have a multilateral problem here. Blaming deficits on China won't fix anything," Roach said.
The United States registered US$836 billion in trade deficit last year. The Chinese bilateral deficit of US$232 billion represented the largest portion - 28 percent - of America's overall multilateral trade gap but the deficits with other partners were three times as much, he explained.
"The United States runs trade deficits not because it is victimized by unfair competition from China or anyone else but because it suffers from a chronic shortfall in domestic savings," Roach said.
America's net national saving rate plunged to a record low of one percent of the national income for the 2004-2006 period, leaving the United States no choice but to accumulate trade deficits to attract foreign capital.
Trade sanctions such as tax and countervailing duties are functional equivalents of tax hikes on US consumers and American multinational business. In response, China can put reciprocal tax on products sold to the United States and diversify China's foreign exchange reserve from the US dollar.
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