by Xinhua Writer Cheng Yunjie and An Bei
BEIJING, July 3 (Xinhua) -- 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 U.S. Congress three times from February to May on U.S.-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-U.S. trade ties.
"In its rush to impose trade sanctions on China, the U.S. congress risks making a policy blunder of monumental proportions," Roach said.
"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 836 billion U.S. dollars in trade deficit last year. The Chinese bilateral deficit of 232 billion U.S. dollars 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 U.S. 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 U.S. dollar.
"Such actions could lead to higher U.S. inflation and quickly impact the rest of Asia, which has become increasingly integrated into a China-centric pan-regional supply chain," Roach warned.
The economist attributed the protectionism of the U.S. Congress to a lack of knowledge of China. "They need to understand that 30 years ago China was on the brink of collapse. They need to understand China now faces a lot of problems and challenges. China needs our help and presents bigger opportunities than threats."
To remedy the situation, Roach suggested that the United States save more and train workers to face global competition and that China adjust its economic structure and be more aggressive in intellectual property rights protection.
"China needs to know the policy of Washington is very difficult. If you don't want to move aggressively in currency, that's fine. But arguments won't end if both sides don't agree to make a change," he said.