Currency Values, Consumption & Savings

Stephen Roach, a senior fellow at the Jackson Institute for Global Affairs at Yale and the non-executive Chairman of Morgan Stanley Asia published an interesting column today entitled  Cultivating the Chinese Consumer.

In the column he points out; “The economic tensions between the United States and China arise because of two things we have in common. First, there is our shared fixation on jobs. In the United States, we continue to struggle with high rates of unemployment and underemployment. In China, policymakers continue to worry about what they term “social stability” — that is, full employment, absorption of surplus rural labor and reduced inequalities consistent with their aspirations for a “harmonious society.” Second, for both China and the United States, there are major imbalances in the percentages of gross domestic product devoted to exports, investment, consumption and savings.”

Roach argues that a significant currency realignment simply will not work and that the U.S. trade problem is not a bilateral problem with China but a “multilateral trade problem with a broad cross section of countries.” He sees more value in U.S, policy actions targeted to greatly increase our savings rate, while from a Chinese point of view he advocates for pro-consumption policies to reduce the Chinese savings rate and increase consumption.