At the same time, Roach believes that China and the United States need to build a deeper and broader structural agenda to bridge their differences. He put forward three suggestions, including establishing a brand-new dialogue mechanism, canceling additional tariffs, and restarting the negotiation of bilateral investment agreements to solve the structural problems in Sino-US economic and trade relations.
In the first quarter of next year, the US economy may shrink again.
CBN: What are your expectations for the US economic recovery in the short term?
Stephen roach: I think the US economy is expected to achieve positive growth in the fourth quarter of 2020. However, considering the current epidemic situation and blockade measures, the gross domestic product (GDP) of the United States will shrink again in the first quarter of 20021year. The probability of a double dip recession has risen sharply, that is, the economy will decline again after a short recovery in one or two quarters. This phenomenon has occurred eight times in the past 1 1 economic cycle, and this time is no exception.
When enough people complete vaccination, it will add momentum to sustainable economic recovery. Therefore, the American economy is expected to achieve a strong recovery in the second half of 20021year.
CBN: Even if COVID-19 distributes vaccines and adds a new round of rescue plan, it still can't save the economic contraction in the first quarter of 2002/KLOC-0?
Stephen roach: Yes. Considering that California, with the largest population and the most developed economy in the United States, has introduced regional blockade measures in many places, economic stimulus and the advent of vaccines can not offset the negative impact of economic shutdown. In addition, with the coming of Christmas and New Year holidays, the diagnosis rate and transmission in COVID-19 may further deteriorate.
CBN: What do you think of the polarization phenomenon that the American epidemic is severe and the real economy may shrink again, while the American stock market is at a historical high?
Stephen roach: It can be said that the US stock market has surpassed all the short-term economic risks mentioned above, and it is expected that the US economy will achieve a strong recovery after extensive vaccination. It can be said that almost all the good news is reflected in the stock price. The risk for investors is that some good news may not come true as expected.
It is estimated that the cumulative decline of the US dollar may reach 35% next year.
CBN: The US dollar index will fall by about 7% CBN:2020, but do you still think that the US dollar will continue to fall sharply?
Stephen roach: I predict that the cumulative decline of the US dollar in 20021year will reach 35%. The biggest challenge facing the United States is that its current account deficit is expanding at an unprecedented speed, and the fiscal deficit caused by the COVID-19 epidemic will aggravate this problem. Historical experience shows that when the current account deficit expands, there will be two situations to offset its impact. One is to raise interest rates through tight monetary policy, and the other is to devalue the currency.
The Federal Reserve has made it clear that the federal funds rate will remain unchanged at a historical low of 0-0.25% for the foreseeable future. This means that the pressure of the current account deficit will fall on the US dollar exchange rate. During the historical periods of 1970s, 1980s and early 2000, the exchange rate of the US dollar experienced three 30%~32% plunge. I believe that the era of the fourth dollar crash has arrived.
CBN: It is true that from S&P's downgrading of US sovereign credit rating, to the Greek bond crisis, and then to Britain's withdrawal from the EU, whenever a risk event occurs, the US dollar and its assets enjoy the advantages of the global reserve currency to a great extent, and investors flock to the US debt and the US stock market, thus providing support for the US dollar. Why is this different?
Stephen roach: As the most important global reserve currency, the US dollar does enjoy additional privileges. Some people think that the dollar is irreplaceable, so investors have no choice. I don't agree with this view.
In my opinion, the euro is a very advantageous "substitute", and the exchange rate of the euro has been strong this year. The euro zone is also increasingly aware of the importance of reaching a pan-European fiscal policy. The RMB exchange rate has also risen sharply. With the further deepening of reform in China, there is still room for growth in the future. In addition, gold and even bitcoin will also play a role in this financial environment.
CBN: Can Bitcoin even threaten the dollar?
Stephen roach: Compared with hard currencies such as the US dollar and the euro, the scale of Bitcoin is still small, but it is growing rapidly. As an alternative asset, it will benefit from the current environment.
CBN: Changes of production and consumption behavior after COVID-19 epidemic spread in the United States for nearly one year. What irreversible parts of these changes will adversely affect the future economic recovery?
Stephen roach: The answer will be tested in time. Looking back on several epidemics since the outbreak of the Black Death in the14th century, the research shows that its impact may last for decades. For service industries, especially economic activities, leisure and entertainment, and even retail industries that need face-to-face communication, even if the vaccination is successful, the impact of the epidemic will last for a long time.
Many commuters prefer telecommuting or working from home, which will have a great impact on the public transport system, especially in densely populated metropolitan areas such as new york, and may even be destructive.
I don't think it's possible for vaccines to turn the clock back to the pre-epidemic era like a time machine. It may take us several years to sort out the impact of this epidemic.
CBN: What are your expectations for the future Sino-US relations?
Stephen roach: Here, I have three suggestions, which I hope will be helpful to Sino-US relations, including establishing a brand-new dialogue mechanism and setting up a permanent secretariat with the participation of senior officials from both sides to handle policy formulation and disputes. Under this framework, the communication between the two sides is daily, not once a year under the flash of the media; At the same time, cancel additional tariffs; Focus on solving structural problems in Sino-US economic and trade. In my opinion, to solve these problems, we need to start from restarting the negotiation of bilateral investment agreements. Before Trump came to power, the negotiations had been going on for 10 years. China and the United States need to establish a deeper and broader structural agenda to resolve their differences.
In my opinion, bilateral solutions cannot solve the challenges of multilateral issues. Last year, the United States had a trade deficit with 102 countries and regions. The root of this problem is not China, but the low savings rate in the United States. The Trump administration tried to solve the trade deficit problem of the United States by putting pressure on China. The actual result is that some trade is forced to flow to countries with higher costs, and American consumers are punished. The theory and practice of tariff solution are flawed.
CBN: So, what should America do?
Stephen roach: The United States needs to solve the problem of low savings rate. Of course, at present, due to the COVID-19 epidemic, there is no time to deal with it. But in the medium and long term, the United States must control the federal deficit, which is the only most important thing the government can do.
Even if the epidemic ends, Trump will no longer serve as the president of the United States, and Sino-US relations will not be able to return to the "pre-Trump era." As American slang says, you can't put the genie back in the bottle. I hope that both sides can seek more constructive solutions.