the president is a China hawkk he surrounded himself with likeminded uh
individuals you know he might uh want to cut a deal with xiin ping because he
likes being able to say that he has um neutralized strong foreign adversarial
Powers but uh you know there's no reason to be optimistic if anything we have
instilled I think greater incentive on
China to um develop state of the art
technology indigenously and to do so in
a way that is not nearly as dependent on
us technology as we would like to
believe this is Professor Steven roach
he is one of the world's most respected
economists and an Insider into both the
US and Chinese economies Professor
roach's track record is unprecedented he
enjoyed a 30-year career with Morgan
Stanley serving as the company's Chief
Economist and later becoming the
chairman of Morgan Stanley Asia
Professor roach is now a senior fellow
at yo University and in 202 2 authored a
book entitled accidental conflict
America China and The Clash of false
narratives in today's show I sit down
with Professor roach to discuss the
exact false narratives clouding the US
China relationship we discussed the
return of Donald Trump and what his new
trade war will mean for both the US and
Chinese economies Professor roach shares
insights into how China is preparing for
the future but most importantly we
discuss his Innovative Common Sense
solution that could instantly improve us
China relations if you want to really
understand what will happen between the
US and China in 2025 this is the episode
for you let's begin everyone I'm very
honored to welcome into the studio
Professor Steven Roos from y University
because I believe that the US China
relationship is the most important
geopolitical relationship in the world
where are we right now in February 2025
and basically how have we gotten to this
point with this tension between the US
and China well the relationship is in an
all-time low at this point in time in
large part uh an outgrowth of trade war
that was started by President Trump in
his first Administration and um one that
continued under the Biden Administration
and uh looks like it is once again
ratcheting up in the early days of trump
2.0 um under the guise of National
Security fears uh you might even say
paranoia in the US Republicans and
Democrats alike react very very strongly
uh to anything pertaining to from Tik
Tock and Huawei to uh deep seek Chinese
electric vehicles dock loading cranes
You Name It Whatever China has its hand
on WE view as a threat yeah I mean I'd
like to expand upon that because you've
you've written a lot about um cynophobia
in your newsletter you talk a lot about
how this has these irrational fears of
China have really fortunately it's been
the one thing that has United
politicians in the United States both
Democrats and Republicans have this
irrational fear of China um in in almost
every way like you said all of these
different Industries basically any Tech
coming from China is deemed a national
security threat um is there any way to
get around that or do we move on from
that how do we bring Common Sense back
to Washington well common sense in
Washington is a bit of an oxymoron right
these days um that's a that's going to
be a long a long struggle you know my
own my own feeling is that um you
started this out Cyrus about talking
about the world's most important
relationship I have this um out of
consensus view that we need to focus on
re-engagement if indeed we do believe
this is the world's most important
relationship and re-engagement um is
considered to be a four-letter word
given the mindset uh that we just
described and yet you know we have we
have a couple of choices here and that
is continue to escalate the conflict or
figure out a way to resolve the conflict
and resolve the conflict from our point
of view on our terms yes but be
respectful of the uh the needs and
characteristics of the Chinese system at
the same time so we've got to rebuild
trust uh really have a more expansive
outlook for the way in which we conduct
crossb uh trade uh and then work hard on
building up a secure and uh Dependable
uh new architecture for engagement
between our Nations very good we're
going to talk about that a little later
um you have an amazing idea about a
secretar that could you know potentially
help this us China relationship we'll
get into that later but I want to talk
about this new trade War you know we're
on the cusp of a brand new trade War um
I mean we've seen threats from Donald
Trump to even put 25% tariffs on two of
our closest allies obviously Canada
Mexico those have been stopped
temporarily at least um but we did see
new tariffs go against China it was a
10% tariff uh which is interesting which
was a very big reduction from the 60%
tariffs that Donald Trump had warned and
forecasted you know during his campaign
uh what do you make of this new trade
war with China obviously China's also
retaliated by putting tariffs on number
of goods from the United States but
where we at and what are we looking for
in the future when we're talking about
economics and this new trade War well
keep in mind Cyrus that that um this is
10% on top of a pre-existing 19%
courtesy of uh the Trump tariffs of 2018
and 19 that are still in place today and
unlike those earlier tariffs which
covered see I think about 2third of the
goods China uh sends to us these new
this new 10% covers 100% everything that
comes in so the the effective tariff is
now close to 30% on Goods coming in from
uh China that's a big burden on their
economy which is uh clearly struggling
right now uh but it's certainly a burden
on the American taxpayer who is now
being hit with additional price hikes uh
of um uh products coming in from China and for
a president who ran on the the promise
of lowering prices for Americans to deal
with their serious pocketbook concerns
this is going the other way yeah
absolutely I I I want to I want to
expand upon that tariffs because I think
there's such a misconception with with
tariffs uh you know for example I saw
this tweet four truths about tariffs
tariffs don't cause inflation tariffs
lead to lower prices for American
consumers tariffs create American jobs
and tariffs lead to lower income taxes
take us from a the mind of an economist
can you break down these comments and
just kind of give us a little bit more
common sense into what tariffs really do
well are you sure that came from a
financial guy or did did it come from
the White House I mean that sounds
pretty much like it's pairing the
convoluted views of our president on
tariffs who absolutely does not
understand what a tariff is uh from his
point of view tariffs are a tax on
foreign countries and he wants to
capture that tax and bring it back home
and it to fund his Maga agenda what that
fails to appreciate is the tariffs are
paid um at the the port uh of um
embarcation by American companies who do
the importing so it's it's a cost
increase on us and the idea that that
lowers prices creates jobs and opens up
great new opportunities is something
that you know a politician might argue
but there's there's no credible
Economist that I know of that believes
that yeah that makes sense thank you for
breaking it down and simplifying that I
just wanted to get that out there so our
audience can really understand that and
and tell us about this these new tariffs
because I I do think there's also
another provision for example that uh
you know for examp for a long time items
that were under $800 uh and this would
definitely affect Chinese companies like
shien um and also Teemu but basically
these payments you know if they were
under $800 they would not be subject to
teror I believe that has now been
included as well is that correct there
so basically like you said earlier is it
everything now coming from China is
subject to this new tax and new I think
that's true I've heard the same thing I
have not uh checked the exact uh
stipulations as published yesterday in
the National register but but that would
not surprise me at all if there was a
clear inclination to capture that but
again that is going to be paid by say
you know individuals who want to buy
lowcost Chinese Goods on Tei or alib
they'll now be hit with these cost
increases and um you know it's far more
comprehensive in terms of coverage than
the current tariffs that are that are
now in place let's talk about Canada and
Mexico I think this is important for the
United States and because it's it's
interesting you could you could make the
argument that China you know is
potentially an adversary or certainly a
competitor to the United States you know
if you're going to put tariffs on China
some Americans can certainly understand
that but what is the rationale with with
really going after Canada and Mexico
obviously the White House says it's
because of the fenol and because of this
this problems but expand upon this a
little bit help us understand more about
what this would actually mean if if 25%
tariffs uh were were hit to our Canadian
neighbors and also our Mexican neighbors
what would that look for their economies
but also our own economy well first of
all just just as a pre preface to that
uh important question if we have a
fentanyl problem with Mexico uh or an
immigration problem uh with Mexico and
by the way number show that we have n
none of those problems Canada despite
what the president claims and I mean
zero like 4/10 of a percent of fentanyl
traffic in the US 4/10 comes from Canada
you know less than 2% of illegal
immigration over the last 10 years has
come from Canada so we don't have
problems there we do have them with
Mexico let's address them on the basis
of uh negotiating uh head-to-head on
those issues but not use tariffs to try
to accompl
that um uh that that end uh the tariffs
uh which deal with crossb trade flows go
right to the heart of what president
Trump called in 2020 uh the greatest
trade deal in modern history the US
Mexico Canada agreement known as usmca
uh and the three North American
countries have deeply integrated supply
chain connectivity where Goods
sophisticated Goods Autos being the
class classic example flip back and
forth across uh the borders eight or
nine times before the finished product
um is um delivered to dealers Lots uh
this is a very very efficient
state-of-the-art modern integrated
trilateral production system and taxing
uh our allies who are key cogs in that
production system basically means
ripping apart the production platform
that was established by quote the
greatest trade deal in modern history
you know Canada is um clearly a proud
and sovereign country unlike uh what
Donald Trump says is a country that
would benefit handsomely by becoming our
cherished 51st state they're proud
they're angry they're pissed off and uh
you know the president flinched
yesterday uh in backing down on tffs
claimed that he got some Border prote
Protection that actually was already in
place uh in in any case you know 30-day
grace period to um you know figure out
uh if he wants to go back and again try
to squeeze one of our greatest allies
one of our greatest uh economic
collaborators uh with a you know
ridiculous tariff scheme and if he does
you know the Canadians will retaliate in
Spades and it'll be a race to the bottom
yeah I think there's there's no winner
in that at all I mean it's going to be I
think the US consumer and the Canadian
consumer is certainly going to be the
biggest losers I mean we saw for the
first time I think since the Iraqi War
Canadians actually booing the national
anthem at hockey games uh you know
certainly not the way you want to be
treating your like you said your closest
Ally and your closest they're angry you
know they're understandably angry that
you know we would have the audacity to
turn on a nation that we share the
longest border of any two nations in um
uh the world and that we have had an
amazingly Cooperative collaborative
relationship with on all terms uh for a
long long period of time yeah absolutely
let's let's shift this conversation back
to us China relations specifically and I
want to get your thoughts on uh Donald
Trump 2.0 um you know I want to get your
thoughts on the future of this
relationship because I I believe that
Donald Trump is surrounding himself with
very hawkish people in his
administration there was a rumor last
week that a gentleman Kyle bass for
example uh would join Trump's
Administration he he has gone on the
record saying that China is a mortal
enemy of the United States I think he's
an extremist I wouldn't think that he
would be providing solid advice to the
president and his his administration you
know are are you worried about the
hawkish people that Donald Trump is
associating himself with and bringing
into his administration and and how will
that affect the future of us China
relations you know he loves uh China
Hawks I mean keep in mind he's got uh
the ex-convict Peter Navaro working for
him once again in the White House his
last book on China was called Death by
China uh Kyle bass is a sole brother I
think of Peter Navaro in terms of his
extreme views on China and um you know
Marco Rubio Secretary of State very
hawkish on China um the National
Security advisor uh Waltz is also a an
avowed China Hawk but you know bottom
line is the president is a China Hawk he
surrounded himself with likeminded
individuals you know he might uh want to
cut a deal with um uh xinping because he
likes being able to say that he is um
neutralized strong foreign adversarial
Powers but uh you know there's no reason
to be optimistic that that is uh in the
offing China has uh clearly very
aggressive and in some cases worrisome
Ambitions of their own and um you know
we have a policy that is really focused
on containing uh if not bringing down
China uh as we know and so it's it's
going to be difficult for us to reverse
course do you um let's get your thoughts
on on the latest tech breakthrough I
mean obviously deep seek R1 it
absolutely rattled Wall Street over a
trillion dollars lost uh you know the
next day because you know this amazing
technological breakthrough uh that is
open source I mean it truly is a gift to
the world it is a great piece of
technology done for fractions of the
cost that open AI was able to do that do
you think that this is an example of
this this containment strategy from the
United States uh not really a able to
work I mean is this really is it really
just impossible to contain China because
they're just going to figure out a way
to innovate well I wrote a um an essay
last week that got a lot of comments
that um argued that this um small yard
high fence approach of the Biden
Administration as has been described
aimed at stopping uh Chinese technology
dead in its track is an abject failure
and I cited two examples to prove that
the extraordinary reemergence of Phoenix
like of Huawei and then um the emergence
of of deep seat uh to create large
language uh machine learning models uh
they can deliver comparable output to
our state-of-the-art IIA machines uh in
America uh as you put it correctly at 5
to 10% of of of of the cost so um you
know what have we accomplished with the
small yard high fence in terms of
Technology containment if anything we
have instilled I think greater incentive
on China to um develop state-of-the-art
technology indigenously and to do so in
a way that is not nearly as dependent on
us technology as we would like to
believe I mean again I go back to Huawei
there's a lot of Focus right now on deep
seek but huawe you know they have a a
very competitive um smartphone 5G
compatible AI compatible that is no
longer reliant on the Android operating
system they they rely on their own uh
internally developed operating system uh
and it's a you know lowcost very
powerful high-priced alternative uh to
um apple and uh uh Samsung and deep seek
you know again the US AI Community is
complaining and that's something that
we're you know America's always good at
in how we react to Chinese Innovation
we've complained constantly for years
they're complaining that the Deep seek
draws on uh the output of large language
models built in the US allegations by
the way that have not been verified but
um you know the the idea that a company
like open AI uh is complaining that a
truly open system like deep seek is
utilizing their output in and of itself
smash of extraordinary hypocrisy oh it
does yeah it's remarkable I mean um I
sued that open AI change its corporate
name to closed AI if they're want to be
so protective of their proprietary
search technology yeah that's a good
point Professor I I think what we've
certainly seen is that um necessity is
the mother of invention and we've
certainly seen China be able to do a lot
more with less uh again I mean I
wouldn't bet against China to develop
Tech I mean when you travel there you
certainly can see the advanced Society
they live in certainly on the cusping
edge of the greatest Technologies it's
it's always exciting to go back to China
but I want to talk a little bit about
you know I think the Cornerstone of the
US China relationship with is which is
Taiwan of course very very important
part of this relationship and I I did
see an article uh from the straight
times that was quite remarkable it was
taiwan's president who said that taiwwan
and China need peace giving multifold
changes internationally and he would
like to seek uh dialogue instead of
Confrontation I think that was very
positive um development you know
certainly with with this give me your
thoughts on Taiwan and and really how
you know that piece is going to evolve
in the future of us China relations well
you know it's obviously of great
importance to the the Chinese Communist
leadership uh in a speech late last year
Xi Jinping laid out what he um called
his four red lines the sort of inviable
issues that concern him the most and the
top priority uh is Taiwan and that
certainly implies that that anyone who
threatens the independence of Taiwan uh
is crossing uh the biggest red line
there's a lot of uh reports recently
about new um military breakthroughs and
large uh defense bunkers being built in
Beijing to prepare for an evental War I
don't really put a lot of credence in
those reports as being considered
consistent with a war in the next few
years as we like to think is the case in
the United States but um you know Taiwan
is certainly uh an issue that needs to
be resolved one way or another hopefully
peacefully in you know the next 5 to 10
years there's been a lot of progress in
Cross Straits economic uh integration
and um you know there needs to be I
think a better way to manage the
geostrategic tensions between um not
just you know China and Taiwan but China
and the United States where we have
politicians who continue to uh throw
their support to um Taiwan Independence
and do so explicitly by making
semi-official visits like Nancy Pelosi
did several summers ago that really was
a major setback to the stability of the
the relationship yeah no absolutely I I
think the uh the Tai Taiwan issue
certainly the Cornerstone of us China
relations as well um but what are what
are some other key variables that are
going to be dictating the future of us
China relations I mean we've got the
trade War we've got Taiwan what what
other things are you looking at for in
the future of this relationship well
look you know expand the gamut from
trade and Technology to Industrial
policy to subsidies of state-owned
Enterprises both in China and the United
States they touch on the broad Global
issues that uh were both critically
involved in such as Global Health
climate change cyber security uh and
obviously human rights and you know i'
I've argued uh that we need to establish
a a new bilateral Secretariat where both
uh Nations address these and many other
issues uh on a full-time basis 247
continually uh at a very expert
technocratic level uh so that when
situations come up that we're unprepared
for whether it's a spy balloon or a
naval accident in the Taiwan straight
that we have in place the experts and uh
the official support to troubleshoot uh
resolve and come to agreements on these
uh tough issues the current way of
Engagement Cyrus is we've outsourced it
to politically driven uh leaders and we
put far too much emphasis on leader to
leer diplomacy which is I think a um you
know it's important but you know we we
need an Institutional compliment to
leader to leer diplomacy to keep this
relationship moving ahead on a continual
basis relying on expertise rather than
on uh the personalized whims of
political leaders can you expand upon it
that the Secretariat idea I I want I
really want people to understand that
you know I had the pleasure of hearing
you speak a couple weeks ago in San
Francisco we were both there attending
the future of us China relations
conference you gave the opening keynote
speech a fantastic one I think that was
a really key point in your speech was
talking about this Secretariat with this
would this be an individual would it be
a team would it be appointed from the
United States how do you envision that
really working to help facilitate this
this US general relationship it would be
a bilateral secretary be which would be
the first Secretariat organization
between two major nations in history it
would be staffed by an equal complement
of us and Chinese uh professional
scientists trade lawyers economists if
you want um experts on health uh legal
issues and all the other issues that I
spoke just spoke about uh to you it will
be located in a neutral venue uh could
be Switzerland could be Singapore it
would be uh far uh different than uh
existing secretariats which are at the
heart of many of our multinational or
multilateral organizations like the un
the oecd the World Trade Organization
the World Health Organization which are
largely set up for uh administrative
convenience this would be an
organization that is focused on
collaborative resolution of thorny
policies again spanning the gamut from
economics and trade all the way to
Global Health cyber security and uh
climate change with uh many other issues
in between they would be charged with
developing collaborative white papers
aimed at providing policies or new
agreements on these issues that would be
fed into the legislative process of both
governments and resolved uh through
negotiations uh conducted under the opes
of the Secretariat when disputes arise
as they inevitably do in any um complex
set of multilateral or excuse me
bilateral uh agreements there would be a
dispute screening function and dispute
resolution function uh that would avoid
conflict so it's a different approach
than we have right now to engagement and
I think we need a new approach to
engagement because the current approach
again heavily weighted uh in terms of
leader to leer diplomacy has not worked
look at the conflict that we are in
right now so we need a new piece a new
leg to the stool uh to build um I think
a a far more productive less
confrontational relationship between the
United States and China that's a Fant
fantastic Insight thank you for breaking
down that idea of the Secretariat you
know obviously not just an individual an
entire group um staffed by both us and
China neutral location and I like the
idea of shifting from something
different than what we're currently
doing um and and definitely maintaining
that that open line of communication 247
those those are some amazing takeaways
Professor roach I've so enjoyed our
conversation today I've got one final
question I'd like to ask all my guests
you know what is what is one thing that
you want the world to know about China
what what do most people misunderstand
or if you had one thing that you could
tell everybody what would that be that
they have very human needs like the rest
of us we tend to vilify or put the
Chinese in a box as if they're an alien
population that um you know is is coming
from a very different place for us than
we are not that long ago they they were
an impoverished country in 1980 80% of
the population was rural they've come
dramatically a long way since then uh but they still
have a long way to go in raising their
standard of living to that of a more
developed society and they thirst for
Economic and Development and prosperity
uh the same way that that we do they
call it the Chinese dream just like we
call it uh the American dream and the
realization of the Chinese dream does
not necessarily have to mean uh that
that is a threat uh to the dream of
other nations including our own American
Dreams so I think we need to go back
to deepening our understanding of the
the needs and wants of the Chinese
people and recognizing they have a
different system uh that organizes their
government but that does not necessarily
change the very real needs that lie
behind that system that's a fantastic
answer I think so many times we forget
that you know in China there's uh
families and and husbands and and you
know wives and just normal people living
their life very very not much different
than what we're doing we're all trying
to advance in life and trying to you
know hopefully leave the world a better
place so uh Professor roach I I can't
thank you enough for your time today and
your insights were fantastic where can
we follow your work where's the best
place that our our fans and audience can
connect to see your work well you know
it changes sis but uh in the last year
or so I've been uh writing on a regular
basis at least once a week sometimes
twice a week on substack so search my
name under substack the name of the uh
the platform for me is called conflict
uh to um draw attention to uh the
conflict between the United States and
China and most importantly the need to
resolve that conflict before it is too
late yeah fantastic fantastic Professor
o thank you again for your time we're
going to put the links to your substack
down in the description so everybody can
follow along and everybody make sure you
drop some comments down below let us
know what you thought of today's
interview and what you think of the
future of us China relations everyone
thank you as always for your amazing
support and I'm so happy that I can
bring in worldclass guests like Professor Steven roach to help us all
understand more about China and its rolein the world.
