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US risks a ‘Forever’ trade war with China, says Economist Stephen Roach

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Economist Stephen Roach criticised US trade policies against China as a “blunder” that risks creating an endless economic conflict between the two nations.“To take a protectionist stand against a country like China, that has a comparative advantage in producing the non-carbon alternative energy products that a world in the grips of climate change desperately needs is a blunder, potentially of historic proportions,” said Roach, former chairman of Morgan Stanley Asia, during an event in Beijing on Friday.

“I worry that Biden is getting himself even deeper into a new ‘forever war’ against Chinese trading practices,” the author of Accidental Conflict: America, China, and the Clash of False Narratives said at an event in Beijing hosted by the Center for China and Globalisation, a policy research group.

The economist’s comments echoed Beijing’s view that the US’ measures over Chinese manufacturing capacity of new energy products are an act of protectionism. The US is erecting new trade barriers that will hold back China’s sales of key products like electric vehicles, accusing Beijing of building excess capacity using state subsidies and flooding global markets with cheap products.

Roach’s remarks come months after his gloomy outlook on China and Hong Kong caused a heated debate and led to an apparent gag order at a major economic conference in the Chinese capital.

Roach said he was prevented from speaking at the China Development Forum in March for the first time in 24 years after he argued that “Hong Kong is over” in a column for the Financial Times.In a separate interview with Bloomberg Television at the time, Roach also said it was no easy task to fix structural problems in the Chinese economy, and that Beijing’s moves to address issues like deflation and a housing slump had been “de minimis thus far.”Beijing has since rolled out an aggressive housing rescue package that economists say will give a modest boost to growth. But China’s economic recovery remains fragile, with factory activity unexpectedly contracting in May and trade frictions with the US and Europe a potential risk to its manufacturing sector.

Roach on Friday said the property rescue package was “a step in the right direction,” but still too little to take up the inventory of housing stock.

The Yale lecturer also said he was skeptical of China’s ability to boost productivity to offset demographic headwinds as much of China’s economic activity in recent years is coming from low productivity state-owned firms rather than the private sector, which has been hit with regulatory restraints.

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