Roach: US-China Couples Therapy

“If it’s a relationship problem, the only way to fix it is with a relationship solution.”

Stephen Roach is a Yale professor and renowned economist with extensive experience in China. In our conversation (taped on February 23), we discuss:

• The nexus between US-China relations and the DSM;

• How false narratives strangle effective diplomatic development;

• What Stephen thinks about the odds of a hot conflict over Taiwan;

• Practical proposals to improve the bilateral relationship, including what a “US-China Secretariat” (based in neutral Tahiti, obviously) would look like;

• Is it the US or China — or both — who fundamentally has no interest in engagement?

The US and China Need Couples Therapy

Jordan Schneider: “It didn’t have to be this way, argues Yale Professor Stephen Roach in his latest book, Accidental Conflict: America, China, and the Clash of False Narratives. The US and China are hiking up, as Kissinger has called it, “the foothills of a Cold War.” How did we get here? And is there anything that can be done for both countries to turn around on this path — moving from an unhealthy codependency to a robust interdependency?

Full disclosure: Professor Roach’s class on China’s economy was the first China course I ever took — he put me down this path. He also was almost the first-ever guest on ChinaTalk: I was in a hostel in Guilin, and the internet cut out too many times — we figured we’d just do it another time. Here we are, six years later, with much more of an audience than I could have promised you of maybe my family back in 2017.

Professor, it’s an honor to have you on the show.

Stephen Roach: It’s great to see one of my students make it on the big stage. You’ve done a terrific job, and I’m proud of the work you’ve done in bringing this debate to life. And as a follower, I’m proud of seeing how much knowledge you’ve acquired in various aspects of the China debate over the years — so that’s terrific.

Jordan Schneider: So I’m going to be honest with you: I hesitated to do this show for months — not because I didn’t like the book, but because of how sad it was. And nowadays, folks have probably noticed on the feed that I just do a lot fewer US-China shows, because it seems really hopeless, and it seems as though we’re heading to a really dark place.

I want to start with the wildest thing that you put in this book, which was on page fifty-two. You have a chart of the DSM American Psychiatric Association Defensive Functioning Scale — which runs from high adaptive defenses, down to mental inhibitions defenses, minor image distorting defenses, disavowal defenses, then major image distorting level, action defenses, and finally defensive dysregulation — of all the things that people in a relationship can do poorly.

How did this end up in a book about the US and China?

Stephen Roach: Well number one, it’s a stretch to apply a framework of relationship psychology or relationship pathologies to countries — but it’s been something I’ve been flirting with and thinking about for a long time. And it just goes back to my early days in trying to understand, “What was it that bugged the US about China?”

And I just started uncovering all of these false narratives, false impressions that had some fact to them, but they were taken so far out of context and ended up distorting our image of China to fit flaws in our own self-image.

And that sounded pretty much like a human psychology framework — and so I started reading about it. I did not go to therapy. But I figured out that this particular pathology is pretty well-known, but there’s another side to it — and that’s when this book came together: when I recognized and was able to identify (and didn’t really have to stretch to do it) that China suffered from the same type of distorting framework.

And so the role of relationship economics reflects the fact that both of these gigantic, powerful nations are far more vulnerable than they like to believe, and they mask those vulnerabilities by essentially blaming others for self-inflicted problems.

So that was the genesis of this notion of dueling false narratives. And then I had to start a lot of research on filling in the pieces — and that’s what the bulk of this book is about: four chapters on America’s false narratives of China, four chapters on China’s false narratives of the US.

And I added a lot that brought these misimpressions together. The first part of the book goes through the relationship dynamic — that started out of an innocent marriage of convenience — where the dependency deepened both ways. China depended on the US as its biggest market for external demand, and it needed that for export-led growth (as I taught you in the class you took from me).

But then I said, “Wait a second. I mean, American consumers are just as needy. They need increasingly higher-quality cheap goods from China to make ends meet because their incomes are under pressure. They needed China to buy our treasuries, because we didn’t have enough domestic savings to fund our own budget deficits. And ultimately, we needed China as a source for our own export demand. China has quietly emerged as our third largest and most rapidly growing export market.”

So that was the aha moment: it’s a two-way dependency. And you read that DSM scale of conflict escalation — what it told me is that when one partner changes the rules of engagement, the other one feels scorned, left behind, starts to blame the other, and conflict arises. And here we are: we’re in a horrific conflict between two nations that are masking their own internal vulnerabilities and taking them out of each other.

Jordan Schneider: You think about the Cold War, and the start of the Cold War — the US and the Soviet Union were allies in a war, and it took three years for that to completely fall apart.

And watching a version of that [with the US and China] — it’s not the same thing: this trade is not going to go away; the interdependencies are not going to dematerialize anytime soon. But it’s the psychology of it, because there are things that you can see the other side of.

Going from thinking things are 60-40 to 70-30 to all of a sudden, “We can’t trust these guys; they’re up to no good; the system is rotten; this is inevitable, and we just need to get on a competitive footing sooner than they do so we don’t fall behind” — there are real psychological things that are going on that are driving this beyond just objective fact pattern.

And thinking about how to disaggregate 1) what the national leadership fears and anxieties are, and 2) how they layer onto the fact patterns that both capitals are looking at and reacting to — is important and not something that people give enough time or credence to.

Stephen Roach: What worries me is what you said at the outset of that thought — and that is, we have transformed the concept of competition (which I believe is important and powerful and a good thing, because it brings out the best in competitors) to an existential threat.

And how did we go from competition to an existential threat? How did we go from a nation that has always had some issues with China but was in favor of engagement interaction at all levels, from student foreign-exchange programs, to multinationals setting up joint ventures, to governments working together — how do we go from that to where we are right now?

I mean, can you name one sitting member of the US Senate or the US House of Representatives — just one — that is in favor of any type of constructive engagement with China? I can’t, and I’ve gone through the roster a lot. You might stretch to include one or two, but it’s as though the verdict is in: we know the enemy, we’ve seen it, and it’s China.

It takes me back [to] the early 1950s, the red-baiting of Senator [Joseph] McCarthy from Wisconsin: the Soviet Union was the existential threat, the dire threat, and he used that threat to destroy careers and individuals that had the slightest bit of sympathy with Communism or the Soviet Union. Is that where we’re headed?

Running US-China Diagnostics — How Did We Get Here?

Jordan Schneider: I don’t know — but let’s stay on a bit on how we got here. I think the variable that seems to be the one that sticks out the most is Xi Jinping.

And there are aspects of this in your book, where you gesture toward, “Look, we may be looking at a very different system than the one that America was comfortable pursuing a policy of engagement with.” And in your book, when you keep coming back to these themes of “both sides need to reflect and change and question what they’re coming from and what they really want” — it really takes two to tango.

And I am very pessimistic that: first, Xi, as long as he’s around, is going to change the way he looks at the Party and the world; and second, the US system, if they see Xi still there, is going to question and potentially come to different conclusions on any of the assumptions that they’ve made about future competition and China’s strategic intentions.

So — thoughts or questions or pushback on what keeps me sad?

Stephen Roach: Well first of all, it’s not good to stay sad.

I just go back to my own trajectory as a China watcher — which I would say goes back to the Wall Street days; it’s basically twenty-five years of watching China and the relationship between the US and China. I was an optimist throughout almost all of that. And it started in the Asian financial crisis where one dynamic East Asian economy after another was crumbling. I’d been to China a few times, but had no idea what was going on there — [so] I started going there a lot, and figured out in late 1997 that China was cut from a different cloth. I started, really, as a Wall Street economist on China, and became hugely optimistic for a lot of reasons — but [which] I would summarize as the power of the Deng Xiaoping model turbocharged by WTO accession at a time when global trade was taking off in the early 2000s.

And then a big moment, a pivotal moment, for me came in 2007. The former premier, Wen Jiabao, raised some big questions about the sustainability of the model. He said, “The economy is basically strong on the surface, but beneath the surface it’s unstable, unbalanced, uncoordinated, and ultimately unsustainable.” So that triggered a huge debate — and the system was flexible enough, broad enough to consider a new solution (a mid-course correction, if you want to call it that).

What Wen Jiabao’s critique or paradox basically taught me was that the Deng Xiaoping model was flexible enough to be adapted to change. And so I was even more enthusiastic about where China was headed in the latter half of that decade. This flexible system could have the capacity to reinvent itself and to focus on the things that I was about to talk about and teach for my course at Yale, “The Next China” — the shift from export investment–led growth to consumer-led growth all made perfect sense to me. I taught it and wrote about it and wrote some books about it, and it seemed to be working. There were still some missing pieces that never quite got finalized, but the overall thrust was good.

And then came Xi Jinping. I, like many, was really hopeful that he was the guy that was going to finish the job that was laid out initially by Deng Xiaoping, modified by Wen Jiabao. He assumes his office in November 2012 as Party Secretary, immediately goes to the National Museum of China in Tiananmen Square, starts talking very nationalistically about “the China dream” — but we just look the other way. “That’s just what new leaders do to make a point,” and they said, “Focus on what he’s doing.” So over the course of his first year, he and his team worked on these comprehensive reforms that were enacted by a Party Congress in late 2013 that offered a lot of promise — and so I continued to be really optimistic.

And then slowly but surely, it became evident that the trajectory under Xi was going to be very different — that nationalism became a justification for a more ideological approach. The anti-corruption campaign — which seemed necessary at one level — became an excuse for power consolidation and political control.

And then finally, in 2017, he just ripped the cover off the ball and said, “I am all about Xi Jinping Thought.” And that permeates literally every aspect of governance, all the working committees that he heads up; it became a very personalized autocracy.

And the power of the growth engine shifted away from the private sector — which had looked so promising — back to the ossified, low-return, low-productivity state-owned enterprise sector. There was a lot of debt associated with that, which was a very Japanese-like approach to economic growth. It just became tougher and tougher for somebody like me — who’s inherently optimistic on China — to stick with the story.

And then the final shoe dropped for me a couple of years ago when the regulatory assault on the internet-platform companies began, coupled with “common prosperity,” which clearly is aimed at limiting wealth accumulation at the upper end of the stream — which, to me, goes right to the heart of the rewards that entrepreneurs seek to start new businesses.

And it just became increasingly evident to me that, for an aging society where the working-age population is now declining (again, a very Japanese-like outcome), the one thing that China could do that Japan had not done to offset that would be to boost productivity. [But] the productivity story was unraveling and going the other way. And so that, to me, was a very disturbing conclusion for somebody who had been so optimistic on China for so long.

Do I blame it on one man? It’s hard to do — but there’s a system that has coalesced around him, and there hasn’t been much in the way of counterarguments that have been marshaled to suggest that another way is better.

Jordan Schneider: And we’re now at the point where — and this was a specter in your book, but I think has gotten a lot more real now — we’re having Blinken warning Xi a year later not to arm Russia, which he wouldn’t be doing if they weren’t considering it (or already doing it, apparently). So we’ve gone a long way from being really optimistic about the 18th National Congress to arming America’s adversary in a proxy war.

All right, so we’re on the Chinese side — what’s your vision of the false assumptions that China is making about the US and the trajectory of the relationship?

Stephen Roach: Well there’s a lot. I start out with a whole chapter on Chinese censorship, which guarantees that the book will not be published in China (unlike my earlier books, all of which were published in China). So there’s a lot of distortion of fact to fit what the Propaganda Department — especially under the heavy hand of Xi Jinping — wants to convey both to the home and the foreign audience, the so-called “good stories of China.” So it’s rife with false narratives.

But the one I would focus on to really be emblematic of the distortions that China makes for covering up some of its own problems (comparable to the motives that we have in the US) is this failure to complete the consumer-led rebalancing. China did a lot of good things to move the needle from exports and investment to consumption by shifting the structure of the economy, from manufacturing to services (which employs a lot of people), to shifting the population from rural to urban areas. That generated a lot of labor income — but it was saved and not spent, because they have underinvested in their social-safety net, health care, and retirement.

But they don’t really want to admit that. Instead, they blame their failed structural rebalancing not on their lack of commitment and reform, but on the efforts of America to contain its peaceful rise. And that’s a classic example of a false narrative. There’s some fact to it because the US clearly does have a policy aimed at Chinese containment. But to connect that policy to China’s failure to reform and rebalance its economy, to deliver more of a consumer-like growth, is an inherently distorting false narrative — for motives that I argue are really in large part a function of political expediency (yes, there is a political agenda in China, just like there is in the US).

Leaders have a hard time admitting the problems that arise in their countries: their systems, their economies are things that they have control over; the scapegoat is more of a convenient excuse. We’ve used that a lot in the US. We did it with Japan, we’ve done it with China — and China is doing it with us. And so that is what gives these narratives so much play in both countries — defensive leaders masking the vulnerabilities of their own systems.

What is really different about this particular dynamic — say, just compared to what was going on with China and Japan in the 1980s — is the role of social media, and the way in which social-media platforms amplify false narratives in a nanosecond. And the work that I studied on examining false narratives (and there are some very interesting studies that have been done, including some books written by Bob Shiller of Yale) showed that, once the false narratives get out — and they get out a much faster than ever before, and they reach a much broader community of netizens — it’s almost impossible to erase the impression, even if they’re factchecked by history.

So that’s where we are, and it’s going to be very difficult to unwind it. But the book concludes with some suggestions as to how we might try that.

Communication Breakdown

Jordan Schneider: So false narratives — the balloon was not a false narrative, but it’s, I think, emblematic: in 1950, that would be a one-day story. Or maybe not? I mean, Sputnik wasn’t a one-day story.

Stephen Roach: Well, but look: in May of 1960, we had the U-2 spy plane piloted by Francis Gary Powers that was shot down over the Soviet Union. We denied initially that it had any motives other than just an airplane wandering off into deep Soviet airspace.

And that became a major flashpoint in the Cold War: it led to an instant breakdown of communications between the former Soviet Union and the US — where relationships had actually been improving prior to the shooting down of that airplane. And we went into a very dangerous stage of that first Cold War: the Berlin Crisis, eventually the Cuban Missile Crisis.

We came extremely close to a nuclear war, a hot war. And we don’t want to talk about that right now — but we have to recognize that when you’re in a cold war, when you have no military-to-military communication (as the balloon incident revealed), you can have an accident.

In December [2022], we had a near miss over the South China Sea where fighter pilots from the US and China came within twenty feet of each other. And again, lacking in communication between the two militaries, who knows where that could go?

And now we’re both flexing over the biggest hotspot in the conflict, which is Taiwan.

Jordan Schneider: I think it’s a scary thing. And this is something the Biden administration, I think, has talked about in a pretty compelling manner: “Look, weird things can happen, and you can end up in places you didn’t intend.”

But what makes me even more pessimistic about this: you’d think China would recognize that and see the danger — but we’ve seen this multiple times now that Beijing sees mil-to-mil communications as a chit to play and give and take away — as something like, “Oh, America wants it? We’re going to withdraw that to make them feel pain.” I mean, having fighter jets not bump into each other by accident is not like the phase-one negotiation of the trade deal where we’ll give you soybeans and you’ll give us textiles or whatever.

And I really wonder what to make of that from the Chinese side. Because on the one hand, maybe they don’t take it that seriously if they’re not worried about this — or, there’s a darker version where there’s a game of chicken and they think they can drive faster and further because of their system or what have you.

Do you have any thoughts on what’s going on there, with Xi being comfortable turning that dialogue into a political football?

Stephen Roach: I think that’s a fair point. I don’t know the real answer to that.

I have participated in pretty high-level discussions, both in China and in the US, in the form of these so-called “Track II” dialogues — that involve senior military officers in the US and in China; and we haven’t held these in a while because of COVID. But there was deep appreciation at the time that these were important relationship-infrastructure pieces that really should not be negotiable in any way whatsoever — and that has clearly suffered.

Is it China’s fault? Yeah, I can certainly put some blame. I think China certainly could do a better job in recognizing the need for ongoing communication, especially at the military level. And quite honestly, it’s generally been pretty successful — but it certainly was not successful at all during this balloon incident.

But again, I’m the relationship guy — so when you push me on that, I’m going to push back on, “What are we doing?” China has pulled the military communication option off the table right now. But in the last five or six months, we’ve sent one Speaker of the House to Taiwan; the Chairman of the new House Select Committee on China, [Mike] Gallagher, went this week unannounced; we had the senior Pentagon official in charge of China [Michael Chase] go on an official mission to Taipei; the Senate has approved this new Defense Authorization bill that has a $10 billion carveout for new arms to Taiwan; and there’s a story today in the paper that the US is quietly expanding, by a significant amount, physical military presence in terms of troops being stationed in Taiwan. So both sides are pushing really hard.

I honestly don’t think — and I get this from my Chinese contacts — that Xi Jinping has a desire to significantly accelerate the reunification timeline or that he’s running out of patience. I know there’s some talk of that, and there’s possibly some text that can be cited to support that — but I think that view is probably, at the end of the day, not correct. But all these actions I just cited that we’re taking could force his hand. And so you have to be careful of the unintended consequences: you may end up getting not what you really wish for, but what you fear the most.

Jordan Schneider: On the relationship piece — that’s almost the only way for me to understand why China wouldn’t want mil-to-mil conversation: because it’s the thing that Biden seems like he wants the most. “Come on, really? Even this?” It’s like when you want to get under someone’s skin and find something that gets them upset — if you’re stuck in a bad relationship with someone, you look for whatever it is, even if it’s something that isn’t in your best interest. And that kind of dynamic may end up being at play here.

With this Taiwan engagement, you can tell another story — but I guess there’s also an argument to be made on the other side.

Stephen Roach: But these actions — if you sum them up, what are they really telling you? They’re telling you that Washington — Congress and the Biden administration truly — despite their tortured clinging to this notion of the great “one China policy,” is in favor of Taiwanese independence, period. And these actions are consistent with that.

And that’s obviously China’s red line. And the more that we do to fuel that conclusion, I think, the more we can expect China to bristle and ultimately act in response. So I think the relationship framework forces you to look at an issue like this as not being as one-sided as the picture that is being painted in Washington.

Jordan Schneider: I don’t know if I go that far — but we’re not here to debate US-Taiwan policy.

Roach’s Tripartite Intervention Plan

Okay — so do we fix it? What’s the light at the end of the tunnel here, if any?

Stephen Roach: This is what excites me the most — because I invested a lot in the first eleven chapters of this book in telling the story of a dysfunctional relationship, and I even got you to concede that you can appreciate the relationship framework. 

So if it’s a relationship problem, the only way to fix it is with a relationship solution. The idea of getting one nation to bow to the other and impose its solution on the other is a recipe for unmitigated disaster, conflict, and probably war.

So, three [are] things that I conclude with. The first one is the most obvious, and that is taking small steps to reengage and rebuild trust — small steps, not big steps. There’s no grand bargain that can be cut at this point.

So doing things like reopening consulates that have been closed in both countries during this confrontational five-year period; relaxing restrictions on the issuance of visas (I’m in the process of going through all the ridiculous torture you have to do to go back to China, which I’m going to do next month); restarting popular and very successful foreign-exchange programs between the two countries.

And then tougher things, if you can begin to do the little things. The tougher things are relaxing constraints on NGOs, and then trying to grapple with the big issues of global importance — but are hugely beneficial mutually, whether they’re climate, health, or cyber.

[But] those come at the end of the trust-building. The little ones are the most important initially. If we can begin to engage on these little issues, the low-hanging fruit, then I think we can take bigger steps — which get into the second and third legs of the stool of my plan.

The second one is to go back to the bargaining table and complete negotiations on a bilateral investment treaty. This is a treaty that the US has with over forty-five other countries [and] China has with over 100. It lowers investment barriers and promotes cross-border investment that opens up markets and allows companies in both nations, under negotiated conditions, to expand their businesses and benefit their multinational companies. And in doing that, you can add into these BITs [bilateral investment treaties] a lot of structural issues that have arisen in the last five years, whether they’re over innovation policy, technology transfer, subsidies of state-sponsored activities, cyber issues, and the like.

And then the final leg of the stool — which I’ve been accused of being the most naive about, but I believe strongly — is to redo the architecture of engagement between these two countries and set up a permanent organization that I would call a US-China Secretariat, which is engaged full-time, equally staffed by Chinese and American professionals, located in a neutral jurisdiction; call it Switzerland.

Jordan Schneider: Oh, come on — we can do better than Switzerland.

Stephen Roach: Okay, wherever you want. You pick a spot you want to go to that’s neutral.

Jordan Schneider: Tahiti!

Stephen Roach: Tahiti, fine — if you can get there, go for it. But I want this organization working 24/7 on a broad remit covering all aspects of the relationship — from economics and trade, to technology and innovation policy, to subsidies, even some of these big issues I mentioned earlier: health, climate, cyber, and even human rights.

And my vision of the Secretariat is not that there would be a Chinese floor and an American floor — [instead] this would be organized, functionally, in a collaborative way, where both sides are charged with producing jointly authored policy white papers that address the complexity of the relationship. They work off a common database. They have the ability to convene experts to address tough problems — COVID being a classic example. And they have the capacity to monitor the implementation of existing and new agreements. And when conflicts arise — as they always will — there is a dispute-resolution mechanism that the Secretariat is empowered to utilize to address.

What we do right now in terms of engagement is truly pathetic. Biden met Xi Jinping for three and a half hours on November 14 in Bali. The meeting was staffed up a week ahead of time, and the people who did the staffing went back to their day jobs of who knows what, tracking balloons or other interesting things.

There’s no continuity to the relationship focus. In earlier administrations, we had big, once-a-year or twice-a-year events, strategic, and economic dialogues — but they accomplished nothing because, again, there was no continuity between these meetings, no policy infrastructure built to manage and address problems on a continual basis.

So look, that’s my plan: rebuild trust, focus on growth through a bilateral investment treaty — and the Secretariat is really the glue that begins to bind the engagement on both sides together.

And I think that is a relationship package that has hope and allows me to end the book on an upbeat note. I know it made you sad to read parts of it, but the resolution framework was designed to offer some hope.

So — Could It Work?

We discuss:

• The reception Roach’s proposals have gotten so far in China and the US

• My take on the proposals and how I might tweak them to increase their likelihood of success