Transcript: Cyrus Janssen Interviews Yale Economist Stephen Roach

Read the full transcript of a conversation between geopolitical analyst Cyrus Janssen and Yale economist Stephen Roach on US China Relations, the Trade War, Taiwan, and his solution to improve the relationship between these two superpowers.

TRANSCRIPT:

Introduction

CYRUS JANSSEN: This is Professor Stephen Roach. He is one of the world’s most respected economists and an insider into both the U.S. 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 Yale University and in 2022, 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 U.S.-China relationship. We discuss the return of Donald Trump and what his new trade war will mean for both the U.S. 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 U.S.-China relations.

If you want to really understand what will happen between the U.S. and China in 2025, this is the episode for you. Let’s begin.

The Current State of US-China Relations

CYRUS JANSSEN: Well, everyone, I’m very honored to welcome into the studio Professor Stephen Roach from Yale University because I believe that the U.S.-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 U.S. and China?

STEPHEN ROACH: Well, the relationship is at an all-time low at this point in time, in large part, an outgrowth of trade war that was started by President Trump in his first administration and one that continued under the Biden administration.

And it looks like it is once again ratcheting up in the early days of Trump 2.0 under the guise of national security fears, you might even say paranoia.

In the U.S., Republicans and Democrats alike react very, very strongly to anything pertaining to China, from TikTok and Huawei to DeepSeek, Chinese electric vehicles, dock-loading cranes, you name it, whatever China has its hand on, we view as a threat.

Xenophobia and Irrational Fears

CYRUS JANSSEN: Yeah, I mean, I’d like to expand upon that because you’ve written a lot about xenophobia in your newsletter. You talk a lot about how 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 in almost every way.

Like you said, all of these different industries, basically any tech coming from China is deemed a national security threat. Is there any way to get around that or do we move on from that? How do we bring common sense back to Washington?

STEPHEN ROACH: Well, common sense in Washington is a bit of an oxymoron these days. That’s going to be a long, long struggle. My own feeling is that you started this out, Cyrus, about talking about the world’s most important relationship.

I have this 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 is considered to be a four-letter word given the mindset that we just described. And yet, 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 needs and characteristics of the Chinese system at the same time. So we’ve got to rebuild trust, really have a more expansive outlook for the way in which we conduct cross-border trade, and then work hard on building up a secure and dependable new architecture for engagement between our nations.

The New Trade War

CYRUS JANSSEN: Very good. We’re going to talk about that a little later. You have an amazing idea about a secretariat that could potentially help this US-China relationship.

We’ll get into that later. But I want to talk about this new trade war. We’re on the cusp of a brand new trade war. 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. But we did see new tariffs go against China.

It was a 10% tariff, which is interesting, which was a very big reduction from the 60% tariffs that Donald Trump had warned and forecasted during his campaigning. What do you make of this new trade war with China? Obviously, China’s also retaliated by putting tariffs on a number of goods from the United States. Where are we at? And what are we looking for in the future when we’re talking about economics in this new trade war?

STEPHEN ROACH: Well, keep in mind, Cyrus, that this is 10% on top of a pre-existing 19%, courtesy of the Trump tariffs of 2018 and 19, that are still in place today. And unlike those earlier tariffs, which covered, say, I think about two thirds of the goods that China sends to us, this new 10% covers 100% everything that comes in. So the effective tariff is now close to 30% on goods coming in from China.

That’s a big burden on their economy, which is clearly struggling right now. But it’s certainly a burden on the American taxpayer, who is now being hit with additional price hikes of products coming in from China. And for a president who ran on the promise of lowering prices for Americans to deal with their serious pocketbook concerns, this has gone the other way.

The Truth About Tariffs

CYRUS JANSSEN: Yeah, absolutely. I want to expand upon that tariffs, because I think there’s such a misconception with tariffs. 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 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?

STEPHEN ROACH: Well, are you sure that came from a financial guy, or did it come from the White House? 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. 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 use it to fund his MAGA agenda.

ALSO READ: You Don't Understand The Mechanisms of Trump’s Economic Policy: Kevin O'Leary (Transcript)

What that fails to appreciate is that tariffs are paid at the port of embarkation by American companies who do the importing. So 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 a politician might argue, but there’s no credible economist that I know of that believes that.

CYRUS JANSSEN: Yeah, that makes sense. Thank you for breaking it down and simplifying that. I just wanted to get that out there so that our audience can really understand that.

And tell us about these new tariffs, because I do think there’s also another provision, for example, that for a long time, items that were under $800, and this would definitely affect Chinese companies like Xi’an and also Timu, but basically these payments, if they were under $800, they would not be subject to tariffs. I believe that has now been included as well. Is that correct?

Basically, like you said earlier, is it everything now coming from China is subject to this new tax and new tariff?

STEPHEN ROACH: I think that’s true. I’ve heard the same thing. I have not checked the exact stipulations as published yesterday in the National Register, but that would not surprise me at all.

I think there was a clear inclination to capture that. But again, that is going to be paid by, say, individuals who want to buy low-cost Chinese goods on Timu or Alibaba. They’ll now be hit with these cost increases.

It’s far more comprehensive in terms of coverage than the current tariffs that are now in place.

Tariffs on Canada and Mexico

CYRUS JANSSEN: Let’s talk about Canada and Mexico. I think this is important for the United States because it’s interesting. You could make the argument that China is potentially an adversary or certainly a competitor to the United States.

If you’re going to put tariffs on China, some Americans could certainly understand that. But what is the rationale with really going after Canada and Mexico? Obviously, the White House says it’s because of the fentanyl and because of these problems.

But expand upon this a little bit. Help us understand more about what this would actually mean if 25% tariffs were hit to our Canadian neighbors and also our Mexican neighbors. What would that look for their economies, but also our own economy?

STEPHEN ROACH: Well, first of all, just as a preface to that important question, if we have a fentanyl problem with Mexico or an immigration problem with Mexico, and by the way, the numbers show that we have none of those problems in Canada, despite what the president claims. And I mean zero, like four-tenths of a percent of fentanyl traffic in the U.S., four-tenths comes from Canada. 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 on Mexico. Let’s address them on the basis of negotiating head-to-head on those issues, but not use tariffs to try to accomplish that end.

The tariffs, which deal with cross-border trade flows, go right to the heart of what President Trump called in 2020 the greatest trade deal in modern history, the U.S.-Mexico-Canada Agreement, known as USMCA. And the three North American countries have deeply integrated supply chain connectivity where goods, sophisticated goods, autos being the classic example, flip back and forth across the borders eight or nine times before the finished product is delivered to dealers’ lots. This is a very, very efficient, state-of-the-art, modern, integrated, trilateral production system.

And taxing 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. Canada is clearly a proud and sovereign country, unlike 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, you know, the president flinched yesterday in backing down on tariffs, claimed that he got some border protection that actually was already in place in any case.

You know, 30-day grace period to, you know, figure out if he wants to go back and, again, try to squeeze one of our greatest allies, one of our greatest economic collaborators 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.

CYRUS JANSSEN: Yeah, I think there’s no winner in that at all. I mean, it’s going to be, and I think the U.S. 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.

You know, certainly not the way you want to be treating your, like you said, your closest ally and your closest neighbor.

STEPHEN ROACH: 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 the world and that we have had an amazingly cooperative, collaborative relationship with on all terms for a long, long period of time.

Trump 2.0 and China Hawks

CYRUS JANSSEN: Yeah, absolutely. Let’s shift this conversation back to U.S.-China relations specifically, and I want to get your thoughts on Donald Trump 2.0. You know, I want to get your thoughts on the future of this relationship, because 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, would join Trump’s administration.

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 administration.

You know, are you worried about the hawkish people that Donald Trump is associating himself with and bringing into his administration? And how would that affect the future of U.S.-China relations?

STEPHEN ROACH: You know, he loves China hawks. I mean, keep in mind, he’s got the ex-convict Peter Navarro working for him once again in the White House. His last book on China was called “Death by China.”

Kyle Bass is the soul brother, I think, of Peter Navarro in terms of his extreme views on China. And, you know, Marco Rubio, the Secretary of State, very hawkish on China. The National Security Advisor, Waltz, is also an avowed China hawk.

But, you know, bottom line is the president is a China hawk. He’s surrounded himself with like-minded individuals. You know, he might want to cut a deal with Xi Jinping because he likes being able to say that he has neutralized strong foreign adversarial powers.

ALSO READ: Intel Corp (INTC) at Citi 2014 Global Technology Conference (Transcript)

But, you know, there’s no reason to be optimistic that that is in the offing. China has clearly very aggressive and in some cases worrisome ambitions of their own. And, you know, we have a policy that is really focused on containing, if not bringing down China as we know it.

So it’s going to be difficult for us to reverse course.

China’s Technological Breakthroughs

CYRUS JANSSEN: Let’s get your thoughts on the latest tech breakthrough. I mean, obviously, DeepSeek R1, it absolutely rattled Wall Street. Over a trillion dollars lost, you know, the next day because, you know, this amazing technological breakthrough 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 containment strategy from the United States not really 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?

Stephen Roach on U.S. Technology Containment Failures

STEPHEN ROACH: Well, I wrote an essay last week that got a lot of comments that argued that this “small yard, high fence” approach of the Biden administration, as has been described, aimed at stopping Chinese technology dead in its track is an abject failure. And I cited two examples to prove that: the extraordinary reemergence, Phoenix-like, of Huawei, and then the emergence of DeepSeek to create large language machine learning models that can deliver comparable output to our state-of-the-art AI machines in America. As you put it correctly, at five to 10 percent of the cost.

So, what have we accomplished with the “small yard, high fence” in terms of technology containment? If anything, we have instilled greater incentive on China to develop state-of-the-art technology indigenously and to do so in a way that is not nearly as dependent on U.S. technology as we would like to believe. Again, I go back to Huawei.

There’s a lot of focus right now on DeepSeek. But Huawei, they have a very competitive smartphone, 5G compatible, AI compatible that is no longer reliant on the Android operating system. They rely on their own internally developed operating system.

And it’s a low cost, very powerful, high-priced alternative to Apple and Samsung. And DeepSeek, again, the U.S. AI community is complaining, and that’s something that America’s always good at in how we react to Chinese innovation. We’ve complained constantly for years.

They’re complaining that DeepSeek draws on the output of large language models built in the U.S. Allegations, by the way, that have not been verified. But the idea that a company like OpenAI is complaining that a truly open system like DeepSeek is utilizing their output in and of itself smacks of extraordinary hypocrisy.

CYRUS JANSSEN: Yeah, it does. Yeah, it’s remarkable.

STEPHEN ROACH: I mean, OpenAI should change its corporate name to ClosedAI if they want to be so protective of their proprietary search technology.

China’s Technological Advancement

CYRUS JANSSEN: Yeah, that’s a good point, Professor. I think what we’ve certainly seen is that necessity is the mother of invention. And we’ve certainly seen China be able to do a lot more with less.

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 always exciting to go back to China.

But I want to talk a little bit about, I think the cornerstone of the U.S.-China relationship, which is Taiwan, of course, very, very important part of this relationship. And I did see an article from The Strait Times that was quite remarkable. It was Taiwan’s president who said that Taiwan and China need peace, giving multi-fold changes internationally, and he would like to seek dialogue instead of confrontation.

I think that was a very positive development. Give me your thoughts on Taiwan and really how that piece is going to evolve in the future of U.S.-China relations.

The Taiwan Question

STEPHEN ROACH: Well, it’s obviously of great importance to the Chinese communist leadership. In a speech late last year, Xi Jinping laid out what he called his four red lines, sort of inviolable issues that concern him the most. And the top priority is Taiwan.

And that certainly implies that anyone who threatens the independence of Taiwan is crossing the biggest red line. There’s a lot of reports recently about new military breakthroughs and large defense bunkers being built in Beijing to prepare for an eventual war. I don’t really put a lot of credence in those reports as being consistent with a war in the next few years, as we like to think is the case in the United States.

But Taiwan is certainly an issue that needs to be resolved one way or another, hopefully peacefully, in the next five to 10 years. There’s been a lot of progress in cross-straits economic integration. And there needs to be, I think, a better way to manage the geostrategic tensions between not just China and Taiwan, but China and the United States, where we have politicians who continue to throw their support to 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 relationship.

CYRUS JANSSEN: Yeah, absolutely. I mean, I think the Taiwan issue is certainly the cornerstone of U.S.-China relations as well. But what are some other key variables that are going to be dictating the future of U.S.-China relations? I mean, we’ve got the trade war. We’ve got Taiwan. What other things are you looking at for in the future of this relationship?

Key Issues in U.S.-China Relations

STEPHEN ROACH: Well, they 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 we’re both critically involved in, such as global health, climate change, cybersecurity, and obviously human rights.

I’ve argued that we need to establish a new bilateral secretariat where both nations address these and many other issues on a full-time basis, 24-7, continually, in a very expert technocratic level, so that when situations come up that we’re unprepared for, whether it’s a spy balloon or a naval accident in the Taiwan Strait, that we have in place the experts and the official support to troubleshoot, resolve, and come to agreements on these tough issues.

The current way of engagement, Cyrus, is we’ve outsourced it to politically driven leaders, and we put far too much emphasis on leader-to-leader diplomacy, which is, I think, important, but we need an institutional complement to leader-to-leader diplomacy to keep this relationship moving ahead on a continual basis, relying on expertise rather than on the personalized whims of political leaders.

ALSO READ: Dreams to Disability: How to Financially Prepare for the Unexpected: Tanya Taylor (Transcript)

The Bilateral Secretariat Proposal

CYRUS JANSSEN: Can you expand upon the secretariat idea? I really want people to understand that. You know, I had the pleasure of hearing you speak a couple of weeks ago in San Francisco.

We were both there attending the Future of U.S.-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. 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 U.S.-China relationship?

STEPHEN ROACH: It would be a bilateral secretariat, which would be the first secretariat organization between two major nations in history. It would be staffed by an equal complement of U.S. and Chinese professionals, scientists, trade lawyers, economists, if you want, experts on health, legal issues, and all the other issues that I just spoke about to you. It would be located in a neutral venue.

It could be Switzerland, could be Singapore. It would be far different than 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 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, cybersecurity, and climate change, with 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 through negotiations conducted under the auspices of the secretariat. When disputes arise, as they inevitably do in any complex set of bilateral agreements, there would be a dispute screening function and dispute resolution function that would avoid a conflict. It’s a different approach than we have right now to engagement.

I think we need a new approach to engagement because the current approach, again, heavily weighted in terms of leader-to-leader diplomacy has not worked. Look at the conflict that we are in right now. We need a new piece, a new leg to the stool to build, I think, a far more productive, less confrontational relationship between the United States and China.

CYRUS JANSSEN: That’s a fantastic insight. Thank you for breaking down that idea of the secretariat. Obviously, not just an individual, an entire group staffed by both U.S. and China, neutral location. I like the idea of shifting from something different than what we’re currently doing and definitely maintaining that open line of communication 24-7. 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. What is one thing that you want the world to know about China? What did most people misunderstand or if you had one thing that you could tell everybody, what would that be?

Understanding the Chinese People

STEPHEN ROACH: 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 is coming from a very different place for us than we are. Not that long ago, they were an impoverished country in 1980.

80% of the population was rural. They’ve come dramatically a long way since then, but they still have a long way to go in raising their standard of living to that of a more developed society. They thirst for economic development and prosperity the same way that we do.

They call it the Chinese dream, just like we call it the American dream. The realization of the Chinese dream does not necessarily have to mean that that is a threat to the dreams of other nations, including our own American dream. I think we need to go back to deepening our understanding of the needs and wants of the Chinese people and recognizing they have a different system that organizes their government, but that does not necessarily change the very real needs that lie behind that system.

CYRUS JANSSEN: That’s a fantastic answer. I think so many times we forget that in China, there’s families and husbands and wives and just normal people living their life not much different than what we’re doing. We’re all trying to advance in life and trying to hopefully leave the world a better place.

Professor Roach, 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 fans and audience can connect to see your work?

STEPHEN ROACH: Well, it changes, Cyrus, but in the last year or so, I’ve been writing on a regular basis, at least once a week, sometimes twice a week on Substack. Search my name under Substack, the name of the platform for me is called “Conflict” to draw attention to the conflict between the United States and China, and most importantly, the need to resolve that conflict before it is too late.

CYRUS JANSSEN: Fantastic. Professor Roach, 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 world-class guests like Professor Stephen Roach to help us all understand more about China and its role in the world. If you enjoyed today’s video presentation, make sure you subscribe to my geopolitics newsletter.

It’s free and I’ll drop the link down in the description below. Also, if you’re interested to learn more about China, make sure you click here to watch our next video and I look forward to seeing you all in our next presentation soon.