南方财经全媒体记者郑青亭 杨雨莱 北京、广州报道
In March, Stephen Roach, the Senior fellow at Yale University, and the Former Chairman of Morgan Stanley Asia visited the Yale Center Beijing, sharing his views on major-power relations in the Trump 2.0 era. Before the event, he was interviewed exclusively by the journalist from Southern Finance Corporation.
In recent weeks, with recession risks for the U.S. economy making headlines, Wall Street banks have lowered growth forecasts. Roach thought Trump policy uncertainty is increasing such risks. Despite current stability, policy chaos has already dented business and consumer confidence, causing recruitment and capital spending decisions to stall. He predicted a significant recession risk by 2026 if uncertainty persists.
On U.S. stock market volatility, Roach pointed out the market is highly concentrated in a few stocks like the "Seven Giants", with valuations far beyond reasonable levels, posing obvious bubble risks. "By contrast, at the peak of the early - 20th - century internet bubble, tech stocks accounted for only 6% of the market value, while now seven stocks make up 34%." Though not forecasting short-term trends, he warned the AI - driven market euphoria is unsustainable and a major correction is likely to happen.
On the China-U.S. AI race, he considered that competition is far fiercer than the U.S. and its Silicon Valley AI firms admitted six months ago. He stressed DeepSeek's breakthrough is significant, as it not only performs well but also challenges the US with its low-cost edge.
SFC Talk: President Trump began his second term promising a “golden age” for America through tax cuts, deregulation, and tariff hikes. How feasible is this vision to you?
Stephen Roach: It's infeasible. It's, I think basically a series of campaign promises that is inconsistent with the policies that he has put in place in the first two months of his administration. tariffs, the destruction of the federal government, breakdown of alliances that have been so important to the West and to the United States. There's nothing golden about that. If anything, we're starting off with a tarnished image of what lies ahead for the chaos of the second Trump administration in what that means for the U.S. and the rest of the world.
SFC Talk: The recent stock market slumped in the U.S. has raised concerns about President Donald Trump's economic policies. Some economists believe the U.S. could be headed toward a recession. What's your take on that?
Stephen Roach: I think the odds of recession are rising right now. The economy is still in relatively good shape, but I think that the chaos of his policy pronouncements has led to a heightened degree of uncertainty, which impacts business decision making with respect to hiring and capital spending. And uncertainty also has an adverse impact on consumer expectations of security and inflationary pressures going forward. So I think the prospects of a recession as we move through 2025 and 2026, are likely to increase dramatically.
SFC Talk: The Trump administration has claimed “the U.S. economy is detoxing” and that “the economy is in transition” as his policies take effect. What key indicators should we watch in 2025 to assess whether this “detox” is leading to stability or a self-fulfilling crisis, as you've previously warned?
Stephen Roach: “Detox” is not a word that economists use. It's a word that those who are addicted to their own rhetoric and behavior use. And so as a politically expedient excuse by the Trump administration, we will look at a variety of classic indicators with respect to unemployment, labor market conditions, and consumer and business spending activity to see if there is any merit to these claims.
SFC Talk: Trump's unpredictability creates volatility for businesses. How big a drag could this be on U.S. investment in industrial production this year?
Stephen Roach: Uncertainty is the enemy of decision making. When businesses make decisions to build new facilities, to hire new workers, these are costly, long-term commitments. They make those commitments under the promise, and the hope that they have a good understanding of how the economy is going to play out in the years ahead. They have no visibility on being able to make those claims. The uncertainty will freeze business decision making, and that will have a negative impact, especially on business capital spending and on hiring.
SFC Talk: Some Wall Street analysts see Trump's pro-business policies reinforcing U.S. exceptionalism. Will his policy eventually benefit the market and investors?
Stephen Roach: I think the stock market in the United States entered the year prior to the second inauguration of Donald Trump in a precarious position, 34% of the total capitalization of the S&P 500 was concentrated in seven stocks, the Magnificent Seven, Google, Amazon, Apple, Tesla, Nvidia, Microsoft and Meta. Those stocks were in a bubble. The bubble clearly is driven by a revolutionary breakthrough in artificial intelligence. But no matter how revolutionary AI is, the valuation of the market was well in excess of any revolution, just by way of comparison, dot-com stocks in early 2000s at their height account for 6% of the market capitalization. This is 34%, the seven stocks. The stocks are now off sharply from their December highs. But there's still 3 times what they were 2 years ago. There's more to come on the downside.
SFC Talk: As you just mentioned, like after a turbulent month for U.S. stocks, many investors are wondering now, where is it heading? Jim Rogers, a renowned global investor, has already sold U.S. stocks, and his money is going to U.S. dollar, right? Are we now in a stock market correction, pullback or bear market?
Stephen Roach: I'd rather not comment on that, I've learned over the years that it doesn't pay to make a short-term call on the U.S. market. There's lots of factors that can impact it both ways.
SFC Talk: Are you surprised that President Trump's trade war now is also targeting EU, Canada and some other countries?
Stephen Roach: Disappointed, surprised to a limited extent. We've learned never to be too hopeful and upbeat, when it comes to Donald Trump. He likes to be a disruptor. Many of his actions that have been taken this year are extremely disruptive designed to take people by surprise. And they have.
SFC Talk: How might this fragmentation alter global trade patterns by the end of 2025?
Stephen Roach: It'll be more expensive for the world to produce, to assemble, to distribute, and to consume. It's a new layer of costs that are being built into what had been an increasingly globalized system. And it's going to take a toll. There's nothing that is costless about pushing input and output prices up.
SFC Talk: What do you think of the impact of his trade policies on the Fed?
Stephen Roach: The Fed Chairman Powell said on Wednesday that near term, they'll raise costs and reduce output. He made the unfortunate mistake of saying that he thought these impacts would be transitory. The Fed does not have a good record when it comes to using the word “transitory”. They should strike that from the Fed Chair's manual of public relations.
SFC Talk: What lessons should the U.S. draw from the past to avoid a disastrous economic conflict with China?
Stephen Roach: At the root of the mistakes that we make on our side is the belief that we can end our trade deficit country by country. And this is the basic macroeconomic point that the trade deficits are a reflection of the investment-savings imbalance in the system. And a very low domestic savings rate guarantees a large trade deficit. Unless we just don't want to grow as much, we clearly are not of that view. In the 1980s with Russia and Japan, it reduced the bilateral U.S.-Japan trade deficit, but it did not lower the overall trade deficit, which continued to grow as a share of GDP in absolute dollars. That's exactly what's happening right now. The tariffs of 2018 and 2019 reduced our imbalance with China, but our overall trade deficit expanded dramatically as trade shifted from the low cost Chinese producers to higher cost producers around the world. And I've written about that repeatedly. And we continue to make that mistake.
SFC Talk: Can Donald Trump have the supply chains back to the U.S. with his tariff policies?
Stephen Roach: Supply chains take a long time to put in place. Or I should say one of our leading supply chains is the Apple supply chain to produce iPhones. And that entails inputs and assembly from over 120 countries around the world, took Tim Cook a decade in his earlier job in charge of building Apple's supply chain to assemble this production, assembly and distribution process. You don't just flip the switch and change it and say, we'll go to India or Vietnam or back the United States. It takes a lot of time to do that. President Trump is putting political pressure on companies and countries to bring back production to the United States. This is a political pressure campaign, rather than one that makes economic sense. And the arithmetic is very clear. We can do it. It'll take time, but it'll be very, very expensive, and ultimately very expensive for the American consumers who have benefited so much from the efficiencies of global supply chains.
SFC Talk: AI sector is booming in China now with advances like DeepSeek making headlines. How do you assess the current state of this AI race between China and U.S.? Where do you see it heading in the next few years?
Stephen Roach: It's a much tighter competition than the United States and its Silicon Valley AI-focused companies were willing to admit, as recently as 6 months ago. I think the breakthroughs of DeepSeek are very significant. Not just because Chinese large language machine learning models can perform as well as their counterparts in the United States through OpenAI and other AI focused companies, but that the DeepSeek model can achieve comparable results at a fraction of the cost. Costs in terms of data storage and computational power and cost in terms of the energy required to support this very>SFC Talk: Will the Trump administration try their best to contain China's rise in the AI sector? And in another way, what do you think are the chances that the current AI rivalry could escalate into a full-blown tech war under Trump 2.0?
Stephen Roach: What I worry about actually is continued conflict with the U.S. The technology area is likely to be sort of the focal point of that. Trade war doesn't occur just when one country puts pressure on the other. It's when there's a series of retaliatory responses that tend to steadily increase over time.
And what I worry the most about with respect to the trade war is not just U.S. and China, but a global trade war driven by Trump's desire to put tariffs on everyone. And we're gonna see this. A clear example is on April 2nd, when the Trump administration unveils what they call reciprocal tariffs on all those countries running trade deficits with the United States. Last year, there were 101 countries in deficit the United States. So by definition, he's gonna put tariffs on 101 additional countries. And they will retaliate.
And it shows no understanding of the lessons of history, especially in the 1930s, when because of similar efforts, largely driven by the so-called Smoot-Hawley Tariffs. They were put in place in 1930. The world had fallen into a global trade war. Global trade contracted over 60% during the early 1930s. And it played a key role in making a meaningful recession turn into a devastating Great Depression. That history is not something Trump cares to focus on. He'd rather look at the presidency of William McKinley, late 19th century to draw lessons from that.
Chief Producer: Yu Xiaona
Supervising Producer: Shi Shi
Editor: Li Yinong
Journalist: Zheng Qingting, Yang Yulai, Intern Li Youjin
Video Editor: Li Qun
New Media Coordination: Ding Qingyun, Zeng Tingfang, Lai Xi, Huang Daxun
Overseas Operations Supervising Producer: Huang Yanshu
Overseas Content Coordinator: Huang Zihao
Overseas Operations Editors: Zhuang Huan, Wu Wanjie, Long Lihua, Zhang Weitao
Produced by: Southern Finance Omnimedia Group
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