According to a CNBC report on Thursday, there’s a major risk that has caught the attention of economist Stephen Roach, and it has nothing to do with earnings season. Mr. Roach, one of the world’s leading Asia experts, is concerned that relations between China and the United States could deteriorate further in the coming weeks, and against that backdrop, the dollar may have more room for downside correction.
“There are a lot of issues that are very worrying,” the former Asia chairman of Morgan Stanley told CNBC’s Trading Nation on Wednesday. It’s a real problem, and I’m very concerned about it, and I think the market is completely ignoring it.”
Roach sees bipartisan support in the Senate for the Strategic Competition Act of 2021 as a troubling development. His reasoning: It reflects a tough attitude toward China that could trigger retaliation.
“Over the last few years, I was worried that what started as a trade war would turn into a technological war and then eventually into a Cold War,” Roach said. Those fears have come true. Just this week, significant developments led me to highlight that risk.”
He also listed a particularly worrisome U.S. intelligence report.
The Office of National Intelligence’s annual threat assessment, released on Tuesday, clearly lists China as the No. 1 threat to the United States, Roach said. Roach also monitors the growing tensions between China and Japan.
On April 8 local time, the US Senate Foreign Relations Committee announced a new bill, the Strategic Competitiveness Act of 2021. The bill, written by Democrats and Republicans in Congress, covers a wide range of domestic and international issues to ensure that the United States remains competitive in great power competition for decades to come.
At a regular press conference held by the Ministry of Commerce on April 15, in response to the US Senate Foreign Relations Committee’s discussion and vote on the Strategic Competition Act 2021 on April 14, the spokesperson of the Ministry of Foreign Affairs Gao Feng said that the spokesperson of the Ministry of Foreign Affairs has made a comprehensive response to the Strategic Competition Act 2021. Here, I would like to stress that global industrial chains and supply chains are public goods. It is in the interests of China, the United States and the whole world to safeguard the security of global industrial chains and supply chains.
According to Roach, U.S. President Joe Biden appears set to continue many of the Trump administration’s China policies.
Roach noted that as tensions between the U.S. and China rise, his warnings about the dollar are likely to intensify. Late last spring, he predicted the dollar would fall 35% against other major currencies over the next year or two.
“The dollar depreciated significantly in the second half of 2020,” Roach said. It changed direction in the first quarter of this year, but is now under downward pressure again. This reflects my concerns about the US current account deficit, the Federal Reserve’s unwillingness to tighten interest rates in the foreseeable future, and Europe’s eventual commitment to fiscal policy may be firmer than any of us, including myself, think.”
He also worries that the current relationship with China could exacerbate the danger. “Friction with China could add pressure to the US’s role as a global leader,” Mr Roach said. In my view, the dollar still has considerable further to fall.”
Friday sub-market intraday, the dollar index near 91.70. The dollar index is down nearly 1 per cent in the past week. The index has fallen more than 7 per cent in the past year.