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Veteran economist Stephen Roach slams Trump on China trade and offers an alternative strategy

Key Points
  • Roach says the U.S. should expand services trade with China, a sector that he expects to grow to between $4 trillion and $6 trillion by 2025.
  • The U.S. could get a bilateral investment treaty signed with China that would open access, adds the former Asia chairman at Morgan Stanley.
VIDEO4:0504:05
There's a 'huge opportunity' for US in China markets, says economist

Veteran economist Stephen Roach on Tuesday slammed President Donald Trump for his trade actions against China and urged the administration to take a different approach.

"I would focus on this issue of market access," said Roach, former chairman of Morgan Stanley's operations in Asia. "China, like it or not, is going to shift its model from an economy that focuses on production to an economy that increasingly focuses on consumption."

Roach, now a senior fellow at Yale University, said the U.S. should expand services trade with China — a sector in the world's second-largest economy that he expects to grow to between $4 trillion and $6 trillion by 2025. The U.S. could get a bilateral investment treaty signed with China that would open access to those markets, he suggested.

"Shame on us if we couldn't capture a great market share of that," Roach said in an interview with CNBC's "Squawk Box. "

"That's the way to 'Make America Great Again,' not by trying to resurrect industries in manufacturing that have been long been lost," added Roach, who spent the bulk of his 30 year career at Morgan Stanley as chief economist.

Trade tensions between the United States and China have kept Wall Street and Main Street on edge. The Dow Jones Industrial Average fell more than 300 points on Monday.

Last week, Trump instructed the U.S. to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. That would be on top of the 25 percent tariff on up to $50 billion of Chinese products that the president unveiled earlier this month. Those latter measures, announced on June 15, are set to start July 6.

Treasury Secretary Steven Mnuchin also said Monday the administration will apply investment restrictions to China and other countries that threaten U.S. intellectual property rights on technology.

Peter Navarro, one of Trump's top trade advisors, told CNBC the Monday to fears of foreign investment restrictions part of its trade actions. Stocks rebounded slightly.

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