Barriers doomed, Fed boss says

Greenspan contends that free trade helps most of world


April 17, 1999|By BLOOMBERG NEWS

DALLAS -- Free trade lifts living standards around the world, and efforts to raise trade barriers are doomed to fail, Federal Reserve Board Chairman Alan Greenspan said yesterday.

"The evidence is overwhelmingly persuasive that the massive increase in world competition -- a consequence of broadening trade flows -- has fostered markedly higher standards of living for almost all countries who have participated in cross-border trade. I include most especially the United States," Greenspan told the Dallas Ambassadors Forum. "Should we endeavor to freeze competitive progress in place we will almost certainly slow economic growth overall," Greenspan said.

Greenspan did say he's "concerned about the recent evident weakening of support for free trade in this country."

The U.S. trade deficit rose to a monthly record of $17 billion in January after posting an annual record of $169.2 billion in 1998. U.S. steel companies recently won trade enforcement cases against overseas steel makers they accused of exporting below cost. And the United States is involved in trade disputes with the European Union over bananas, meat and aircraft parts.

All of that has weakened support for free trade initiatives. President Clinton has been unable to win fast-track trade negotiating authority from Congress, and held off reaching agreement on a trade treaty with China in part because he feared congressional reaction.

That's a mistake, the Fed chairman suggested. "The protectionist propensity to thwart the process of the competitive flow of capital, from failing technologies to the more productive, is unwise and surely self-defeating," he said. "History tells us that not only is it unwise to try to hold back innovations, it is also not possible over the long run."

Greenspan conceded that "the adjustment process is wrenching" for those who lose their jobs. Yet he noted that unemployment is currently at a 29-year low of 4.2 percent.

"It is difficult to find credible evidence that trade has impacted the level of total employment in this country over the long run," Greenspan said. "Indeed, we are currently experiencing the widest trade deficit in history with a level of unemployment close to record lows."

He indirectly criticized the steel dumping penalties levied by the United States, noting that dumping fines are generally imposed because goods are sold below the average cost of production.

Instead, he said, concern should be raised only when goods are sold below the marginal cost of production -- the cost of producing additional output, not the total cost of manufacturing itself.

Pub Date: 4/17/99

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