Greenspan: Forget China curbs

The following article is excerpted from the 24 June 2005 edition of “The Journal of Commerce”.

Imposing trade tariffs on China would be misguided and put the future of the U.S. economy ``at risk,'' Federal Reserve Chairman Alan Greenspan said.

Greenspan, testifying to the Senate Finance Committee Thursday along with Treasury Secretary John Snow, warned that any attempt to use sanctions to prod China into revaluing its currency would hurt the American economy.

``Some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States,'' Greenspan said. ``I am aware of no credible evidence that supports such a conclusion.'' …

China has pegged the renminbi, also known as the yuan, at about 8.3 to the dollar for a decade. U.S. companies say that gives Chinese competitors an unfair advantage selling products overseas.

The U.S. trade deficit with China rose to a record $162 billion last year and the National Association of Manufacturers expects it to grow to $220 billion this year, the largest deficit in history between two countries. …

The administration opposes the overall thrust of bills that would impose punitive tariffs, saying they threaten to close off the fastest-growing export market for American goods. …

Greenspan said the revaluation of the Chinese currency would simply just ``redirect trade'' within Asia and ``have limited consequences for overall U.S. imports as well as U.S. exports that compete with Chinese products.''

At the same time, imposing retaliatory tariffs on Chinese goods would not only significantly lower U.S. imports from China, ``but would comparably raise U.S. imports from other low-cost sources of supply,'' he said.

``Any significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living,'' Greenspan said.

The Fed chairman said ``few, if any'' American jobs would be protected by a tariff on Chinese goods. …

U.S. workers displaced by trade with China should be compensated, he said, through unemployment insurance programs and retraining.

Greenspan and Snow said the Chinese recognize a revaluation would be helpful, and suggested they expect China to move soon. …

``China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions,'' Snow said. ``Implementation of trade sanctions would lead to retaliatory policies against our exports, damaging the U.S. and global economy.'' …

``The unintended consequences would be to delay the concrete steps on currency reform that China should take for its own sake and for the sake of the global economy,'' Snow said. …