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Greenspan warns against tariffs on china Original Source Link: (May no longer be active)
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Greenspan, Snow Say Tariffs on China Would Hurt U.S. (Update2)
June 23 (Bloomberg) -- 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 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.''
The 79-year-old Fed chairman, whose non-renewable term as a Fed governor expires in January, didn't mention U.S. interest rate policy in the text of his remarks.
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.
Sanctions Legislation
Indiana Democratic Senator Evan Bayh and Maine Republican Senator Susan Collins presented legislation at today's hearing that would allow U.S. companies to petition for duties on Chinese goods to compensate for government subsidies. The Bayh-Collins bill is one of more than a half-dozen in Congress that address what some lawmakers call China's unfair illegal trade practices.
Both senators said in their testimony that China has refused to play by the same international trade rules that U.S. manufacturers have to live by.
Bayh, in his testimony said workers across the country start each day at a disadvantage, ``simply because of illegal subsidies and illegal manipulation. It's not right,'' he said. ``We must act to correct this situation.''
China must improve intellectual property rights enforcement and transparency in agriculture and services trade, Senators Charles Grassley and Max Baucus, the chair and ranking member of the Finance Committee, wrote in a letter to U.S. Trade Representative Robert Portman today. They said China should also open its markets to non-Chinese goods and work toward joining the World Trade Organization's Government Procurement Agreement.
Detrimental Actions
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.
``The White House feels that politically these actions and potential actions against China are exceptionally detrimental to the U.S. economy, and therefore it brought out the big guns,'' Charlene Barshefsky, U.S. trade representative during the Clinton administration, said in an interview. ``It is the fear that a few or one of these bills might have legs that led the administration to bring out Greenspan and Snow.''
Barshefsky said she hopes the proposed legislation doesn't pass.
Snow, 65, said in his written testimony that he ``cannot overstate my firm belief that resorting to isolationist trade policies would be ineffective, disruptive to markets and damaging to America's special role as the world's leading advocate for open markets and free trade.''
Redirecting Trade
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.
Effect on Employment
``Any effect of trade with China on U.S. employment is likely to be very small relative to the scale of job creation and job loss in our economy,'' he said. ``A policy to dismantle the global trading system in a misguided effort to protect jobs from competition would redound to the eventual detriment of all U.S. job seekers, as well as millions of American consumers.''
U.S. workers displaced by trade with China should be compensated, he said, through unemployment insurance programs and retraining.
The Bush administration wants China to overhaul its trade policies by letting the value of its currency float. The U.S. is also looking for China to clamp down on piracy of movies and other intellectual property, allow U.S. software companies an equal chance to sell to government offices and reduce subsidies to private industry.
Greenspan and Snow said the Chinese recognize a revaluation would be helpful, and suggested they expect China to move soon.
Flexible Currency
``The sooner the Chinese, in their own self-interest, move to a more flexible currency regime, perhaps leading other Asian currencies to become more flexible as well, the better for all participants in the global trading system,'' Greenspan said.
``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 Chinese will not be impressed with the economic logic of the criticisms coming from Treasury, nor possibly with Greenspan's,'' said Albert Keidel, an economist who served as Treasury's deputy director for East Asia until last August. ``While China has a large bilateral trade surplus with the U.S., its global surplus is what might indicate exchange rate improprieties, and so in China's case it does not.''
Keidel, who is now with the Carnegie Endowment for International Peace, said speculation on a change in China's currency now would make the rate more unstable.
Sanctions Delay Move
Forcing China to adopt a higher currency by threatening trade sanctions would be ``counterproductive'' and likely delay a change by the Chinese government, Snow told the committee.
``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.
Neither Greenspan nor Snow mentioned in their testimony yesterday's bid by CNOOC Ltd., China's third-largest oil producer, to buy Unocal Corp. for $18.5 billion in cash.
The CNOOC bid will face government scrutiny on grounds it may threaten U.S. security, lawmakers said. Congressmen Richard Pombo and Duncan Hunter have asked President George W. Bush to order a review of any CNOOC offer by the Treasury Department's Committee on Foreign Investments in the U.S.
Treasury spokesman Tony Fratto said today that if Unocal accepts the Chinese company's offer, the parties would be required to file the transaction with the committee for review.
The U.S. current-account deficit, the widest measure of trade in goods, services and financial transfers, rose to a record $195.1 billion in the first quarter.
The gap is equivalent to 6.4 percent of nation's $12.2 trillion gross domestic product. At the current pace, the U.S. needs to attract about $2.1 billion a day to fund the deficit and keep the value of the dollar steady.
Bankers' Report
In a report today, the American Bankers Association economic advisory committee said imposing tariffs on Chinese imports would not be effective in significantly reducing the trade deficit or forcing a revaluation of the yuan and would likely only hurt trade relations.'' Economic developments within China ``ultimately will lead it to alter its current peg to the dollar,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, and chairman of the group.
``The U.S. trade deficit is partly due to stronger growth here compared to that of the nation's trading partners and the decline in the value of the dollar over the last few years will ``stabilize'' the gap, the group said.
Last Updated: June 23, 2005 11:27 EDT
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