- The Washington Times - Thursday, December 11, 2003

Federal Reserve Chairman Alan Greenspan yesterday challenged “the conventional wisdom” on China, asserting that curbs on Chinese imports would not produce more jobs in the United States, while arguing that such protectionist measures might destabilize the U.S. and global economies.

“The story on trade and jobs, in my judgment, is a bit more complex, especially with respect to China, than this strain of conventional wisdom,” Mr. Greenspan said in remarks to the World Affairs Council of Greater Dallas.

The Fed chairman lent his support to the view aired this week by Chinese Prime Minister Wen Jiabao that any export curbs on China would prompt U.S. businesses and consumers to switch to imports from other developing countries with low wage rates.

He attributed much of the imports that have fed the $120 billion U.S. trade deficit with China to outsourcing by U.S. and East Asian companies that funnel their products through China for the final, labor-intensive stage of assembly to take advantage of the country’s low wage rates. The average Chinese manufacturing worker earns about 65 cents an hour, compared with the average American factory worker who earns more than $16 an hour.

Mr. Greenspan noted that paranoia over the threat to U.S. jobs posed by China follows a familiar pattern.

“Jobs in the United States have been perceived as migrating over the years, to low-wage Japan in the 1950s and 1960s, to low-wage Mexico in the 1990s, and most recently to low-wage China,” he said.

In an irony, “many in Mexico are now complaining of job losses to low-wage China.”

But the high standard of living in the United States would fall, and even worse consequences might ensue, if the nation closed its borders to the inexpensive, high-quality goods manufactured by China and other countries and made everything on its own, he said.

“For the most part, we as a nation have not engaged in significant and widespread protectionism for more than five decades. The consequences of moving in that direction in today’s far more globalized financial world could be unexpectedly destabilizing,” he said.

“A likely fall in wage incomes and profits could lead, ironically, to a fall in jobs and job security in the shorter term. So, yes, we can shut out part or all foreign competition, but we would pay a price for doing so — perhaps a rather large price.”

Although Mr. Greenspan disparaged the reasons that many in Congress and the administration are pushing for trade restrictions on China, he agreed with China’s critics who say the Asian giant eventually must stop fixing its currency against the dollar — if only because the heavy dollar purchases required to maintain the currency peg are overheating China’s economy.

Mr. Greenspan said that if China did allow its currency to float and it rose in value, as U.S. manufacturers predict, it might cut Chinese exports of textiles and other goods to the United States.

But rather than boosting U.S. production of textiles, it was “far more likely” that U.S. imports from other low-wage countries in Asia would replace the Chinese products, he said.

However, Mr. Greenspan cautioned that eliminating the currency peg could set off destabilizing forces in China.

“Many in China … fear that an immediate ending of controls could induce capital outflows large enough to destabilize the country’s fragile banking system.”

Mr. Greenspan said Americans should have faith that the entrepreneurial forces that for decades have kept 94 percent of Americans employed eventually will create more jobs to replace the 2.8 million factory jobs lost since 2000.

“For generations, American ingenuity has been creating industries and jobs that never existed before, from vehicle assemblers to computer software engineers.”


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