- The Washington Times - Thursday, June 23, 2005

Federal Reserve Chairman Alan Greenspan yesterdaytold lawmakers that “few, if any, American jobs would be protected” if the U.S. imposes broad tariffs against China.

Mr. Greenspan and Treasury Secretary John W. Snow, speaking before the Senate Finance Committee, both warned against protectionist steps aimed at forcing a change in China’s currency policy.

Many U.S. companies and lawmakers say China undervalues its currency, unfairly making its exports cheaper. That complaint, coupled with a rising trade deficit and concern regarding China’s acquisition of major U.S. corporations, prompted a number of legislative proposals targeting China.

“Fighting back is not protectionism,” said Sen. Lindsey Graham, the South Carolina Republican who with Sen. Charles E. Schumer, New York Democrat, has gathered widespread support for legislation that would impose 27.5 percent tariffs against China if that nation does not unpin the yuan from the dollar.

The Bush administration opposes such “isolationist trade policies.” Mr. Snow and Mr. Greenspan yesterday both warned against the measures in the Senate.

“Walls will not protect America’s workers and industry,” Mr. Snow said. He argued that the administration is working with China and would continue to prod it toward floating its currency — as it has done for about two years.

“As a result, China is prepared to introduce flexibility and should do so now,” he said, indicating that the administration soon would run out of patience if China doesn’t separate the yuan from the dollar.

China’s currency is pegged at 8.28 yuan to the dollar.

Mr. Greenspan also urged China to adopt a “more flexible” exchange policy that would help China as well as the “global trading system.” But he said lawmakers trying to force a change in China’s currency policy were mistaken on two counts — thinking that a revalued yuan would help U.S. manufacturers and thinking that punitive tariffs would help, rather than hurt, the U.S. economy.

“Some observers mistakenly believe that a marked increase in the exchange value of the Chinese [yuan] … relative to the dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion,” Mr. Greenspan said, echoing comments he made earlier this month.

Mr. Greenspan added that tariffs would hurt the U.S. and global economies. A “return to protectionism” would threaten the growth in living standards that has marked the post-World War II economy, he said.

In the meantime, U.S. jobs would not be rescued. Rather, production and assembly would shift to other countries with low labor costs in Asia and Latin America, he said.

To compete, the U.S. economy has to shift resources from obsolete industries and facilities to the most up-to-date technologies, he said.

“This highly dynamic process is mirrored in our labor markets, where jobs are constantly being created and destroyed at a rapid pace,” Mr. Greenspan said.

U.S. policy should focus on retraining and educating those who lose their jobs, not to protect jobs from competition, he said.

Senators didn’t always like what they heard from Mr. Greenspan and Mr. Snow, and it is not clear that their message will slow anti-China legislation.

“There is something going on here in this Senate that is a fundamental sea change,” Mr. Graham said of growing support to confront China.

Sen. Jim Bunning, Kentucky Republican, tangled with Mr. Greenspan about China’s contribution to the global economy. And Sen. John Kerry, Massachusetts Democrat, asked Mr. Snow, “Are we powerless or are you oblivious?”

Mr. Schumer said U.S. manufacturers spurred the congressional action on China. The sector has shed 2.8 million jobs since Mr. Bush took office in January 2001, and manufacturers disagree with Mr. Green-span’s opinion on revaluation.

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