Greenspan: Don't blame China for American manufacturing travails

CJAD ^ | December 11, 2003

[Willie Green]

For education and discussion only. Not for commercial use.

WASHINGTON (AP) - Federal Reserve chairman Alan Greenspan has challenged the "conventional wisdom" that China's manipulation of its currency provides a huge advantage against U.S. companies that has cost thousands of American jobs.

"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 would lead one to believe," Greenspan said in remarks prepared for the World Affairs Council of Greater Dallas.

America's besieged manufacturing sector, which has suffered 40 straight months of jobs losses, has been pushing the Bush administration to press China to allow the value of its currency to be set by market forces, rather than keeping the yuan tied to the U.S. dollar.

American manufacturers contend that China's currency is undervalued by as much as 40 per cent, resulting in a U.S. trade deficit with China which hit $103 billion last year and is expected to top $120 billion this year.

Greenspan said that if China allowed its currency to float and the yuan rose in value, it might cut Chinese exports of such goods as textiles to the United States.

However, he said that rather than boosting U.S. production, it is "far more likely" that imports from other low-wage Asian countries would simply replace the Chinese goods.

In addition, Greenspan said allowing the Chinese currency's value to be set by market forces could destabilize China's economy as the country relaxes its controls on capital flows as part of a changed currency regime.

"Many in China . . . fear that an immediate ending of controls could induce capital outflows large enough to destabilize the country's fragile banking system," Greenspan said.

Because of the various complex economic forces at play, a rise in the value of the Chinese currency "would be unlikely to have much, if any, effect on aggregate employment in the United States."

Greenspan used Thursday's address to elaborate on warnings he issued last month about the damage that could be inflicted on the U.S. economy from trade barriers to protect domestic industries against foreign competition.

"For the most part, we as a nation have not engaged in significant and widespread protectionism for more than five decades," Greenspan said.

"The consequences of moving in that direction in today's far more globalized financial world could be unexpectedly destabilizing."

Shutting out foreign products would reduce Americans' standard of living, he said, because the country's large and diverse capital and labour markets would not be employing resources to their maximum advantage.

He said global competition has cost certain jobs in the United States, but the answer is not to erect trade barriers but to provide better job retraining for displaced workers.

Greenspan also challenged concerns that some of the 2.8 million U.S. manufacturing jobs lost during the past three years are gone forever. He said that throughout its history the U.S. economy has created jobs in new industries and this will continue.

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

The administration has toughened its rhetoric on trade issues in recent months, especially in relation to China, in the face of steady criticism from Democrats who say President George W. Bush hasn't done enough to deal with the loss of manufacturing jobs and America's bloated trade deficit.

However, Bush reversed his position last week and withdrew tariffs he had imposed on foreign steel, after the World Trade Organization ruled the tariffs violated global trade rules.

[Willie Green]

Good grief. Who does this clown work for, anyway?

[Pubbie]

Damn right Greenspan - tell the Perot/Buchananite PaleoProtectionists to take a hike!

[SpaceBar]

Alan Greenspan has outlived his usefulness. This guy needs to be tossed out on his ear. As of late, he's been touting the "global enonomy" mantra, which is a misnomer, since disparate societies, such as China and the USA constitute different economies by definition. When Detroit starts building cars with slave labor, maybe, then maybe he'll have some semblance of an argument.

[VRWCmember]

WORTH REPEATING:

Shutting out foreign products would reduce Americans' standard of living, he said, because the country's large and diverse capital and labour markets would not be employing resources to their maximum advantage.

He said global competition has cost certain jobs in the United States, but the answer is not to erect trade barriers but to provide better job retraining for displaced workers.

Greenspan also challenged concerns that some of the 2.8 million U.S. manufacturing jobs lost during the past three years are gone forever. He said that throughout its history the U.S. economy has created jobs in new industries and this will continue.

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

Greenspan understands economics a lot better than the protectionists who think the answer is to incorporate inflationary restrictions on imports.

[staytrue]

When Detroit starts building cars with slave labor

China will be the 3rd largest car market in the world in 2004. When did they allow slaves to drive cars ? Further, most of the cars sold in china will be produced by joint ventures with VW, GM and Ford.

Finally, China has tried communism and slave labor and found for the most part, it did not work. China is now something close to facism which is political dictatorship, with a capitalist economy.

[Pubbie]

Here we go!

[Willie Green]

Damn right Greenspan - tell the Perot/Buchananite PaleoProtectionists to take a hike!

Do you have something against "the market" determining the value of the yuan?

[Pubbie]

They are free to peg their currency to the US Dollar.

[Willie Green]

Shutting out foreign products would reduce Americans' standard of living, he said, because the country's large and diverse capital and labour markets would not be employing resources to their maximum advantage.

Flippin 'burgers is "employing resources to their maximum advantage"?

Good gawd, I wonder if Greenspam has ever actually eaten in a Mickey-D's.

[Willie Green]

They are free to peg their currency to the US Dollar.

IOW, neither you nor Greenspan truly believe in a free market.

[Dunedain]

Greenspan is a moron, but surprisingly on the money here. Why have the Republicans abandoned conservatism, which believes in liberalized trade? (that's what the revolution was about after all).

The Chinese manipulate their currency. So does the US (and most Western nations). How is monetary policy any different than Stalin's Central Planning? What happened to letting the market place value currencies. If you think it does, you should check out how much money was spent in the Clinton years to defend the strong dollar policy.

[Willie Green]

Why have the Republicans abandoned conservatism, which believes in liberalized trade? (that's what the revolution was about after all).

No it wasn't.

[MissAmericanPie]

"He said global competition has cost certain jobs in the United States, but the answer is not to erect trade barriers but to provide better job retraining for displaced workers."

Just be sure not to press Alan, the Administration, the press, or the guy taking your money at the McDonalds window as to what EXACTLY those waiting jobs for displaced workers are.

[harpseal]

Alan Greensoan works for teh Federal Reserve which is a government chartered bank for other banks. It is owned by the banks not by the taxpayers.

[harpseal]

Ping on or off let me know

[Pubbie]

"IOW, neither you nor Greenspan truly believe in a free market."

As long as the US is free to peg it's currency to another country's currency then China is free to peg it's currency to ours, just like many other countries do.

[RinaseaofDs]

It worked for Hitler.

He brought you the freeway, and the Volkswagen!

[dennisw]

It all come back to what Marx said. People's comments reflect their class. Greenspan is in the governing class and he listens to those in the financial class and corporate class. These classes agree with Greenspan on China while a worker in one of our factories will want protectionism if it will means he keeps his job and wage rate.

China as manufacturing powerhouse is very bad news for us, for Americans except those in thge upper crust or in professional classes that are insulated. My relative the psychiatrist loves all the cheap crap from China. His job is not impacted, for now at least.

[July 4th]

Bump to your post.

[mikenola]

China can float the yuan all they want, but I don't think it will make much difference in the trade deficit as long as there is such a vast gap in labor costs.

We can sit on this forum and bellyache about how China employs "slave labor" etc, but what we really need to do is reduce our own labor costs.

The "job for life" paradigm is over. Factory workers making $20/hr simply because they've shown up for work for the last 20 years simply isn't workable anymore.

Bust the unions, disband the EEOC, workman's comp and SSI disability gravy trains, repeal the ADA, and you'll see American manufacturing come back in a hurry. Maybe not surpassing China, but certainly alot less anemic than it is now.