RESISTANCE IS USELESS
Alan Greenspan pays the Vogon today before the Senate Finance Committee, saying in short, "resistance is useless".
Greenspan and Treasury Secretary John Snow, who testified to the Senate Finance Committee, faced persistent questioning from some legislators who said China's trade policies, especially its currency regime, are unfair and illegal. Greenspan also cast doubt that a revaluation of China's currency would be beneficial to U.S. companies and the economy.So tell me again what the difference is between a "mainstream" Democrat and a Republican on trade?
"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." . . .
"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 through unemployment insurance programs and retraining, he said.
Overall, US goods imports on a census basis are up $328.7bn in current dollars from 2001 to 2004 -- an increase of 28.8% in three years. Somewhere around one-third of that increase is due solely to China, from whom imported goods on a CIF basis have risen by $101.1bn in current dollars -- an increase of 92.5%.
Over the same period, US goods exports have risen just $89.7bn (Census basis, current dollars), not even enough to balance the import increase from China alone.
The sectors with the largest growth in imports from China from 2001 to 2004 are:
Office machines -- $25.4bn
Telecommunications equipment -- $14.6bn
Misc. manufactured articles (esp. toys) -- $10.7bn
Furniture -- $7.0bn
Electrical machinery, apparatus and appliances, n.e.s. -- $6.6bn
Apparel and clothing -- $5.1bn
Manufactures of metals -- $4.6bn
General industrial machinery and equipment -- $3.4bn
Textiles -- $2.6bn
Travel goods, handbags -- $2.1bn
Road vehicles -- $2.1bn
Footwear -- $1.7bn
Prefabricated buildings -- $1.5bn
Iron and steel -- $1.3bn
Scientific instruments -- $1.1bn
Growth in these 15 SITC sectors make up 89% of the overall import growth from China over the 2001-04 period. With the demise of the Multifiber Agreement at the end of last year, clothing and textiles are now in 2005 contributing much more to the imbalance than these figures show.
Embedded in Greenspan's comments is the assumption that relative currency values play little if any role in trade between the US and developing Asia. Thus there is no currency adjustment in the world which will cause Americans to consume more domestic computers, TVs, toys, furniture, electrical machinery, clothing and textiles. Those sectors -- those hit hardest by Chinese imports over the last three years -- are to be given up for good, apparently.
And make no mistake, they've been hit hard:
Computer and electronic products: -422,600 jobs (-24.2%)
Machinery: -226,800 jobs (-16.6%)
Apparel: -141,700 jobs (-33.2%)
Textile mills + textile product mills: -122,400 jobs (-22.7%)
Electrical equipment and appliances: -110,100 jobs (-19.8%)
Furniture and related products: -69,700 jobs (-10.8%)
Dolls, toys and games: -7,700 jobs (-29.3%)
MANUFACTURING: -2.1 million jobs (-12.8%)
Lest one forget, the slow death of the US manufacturing sector was effectively halted in the mid-1990s, and in 1998 there were 17.6 million jobs in the sector, up from 16.8 million in 1993. By 2004, however, there were just 14.3 million -- a 19% decline in only six years.
One of the things that helped the US manufacturing sector -- and thus the US trade balance -- in the 1990s was the weak dollar. This time around, however, Uncle Alan has seemingly told us to just forget about manufacturing, manufacturning jobs and the trade deficit. All the retraining and unemployment benefits in the world aren't going to turn the US trade deficit around, and Greenspan's comments about "materially lower[ing] our standard of living" suggests that it would in fact be criminal to address it.
So if relative currency adjustments are ruled out as medicine for the trade deficit -- for the dollar needs to adjust against Asia, not Europe -- we're left with dramatically higher US interest rates to do all the heavy lifting -- and just think what that will do to our "material standard of living". Alan can't see past his nose for all the contradictions in his own argument.