South-Western College Publishing - Economics  
Protectionism Grates on Greenspan
Subject Trade Restrictions
Topic International Trade
Key Words Protectionism, Dumping, Free Trade, Economic Growth
News Story

International trade benefits the American economy in many ways. Trade forces business firms to become more competitive and to use its resources more efficiently. Competition and increased efficiency combine to raise the standard of living for Americans. In spite of these stated benefits, the House recently passed legislation restricting steel imports from Russia and Japan. Protectionist sentiment is growing in part because global competition and measures to achieve efficiency have sometimes resulted in layoffs and plant closings. Alan Greenspan, chairman of the Federal Reserve, has entered this debate, denouncing protectionist pressures.

Mr. Greenspan stated that the weakening support for free trade is a matter of concern. "Should we endeavor to freeze competitive progress in place, we will almost certainly slow economic growth overall and impart substantial harm to those workers who would otherwise see more effective longer-term job opportunities." According to Greenspan, the effects of trade on firms and on workers is part of a cycle of "creative destruction" in which an economy continually changes activities in search for opportunities for profit.

Trade negotiations have been in the headlines for the past few weeks. The issue is the entry of China into the World Trade Organization. The Administration has been trying to bring China under the internationally agreed rules of trade and U.S. negotiators have obtained sweeping concessions from the Chinese on a variety of trade issues. Congress, however, would have to approve any new agreements with China and many Congressmen are reluctant to approve an agreement because of accusations of Chinese human rights violations, allegations of spying on American weapons programs, and the spread of nuclear weapons. Greenspan's comments will likely help the President to win congressional approval of a trade pact.

(Updated June 1, 1999)

Questions Describe some of the measures that are used to restrict international trade?
2. Explain how free trade might result in unemployment for some individuals.
3. Explain how free trade benefits consumers.
4. What is "dumping?" Why would charges of dumping cause Congress to seek protectionist measures?
Source Richard W. Stevenson, "Greenspan Denounces Growing Protectionism", The New York Times, April 17, 1999.

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