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'China trade war must be avoided'
Updated: 2005-06-25 08:47

WASHINGTON: Federal Reserve Chairman Alan Greenspan urged Congress on Thursday to find a "less destructive" outlet for its frustration over China's trade and exchange-rate policies, saying a proposal to slap tariffs on Chinese imports would have "extraordinarily negative" consequences for the world economy.

Greenspan and Treasury Secretary John Snow sought to head off legislation that would impose tariffs of as much as 27.5 per cent on Chinese imports if China fails to change its fixed exchange-rate system within two years. "If that ever gets implemented the consequences, in my judgment, are extraordinarily negative," Greenspan told the Senate Finance Committee, referring to a bipartisan bill known as the China Free Trade Act.

Greenspan and Snow counselled Congress to be patient a little longer for China to move to a more flexible currency system.

Snow said tariff increases, if enacted, would not only harm the US economy, but would also delay any action by the Chinese Government to loosen its peg.

Greenspan agreed. "There is no crisis at this particular stage," he said. "If there's a crisis we'll all get together and solve it, but that's what we're trying to avoid." Raising tariffs on Chinese imports, he said, would hurt US consumers without reducing the giant US trade deficit or protecting US jobs.

He urged Congress to avoid "actions based on frustrations which don't address the real problem."

Greenspan played down the significance of the US trade deficit with China.

"The widening of the United States' bilateral trade deficit with China, measured gross, has been largely in lieu of wider deficits with other Asian economies, including Japan," he said.

"Measured by value added, our bilateral deficits with China would have been far less, and our bilateral deficits with other Asian exporters would have been far more."

Accordingly, a decision by the Chinese Government to revalue its currency, which is also known as the renminbi, would merely "redirect trade within Asia."

"Some observers mistakenly believe that a marked increase in the value of the Chinese renminbi relative to the US dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion," he said.

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