Greenspan Opposes Sanctions on China

WASHINGTON —  As the proposed Chinese purchase of Unocal Corp. fanned protectionist passions in Congress, Federal Reserve Chairman Alan Greenspan warned senators Thursday not to let their frustrations with China’s economic policies breed reactions that would do the U.S. economy more harm than good.

Proposed tariffs against Chinese goods and other forms of protectionism would significantly lower U.S. living standards and would not save American jobs, Greenspan told members of the Senate Finance Committee.

Senators of both parties greeted his comments skeptically. Sen. Susan Collins (R-Maine) said China and other Asian countries “cheat in order to win -- at the expense of U.S. manufacturers that play by the rules.”

“I consider myself a free trader,” said Sen. Ron Wyden (D-Ore.), “but I don’t think being a free trader is synonymous with being a sucker.”

Collins and Wyden made their comments during a Finance Committee hearing a day after CNOOC Ltd., a major government-controlled Chinese oil company, announced an $18.5-billion offer to buy Unocal, an oil company based in El Segundo.

Thanks to the dollars it gains from its huge trade surplus with the U.S., China already has massive investments here, mostly in Treasury securities. Unocal would be China’s largest acquisition of a non-Chinese company.

China came in for stinging criticism by senators both serving on the Finance Committee and testifying before it. They cited China’s currency policies and its treatment of copyrights and other intellectual property, among other issues.

“I do not believe the communist leaders of China believe in free trade,” said Sen. Charles E. Schumer (D-N.Y.), a committee member. Schumer has proposed legislation that would slap a 27.5% tariff on imports from China if that country did not let international markets determine the value of its currency, the yuan.

Schumer and many others argue that China’s peg of its currency to the dollar has artificially lowered the yuan’s value, thus reducing the prices of Chinese goods and services that compete with American products.

Schumer said his bill was not protectionist: “It’s the opponents of our bill who are the protectionists. They are protecting China from joining the community of free trade.”

While supporting the premise that revaluing the yuan would be good for China and the global economy, Greenspan testified that he was “aware of no credible evidence” that revaluing the Chinese currency “would significantly increase manufacturing activity and jobs” in the U.S.

Many of the goods sold in the U.S. with a “Made in China” label are merely assembled in China from parts made elsewhere in Asia. If the yuan -- and therefore Chinese labor -- were more expensive, those goods would be assembled elsewhere in Asia, at no net benefit to the U.S., Greenspan said.

Likewise, he said, Schumer’s proposed tariffs on Chinese goods “would significantly lower U.S. imports from China but would comparably raise U.S. imports from other low-cost sources of supply in Asia and perhaps Latin America as well. Few, if any, American jobs would be protected.”

Greenspan credited the relatively free flow of goods and services across national borders with enabling the global prosperity of the last six decades.

“A return to protectionism would threaten the continuation of much of the extraordinary growth in living standards worldwide, but especially in the United States, that is due importantly to the post-World War II opening of global markets,” he said.

For lawmakers worried about U.S. job losses, Greenspan recommended that they bolster job retraining programs and improve education in middle and high schools.

Most of the senators were in no mood for Greenspan’s economics lesson.

Wyden, sounding alarm bells over the potential Chinese purchase of Unocal, pointed out that a 1988 law required a committee led by the Treasury secretary to review purchases by foreign entities that might have national security implications. The Oregon senator asked Treasury Secretary John W. Snow, who testified with Greenspan, whether he intended to review the Unocal deal.

“It’s hypothetical at this point, because we don’t have a transaction,” Snow replied.

“If you don’t review this one,” Wyden shot back, “then that law is meaningless.”

Wyden focused on widespread charges that China steals U.S. technology and refuses to recognize or enforce U.S. copyrights and other protections for intellectual property. He proposed that the Treasury Department list Chinese products made with stolen U.S. technology.

That way, he said, “every time a U.S. consumer walked into a major store in this country, they would know who in China was ripping them off.”

Collins, the Maine senator, appeared before the committee as a witness for a bill that would allow the United States to place duties on imports from countries with nonmarket economies, intended to offset any government subsidies that those imports enjoy. Similar duties are already authorized for countries with market economies.

“Countries such as China want to have all the benefits of engaging in international trade,” Collins said. “They cannot be allowed to continue to cheat on the system with no penalties.”