PROTECT US FROM PROTECTIONISTS
April 25, 2005
Imports have played a role in America's success. Bargains from China and other countries directly lower Americans' cost of living. When consumers pay less for clothes, shoes and electronics, they have money to spend elsewhere -- to the benefit of local businesses, says Richard W. Fisher, president of the Federal Reserve Bank of Dallas.
In the U.S. corporate sector, cheaper inputs and components have helped producers lower their costs. More important, competing against China and other rivals forces U.S. producers to cut costs and bolster efficiency -- a crucial link between imports and surging productivity, says Fisher.
Imports have helped us control inflation in recent years:
- Since 1997, prices for many heavily traded goods have actually fallen: 86 percent for computers and peripherals, 68 percent for video equipment, 36 percent for toys, 20 percent for women's outerwear, 17 percent for men's shirts and sweaters.
- Prices of goods and services not subject to foreign competition have fared less well: college tuition and fees, up 53 percent; cable and satellite television, up 41 percent; dental services, up 38 percent; prescription drugs and medical supplies, up 37 percent.
We couldn't have kept overall inflation in the neighborhood of 2 percent in recent years without imports. Protectionism forces consumers and producers to pay more for foreign goods. Domestic firms raise their prices as import competition slackens, says Fisher.
Whatever fuels inflation heightens the need for monetary restraint. With our markets open, inflation has been reasonably well contained. If protectionism were to unleash inflationary pressures, our central bank would have no choice but to fight back with tighter monetary policies, resulting in higher interest rates and a likely dampening of growth, says Fisher.
Source: Richard W. Fisher, "Protect Us From Protectionists," Wall Street Journal, April 25, 2005.
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