NCPA - National Center for Policy Analysis

Flexible and Open Economies Adjust

November 21, 2003

Alan Greenspan, chairman of the Federal Reserve Board, has implicitly criticized the Bush administration's increasingly combative stance against foreign imports.

Speaking on Thursday, just two days after the Commerce Department announced plans to impose new import quotas on selected Chinese textiles, Greenspan warned that the "clouds of emerging protectionism" raised new risks for the global economy.

His main message was:

  • The global economy has become far more flexible and open to cross-border financial flows.
  • And flexible economies like those of the United States are most likely to adjust to financial imbalances without great disruption.
  • That deficit totals about $500 billion this year, a record in absolute terms and as a share of the nation's total economy.
  • It has been driven primarily by the continued large trade deficit, including a deficit with China of well over $100 billion this year, as well as by big new borrowing to cover federal budget deficits.
  • Also, the current account deficit was at record levels and was unsustainable.

The current account deficit is equal to about 5 percent of the total American economy. Total net foreign claims on United States residents - the United States assets owned by foreigners versus the foreign assets owned by Americans - is equal to about 25 percent of the total economy.

Source: Edmund L. Andrews, "Greenspan Voices Concerns on U.S. Efforts to Limit Imports," New York Times, November 21, 2003.


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