Federal Reserve chairman Ben Bernanke on Tuesday offered a strong defence of globalisation and free trade, saying these forces have made economies stronger and have not resulted in a loss of jobs.
Bernanke, in remarks prepared for an economic development summit in Montana, sought to debunk the notion that free trade has led to a loss of US jobs, and argued that it has been beneficial overall, even though some people are adversely affected.
"Our willingness to trade freely with the world is indeed an essential source of our prosperity - and I think it is safe to say that the importance of trade for us will continue to grow," Bernanke said. Bernanke said any effort to restrict trade by imposing tariffs, quotas, or other barriers "is exactly the wrong thing to do."
"Such solutions might temporarily slow job loss in affected industries, but the benefits would be outweighed, typically many times over, by the costs, which would include higher prices for consumers and increased costs (and thus reduced competitiveness) for US firms," he noted.
"In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for US firms and lower living standards for US consumers." Bernanke acknowledged that some industries such as textiles, have lost jobs, but that the lost jobs have been replaced in general by higher-paying ones that deal with exports.
"The US jobs created by trade also tend to offer higher pay and demand greater skill than the jobs that are destroyed - although a downside is that, in the short run, the greater return to skills created by trade may tend to increase the wage differential between higher-skilled and lower-skilled workers and thus contribute to income inequality," he said.
Outside the US, he said trade and globalisation "are lifting hundreds of millions of people out of poverty, especially in Asia, but also in parts of Africa and Latin America."
He argued that trade "is proving far more effective than traditional development aid" for poor nations. Bernanke said the Doha Round of talks to further liberalise trade appears to be stalled because "the benefits for some people may not exceed the costs, at least not in the short run." But he said this is a short-sighted view.
"Because the benefits of trade are widely diffused and often indirect, those who lose from trade are often easier to identify than those who gain, a visibility that may influence public perceptions and the political process," he said. Bernanke said there appeared to be no direct correlation between trade deficits and unemployment, with the United States having a low jobless rate despite its high trade gap.
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