Greenspan warns of protectionism in response to economic downturn

Greenspan told the Senate Finance Committee he was concerned the United States and its major trading partners would pull back from a free trading stance as competition increases in shrinking global markets.

"The reason it concerns me is history is very much suggestive that there is a tendency, when economic growth slows down, that people eschew competitive pressures, because in a slowing economy it's tough enough to do business," Greenspan said in response to a senator's question.

"And there is a normal desire to seek - I wouldn't use the word protection, but a lessening of competition."

He said the response from lawmakers should be exactly the opposite in an economic downturn.

"And there is no question in my mind that as the economy slows, we of necessity must accelerate our endeavours towards free trade," he said.

Greenspan gave a strong argument for free trade and increased competition across the globe, saying that broadening trade flows "has fostered markedly higher standards of living for almost all countries that have participated in cross-border trade." He said globalization of trade has been boosted by dramatic technological advances in recent years that lowered the costs of gathering information and conducting business transactions.

"Nonetheless, the campaign to expand free trade is never won. Though tariffs in industrial countries have come down sharply over past half-century, other barriers have become more prevalent," he said, citing administrative protections and lawsuits to shield certain sectors.

Greenspan said free trade tendencies were disrupted by the two world wars and trade barriers were erected due to the lingering hostilities from the conflict and the division of communist and capitalist systems. He said conditions were only now returning to what existed before World War I.

"To repeat that error would increase poverty among a significant segment of the world's population," he said.

(kil/dpa)