Federal Reserve Chairman Paul A. Volcker said today that protectionist trade laws are not the way to deal with a huge U.S. trade deficit and applauded President Reagan for resisting such legislation.
The best way to cope, Volcker told a Senate committee, is to deal with the huge U.S. budget deficit.
While acknowledging that the trade deficit “is not healthy and not sustainable,” Volcker cautioned that “simply jumping on it with a lot of protectionist measures is going to get you more problems than you bargain for.”
Even if the trade deficit could be erased by some magical legislation, he said there is a serious question whether the United States has the industrial or employment capacity to make up the difference.
“I think resistance by the President and the Administration to these protectionist measures is admirable,” Volcker told the Senate Banking Committee.
Questioned specifically by Sen. Donald W. Riegle Jr. (D-Mich.) about a proposal to limit Japanese imports to the United States, Volcker raised the possibility that that could lower the volume of imported items but drive up the dollar exchange rate, so as to have no overall economic impact.
“You begin fooling around that way and you don’t know what the reactions will be and they may not be happy,” Volcker said.