Protectionism Could Spur World Recession--Volcker

Federal Reserve Board Chairman Paul A. Volcker said today that enactment of protectionist legislation such as a proposed Democratic-sponsored fee on imports could trigger a worldwide recession.

“I don’t think there would be any excuse for that kind of action now. It would be very destructive,” Volcker told the House Budget Committee.

Volcker said that, with oil prices falling and with the value of the U.S. dollar against foreign currencies far below its level of a year ago, any effort by Congress to restrict imports would send the wrong message to the rest of the trading world.

Instead, Volcker said the best way to ease the U.S. trade deficit, which soared to $150 billion last year, would be for Congress to further reduce the U.S. budget deficit and for other industrialized nations to adopt more growth-oriented policies.

Volcker was asked by Rep. Thomas J. Downey (D-N.Y.) to give his opinion of the economic impact of various measures in Congress to limit imports to protect hard-pressed U.S. manufacturing industries.

Downey said there remains considerable pressure in Congress to enact such measures. He cited, in particular, a proposal advanced last fall by House Democrats for fees of up to 25% on imports from nations such as Japan that have huge trade surpluses with this nation.

“If you want to produce a recession on a worldwide basis, that might be a good way to go about it. But I don’t think that’s the object of the game,” Volcker testified.