February 6, 2005 07:16 AM
Greenspan Sees U.S. Trade Gap Stabilizing and Possibly Falling
Excerpt: Alan Greenspan, the chairman of the Federal Reserve, suggested today that the United States' record trade deficit may be poised to stabilize and even decline as a result of market pressures and promised spending restraint by the Bush administration.
Alan Greenspan, the chairman of the Federal Reserve, suggested today that the United States' record trade deficit may be poised to stabilize and even decline as a result of market pressures and promised spending restraint by the Bush administration.
Mr. Greenspan was speaking at a gathering here coinciding with a scheduled meeting of finance ministers and central bank governors from the Group of 7 leading industrialized nations.
His remarks contributed to a strengthening of the dollar today, which had fallen earlier when the United States reported weaker-than-expected employment growth in January.
The Group of 7 talks, ending on Saturday, are likely to devote much attention to the United States budget and trade deficits, the weakness of the dollar and the linkage of China's currency to the dollar.
Mr. Greenspan said one reason for the trade deficit to shrink was that foreign exporters selling goods in the United States might no longer be willing to keep prices down in the face of a weak dollar and accept smaller profits in order to preserve their American market share.
"We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins," he said. That would mean a reduction in the volume of imports but "leave the resulting value of imports uncertain."
Mr. Greenspan said American exporters' profit margins, bolstered by the weak dollar that makes American goods more affordable for foreign buyers, "appear to be increasing, which bodes well for future U.S. exports and the adjustment process."
"Besides market pressures, which appear poised to stabilize and over the long run possibly to decrease the U.S. current account deficit and its attendant financing requirements, some forces in the domestic U.S. economy seem about to head in the same direction," Mr. Greenspan said.
"The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume," he said, referring to promises by the Bush administration to restrain spending that has led to the huge budget deficit.
Mr. Greenspan and others have said that the United States trade deficit, estimated at close to 6 percent of the nation's gross domestic product, cannot be sustained at that level.
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