Bernanke extols benefits of globalization, warns against protectionist laws

Bernanke's remarks came amid higher trade tensions between the U.S. and China, and as global trade talks have stalled. Americans also are increasingly anxious about the potential of losing their jobs to workers in China and India, two emerging economic giants.

Against that backdrop, U.S. legislators - as they have through the years - may be tempted to enact protectionist measures to try to slow globalization.

Bernanke said that would be unwise.

"The challenge for policy-makers is to ensure that the benefits of global economic integration are sufficiently widely shared - for example, by helping displaced workers get the necessary training to take advantage of new opportunities," he said.

New technologies and faster communication make it easier for companies to look beyond national borders for cheaper workers. In the U.S., factory jobs have been lost to overseas competition or moved offshore, and some service-sector jobs have moved overseas.

U.S. President George W. Bush wants to sharpen America's competitive edge by bolstering math and science education, and encouraging research and development.

The United States racked up a record US$716.7 billion trade deficit last year, the fourth year running in which the deficit swelled to an all-time high. Last year's imbalance with China alone mushroomed to $202 billion, the largest ever with a single country.

Legislators in the U.S. Congress have suggested hefty tariffs on Chinese goods, among other measures, to clamp down on China and its currency practices. Critics contend China is keeping its currency artificially low, giving it an unfair trade advantage, hurting U.S. exports and contributing to the loss of U.S. factory jobs.

Bernanke didn't mention specific protectionist measures, but rather spoke in general terms.

The Bush administration says free trade is good for the country and that lowering barriers for U.S. companies to compete abroad gives the companies more opportunities to sell their products. Democratic critics say soaring U.S. trade deficits show Bush's policies aren't working.

Bernanke acknowledged there are challenges.

"The emergence of China, India and the former communist-bloc countries implies that the greater part of the earth's population is now engaged, at least potentially, in the global economy," Bernanke said. "There are no historical antecedents for this development. "

He said Christopher Columbus' voyage to the New World ultimately led to enormous economic change, but it took centuries for the New and Old Worlds to economically integrate.

"In contrast, the economic opening of China, which began in earnest less than three decades ago, is proceeding rapidly and, if anything, seems to be accelerating," he said.

Bernanke's speech marked his first address to a high-profile economics conference as chairman of the central bank. A well-respected economist, longtime professor and a former Fed member, Bernanke succeeded longtime Fed chairman Alan Greenspan.

Allan Meltzer, a professor at Carnegie Mellon University, viewed Bernanke's speech as "making a good case for free trade."

Bernanke avoided discussion of the future course of interest rates in the United States. With his guidance, the Fed this month halted the longest unbroken stretch of interest rate increases in recent history. The Fed had steadily boosted rates since June 2004 to fend off inflation.

But with the economy losing steam, the housing market cooling, job growth slowing and consumers turning cautious, the Fed decided to take a breather to assess how its previous rate increases - which take time to work their way through the economy - are affecting economic activity.

The Fed's goal is to raise rates enough to thwart inflation, but not so much that the economy is crippled. The Fed's next meeting on interest rates is Sept. 20.

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