In Trump's shadow, Fed official says
trade barriers a 'dead end'
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[May 11, 2017]
By Suvashree Choudhury and Jonathan Spicer
MUMBAI/NEW YORK (Reuters) - Trade
protectionism is a "dead end" that may score political points but will
ultimately hurt the U.S. economy, one of the most influential Federal
Reserve officials said on Thursday in the central bank's strongest
defense yet of open borders in the face of a skeptical Trump
William Dudley, head of the New York Fed, did not mention U.S. President
Donald Trump by name in a speech at the Bombay Stock Exchange. But he
gave a full-throated economic and even political argument for resisting
trade barriers that he said would hurt growth and living standards in
both the United States and around the world.
"Protectionism can have a siren-like appeal," said Dudley, a close ally
of Fed Chair Janet Yellen and a key decision-maker on U.S. interest-rate
"Viewed narrowly, it may be potentially rewarding to particular segments
of the economy in the short term," he said in prepared remarks. "Viewed
more broadly, it would almost certainly be destructive to the economy
overall in the long term."
The Fed is independent but answerable to Congress, and its governors are
appointed by the White House and confirmed by the Senate. While Fed
officials usually avoid recommending fiscal policies, several have
highlighted the benefits of open borders since Trump was elected on an
"America First" platform of revamping or ripping up trade deals.
Dudley said he was speaking out because "we are at a particularly
important juncture" in which trade issues could imperil the long-term
health and productivity of the economy and "the economic opportunities
available to our people."
Barriers to trade are very costly, he said, because they blunt export
opportunities, make everyday goods more expensive, and they can often
"backfire" by harming workers who can no longer compete in a global
"There are many approaches to dealing with the costs of globalization,
but protectionism is a dead end," said Dudley, a former Goldman Sachs
partner who joined the New York Fed in 2007 and became its president in
the depths of the financial crisis in early 2009.
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William C. Dudley, President and Chief Executive Officer of the
Federal Reserve Bank of New York speaks during a panel discussion at
The Bank of England in London, Britain, March 21, 2017.
"Trying to achieve a high standard of living by following a policy
of economic isolationism will fail," he said in Mumbai.
The unusually pointed speech comes after the New York Fed published
research in recent months that warned against a Republican proposal
for a border-adjustment tax and Trump threat to ditch the North
American Free Trade Agreement. Both the Republicans and Trump have
since largely backed down from those positions.
The U.S. central bank has hiked interest rates twice since December
and expects to tighten policy about two more times this year as the
economy carries on a roughly 2-percent growth track, and as
unemployment at 4.4 percent remains low.
Dudley, who did not comment on rates in the speech, in the past has
said the Fed would adapt its approach as tax, spending and trade
policies emerge from Washington.
(Additional reporting by Rafael Nam in Mumbai; Writing by Jonathan
Spicer; editing by Diane Craft)
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