Federal Reserve

Fed's Dudley: Isolationism and trade war policies 'will fail'

Key Points
  • Globalism and expanded trade policies have helped the global economy more than they've hurt displaced workers, the Fed's William Dudley says.
  • He says efforts to suppress their growth won't work.
William Dudley, president of the Federal Reserve Bank of New York.
Mike Segar | Reuters

Globalism and expanded trade policies have helped the global economy more than they've hurt displaced workers and efforts to suppress their growth won't work, New York Fed President William Dudley said Thursday.

Dudley, an influential voice on the central bank's policy direction, offered a strong defense of open trade borders in a speech at the Bombay Stock Exchange in Mumbai, India.

"Countries need to compete better, not compete less," he said. "Trade barriers are a very expensive way to preserve jobs in less competitive or declining industries."

The remarks come at a time when open borders have come under increasing criticism, and they offer something of a rebuke to the Trump administration's vow to get tough on global trade agreements.

"Although the debate about globalization is not new, I believe we are at a particularly important juncture," Dudley said, according to a transcript of his speech. "If support for liberalized trade and an integrated global economy were to suffer a significant setback, the consequence could be slower economic growth and lower living standards around the world."

President Donald Trump won election in November in part on a platform that featured sharp criticism of pacts like the North American Free Trade Agreement, the Trans-Pacific Partnership and other measures in general that he said provide unfair advantages to other countries.

Though the administration has softened its rhetoric somewhat, concerns remain over protectionism and the potential for costly trade wars.

Dudley's speech did not take aim at the White House on any specifics, but he was vocal in his support of open borders.

"While the gains from a liberalized trade regime are not guaranteed, the alternative of trying to achieve a high standard of living by following a policy of economic isolationism will fail," he said. "Trade has played a key role in nearly all of the high-growth success stories since the middle of the last century."

He pointed specifically to India, which now accounts for about half of all U.S. computer imports. In fact, he said, much of Asia has benefited from more open trade relationships.

But the gains also reflect back to U.S. shores, he said.

"Consumers can benefit from lower prices, higher real incomes, and greater variety and quality of goods and services," Dudley said.

For areas of the economy that have suffered, Dudley advocated stronger programs to help displaced workers. However, he said establishing trade barriers to protect jobs will only result in a global trade war that will hurt the global economy.