As prepared for delivery
WASHINGTON - It is great to be at SAIS, a graduate center with a proud tradition of training the next generation of policy makers to understand the complex world they are about to enter.
Like many people who travel frequently between Washington and New York, I am often struck by a sign that hangs on the Lower Trenton Bridge: "Trenton Makes, the World Takes." Nearly 80 years ago, a Trenton entrepreneur came up with this simple message that represents our past, and our future. It reflects the innovation and tenacity of America's workers and businesses that make our economy competitive. America has, and will, create and build things the world wants to buy.
Since being confirmed as Treasury Secretary in February, I have had the opportunity to see the power of our economy up close. In Alpharetta, Georgia, I visited a Siemens factory and saw how a foreign-based company is investing in the United States, and American skilled workers are selling high technology and products to China. During recent visits to China and Europe, I saw again that policymakers throughout the world are confronting critical challenges, and making decisions in their own economies that will ripple through all of our economies.
As we welcome finance officials from around the globe to Washington for the spring meetings, I will focus our efforts on making progress in four important areas: We need to see stronger global growth. We need to make sure that growth is sustainable. We need more resilient financial sectors. And we need to move trade and international development forward so that the opportunities of growth are shared broadly.
I will briefly elaborate on how we are pursuing these priorities.
First, it is important to strengthen demand globally.
The U.S. economy is improving across many sectors –– from housing to manufacturing to energy. Our economy has now expanded for 14 consecutive quarters. Private employers have added nearly 6 and a half million jobs over the past 37 months. We have navigated a careful balance between providing support to the private sector while undertaking deficit reduction at a measured pace. The President's Budget proposes an additional $1.8 trillion over the next 10 years, in addition to more than $2.5 trillion in deficit reduction already enacted.
But we need to do better to grow faster and create more jobs. The President's budget lays out initiatives to grow our economy and improve our competitiveness. It launches advanced manufacturing hubs around the country, invests in research and technology, and promotes expanding domestic energy production – including clean energy and natural gas. It invests in repairing and strengthening our infrastructure – so America has the roads, railways, and ports to compete in the future. It invests in training our workforce with the skills our economy demands and which will lead to higher wage jobs. And it helps communities hit worst by the recession and it would adjust the minimum wage so that full-time workers are not stuck in poverty. Every one of these initiatives is fully paid for, and will not add a dime to the deficit.
Now, while we can and must do more at home to create jobs, our recovery remains inextricably tied to economic conditions in other parts of the world.
In particular, stronger demand in Europe is critical to global growth. We have an immense stake in Europe's resilience, as I underscored when I recently met with European leaders. In contrast to growth in the U.S., output has fallen in the euro area for the past five quarters and unemployment is at or approaching record highs in several countries. The current debate in Europe on its economic future is critical. They must decide: how to better support demand and strengthen the transmission mechanism through an appropriate mix of macroeconomic tools, how to better balance the pace of fiscal consolidation with the need for growth, and how to ensure that surplus countries contribute more to demand as deficit countries undergo adjustment.
Second, we must rebalance global demand to make it sustainable. There is now broad agreement that we cannot return to a pattern of global growth that is built on the U.S. being the world's importer of first and last resort. Looking ahead, the United States must raise national savings, and emerging and more rapidly growing parts of the world, like Asia, must increasingly rely on domestic demand.
This shift is already underway. When I met China's new leaders, they reaffirmed their commitment to reforms. They recognize the need to transition away from excessive reliance on domestic investment and exports with Chinese consumers playing a growing role in driving demand. As China's standard of living rises and the Chinese buy more, more opportunities will be created for American businesses to compete to export our goods and services.
We have seen China's current account surplus fall from 10.1 percent of GDP in 2007 to around 2.3 percent in 2012. Exchange rate appreciation has played an important role in reducing China's surplus. Sustaining progress will require China to introduce additional reforms to help spur domestic household consumption. It will also require further appreciation and market determination of the renminbi. As we noted last week, we are concerned that in recent months, movement towards more currency flexibility appears to have slowed and the pace of China's intervention in the market has picked up.
We will continue to press G-20 countries to avoid a downward spiral of "beggar thy neighbor" policies. It is imperative that all G-20 countries follow through on their recent commitment not to target exchange rates for competitive purposes. We will also remain vigilant that all G-7 members adhere to their commitment in word as well as action to avoid targeting exchange rates, to orient monetary and fiscal policy toward meeting domestic objectives, using only domestic instruments.
Third, strengthening the international financial regulatory reform agenda remains imperative. Given the realities of national regulation and global markets, we must all remain committed to the efforts underway at the G-20 and the Financial Stability Board (FSB) to make financial reforms around the globe conform to the highest standards. The U.S. is committed to implementing fully enhanced liquidity, leverage and capital safeguards, as agreed under Basel III. We are advancing comprehensive regulation of OTC derivatives markets, an orderly liquidation framework, and recovery and resolution plans so that the largest most complex financial institutions can be wound down in an orderly manner without burdening taxpayers.
Strong and sound banks are essential for resuming credit creation and supporting growth in Europe. But banking systems must have strong and credible backstops, particularly when banks are large relative to the size of their home market. Recent events in Cyprus highlight the importance of Europe redoubling efforts toward a full banking union, including not only a single supervisory mechanism but also resolution authority and recapitalization capacity, along with a backstop for deposit insurance. This will require building a framework for oversight and risk sharing across the euro area that matches with the cross-border reach of the banking sector and restores confidence.
To protect the international financial system and our own national and economic security, we are also combating illicit finance and cybercrime. We are continuing to work closely with our international partners – both governments and banks alike – to disrupt and dismantle illicit financial networks. We are also committed to reducing future cyber threats. While I was in China last month, I had frank conversations with China's leadership about the importance of addressing those threats and emphasized that cyber-enabled theft of U.S. business confidential information and trade secrets has become a key point of concern in our economic relationship.
Finally, trade and development. The United States is uniquely positioned to take advantage of opportunities presented by a dynamic Asia. That is why we are working to conclude ambitious trade negotiations with 11 other Asian Pacific economies under the Trans-Pacific Partnership Agreement. Last week, we took an important step toward Japan's participation in the Trans-Pacific Partnership negotiations. Through close consultations with Congress and domestic stakeholders, we will seek to address issues critical to American workers and businesses, to create a level playing field and enforce rules of the road. There were skeptics when we first began this process but it is now clear that the United States can lead the way in setting high standards with like-minded countries through our trade agreements.
As Europe will remain a significant source of our future trade, we will pursue an ambitious, comprehensive, and high-standard Transatlantic Trade and Investment Partnership. We will seek the full elimination of tariffs, reductions in non-tariff barriers, including important work toward bringing our regulatory and standards regimes closer together, and disciplines that address emerging challenges for global trade, such as state-owned enterprises and localized barriers.
Our future will also be shaped by the destinies of billions of people living in developing countries. Many of them are under the age of 30. We have a moral and economic imperative to advance prosperity and security for people beyond our borders. But these are not challenges the U.S. can tackle alone.
That is why we must safeguard our leadership in the international financial institutions. At a time of constrained resources, they provide unparalleled leverage, working side by side with U.S. bilateral assistance to tackle global challenges. In Africa, the World Bank and regional banks are helping small farmers to grow more and earn more to end food insecurity. They are making investments to build resilience against climate change as well as mitigating its effects. In the Middle East, the international institutions are helping to build new economies and replace old systems that bred inequality, injustice, and corruption.
As we approach the Millennium Development Goals in 2015, we have an important opportunity to reflect on our collective progress and renew our commitment to build sustained prosperity. There has been tremendous progress but in too many places, too many people still live without power, roads, clean water, and access to basic health services. If we want to spread growth to more places, capital will have to flow to markets where it will do the most good, and not just where economies are well established. This means developing countries must accelerate reforms to build investment-friendly environments. And the World Bank and regional development banks should reduce risk for private capital, unlocking greater investments for infrastructure in poor countries.
Just as we are relying on international institutions to advance our interests, we must be careful not to take our leadership position for granted. Therefore it is imperative that the U.S. immediately implements the 2010 IMF quota reform, as proposed in the President's Budget, that preserves our veto with no new financial commitments, while enhancing the firepower and legitimacy of the IMF.
Before I close, let me just say that the world is profoundly different from the era in which the Trenton Bridge sign was imagined. But that ambition – of America building its competitiveness – is still strong and shared in every community across our vast country. We are restoring our economic strength at home. And we are in a much stronger position today to advance America's interests on the international stage than we have been in a long time.