As prepared for delivery
SAN FRANCISCO - It is a pleasure to be back at the
Commonwealth Club, one of our nation’s great forums for the discussion of
Three years ago,
President Obama laid out a broad strategy for rebuilding the American economy.
He recognized then,
as I am sure all of you do, that we live in a global economy, and this global
economy will be a potential source of economic growth for the United States,
but also a source of challenges.
recognized that to confront the global financial crisis, we had to work to
support growth around the world, not just focus on putting out the financial
fires in the United States. He recognized that American workers and
American companies faced more intense competition, as other nations work to attract
investment and factories, research and development facilities, and engineers
And he recognized
that to build a stronger foundation for growth in the United States, we could
no longer borrow lavishly from the rest of the world to finance an economy
driven by consumption and housing. Future growth would have to come more
from investment and exports, and we would have to return to living within our
The President put in
place a powerful and effective strategy for rescuing the American economy from
the financial crisis. As a result of
these policies and those of the Fed, the American economy went from falling at
an annual rate of about 9 percent at the end of 2008, to positive growth in the
summer of 2009. We helped pull the world economy back from the brink of a
global depression. And the early years of recovery have been led by investment
In 2010 and 2011, as
the engine of the American economy started to work again, we were hit by the
European crisis, by Japan’s disaster, and by higher oil prices. Economic growth slowed, and so did the pace
of repair of the damage left over from the crisis. These were powerful
reminders of the ways in which events beyond our borders can affect how fast we
But parts of the
world, and particularly emerging markets, have been a source of strength for
the United States since the crisis. China has been a significant part of
this growth. Overall, American exports
have increased about 34 percent since 2009. American workers and American
companies are becoming more competitive, productivity is up, supported by rapid
increases in private investment, financed by a recovering financial
Next week, the
Secretary of State and I travel to China for the fourth round of the U.S. –
China Strategic and Economic Dialogue (S&ED). No other country presents China’s particular
mix of opportunities and challenges.
I want to talk about
those opportunities and challenges, but I will start with a few fundamental
propositions about our economic relationship with China.
First, the economic relationship between the
United States and China provides significant benefits to both our nations. Even though we compete in many areas, our
economic strengths are largely complementary.
Second, China faces a very complicated set of
challenges as it transitions toward a more open, market oriented economy and
financial system, facing rising costs, and slowing labor force and productivity
Third, our priorities in our economic
relationship with China – from its exchange rate to its treatment of
intellectual property – reflect changes that are fundamentally in China’s
interest and essential for sustainable economic growth.
Fourth, and finally, the prosperity of
Americans depends most importantly on the economic policies we pursue to
strengthen American competitiveness. Even as we work to encourage further
reforms in China, we need to understand that our strength as a nation will
depend not on choices made by China’s leaders, but on the choices we make here
We have focused our economic policy toward
China on achieving two broad strategic objectives:
The first is to expand opportunities for U.S.
companies to export and sell to China, to level the competitive playing field,
and to encourage economic reforms that would move China away from its export-oriented
growth model and extensive subsidies for Chinese companies.
Our second objective is to deepen our
cooperation with China on a range of international economic and financial
issues, so that we are better able to work together on common global
challenges, like the global financial crisis of 2008-09 and the ongoing
European crisis. We want to build a
stronger framework for economic cooperation that will allow us to balance the
economic interests of what are – and
will be for the foreseeable future – the two largest economies in the world.
We have made significant
progress on these objectives over the past three years.
early 2009, U.S. exports of goods to China have almost doubled, growing twice
as fast as our exports to the rest of the world. In 2011 alone, the United States exported
around $130 billion in goods and services to China, supporting well over
600,000 jobs here at home. Exports of
goods from California exceeded $14 billion, supporting more than 65,000 jobs.
has committed to improving the protection and enforcement of U.S. intellectual
property rights. To make sure that government agencies only use legitimate
software, China has committed to increase budgetary resources for software
purchases, to conduct audits and inspections, and to accelerate deadlines for
provinces and municipal government to use only legal software. China also committed that technology transfer
and technology co-operation is not a precondition for access to the Chinese
China’s efforts to encourage indigenous innovation by limiting government
purchases to an approved list of Chinese domestic products threatened to
undermine market access for U.S. firms, President Obama successfully pressed to
unwind China’s indigenous innovation accreditation system.
has opened up new sectors to foreign firms, such as auto liability insurance
and bond underwriting.
cut some tariffs earlier in the year, and China has launched a pilot program to
reduce taxes on services, which we hope will be part of a larger reduction in taxes
and tariffs which can make the price of consumer products in Shanghai twice as
high as in San Francisco.
to be prepared to negotiate new rules on official export financing with the
United States and other major exporters so that U.S. goods and services will be
competing based on quality and price rather than the terms of foreign
exchange rate has appreciated and is up about 13 percent against the U.S.
dollar when accounting for differences in inflation since June 2010 and 40
percent since 2005. China also recently
announced that it is widening the band to allow market forces to play a greater
role in setting the exchange rate and is continuing to remove controls on
capital flows in and out of China.
trade surplus fell to less than 3 percent last year, compared to around 8
percent of China’s GDP the year before President Obama entered office.
important progress, we have unfinished business and new challenges ahead.
Looking forward, in
addition to our long-standing concerns with piracy of U.S. intellectual
property, government procurement preferences, taxes and tariffs and other
limitations on market access in some sectors, there are several Chinese reforms
that are particularly important to the United States.
financial system is still dominated by large state-owned banks, who favor
lending to large state enterprises, with comprehensive controls on deposit
interest rates. This system limits the
returns to savers to below the rate of inflation, forcing them to save
excessively to achieve their financial goals and insure against life’s
risks. This both limits consumption and
starves China’s most innovative firms and sectors of capital, despite massive
Savers in search of
higher yields and private firms in search of funds to grow their businesses
gravitate to informal financing, with less prudential regulation and consumer
protections. In a step in the right
direction, China launched a pilot program last month in Wenzhou to allow new
private lenders to lend to private enterprises.
To promote a more
efficient financial sector and more efficient financial intermediation,
interest rates will need to better reflect market forces. Raising the ceiling on deposit rates will
also allow Chinese households to earn a higher return on their savings, both
increasing their income and reducing their need to save, thus increasing their
ability to consume goods and services, including from the United States.
sector reforms are critical to China’s continued growth – and that growth in
turn represents tremendous opportunity for American companies and workers
building and growing the things and offering the services the Chinese most
seek. Financial reform in China will help reduce one of the main advantages
China’s state-owned enterprises have in competing with U.S. companies.
China’s state-owned enterprises still compete with a range of unfair advantages
in the Chinese and global markets. They
have privileged access to cheap land, resources, and credit. They monopolize many of the most profitable
sectors in China, including oil and telecommunications. But even where state-owned
enterprises compete with private enterprises, their implicit backing by the
Chinese government discourages private firms’ entry and expansion.
into large state enterprises, while many of China’s most dynamic private firms are
starved for credit, ultimately hurts China’s economy, and recent studies have
highlighted how much more inefficient Chinese state enterprises are than their
private counterparts. But it also hurts
U.S. companies and workers who compete with these firms.
If China’s state
enterprises want to be treated like commercial enterprises by the rest of the
world, they need to act more like commercial enterprises, including by paying
market-based dividends to their shareholders and making their corporate
governance and finances less opaque.
Finally, while we
welcome the reforms to China’s exchange rate system, the process of
correcting the misalignment of the exchange rate remains incomplete, and the Chinese currency needs to appreciate
further against the dollar and the other major currencies.
A stronger, more market-determined renminbi will
help reinforce China’s reform objectives of moving to higher value-added
production, reforming the financial system, and encouraging domestic
demand. It will provide China the
independence and flexibility to respond to future changes in growth and
inflation. And it will help the world
economy, reducing a source of unfair competition with China’s trading partners.
As we have worked to
advance reforms in China, we have been forceful in protecting American
companies from unfair competition.
the Department of Commerce has issued a total of 36 antidumping and
countervailing duty orders on unfairly traded imports from China.
President used the Section 421 safeguard remedy for the first time to protect
U.S. jobs in the tire industry from a harmful surge in Chinese imports.
successfully challenged China in the WTO, including most recently on China’s
export restraints on raw materials, limitations on the distribution of film and
other media, and subsidies benefitting its domestic wind power sector.
The President recently announced the creation
of the Interagency Trade Enforcement Center to aggressively challenge foreign
unfair trade practices, including from China.
We have been aggressive in protecting our interests and will continue to
These are our main
objectives and concerns with China.
China, of course, wants certain things from the United States. China wants greater access to U.S.
technologies and high-tech dual use exports.
It wants to be able to invest more in the United States. It wants to continue to have access to our
market and would like to be accorded the same terms of access as exports from
countries we consider market economies.
We are willing to
continue to make progress on these issues, but our ability to do so will depend
in part on how much progress we see from China on issues that are important to
I want to conclude by emphasizing again that the solutions to our
challenges in the United States rest first and foremost in the policies of Washington,
not of Beijing.
Fundamentally, how many jobs and how much wealth we create will be the
result of the choices we make in the United States – not the choices of others.
In our efforts to rebuild and put Americans back to work, we have to
make sure we are making the investments and reforms that will be essential to
our capacity to grow in the future.
As countries like China, India, Brazil, and other emerging economies
grow and expand, we want to see a substantial part of that growing demand outside of the
United States met by goods and services that are created and produced in the
United States and fueled by investment in the United States.
If we are successful in doing that, we will be stronger as a nation. But to be successful in meeting that
challenge, there are things we must do.
Investments in education, to help Americans compete in the global
economy. Investments in innovation, so
that our economy can offer the best jobs possible. Investments in infrastructure, to reduce
costs and increase productivity. And
reforms to improve incentives for investing in the United States – including
reform of our business tax system.
These investments and reforms have to come as part of a carefully
designed, balanced package of long-term reforms to restore fiscal
These are our economic challenges. And they are not just an
economic imperative, they are a national security imperative. Our
strength as a nation depends on the ability of our political system to move
quickly enough to put in place solutions to our long-term problems.
Our great strengths as a country remain our openness to ideas and
talent, our capacity to innovate, our excellence in higher education, a
willingness to invest public resources strategically in scientific research and
discovery, and the political will to confront challenges with wisdom and force.
China’s rise offers us the opportunity of dramatic growth in demand for
things Americans create and produce.
We should welcome both the opportunity and the challenge.