As prepared for delivery
WASHINGTON - Our
country’s economic future lies primarily in our own hands. But the choices China makes as it navigates
its next phase of development will matter greatly for the kind of international
playing field our companies, workers, farmers, and ranchers will face.
That is why the President has worked hard from day one to
make our economic relationship with China more balanced so that it yields
greater benefits for American workers and exporters and China no longer plays
by a different set of rules.
At every juncture, the President and his economic team have
pressed China to abide by international norms, especially given its outsized
role in the international trading system.
We have highlighted the costs of not adopting these norms, and we have
moved forward with forging higher standards with like-minded countries.
The President has demanded changes where our core economic
interests are at stake, and we have used all available mechanisms effectively
and aggressively to defend them—including through the World Trade Organization
(WTO) and the newly-created trade enforcement center that investigates unfair
trading practices.
We have sought to work with the grain of the reform agenda
many in China are advocating. We have
highlighted the importance of rebalancing growth and leveling the playing field
so that China avoids the middle-income trap and navigates its demographic transition.
And we have done so without undue drama by cultivating
greater clarity and predictability in our bilateral engagement. We have worked hard to find common ground,
recognizing that the first and second largest economies share an overwhelming
interest in building a more robust global economy.
Today, our approach is yielding measurable gains. Exports to China have grown by over 50
percent since 2009—in line with the President’s strategy of doubling exports in
five years. For the first time in decades,
consulting companies are highlighting the attraction for global companies of
bringing jobs to the United States, or “insourcing” their operations—citing
heightened competitiveness relative to other markets. And employment in U.S. manufacturing has increased
month after month, adding more than 500,000 new jobs since 2010.
Let me briefly elaborate on these four aspects of our
approach.
First, China’s economy is now too large for it to pick and
choose which rules it will follow without risking the integrity and legitimacy
of the international system on which China’s growth depends.
China’s persistent exchange rate undervaluation in the years
following its admission to the WTO is a vivid example of the impact China’s
policy choices have on the international system. From the time China joined the WTO to 2006,
its trade-weighted exchange rate depreciated by 15 percent, adjusting for
inflation. Of course, with China’s
productivity growth outpacing that of its trading partners, we should have seen
strong appreciation throughout the period.
This was not just our assessment; it was the International Monetary
Fund’s (IMF) as well. China’s current
account surplus shot up from roughly 1 percent of GDP to over 10 percent by
2007.
To compensate for the RMB’s growing undervaluation, China’s
trading partners either resisted appreciation of their own exchange rates,
thereby amplifying the distortion, or bore an undue burden of adjustment. The strains placed on the global economy
sorely tested the legitimacy of the WTO and the IMF.
From day one, we have stressed that this approach is bad for
China and unacceptable to the United States.
With demand in many advanced economies expected to remain
weak for some time, and with a steep demographic cliff fast approaching, China
faces tough choices to sustain growth and avoid the middle-income trap. The policy choices China makes will be
important to America’s economic interests—to our exports, our workers, our
businesses, and our farmers.
Only by moving from an economy dependent on external demand
and exports to one driven by domestic consumer demand; an economy dependent on
over-investment in resource-intensive industries to reliance on higher value
activities; and an economy dependent on adoption and adaptation of foreign
technology to one that nurtures innovation, can China sustain its growth.
As it makes this transition, China’s domestic goals will be
well served by the same principles that we pursue in our trade and investment
agenda. China will be able to transition
to higher value activities and develop robust innovation capacity only if it
protects and enforces intellectual property rights, opens its government
procurement market, eliminates preferential treatment of state-owned
enterprises (SOEs), and compels its exporters to compete on the strength of
their product offerings. It will not
work with below-market input prices, an undervalued exchange rate, and
pervasive intellectual property violations.
Of course, as China makes this transition, it will have a
growing interest in improving access to investment opportunities in America’s
dynamic markets and to our highly innovative products and services. We are
willing to make progress on these issues, but our ability to do so will depend
on how much progress we see from China.
And we are seeing some progress. Alongside China’s growth in wages—a welcome
boost to household incomes—exchange rate appreciation is starting to make a
difference for our exporters and our workers.
China’s current account surplus has fallen by over 6 percentage points
of GDP, reflecting an 11 percent appreciation of the currency against the
dollar in inflation-adjusted terms.
China has taken a number of steps in recent months to reform
and open its financial markets, which are critical to leveling the playing
field and making the transition to sustainable growth. China has widened its exchange rate bands and
reduced intervention in the foreign exchange market. China’s capital controls are being cautiously
dismantled. Financial authorities are
allowing greater market determination of interest rates. Through the U.S.-China Strategic and Economic
Dialogue (S&ED), we have secured improved access for foreign financial
services firms in securities and casualty insurance, as well as a greater
ability for them to expand their offerings of financial products.
But this is not enough.
We will continue to press China to make more progress and provide
greater transparency to meet its G-20 commitment to enhance exchange rate
flexibility, avoid persistent exchange rate misalignment, and refrain from
competitive devaluation.
We will continue to press China to address the rampant theft
of intellectual property, including trade secrets, to meet international
standards. Following intense engagement
at the highest levels, China reversed a set of policies that would have
discriminated against foreign intellectual property. In large part because of efforts by the
Department of Commerce and the U.S. Trade Representative (USTR), China
established a high-level mechanism under the leadership of China’s State
Council to oversee enforcement efforts, including efforts to discourage
government use of pirated software. But
far greater resolve will be needed if China is to re-join the ranks of the most
innovative economies—including working together to stem the growing challenge
of cyber-enabled intellectual property violations.
It is also important to address the privileges enjoyed by
China’s SOEs, which create an unfair advantage that hurts China’s private
enterprises no less than for U.S. competitors.
That is why it was significant when Chinese authorities committed in
this year’s S&ED to ensure that credit, taxation, and regulatory policies
would apply on a non-discriminatory basis across enterprises of all types and
to increase the portion of profits China’s SOEs must pay out in dividends
comparable to other publicly-listed companies.
During the years when China’s external imbalances ballooned, the high
profits retained by China’s SOEs were a major contributor to those
imbalances. Going forward, unlocking SOE
savings will help level the playing field and provide resources to boost social
spending.
Second, with China now big enough to have a “systemic”
impact across a range of dimensions, China can no longer insist on one set of
standards for the big players and another set of standards for itself. In turn, we recognize that China must be at
the table as global standards are set.
So, for instance, it was critical for China to be at the
table as the Financial Stability Board and the G-20 negotiated global standards
for bank capital, orderly liquidation of financial institutions, and
over-the-counter derivatives. Along with
the other emerging market members, China has taken on the same set of
responsibilities as advanced economies, which is essential as its financial
markets grow.
While export finance in the United States and other key
export nations have long been bound to a set of understandable international
disciplines, China’s exporters have derived benefit from a confusing and opaque
export financing system. Early this
year, President Obama made clear we were prepared to match unfair financing to
ensure a level playing field for our exporters.
And since then, China has agreed to join negotiations on international
rules where they will be included for the first time—a critical step as we
ensure that our world class exporters are able to compete once again on the
strength of quality and price, with trade finance to support, not supplant,
market competition.
China’s vast procurement market has also been outside the
international system for too long, despite its repeated promises to join the
WTO Agreement on Government Procurement (GPA).
But we are no longer idly sitting by. The United States has been clear
that access to much of our government procurement would depend on commensurate
access under the terms of an accession agreement by China to the GPA. We are pushing China to incorporate these
elements and look forward to seeing a stronger offer before the end of this
year. It is critical that China’s
accession to the GPA provide U.S. businesses with improved access not just to
its large central government procurement market, but also to sub-central
procurement that accounted for an estimated 93 percent of total government
procurement in 2010.
And through the Trans-Pacific Partnership (TPP) Agreement we
are designing the standards that will constitute the new frontiers for 21st
century trade agreements in the key export markets of the Asia-Pacific
region. With product cycles and
competitive advantage being driven in market time, international standards must
continue to move forward. It is thus
vital that the TPP address the full scope of disciplines relevant to an open
and fair trading system. By working with
like-minded countries, we are setting high standards, with the open
architecture of the TPP a pathway for additional countries to raise their
standards to commensurate levels.
Third, President Obama has demonstrated his determination to
use the legitimate enforcement tools we have available to ensure our trading
partners play by the rules as a core part of our trade strategy.
That is why it was important to demonstrate early on this
Administration’s determination to enforce the Section 421 China-specific
safeguard mechanism after eight years of disuse, during which safeguards were
not imposed in a single one of the cases brought successfully by private
industry.
That is why the President created a new Interagency Trade
Enforcement Center to coordinate enforcement and focus tirelessly on
challenging unfair trade practices around the world.
That is also why USTR has pursued WTO challenges at twice
the prevailing rate of prior administrations.
Earlier this month, USTR launched a WTO case against China for imposing
unfair duties on more than $3 billion on 80 percent of U.S. auto exports. USTR has strategically taken cases forward so
that each case, such as that of export restraints of certain raw materials,
lays strong foundations that can be used to dismantle restraints in other key
export areas, including rare earths, which are key inputs in U.S. advanced
manufacturing products like wind turbines and lithium ion batteries. And earlier this week, we successfully
challenged China’s discriminatory limitations against foreign electronic
payment systems in the WTO.
Finally, it is essential that we place these efforts in the
broader context of systematic efforts across the Administration to expand and
strengthen channels of communication with Chinese decision makers. We have pursued our agenda with China in a
way that creates predictability and clarity, pursuing areas of cooperation even
as we press to resolve problems.
The challenging external environment has necessitated close
collaboration with China to steer a more resilient global recovery. We supported a greater role for China in key
international economic groups, recognizing that Chinese authorities have been
pragmatic and active in supporting growth in the face of recurring bouts of
financial stress from Europe.
The Administration’s engagement with China has been
intensive and highly prioritized since day one, from the White House and across
all economic agencies. We have
maintained continuous interaction at all levels with the Chinese government
across the full range of economic issues through mechanisms such as the Joint
Commission on Commerce and Trade, the Innovation Dialogue, and the Investment
Forum, to mention a few. Under the
leadership of Secretary Geithner and Secretary Clinton, the U.S.-China
Strategic and Economic Dialogue has strengthened relationships and mechanisms
that have enabled us to pursue these priorities effectively at the highest
levels.
China is critically important to us. Getting this relationship right is
essential. We have made significant
progress, but we know, just as you do, that what matters is not just what we
agree to on paper, but what really happens on the ground. That’s why we remain vigilant and focused,
using all appropriate tools and leverage to make a difference for our workers
and our businesses.
Thank you.
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