Thank you, Bijan.
I'm honored to be here and grateful for the chance to speak at your conference. The U.S. Export-Import Bank has long been a proponent and practitioner of responsible finance. Your leadership on such issues as environmental responsibility and climate change are impressive and well-known. I'm particularly grateful that the Export-Import Bank has formally adopted the Equator Principles, an effort that Citi chairs. You join more than 70 global financial institutions that seek to work with our mutual client base to make our transactions more environmentally sustainable over the long-term.
Citi and the Export-Import Bank share much in common. Our core missions are to finance world trade, enhance global capital flows, and enable companies to expand and create jobs. These activities help companies—and nations—grow.
So it's refreshing to be here amidst so many people who share my view of the importance of trade for America's economic recovery.
We at Citi are strong supporters of free trade and broad global economic engagement. We believe that the three trade agreements awaiting ratification—with Colombia, Panama, and South Korea—are critical for the U.S. economy and for expanding U.S. exports. Delay in U.S. government approval of these agreements is costing American companies market share in each of these countries. Citi wants to see each agreement passed as soon as possible and we believe that, through our leadership of various business coalitions, we can help the Obama Administration muster broad-based bipartisan support on the Hill in favor of all three.
And our advocacy does not end there. Citi serves as a corporate co-chair and advisor to the U.S. government in the ongoing Trans-Pacific Partnership negotiations—regional trade talks in the Asia-Pacific region that hold promise for greatly expanding opportunities for American businesses. We also co-chair the recently organized business coalition to support the repeal of the Jackson-Vanik legislation that governs trade with Russia and to grant Russia Permanent Normal Trade Relations status as soon as Russia completes its accession process to the enter the World Trade Organization.
As you all well know, from the passage of NAFTA in 1993 to the ratification of the Peru FTA in 2007, this country—and the world—enjoyed an impressive run of opening markets and expanding trade opportunities. In that period, the United States implemented no fewer than ten separate agreements covering 16 countries. 18 countries and jurisdictions—including China, today the world's second largest economy—joined the World Trade Organization.
But about four years ago, the winds started to shift. The Doha Round has stalled and shows no signs of reviving. No new free trade agreement has emerged from the U.S. Congress since 2007.
There should be no mystery about the timing. The financial crisis was like a great storm that ripped the hood off our economy. It exposed the engine to plain sight for the first time in a long time. And it allowed us to see that we face some serious structural issues, including massive public and private debt, huge trade imbalances, and lackluster exports.
Before the crisis, these issues were little-noticed and heeded even less. Leverage papered over our deeper problems. Consumers did well—for a while—but based on debt, not on real growth. And debt-driven spending in the housing sector created hundreds of thousands of jobs—for instance, in the construction and mortgage industries—but that job growth turned out to be fleeting. Now those jobs are gone and they are unlikely to come back.
Trade unquestionably has benefited consumers in recent years through more products and lower prices. Yet to many American workers—especially those in the hardest-hit industries and regions—this rings hollow in a country facing an 8.8% unemployment rate. We need to be clear-eyed about the fact that in certain circumstances trade can and sometimes does cause job loss. It doesn't happen as frequently as many think it does—the primary cause in the loss of manufacturing jobs over the last three decades has been productivity gains, not trade.
But for trade to be broadly popular, it must be equitable. Its benefits have to be more evenly spread across society. And the fact is, in the last several years, trade hasn't benefited producers as much as it benefited consumers. Our economy is out of balance. We lack a sound mix of imports and exports, between supply and demand. And the American worker suffers the most from that imbalance.
So it's no wonder that, just as the bills for our leverage-fueled spending binge started coming due, support for trade began to drop.
The answer to this dilemma is not protectionism. Rather, it is to address the core structural issues facing our economy. We benefit from trade the most when our economic architecture is sound. As our history has demonstrated, the free flow of goods, services, capital and investment, and ideas makes us stronger and more capable of maintaining and creating jobs. The last things we need now are rising prices for raw materials, constricted supply chains, and limits on labor mobility.
I think there are four key steps our country must take.
First, we have no choice but to get the country's finances in order.
Second, we should work on correcting our trade imbalances, which means addressing the consumer-producer imbalance in our domestic economy.
Third, we need more economic diversification.
Fourth, we need to advocate for—and help create—a better and more protective environment for intellectual property around the world.
I'm not going to say much more about the first point, except that one never sees growth without confidence and a credible plan to address the debt is necessary to restore confidence, which in turn will inspire real investment.
The other three essentially boil down to one: we need to become a bigger exporter.
Despite all you've heard about the decline of manufacturing in the West, the United States remains one of the world's top two manufacturing economies—we're either number one or slightly behind China, depending on which methodology is used to measure. Each country generated about $2 trillion in manufacturing output last year—but the US did so with 11 million workers in the sector compared to 100 million on the Chinese side.
America remains a strong manufacturer, but we have become—especially compared to our peers—a weak exporter. According to the National Association of Manufacturers, among the world's 15 top manufacturing economies, the United States ranks 13th in measuring how much of our manufacturing output we export. Only Brazil and Russia score lower. Stated differently, we are 55% below the world average in the share of our manufacturing output that we export.
For the last few decades, consumer demand here and elsewhere in the developed world helped the emerging markets to build their exports and their economies. In the process, we not only consumed too much. Crucially, we also didn't focus enough on stimulating consumption and demand for our goods in other countries.
The remedy is obvious. The emerging markets are developing enormous consumer blocs. Around the globe, millions of people rise above poverty and enter the middle class every year—by one estimate, some 70 million in 2009 alone. According to another estimate, by 2020, three-quarters of incremental consumer spending will come from emerging markets. If that bears out, then Asia will overtake North America as the world's largest consumer bloc.
Some may see this rising economic power as a geopolitical threat. I think it is more correctly viewed as an opportunity. American business can help kick start our economy and correct our consumer-supplier imbalance by reviving our export sector—by selling to the emerging market consumer.
Other countries have demonstrated that it's possible, even with high labor costs and expensive products, to succeed in selling briskly to customers outside the developed world.
Germany is the best example. In the mid-1990s, Germany's economic performance was starting to lag behind those of its neighbors and competitors. Growth was sluggish, and the scale of the structural reforms needed to deal with the implications of reunification was significant. Yet by the early years of the last century, the German economy had reestablished itself. Labor productivity rose and costs fell, helping German exports to rise, bucking the trend of many developed economies.
This was not a happy accident but the product of design—good policy and careful planning. Germany benefitted from the economic reforms it had introduced almost a decade earlier, which provided much-needed flexibility. It managed to avoid the housing and construction booms seen in some other countries and which had such a toxic impact when the bubbles began to burst. And it enjoyed a balanced government budget and similarly well-placed household and corporate balance sheets.
Some of these steps are things we can—and must—do here at home. We also need to make our tax code and regulatory policy more supportive of innovation and the formation of new companies. And we should address the ways that our tax laws handicap American business trying to compete in international markets.
Innovative government action can also help. Franklin Roosevelt created the Export-Import Bank in the depths of the Great Depression to help finance the sale of American-made goods abroad. Citi is proud to be one of your partners. Last year, we launched a $1 billion partnership to offer relief from credit constraints to American small and medium-sized businesses that sell their goods overseas. The program currently supports 4,500 companies. Many of our clients plan to grow significantly with the help of these increased lines of credit.
Ultimately, however, the real effort must come from the private sector. We need to unleash the regenerative genius inherent in the American economy—and the American spirit. Industry, not government, is the key to reviving our industrial base and unleashing innovation to create new products, services and business models that will meet the needs and demands of consumers in Shanghai, Mumbai, Moscow and Sao Paulo.
I understand the difficulties. Many markets in the developing world are firmly shut to some of our exports. Or, to the extent that they are nominally open, these countries through other means discourage the free flow of goods into their markets even as they do all they can to flood trade routes in the other direction. Some of our strongest industries—especially those that depend on intellectual property protections—can't sell in certain markets because of piracy and other unfair practices that central governments claim to oppose but do little to stop. Our vast and competitive service industries face especially high regulatory and other burdens—such as restrictions on cross-border data flows—that make operating and expanding abroad more difficult, less efficient and more expensive than they should be.
The new trade agreements with South Korea, Colombia and Panama all address these issues with protections for patents, digital products, copyrights and trademarks that are the strongest ever negotiated. It's the responsibility of all parties—sellers and buyers, exporters and importers, multinationals and host countries—to ensure that all agreements are adhered to strictly.
For the developed economies to fairly compete in the global economy, the world needs to ensure that intellectual property is protected and paid for. We should welcome, for instance, China's announcement that it will no longer maintain so-called "indigenous innovation" requirements that force companies to turn over their most valuable intellectual property to local partners. Such provisions hamper the free flow of goods, services and ideas and should be ended wherever they are in place.
For all the difficulties, we should not succumb to undue pessimism. Trade and trade agreements still benefit us even when other nations are slower to open up than we would like them to be. And let's not lose sight of the fact that some of America's biggest competitors face equally large, if qualitatively different, challenges.
While it's less the case today than it was two years ago, our economy is still imbalanced in favor of consumption and away from production. But it's also true that other economies—for instance China's and Germany's—are imbalanced in the other direction. Neither model is a recipe for long-term success.
Each type of imbalance is a threat, for different reasons. Our imbalance in favor of domestic consumer spending threatens the continued viability of the trade agenda. That agenda is one of the fundamental pillars of America's economic success since at least the end of World War II.
Those of us who understand and appreciate what trade and investment do for this economy need also to understand how they are threatened. Simply talking further about its benefits won't change the political equation. To do that we need to change the facts on the ground—which requires acknowledging that America lags behind our competitors in "export intensity." We need to redouble our efforts so that American workers can engage fully in the ultracompetitive, constantly-evolving global marketplace.
The Export-Import Bank makes a valiant effort, year-in and year-out, to do exactly that. You deserve all our thanks. But the game needs more players. We all have a responsibility to do our part to boost American exports and revive American industry.
The challenge is daunting. But the work is necessary. And the rewards are incalculable.