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Remarks by Ambassador Froman at the Rand Corporation Breakfast

Remarks by Ambassador Froman at the Rand Corporation Breakfast

Washington, D.C.
June 21, 2016

*As Delivered*

Thank you, Howard, and congratulations on the book; I look forward to reading it. It’s a terrific presentation, and it’s certainly a timely and important subject.  

I want to thank the Rand Corporation as well for inviting me here, and to all of you for being here.

More than 40 years ago, Thomas Schelling wrote: “Trade is what most of international relations are about.  For that reason, trade policy is national security policy.”

And that sentiment remains strong today.

As recently as just this April, Defense Secretary Ash Carter said that passing the Trans-Pacific Partnership was as important to him as getting a new aircraft carrier. 

Now, trade agreements first and foremost need to be grounded in economics, but there is no doubt they have strategic benefits as well.

From an economic perspective, the TPP is the most ambitious trade agreement negotiated in decades. And I like what Howard described it as a state-of-the-art trade agreement.  It opens some of the largest and fastest growing markets in the world to U.S. exports, and it raises standards across the Asia-Pacific region in a manner that is consistent with our interests and our values.

TPP opens new markets for goods, cutting 18,000 tariffs on U.S. exports.

It opens new markets for services, where we run a significant trade surplus. 

It addresses the full range of technical barriers to trade and sanitary and phytosanitary standards, making the regulatory process more open and participatory and reinforcing the importance of science and risk-based decision-making.

It takes on issues such as governance, corruption and transparency, and brings the perspective of small and medium-sized businesses to the table.

It raises labor and environmental standards to the highest level ever, and it makes those obligations fully enforceable, including through the application of trade sanctions.

It includes strong protections of intellectual property rights, and promotes innovation and access to the fruits of that innovation.

It includes new rules on state-owned enterprises and ensures that when they compete against our private firms, they do so on a fair and level playing field.

And it is the first trade agreement to address the digital economy, securing the free flow of data, barring forced localization and pushing back against new forms of digital protectionism.

Those are just some of the economic benefits of the agreement, but there is no doubt that the agreement will also result in broader, strategic benefits.  It will reinforce U.S. leadership in the Asia-Pacific region and around the world, as Howard has laid out. 

It will help create a regional architecture based on the ideals of liberal democracy and economic openness. 

And it will deepen our alliances and our partnerships with countries across the Asia Pacific and foster peace and stability at a time of deep anxiety and uncertainty in the region.

For most of the 20th century, East Asia was mired in conflict. But today it is a mostly peaceful place, where nations engage one another economically rather than militarily. 

In fact, this past 30 years has been the longest period of uninterrupted peace in East and Southeast Asia since the 17th century.

That owes in part to the fact that since World War II, the United States and its partners have worked hard to create an open, rules-based global trading system. 

That system helped Japan and Europe rebuild themselves after World War II.  It helped developing countries become emerging economies.  And it helped lift literally hundreds of millions of people out of poverty – in Indonesia and Thailand, in China and Vietnam, in Cambodia and Bangladesh, and elsewhere.

Embracing that system also has helped make the Asia-Pacific the fastest growing region in the world, with more than 1 billion middle-class consumers -- a number that is expected to triple by 2030.

Japan now is the world’s third largest economy, and China the second.  South Korea has overcome widespread poverty and starvation after the Korean War to become a major industrial power with full employment, and among the most research-intensive, digitally-focused economies in the world. 

Vietnam has transitioned from a centralized largely closed economy to an open, more market-oriented system that has integrated into the global economy, it has cut deep poverty by 95 percent since the 1990s, and has become one of our fastest-growing trading partners in the region.

And here at home, progressive efforts to liberalize trade have contributed an estimated $13,000 to the standard of living for every American household.  Exports support more than 11 million jobs in the U.S., and those jobs pay up to 18% more on average than non-export-related jobs. 

But we should not take, and cannot take, the rules-based system that produced these results for granted.  We must be constantly vigilant to enforce our trade rights against countries who don’t play by the same rules.

But that doesn’t mean engaging in a trade war.  We know from history that nobody wins in a trade war.

In 1930, Congress passed and President Herbert Hoover signed the Smoot-Hawley Tariff Act. 

The thinking back then was that by blocking imports and raising tariffs, it would help avert competition with overseas rivals, and bring about a resurgence of U.S. agricultural output, manufacturing and employment.

But we all know that the opposite happened.  The high tariffs exacerbated the Great Depression and contributed to a worsened global economy, which in turn created the conditions for the rise of nationalism in Europe.

No, rather than a trade war, we need U.S. leadership to strengthen the rules-based system.  And that’s where TPP comes in.

We are one vote away from either cementing our leadership in the Asia-Pacific region or ceding it to others.

Delayed passage of TPP would severely weaken our leadership, and with that, would have widespread strategic implications. 

As Prime Minister Lee of Singapore has put it, “if you are not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”

Meanwhile, the rest of the world isn’t going to just wait for us.  As New Zealand’s Prime Minister Key said, “These economies aren’t going to stand still . . . Beijing will step in to fill the void.” 

And as we speak, China is racing ahead to complete RCEP, its mega-regional agreement that covers 16 countries, from India to Japan.  Unlike TPP, it doesn’t protect worker rights or enhance environmental standards.  It doesn’t have strong intellectual property rights enforcement.  It doesn’t put disciplines on state-owned enterprises or ensure a free and open Internet.

They and others will continue to conclude agreements that give them preferential treatment to these vitally important markets at our expense, and define a set of rules that advance their competitive interests rather than ours. 

If RCEP moves forward and TPP doesn’t, that cannot be in the interest of American workers, farmers, ranchers and businesses.

As President Obama has said, “When more than ninety-five percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy.”

By leading on trade, we can promote a global order that reflects our interests and values.

By leading on trade, we can launch a race to the top, rather than being dragged to a race to the bottom, a race we should not run and cannot win.

We can pass TPP or be remembered as the generation that imposed a self-inflicted wound on American influence and American leadership around the world. And that doesn’t strike me as a difficult choice.    

For all these reasons, it is imperative that we make TPP a reality, and soon.  It’s a tough political environment, but trade votes have always been tough.

All the more important that we collectively make clear the economic and strategic implications of not moving forward, and what’s at stake.

We’re very grateful for Rand’s engagement on this issue, and the Re-Think on International Economic Strategy, and I look forward to engaging our discussion. Thanks very much.