Economic Diplomacy: How Business, Economic Ties and Trade Can Strengthen National Security

Charles H. Rivkin
Assistant Secretary, Bureau of Economic and Business Affairs
Remarks Before the American Security Project
Washington, DC
January 15, 2015

Thank you, Nelson, for that introduction. And thank you Paul for inviting me to talk about something that is very important to me: how our economic agenda is working to keep America safe and prosperous.

Before I go further, I’d like to point out that, after a year on the job, it seems to me that economics is forever doomed to be the Rodney Dangerfield of the social sciences.

It’s true. When people at dinner parties ask me what I do, the most effective way to stop the conversation dead in its tracks is for me to utter the word “economics.”

Everyone makes fun of economics; even economists.

Walter Heller, who was President Kennedy’s chief economic advisor, once said: “An economist is someone who, when he finds something that works in practice, wonders if it will work in theory.”

I find Heller’s quote not only interesting but timely. That’s because, when it comes to the geopolitical stage, economics doesn’t only work in practice. It has become the indispensable foreign policy tool of our time.

The reasons for this are clear cut. The majority of challenges we face are economic in nature and, very often, those challenges have security implications for the United States.

Moreover, we now live in a world where “market forces displace as much weight as military might,” as U.S. Trade Representative Michael Froman recently put it.

Increasingly, countries like the BRICS nations are already using their economic clout to punch above their weight. It is no longer an option to strengthen our economic power in every way we can, it’s an imperative.

It follows then, we should use all the economic resources and assets in our power to address economic challenges. Doing so allows us to address the essence of the problem, while also finding sustainable solutions that can enhance our security for the long term.

Secretary John Kerry has not only recognized the inextricable link between foreign policy and economic policy, he has made it a central operating principle.

As he puts it, “economic policy is foreign policy.”

This principle is embodied in everything we do, including economic sanctions, which are an important weapon in our national security arsenal.

EB takes the lead for the State Department in these sanctions efforts, whether we are working to steadily increase the diplomatic and financial costs of Russia’s aggressive actions toward Ukraine, or directing sanctions in more limited ways against countries such as the Central African Republic and Yemen.

We are also working closely with key partners and allies to stem the flow of revenues that support the forces of ISIL.

EB is the State Department’s leading office in many foreign policy matters, including global finance, food and agricultural policy and loan guarantees. We are the lead negotiator for internet governance and air transportation deals. We support entrepreneurs around the world. We also work closely with USTR to forge multilateral and bilateral trade and investment deals.

In all we do, we are deeply aware of the symbiotic link between the prosperity that we work to advance and the security that it brings.

We know that, when a country bustles with economic opportunity, its citizens are more likely to become productive members of their society. They are equally likely to advocate for better education and, by extension, peace and prosperity. That makes them more likely to become one of our economic, trading and security partners. Of course, that also bodes well for our national security.

We fully understand the potential consequences when these economic factors are not in place. A failed state that denies opportunity is more likely to give rise to corruption and crime cartels, extremism and social unrest, and very often, hostile activity towards the United States.

Obviously, I could spend all day talking about the different missions of my Bureau. But today, I want to focus on our trade agenda. Specifically, I want to talk about two ongoing trade deals that, if concluded, will not only usher in a new era of prosperity for Americans but go a long way toward shoring up national security.

Those are the Trans-Pacific Partnership, also known as TPP; and the Transatlantic Trade and Investment Partnership, which we refer to as T-TIP.

I choose trade for at least two reasons. First of all, the size of the prize.

I don’t think many people are aware of the size and scope of the global market that both trade deals could open for American businesses and its workforce. About 95 per cent of the world’s consumers, representing 80 percent of the world’s purchasing power, live outside our borders. Both trade deals, all told, would give us access to almost two-thirds of the global economy.

The second reason has to do with timing. We are at a critical moment in our ongoing negotiations, especially with TPP. If Congress authorizes Trade Promotion Authority, otherwise known as TPA, we can accelerate our progress, not only on TPP but on our trade deal with the Europeans.

We’ll be able to press for greater ambition and stronger, more comprehensive high-standard agreements, knowing that we have the confidence of the Hill.

We are cautiously optimistic that the new Congress strongly supports free trade. We are also encouraged that Senator Orrin Hatch, chairman of the Senate Finance Committee, has declared his intention to put trade promotion authority at the top of his list.

Let me start by talking about the importance of exports to our own economic growth.

As you know, our economy is in the best shape we have seen since the 1990s. American businesses have set a new record for consecutive job growth. Since 2010, we've created more jobs here in the United States than Japan, Europe, and all advanced nations combined. We’ve created half a million jobs in the auto industry alone.

Exports have been a powerful factor, supporting one in four new jobs in the manufacturing sector.

Last year, our businesses sold a record $2.3 trillion of Made in America goods and services, supporting more than 11 million American jobs at more than 300,000 companies. That’s 1.6 million more jobs than just four years ago.

Perhaps even more importantly, export-related jobs are paying 13 to 18 per cent more on average than non-export related jobs. Those higher wages are critical if, as the President has said, we want our middle class to remain an engine of prosperity.

Closing both trade deals would boost exports even more. That’s why we are so excited about completing the Trans-Pacific Partnership trade deal, which would facilitate trade between the U.S. and 11 countries: Canada and Mexico; Chile and Peru; Australia and New Zealand; Japan, Malaysia and Singapore; Brunei Darussalam and Vietnam.

The potential markets are extraordinary. In Asia, alone, there are currently 525 million middle class consumers. That number is expected to grow to 2.7 billion by 2030.

That means in just 15 years, our workers, farmers, businesses, and entrepreneurs could be exporting to, or benefitting from, markets that are six times bigger than our own market at home.

Our efforts continue with T-TIP – the Transatlantic Trade and Investment Partnership – an equally ambitious agreement that we are presently negotiating with the European Union.

By reducing tariffs and other barriers to trade, we will not only add to the more than 13 million American and 13 million EU jobs that our trade and investment relationship currently enjoys. We will also build on the transatlantic ties that undergird our national security.

Beyond our efforts to make our economy stronger through these historic deals, we are actively negotiating a bilateral investment treaty with China.

It is estimated that if China's citizens were to consume American-made goods and services at the same rate as their neighbors in Japan currently do, our exports to China could grow to as much as $700 billion a year.

That could turn a $300 billion trade deficit into a $300 billion trade surplus and create nearly three million new American jobs. With the right reforms, we could see that outcome over time.

We are also looking to deepen our economic relationship with India, as Secretary Kerry emphasized in his recent visit. With India, we already enjoyed an annual two-way trade in goods and services of almost $100 billion in 2013. That represented an increase of more than 400 percent since 2000. We believe we can build on this by greatly improving our two-way investment flows.

Clearly, it is squarely in our interests to close all these pending and potential trade deals, not only for our prosperity, not only for our security, but for one last benefit – and with that, I’d like to conclude my remarks.

I believe that these trade deals, if we can achieve the comprehensive and ambitious agreements that we are negotiating for, will not only help American manufacturers, service providers, farmers and ranchers increase U.S. exports and compete in a highly competitive, globalized economy.

They will not only help create more American jobs with higher earning power.

They will help us speak to the size and value of the economic leadership role the United States can play, and continues to play, in the world.

That means having the opportunity to set the standards that will support the kind of world we want to live in; and not leave it to other nations to do so, especially when it comes to quality of life issues like environmental and labor standards.

It means making sure that the most innovative economy in the world, ours, is protected by intellectual property rights and has the opportunity to expand and, as the President has also said, to “raise standards so that everybody is on a higher, but level playing field.”

Ultimately, it means having the power to help create the kind of world that we want our sons and our daughters to grow in.

By definition, that is a more secure world.

If you’ll permit me to return to those cocktail party conversations I talked about – you know, the ones that stop dead at the word “economics,” here’s what I would like to tell them:

“Economics is the Roman road to our national security. A robust economy at home, and innovative economic policies abroad are the most direct route we can take to bring jobs home, strengthen our middle class, and ensure that Americans are safe in sustainable ways."

I would then walk away, leaving them either to visualize Roman gladiators or to think about economics as the direct road to a safer, more prosperous world.

Thank you.