Finance ministries traditionally serve one primary mission: pursuing policies that promote economic growth. In today's integrated world markets, economies succeed based on their ability to harness the forces of globalization to deliver growth. But the free movement of money and goods in an integrated world economy also creates an opportunity for terrorists and proliferators to exploit the international financial system to advance their dangerous agendas. Recognizing this fact, the US Treasury Department has taken on a new role to combat international security threats.
Treasury's traditional mission of encouraging economic growth and our enhanced efforts to protect national security are usually discussed separately. But these policy priorities should instead be considered as reinforcing objectives. Economic growth requires investor confidence, and investors are more confident in financial systems that operate with integrity. Thus the characteristics of an open economy--transparency, accountability, and adherence to the rule of law--not only provide the structural framework necessary for free and fair commerce, they also help to ensure that bad actors cannot infiltrate the system for illicit purposes. As we seek to protect the integrity of our markets by transforming the Treasury Department to protect national security interests, we also reinforce our original mission by demonstrating to the international community that our economy is a safe place to do business.
The Importance of Open Economies
The United States pursues a strong and competitive economy through policies that promote free trade, flexible exchange rates, and open investment policies that encourage the free flow of capital across borders. Unfortunately, there is growing concern about free trade, even though history has shown protectionism to be a false hope for those seeking to shelter the American economy. In the early 20th century, countries implemented protectionist policies, depreciated their currencies, raised tariffs, and imposed quotas. We are all too familiar with the results--domestic demand collapsed. And, from 1929 to 1933, world trade severely contracted, declining by more than two-thirds in just four years.
Reflecting on the protectionist measures that led to the Great Depression, Nobel Laureate and former US Secretary of State Cordell Hull wrote that "enduring peace and the welfare of nations are indissolubly connected with friendliness, fairness, equality, and the maximum practical degree of freedom in international trade."
Although the dangers of economic nationalism are usually discussed within the context of trade, international investment flows are equally important. Over the past year we have seen headlines about restrictions on foreign investment, and global investors have questioned whether the doors to foreign investment remain open in the United States. To reiterate the commitment of the United States to open investment and trade, President Bush released an important policy statement in May, 2007 reaffirming our longstanding support for open economies.
International trade and investment support job growth, bring healthy competition, spur American companies to innovate and improve, and offer American consumers lower prices and a wider variety of choices. And when we embrace foreign investment, we encourage investors to put dollars to work here, which creates jobs and allows for economic expansion. We have always welcomed free and fair competition, and closing our doors to investment would not only be a stark reversal of this successful tradition, it would limit our future growth and prosperity.
As we work to enact policies that support an open economy and guard against protectionism, there are encouraging signs around the globe of increased investment. In the transatlantic relationship, we have seen improved cooperation to reduce non-tariff barriers and regulatory obstacles, as advocated by German Chancellor Angela Merkel and agreed to in the Framework for Advancing Economic Integration, which was signed at the April 2007 US-EU Summit. …