Paulson Speech ExcerptsSeptember 13, 2006Excerpts from a speech Treasury Secretary Henry Paulson is to deliver on the international economy and China in Washington at 11 a.m. on Wednesday.U.S. ECONOMYThe U.S. experience illustrates the benefits of openness and competition. Our economy is by far the world's strongest because it is built on openness -- openness to people of all nationalities, openness to new ideas, openness to investment, and openness to competition. It is a model that others strive to emulate. And we aim to keep it that way. Our proven success has allowed us to effectively advocate free trade and open markets here in the United States and around the world.Enhanced competition from global integration greatly benefits the international economic system, particularly the United States. Because I care deeply about the competitiveness of the U.S. economy, as Treasury secretary, I will be an outspoken advocate for maintaining -- and extending -- free and fair trade. The United States wants open markets. We welcome foreign investment. And we seek partners to join us in advancing a global agenda that will help realize the benefits of economic liberalization and competition. We will not heed the siren songs of protectionism and isolationism.TRADEOne lesson is that those nations that reform their economies and open themselves to competition benefit their citizens greatly. They have better jobs, improved living standards, and greater opportunity. At the same time, those nations that try to close themselves off from competition, hinder free markets, and fail to invest in their people, simply get left behind. I don't know of a single example of a nation which has a strong financial system and strong capital markets that has not opened itself up to foreign competition. Trade negotiations are never easy. But the Doha round is just too important to let slip away. We have before us an historic opportunity for the international community to join together to generate economic growth, spark development, and raise living standards across the world like no other action. Protectionist policies are rarely successful and the collateral damage from these policies is very high. By closing off competition and blocking the forces of change, protectionism reduces the losses of the present by sacrificing the opportunities of the future.GLOBALIZATIONOur prosperity is linked to the strength of foreign economies. And we are adversely affected by their economic declines and financial shocks. There are no islands of economic stability in today's world. Globalization and interdependence are here to stay. No nation can turn back the clock. Economic integration makes economies more efficient, more productive, and more competitive. Integration gives businesses greater access to markets around the world, and increases their ability to achieve economies of scale. Global markets give consumers more choices. And global competition helps reduce the prices of goods and services -- a real benefit to those with lower incomes, whether in the United States or abroad.Yet, despite the benefits of competition and the expansion of world trade, there are many who oppose what is commonly know as "globalization." Ironically, this protectionist sentiment comes from many quarters in those nations -- including in the United States and China -- which have benefited the most from the economic growth generated by global competition.This widespread and growing resistance is not surprising, because the benefits of competition, while significant, are not spread evenly and often create losers as well as winners. The short-term problems are more immediately visible in the form of job losses that are very real and painful. Jobs saved in the short term job are offset by more job losses and a lower standard of living in the future.Greater economic freedom and more widely shared prosperity within a nation can lead to greater freedom in the political system as well.Countries that implement market-driven policies which provide their citizens greater economic freedoms, find that those citizens also naturally seek a greater stake in their political system. CHINAThe prosperity of the United States and China are tied together in the global economy, and how we work together on a host of bilateral and multilateral issues will have a critical impact on the health of the global economy.China's remarkable success since market reforms began in 1978 has led many to predict that its meteoric growth will continue indefinitely -- that we can extrapolate its future growth from its past performance -- as if China has somehow found a way to immunize itself from business cycles and all other economic problems. Some fear that China will soon overtake all other economies to the detriment of the rest of the world. To them, China has become the leading symbol of the threat posed by globalization. They are concerned about their jobs, and in some cases even the future capability of their nations to compete.China is already a global economic leader and should accept its responsibility as steward of the international system of open trade and investment. It must recognize its responsibility to maintain the health of the global system. Today, China is transitioning from a planned economy to a market-driven economy and there is no doubt that this process will continue for a number of years to come. But, because of its size and its role in world markets, China is, by definition, already a global economic leader and deserves to be recognized as a leader. But with leadership comes responsibility.Because it is a global economic leader, what happens in China will affect the well being of the U.S. and the rest of the world. Of course, global economic leadership also brings with it responsibilities that go beyond the economic arena, including international laws and conventions on important issues ranging from human rights to nonproliferation. [T]he biggest risk we face is not that China will overtake the U.S., but that China won't move ahead with the reforms necessary to sustain its growth and to address the very serious problems facing the nation.The United States has a huge stake in a prosperous, stable China -- a China able and willing to play its part as a global economic leader. We are not afraid of Chinese competition. We welcome it. These reforms will not be easy, and they will take time. This is why we must take a strategic view of our relationship with China. Both in China and in the United States, we must not allow ourselves to be captured by harmful political rhetoric or those who engage in demagoguery. Instead, we must realize that the U.S./Chinese relationship is truly generational and demands a long-term strategic economic engagement on our common issues of interest. China faces several critical, immediate challenges. The first is the pressing need to put in place widely accepted, market-based tools to keep its economy from veering out of control. A much more flexible, market-driven exchange rate along with a more nimble, self-determined monetary policy are key ingredients to stable and sustainable, noninflationary growth. Accordingly, maintaining an overly rigid exchange rate and relying on administrative controls are outdated and increase the risk of boom and bust cycles. Also, to be under estimated only at China's own peril, is the fact that their currency exchange rate is increasingly being viewed by their critics as a symbol of unfair competition.