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David Malpass' Remarks: The Trump Administration’s Global Economic Agenda

David R. Malpass

Written remarks delivered by Under Secretary David Malpass

Thank you very much for the invitation to discuss the global outlook. I would like to thank the Hudson Institute for hosting this discussion, and especially Ken Weinstein, Thomas Duesterberg, Dan McKivergan, and the Hudson team.

I’d like to use the time today to discuss the strong U.S. and global growth outlook, and some of the vulnerabilities and initiatives in Treasury’s international section, which I head.

Accelerating U.S. and Global Economies

Despite the stock market volatility, the economy is enjoying a period of relative strength and prosperity in both the U.S. and many other countries. President Trump’s regulatory and energy initiatives took hold in 2017 and tax reform became a realistic possibility, adding materially to U.S. growth. Growth topped 3% in the second and third quarters and 2.6% in the fourth quarter, bringing four-quarter growth to its fastest pace since 2014.

Many forecasting models lowball the longer-term growth effect of the new tax law by focusing on its fiscal mechanisms rather than the structural change. The real-world effect of tax cuts comes from businesses, large and small, responding to improvements in growth policies, including lasting regulatory, tax, and energy reforms.

By lowering the corporate tax rate to 21% from 35%, the new law aligns incentives, so that managers focus more on creating profitable businesses and building their labor pool rather than offshoring jobs and devising expensive financial structures to minimize taxes.

Importantly, the new law will benefit many unincorporated businesses. They are often the nimblest and best able to hire and train workers new to their industry—precisely the workers the president wants to draw into the labor force. The new law provides small pass-through businesses with a 20% tax deduction, helping them compete with big companies and government-dominated industries. As their workers gain skills, their productivity increases rapidly, allowing more growth than assumed in the models.

I hear two general criticisms of the President’s economic program, but from opposite positions. Some say that President Trump inherited a solid economy and that the credit for growth should go to President Obama. Others say President Trump inherited an economy that has an inherently low growth potential, so his growth program risks overheating, leaving the current upturn short-lived.

Neither criticism stands up. Prior to the President’s election, the consensus outlook was for weak growth through 2017 and 2018, with longer-term forecasts equally bleak. Slow growth had become endemic, with GDP growth averaging only 1.9% per year due, in my mind, to a policy mix that discouraged growth. It seems clear from the data that there was a positive change in growth prospects after the election, not before.

Regarding the argument that the Trump Administration’s policies won’t help for very long because we’re in secular stagnation, we won’t know for sure for several years. However, initial signs are that the new economic program is working, with policies explicitly supportive of growth and key forward looking indicators signaling a continued acceleration.

The tax law encourages U.S. business investment, allows a better allocation of capital, and encourages small-business dynamism. This combination of structural improvements will draw more workers into the labor force, improving their skills. This will allow the economy to rebuild from the low average growth rate that preceded the Trump Administration.

Measures of business investment, business confidence, hiring intentions, and profit expectations are all up sharply, and I expect new business formation to begin to rise from the deep trough of recent years. The Administration is continuing with regulatory and energy reforms and undertaking a major improvement in infrastructure policy, all of which encourage people to start new businesses and hire workers that have been left out.

Many aspects of the growth outlook can’t be reduced to models. A key growth provision in the tax bill limits the federal deduction for state and local taxes to $10,000 a year. Without that limit, previous law provided a massive federal subsidy to wealthy households in high-tax states. Reducing this transfer of resources from small-government states to big-government states will allow capital and investment to flow more freely to profitable, job-creating investments around the country. The poorer counties in high-tax states have huge growth potential if their state and local governments were to restrain their spending and taxes in response to the tax-law change. Similarly, low-tax states can grow even faster as the tax headwind from subsidized high-tax states diminishes.

Looking globally, a key question is whether the economic acceleration in the U.S. and the success with the new tax law will lead to a series of growth-oriented reforms abroad. The stability in the financial system is making abundant amounts of private capital available, lifting many parts of the world, and sparking innovations in financial technology, telecommunications, microloans, and payment systems.

Treasury International Initiatives

At Treasury, we’re working to use this period of relative stability to encourage structural reforms elsewhere. The G-20 group of major economies provides a central forum to encourage various growth initiatives. We’ve asked the G20 to focus its activities on a few core objectives, including infrastructure markets, debt transparency and sustainability, and countering illicit finance.

We are working to encourage more focus at the Financial Stability Board (FSB), which works to coordinate world financial regulators and evaluate regulatory policies. The regulatory compliance industry has become one of our world’s biggest growth industries, biasing our business climate toward litigation and large scale businesses at the expense of growth. We’re encouraging the FSB to focus on effective regulation that meets the requirement of safety while encouraging more growth, especially for smaller businesses. Financial regulations should be tailored to the size and complexity of the institution, should be transparent, honor the rule of law, and meet a cost/benefit standard.

Within the G-7, we place great value on our dialogue on key strategic challenges, including cybersecurity, illicit finance, and development finance. The increased availability and lower cost of private sector financing requires sweeping reforms of the financial model of the Multilateral Development Banks, some of which currently depend on repeated capital increases, taking them away from their mission.

With 2018 leadership summits in Peru, Canada, and Argentina, the Americas has a unique opportunity for regional progress. We’ve put forward an eleven-part set of initiatives that we’ve named America Crece, or Americas Grow, to encourage growth and freedom, building on the region’s ideals of democracy, transparency, human rights, and the rule of law.

Treasury and the Administration are working on ways to increase trade and investment in energy and infrastructure, expand private investment flows, and develop deeper regional capital markets. We want to encourage a return to democracy in Venezuela, support the Northern Triangle’s efforts to address economic and security challenges, and help increase transparency and combat corruption. The economic goal is to improve the business environment and allow median income to increase in dollar terms.

The anchor for these growth initiatives is the region’s need for energy and infrastructure investment. We are developing a multi-part approach that will promote U.S. exports of energy and energy infrastructure; attract investments in the region in the areas of energy and infrastructure; and catalyze private capital for the financing of these exports and investment projects. We envision an increase in both primary market project financing, as well as secondary debt trading and asset management activity. The purpose is to build open, competitive, resilient, reliable, and efficient energy markets, while expanding U.S. exports of energy and energy infrastructure.

We continue to hear from U.S. firms that corruption and the wide range of standards is a major impediment to increased U.S. investment abroad. Raising the bar on public integrity, increasing transparency, and coalescing on strong standards will make economies more productive and efficient. The Organisation for Economic Co-operation and Development (OECD), through its Recommendation on Public Integrity, emphasizes that this is not just a moral issue, but ultimately is intimately tied to economic growth and prosperity.

Treasury is committed to better utilizing existing institutions to create the potential for faster growth in Latin America. We’re exploring a new strategy with our Mexican partners in the North American Development Bank (NADBank). As part of the Administration’s efforts to modernize the North American Free Trade Agreement, Treasury is working to ensure that NAFTA will contribute to strong domestic and international growth through a high quality agreement on financial services issues and through protections against unfair currency practices and competitive devaluations.

Four major Latin American countries have grouped in a Pacific Alliance to create a regional investment passport that would permit investment funds in any of the four countries to market and distribute securities throughout the Alliance. We stand ready to work with the Pacific Alliance and other countries to expand on these opportunities.

The ongoing evolution of the global financial system has impacted the connectivity of correspondent banking relationships in many parts of the world. We are committed to encouraging access to the U.S. financial system to support economic growth and financial transparency while enforcing U.S. laws and regulations. We continue to engage bilaterally and through the work of multilateral bodies, such as the Financial Action Task Force (FATF).

Treasury is actively engaged in supporting the efforts of many countries through technical assistance. In the Western Hemisphere, for example, Treasury has programs underway in 16 countries. As we engage with countries to expand trade and investment in energy, we may be able to provide technical assistance in areas that support energy and infrastructure reform programs, as well as the development of investment frameworks consistent with best international practices.

There are many tools to explore in the area of disaster risk management. Countries can examine ways to reduce their risks and improve their responses when a disaster hits. Countries should examine financial tools, such as country reserve funds and contingent credit lines. Insurance tools can play an important role by providing a quick injection of liquidity to support recovery efforts in the immediate aftermath of a natural disaster.

A major challenge for the region is in conflict-affected regions, such as the Northern Triangle countries of Guatemala, Honduras, and El Salvador. They are grappling with the economic and security challenges that have forced so many of their citizens to leave their homes and risk their lives in search of economic opportunity. Last year, Vice President Pence met with the leaders of the three countries to underscore support for addressing these challenges, and in turn the Northern Triangle countries committed to macroeconomic stability and to take increasing responsibility for financing their own development. Treasury is partnering with Mexico’s Finance Ministry to co-chair a process to deepen coordination with other donors, such as the IMF, the World Bank, and the Inter-American Development Bank (IDB), to help support reform efforts in Guatemala, Honduras, and El Salvador. The Overseas Private Investment Corporation (OPIC) has recently affirmed its commitment to catalyzing private sector investment.

One of the most important achievements of 2018 in the Americas would be to see political and economic freedom for ALL citizens of the Western Hemisphere. In Venezuela, the United States joins with the members of the Lima Group and with the European Union in demanding free and fair elections to reverse that country’s slide into dictatorship and poverty. In Cuba, we condemn the leadership transition that is taking place without the voice of the people. Our democratic allies in the region should know and anticipate the benefits derived from embracing and promoting democratic practices. Likewise, autocrats and dictators should know and anticipate the consequences of undemocratic practices and illegal acts.

Global Risks and Vulnerabilities

Now, I would like to spend a few minutes on three other risks and vulnerabilities.

Leverage. While low bond yields have provided major stimulus for large borrowers and those involved in bond issuance, the low yields and availability of long-term debt creates a new set of potential risks. Debt and leverage have increased across a wide range of the global economy – for corporations, multilateral institutions, fiscal authorities, and expanded central bank balance sheets. For example, with financing costs lower than in the past, the temptation for governments is to spend more, arguing that the debt is easily financed. This underscores the importance of structural reforms to avoid excesses, invest wisely, and make sure that growth accelerates to service the expanding debt burdens.

Brexit. We are monitoring the developments in the Brexit process in which the UK will leave the European Union. The process creates major challenges and opportunities, in terms of international organizations and U.S. businesses and jobs. Government regulators in Europe are vying with each other to lay claim to new territory. The uncertainty in the process poses risks to growth and vulnerabilities from market dislocations.

China. China has grown to be an economic force in the world economy, and for many years the United States welcomed its steps towards liberalization. Chinese growth contributed to global economic growth, and the hope was that China would develop into a fair, reciprocal, and market-oriented partner for trade and investment. However, the direction in China has clearly shifted.

Market liberalization has stalled and even reversed, with the role of the state increasing. State-owned enterprises have not faced hard budget constraints, and China’s industrial policy has become more and more problematic for foreign firms. Huge export credits are flowing in non-economic ways that distort markets and leave borrowers burdened with ineffective projects and heavy debt burdens.

China takes advantage of the open investment climate provided by the U.S. and other countries, but does not offer or allow a reciprocal investing relationship. While it professes to embrace globalization and openness, in practice its trade regime is mercantilist and restrictive, and China has not embraced fair and market-oriented policies. The World Trade Organization (WTO) has shown an inability to resolve disputes, limit subsidies, or draw China into the market status that was envisioned when China joined the WTO. When China entered the WTO, it was not intended that China would continue requiring intellectual property to move to China and then be absorbed by China; or that heavy export subsidies would be maintained.

Thus, as its portion of world GDP increases, China’s direction away from markets is a key risk in the long-term global growth outlook, and we’re working with market-oriented economies around the world to find constructive responses.

The U.S. government places a high priority on growth at home and abroad. We think investment, trade, markets, and democracy are critical. I’ve outlined a U.S. and global environment that we think is improving, in terms of its growth potential. While there are risks, we’re working hard to foster that potential. I welcome a dialogue with you. Thank you.

Transcript of the interview between Hudson Institute Senior Fellow Thomas Duesterberg and Under Secretary David Malpass

Disclaimer: The following transcript has been formatted for clarity but may contain errors. It should not be relied upon for purposes of verbatim citation.

THOMAS J. DUESTERBERG: Let’s drill down on a few of the points that the undersecretary made in his opening remarks. First of all, on tax bill and growth, one of the key elements of the bill was to move to a territorial system. And one of President Trump’s leading campaign promises was to bring jobs back to the United States. Do you think the tax bill is going to cause a major move back to production in the United States from abroad, either in terms of American companies coming back home or foreign companies being more incented to produce in the United States?

DAVID R. MALPASS: I think so; yes to both. I worked for President Reagan on the ’86 tax bill, and that was a major success. By lowering the rates, you got more businesses investing in the U.S., and that in turn also contributes to global growth. One of the things I think that’s core for people to recognize – it’s not a zero-sum kind of world economy. So, yes, I think we can create more jobs in the U.S. And we will end up seeing more jobs abroad, especially, as I noted in my remarks, if other countries also do structural reforms. As countries make their economies go better, more jobs are created. So specifically in this bill, a critical point is lowering the corporate tax rate from 35 percent to 21 percent. Economic models, and sometimes the public dialogue, doesn’t fully appreciate how constructive that is. So we’ve been having U.S. companies talk about competitiveness, labor, under this idea that you could have a higher tax rate and still compete in a global economy where many of the other countries had lowered their rates. It just wasn’t working. And so now with the rate lower, we’re going to see people be able to make a choice on where they invest, and a lot of that will be in the U.S.

DUESTERBERG: Another goal of the tax reform bill was to make the cost of capital investment less burdensome to business. There’s been a lot of talk of secular stagnation in the United States. Do you think the tax bill will reverse the trend towards lower capital investment in this country and that – will that be a major stimulus to growth in and of itself?

MALPASS: Yes, and it already has. If you look at the fourth quarter data – very strong growth in core capital goods – and so there really is a launch. Part of that is – investment expensing was what began to take effect in – toward the end of 2017, and I think will have more effect in 2018. That’s the ability to fully expense new investments. So that will be a direct incentive and possibility of using cash flow to make – to hire a new – to buy a new machine. But – and I think it’s a – it’s critical for people to recognize as new equipment is installed into the U.S. economy, that means that skills will be enhanced. Someone has to learn how to operate the machine. Someone has to make the machine. Someone has to train the trainers, and there’s a whole, I think, ripple or waterfall of benefits that comes out of that new investment.

So a lot of times, the computer models just look at how many machines are going to be bought. But the true benefit is going to be in people that didn’t have the skills to do that job before that are needed by the – by – as the company purchases, they have to hire workers to go with it. And those are often going to be new workers, ones that haven’t just left another job, but they’re actually being added to the participation rate to the labor force.

So I – my view is that we will get long-lasting benefits from those changes in the tax code. I did a Wall Street Journal article a couple weeks ago going through that. The modeling is often trying to say that this is just a one-time benefit that’s going on within the U.S. economy. But I think to the extent that it changes what companies do – and I mentioned in my remarks new business formation had really fallen into a low trough for years. Something had happened in the U.S. economy that caused small businesses not to be formed, and that led to the idea of secular stagnation. I think that was to a large extent because of the policies. So as you begin to change regulatory energy tax policies, businesses start forming. They buy a machine, put workers to work, teach the skills, and that becomes a positive process.

DUESTERBERG: David, you’ve been a champion in small business throughout your government and business career and have emphasized the impact of the tax bill and deregulation on the small business sector. If the National Federation of Independent Business Optimism Index is a quantitative index of what Keynes called the animal spirits, it seems to be working. But what specifically would you say in the tax bill and the new Trump administration policy is helping small business?

MALPASS: Part of it is this intangible aspect of attitude. So the government now – the Trump administration has a strong attitude that we like small businesses to form. That hasn’t been as clear in the past in the policies. So that means regulatory policy. I hate to go through it over and over again, but I think it’s critical for people that are thinking about starting a business to realize that that’s actually invited, embraced, encouraged by government policy. That’s general regulatory policy, financial services regulatory policy, tax policy, energy policy. And so I think we’re going to see some business formation, small business formation, begin to start up finally, which is I think one of the best indicators of future growth.

DUESTERBERG: OK. Let’s move to another major area of your responsibilities, which is trade policy. And you mentioned several times in your remarks about China going in an illiberal direction. You also noted that the World Trade Organization is not always – has – doesn’t always have the tools to address Chinese subsidies and other practices which are undermining Western economies. Should we be working to change the World Trade Organization rules to take into account this new type of actor whose size is unprecedented in the world – history of the world economy?

MALPASS: I think so. I think there need to be changes to make it work and be effective. And that’s – you know, you don’t have to do – you don’t have to go through this from a look back standpoint of – I think what we can agree as – almost worldwide that as China in the ’90s was moving toward its entry into the WTO, it was actually liberalizing, and that means price liberalization was occurring. The reliance on state-owned enterprises was going down. China had a message to the world that it wanted to be a full participant in the global financial system and in the world economy. It joined organizations, and actually participated in those organizations and then entered the WTO on that basis. And as I suggested in my remarks, then they slowed down that liberalization trend and, I think, even have reversed it.

So for the world, then, we should think about how to make WTO effective in a world that – where China didn’t go in that direction that was anticipated in its entry into the WTO. And that may mean changes in WTO, but we also hope that it would mean changes by China in the direction that it’s going. It’s espoused an aggressive industrial policy where it plans to take over world industries. Now, some years ago, the U.S. might have ignored that or said, you know, I doubt it. But now there has to be – that has to be taken as a serious challenge to where the world is going because that would mean imposing China’s system of nonmarket activity onto those global sectors, and that’s not a good way for the workers, for the people of the world to go. So I do hope WTO can be effective, though I’m afraid that at its core, there are certain parts of the global system – for example, subsidies – China provides a huge level of subsidies to its state-owned enterprises. Those aren’t adequately addressed in the WTO.

DUESTERBERG: Are you, as the lead Sherpa on the G-20 and G-7 meetings on economic issues – are you happy with the amount of cooperation from some of our traditional free market allies in Europe, Japan, Pacific Rim with regard to working on these emerging issues with China?

MALPASS: Well, we have great communication. So the U.S. is very much engaged in the world. That’s something that we want to do and that we work hard at. So I spend a lot of time – I was, last week, in Canada for the G-7 meeting of deputies that work on financial and – well, on a range of issues of interest to the major G-7 economies. So the communication is excellent. The coordination is good. Canada is hosting the G-7 this year, and Argentina’s hosting the G-20 – bigger group of countries. And there’s a lot of common understanding of what we want to do in those. One is to – since the world’s not in a financial crisis, we don’t have to have as many working groups working on financial crisis as in some recent years. And that means allowing working groups to actually issue their final report and then stop meeting. That’s – actually turns out to be a huge challenge for international groupings because the tradition, and the practice and the whole setup is that the – that committees continue existing for decades after their purpose has been fulfilled.

And so we’re trying to do that and also have a focus on things that can be accomplished where international coordination actually works. I mentioned infrastructure, where there – the world would benefit from common financial instruments that allow investment in infrastructure so that it can provide capital to the projects that are needed. There’s not, right now, that commonality, so we’re working on that – cybersecurity, obviously, being one that’s of common interest to lots of countries in terms of, how can they keep their own systems safe? How do they respond to the challenge of terrorism or illicit funding? So those are all, I think, going very well in terms of global communication, and I emphasize that in a city here in Washington – we’re on Pennsylvania Avenue – where there’s been a polarization, which is unfortunate, and sometimes communication isn’t as good and clear as it could be. But my perception is on an international – in the international sphere, it’s going well in that regard.

That doesn’t mean we don’t have disagreements. And one of the disagreements I’ll mention is simply, there is a tendency in – I’ll single out Europe, but it’s really a challenge for everyone – to expand regulators into all sorts of spheres. And so that’s something that really is a challenge for the world to grapple with – that governments, wherever they are, are seeking to grow, and they want to grow rapidly. And so how do you reconcile that with the – with workers, with people that aren’t in government in those countries? Which, in most countries, is more than half the people are not in government and don’t actually want to see the governments growing with no limits – and so how do we work with other countries on that idea, as well?

DUESTERBERG: One more quick question on trade – you’ve said in some of your public remarks about the Trans-Pacific Partnership that it’s unworkable. I think you used that term. The president seems to have opened the door, at least, to consider at some point going back to the TPP. Could you elaborate a little bit on what you think is unworkable on the agreement and how we might think about fixing it?

MALPASS: Yeah. And so I don’t know that the president said go back to the TPP. He – what he said was that there are circumstances where TPP could work for American workers, and that – and so as I think about it, what was unworkable was the way the – so TPP – the Trans-Pacific Partnership – involves 11 countries plus the United States, though the United States is not seeking to enter. So there are 11 countries who continue to talk about forming a trade group – a free trade group. And we recognize certain parts of that negotiation and of the language that they developed as beneficial. In fact, we’ve incorporated some of the chapters from TPP into the upgrade, the update of NAFTA that is underway and being negotiated. And so there’s value in certain parts of the TPP discussion, but the problems were that from the standpoint of U.S. workers, too much was given up within the details of the agreement.

And further, there’s an unworkability of trying to get 11 countries together to settle disputes in a way that actually maintains the values of U.S. law in terms of property rights, the court and judicial system. And so there were too many problems with the way TPP was set up. So as we look going forward, I think the president’s bigger point is, we are open to discussions on trade with lots of countries around the world. He’s been very explicit in wanting free trade agreements with like-minded countries that can actually – where they want to grow, and they want to see us grow, and we maximize kind of a positive-sum relationship. So the – his discussion of raising TPP was in the context that the U.S. wants constructive outcomes that expand global markets, and where we can find that, we are open to discussion.

DUESTERBERG: OK. In your remarks, you mentioned Brexit is a vulnerability. The United States and the U.K. are the leading financial services powers in the world. I wonder if there are any possibilities for constructive outcomes once the Brexit is completed in terms of financial services. Is there a chance for some regulatory harmonization between ourselves and the British? And how would that impact our ability to work – for financial services companies to be in the continental Europe market?

MALPASS: So the U.K. is right now in a negotiation and discussion with the European Union on how to exit the European Union. So that – and the U.S. is not part of that discussion because it’s their union that is being separated. And so we have to watch that play out. And look. So one of the things we want to do for the U.S. is try to achieve a level playing field for our financial services companies as well as others as the U.K. breaks up. Now separately then – or, I mean, that raises a whole range of challenges. One is the transition rules that occur at the end or when the U.K. leaves the European Union in 2019. And so what will the transition be? And how long will it last? And will it be growth enhancing? So I wanted to give that preface because we really have to go through that. As they work out their new relationship, I think there will be big opportunities for the U.S. to have good trade and services relations and – including financial services with the U.K. and with the EU. And so we want to just be in a position to engage when they’re ready and create a good environment for the U.S. to do business in. You know, the U.S. has a huge number of jobs that are engaged in Europe and we’d like more – and engaged with the U.K., we’d like more. And so I think there’s constructive outcomes, but right now, they have to work on their relationship. That’s the critical thing to make go well. You know, one of the things I’ll give you – you know, there’s a lot of substance in how we interact with them.

One of the things that’s a little different in the U.S. system from Europe is the idea of regulation that fits the size of the company. The U.S. has a pretty good tradition of recognizing that bigger companies need a different type of regulation than smaller companies, and that applies in financial services as well. You wouldn’t want to regulate a community bank in exactly the same way you regulate a big money center bank, whereas in Europe, there’s not as much of that established concept.

So we’re working with Europe to encourage them to move away from one-size-fits-all and to actually have regulations that work for different sized businesses. This goes to the theme we talked about earlier of small businesses, I think, are critical to job creation. Europe has this challenge. They still have a high unemployment rate. And so that means they need – the way I think about that – a lot of small businesses to be created in Italy and Germany and France. And that would be good for them. I think that would be good for us because we all benefit from mutual growth. So we’re – we want to take the stance in International Regulatory Forum that regulation should work for small businesses and they haven’t been. So let’s get it right so that people can grow.

DUESTERBERG: OK. One more question before turning to the audience. You mentioned that Treasury is very involved in the Western Hemisphere Initiative, and Treasury has taken a lead on that. Two questions – is the growing influence of China and ways to counter their growing influence in the Western Hemisphere something you guys are working on? And number two, Venezuela is clearly in economic trouble. Are you developing contingency plans so that, in a worst-case scenario, we can respond quickly to a collapse of that economy?

MALPASS: So that was two questions.

DUESTERBERG: It was. Sorry.

MALPASS: So with regard to China – as – what they – what we want to do is create an environment for the Western Hemisphere where other countries see that we are a positive partner and that the U.S. is interested in investing in their countries and getting investment from their countries and having a lot of trade. And that includes in the energy sector. We can have a lot more growth in Latin America, growth that benefits American workers, by expanding the relationship in the energy sector. Notable in recent years is the discovery and development of natural gas resources in the U.S., which turned out to be much, much, much bigger than people had realized and expected. And that’s lowering the cost, which creates whole new opportunities for Latin America to grow using natural gas as an energy source. So we’re working on ways to have agreements and relationships that make that possible, which hasn’t been done enough during that vacuum where the U.S. wasn’t, I think, doing enough in the Western Hemisphere in previous years.

China had been stepping in and offering an alternative that simply wasn’t as good as the one offered by the U.S. China often is using export credit agencies. That means Chinese lenders, government, almost totally government-owned lenders that use subsidized finance to attract deals that then require procurement or end up generating procurement from China. And so it’s an unbalanced relationship that leaves the country with a whole bunch of debt.

Venezuela, turning to this second issue, then is a case in point. They are China’s biggest investment in the region. It’s a completely failed state in that they are non-democratic. And Venezuela’s biggest funder and source of resources for it has been China, which resources don’t end up going to the people of Venezuela. They end up going to the government officials. And so this is a problem that involves the Western Hemisphere. And so we saw just this morning Peru stepping forward and saying that Venezuela is not invited to the Summit of the Americas, which will occur in Peru in April. And so that I think that’s constructive in that you have a non-elected leader, and the region, the neighbors of Venezuela, are stepping forward and saying this is not beneficial to treat them as one of the democracies of the region.

There is still the anomaly of Cuba, which is going through an election now where the voice of the people is not heard in the – they call it an election. And so there still is this problem of Cuba being non-democratic and yet being treated oftentimes by other countries in the region as part of the Western Hemisphere when it’s violating the principles of democracy that are so important. So as far as if Venezuela moved in a democratic way with free and fair elections, which we’ve strongly encouraged, I’m sure that the U.S. will be part of an international consensus to help support the people of Venezuela as they try to recover from this. But, let me make clear, they, right now on the books, owe a huge amount of money to China, which did not benefit the people of Venezuela. So you have to get over that and try to say to China, this is not helpful to the people in the Western Hemisphere to go about business practices this way.

DUESTERBERG: OK. We’re getting close to the end time that we have. The questions I have from the audience relate to China again. We’ve sort of covered that, but let me just try to combine these two. Have we had any success in talking with the Chinese about currency manipulation, and can we expect more anti-dumping and countervailing duty type measures against China?

MALPASS: So on the latter point, I do expect more. You know, the anti-dumping, countervailing duty is a common, is a not unusual part of U.S. trade law and a response to dumping in excess capacity worldwide. And China’s is a subject of quite a few of those actions. So I think there will be more. I’m sorry, what was our other part?

DUESTERBERG: Have we had any success talking with the Chinese about currency manipulation?

MALPASS: So I talk, we talk with the Chinese regularly. As far as – I don’t want to be very specific on currency topics. Treasury put out a twice-a-year report on currency manipulation. So that will be coming out in a month or two, and that addresses currency manipulation around the world. So I’ll leave it to that report. But I will note on currencies in general that over the last – within the IMFC communique which came out in October, there was a recognition that the currencies have been more stable than in the past, and that was welcomed and associated with good fundamental policies, as fundamental policies are better. You end up with a good, a better result for currencies. And that all goes together with more growth and investment. So one of the dominant things going on in the world right now is the acceleration of growth that’s going on in most countries around the world. That’s a very welcome development that’s occurred over the last year.

DUESTERBERG: OK. On that optimistic note, thank you for your generosity of your spending time with us and covering so many different subjects so comprehensively.

MALPASS: Thank you, Tom. Thanks, everybody.

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