commitment. opening up these opportunities so that other folks don't have the opportunity in what is one of the fastest growing markets in the world. i also say it is a much broad er step and commitment that is needed. the reality is in asia now we're facing a competition of models. you can have markets largely based on transparency where people compete on the basis of price, quality and service or we can have a model where it is either didn't of being behind a wall of interprice that have political sway or we can have a system where you have red chips that dominate things and everything depends on beijing and asia. . .

>> actually a conceptual change how we would negotiate and think of the challenge in front of us, thank you. >> thank you, claude.

>> you will be happy to know i am only two slides and i will s.lk about one subject, taxes there are many issues but i will use my few minutes to talk about taxes. the u.s. has the second worst tax system amongst our competitors. japan has the privilege of being first. i draw your attention to this chart which boasts statutory rate, marginally effective rates, and average effective corporate tax rates. however you slice it, the u.s. is pretty bad. for the reasons that barry

mentioned and grant has emphasized, the u.s. is not an attractive place from a tax standpoint to produce and it is becoming an increasingly less attractive place to have headquarters. the u.s. has many other advantages, of course, and those more than offset, in many instances, the tax disadvantages but taxes are something the federal government can actually do something about. i agree with most economists would subscribe to what barry said which is the exchange rate is the big elephant in this room.

however, if you recall the last time a treasury secretary argued for a weak dollar, your memory is better than mine. that is never an explicit u.s. government -- has never been an explicit u.s. government policy. we have done a couple of things that have led to a weaker dollar but it is never an explicit policy either for domestic or international reasons. we can do something about our taxes as we did back in the reagon period but we have gone against everyone else. i want to make a couple of additional points. we always think of france as a high tax country. the french get a lot of blame for many things. you look at their marginal effective rate and it is a less

than ours and the average effective rate is substantially less. look at china. this is a competitor of the future, not today. today is japan which has a higher effective rate. europe and we should add canada which has a much lower average effective rate, marginally effective rate. than we do. this tax situation has to change. the obama administration rolled into town on the notion that the way to change the arithmetic was to tax the overseas operations of the u.s. multinationals. that is a hopeless proposition. it is hopeless politically, economically. it is true that multinationals like apple might do here and

produce more in the united states but when you look at the connection between firms which are multinational and have operations abroad and their exports against comparable firms which are really national firms but otherwise allowing for the other statistics of the firms, it is the multinationals that the duty exports. -- that do the exports. when they invest more abroad, they are very powerful. and there is a lot of literature on this. the obama administration's rhetoric which was to try to lift up the taxes on multinationals doing business abroad to the u.s. level was really a formula for asking u.s. multinationals to sell off their operate -- foreign operations. it did -- it went nowhere in the congress. to its credit, the

administration scaled back their punitive measures against multinationals but they are still there. it will be interesting to see what the 2012 budget proposals will look like compared to 2010 and 2011. that is the absence of a territorial system which is the effective system in nearly every country. the few countries that don't have that have much lower statutory rates than we do. the business roundtable just put out a chart on that. for all the talk of the deficit commissions and there are many of them, they all talk a little , most of them talk about reducing the u.s. statutory or rate which is going in the right direction all make a few would take the west down to the

average, the average of what is happening elsewhere. i did not put an average in these. we have to come down 10 percentage points to get to the average. we want to get competitive and we need to do more than that. the deficit commission talked about a range which is somewhat lower. the top level is higher than that. some of the others were equally up at the higher levels. paul ryan has made a bold proposal of getting rid of the corporate tax and replacing it with a value added to type of attacks. -- type of tax. the u.s. is so much out of step with the rest of the world.

i know, like everyone else, i else"the wall street journal," and they attack the value added tax as a device for ballooning the government and has the attributes of being a french invention. that is a bad feature of it. this french invention has been adopted by nearly every country. in the world with the exception of the united states. as the discussion so far has indicated, we have an extra old deficit problem as well as an internal deficit problem and the value added tax that addresses both problem simultaneously. it is the big revenue engine. if you are going to do sensible things on other taxes, you need a value added tax. it also is adjustable at the

border under present rules and therefore, it is substantially equivalent to. an exchange to adjustments you can see the effective exchange rate adjustment imposed on imports, exempt on exports. if you believe in exchange rate adjustment, you have to believe in the value of the value added tax. if you don't believe this, this won't matter either. i am always perplexed by two economists who say exchange rates matter but value added tax will not do anything for your expenditures part of the proposition. that is intellectually inconsistent. i think the u.s. has to get on board with this. i give alice rivlin and ryan credit for raising this. the debt commission debated this. they could not bring themselves

to talk about a value added tax. if we are going to be serious about internal and an external deficit problems, we have to put this on the table as well. thank you very much. >> my short answer to the question -- can the u.s. double exports -- is probably not. i am not sure we have heard much by the compelling case so far that it is feasible. i will touch on three points. first, what does determine exports? let to rummage through the tool box. two, a quick examination of why we want exports to double. 3, how do we stop worrying and

love the nei. starting with what determines bill level of exports, there is nothing i will contradict. maybe a few organizing the faults, may be a branca ordering. i would argue that the biggest determinant is macroeconomic conditions. if you're trading partners boom, so do your exports. if you're trading partners shrink, so will your exports. this was not lost on the administration when they set their initial targets and they set their base. we have had a collapse of trade. you are looking at getting a substantial amount of this doubling just rebounding back to in initial conditions. the president trumpeted that.

he said if you look at the first nine months of 2010 relative to the year before, you saw an 18% growth of exports. that sounds very promising and exceed the rate that you would need. if 15% over five years will get you your aa. however, over this short time period, you have a deceleration. if you look at the first six months of this year relative to the year before, you were talking about almost a 21% rate of growth. if you look at third quarter over third quarter, you are talking about an 11.4% rate of growth which is what we would expect. you get to a more normal set of conditions. there are a couple of components to what we talk about when we talk about macroeconomic conditions. you can hold the exchange rate constant.

who are our major trading partners? you can look at europe who are having difficulties at the moment. their prospects are a bit cloudy. they don't seem poised to enter a period of dramatic growth or they will be taking on a lot of u.s. exports. asia is doing better but has not turned themselves into a consumption engine. they are actually seeing trade surpluses. you are not seeing it -- it is hard to see where this market that will lead to a doubling absent something that my fellow panelists have discussed which is exchange-rate depreciation which will probably not be an explicit part of u.s. policy and may not be that easy to achieve

any way. if you look at the reaction to the fed doing qe2, they were talking about domestic transactions and people were worried about the indirect a fact and you got anguished speeches about the u.s. forsaking its role of the reserve currency of the world. people actually bought foreign currencies. that does not seem to be in the offing. that is the biggest determinant. what is happening in macro economic conditions? what is happening with exchange rates and growth with our trading partners? as second, market access. we might be able to, if you got new access to foreign markets and trade barriers fell, this has a price of fact -- effect

where u.s. goods could look cheaper. the problem is that u.s. trade policy has been on a prolonged hiatus since the obama administration came in. i welcome the move to revive it and get the korean trade agreement moving forward but it is worth noting that these agreements, if we are going to confine the discussion by what you get by 2015, these agreements take awhile to pass and then to implement and to have an -- and in effect. it has slowed a certain degree of market opening. is the korean agreement a good thing in the long run? absolutely. it could be $10 billion or $11

billion in u.s. exports. the goal is to go from $1.50 trillion to $3 trillion so $11 billion is good. there are hurdles to moving beyond that. grant talked about the idea of a better commercial policy, better export promotion. the theory behind how this might work -- the advocates who have spoken about the nei and the potential for doing this will point out that if you look at the distribution of exports and the sectors where the u.s. does reasonably well, you will find some are only a fraction of the firms within a sector are exporting. they see this as indicating

potential. the argument is that we are not picking winners and losers. the market has determined that given sectors are ones where you can probably export from the united states. stopping a fraction of these firms in these sectors from engaging in exporting may be obstacles. there was the president's export cabinet in september which talked about businesses attempting to close export deals face certain challenges. this suggests a role for the federal government. a lot of this is the idea that there are fixed costs to getting exporting going. this is something the government can overcome. the two issues that i see with this argument are first, this is

not a new concept. we have been trying to do this. it was enumerated how many foreign commercial services missions we have that are making the attempt and there was a coordinating group. the coordinating group was at the undersecretary level. when you move this up to the cabinet level, there are dramatic differences. in practice, one might find the reverse that the cabinet secretaries have a few other things on their minds and it may not get the same attention it would with more focus from undersecretaries. you are talking about a fairly large impact. the idea that this is a marginal impact in a tertiary category that will lead to a doubling is somewhat implausible. the other point is that i also

find it hard to believe that our great weakness is that we have no one who does information technology or business services and that is something we are reasonably good at. you think about bloomberg and the intelligence unit and that eurasia group. there are a few places one can go if you want to get somebody to help you. the argument that there are $100 bills lettering decide what if the government would pick them up and we would be tremendous exporters, i find somewhat implausible. that is the tool box. none of those things are easy to manipulate either because we are doing them and partly because we have been held up on trade policy and probably because of some of this stuff returns to the macro policy. you can argue this was very

much what the administration was trying to do at the g-20 meeting. this is an acknowledgement that these macro conditions play a big factor and the rebalancing was the u.s. consumes less and the rest of the world consumes more and we are exporting. the problem is the g-20 did not get far. i liked secretary of the treasury tim geithner a's approach to this. you did not have a consensus and you did not get the kind of cooperation one might have hoped for. going to the tool box in this situation looks grim. why do we want exports to double anywhere? i will use this as an occasion to issue a caution on one of the

explanations. this is an explanation that the president gave reportedly again this morning which is that for every billion dollars of exports, you get $5,000. you hear a range of figures. some of the most distinguished of think tanks around washington will occasionally have their directors put forth numbers like this. [laughter] i will not name names. >> he did say distinguished. >> all good things. it is worth noting where this comes from. i think it was just this year that the commerce department led a group of enter agency economists, they were under enormous pressure because people want to know how many jobs this will get me. your initial response is that you will say that it is not

about jobs, it is about what kind of jobs. we want the number of jobs so you value your job so what is the number? [laughter] you try to do something intellectually defensible and you say how many exports do we have as a country and you tallied the mob. how many jobs are plausibly related to those exports? you tally that up and divide and you have a number. for every billion dollars of exports, it is roughly 5000 jobs. because you value your standing with other economists, later on in the report you write a couple of pages of caveat were you warned everybody how they made me do this but approached with caution. [laughter] the caveat say that marginal and average are not the same thing.

imagine a scenario where you have a firm which is exporting half of its goods and increasing half of its goods for the domestic market and it has an accountant. if the firm decides to ship 50% of the domestic market abroad, do they need another accountant? not necessarily. this is the difference between average and marginal. this is one of the difficulties is that it does not automatically follow that the number of workers to get the next dollar of sales is equal to average. these are rough numbers. it is not at all a guarantee. i would caution for the "we need jobs" as a motivation to do this. i strongly believe that the

international engagement is in u.s. interest. the better reason is that you have basic accounting. if the united states as a country is going to grow and consume less, the difference will be better export performance. this is the rebalancing. i think that is the more appropriate motivation behind it. i have been casting a whole light on these characteristics of the nei but i think it is a good thing. you don't want to think of it as a realistic goal or a particular strategy. i would recommend thinking of it as a marketing strategy. you have an administration which

has been described as skeptical rhetoric on trade. , said are in during the campaign. you can go back to spring of had cost how nafta 2000 jobs. -- 200,000 jobs. how do you give its from something like that where you hold a trade responsible for many of the ills of the economy particularly when the economy is doing a worse. how do you turn this around? exports equal jobs and i have described the problems. this gives you a lever to do a bunch of things which are good ideas for a range of other reasons. as we heard in the keynote speech, when you talk about

ideas like export control reform, retraining workers, reducing barriers to tourism, and trying to make trade agreements -- those are all good ideas and they are right enthe policy of the president serves as an umbrella that lets you bring those in. if you look at the correa trade agreement, that was not one of the things lauded as a central part of this. it didn't rather nicely the later part . it is a rhetorical device. people do this because they need to achieve the president's vision. we are hearing a good sound proposals that would make for a better trade policy. if you think about it as a marketing strategy, it looks better than if you think about

it as a practical plan. i will stop their. >> one thing i did note -- the fact she does not say it will create 70,000 new jobs. you all have been sitting here for quite a while. i will turn very quickly to you. i have two questions that came up. barry something that's said. the connection between the two driving forces in terms of the balance of exchange rates on the one hand and then the identity on the other hand, the balance.

is one more important than the other? how do they interconnect? if you don't change the identity, you can change the dollar value and end up with a fairly substantial trade deficit. how do they interact? the second is this collection of issues related to trade and foreign and direct investment and outsourcing. i don't want to embarrass you about boeing being a worldwide company and how do you defend -- we have not had anybody say recently that you can talk about benedict arnold corporations that invest abroad. it was part of the president animus in terms of the corporate tax discussions. how does one defend and what is

the rationale for foreign direct investment for multinational companies that it will create jobs? there is a connection between outsourcing, foreign direct investment, and trade and than the earlier question of the relation between the exchange rate on the one hand and the so- called identity on the other. i will throw that open to anyone. >> let me speak first to the interaction between the expenditure switching and the expenditure rebalancing. vat does both if you can control your spending. you get this switching to the border adjustments and, if you can edit on to other taxes and

not increase spending, you get additional savings. what about coming at it from the exchange rate? if you have a devaluation of the exchange rate, you will boost corporate profits. for firms which are exporters and also firms who are import competitors. you get some provided that they don't rush out and do additional investment of an equivalent amount and the investment will be a lag, you will get additional national savings from that. however, it is hard to get an exact match. you look at the details -- 10% devaluation does not pay for itself on the savings side through additional corporate savings. you still have a problem there.

let me comment briefly on the connection between investment abroad and jobs at home. i know where the political rhetoric is coming from and shipping jobs overseas with tax breaks which is a close cousin of the benedict arnold attitude. i think the picture which the administration should begin to paint for the american people is that with investment abroad, you actually engage in those markets and it is a supply chain model of supplying those combined -- components which we do best to the places where we have markets and selling all exhilarate goods and services which are not made by that foreign firm but might be made in the united states. that is a much more realistic model. i know the common model in

people's minds is if you invested their, you don't invest here and we lose the jobs. you have to fight this mental model. >> that is true. in the recent campaign, you had criticism going forward with nafta but the bigger one is outsourcing. that is the bigger issue that you had to face. >> it is a very good question about which side of the accounting identity dried stains. ves things. accounting identity is already a fact the cause and effect.

i think we actually observed some revealing episodes where we saw recently some fairly big savings shocks without any accompanying change in trade policy. if trade policy is driving things, you would have thought he would not get much pewe got really dramatic effects. when the u.s. saved more, you saw a substantial movement in trade balances. that is a contentious point. on the connection between outsourcing and foreign direct investing, this is something that comes back to what granr talked about. this is not wine and coffee being shipped on tall sailing ships.

a substantial portion is related party trade. if you think about services where the west really expels and enjoys a surplus, you often need to have somebody on the ground in another country to provide these. this is a hypothesis about why it is you might get a positive linkage. people do careful studies actually get a hypothesis that this is good over other things. there are other facets. instead of a simple exchange of finished goods, when you look at outsourcing, many of these things reduce business expenses. if you talk about a back-office operation where somebody can do this more cheaply, that can reduce the cost of starting up a business and hiring people in the united states.

when this whole phenomenon was burgeoning, we were looking at this five or six years ago, you could not find a study where it looked at the net of fact. effect. this is a different layer of complexity to this. >> i don't quite agree. i think there are elements of this but most of the empirical research does not find that foreign direct investment drive straight. there is not a close link between the two. it is not independent. if you have exports overseas, you need offices abroad. if you look at american companies that invest heavily

overseas, multinational corporations, we collect an enormous amount of data on them and there is not muchlink. american firms operating in other countries do not import much from the united states. they don't export much to the united states either. they embed themselves in the local economy and sell locally. they are very good at because they have a business model they developed for the u.s. and it is nothing bad about it or good about it. that is what they do. when a test to things like outsourcing, americans have to compete in a global market as a worker. if we have a work force that has no skills and poor education and demands too much money, the jobs will go elsewhere. the defense for american workers is not to complain about outsourcing, we have to improve the job skill.

i am struck in the discussion of the unions in germany verses unions in the united states about what the difference is portrayed. german unions understand that they have some operations abroad. i think they have a much more competitive attitude about their role in the world economy. in terms of what comes first on savings and investment, -- or exchange rates, they are both indigenous. you cannot separate it out. you have to free up the resources to the domestic economy. you have to free them for consumption and you have to ship them. that is what the two terms mean. you have to lower the exchange rate. the price has declined, otherwise the goods will not move abroad. that does not happen, efforts to cut savings in the united

states like cutting taxes or something like that, cutting consumption, will cause unemployment. the equilibrium part of it -- we should not try to divorce them more argue about what is most important. they both go together. in market economies, the exchange rate is endogenous. policy rate does not affect taxes. it is not a directly affect the exchange rate. most historical evidence suggests that if we were to cut back the company from this consumption binge that we did, the resources would shift into the export sector. >> i don't see how this affects

the eggs british ships the composition of the goods between domestic and foreign certainly, we will end up with more exporting. talking about the relationship, i am not sure that it actually alters what drives consumption. it is a mix between foreign and domestic that will change rather than our propensity to save th unless i am missing something. there is a great study by a couple of guys atuc irvine about the value change that produces the ipod. all the value ends up being associated with activity in the united states. phone, but itp my fu

will say made in china. the value of that ponchos up-in accounting. the actual value embodied in the fan, the vast majority is produced in the united states. we missed the fact that china's efforts to lift itself out of the final assembly point and a rise in the value chain is upsetting the talents for american companies but it is upsetting the entire value chain of the region. what will be interesting is to see how things play out we seem to be getting back into trade agreements in asia.

it may have an application for apple as it thinks about what it does next as force components and final assembly. >> let's turn to the audience for questions. please raise your hand and identify yourself. i will start in the back and come toward you. >> how could president obama be able to double exports by 2015? his policy runs against this initiative. sold arms to india.

they are rushing offshore production to there. more offshore production means more exports and more employment. the war has changed things. i think we should turn offshore production, multinational corporations can be seen as u.s. exports. also, ." can you get to the question? >> all this should be considered within u.s. exports and should be taxed, thank you. >> the broad question seems to

be is something we have been addressing for the last hour or so. i will go on to another question. >> i like the line that double its exports is a good marketing tool but if should be a thing we should be doing anyway. you seem to put the emphasis on devaluation of the currency. what are the implications of this for the dollar as a reserve currency? how can you talk about doubling exports and not talk about the

impact on the global financial system? >> i guess the short answer is i'm not concerned about the global financial system. as of right now, in his daydis equilibrium situation. the u.s. has a disproportionate amount of unemployed workers. we have idle resources in the united states. the exchange rate is the way to shift production to increase u.s. production and provide more jobs at the march in di of thats equilibrium. in the long run, the same mechanism has to excess. i don't care about them. why do americans have to care about the international financial system? if china wants to order a lot of

dollars and the dollar goes down and china loses money. that is not my concern. they should not have supported all those dollars to begin with. 0-- horded all those dollars to begin with. >> [inaudible] >> that is an extreme but it has not happened, has it? >> this is worth separating two things. driving the value of the dollar down raises the risk. this is not because of government policies. people bring their money here because it is a good place to invest and it is the only truly deep and liquid form market there is. unless there is some kind o in theffing -- unless there is something in the offing that

suggest there is another market, it is on likely we will see that shift. depreciation of the dollar will not alter that. anytime you try to do this rebalancing, which we saw with the plaza accord, you see significant costs that go along with that. it is not cost-free. the uncertainty alone raises the cost of doing business. you are diminishing the prospects for growth which ultimately drives our ability to export as well as the macro economic growth. we need a 30% devaluation, up 30%? i would like to see a gradual rebalancing. the price of the dollar has to be part of that, absolutely. >> [inaudible]

[inaudible] >> i remember in the first part of the year, it was all about the fear of a double-dip recession. i hope i can get away with asking this question. we are almost at year end and we have a panel of good thinkers. are you happy with the way the u.s. economy has performed in the past year or in the first three quarters? how would you rate the job that has been done by the administration and the fed in steering the economy in the

right direction? >> i give 90% of the credit to the fed and 10% to the administration. qe2 is a big gamble but it is the right to gamble. >> i am all let's qe with2. -- i am a little less happy withqe2. >> it is interesting what the panel is saying about addressing capacity issues. we try to address those same issues in a u.k. a great contribution to exports could be made through [inaudible]

perhaps trade sanctions could be moved. going from $1.50 a trillionto $3 trillion in a couple of years is a major shift. is this realistic to expect a double in across the board? >> i don't think we will be able to focus on certain sectors and do this. that was the distinction i tried to draw between thinking about this as a manageable plan where you had a particular path within and results as opposed to a justification doing some of the things you suggested. i concur that moving toward a doha agreement and using this as

a precedent is promising. >> i think the micro economic situation is something to think about. the macroeconomic part of this is clear. the micro economic is more interesting. it may be that to achieve this goal, we actually have to lower the transaction costs for many people to connect. they have to make sure that the outcomes are clear and there are clearer. rolls what that implies in one sense about small businesses shipping across a bridge in copenhagen -- these are not terribly different cultures -- it takes those small companies 15% more production because of the transaction cost

to get the goods across the bridge. in one sense, one way we should think about this is not through the government. how do reproduce the transaction cost to the small business so they can make that connection? our export promotion may in fact what gets done domestically in linking suppliers and their capabilities with systems integrators that create these ecosystems rather than thinking that adding another foreign commercial service office will be the springboard for how we can double our exports. the key action may be thinking harder about how you create the wave of small businesses to participate in the global economy and honor the way the global economy and trade is structured and focus on those linkages and try to improve the. m. >> that is true but underneath

division you presented is a lot of complex small things that will not happen in the next couple of years. the second thing i worry about is whether this should be across the board or concentrate on high tech sectors. maybe aerospace or biotechnology or whatever needs help and that is a bad way to go. if the government wanted to do that, they would have to take some action. i'm nervous about the action you would take them a speaking from personal experience, when you say that is what you do, you invite trouble. >> that is not cost-free. when -- how the judge gets made

is invariably political. we can spot it after the fact. >> you said that the current u.s. corporate tax system tribes u.s. companies overseas. you said we should a job -- adopt a territorial system. would switching to a territorial tax system do anything more to bring some of that foreign operations of u.s.

companies back to the u.s.? i can see that there would be some repatriation but on the other hand it might be a bigger incentive to go overseas because they would not have to spend time with certain costs and dealing with the tax credit issue. where do think the balance is with those two factors? >> the most important thing is that by adapting the lower rate than the territorial system, i am reducing the cost of capital. what it takes to drive an enterprise is access to capital. i want to create an environment in the united states where i lower the cost of production for u.s. enterprise. you end up with more investment because i am reducing the cost to the enterprise in the united

states. it must be at least on par with other places. i don't suspect it will lead to further investment abroad. all the growth is outside our borders. i am not troubled so much by the idea that an enterprise need to establish a beachhead. if that leads to growth in the united states. that is where i think the real debate is about what the foreign investment does. that is why we have these competing studies. right now, the growth is outside our borders by and large and increasingly, i want to make it possible for american companies to do the profiling bacon do so they can serve those markets where the growth -- to the pros -- to the profiling so that they can serve those markets where the growth is happening. i want to facilitate their ability to do that. it is not cost-free.

>> thank you for your insights today. i have been accused of not being lyrical enough. one ceo drew attention to american leadership. this is the legacy of the united states. our industry has led the technology parade for 60 years brett we still control 50% of the world market. that is under assault every day. if manufacturing is going to go overseas, what is the u.s. policy to keep us doing those really an exciting and things

that will attract young people to go into businesses in the sciences and do the research and solve these great problems? is that where the u.s. should put its emphasis? >> i did not want to imply that manufacturing is leaving the united states. what we manufacture will stay constant despite competition globally. some people have said that manufacturing has died but that is not the case. what has been interesting in washington is where work is shifting along supply chains because of the exchange rates and things like that. work is shifting back to the united states. even in the manufacturing sector, the supply chains are not moving away but where the work is being done will change as a result of things like the rebalancing in the global economy. i think we have to move in that direction. it may not help us in five years to double our experts, though.

>> thank you for coming and i want to thank the panel for a stimulating discussion par. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> in about 45 minutes, we will look at the trade deal between the u.s. and south korea. we will have the head of the national foreign trade council. national foreign trade council.