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. This initiative will foster continued dialogue regarding investment between the United States and the European Union in the years ahead.

The Commerce Department released statistics earlier this year indicating that foreign capital inflows to acquire or establish a business in the United States jumped 77 percent—to $161.5 billion—in 2006 from the previous year. And our cumulative stock of foreign investment now exceeds 24 percent of GDP on a market value basis. This foreign investment translates into high-paying jobs for American workers, while promoting innovation and generating increases in productivity.

In the United States, over five million Americans work for companies headquartered overseas. Although these jobs comprise less than five percent of our workforce, they account for 10 percent of our capital investment, 13 percent of our annual research and development, and 19 percent of our exports. And over 30 percent of these jobs are in manufacturing, which is roughly three times the overall percentage of manufacturing jobs available to the US workforce.

The US government is working to maintain our firm commitment to economic openness while protecting national security. We achieve this balance through a review process coordinated by the interagency Committee on Foreign Investment in the United States (CFIUS). CFIUS is designed to review foreign investments in a manner that preserves our security without creating unnecessary and counterproductive barriers to participation in the US market.

The United States is committed to a level playing field that underscores efficiency, and the CFIUS process is a disciplined, narrowly-focused approach that works to resolve issues rather than prohibit transactions. Thus, CFIUS investigates transactions that might threaten our national security, without imposing any procedural burdens on those that do not. Last year, CFIUS reviewed fewer than 10 percent of all foreign mergers and acquisitions of US companies. Even in the wake of controversial cases like Dubai Ports World, the vast majority of foreign investments reviewed by CFIUS continue to be processed expeditiously and without controversy within the initial 30-day review period.

Earlier this year, President Bush signed into law the Foreign Investment and National Security Act, which updates the CFIUS process by instituting important reforms and increased accountability measures to help ensure that CFIUS addresses national security imperatives. The new law maintains CFIUS’ narrow focus on transactions that raise national security concerns and institutes reforms that include greater senior-level accountability and improved communications with Congress. This measure will help ensure that CFIUS can continue to address national security imperatives while also reinforcing the US economy by welcoming investment from abroad.