Secretary Paulson and Governor Schwarzenegger
Excerpts from Roundtable on Trade
Long Beach, California

RANDY GORDON: Good morning, welcome to Long Beach. My name is Randy Gordon, I'm the President and CEO of the Chamber here. And on behalf of our mayor, Bob Foster, and one of our most famous residents, former governor George Deukmejian, I want to welcome you to this exciting summit, Building the California Economy. Our Chamber is pleased to be one of the sponsors of this event today. I want to thank our other sponsors, the LA Chamber, the Southern California Leadership Council, and the Los Angeles Economic Development Corporation.

It's my sincere pleasure to introduce someone who doesn't really need an introduction, and someone who really understands how to build the California economy, and he understands trade, commerce and infrastructure, and he's a great friend of business. Would you please welcome our Governor, Arnold Schwarzenegger. (Applause)

GOVERNOR: Thank you very much, Randy, for the nice introduction. You must have had a couple of cups of coffee already, right? Yeah. That's very nice, I like that. He's all pumped up. And I want to thank all of you for being here today, this is really terrific.

And I want to thank Secretary Paulson for being with us. He has just come back from China from a trade mission, and is trying to strip away some of the trade barriers that are still existing. And he obviously has done a great job, because I've seen him happy ever since he landed here.

And also yesterday we did a wonderful event up in Stockton where he talked and addressed the sub-prime crisis that we are facing, and are in. And I just want to say, Mr. Secretary, that you have done a spectacular job yesterday. It's really amazing to see a room of around 200 people that were homeowners that are in trouble with their mortgage rates and with all of this mess that we are in, and he really made them all feel comfortable and good, and they all walked out and really felt like the federal government is on top of the situation. And so we really appreciate you making such a great effort. And also to be here today, and to talk to us a little bit about infrastructure and about trade, and the things that we can do. So thank you very much.

And I want to thank also Governor Deukmejian for being here today with us, and Senator Lowenthal is here, and then Assemblywoman Karnette and Mayor Foster, thank you very much, a great mayor. And Mayor Dellums, my buddy here, my pump-up buddy here also with us, coming all the way down from Oakland. And of course we are talking a lot about Oakland, because you have a great port up there, so we're going to talk about that. And Secretary Bonner is also with us. Where is the Secretary? Right over here, yes. Thank you also for being here. And David Crane is also here with us, thank you very much. I thank all of you again.

The Secretary is going to talk about stripping away some of the trade barriers, which is going to be advantageous and great for the United States, but it's also going to be great for California, because that means more trade for us. And as you know, that last year alone we had exports of 128 billion dollars worth of goods, and that is staggering. And I think that the more we strip away some of those obstacles, trade barriers, I think the more business we will do and the more exports we will have. This basically represents -- you know, in our ports in California, Oakland and Los Angeles and San Diego, we bring in 40 percent of the cargo that comes into the United States, comes through our ports, so it just shows to you. And I think that we have a great chance to increase that amount.

The only thing, I think, that we have to really pay attention to is to build the infrastructure so we can get our goods off the ports much quicker. And we have a major problem. I think that our trade is a very important part of our economy, and I think that in California there are around 2 million people that are employed, that are trade-related in one way or the other, if it is moving goods or managing goods, or distributing goods and so on. But we are not operating right now with all 12 cylinders, that's for sure, and I think it is because we don't get the goods off the ports quick enough.

And this is why in my January 2006 State of the State Address I challenged the Legislators and the people of California that we should start rebuilding California, because we have to face the fact that California has not built for the last 30 years. We did not keep up with the population growth. Our infrastructure that we have right now is for 18 or 20 million people, but sure not for 37 million people, if it has to do with transportation, or our schools, universities, our levees have not been fixed for all these years. So I think that it was really great to see in 2006 the Legislators make a commitment to start rebuilding California, and to make the commitment and then to send this in a ballot to the people. And the people have made also a commitment of 42 billion dollars in infrastructure bonds.

So now we are moving forward with all this. And the great thing is not only that we have broken records in as much of the commitment that we made to rebuilding California, but also in how quickly the money is being appropriated. 8.4 billion dollars has already been appropriated. And we are already building, and we are full steam ahead with rebuilding California, the roads, transportation, schools, and so on, and also fixing the levees and so on.

But the reality of it is that if we really look closely at California, it is so far behind with the infrastructure that we need actually 500 billion dollars -- all of our agencies come up with the number 500 billion dollars -- to really rebuild California. Now, we all know that that money cannot be raised through our bonds or anything like this. There's no way that our government can take on that challenge. And this is why we are now looking into, and I will be talking more about that in my State of the State Address, which is what I call P3, which is public-private partnerships. This is where the action is. A lot of money is out there in the private sector, and we are going to push for public-private partnerships, because it's the only way we're going to raise that kind of money and really rebuild California fully.

I think the 42 billion dollars, plus the 8 billion that we made in the commitment in rebuilding our prison system, the 53,000 new beds, which makes it altogether 50 billion dollars. And let's say we get the water bonds done, which is another 10 billion dollars -- because we are right now negotiating for the water bonds to rebuild the Delta and the ecosystem up there and to get a better delivery system and more above and below the ground water storage. All of those things are being worked out. But that will be another 10 billion dollars. Now we would have 60 billion dollars, but not 500 billion. So I think through public-private partnerships we will be able to do that.

And we have seen in Europe very successful public-private partnerships, we have seen it in British Columbia and in Vancouver, where they have wonderful public-private partnerships, or P3 as I call it, where trade is happy, the trade unions are happy, the private sector is happy, the politicians are happy, the people are happy. So it's a win/win situation. That's what we want to do also in California.

So with that I just want to say that I have great hopes that we can get this moving forward. It is my responsibility as the governor to make sure that this Golden State stays the Golden State, and that we move forward, and that we can really live up to the fullest potential, 100 percent of the potential, in our economy. We have a great economy, and the only hiccup we have right now and the bump in the road is the housing market. But we are going to overcome that, and that's why it is also very important that we pay a lot of attention to trade.

So with that, I just want to say again thank you all for being here today, and I want to hand it over to Secretary Paulson now who is going to talk more about trade and about the economy and about public-private partnerships. Thank you very much. Secretary? (Applause)

SECRETARY PAULSON: Thank you very much, Governor, and it's an honor for me to be here with you. And as I look around this table at all of these illustrious figures, let me remind you all that I'm relatively new to the political process, I've got a lot to learn there. I've spent a lot of time focusing on economic issues and focusing on markets, and one thing I've learned since I've been in Washington is Democrats and Republicans both have a very strong interest in having there be a strong America with a strong economy. It creates more and better jobs. And so we're all united in that.

And we have today a healthy economy, as the Governor said, in America, in California, but we've got some challenges. I believe the economy is going to continue to grow, but it's my job as Treasury Secretary to focus on the challenges, the turmoil in the credit markets, the housing downturn, and do everything we can to minimize the spillover into our economy overall. And so we're focused on that.

And as the Governor said, we were together yesterday in Stockton. Before going to Stockton I was in Kansas City, Missouri, and before that in Orlando, Florida. And the focus was on housing, on the downturn, promoting a plan which will prevent a market failure in the sub-prime area, and keep people in their homes wherever it's possible to do so. So there's a big focus on that. There's no doubt that the housing problem, the problems in the credit markets, are going to be a drag on our economy for some time.

Are there strengths? As the Governor said, one of the real strengths is trade and exports. There is a strong global economy, markets are growing around the world, and our exports are increasing. And you know, when I'm in this state it just reminds me all the time that our businesses and workers are the envy of the world. In industry after industry after industry, we set the standard, we innovate, we create, we define the future. And that's particularly so in California. So it's very important to stick to the principles that have made us great. And as the Governor said, that means fighting to open up markets for our products, our goods and services around the world, and keeping our markets open.

Now, I talked about the challenge we face in the credit markets and in housing. There's another challenge we face in the U.S., which is also a serious challenge, and that's the challenge of protectionism. And it's really ironic that at a time where we are more dependent than ever, and prosperous in terms of our trade, that some people are beginning to question the economic principles that have made this country great. And even some economists are somehow or other it's becoming fashionable to recant economic principles, and say maybe there's a different paradigm we need in this age of globalization. But trust me, globalization has not reversed economic gravity. Isolationism doesn't work, protectionism doesn't work. Your governor knows this, all of you know this, California knows this.

I was looking at some statistics, and I'm sure the numbers are much better today, but in 2005 there were 51,000 companies in California that exported into the global markets, and that's why I know your governor is making such a big emphasis on infrastructure, which is absolutely critical. But of those 51,000 companies, 95 percent of them employed 500 or fewer workers. So again, this is not just the Fortune 500 companies; this cuts across various industries and companies of all sizes in California. And so again, it's just so critical not to be isolationist, not to be protectionist.

Now, President Bush has been a real champion of open trade, open investment, competition, economic dynamism. He signed a bill last week which was a very, I think, a very noteworthy agreement, the free trade agreement with Peru. And the reason I say it was noteworthy was this had bipartisan support, strong support from Democrats and Republicans in Congress, and it was the first of four free trade agreements. And we now need Congress to move quickly and to enact, so that the President can sign, the next three, and those are Colombia, Panama, and Korea.

Now, Colombia, President Uribe has got some tough challenges, he's making some tough decisions, he's making progress, he deserves our support.

Korea is the eighth largest economy in the world. In 2006 California exported more than 7 billion dollars of goods to Korea. But you've just begun to tap that potential, and the free trade agreement would help you do so. And again, I'm not talking about economic theory here, I'm talking about what can be proved. We took a look at two free trade agreements which were signed in 2004, Chile and Australia, and looked at the impact on California. Since the Chile FTA was signed in 2004 California exports to Chile have gone up 150 percent. Since the Australian agreement was signed exports have gone up 25 percent. So as the Governor said, these trade agreements help break down barriers, open the way for the export of U.S. products, California products. So they're very important.

Now, the Governor mentioned China, and I got back from China very early Friday morning. And as a matter of fact, when I woke up this morning, I woke up very early, and I said to my Chief of Staff, Jim Wilkinson, I said, "You know, I feel like I'm in China. I'm a little big jetlagged." And he said, "Well, be careful not to call for California to appreciate their currency." Because, as the Governor said -- well, first of all, to step back, I want to tell you the obvious about China.

China is an economy which is very important to California, because your exports to China are growing very quickly. So this is an important market. Now, I understand China is a tough political issue, partly because of the things they do, actions they take, but partly because China has become a symbol for the fears surrounding globalization. But when I'm in China -- and I was, as I said, in China very recently, leading a delegation for our Strategic Economic Dialogue with top officials in China. And when I'm there, I make the case that they need to continue to open their markets and appreciate their currency so that it really reflects economic fundamentals. And I make the case that they need to speed up the process of reform. It's in their interest and it's in our interest, and it's in the whole world's interest.

Now, there's a fair amount of tension in the U.S./China trade relations, but it is very, very important that we keep this relationship on an even keel, this economic relationship. It's too important. We need to continue to build trade, particularly now, work to open the markets, because China is our fastest growing market for exports, and a healthy Chinese market economy is very important to the U.S., just like a healthy U.S. economy is very important to China.

So, in summary, let me say that in my 32 years in markets it was really clear to me, the overriding lesson, and it was that those countries that weren't afraid of competition, that opened themselves up to trade, competition and trade, investment and finance, benefited, and the rest of the world, others were left behind. And opening yourself up to this competition leads to innovation, it leads to better jobs, more jobs, it leads to a higher standard of living. There are many benefits. It produces an economic dynamism which you can just feel when you're out here in California. It must be something in the air, and there's just this economic dynamism. But economic dynamism brings with it rapid change, and in some instances hardships and job losses. There's no doubt about it. But what we need to do is figure out how to deal with the job losses that come from trade, which are very visible, and make sure that we don't turn protectionist, because the benefits of trade are reflected broadly across an economy with more better jobs and a higher standard of living for the people of this state and the people of our country.

So again, what I would just encourage all of us to do is to fight protectionist sentiments, encourage your Representatives and your leaders in Washington to support trade agreements, free trade agreements with Colombia, Panama and with Korea, and encourage the U.S. to continue to trade freely, openly, and according to the principles of the global marketplace. So with that, I again look forward to the discussion, look forward to talking about some of the issues that the Governor raised.