LEADING IN A GLOBAL ENVIRONMENT

Remarks by Lael BrainardVice President and Director

Brookings Global Economy & DevelopmentBernard L. Schwartz Chair in International Economics

Tuesday, October 24th, 2006

More of the Same?More of the Same?

How Sustained?How Sustained?

The New Wave of Globalization

SpeedSpeed

ScaleScale

ScopeScope

Unprecedented New Chapter in Globalization

SpeedSpeed

ScaleScale

ScopeScope

Unprecedented New Chapter in Globalization

Foreign Direct Investment into ChinaForeign Direct Investment into China

0

10

20

30

40

50

60

70

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Bill

ions

of

Dol

lars

China China –– Export Led Growth on SteroidsExport Led Growth on Steroids

02468

10121416

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Years of Economic Expansion

Per

cent

of T

otal

Wor

ld

Exp

orts

China (1990-2005) Hong Kong (1975-2000) Japan (1960-1985)South Korea (1975-2000) Singapore (1975-2000) Taipei, Chinese (1975-2000)China Extrapolation (2005-2015)

Source: IMF International Financial Statistics

Shift in Origin of U.S. Manufacturing ImportsShift in Origin of U.S. Manufacturing Imports

ChinaKorea

TaiwanJapan

ASEANMexico

Canada

EU Top 4

Rest of World

0%

2%

4%

6%

8%

10%

12%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Sources: GDP: Department of Commerce, Bureau of Economic Analysis; U.S. Imports: United States International Trade Commission.

U.S. Manufacturing Imports as a Share of GDP

U.S. Dominates Manufacturing but Challenged

Source: World Development Indicators, constant 2000 US$.

China

United States

Japan

BrazilMexico

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Tri

llion

s

Manufacturing Value Added by Country

SpeedSpeed

ScaleScale

ScopeScope

Unprecedented New Chapter in Globalization

World

United States

China

India

World

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

World 43% Expansion 27% Expansion Total Post-Expansion

Bill

ion

s

Source: World Development Indicators

Massive Labor Force IntegrationMassive Labor Force Integration

Dwarfs Previous Episodes of Integration Dwarfs Previous Episodes of Integration

Mexico

China

0 200 400 600 800 1,000 1,200 1,400

1970-1990

1990-1994

1995-2003

Labor Force Integration

Japan, S. Korea, Taiwan,Hong Kong & Singapore

India

Source: World Development Indicators

India

China

0100200300400500600700800900

1000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Annual Per Capita Income, 1995 $US

Source: World Bank

New Paths out of Poverty

SpeedSpeed

ScaleScale

ScopeScope

Unprecedented New Chapter in Globalization

Source: BEA and Treasury

Different Growth Models with Different Impacts

Share of World Exports Share of World Exports Share of World Inward FDIShare of World Inward FDI20042004

India

China

0%

1%

2%

3%

4%

5%

6%

7%

8%

1989 1991 1993 1995 1997 1999 2001 20030%1%

2%3%4%5%

6%7%8%

9%10%

China India

Manufacturing MigrationManufacturing Migration

MexicoMexico

Sun BeltSun Belt

ChinaChina

Rust BeltRust Belt

Business Processing MigrationBusiness Processing Migration

HobokenHoboken

NYCNYC

BangaloreBangalore

Sioux FallsSioux Falls

Millions of JobsMillions of Jobs

Annual Layoffs Relative to US TotalAnnual Layoffs Relative to US Total

0

2

4

6

8

10

12

14

16

Forrester PeakAnnual Offshoring

Average AnnualInvoluntary Layoffs

Source: Forrester and BLS

0

5

10

15

20

25

30

35

ForresterResearch

Alan Blinder BerkeleyStudy

McKinseyStudy

Perceptions of Complexity Perceptions of Complexity Are ComplementaryAre Complementary

Source: Aron (2005)

US US FIRMSFIRMS

UK UK FIRMSFIRMS

Indian Indian BPOBPO

UK FIRMSUK FIRMS.89.89

Indian BPOIndian BPO --.47.47 --.56.56

SingaporeanSingaporeanBPOBPO

--.54.54 --.63.63 .84.84

CORRELATION: CORRELATION: CODIFIABILITY & CODIFIABILITY & COMPLEXITYCOMPLEXITY

US FIRMSUS FIRMS .59.59

INDIAN FIRMSINDIAN FIRMS --.52.52

Major Shift in Resources MarketMajor Shift in Resources Market

Major Shift in Global Distribution of PowerMajor Shift in Global Distribution of Power

New PlayersNew Players

New Rules?New Rules?

New Global Distribution of Power

Tectonic Demographic ShiftTectonic Demographic Shift

Rich Countries

Poor Countries

0123456789

2005 2025

Bil

lion

s of

Peo

ple

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization Prospects

Rich Countries

Poor Countries

0

5

10

15

20

25

30

35

2005

Percentage of Population under the age of 14Projected Population in 20 Years

Prices Surge for Key ResourcesPrices Surge for Key Resources……

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Copper Iron Aluminium

Average US Market Spot Prices, Indexed to 1996 PricesAverage US Market Spot Prices, Indexed to 1996 Prices

Source:: Robert F. Westcott, Source:: Robert F. Westcott, KeybridgeKeybridge ResearchResearch

……Where ChinaWhere China’’s Demand has Growns Demand has Grown

0%

10%

20%

30%

40%

50%

60%

70%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Coppper Iron Aluminium

ChinaChina’’s Share of World Imports of Metal Ores & Concentratess Share of World Imports of Metal Ores & Concentrates

Source:: Robert F. Westcott, Source:: Robert F. Westcott, KeybridgeKeybridge ResearchResearch

““All across Africa today, China is acquiring control All across Africa today, China is acquiring control of natural resource assets, outbidding Western of natural resource assets, outbidding Western contractors on major infrastructure projects, and contractors on major infrastructure projects, and providing soft loans and other incentives to providing soft loans and other incentives to bolster its competitive advantage.bolster its competitive advantage.””CFR Task ForceCFR Task Force

New Players New Rules?

““Zambian Hopeful Takes a Swing at China; Presidential Challenger Zambian Hopeful Takes a Swing at China; Presidential Challenger Stirs Resentment at Asian Power's Growing Influence in AfricaStirs Resentment at Asian Power's Growing Influence in Africa””

The Washington Post, September 25, 2006The Washington Post, September 25, 2006

““China Competes With West in Aid to Its NeighborsChina Competes With West in Aid to Its Neighbors””

New York Times, September 18, 2006New York Times, September 18, 2006

New Players New Rules?

““Russian Aluminum Producer Seeks Russian Aluminum Producer Seeks Edge in Global Market; Edge in Global Market; RusalRusal--SualSualCombination Would Create Powerhouse Combination Would Create Powerhouse Larger Than Alcoa, AlcanLarger Than Alcoa, Alcan””

The Wall Street Journal, August 31st, 2006The Wall Street Journal, August 31st, 2006