2.4: Global Markets and U.S. Interests

Respond to the Impact of Global Market Forces on U.S. Economic and Security Interests

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While the steady opening of international markets helped fuel global development and the growth of U.S. trade and investment in the past, the global financial crisis and severe economic downturn that began in fall 2008 demonstrated that closer global integration can bring greater susceptibility to financial risk and loss. Further, the continuing emergence of several large and economically significant developing countries—such as Brazil, China, and India—has shifted traditional patterns of trade, production, and investment and poses questions concerning future U.S. economic and security strategies. Current account surpluses with the United States have contributed to the buildup of foreign currency reserves in some economies. Since 1990, international reserves in advanced economies have grown nearly five-fold, and reserves in emerging and developing economies have increased more than twenty-five-fold. International reserves in emerging and developing economies overtook those of advanced economies in 2005. (See fig. 38.) In addition, the same mechanisms that facilitate the free flow of goods and people also potentially increase U.S. vulnerability to national security threats. World financial system: Restoring and maintaining global financial health and the maintenance of the world financial system are critical to long-term U.S. objectives and are cornerstones of U.S. foreign policy. International efforts in this area are primarily undertaken through international financial institutions, most notably the World Bank and the International Monetary Fund (IMF), and use various means to help countries deal with complex financial problems and development needs. These international financial institutions will be using new or revised mechanisms to anticipate, prevent, and resolve financial crises, but it remains to be seen if these mechanisms will safeguard the stability of the international financial system and enhance recovery. For example, with increased support in response to the global financial crisis and persistent poverty in many developing countries, these multilateral organizations will seek to keep finance available to support global recovery. These organizations will also work to address the increasing or heavy debt burdens of low-income countries, about 40 of which have been classified as heavily indebted. The United States is the IMF’s major contributor and relies heavily on it and the World Bank to promote global economic health. Given the significant role of these institutions in responding to the global financial crisis, their programs, operations, and transparency are likely to come under increased scrutiny. In addition, as foreign governmentcontrolled sovereign wealth funds continue to grow, the United States will need to make new efforts to monitor their transparency and potential impacts. The Export-Import Bank of the United States will continue to play an important role in promoting U.S. exports, including in areas such as small and minorityowned businesses, and financing for environmental exports. GAO stands ready to provide the Congress with independent assessments of these complex international financial challenges. International trade: As the world economy tries to recover from the recent recession, the United States will see increasing opportunities and challenges in international trade with regard to promoting economic growth and creating well-paying jobs. The United States has been the principal architect of the open world trading system, as embodied in the World Trade Organization and other trade agreements, and has benefited immensely from global trade and investment. Yet, ongoing multilateral trade negotiations have stalled, as has U.S. approval of some bilateral free trade agreements. Trade will remain a vital part of U.S. economic prosperity and growth, but large trade imbalances between the United States and the rest of the world will need to decline to lessen distortions and risks in the global economy. (See fig. 39.) It is uncertain whether a new consensus in the Congress to seek more open trade and investment will emerge, at least in part because segments of the U.S. and world populations have not shared equally in the benefits and may not do so in the future. The effective monitoring and enforcing of trade agreements the United States has signed, which govern access to most of the world’s export markets, will be crucial to ensuring that they achieve their intended goals. In addition, despite the nation’s $1.6 trillion in exports in 2009, significant foreign trade barriers in fast-growing markets in developing countries remain, and fewer than 1 percent of U.S. firms are identified as exporters; this presents great potential for continued trade liberalization and federal export promotion activities. The rapid growth in Brazil, China, and India will increase international competition for natural resources, will compound global climate change and greenhouse gas emissions, and parallels the growing role of developing countries in international negotiations and the world trading system. Policymakers will be forced to respond to these challenges, and in doing so, to balance calls for protection from industries at risk from the “offshoring” of U.S. jobs against calls supporting resumed or increased trade that many consider vital to global economic health. Similarly, U.S. agencies will continue to face management challenges as they balance their varied functions, such as upholding free and fair trade, protecting intellectual property rights, preventing trade in illegal goods such as conflict diamonds, and collecting duties of close to $30 billion annually. GAO’s key efforts will help the Congress assess these competing international trade interests and the outcomes. Global supplier base: The globalization of the supplier base is changing the way the United States obtains technologies and capabilities to best serve its national security interests. Domestic firms that develop defense products, parts, and weapon systems and integrate and maintain those systems often rely on a supplier network of both domestic and foreign firms. At the same time, DOD has shown a willingness to acquire goods and services from foreign suppliers to achieve its goals. For example, the department has partnered with foreign allies to develop major weapon systems, such as the F-35 aircraft program. Globalization presents opportunities to DOD, such as the potential to speed innovation and reduce costs, but it also carries potential threats to the technological superiority of the U.S. military and may require new approaches to protect national security interests. Because of weaknesses we identified in the programs to protect technologies critical to U.S. national security interests, GAO continues to include this area in its High-Risk List. GAO’s independent assessments of the effects of increased reliance on a globalized defense industrial base will provide information needed for DOD to better manage its critical technologies, as well as its interactions with the global supplier base. To support efforts by the Congress and the federal government to address issues that relate to the impact of global market forces on U.S. economic and security interests, GAO has established the following performance goals and key efforts:

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