Can I say, in turn, what a pleasure it is to be here today. It’s a privilege to be at the School of Advanced International Studies born in the throes of the Second World War - the greatest test and greatest triumph of the transatlantic relationship. Paul Nitze and Christian Herter believed, as many people at the time did, that the liberal values on which our societies were built are going to be under constant threat in the post-war world. They believed that it would be up to America, Britain and their like-minded Western allies to protect these common values. In order to do this, their belief was these countries would require leaders who were trained in the complexities of international relations: political, economic, and sociological. The school was established to fit that need.
And since 1943, generations of alumni have left indelible marks on the path toward peace and prosperity: there have been people like Madeleine Albright and Timothy Geithner who make the headlines, to Wolf Blitzer on CNN and Jeremy Bowen on the BBC who break the news stories. Two of Britain’s most recent Ambassadors to Washington - Sir Christopher Meyer and Sir David Manning - are SAIS graduates.
So it’s particularly appropriate to discuss the Transatlantic Relationship and why it still matters to our prosperity, our security, and our values, and I would like to thank you for hosting me.
In these remarks, I want to do two things: First, I want to make the case for why the Transatlantic Relationship continues to matter in the 21st Century; and second, I want to expose some of the major common challenges that we face, and suggest how together we should respond to them.
Of course, these are two sides of the same coin. The relationship matters not only intrinsically just in and of itself, but because it will help us navigate the challenges of the coming decades.
Let me start with the obvious indicators of the relationship’s importance. For all the attention that we give to the rise of the Emerging Powers - and we are right to give to them - it is easy to forget that between them, the United States and the EU account for approximately half of the world’s GDP.
The transatlantic economy accounts for a third of global trade flows, close to $5 trillion of commercial sales annually, supporting up to 15 million jobs. Three of the top ten American export markets are in Europe - the UK, Germany and the Netherlands. And if we look at it from the other side of the Atlantic, the US is Italy’s 3rd largest export market, Germany’s 2nd largest, and the United Kingdom’s largest.
The same pattern holds for investments. By the end of 2010, the US had investments worth $2 trillion in the EU. And to put things in a perspective, that is more than thirty times the $60 billion the US had invested in China by the same date. American investment in the UK alone is worth nineteen times as much as US investment in India.
Many of Britain’s favourite companies are American-owned. Cadbury’s, our favourite chocolate manufacturer is owned by Kraft. Some of our top soccer teams such as Manchester United, Arsenal and Liverpool have American owners.
But let’s not forget this relationship is reciprocal. EU investment in the US totalled $1.5 trillion by the end of 2010 - 470 times what China had invested in the United States economy, a huge differential.
I think Americans and Europeans strongly argue that their countries need to diversify our economies in favour of emerging markets. Prime Minister Cameron has set the UK a target of doubling its exports to £1 trillion by 2020 and President Obama, of course, is already mid-way through his National Export Initiative to double exports by 2014.
The financial crisis and the knock-on effects to the Eurozone are deeply troubling. But, I think one of the fundamental realities is that prosperity in America and in Europe depends on the transatlantic economic relationship far more than any other relationship. This will remain the case for the foreseeable future.
The same principle also holds for our mutual security. Many of the threats we face, we face together. And we tackle them together. NATO’s mission has evolved over time. But it has successfully adapted to defending its members’ borders outside of its own neighbourhood - whether fighting the insurgency in Afghanistan, protecting trade in the Gulf of Aden, or enforcing a no-fly zone over Libya.
With our support for reform movements in the Middle East and North Africa, we are helping to stabilise a region that is vital to both our interests. And by working together on sanctions, we have been able to put pressure on the Iranian regime to engage with us on their nuclear programme.
The security threats we face are, of course, constantly changing. But the transatlantic relationship has proven to be versatile, innovative and resilient in combating those threats.
For example, in recent years, we have seen, rightly, a greater focus on threats emanating from cyberspace. Major Cyber attacks have been reported all over the world including in the US, UK and in Europe - most notably in Estonia and in Georgia, most notably. I understand that last month the US Government Accountability Office announced the number of cyber security incidents reported by federal agencies increased by not less than 680% to nearly 43,000.
Last November, William Hague, hosted the London Conference on Cyberspace highlighted our shared interests and avenues for cooperation. This is an area in which institutions on both sides of the Atlantic can, and are do work together. The Cyber Atlantic incident management exercise held last year showed the promise of this kind of cooperation.
So I think the transatlantic relationship today continues to prove its worth. But the world is changing and changing dramatically. This change will have profound implications for the relationship. But the relationship can adapt to meet new challenges to our prosperity, our security, and our values that the future may bring.
Let’s look at prosperity first. On both sides of the Atlantic we face the twin problems of high levels of debt and low levels of growth. Europe faces a crisis that threatens the very existence of the Euro - the world’s second largest reserve currency after the dollar. And that crisis is not just affecting Europe, it’s having a chilling effect on the world economy. The challenge is huge, and the Euro Zone countries need to address it effectively.
But beyond the Eurozone crisis, we face what I believe will be an even greater challenge: competitiveness in the face of the rise of the Emerging Power. And it will be a challenge that affects both sides of the Atlantic: We have to face the truth that the Emerging Powers are making what we make - more cheaply and better than we could. They are starting to innovate ideas for things that we don’t make - but could. They are attracting the investment that we need in order to develop.
This is having a dramatic impact on the world economy. The IMF predicted last month, that when measured in terms of purchasing power parity, the Chinese economy could overtake the America’s in size by the end of 2016. Less than four years away! And by most projections now, the UK and Germany would be the only European countries in the world’s top ten biggest economies by 2050.
I think that prosperity is not a zero sum game. The rise of Emerging Powers could either be seen as a threat - and we hide our heads under political blankets - or as a huge opportunity. Whether it turns out to be the former or the latter is up to us: we need to adapt in order to thrive.
Not by trying to isolate ourselves from the challenges that are occurring, but by embracing them and raising our game; by being bold, outward looking, and dynamic - the qualities that got us to our privileged position.
We dominate the world economy when we look at those GDP figures. We have the best universities in the world - the top 10 are all either British or American. Our populations are full of well-educated and creative people. We are experienced at making the most of international trade and opportunities for investment.
And how do we meet those challenges?
So we most certainly have the potential to take advantage of the opportunities that the rise of the Emerging Powers presents.
I think we need to reinforce our commitment to free trade. Trade is the vehicle by which we can access high levels of growth in other economies. It allows countries to specialise in producing different things. It allows for the intricate supply chains necessary to bring complex products to market. The iPhone was developed in the United States, but many of its essential components are manufactured elsewhere. It allows collaboration to take root and bring the high quality we’ve come to expect - a third of all Ford cars made globally are powered by engines manufactured and engineered in Britain. No one country and no one industry can be wholly self-reliant, not least an island nation like mine. We owe our privileged position to free trade. But there are some on both sides of the Atlantic who succumb to the call for government protection from markets to help domestic companies. I think that that is naive. Tit-for-tat protectionism quickly escalates and everyone loses. It is estimated that nearly 10 million US jobs were supported by exports in 2011. Those are jobs that would be lost if America’s trading partners closed their markets.
So America and Europe need to continue working together to reduce trade barriers. We inevitably need to look to export more to new markets. But that does not mean that we should turn our backs on one another. It’s great that the EU managed to secure a Free Trade Agreement with South Korea - it’s worth over $25 billion to the European economy. And negotiations over trade agreements are ongoing with many other countries including India, Singapore, and Canada, and hopefully with Japan soon, too.
But I think that now is the moment to negotiate for an EU-US trade deal have been pursued with much less enthusiasm, despite the fact it could be worth GDP gains of 2-3% for both Europe and the US. And my Prime minister is keen to push ahead with a comprehensive transatlantic trade agreement. Americans want more access to the EU agriculture market, amongst others. We argue American consumers, taxpayers and companies would benefit by giving us more access to your government procurement, professional and business services, and the transport sector. With our economies already so intertwined, a genuinely liberalising deal would be win-win. And both the British government, and our partners in the EU hope for a positive announcement from the High Level Working Group on Jobs and Growth very soon.
So, yes, we need to look for new opportunities, but we should not overlook our traditional partners.
Secondly, we need to concentrate on what we do best: innovation. This is not just about coming up with new ideas, but turning those ideas into commercial success. The computer and the internet were both European ideas but American commercial successes - and we rather think you got the better deal!
There are world class centres of high-tech excellence on both sides of the Atlantic coming up with ground-breaking products and inventions. One side of the Atlantic produced Facebook, the other side, Skype; one side produced the iPod, the other side the first graphene-based computer chip; one side the Boeing and the other Airbus.
Our companies have helped shape the world. To continue to do so, they need an environment in which there is confidence to invest. In 2010, affiliates of foreign multinationals in the US accounted for about 5% of all US private industry employment - that’s over 5 million jobs! Britain alone provides 1 million of them. So I believe that transatlantic private investment should be encouraged by maintaining openness and concentrating on competitiveness, Governments don’t create jobs - but unless we get the business environment right, we won’t be encouraging our companies to create them either.
For example, in the UK, we are lowering corporation tax to 22% by 2014, investing in infrastructure like transport and high speed broadband, investing in the skills and workforce that industry is asking for, and putting a huge effort into cutting regulation. Since January 2011, our regulatory reform - a mixture of one-in, one-out and systematically reviewing all the regulations on our books - has saved British business over £3.3 billion. The EU could make a massive difference by pruning some of its unnecessary regulation too. It’s made a start by exempting micro-businesses from accountancy rules and new regulation. And the British government is calling for a Growth Test which would scrap any proposed regulation that undermined growth.
Given the right environments, our firms have the potential to flourish, to innovate and to drive growth. And they also have the potential to cooperate and innovate in partnership. During his visit last March, Prime Minister Cameron together with President Obama reaffirmed their shared commitment to the bilateral science and innovation relationship - the most productive relationship of its kind in the world.
So we face two strategic challenges to our prosperity: the shorter term challenge of the financial crisis and government indebtedness, and the long term challenge of the rise of Emerging Powers. The answer to these challenges is the same: we have to focus on growth and we need to increase our trade and foster innovation - as a key contributor to our prospects for growth.
This will also help us address the challenge to our security. In a period of austerity, when governments on both sides of the Atlantic are trying to get their debts under control, how do we maintain our defence capabilities with fewer resources?
The simple answer is that by focussing on growth, we’ll increase the resources that we can devote to security. But this response alone is not adequate. We will need to adapt the way that in which we operate in three main ways:
First, we will need to work with new partners to achieve our goals. And we have already had success in this regard. The ISAF mission in Afghanistan has shown how NATO can work effectively with other countries, not just kinetically - as with Australia - but logistically too - as with Russia on the Northern Distribution Network.
And the role that the Gulf States played in Libya was a revelation. If you’d said to me two years ago that they would be operating kinetically alongside NATO nations over the skies of Libya in 12 month’s time, I would have thought you were joking.
NATO’s ability to act globally is magnified by the support and engagement of these partners.
Secondly, we will need to adapt how we operate. NATO’s answer is the Smart Defence Agenda. At and its core this is about working together more closely to deliver the forces we need to deal with the challenges of the future. It means driving better value out of every defence dollar that NATO spends.
With the UK Future Force 2020 and the US Joint Force 2020 I am confident we have the beginnings of a NATO Forces 2020 that is fit for the challenges we will face together. But for this initiative to bear fruit, all allies will need to fully commit to the basic principles and act on after the Chicago Summit.
There’s also huge potential for complementarity between NATO and Europe’s Common Defence and Security Policy. NATO will, of course, remain the cornerstone of our mutual security. But we need to ensure better coordination and coherence, and less duplication with CSDP. That way, our work through both can achieve common objectives, as we see at the moment in the training of Afghan National Security Forces.
Europe has started to find ways of cooperating more effectively to take responsibility for its own security. Britain and France have agreed a Defence Co-operation Treaty in 2010 designed to deliver modern capabilities to maximise our effect. And there are a number of other projects across Europe to do exactly the same.
- Air Policing over the Baltic states is provided largely by other European countries. Italy provides air policing of Croatia’s airspace, and there is talk of more cooperation in South East Europe.
- The EU is at the forefront of the counter piracy effort off the Horn of Africa.
- It was a European-led effort that succeeded in Libya.
This is a positive start, but there is still much more to be done. Though the Libyan operation was a successful model for European leadership, only 12 of NATO’s 26 European Allies took part, and of those 6 provided the bulk of the forces. And I would like to see greater numbers becoming active participants securing our neighbourhood, in particular our German friends.
Thirdly, our focus needs to change. The US pivot to Asia has generated unease in certain quarters. But I think that those in Europe who see it as abandonment have got it wrong. Europeans have got used to being the object of US security policy. But the reality is that Europe is no longer the theatre in which security dramas are played out.
That is why my government has also shifted the focus of Britain’s foreign relations towards the emerging powers of Latin America, Asia and the Gulf. This change is reflected in the Foreign Office, where we have been drawing down our resources across Europe and moving them east and south.
We are creating 50 new jobs in our embassy and consulates in China, 30 in India, sending more diplomats to dynamic countries like Brazil, Indonesia, Korea, and Turkey. We are re-opening embassies in Madagascar, Kyrgyzstan, El Salvador and the Ivory Coast, opening a new consulate in Brazil and setting up new Trade Offices across India.
And that approach is being taken in the EU more mildly. Indeed, this is one of the reasons that the External Action Service was formed - to give European diplomats a greater presence around the world. And it is not just professional diplomats. Our politicians are now focused much more on Asia than ever before. Last month, Prime Minster Cameron visited South East Asia; the Foreign Secretary attended the EU-ASEAN meeting of Foreign Ministers, along with a long list of other counterparts.
So while some in Europe have misgivings about the much-publicised American pivot to Asia, European countries are actually pivoting in this fashion themselves. And it’s the start of a much larger trend - as countries outside the Atlantic region become more important, so the Atlantic region will need to increase their engagement with them. And we should not panic over that trend.
Our relationship remains important for our security. But the transatlantic alliance will need to learn to work with new partners, find new ways of operating and organising and will need to shift its focus away from our own backyard.
Let me finish with a word about our values.
Power in the international system is becoming more diffuse. We are moving to a more multipolar world order. All Western countries are finding that they have to engage more deeply with a wider range of other nations over how global affairs are run.
So my third challenge seems to me that as we pursue the opportunities that the rise of emerging powers presents to us, and negotiate the dangers, we may come under increasing pressure to compromise on our values.
Less than a decade ago, there were eight heads of state or government sitting around at the world’s economic top table - the G8. Seven of those eight came from North America and Europe. Now, the primary body of global economic decision making has shifted to the G20.
Of the extra twelve places at the table, ten are from outside North America and Europe: Everybody knows about Brazil, India and China. But this expansion also includes Saudi Arabia, Mexico, Turkey, South Korea, South Africa, Argentina and Indonesia. All these countries are becoming wealthier and more assertive in global affairs.
Many of these countries have different outlooks, different ways of life, and different attitudes to the things that we care about most passionately. Some predict the founding purpose of this institution of SAIS- protecting our liberal values - is becoming increasingly pertinent.
The rise of state capitalism as a threat to liberal democracy. High growth in emerging economies under autocratic regimes, runs the argument, will vindicate state authoritarianism.
But recent history suggests that such fears are misguided. Freedom House documents the number of democracies in the world in any given year. Since the end of the Cold War 20 years ago, the number of democratic countries has risen from 69 to 117. According to Freedom House calculations, that’s almost fifty new democracies in just two decades.
And the Arab Spring disproved those who argued that democracy is simply a Western preoccupation - that it was unsuited to certain cultures. It surprises some people that even before the recent events in the Middle East, the majority of the world’s Muslims lived in multi party democracies.
And the uprisings in Tunisia, Egypt, Libya, Yemen, Bahrain and Syria have shown that even people who look very different from us, who have different histories, cultures, different outlooks nevertheless aspire to the rights and freedoms that we have espoused. It shows that we are on the right side of history.
So we must not bend to any pressure to compromise our respect for human rights, or commitment to the freedoms that allow each of us to pursue our own conceptions of the good. It’s morally the right stance. But it is also in the interests of our prosperity and security.
Economic development, at a certain point, requires the innovation, free thinking and entrepreneurship fostered by a liberal environment - one of our own comparative strength. You could not have been invented Facebook in a country that constrains its citizens’ freedoms to express their opinions and to form associations. Liberalism is good for creativity - it is good for development; it’s good for entrepreneurship
And democracy is good for stability. It provides a pressure valve for societal tensions that are inevitably created by rapid economic growth - or indeed by poor economic growth. Events in Libya and Syria have graphically illustrated what can happen when these pressure values do not exist.
And that’s again where the transatlantic partnership comes in. We share the same fundamental values. Together, we fought two World Wars for those values. Together, we built the post-war system that sought to entrench those values. And now, together, we must stand by those values and protect them from whatever challenges they face.
We are in a strong position to do this. We account for half of the world’s GDP. Europe and the US are the world’s largest aid donors. We can use our economic weight to be a force for the good. And politically, we can unite in support of reformers, in opposition to repressors and hold other governments to the same high standards to which we expect to be held ourselves.
So let me sum up. The transatlantic relationship is hugely important. It shaped the current world order in which we enjoy a privileged position and is reflected in the both the incredible economic ties that span the ocean, but also in our ongoing military cooperation around the globe.
But the world order that we shaped is changing rapidly. And the transatlantic partnership will need to adapt to meet the challenges that change implies. This will also mean promoting free trade, and open markets. It will mean fostering growth and innovation. It will mean learning to operate militarily in new ways and new places and to cooperate militarily with new partners. It will mean protecting and promoting our values so that the new world order in which we are moving is prosperous, stable, but also respectful of human rights, freedoms and dignity.
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