▶ 0:01:52Good morning everyone. The subcommittee on East Asia and the Pacific will come to order. The purpose of this hearing is to discuss how the United States could prioritize economic statecraftraft more effectively and efficiently. taking special notice of the role of the Department of State. So, let me now recognize myself for an opening statement. Let's see.
▶ 0:02:20Good morning and welcome to the East Asia and the Pacific Subcommittees National Security, National Economic Security, Advancing US Interests Abroad. 2019, William Burns, one of our most decorated diplomats and former CIA director, described this Department of State as a drift.
▶ 0:02:43Over the years, the department has had trouble finding its purpose as functions and authorities have been stripped away or observed by the National Security Council, Department of Defense, and even agencies traditionally focused on domestic issues. For more than 170 years, economic statecraftraft was led by the Department of State.
▶ 0:03:09This changed in 1961 when President Kennedy sought to expand the administrative state, pulling functions and authorities out of the department to create new agencies and organizations including the United States Trade Representative which would be responsible for conducting all US trade and investment diplomacy.
▶ 0:03:34The justification for pulling these trade and investment functions out of the department was to improve the government's capacity to prioritize and support US businesses, strengthen the export performance of US industry, and assure fair international trade practices. However, it has effectively split our economic interest from our diplomatic priorities which has resulted in several challenges.
▶ 0:04:04First challenge is that it has not helped increase the ability of US businesses to access foreign markets. In practice, the foreign commercial service and foreign agricultural service officers are few in number and often positioned at US embassies without alignment to our foreign policy When I travel abroad, I routinely meet with FCS personnel who explain that they spend most
▶ 0:04:34of their time engaged in trade shows and organizing events with minimal direct work on increasing and securing market access for American because they are siloed off from our diplomatic efforts of the Department of State. They are restricted in leveraging the other tools in our diplomatic toolkit to assist American companies.
▶ 0:05:02Second challenge is that the American market has been left susceptible susceptible to predatory foreign competition. Our ability to protect American businesses and workers has been severely hampered, leading to calls from across the country for the executive to act and repatriate entire industries and sectors.
▶ 0:05:27President Trump, like his predecessors, has repeatedly said that economic security, economic policy is foreign policy. Unfortunately, we have not implemented the structural reforms needed to mobilize that sentiment. Even President Obama asked Congress for the authority to consolidate six agencies with trade and investment functions in 2012.
▶ 0:05:56This request was not supported by Congress. Bipartisan administrations have independently come to the same conclusion. The current alignment of functions and agencies charged with leading our economic state craft effort is in need of structural reform.
▶ 0:06:16I agree that economic security is national security and the key question we'll be asking today is what structural reforms are necessary to reflect this prioriti prioritization. So we intend to answer that questions in our committee's first comprehensive state authorization legislation that we will be doing in more than 20 years. So let me now recognize uh ranking member Ammy Bara for your opening remarks.
▶ 0:06:46Thank you Madam Chairwoman. Um and I also you just want to recognize and appreciate that in our conversation setting up this hearing um that we set up a bipartisan panel. I do appreciate that because again um market access um you know helping our our companies be successful around the world is not a Democratic or Republican agenda item. It's something that I think we we all care about.
▶ 0:07:11I appreciate the um the witnesses, you know, obviously I've gotten to know um Wendy Cutler and Matt Goodman um over the years and have had the pleasure of working with you and certainly look forward to to hearing from the the the Republican witnesses. Um, I've said this a lot. You know, had I had a magic wand, we'd go back to 2014 and we would have had TPP in place and, you know, um, we would have had a framework for the movement of goods and and services. We're not there yet. So, um, we are where we are.
▶ 0:07:40I I do think it's incredibly important for us as we go through a State Department um, authorization process. This is not exactly how I would have gone about um, reorganizing the State Department. I would have done it um in a slight slightly different way than President Trump has chosen to do it. But we find ourselves with an opportunity um to think about what a 21st century state department would look like.
▶ 0:08:08Um what 21st century tools of economic engagement, economic development, of trade, of tariffs would look like and and where that's best housed. Um I know in our analysis as we've talked to to others I do think it is incredibly important to have economics as part of the state department to have representatives around the world within our embassies out there promoting US goods products working with our companies to help um help them navigate you know foreign markets and so forth.
▶ 0:08:37I also think it's very important um you know as we watch these tariff conversations um unfold that we take it as an opportunity perhaps to remove tariffs barriers um you know again this isn't exactly how I would have gone about doing it I you certainly would not have targeted you know countries like Australia where we actually have a trade surplus um you know close allies like Japan and Korea but I am happy that the president is prioritizing some of the Indopacific nations as
▶ 0:09:07first places to to enter into negotiations and you know having just returned from Korea having some real um interesting conversations. I'm happy that the US trade representative is in Korea right now um engaging in some of those have had conversations with the Japanese and others. Um also I think there's a unique opportunity with the ACSEAN nations.
▶ 0:09:28you know, we had dinner, you know, a few weeks ago with the the ACSEAN ambassadors, um, and they're looking for guidance here in terms of how to approach this, but there's a very real recognition from the Southeast Asian nations that they don't want the United States to leave these markets. So, I do think there's an opportunity there. Lastly, um, I think some of the important things that were accomplished under the Biden administration were programs like the mineral security partnership.
▶ 0:09:55Um these are important programs in the sense that as we look for redundant supply chain so we're not solely dependent on a single source in this case um Beijing and the the the PRC um it is an opportunity for us to work with like valued allies like Japan, Korea, Australia to build redundant supply chains for these rare earth elements and critical minerals.
▶ 0:10:20Um I think you need state department diplomacy to help negotiate a lot of these deals and so forth. So you know I think we should be very careful in dismantling um you know some of this expertise. And and lastly I would say you know while IPF was not you know exactly how I would have approached trade. I think digital trade is incredibly important to um what we do economically.
▶ 0:10:45I think, you know, getting a digital trade, digital services um deal done that doesn't disadvantage US companies, US technology companies where we're dominant is incredibly important. I think again in these trade tariff negotiations and conversations. I think there's strong bipartisan support for us to get a context and some digital trade digital services trade um framework done. So again, I look forward to hearing from the the the witnesses and from your expertise. Thank you.
▶ 0:11:15I'll go back. Thank you, ranking member. The other members of the committee are reminded that opening statements may be submitted for the record. We are pleased to have a distinguished panel of witnesses before us today on this very important topic. First, Miss Elaine uh Danski.
▶ 0:11:34She's a senior director and head of the center on economic and financial power at the foundation for defense of The center produces actionable research and policy proposals to address global economic threats, illicit finance and supply chain vulnerabilities while promoting the forceful use of economic power to advance American interests.
▶ 0:11:57She has more than two decades of experience in government, industry, academia, and international organizations, building and expertise in economic statecraftraft, supply chain resilience, illicit finance, anti-corruption, and national security. Thank you for joining us. Dr.
▶ 0:12:16William Norris, associate professor is an associate professor of Chinese foreign and security policy at the George Bush School of Government and Public Service at Texas A&M University. He's also the director of the economic statecraft program where he focuses on the stigic relationship between economics and national security. He's a recipient of the world politics and statecraftraft fellowship by the Smith Richardson Foundation. Thank you for joining us.
▶ 0:12:47Miss Wendy Cuddler, vice president at the Asia Society Policy Institute and the managing director of the Washington DC office. In these roles, she focuses on leading initiatives that address challenges related to trade, investment, and innovation.
▶ 0:13:05Previously, she spent nearly three decades as a diplomat and negotiator in the office of the USR working on a range of bilateral, regional, and multilateral trade negotiations and initiatives. Thank you for joining us. Lastly, Mr. Matthew Goodman is a distinguished fellow and director of the Greenberg Center for Geoeconomic Studies at this Council of Foreign Relations.
▶ 0:13:33He leads the real con re-imaging American economic leadership initiative exploring the US role in the international economy. Prior to joining the council, he served as the senior vice president for economics and Simon chair in political economy at the center for stric and international studies. He was also the director for international economics on the national security council staff during the second administration under President Obama.
▶ 0:14:04Thank you so much for joining us. Now the committee recognized the importance of the issues before us and I we are so grateful to have you here to speak with us today. Your full statements will be made part of the record and I'll ask each of you to keep your spoken remarks to five minutes in order to allow time for member questions. Let me now recognize Miss Dozenski for your opening remark.
▶ 0:14:32Chairwoman Kim, Ranking Member Vera, members of the subcommittee, thank you so much for the opportunity to testify. It's an honor to be here today. The United States has too often responded to serious geopolitical challenges in an unserious way, failing to prepare for either crises or opportunities and poorly employing one of America's most potent weapons, our economic power. In 2008, Russia invaded Georgia. America was unprepared.
▶ 0:15:01In 2014, Russia invaded Ukraine and illegally annexed Crimea. Again, America was unprepared. In 2022, Russia again invaded Ukraine and started a war that killed hundreds of thousands of soldiers and civilians. Somehow, once again, we were unprepared. In each case, our economic power was either underutilized or disregarded. Sanctions, when they came, were ad hoc, incremental, and did more to push the war into a stalemate than to bring peace.
▶ 0:15:30Poorly enforced export controls led to blatant invasion and leaky oil caps gave rise to a shadow fleet flatillaa. Russia is not the exception. The Arab Spring blossomed and died without meaningful US economic support. Venezuelan elections were stolen and a handful of officials are sanctioned. A coup overthrows democracy in Myanmar and America's enormous economic power sits idle. Over and over the US responds to global crisis with a fragmented toolkit.
▶ 0:16:00A sanction here and expert control there. Disconnected, delayed and diluted. Still, we have unmatched strengths. The world's reserve currency, deep capital markets, innovative companies. And yet, we spread our economic power across dozens of siloed agencies without a central strategy or command structure. Technology isn't maximized. Enforcement isn't prioritized. intelligence isn't operationalized. Now is the ideal time to change this.
▶ 0:16:31We are in an economic moment of opportunity that we haven't seen in 80 years. We need to seize this period of trade awakening to elevate economic statecraft as a key tenant of US foreign policy and driver of national security. We can no longer treat adversaries and chaos agents the same as allies and rule followers. To push back, we must use the power of our markets to defend our markets by creating a near global economy.
▶ 0:16:58American capital and consumers should not be open to every rogue nation or evil empire. Access to our markets must be reserved for those who accept market principles, and access to our currency must be granted to those who don't manipulate their own. The status quo must change and quickly. As my written testimony lays out, the State Department is well placed to meet the new global moment of economic engagement by reinforcing foreign policy strengths and developing new economic policy capabilities.
▶ 0:17:28We must begin, however, with a recognition that we may have launched an economic war without an economic Pentagon. To address our organizational deficiencies will require dedicated new leadership, such as establishing a deputy secretary of state for economic security that could lead a new inter agency economic command center. It will require new specialists on economic security within the diplomatic corps to translate strategies into country level action and feed local intelligence back into policy.
▶ 0:17:59It will require new planning capacities to proactively wargame risk scenarios and develop pre-planned economic strike packages and reserve staff to call up in times of crisis. It will require innovative new tools like an economic strike force to provide a conditional support package when a regime is toppled or a reformer comes to power to support banking, trade, and sustain jobs for potential new allies during periods of And it will require modernizing our economic statecraft efforts
▶ 0:18:29with new technology, real-time data, and innovative intelligence tools. New capacities, better training, and leading edge technology are all essential. But there must also be an institutional shift of culture and mindset. Economic security must go beyond isolated sanctions and export controls to a coordinated strategy that deploys tariffs, investment screening, supply chain initiatives, transparency mechanisms, and foreign development in a more integrated way.
▶ 0:18:58As I show in a graphic on the final page of my written testimony, the wide variety of statecraftraft tools are integrated gears that drive the engine of America's economic power projection. With the right leadership, the right tools, and the right strategy, we can unleash the full potential of that engine, we can bring American economic power to bear faster, smarter, and with purpose. We can deter aggression, support allies, and help anchor a near global economy that is stable, free, open, and fair.
▶ 0:19:28Thank you, and I look forward to your Thank you. And I now recognize Dr. Norris for your opening statement. Thank you, Chairwoman Kim, Ranking Member Barra, members of the subcommittee. I thank you for the opportunity to speak today. My comments are my own. I'm not representing my employer, Texas&M University, nor the Bush School of Government and Public Service.
▶ 0:19:53This testimony represents my own views and does not reflect the endorsement or perspective of any other organization with which I am or have affiliated. I'd like to cover three topics in my oral testimony today. First, I'm going to provide an innovative definition of economic statecraft itself, which I hope will be constructive. Then, I'll briefly suggest uh a simple way to improve how we approach economic statecraftraft strategy.
▶ 0:20:14I'll be suggesting that we shift our way of thinking away from a tools-based approach oriented exclusively around the authorities that exist in the US government and towards more of a uh endstate approach of desired effects and what we're trying to accomplish with that. Uh I'll end with some general principles that I hope will help guide our path forward as we endeavor to do economic statecraftraft Economic statecraft itself can be something of a roarjac test. What you see when you look at it depends heavily on where you sit. For example, if you're at OFAC and you're an analyst at Treasury, you think of economic statecraftraft primarily as sanctions.
▶ 0:20:45Uh if you're in the commerce department, economic statecraftraft is about promoting US businesses abroad or perhaps it's about economic uh export controls if you're at the bureau of industry and security. The point is many people now care about economic statecraftraft, but we don't really have a common definition or lexicon on this important topic yet. My work at the economic statecraft program at Texas&M University has thought long and hard about this and we've come up with what I think might be a useful way for thinking about the phenomenon of economic statecraft. It starts with commercial actors themselves.
▶ 0:21:11Most of economics is not done by countries although we report macroeconomic data at the national level. Most of the actual work being done in economic domains is done by firms. I call them commercial actors because they also want to include things like stateowned enterprises or sovereign wealth funds. These entities will make decisions primarily based on their own self-interests. And from time to time, those decisions about where to locate a factory, uh how to design a supply chain are going to have implications for national security that matter for countries.
▶ 0:21:40When countries decide that they care about these externalities or these kinds of strategic effects and they decide they want to shape the incentives facing those commercial actors, that's economic statecraft. And that definition I think allows us to have a much wider aperture about what's inbounds. And I think a lot of the comments already have kind of listed through a number of different tools that we've used in the recent past. But what's lacking is a sense of coherence of strategy of integration and of coordination across those tools.
▶ 0:22:10So, uh, the typology that I included in the slides and the written, uh, testimony provides a little bit of a a framework for thinking about the different ways that economic activity can redown to and impact, uh, national security. Uh, we're a rules-based society and currently we're organized on the basis of the legal authorities that the US government has to do economic statecraftraft.
▶ 0:22:32that these authorities are scattered across more than 1,400 different offices that are spread across 13 departments and 10 agencies with very little coordinating capacity across those silos. Most parts of the US government lack the ability to do any kind of economic statecraftraft campaign planning, contingency modeling, strategic forecasting, any kind of meaningful economic analysis from a statecraftraft perspective or an evaluation of impact. So there's very little capability to kind of do that coherently in a strategic fashion today.
▶ 0:23:01Instead of this tools-based approach, I suggest organizing ourselves around the desired strategic effects as a better way to do economic statecraft. Um, those are those six externalities that I kind of walk through uh in the written testimony. In conclusion, I'd like to uh suggest a few key principles that I think uh might be constructive to help guide us as we endeavor to more effectively design mechanisms by which to do economic statecraft. Uh, in many ways, we're embarking in uncharted territory for the United States.
▶ 0:23:26As we proceed, I think it'll be well served to keep efforts grounded in long-standing values and principles that have been a key part of the US success story. Here's a couple of them as I see them. Uh the first one is we have to work with the American private sector, not against it. A lot of the sanctions paradigm inherently pits interests that the commercial sector are going to have against the wishes of government. And that's just fundamentally a conflictual kind of relationship. Second, our national power ultimately derives from US economic growth and innovation.
▶ 0:23:56Increasing longr run productivity gains is really the key to succeeding in any international competition of a duration. Uh third, we need to be very careful about industrial policy protectionism or other sorts of market distorting measures as these can easily become politically ingrained and they could lead to inefficiencies and a failure to innovate in the long run. Fourth, government initiatives are most effective when they are focused simply and directly on addressing market failures. And lastly, I think it's important for us to be humble. We're going to try out a lot of things.
▶ 0:24:24The stakes are just too high for us to simply do nothing in the face of the challenges that you've already heard about this morning. As you proceed, I would suggest building in the capacity to re-evaluate and explicitly take stock of whether things are working or not. In my written testimony, I've also included a number of specific ideas and recommendations for how we might think about enhancing the USG abilities in this domain of economic statecraftraft. These involve organizational ideas, ways to improve our human capital, uh, and processes to enhance effectiveness. I'd now like to respond any questions the committee may have.
▶ 0:24:54Thank you, Dr. Norris. I now recognize Miss Cuddler for your opening statement. and distinguished members of the sub of the subcommittee. Thank you so much for inviting me to testify before you today. Having worked on trade policy in the US government for over 30 years, mainly at USR, but also commerce, I have seen firsthand what has worked and what could stand improvement.
▶ 0:25:23And I wholeheartedly agree with the committee's premise for this hearing, namely that in today's environment, economic policy is indeed foreign policy and economic security is national security. Over the past few months, I have traveled to Asia extensively and I've conversed with many delegations in Washington negotiating trade agreements.
▶ 0:25:46My Asian colleagues have shared with me their deep concerns about the direction of US trade and economic policy and the atmosphere of uncertainty it has created. They do not understand the US endgame, particularly if we seek their cooperation to counter China. Some have gone so far as to say they no longer know the United States, which looks increasingly unreliable and inwardlooking.
▶ 0:26:15And though encouraged by the recent deescalation of US China trade tensions, Asian partners are concerned that their window for navigating between American and Chinese pressure is closing. As a result, diversification efforts are are underway away from the United States. These efforts have taken on a new urgency.
▶ 0:26:40Asian partners are launching new trade and economic initiatives, updating existing trade packs, and seeking new members to join these arrangements. And as we continue to retreat from leadership, Chinese officials are step stepping up their so-called charm offensive, trying to woo countries by offering to build new railways and bridges, lift sanctions, and portraying Beijing as the defender of the multilateral rules-based
▶ 0:27:10system. While Beijing is extending carrots, the US is favoring a stick approach in the form of high tariffs. As we dismantle many US foreign aid and assistance programs, the contrast could not be starker. Successful economic statecraftraft cannot be achieved solely by thinking how we should reorganize or restructure at home.
▶ 0:27:36It must be anchored in a coherent, fair, and sustainable economic and trade policy framework. The global economic landscape has changed dramatically in recent years, but our economic policy frameworks have not kept pace. And based on my decades of working with State Department officials, I offer a few personal observations.
▶ 0:28:02First, I believe that the personnel rotational system at state works against state officials playing a more central role on economic matters. Trade negotiations often require technical expertise and take multiple years to negotiate, while State Department assignments typically last two or three years.
▶ 0:28:24Second, economic jobs are generally viewed more as backwater assignments at state with ambitious foreign service officers preferring to stay in the foreign policy and security Regarding how the US government should organize itself to address economic statecraftraft, economic security, and trade more effectively, it's safe to say that if we could start from scratch, our current model whereby key functions are
▶ 0:28:55scattered among many agencies would not be the first choice. If we look to centralize all of these functions under one roof, in my view, none of the existing agencies are fit for purpose. At a time when the United States is trying to rebuild to bipartisan consensus supportive of trade, I believe moving the trade policy functions to state would send the absolutely wrong signal.
▶ 0:29:22Namely, that broader geopolitical objectives would be given more weight than the views of US workers, businesses, and communities. Moreover, creating a new agency that brings all of these functions under one roof, I believe would be fraught with bureaucratic and cost challenges.
▶ 0:29:41Thus, I contend that the best way to proceed is to implement implement a set of specific reforms and in my testimony offer four proposals for your consideration, including elevating the importance of economic matters at the State Department, having state clearly in the lead on specified international economic matters, establishing a new US governmentwide fasttrack program to recruit and promote ote and retain
▶ 0:30:12international economic officers. And finally, as Chairman Kim suggested, folding the foreign commercial service back into the State Department. But in conclusion, let's keep in mind that government reorganization, while a worthy exercise, will not succeed if we don't get our policies right. Thank you. Thank you, Miss Cuddler. I now recognize Mr. Goodman for your opening statement.
▶ 0:30:39Thank you, Madam Chairwoman, uh, ranking member, members of the committee, um, for this opportunity to testify today. Um, I'd like to make three points, and I might sneak in a fourth one based on what Wendy just said, um, if I have time. Um, first, at a tumultuous time, uh, we need to keep our eye on enduring US interests. Uh in my written submission, I said we're going through a kind of historical hurricane uh in which the global economic order that the United States effectively created and championed for decades was being upended.
▶ 0:31:09The Trump administration's tariffs and disruption of the institutions and norms of that order are clearly the latest phase of that storm. But you could argue the order has been teetering uh since the first decade of this century, buffeted by the so-called China shock, the inflows of cheap manufactured goods before and after China joined the WTO in 2001 that devastated certain sectors and geographies in the United States. Uh and the global financial crisis later that decade.
▶ 0:31:39And of course, we've had the emergence of other risks from global pandemics to climate change to technological developments that have given rise to a new area of policy in Washington, economic security or managing economic related risks to uh that threaten national security or or the foundations of the economy. When you're in a hurricane, uh naturally your focus is on protecting your family and property, on battening down the hatches, on ducking and covering.
▶ 0:32:07And it's hard to see uh past the storm to the landscape beyond. But for the United States, we have other enduring interests that go beyond just protecting ourselves. To advance our economic and strategic interests, we need to engage affirmatively in the global economy.
▶ 0:32:24Economically, we need trade and investment, fair and resilient trade and investment to tap into the threearters of the global economy and 95% of consumers located outside the United States. Strategically, we need to complement our military presence around the world with economic engagement. Our allies and partners want us to do both.
▶ 0:32:48And we have what I call strategic economic interests, namely the need to continue championing our preferred rules, norms, and standards around the world, while others are seeking to champion theirs. As this committee knows well, all of these interests, economic, strategic, and strategic economic, are especially important in the Asia-Pacific region, where most of our big challenges and opportunities lie.
▶ 0:33:14I'm very concerned that we have no Asian economic strategy to speak of at the moment uh and arguably haven't for a number of years, leaving others to move ahead with their own arrangements to advance their economic and strategic interests and spread their own preferred rules. Against this backdrop, my second point is that the United States needs a smart economic statecraft to advance our interests. Economic statecraft is a two-sided coin.
▶ 0:33:40Using US economic power and leverage to advance our strategic and foreign policy interests and using our diplomacy to advance our economic interests. Smart economic statecraftraft needs to be balanced balanced especially between defensive and offensive efforts. We need to both promote and protect sorry protect and promote our economic interests through policies ranging from export controls to affirmative trade negotiations.
▶ 0:34:08Uh we also need to balance costs and benefits and balance international and domestic policies to make sure that we're maximizing our economic position and our strategic benefits and to win the support of Americans which is very important. Strategic economic statecraft also needs to be leveraged in the sense that the US government alone doesn't have the resources and capabilities to do everything we need to do.
▶ 0:34:31We need to crowd in both the private sector and our allies and partners to reinforce our state craft on both the offensive and defensive sides. My third and final point is that all of this requires a capable state department that puts a priority on economic diplomacy. State's comparative advantage among US government agencies is its reach, its presence in 175 countries around the world and ability to operate across government and society in those countries.
▶ 0:35:01The so-called eline at state where the economic bureaus are housed is one of the few parts of the US government that works on both promote and protect sides of the economic of economic statecraftraft. everything from commercial advocacy to economic security such as uh the mineral securities partnership that congressman Barah mentioned um and pushing back on economic coercion for example they've done a lot of great work there what the state department needs is a culture that values economic work more highly and this in turn requires leadership and signaling from the top
▶ 0:35:31and resources to to do the job and I fear that the uh cuts to state's budget that have been proposed will come disproportionately at the expense of the department's economic functions. Uh, thank you for your attention. I have more to say about government reorganization. Happy to talk about that if if you'd like to ask. We can do that during Q&A, I'm sure. Yes. So, thank you, Mr. Goodman. I now recognize myself for the uh five minutes of questioning.
▶ 0:35:57And uh the I want to start by saying that there has been a lot of uh suggestions about ways to elevate our economic um statecraftraft regime. Uh you may know Dr. uh Henry Ferrell and Dr. Abraham Newman.
▶ 0:36:15They wrote in their article for foreign affairs in October of 2023 that the US needs a comprehensive economic security strategy to outline how the US could implement its drisking strategy. Dr. Norris, I know uh the working group that you led has done a lot of outside the box thinking on how to align economic and national security resources.
▶ 0:36:42So um can you share your thoughts on the idea advocated by some to create an economic security intelligence apparatus aligned with other intelligence arms of the US Sure. I think that the suggestion is probably uh coming into a space that has for a long time been relatively underresourced and uh underprovisioned.
▶ 0:37:13Um a lot of intelligence focuses around military or strategic intelligence. Uh economic intelligence is done widely in the private sector but not nearly to the same scale or breath in government. uh and so I think that there is uh potentially a positive contribution to be made around uh building out our capacity to be able to do economic intelligence.
▶ 0:37:37Um the comment about Frellin Newman's uh work I think it's pretty emblematic in political science because it tends to conceive of economic tools of national power through a relatively coercive lens. And I agree that's an important part of how these things work, but it's not the only part and it may not necessarily even be the thing that the United States is best at. So I'd encourage the committee to think more broadly and holistically about economic tools and national power. Thank you. Thank you.
▶ 0:38:04You know, um should Congress consider reviving the office of technology assistant uh assessment that provided legislative branch with scientific uh advice? What what is your thinking on that? I am not a technical specialist. So I always find technical advice to be very constructive in a policy domain. Uh I think that it's useful uh in terms of informing good policy. It provides that kind of information flow back and forth.
▶ 0:38:34Well, let me go to uh Miss uh Danski. Uh in April 2024, you wrote an article published in the FDD uh website. I think the title was economic security is national security in which you seem to support the idea of creating a new economic security council to be used as referee to mitigate the disputes between the NYSE and SNEC. Is that still your view?
▶ 0:39:03And do you how do you feel about economic security council idea today? I do think it's still a good idea to have um that strong inter agency engagement and the ability to close the gap across the siloed organizations and and um regulatory authorities and uh policies that are being used right now. So uh I think we we need that more than Thank you.
▶ 0:39:30Um the department has struggled to find its purpose as its most important authorities and functions have been observed by other agencies. As I mentioned in my opening remarks, this is especially true when it comes to our economic state uh craft. Presidents Obama Trump both made efforts to move USR and President Obama proposed to consolidate it with five other agencies and President Trump said it should be absorbed by commerce.
▶ 0:39:59Uh so there is bipartisan belief that USR's current independent status is undesirable. Uh Dr. Norris uh where should USR reside and I would like to ask uh Mrs. Dzanski to also answer the question should international economic statecraft be led by single agency and if so which agency should lead it can you both tackle that? Sure.
▶ 0:40:28So USR plays a very important role uh in spearheading trade efforts on the part of the US government. I think what's missing has been a con the ability to integrate that into a larger strategy and security strategy. At various times we have integrated it. Um and so I think that when we think about where it ought to live and what functions it performs, I think it needs to be considered under the larger umbrella of strategy and how that that role feeds into US strategy.
▶ 0:40:56Whether it's to expand free trade agreements or to constrict them, all those things kind of matter from a strategy perspective. Thank you. And the Yeah, I'm going to give some time. Thank you. Uh with respect to who should lead on economic statecraftraft, I think there's a leadership role across um a variety of organizations um tools and authorities uh as I mentioned in the testimony. But I do think there is an opportunity for State Department to take a lead coordination role. Um it just feels like the time is right for this.
▶ 0:41:26It has to reside somewhere. The inter agency process is valuable and meaningful but there needs to be leadership that connects strategy to operational implementation and coordination and because we are now in a what I think is a full-scale pivot to an economic security power projection era. Uh that is foreign policy now. So I believe it makes sense to um create a leadership function within state department. Thank you.
▶ 0:41:56Let me now recognize uh ranking member for your five minutes of questioning. Thank you madam chairman chairwoman. Um you just kind of listening to the the opening statements of the four witnesses. I actually think you guys agree on a lot more than than you disagree upon. And I think that's going to be incredibly important because we are at a pivotal moment where we're rethinking what um national security, global security, economic security looks like in the 21st century.
▶ 0:42:23And you know it's a simplistic view but the 75 years post World War II I do think the United States you know put together an economic framework that benefited the the entire world you know created relative peace and prosperity and you know at times disadvantaged us but again being the dominant economy in the world I think we could do that in those 75 years rebuilding Japan creating a a a natural competitor but also a stable democracy you know watching um South Korea go from,
▶ 0:42:53you know, one of the poorest countries in the world to the 10th largest economy in the world and a natural ally stable democracy, rebuilding Europe, um, you know, through the Marshall Plan, but also, you know, um, creating relative stability on the peninsula. And I' I'd argue, you know, um, two decades ago, three decades ago with China, the approach was the same, thinking that, okay, if we normalize trading relations, you know, China would create a middle class entrepreneurial class.
▶ 0:43:20And you could argue in 2010 that they were on that path, but today it's very different. I mean, Xi Jinping has, you know, um, taken China into a very different direction. I think some of that is, um, rethinking where we are. But I also think the internal politics of the United States have changed where the base of the Democratic Party was the workingclass union workers in the middle of the country. That formed the base of a lot of Donald Trump's victory right now.
▶ 0:43:49And you know, it is interesting to to hear me as a Democrat sometimes be more of a free trade person than some of my Republican colleagues. Um, again, there's a there's just a recasting. So, a couple things. Um, you know, I do think it'll be incredibly important in these next, you know, two years, four years, 10 years as we try to think what is a a 21st century global economic order. It is going to be different than the past.
▶ 0:44:18And you I think this is a worthwhile exercise, but it can't be a partisan exercise because if all it is is Republican policy um for two years or four years, then Democratic policy for two years or four years, that will really disadvantage us as as a nation. And what served us well in the 20th century was we had an American policy, an American strategy, whether you agreed with that or didn't.
▶ 0:44:41Um I have a couple things that that do cause me some worry Um, one is where the private sector and shareholder activism sits here. And what I mean by that is, you know, when I was in Shanghai a decade ago visiting a GM plant, the Chinese owned 51% of that plant and MGM owned 49% of that plant. And they very much knew the Chinese were learning how to build cars.
▶ 0:45:08And as soon as they figured out how to build those cars and sold that technology, they'd kick them out. Yet they continued to do that because they were so concerned about quarter over-arter profits because of what their shareholders and the pressure that the CEOs were under. I think that's a bad way to drive economic strategy because I think you know there's short-term profits but long-term disadvantages.
▶ 0:45:30I don't know exactly how to to to solve that, but I have raised that with, you know, many of the American leading CEOs, and they would much ra that they would love for us to solve that issue because they don't want to deal with those shareholders and and that that activism. They would rather build companies for long-term and long-term profits. I think that's incredibly important. Um I do think, you know, Miss Cutler, Mr. Goodman, both of you, I think Wendy, you said um the economic policy jobs were backwater jobs at state.
▶ 0:45:59We've heard that repeatedly and in this framework I think we have to elevate and make those jobs more significant. What that looks like across the inter agency process I don't exactly know. Um I think it is components of diplomacy it is components of market access promotion etc. And how that looks if it's a single agency if it's an inter agency task force again you guys are smarter than I am on this and Mr. Goodman, you talked a little bit about you didn't you weren't able to get to government reframework.
▶ 0:46:30So, let me give you the last 30 seconds to touch on that. Thank you, uh, Congressman, and I agree with everything you just said. Um, and I would also I would the point I wanted to make is to foot stomp what Wendy said, which is that it's really less about organization than it is about strategy and policy. I mean, we have to get that right.
▶ 0:46:48I actually having worked twice in the National Security Council staff um under very powerful deputy national security adviserss for international economics um respectively in the Bush and Obama white houses. They ran a pretty good process of putting pulling agencies together and getting them to coordinate. I actually think you could do it that way.
▶ 0:47:08You still need a very empowered State Department, but I would keep the agencies with their individual comparative advantages doing what they do best and then have a really tight White House process to coordinate it. The gentleman's time is expired. I recognize myself now for five minutes. And as I reflect on the insightful testimony of all all of our witnesses, I want to make an initial observation. I wholeheartedly agree with Mr.
▶ 0:47:31Goodman's observation that u sound um smart foreign policy involves economic statecraftraft involves economic engagement and there is a narrative um um I think um communicated by some that the America first strategy of the current administration is disengagement and that allows China to fill a vacuum. I actually see it the opposite way. As Secretary Bessant uh rightly pointed out, America first is not America alone.
▶ 0:47:59And uh while the tariff uh strategy has created some uncertainties and turbulence, what it has done is actually deepened engagement, not not disengagement, but deepened negotiations with partners, allies and adversaries like China to actually uh get us to a point where there is more American leadership and engagement in the world on the economic front.
▶ 0:48:20Uh I think this has the enormous potential to achieve greater, more bilateral, more reciprocal trade deals that give American exporters more market access and therefore more leverage uh and economic influence in the world and uh look just to yesterday to see the $600 billion commitment from Saudi Arabia of more foreign direct investment in the United States to see that that there is massive economic engagement like we've never seen with this America first strategy. Uh let let me ask um Dr.
▶ 0:48:50Norris a question about um what Mr. Goodman says is smart economic statecraft. Uh in February, President Trump issued a national uh security memorandum entitled America First Investment Policy directing federal agencies to address outbound investments into China. Um I think this is smart economic statecraftraft. I think I think uh it's very smart to to stop financing Chinese military-industrial complex companies.
▶ 0:49:18I also would say though I I very much appreciate uh Dr. Norris you're you're pointing out uh that um we should not try to fight the American private sector uh that our national power ultimately derives from US economic growth and innovation. Um and so we need to be careful about mimicking uh Chinese industrial policy. We should counter ch China not by becoming more like China but by be by being the best version of ourselves.
▶ 0:49:44Our advantage I always say is that we're capitalists and they're communists and so they misallocate uh capital and and their industrial mercandalist policy is not what we want to emulate. So can you speak about what is the right way to screen and stop investments and capital flows into China that threaten our national security while at the same time adhering to our free market crossber capital flow uh ethos.
▶ 0:50:12So, I think this idea of outbound investments is uh is an important topic. Um, and I I think that you're exactly right when you say we need to do us better and not try to copy what they're doing or try to mimic exactly what they're doing. Um, the way I think about this is these kinds of investment flows are going to generate things that matter for national security. So, what can we do better on this? We have to be specific and precise and saying here's why this is bad for national security.
▶ 0:50:38doesn't be public but somebody needs to know and they need to be able to do that analysis and then they need to be able to have mechanisms that allows us to put a stop to that kind of behavior because it is going to be detrimental to US national security. Um I think this dovetales with something that uh ranking member Bar also talked about in terms of the key to US success for most of the 20th century was that we found a system that was able to have other countries pursuit of their self-interests redowned to America's best interests. That's the secret sauce.
▶ 0:51:08That's what we are after today. I think as we start thinking about strategies and ways to design systems, we want to capture and harness these naturally incurring incentive structures. So companies want to make money. They want to manage to quarterly profits. That's a feature, not a bug in my opinion, but you also have the importance of long-term capital. Warren Buffett has achieved a lot of success with a very long-term vision. There's a space for that. But we have to be smart about harnessing these incentives. That's where the policy makers come into play. That's our jobs.
▶ 0:51:38We have to think creatively and we have to think about what are those incentives. If everybody looks out for their best interests, what's going to be the macro result of that? And that's kind of the framework that I'm trying to suggest to you all is as you think about these security externalities. That's the thing that's not going to be indogenized into the transaction. I wanted to talk about DFC as an important tool for economic statecraftraft. I don't have time. Let me just ask this final simple question. Um Dr.
▶ 0:52:04Norris, can you speak to the importance of fiscal responsibility and lowering our deficits to protect uh strong demand for US Treasury securities and the dollar's dominance? And why is that important to national security? Yeah. Uh as all of you will appreciate, uh the US serving as the world's reserve currency gives us a lot of uh privileges. We're unique in this regard.
▶ 0:52:26The United States is a$ 30 trillion dollar economy and we as government stewards of of public capital always have to think about being prudent with how we allocate and use those resources. In my opinion, our real strength resides in the private sector and what we have to do is find a way to harness those proclivities and naturally occurring tendencies to reound to the national security interest. My time has expired. Growth, growth, growth. Thank you very much. And at this point, I I uh recognize the gentleman from Texas, Mr. Castro, for five minutes.
▶ 0:52:55Uh thank you chair. Uh thank you all each of you for your expertise and testimony today. Um you know we started the year as the most powerful most prosperous nation on earth and the way I approach it is when you're going to make changes to that those changes better be such that they make us even stronger.
▶ 0:53:17That's not to say that there aren't deep challenges that we face particularly domestically um issues that we need to address for workers and so forth and even in trade policy. Uh but I think it's I think it's fair to say that the last few months in terms of economics around the world, trade policy has been chaotic. Uh I remember when President Obama was in office, one of the critiques of the American business community of his presidency was the uncertainty. Everybody was using that word, the uncertainty.
▶ 0:53:48Well, if that was uncertainty, this is chaos. Uh with tariffs changing from day to day, uh a million different negotiations supposedly going on with different countries. And one of the effects as I have had meetings with embassies and with foreign leaders is that the world is starting to move around us. And uh Miss Cutler, you mentioned diversification and I I imagine you meant diversification.
▶ 0:54:18Countries are diversifying their own economies and their trading partners. And I want to see if you would speak to that a little bit with respect to Asia. Um and the fact that as as to them from their perspective, not our perspective, but to them as we become a less reliable trading partner and economic partner, what do they do?
▶ 0:54:41Well, it's not only that they're viewing us as unreliable, but they're also viewing us as no longer as interested in the rules-based trading system. And so, I think both of those factors are motivating other countries to become less reliant on us and work with countries where they have common interest. And frankly, for many small and medium-sized countries, a strong WTO, for example, is in their interest.
▶ 0:55:09What we're seeing now though is countries um forging new agreements and and expediting negotiations that seemed impossible just years ago. So for example, the UK and India just two weeks concluded an agreement that was under negotiation for many years.
▶ 0:55:27Um, we've seen now the European Union express interest in somehow aligning itself with CPTP, something that for years they said they would never do. Um, and we're also seeing other countries express interest in either joining the regional comprehensive economic partnership or CPTPT or different digital agreements.
▶ 0:55:52And ultimately as all of these agreements are being forged without us, we are we are disadvantaged. We do not get those benefits. And so I think this trend is very concerning. And I hope that we can work together to find a way to convince our partners that we want to engage with them. we want to seek win-win agreements and that we still um see merit in a rules-based international order. No, absolutely.
▶ 0:56:22And I I I think it is fair to say that this has been a kind of shakeup. Uh but the world is not a snow globe. Things don't just go back to exactly where they were once everything settles down, right? Uh I was I'm the ranking member on the Western Hemisphere subcommittee and was meeting with folks from Mexico who said they're pursuing a free trade agreement with Brazil, for example. Uh and so you see different regions of the world trying to come together in their own ways. Uh Mr.
▶ 0:56:52Yeah, I I totally agree um that this is a this is really the problem that we used to write rules, get others to uh agree with our approach to rules, standards, norms of international economic behavior. And that was very much in our interest. Frankly, it was in their interest too.
▶ 0:57:13uh but it was ultimately in our interest and we're giving up that by not having some kind of more affirmative um offering of our preferred rules including by the way I meant to say earlier to Congressman Barrett's point in the digital space. I think that's really critical where we pulled out of an effort to try to get people to agree to our preferred digital rules. So we need to do more of that or others are going to make other arrangements. Am I 20 seconds? Uh other witness and quick comments.
▶ 0:57:43I'll just say that uh from my perspective that the the rules-based system is broken. The global trade order is uh no longer something that uh we have been able to manage and the problem behind this is China. uh and this requires a reset of um significant uh magnitude. Why?
▶ 0:58:05Uh not only because we need to rebalance trade, but because we need to free our defense industrial base from dependency on Chinese supply chains and we need to move towards real wage growth and productivity in this country. and we won't get there if we continue to be in this deficit orientation without a rebalancing of trade. My uh my time's up. I apologize. Thank you, Mr. K.
▶ 0:58:33Um you know, during my travels and uh visit with our embassies abroad, I we always in a bipartisan way express our appreciation for the work that they do to represent our US interests. But I have also been unimpressed with the efforts made to assist American businesses in gaining market access and competing on an international level.
▶ 0:58:59So I want to ask all panel what inhibits our current export promotion regime from producing the results that our companies and desire. Let's start with you Mrs. uh Danski. Sure. Thank you. Well, first and foremost is um the ability to be competitive.
▶ 0:59:21Um so we need to do a better job at uh providing some incentives um through uh XM for example and export financing. We need to be better cheerleaders for US companies abroad. Um, we need better terms of engagement, which is what uh at least some of this tariff negotiation is about, opening up uh foreign markets in ways that uh were not open previously.
▶ 0:59:48So, we need to do a much better job in terms of setting the conditions for American companies to be successful abroad and to be able to compete in what is a fair and open market. That is not what we have now. Thank you, Mr. Norris. Dr. Norris. Yeah. I uh I agree that I think that there's a lot of variation uh by country teams. Um in my experience, I I think that some countries do this really well and others don't. And so studying that variation, why is it working somewhere?
▶ 1:00:17Why is it not working somewhere else would be a useful way to proceed um the thing that I would suggest is you might find in those places where the country teams are really killing it, uh is going to be a very close working relationship with the major industries and sectors and private sector players that have opportunities in their host nations. um that's probably not coincidental. Informal mechanisms, a lot of what we're doing today, uh I think a number of other panelists have talked about this.
▶ 1:00:40We're using these workarounds to get past some of the institutional design failures that we're currently imshed in. Um so that would be something else to kind of pay attention to. Thank you, Miss Cuddler. Um with respect to export promotion, I think this is an area where state department could play a a more effective role particularly in our embassies abroad.
▶ 1:01:05And I think this gets back to the whole notion of looking at the foreign commercial service and our and the state department's economic offices. I think if they were merged then um there'd be a lot of synergies to help promote exports. But also look, we need an infrastructure to help us promote exports. It's one thing just to advise companies, but you know, our companies are competing against financing that other governments are giving their um you know, their private companies.
▶ 1:01:33And again, that puts our companies who are incredibly innovative and competitive at a disadvantage. So, I would urge the committee to look at at at those structures as well. Thank you. And just very quickly agree with all of that and just say that I think you know the problem has really been we haven't had a commitment at the highest levels that this is really important for our interest frankly in the last couple of administrations.
▶ 1:01:57So I think that's the first thing you need a real commitment from the top I mean from the president um to why this is important um and then you need finance and you need other removal of legal constraints like other countries can just go and advocate for a particular country company. we can't do that and for you know there's an argument about that because we don't want to pick winners but I think there's a way between our approach and the French or Chinese approach that that would be more um helpful to getting our products and services forward.
▶ 1:02:26Uh Miss Cutler mentions the and then uh you also Mr. Goodman uh financing is another way and our committee is also charged with uh authorizing or reauthorizing DFC. So we will uh address that issue but uh other than uh in addition to that what suggestion do you have to improve our uh export promotion regime uh when I ask the to uh Mr. Norris and Densky to also address that as well.
▶ 1:02:55Yeah, I think that capital provision is an important dynamic here. Um not least because we're dealing with an unfair playing field. Often there's either a different risk appetite or a different cost of capital. Um, one of the things, again, I would I don't want to sound like a broken record, but I think it is really important to think about how we can be good stewards of public resources and crowd in private capital. So things like XM when they think about um being able to take some of the riskiest tanches off the table and then the rest of it looks commercially viable.
▶ 1:03:24That's the way to kind of get good leverage and good maximization when we think about those I would just add that I think we need to focus on the US ground game abroad and that's about um bringing together all of the capacities that we have um in key markets of interest to us where we see the big opportunities to expand our manufacturing and export opportunity. There are a lot of them but we don't really have a game plan. Thank you. Let me now give uh the podium to Mr.
▶ 1:03:52Olsuski for your five minutes of questioning. Thank you Chair Kim. uh to our ranking member Barah for holding this hearing. It's actually a good follow-up to an outstanding roundt discussion we had just last week with uh some of our Pacific Island ambassadors discussing partnerships and strengthening those in in the region. Uh my takeaway was the overwhelming consensus was that that region wants the US to show up.
▶ 1:04:18They want us to be there even as they see what I think is a global retreat. Uh and again they were concerned about the on-again off-again tariffs uh from the administration. In some ways it reinforced the point made by by my colleague Representative Castro about um you know the world is still moving. So appreciate all of your testimony today on that front. That round table specifically touched on two issues I hope to focus on with my time.
▶ 1:04:42One is the mounting debt crisis being driven partly by uh Chinese lending practices as well as strengthening economic growth through a pact modeled on something like AGOA, the African Growth and Opportunity Act. Uh we know that China's extensive lending policies on Pacific Islands has resulted in unsustainable debt burdens. Tonga, for example, relies heavily on international loans and is currently saddled with more than $100 million in debt. To China, that's about 20% of its GDP. Not a one-off story.
▶ 1:05:11Over the past 20 years, China's become one of the largest lenders in the region. And often governments then face an impossible choice. Do we cut spending on critical services or do we default on our loans and risk access to future financing? Uh so we know that this is possible. We need to show up um and and support our businesses. To the chair's point, uh actually there's a great company in my home state of Maryland doing great work. Uh it is a company called Inventwood.
▶ 1:05:38It is a supplier of climate resilient building materials in Frederick, Maryland. Uh it signed a landmark partnership with Tonga to advance climate resilient construction across the Pacific. Uh so we want to be in incentivizing more partnerships like that for a model for sustainable development. Um we'll start on the debt crisis and we'll start with you Mr. Goodman and if others want to jump in. Um from your perspective, how has Chinese lending contributed to the current debt crisis in the Pacific island countries and what are the key risks for US interest resulting from that?
▶ 1:06:07Yeah, it's a huge problem globally and the Pacific Islands are are very vulnerable to this um model of Chinese lending that's non-transparent and has hidden conditions attached to it. This is something that there's been great work done on this um by um a group at the um at um uh in Williamsburg um uh sorry aid data. Thank you.
▶ 1:06:30um aid data and also the center for global development here in in uh in Washington have done some great work on trying to expose uh the contracts and the the terms on which China is making these lending. I think that's one thing that would more transparency would be helpful. I think we also need to find a way through diplomacy to try to pull China into some of the international arrangements like the Paris club even if we have to rename it because China doesn't want a club that was set up without them in it originally. But we need to get them at the table to help with some of the resolution of these debts.
▶ 1:07:01Um and and it is a it is an absolutely critical issue. But the final thing is the US has to also offer some alternative. And I haven't said the word DFC myself, but just since others have mentioned it, I should have said it's really important that we reauthorize the DFC, give it more muscle power, let it fix this um scoring, equity scoring problem, and make it a more capable um organization because at the end of the day, that's what the Pacific Islanders want. They want us to have a better offer. Yeah. And I think we all agree on the reauthorization.
▶ 1:07:29Any other points on on that one? I have a a second question, a trade question uh on the AGOA like trade pact. Um that could signal, I think, a new commitment to the region and its growth. Um what would uh and this can go we we can start with Miss Cutler and again we'll open it up if if there's time. Uh what would the economic benefits be for the Pacific Islands and US businesses from a trade agreement modeled on AGOA?
▶ 1:07:53uh and what sectors hold the most promise for expanding trade and how can we better incentivize more public private partnerships uh like we mentioned with invent back in Well um I think you raised an excellent suggestion some kind of a goup program for the for the Pacific Islands because countries like this as Matt said then you said they very much want us to show up. They want to work with us, but they need some benefits, right?
▶ 1:08:18And so even though these programs provide unilateral benefits, they also very much provide an opportunity for um continued connectivity and cooperation between the United States and these countries. So I think that's a model that's worth looking at. I have 20 seconds if any of the witnesses wanted to chime in. Yeah, I was going to say I think that uh your comments raised some awareness around making sure you understand what the partners need, what are they looking for?
▶ 1:08:47So listening uh to what is going to be resonant for them. Uh and also this idea of building uh capacity, being able to have that transparency around these debt agreements. Uh these are all things that are going to reinforce good governance. I think are going to play to our strengths. The key really is the commercial viability particularly with the Pacific island nations and some of them struggle with that. Thank you all. Madam Chair, yield back. Thank you. Thank you. Let me recognize Rep. Moland for his five minutes of questioning. Thank you, Mr.
▶ 1:09:17Chairwoman. While national security is often dominated by military sectors, the economic domain has historically been the strongest tool in shaping international affairs. So, sitting on this committee and armed services, I fully understand the importance of national economic security's role alongside traditional military power. But economic tools don't often get the bureaucratic limelight.
▶ 1:09:42By advancing our cutting edge technologies and building more resilient supply chains, the United States continues to build peace through trade deals and deter bad actors through sanctions and tariffs. Now, as the US China trade negotiations become increasingly high-profile, we can't we can't talk about national economic security without addressing the relationship with the People's Republic of China.
▶ 1:10:06While we've already implemented ex uh export controls on PRC, the US must do more to maintain our leadership in key industries like cyber, quantum technology, and AI. Ultimately, the PRC's unilateral decision-making structure makes many of its economic policies expedited and reliable, making it hard for democracies like the US to compete. So, the United States is faced with unique problems.
▶ 1:10:36How can the US diplomacy out compete the PRC while maintaining our values? And as Guam sits closer to Asia than North America, I can certainly tell you my appreciation for working with our foreign partner nations. Large partnerships with organizations like ASEAN or smaller free trade agreements have continued to demonstrate the willingness and success that comes with less constraint economic policies.
▶ 1:11:06In the State Department's reauthorization, I think it's clear that we must combine greater domestic investments while collaborating with our allies in areas where the United States has comparative disadvantages. Uh so Miss Dzenski uh the department of congress has published the dire nature of US critical mineral supply chains with regard to our supply chain reliance on foreign sources.
▶ 1:11:33What diplomatic tools and instructional changes do you think could properly address our dependency issues? Uh thank you. I'll I'll just uh highlight that we have a report coming out on this very issue in the next few weeks um which is very specific to um looking at dependencies in the advanced battery supply chain and uh the role of critical minerals.
▶ 1:11:55But let me just highlight a couple of the key uh elements from that report because it applies across the board um for uh the challenge we face. Um number one we have to get uh a control on u processing of critical minerals. We need to break that chokeold. Uh China is uh not necessarily controlling all critical minerals, but they're definitely controlling uh the processing and that has to uh stop.
▶ 1:12:23Uh we need to look at uh controlling for price volatility around core commodities. It's making it really difficult for western manufacturers and processors to get into um the critical mineral space. Because of that, uh, we also need to look at much deeper partnerships with allies and partners who have the very same problems about access to, uh, to markets. More broadly, I would say that we have a host of problems with non-market practices coming out of China, and now is the time to put that on the table.
▶ 1:12:52Whether we're talking about currency controls, uh capital controls, um uh uh dumping, which is a massive enforcement issue now for us, rules of origin questions, you name it. Um these all contribute to why it becomes so so difficult for uh US manufacturers and others to compete in this uh this global trade order. Thank you.
▶ 1:13:19Um, Miss Cutler, based on your experience at the Office of US Trade Representative, how should the US approach known adversaries in the competitive economic realm? Additionally, is there a point where the US should consider revoking items like the permanent normal trade relations? I think the key to addressing the China challenge is working closely with our allies and partners. I don't think we can effectively do this on our own.
▶ 1:13:49And so, um, I I um am concerned that in with our current trade policy when our when we're hitting our allies and partners with tariffs, they're busy negotiating with us. And I think time would be better spent, frankly, working with them to address many of the practices that my colleagues um have expressed concern with with respect um to China. Uh, thank you very much. I'm out of time. I thank the panel for your testimonies. Thank you, Madam Chairman.
▶ 1:14:21Let me now recognize Representative uh Sherman for your five minutes of questioning. Comment on Mr. uh Bar's statement that uh we need to deal with the deficit. That's why we need to res avoid the tax cuts that are being proposed on the ways and means committee at the present time. We did balance our budget in the 90s because we locked in Clinton's tax policies and then in 1995 we started spending like Republicans. U Mr.
▶ 1:14:49Bar also talks about how important it is that we have the US dollar be reserve currency. The crypto advocates have made it very plain they want to take that away from us. When somebody says what they're going to do to you, you should listen. Um our chair asks us where should USR be?
▶ 1:15:08I think it should be in the state department but my fear is that then state will make trade concessions in order to achieve other foreign policy objectives because the people we've hired at the state department are people who uh dream of a Nobel Prize and study how metronic dealt with the Congress of Vienna. Uh we've got a distinguished panel here. You've all spent a lot of time with State Department people.
▶ 1:15:36Uh putting aside the political appointees just on uh civil service and foreign service, do any of you know any CPAs who are employed by the State Department? No hands go up. Do any of you know any MBAs personally who work I I see one. Uh you're you're nodding, sir. Do you actually know somebody well enough to name an MBA? No. So we have no MBAs. And do any of you please raise your hands if this applies.
▶ 1:16:04Do you know anyone with 15 years international business experience who's a civil servant or a for uh with the civil service or the foreign service of the state department? I assure you that if this was the House of Commons, lots of hands would have gone up. In every other country, business is important. Uh but there's no way in which the State Department is has the greater flaw than their process of issuing visas.
▶ 1:16:33Nobody becomes a foreign service officer to issue visas. We don't hire people who want to issue visas. And so I was I've got to send an apology letter to my cable company because I was by the cable company. I was on the phone with them for an hour and flipping it around and round and I thought that was the worst experience possible until last night when I tried to deal with the uh uh council in Karach.
▶ 1:16:57Um the process that we put people through to get a tourist visa or a visa to come here and buy our products shows that we don't care about tourism. We don't care about products. Miss Dinski points out that we've perhaps started an economic war without a Pentagon. There's only one thing worse and that's if you have your general being bought off the way Benedict Arnold was bought off. We've got this $400 million plane.
▶ 1:17:24Uh not since the Greeks left a gift outside the walls of Troy have we seen uh such a bad uh uh gift acceptance. Uh we're going to have to disassemble the plane looking for bugs. Then we're going to have to uh uh outfit the plane with the most advanced communications device and then we as a government don't own the plane. It's owned by Qatar and they're going to transfer it over to the Trump Foundation.
▶ 1:17:48But more important perhaps is the $2 billion dollar Abu Dhabi is going has announced they're going to put in the Trump stable coin. That is at minimum a $2 billion interestf free loan to u uh the uh Trump organization. And then finally we have Trumpcoin. We can put up the the chart. Some 96% of this coin is owned by uh uh 40 wallets.
▶ 1:18:17press report says they're all owned by the Trump family and uh so anybody who buys the Trump coin is putting 96% of their money into those wallets. We um uh everyone on this subcommittee u I believe voted um to limit Tik Tok. We know how important that is. We gave him 75 days. And now uh I would like to put in the record an article from uh uh yesterday's New York Times.
▶ 1:18:47Tiny Company with China Ties announced big purchase of Trump cryptocurrency uh and an announcement that $300 million is going to be put into those 40 wallets um by an entity uh with ties to Tik Tok that has the entity itself has eight employees and no revenue. uh but they've been able to raise $300 billion from mysterious sources in the uh in a tax haven country.
▶ 1:19:15Uh and uh I want to quote uh Charlie Dent who served here with distinction Republican member chair former chair of the House ethics committee when he said make no mistake these foreign entities and governments obviously want to curry favor with the president. So, um, the only thing worse than not having a Pentagon is having a, uh, a leading general who's been, uh, uh, bought off. And with that, I think my time is expired. Thank you, Raf Sherman.
▶ 1:19:44I think we're going for another round of questioning. So, let me first ask the next two minutes, I mean, next few minutes, if uh, uh, Mrs. uh, Denski and Dr. Norris could answer the question of if you can assess the economic vulnerabilities of the United States to China and um what should the United States do to take more active step uh steps to limit those vulnerabilities?
▶ 1:20:15Uh and if so, what policies can you Thank you. Uh I would um point out a couple of uh major vulnerabilities. One which I mentioned which is the dependency of the US uh defense industrial base on uh Chinese parts and Chinese technology. I think that's something that is untenable for us and uh need needs to get rectified. How do we do that?
▶ 1:20:43Uh we have to look deep within those supply chains to understand where to pull out u that vulnerability. um and either bring production home or transfer that to allies and partners um through uh some sort of ally shoring. There are critical dependencies on Chinese magnets um certainly on uh critical minerals coming from China. These are harder to solve but we need uh we need a game plan and that also needs to include some very targeted innovation.
▶ 1:21:12The defense industrial base and the uh let's call it the uh US industrial base or at large is beginning to merge. a lot of the advanced technologies are the same whether we're talking about manufacturing drones or manufacturing uh computers etc. A lot of the inputs are the same. So we also need to think differently about these dependencies and how to um how to get to that. Um in terms of uh you know what what else we can be doing uh to highlight those vulnerabilities.
▶ 1:21:41This is where we need a lot more of that trade analysis and economic analysis that I I uh highlight in the testimony. We need to have a an all of government understanding of where these vulnerabilities are and then start applying the tools uh to call out uh where um for example Chinese economic coercion maybe stealing innovation uh from the US and for uh forcing us to you know fall further behind.
▶ 1:22:08Yeah, I think I would classify the US vulnerabilities to China in this domain of economic statecraftraft as being there are some that are acute that are sort of in the near term in the next 6 to 12 to 18 months and then there's another set that are longer term. Uh this idea of creating uh alternative orders that exclude the United States or have an alternative center of of gravity. Um so I think those acute ones have gotten quite a bit of attention. uh items like when China is the unique source of key inputs, things like um for pharmaceutical precursors.
▶ 1:22:38The list I think is well known to this committee. Um and what to do about that? I think the thing I like to do about this is stockpile if your if your uh competitor is subsidizing. I like buying it below market prices and I'd like to buy a lot of it if it's something I feel like I need for a rainy day. Um diversifying to partners and allies.
▶ 1:22:56um when you have complimentarity that exists among trusted partners and allies uh China has a scale that's going to be in certain areas difficult for the United States to match unilaterally and that's where I think partners and allies could really uh benefit the United States and then of course bringing it inhouse uh and some of this is going to be able to be brought inhouse particularly uh if you're concerned about security externalities and if there's very clear uh reasons to be worried about stuff but I do want to couch my remarks in a broader um concept that
▶ 1:23:27the US and the Chinese economies are the world's largest single largest two economies and 30 trillion and 18 trillion there's a big gap before you get to number three. These two are deeply integrated today and uh there's a there's a small portion of that integration that has direct national security ramifications and that's what we should really be focusing on particularly in the acute uh time frame. in the bigger time frame if there's a real desire to decouple.
▶ 1:23:55Uh that's another sort of conversation, another strategy. Um is that ultimately in America's best interests? I think is a conversation we ought to be having as a nation. Um I don't necessarily have the right answer for you this morning on that. Thank you. Very helpful. Let me now um ask ranking member to ask questions. Great. Thank you.
▶ 1:24:15Um you we do find ourselves at a pretty interesting time and you know I I would agree with each of the witnesses that you know the rest of the world whether it's Europe um countries in Asia or elsewhere are trying to figure out you know um where the United States is and what our strategy is and so forth and that's creating some uncertainty but in my interaction with you know again in my travels abroad but also with ambassadors here in the United states.
▶ 1:24:44Um there's also a deepening recognition that they don't want the United States to leave and and I would say, you know, particularly in Southeast Asia, they recognize that um they understand the terms by which China does business and they want a robust US presence there as an alternative partner.
▶ 1:25:05Um and they also while we're not um our trade policy, economic policy is isn't just based on benevolence, you know, much of it again in that 75 years post World War II was benevolent. Didn't disadvantage our companies, didn't disadvantage our economy, certainly opened up markets for for um our companies and and we did very well in in that construct, but so did many of the other nations that share similar values to us.
▶ 1:25:34Um and I think that creates a interesting opportunity for us as well because um you know while they don't like the uncertainty and I do think most countries around the world appreciated the rules-based order that we um had put place I think there's a growing recognition that American economic policy is changing a bit and you know again I'd go back to you know my 13 years in Congress we we all would have guessed TPP
▶ 1:26:04would have you trade deals were never easy um didn't get across the finish line and we saw in the 2016 presidential candidate both candidates turn against TPP um I would have thought you know the renegotiation of um or the negotiation of USMCA which was the largest um trade bill you know close to 400 um members of the House of Representatives if more Democrats and Republicans
▶ 1:26:34voted to um support that that that process. Um would have thought we'd then say maybe we build off of that. Again, we're in a much different place with you. I'd urge President Trump to say, "Okay, if you have issues with Mexico and Canada, you've got a renegotiation coming up. Let's use that as a vehicle by which to address some of this." And then, you know, the orthodoxy around tariffs and what that looks like. Again, I president might take this as a compliment.
▶ 1:27:04Has been incredibly disruptive. Um I think he's using a very blunt instrument, a blunt tool, but it is getting everyone attention. I would hope that we on this committee, we in Congress along with the administration as we start to approach this, I can't undo the past, but um what does that context look like moving forward?
▶ 1:27:27I also think the the pandemic was a real wakeup call for not just the United States but most of the world because of the real dependence on you know whether it's the pharmaceutical sector and APIs you know protective equipment um rare earths etc uh just exposed tremendous vulnerabilities that that we have and if we were to get into a direct um confrontation with China those vulnerabilities we're seeing it a little bit around um you know the the the the tariff
▶ 1:27:58conversation and and the trade conversation with China. Um but it does expose real economic and national security vulnerabilities that not just us but others have. So you know the reason why I talk about you know things like the mineral security partnership and you know which again I think is a really good idea um but I also think how we approach trade and economic development in 21st century is probably going to be more alliance um valuesdriven with with partners and what I
▶ 1:28:28mean by that is I think we should work with the Koreas of the world the Japans of the world Australia of the world if we you know rarest elements aren't super rare. It's just as you pointed out, Miss Dazinski, the the processing of these, it's a dirty business and I don't know if we're going to do that in the United States, but we ought to go into Malaysia or Vietnam or places that would be willing to do it and build those markets and we don't have to do that by ourselves.
▶ 1:28:56I would say we should do that with like valued allies that want these redundant supply chains. Australia certainly has expressed an interest. now may cost us a little bit more and I think that's something that we'll have to have to try to address. M Dr. Norris, um I certainly think it's a great idea for us to have a national stockpile of these critical earths and you know that is something that we as Congress should explore with the administration of creating that stockpile so we don't have those vulnerabilities.
▶ 1:29:26It's going to be different. And again, I will just go back to um my supposition, which is this can't be a Democratic or Republican strategy. This has to be an American strategy. And I think an American strategy in concert with countries that share similar values of the relative open markets, relative democracy, freedom. Um because it's not a given what the next 75 years looks like, who dominates those 75 years.
▶ 1:29:53But I do think again in my travels, my conversations, the actions of the first hundred days of the Trump administration have shaken a lot of countries around the world, but it also has brought them to the table to say, "Hey, wait a minute. You know, we may not like what America's doing, but the last thing we want is America to leave our markets." I'd be curious just quickly if you feel like that's um characterizing it in in the right way. And maybe we'll start with Miss Mazinski. Just go. I I do think that's the right characterization.
▶ 1:30:24Um I I there is a long-term strategy here. U but there's also a lot of tactical um back and forth right now that is is probably causing some confusion. But uh I I think what we're seeing now is the display of economic power in a way that we haven't seen it before. Um and whether we agree or don't agree with how the tools are being used, um we do have an administration that's using them in some pretty interesting ways.
▶ 1:30:51Um, I'll go back to an earlier comment that I I do think it's time for a pretty broad trade reset and we need to think about it holistically and ultimately getting back to this near global economy idea. So, we box out the uh countries that don't want to participate um in a free and open market. And to your point, uh we ally shore. We ally shore where we can. We bring home production where that's required and necessary. Um we do that.
▶ 1:31:20Uh, and where we can't do that, we work with allies and partners. Dr. Norris, uh, yeah, I'm gonna agree with a lot of what you said. Um, and and also what my fellow panelists are saying. Um, I think the United States does enjoy a significant incumbency advantage for having written a lot of the international rules of the order. I don't always think that we're uh taking full advantage of that opportunity. Um, and I think that when we think about this competition, it's important to maintain flexibility, the ability to adapt.
▶ 1:31:50We have to be able to do us better. We are an incredible nation that has incredible capabilities. And when we think about how are we going to compete, we're not going to compete because we're going to mimic and do something that they're doing and try to make it fit for us. We have to think about what are we good at. And that's why I come back to innovation. I mean we just we can completely change a paradigm with our radical capacity to innovate in this country. Um we have to preserve that capability. That's really important in a long run competition.
▶ 1:32:19I also think that your point about um making this bipartisan, making it something that's not going to lurch from one administration to the next or one Congress to the next is really important. And this is a long run competition that's going to have to be run in a series of sprints. And they're going to be four-year sprints or two-year sprints. And we need to find strategies that are sustainable politically, economically, and socially for our fairly partisan and fairly divided country right now. Um I think that's really important.
▶ 1:32:45Uh, and I I just would also agree that the um the the idea of having trade and economic development uh be somewhat contingent on similar shared values I think makes a lot of sense. There's nothing that quite clarifies who your friends are uh than a pretty significant new challenge that you collectively face and you have to sort of say, okay, who do I want to have on my side? Um, and that's kind of the moment we're in right now. And I think we can you to your point, this is kind of a unique moment.
▶ 1:33:11we should try to capitalize on it as best as we can to position ourselves for success for decades to come. Cutler, um I also agree with almost everything he said. Um and particularly I do think there is an opportunity here. Okay.
▶ 1:33:27But what my concern is we may squander that opportunity and this is such a critical time where you know based on all our discussion this morning our allies and partners are extremely important in order to to work with in order to achieve our objectives. So my view is carrots and sticks. Let's keep those carrots in mind. I think to date we've been doing a pretty good job competing with China for the hearts and minds of third countries.
▶ 1:33:58But I worry through heavy-handed tariff request, win-lose negotiations, and then the dismantling of a lot of our soft power, um we are um we may squander this opportunity if we don't all work together, Congress, the administration, the private sector to really um double down in our strengths and work with our allies and partners.
▶ 1:34:22Yeah, I I we're a colleague and I are doing a a project in which we've been talking to a bunch of trading partners, mainly through their embassies, a few capitals. Um, and we actually started this before the election and we were trying to look at sort of what US really needs from its trading partners and what it's willing to offer, what it needs to offer to get them to give those things. The conversation has diverted to, you know, a lot of this uncertainty and confusion around tariffs.
▶ 1:34:48But I take away the same point you do, which is that while people are disturbed and troubled by that, they also there's a demand signal. They want to work with the United States, maybe in a slightly different way than the past. They recognize it's going to be different, but they want our engagement. Uh they want our market still. They want our products. They want our um leadership. Uh they want um you know, maybe access to our innovation ecosystem, which is a a sort of new thing that we may be able to it's not new, but I mean we could package it as a new offer.
▶ 1:35:17Um, so I do think there's a big opportunity and I think the key is two things I want to say about trade policy going forward. One, we need a trade policy that combines sort of three things. One, it has to advance American interests economically, strategically, otherwise. Second, it has to incentivize our partners to want to work with us and give them something, some reason to give us the things we need. And third, it has to win the support of the American people. And that's really your job.
▶ 1:35:43But I do think the second point I want to make is it's really important for you guys to figure this out because uh because in the end if we don't have a trade policy that is that is embedded in law um through you um it's not going to stick. It's going to be a house made of cards. You need the pylons dug deep into the soil and that means you need legislated trade agreements in my view. Thank you.
▶ 1:36:10I think we all agree that economic policy is foreign policy. With that, our goal of this hearing was to evaluate how we can position United States as the uh the center of the economic state craft. Uh so, thank you everyone for engaging the members of Congress in a very very productive conversation today.
▶ 1:36:35It really was helpful in assessing that our current economic state craft is an incoherent network of more than a dozen agencies and organizations with many of the responsibilities. Um as the saying goes when everyone is in charge no one is in charge and I think that is true of economic statecraftraft architectural now.
▶ 1:37:02So let's let me once again thank all of our witnesses for your valuable insights, the suggestions, the recommendations that you provided to us. Uh we will definitely keep our conversation today in mind and take those suggestions in mind as our committee works to authorize the state With that, the members of the subcommittee may have some additional questions to the witnesses and we will ask
▶ 1:37:32you to respond to those in writing persuant to committee rules. All members may have five days to submit statements, questions, and extraneous materials for the record uh subject to the length uh limitation. So without objection, the committee now stands adjourned. Thank