National Economic Security, Advancing US Interests Abroad

Chairman Young Kim (R-CA)SPEAKER_01

Good 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 statecraft 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. Good morning and welcome to the East Asia and the Pacific Subcommittee's National Security— National Economic Security: Advancing U.S. Interests Abroad. In 2019, Ambassador William Burns, one of our most decorated diplomats and former CIA director, described the Department of State as adrift. Over the years, the department has had trouble finding its purpose as functions and authorities have been stripped away or absorbed by the National Security Council, Department of Defense, and even agencies traditionally focused on domestic issues. For more than 170 years, economic statecraft was led by the Department of State. This 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 U.S. trade and investment diplomacy. The justification for pulling these trade and investment functions out of the department was to improve the government's capacity to prioritize and support U.S. businesses, strengthen the export performance of U.S. industry, and assure fair international trade practices. However, it has effectively split our economic interests from our diplomatic priorities, which has resulted in several challenges. First challenge is that it has not helped increase the ability of U.S. businesses to access foreign markets. In practice, the Foreign Commercial Service and Foreign Agricultural Service officers are few in number and often positioned at U.S. embassies without alignment to our foreign policy priorities. When I travel abroad, I routinely meet with FCS personnel who explain that they spend most of their time engaged in trade shows and organizing events with minimal direct work on increasing and securing market access for American businesses. 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. Second challenge is that the American market has been left 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. President 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. This 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 statecraft effort is in need of structural reform. I 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 prioritization? So we intend to answer that question in our committee's first comprehensive State authorization legislation that we will be doing in more than 20 years. So let me now recognize Ranking Member Ami Bera for your opening remarks.

Ranking Member Ami Bera (D-CA)SPEAKER_03

Thank you, Madam Chairwoman. And I also just want to recognize and appreciate that in our conversation setting up this hearing, that we set up a bipartisan panel. So do appreciate that because again, market access, you know, helping our companies be successful around the world is not a Democratic or Republican agenda item. It's something that I think we all care about. I appreciate the witnesses. Obviously I've gotten to know Wendy Cutler and Matt Goodman over the years and have had the pleasure of working with you and certainly look forward to hearing from the Republican witnesses. I've said this a lot, had I had a magic wand, we'd go back to 2014 and we would have had TPP in place, and

SPEAKER_UNKNOWN

you

Ranking Member Ami Bera (D-CA)SPEAKER_03

we would have had a framework for the movement of goods and services. We're not there yet, so we are where we are. I do think it's incredibly important for us as we go through a State Department authorization process—this is not exactly how I would have gone about reorganizing the State Department. I would have done it in a slightly different way than President Trump has chosen to do it, but we find ourselves with an opportunity to think about what a 21st century State Department would look like, what 21st century tools of economic engagement, of economic development, of trade, of tariffs would look like and where that's best housed. I know in our analysis, as we've talked 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 U.S. goods, products, working with our companies to help them navigate foreign markets and so forth. I also think it's very important as we watch these tariff conversations unfold that we take it as an opportunity perhaps to remove tariff barriers. Again, this isn't exactly how I would have gone about doing it. I certainly would not have targeted countries like Australia where we actually have a trade surplus, close allies like Japan and Korea, but I am happy that the president is prioritizing some of the Indo-Pacific nations as first places to enter into negotiations. Having just returned from Korea, having some real interesting conversations, I'm happy that the U.S. Trade Representative is in Korea right now engaging in some of those, have had conversations with the Japanese and others. Also, I think there's a unique opportunity with the ASEAN nations. We had dinner a few weeks ago with the ASEAN ambassadors, 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, I think some of the important things that were accomplished under the Biden administration were programs like the Minerals Security Partnership. These are important programs in the sense that as we look for redundant supply chains so we're not solely dependent on a single source in this case, Beijing and the PRC, 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. I think you need State Department diplomacy to help negotiate a lot of these deals and so forth. So, I think we should be very careful in dismantling some of this expertise. And lastly, I would say, while IPEF was not exactly how I would approach trade, I think digital trade is incredibly important to what we do economically. I think getting a digital trade, digital services deal done that doesn't disadvantage U.S. companies, U.S. 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 framework done. So again, I look forward to hearing from the witnesses and from your expertise. Thank you, and I'll yield back.

Chairman Young Kim (R-CA)SPEAKER_01

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, Ms. Elaine Dezenski. She's a senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies. 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. She has more than two decades of experience in government, industry, academia, and international organizations, building an expertise in economic statecraft, supply chain resilience, illicit finance, anti-corruption, and national security. Thank you for joining us. Dr. William 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 strategic relationship between economics and national security. He's a recipient of the World Politics and Statecraft Fellowship by the Smith Richardson Foundation. Thank you for joining us. Ms. Wendy Cutler, vice president at the Asia Society Policy Institute and the managing director of the Washington, D.C. office. In these roles, she focuses on leading initiatives that address challenges related to trade, investment, and innovation. Previously, she spent nearly three decades as a diplomat and negotiator in the Office of the USTR, 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 the Council on Foreign Relations. He leads the RealEcon, Reimagining American Economic Leadership initiative, exploring the U.S. 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 Strategic and International Studies. He was also the director for international economics on the National Security Council staff during the second administration under President Obama. Thank you so much for joining us. Now, the committee recognized the importance of the issues before us, and 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 Ms. Dezenski for your opening remark.

Ms. Elaine DezenskiSPEAKER_00

Chairwoman Kim, Ranking Member Bera, 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. In 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. Poorly enforced export controls led to blatant evasion, and leaky oil caps gave rise to a shadow fleet flotilla. Russia is not the exception. The Arab Spring blossomed and died without meaningful U.S. 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 U.S. responds to global crises with a fragmented toolkit—a sanction here, an export 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. We 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 tenet of U.S. 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. American 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. We 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 interagency 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. It will require new planning capacities to proactively wargame risk scenarios and develop preplanned 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 upheaval. And it will require modernizing our economic statecraft efforts with 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. As I show in a graphic on the final page of my written testimony, the wide variety of statecraft 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. Thank you, and I look forward to your questions.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. And I now recognize Dr. Norris for your opening statement.

Dr. William NorrisSPEAKER_09

Thank you, Chairwoman Kim, Ranking Member Bera, 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 A&M University, nor the Bush School of Government & Public Service. This testimony represents my own views and does not reflect the endorsement or perspective of any other organization with which I am or have been 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 a simple way to improve how we approach economic statecraft strategy. I'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 an end-state approach of desired effects and what we're trying to accomplish with that. I'll end with some general principles that I hope will help guide our path forward as we endeavor to do economic statecraft better. Economic statecraft itself can be something of a Rorschach 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 statecraft primarily as sanctions. If you're in the Commerce Department, economic statecraft is about promoting US businesses abroad, or perhaps it's about economic export controls if you're at the Bureau of Industry and Security. The point is many people now care about economic statecraft, 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 A&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. Most 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 I also want to include things like state-owned 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, how to design a supply chain, are going to have implications for national security that matter for countries. When 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 in bounds. 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. So the typology that I included in the slides and the written testimony provides a little bit of a framework for thinking about the different ways that economic activity can redound to and impact national security. 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 statecraft. But 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 statecraft campaign planning, contingency modeling, strategic forecasting, any kind of meaningful economic analysis from a statecraft perspective, or an evaluation of impact. So there's very little capability to kind of do that coherently in a strategic fashion today. Instead of this tools-based approach, I suggest organizing ourselves around the desired strategic effects as a better way to do economic statecraft. Those are those six externalities that I kind of walk through in the written testimony. In conclusion, I'd like to suggest a few key principles that I think might be constructive to help guide us as we endeavor to more effectively design mechanisms by which to do economic statecraft. In many ways, we're embarking in uncharted territory for the United States. As we proceed, I think we'll be well served to keep efforts grounded in longstanding values and principles that have been a key part of the US success story. Here's a couple of them as I see them. 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. Increasing long-run productivity gains is really the key to succeeding in any international competition of a duration. 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. The 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 reevaluate 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 statecraft. These involve organizational ideas, ways to improve our human capital, and processes to enhance effectiveness. I'd now like to respond to any questions the committee may have.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you, Dr. Norris. I now recognize Ms. Cutler for your opening statement.

Ms. Wendy CutlerSPEAKER_05

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 U.S. government for over 30 years, mainly at USTR but also Commerce, I have seen firsthand what has worked and what could stand improvement. And 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. My Asian colleagues have shared with me their deep concerns about the direction of U.S. trade and economic policy and the atmosphere of uncertainty it has created. They do not understand the U.S. 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 inward-looking. And though encouraged by the recent de-escalation of U.S.-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 underway away from the United States. These efforts have taken on a new urgency. Asian partners are launching new trade and economic initiatives, updating existing trade pacts, and seeking new members to join these arrangements. And as we continue to retreat from leadership, Chinese officials are 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 system. While Beijing is extending carrots, the U.S. is favoring a stick approach in the form of high tariffs as we dismantle many U.S. foreign aid and assistance programs. The contrast could not be starker. Successful economic statecraft cannot be achieved solely by thinking how we should reorganize or restructure at home. It 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. First, 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 2 or 3 years. Second, 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 lanes. Regarding how the U.S. government should organize itself to address economic statecraft, 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 scattered 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 a bipartisan consensus supportive of trade, I believe moving the trade policy functions to State would send the absolutely wrong signal, namely that broader geopolitical objectives would be given more weight than the views of U.S. 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. Thus, I contend that the best way to proceed is to 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 U.S. government-wide fast-track program to recruit and promote and retain international 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.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you, Ms. Cutler. I now recognize Mr. Goodman for your opening statement.

Mr. Matthew P. GoodmanSPEAKER_06

Thank you, Madam Chairwoman, Ranking Member, members of the committee, for this opportunity to testify today. I'd like to make three points, and I might sneak in a fourth one based on what Wendy just said, if I have time. First, at a tumultuous time, we need to keep our eye on enduring U.S. interests. In my written submission, I said we're going through a kind of historical hurricane in which the global economic order that the United States effectively created and championed for decades was being upended. The 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 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, and the global financial crisis later that decade. And 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 that threaten national security or the foundations of the economy. When you're in a hurricane, naturally your focus is on protecting your family and property, on battening down the hatches, on ducking and covering, and it's hard to see 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. Economically, we need trade and investment, fair and resilient trade and investment, to tap into the three-quarters 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. And 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. I'm very concerned that we have no Asian economic strategy to speak of at the moment, 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: using U.S. economic power and leverage to advance our strategic and foreign policy interests, and using our diplomacy to advance our economic interests. Smart economic statecraft 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. 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 U.S. government alone doesn't have the resources and capabilities to do everything we need to do. We need to crowd in both the private sector and our allies and partners to reinforce our statecraft 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 U.S. government agencies is its reach, its presence in 175 countries around the world, and ability to operate across government and society in those countries. The so-called E Line at State, where the economic bureaus are housed, is one of the few parts of the U.S. government that works on both promote and protect sides of economic statecraft, everything from commercial advocacy to economic security, such as the Minerals Security Partnership that Congressman Bera mentioned, 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 and resources to do the job. And I fear that the cuts to State's budget that have been proposed will come disproportionately at the expense of the department's economic functions. Thank you for your attention. I have more to say about government reorganization, happy to talk about that if you'd like to ask questions about it.

Chairman Young Kim (R-CA)SPEAKER_01

do that during Q&A, I'm sure. Yes, so thank you, Mr. Goodman. I now recognize myself for the five minutes of questioning, and I want to start by saying that there has been a lot of suggestions about ways to elevate our economic statecraft regime. You may know Dr. Henry Farrell and Dr. Abraham Newman. They wrote in their article for Foreign Affairs in October of 2023 that the U.S. needs a comprehensive economic security strategy to outline how the U.S. could implement its derisking strategy. Dr. Norris, I know the working group that you led has done a lot of outside-the-box thinking on how to align economic and national security resources. So 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 U.S. government?

Dr. William NorrisSPEAKER_09

Sure. I think that the suggestion is probably coming into a space that has for a long time been relatively under-resourced and under-provisioned. A lot of intelligence focuses around military or strategic intelligence. Economic intelligence is done widely in the private sector, but not nearly to the same scale or breadth in government. And so I think that there is potentially a positive contribution to be made around building out our capacity to be able to do economic security intelligence. The comment about Farrell and Newman's 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 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 of national power. Thank you.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Should Congress consider reviving the Office of Technology Assessment that provided legislative branch with scientific advice? What is your thinking on that?

Dr. William NorrisSPEAKER_09

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.

Chairman Young Kim (R-CA)SPEAKER_01

Well, let me go to Ms. Dezenski. In April 2024, you wrote an article published in the FDD website. I think the title was Economic Security is National Security, in which you seemed to support the idea of creating a new Economic Security Council to be used as a referee to mitigate the disputes between the NSC and NEC. Is that still your view? How do you feel about the Economic Security Council idea today?

Ms. Elaine DezenskiSPEAKER_00

I do think it's still a good idea to have that strong interagency engagement and the ability to close the gap across the siloed organizations and regulatory authorities and policies that are being used right now. So I think we need that more than ever.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. The department has struggled to find its purpose as its most important authorities and functions have been absorbed by other agencies, as I mentioned in my opening remarks. This is especially true when it comes to our economic statecraft. Presidents Obama, Trump both made efforts to move USTR, and President Obama proposed to consolidate it with five other agencies, and President Trump said it should be absorbed by Commerce. So, there is bipartisan belief that USTR's current independent status is undesirable. Dr. Norris, where should USTR reside? And I would like to ask Mrs. Dezenski to also answer the question: Should international economic statecraft be led by a single agency? And if so, which agency should lead it? Can you both tackle that?

Dr. William NorrisSPEAKER_09

Sure. So, USTR plays a very important role in spearheading trade efforts on the part of the U.S. 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. 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 U.S. strategy, whether it's to expand free trade agreements or to constrict them. All those things kind of matter from a strategy perspective.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. And yeah, I'm going to give some time.

Ms. Elaine DezenskiSPEAKER_00

Thank you. With respect to who should lead on economic statecraft, I think there's a leadership role across a variety of organizations, tools, and authorities, as I mentioned in the testimony. But I do think there is an opportunity for State Department to take a lead coordination role. It just feels like the time is right for this. It has to reside somewhere. The interagency 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 what I think is a full-scale pivot to an economic security power projection era, that is foreign policy now. So I believe it makes sense to create a leadership function within State Department.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Let me now recognize Ranking Member for your 5 minutes of questioning.

Ranking Member Ami Bera (D-CA)SPEAKER_03

Thank you, Madam Chairman—Chairwoman. Um, yeah Just kind of listening to the opening statements of the four witnesses, I actually think you guys agree on a lot more 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 national security, global security, economic security looks like in the 21st century. And it's a simplistic view, but the 75 years post-World War II, I do think the United States put together an economic framework that benefited the entire world. Created relative peace and prosperity and, 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 natural competitor, but also a stable democracy; watching South Korea go from one of the poorest countries in the world to the 10th largest economy in the world, and a natural ally, stable democracy; rebuilding Europe through the Marshall Plan, but also creating relative stability on the peninsula. And I'd argue two decades ago, three decades ago, with China the approach was the same, thinking that, okay, if we normalize trading relations, China would create a middle class, entrepreneurial class. And you could argue in 2010 that they were on that path. But today it's very different. Xi Jinping has taken China into a very different direction, and I think some of that is 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 working-class union workers in the middle of the country. That formed the base of a lot of Donald Trump's victory right now, and it is interesting to hear me as a Democrat sometimes be more of a free trade person than some of my Republican colleagues. Again, there's just a recasting. So a couple things. I do think it'll be incredibly important in these next 2 years, 4 years, 10 years as we try to think what is a 21st century global economic order. It is going to be different than the past, and I think this is a worthwhile exercise, but it can't be a partisan exercise because if all it is is Republican policy for 2 years or 4 years, then Democratic policy for 2 years or 4 years, that will really disadvantage us as a nation. And what served us well in the 20th century was we had an American policy and an American strategy, whether you agreed with that or didn't. I have a couple of things that do cause me some worry, though. One is where the private sector and shareholder activism sits here. And what I mean by that is, when I was in Shanghai a decade ago visiting a GM plant, the Chinese owned 51% of that plant, and GM owned 49% of that plant, and they very much knew the Chinese were learning how to build cars. And as soon as they figured out how to build those cars and sell that technology, they'd kick them out. Yet they continued to do that because they were so concerned about quarter-over-quarter 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 there's short-term profits, but long-term disadvantages. I don't know exactly how to solve that, but I have raised that with many of the American leading CEOs, CEOs and they would love for us to solve that issue because they don't want to deal with those shareholders and that activism. They would rather build companies for long-term and long-term profits. I think that's incredibly important. I do think, Ms. Cutler, Mr. Goodman, both of you—I think, Wendy, you said the economic policy jobs were backwater jobs at State. We'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 interagency process, I don't exactly know. I think it is components of diplomacy, it is components of market access, promotion, et cetera, and how that looks, if it's a single agency, if it's an interagency 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, so let me give you the last 30 seconds to touch on that.

Mr. Matthew P. GoodmanSPEAKER_06

Thank you, Congressman, and I agree with everything you just said, and 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. I actually, having worked twice in the National Security Council staff under very powerful deputy national security advisors for international economics, respectively in the Bush and Obama White Houses, they ran a pretty good process of pulling agencies together and getting them to coordinate. I actually think you could do it that way. You 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.

Rep. Andy Barr (R-KY)SPEAKER_08

The gentleman's time has expired. I recognize myself now for 5 minutes, and as I reflect on the insightful testimony of all of our witnesses, I want to make an initial observation. I wholeheartedly agree with Mr. Goodman observation that sound, smart foreign policy involves economic statecraft, involves economic engagement. And there is a narrative, I think, 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 Bessent rightly pointed out, America First is not America alone. And while the tariff 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 alike China to actually get us to a point where there is more American leadership and engagement in the world on the economic front. Front. 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 and economic influence in the world. And 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. Let me ask Dr. Norris a question about what Mr. Goodman says is smart economic statecraft. In February, President Trump issued a national security memorandum entitled "America First Investment Policy," directing federal agencies to address outbound investments into China. I think this is smart economic statecraft. I think I think it's very smart to to stop financing Chinese military-industrial complex companies. I also would say, though, I very much appreciate, Dr. Norris, your your pointing out that we should not try to fight the American private sector, that our national power ultimately derives from U.S. economic growth and innovation. And so we need to be careful about mimicking Chinese industrial policy. We should counter China not by becoming more like China, but by being the best version of ourselves. Our advantage, I always say, is that we're capitalists and they're communists, and so they misallocate capital, and their industrial mercantilist 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 cross-border capital flow ethos?

Dr. William NorrisSPEAKER_09

So, I think this idea of outbound investments is is an important topic. 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. 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 in saying here's why this is bad for national security. Doesn't have to be public, but somebody needs to know, 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 U.S. national security. I think this dovetails with something that Ranking Member Bera also talked about in terms of the key to U.S. 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 redound to America's best interests. That's the secret sauce. That'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 occurring 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 policymakers come into play. That's our jobs. We 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 endogenized into the transaction.

Rep. Andy Barr (R-KY)SPEAKER_08

I wanted to talk about DFC as an important tool for economic statecraft. I don't have time. Let me just ask this final, simple question. Dr. Norris, can you speak to the importance of fiscal responsibility and lowering our deficits to protect strong demand for US Treasury securities and the dollar's dominance, and why is that important to national security?

Dr. William NorrisSPEAKER_09

Yeah, as all of you will appreciate, the U.S. serving as the world's reserve currency gives us a lot of privileges. We're unique in this regard. The United States is a $30 trillion economy, and we, as government stewards 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 redound to the national security interest.

Rep. Andy Barr (R-KY)SPEAKER_08

My time has expired. Growth, growth, growth. Thank you very much. And at this point, I I,

SPEAKER_UNKNOWN

uh,

Rep. Andy Barr (R-KY)SPEAKER_08

I recognize the gentleman from Texas, Mr. Castro, for 5 minutes.

Rep. Joaquin Castro (D-TX)SPEAKER_10

Thank you, Chair. Thank you all, each of you, for your expertise and testimony today. 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. That's not to say that there aren't deep challenges that we face, particularly domestically, issues that we need to address for workers and so forth, and even in trade policy. But I think it's fair to say that the last few months, in terms of economics around the world and trade policy, has been chaotic. 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. Well, if that was uncertainty, this is chaos, with tariffs changing from day-to-day, 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 Ms. Cutler, you mentioned diversification, and I imagine you meant diversification—countries 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, and the fact that 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?

Ms. Wendy CutlerSPEAKER_05

Well, 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. What we're seeing now, though, is countries forging new agreements 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. We've seen now the European Union express interest in somehow aligning itself with the CPTPP, something that for years they said they would never do. And we're also seeing other countries express interest in either joining the Regional Comprehensive Economic Partnership or CPTPP or different digital agreements. And ultimately, as all of these agreements are being forged without us, 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 see merit in a rules-based international order.

Rep. Joaquin Castro (D-TX)SPEAKER_10

No, absolutely. And I think it is fair to say that this has been a kind of shake-up, but the world is not a snow globe. Things don't just go back to exactly where they were once everything settles down, right? 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. And so you see different regions of the world trying to come together in their own ways. Mr. Goodman?

Mr. Matthew P. GoodmanSPEAKER_06

Yeah, I totally agree that this is really the problem, that we used to write rules, get others to 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, but it was ultimately in our interest, and we're giving up that by not having some kind of more affirmative offering of our preferred rules, including, by the way, I meant to say earlier to Congressman Bera 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.

Rep. Joaquin Castro (D-TX)SPEAKER_10

Am I 20 seconds? Uh, other witness and quick comments?

Ms. Elaine DezenskiSPEAKER_00

I'll just say that from my perspective, the rules-based system is broken. The global trade order is no longer something that we have been able to manage, and the problem behind this is China. And this requires a reset of significant magnitude. Why? 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.

Rep. Joaquin Castro (D-TX)SPEAKER_10

My time's up. I apologize.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you, Mr. Castro. During my travels and visits with our embassies abroad, 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. So, I want to ask all panel, what inhibits our current export promotion regime from producing the results that our companies and constituents desire? Let's start with you, Ms. Dezenski.

Ms. Elaine DezenskiSPEAKER_00

Sure. Thank you. Well, first and foremost is the ability to be competitive. So I think we need to do a better job at providing some incentives through EXIM, for example, and export financing. We need to be better cheerleaders for US companies abroad. We need better terms of engagement, which is what at least some of this tariff negotiation is about, opening up foreign markets in ways that were not open previously. So 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.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Mr. Norris? Dr. Norris?

Dr. William NorrisSPEAKER_09

Yeah, I agree that I think that there's a lot of variation by country teams. In my experience, I think that some countries do this really well and others don't. And so studying that variation— why is it working somewhere, why is it not working somewhere else— would be a useful way to proceed. The thing that I would suggest is you might find in those places where the country teams are really killing it 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. That's probably not coincidental. Informal mechanisms, a lot of what we're doing today, I think a number of other panelists have talked about this, we're using these workarounds to get past some of the institutional design failures that we're currently enmeshed in. So that would be something else to kind of pay attention to.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Ms. Cutler?

Ms. Wendy CutlerSPEAKER_05

With respect to export promotion, I think this is an area where State Department could play a more effective role, particularly in our embassies abroad. And I think this gets back to the whole notion of looking at the Foreign Commercial Service and the State Department's economic offices. I think if they were merged, then 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 our companies are competing against financing that other governments are giving their private companies. And again, that puts our companies, who are incredibly innovative and competitive, at a disadvantage. So I would urge the committee to look at those structures as well.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you.

Mr. Matthew P. GoodmanSPEAKER_06

And just very quickly, to agree with all of that and just say that I think the problem has really been we haven't had a commitment at the highest levels that this is really important for our interests, frankly, in the last couple of administrations. So I think that's the first thing. You need a real commitment from the top, from the president, to why this is important. And then you need finance, and you need other removal of legal constraints. Like, other countries can just go and advocate for a particular company. We can't do that. And 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 would be more helpful to getting our products and services forward.

Chairman Young Kim (R-CA)SPEAKER_01

Ms. Cutler mentioned the—and then you also, Mr. Goodman—financing is another way. And our committee is also charged with authorizing or reauthorizing DFC, so we will address that issue. But in addition to that, what suggestions do you have to improve our export promotion regime? I want to ask the two, Mr. Norris and Dezenski, to also address that as well.

Dr. William NorrisSPEAKER_09

Yeah, I think that capital provision is an important dynamic here, 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. 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 EXIM, when they think about being able to take some of the riskiest tranches off the table and then the rest of it looks commercially viable, that's the way to kind of get good leverage and good maximization when we think about those resources. Over.

Ms. Elaine DezenskiSPEAKER_00

I would just add that I think we need to focus on the U.S. ground game abroad, and that's about bringing together all of the capacities that we have 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.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Let me now give the podium to Mr. Olszewski for your five minutes of questioning.

Rep. Johnny Olszewski (D-MD)SPEAKER_07

Thank you, Chair Kim, to our Ranking Member Bera for holding this hearing. It's actually a good follow-up to an outstanding roundtable discussion we had just last week with some of our Pacific Island ambassadors discussing partnerships and strengthening those in in the region. My takeaway was the overwhelming consensus was that that region wants the U.S. to show up. They want us to be there, even as they see what I think is a global retreat, and, again, they were concerned about the on-again, off-again tariffs from the administration. In some ways, it reinforced the point made by by my colleague Representative Castro about, you know, the world is still moving. So, appreciate all of your testimony today on that front. That roundtable specifically touched on two issues I hope to focus on with my time. One is the mounting debt crisis being driven partly by Chinese lending practices, as well as strengthening economic growth through a pact modeled on something like AGOA, the African Growth and Opportunity Act. 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. Over 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? So we know that this is possible. We need to show up and support our businesses. To the chair's point, actually, there's a great company in my home state of Maryland doing great work. It is a company called InventWood. It's a supplier of climate-resilient building materials in Frederick, Maryland. It signed a landmark partnership with Tonga to advance climate-resilient construction across this Pacific. So we want to be incentivizing more partnerships like that for a model for sustainable development. We'll start on the debt crisis, and we'll start with you, Mr. Goodman, and if others want to jump in. 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 U.S. interests resulting from that?

Mr. Matthew P. GoodmanSPEAKER_06

Yeah, it's a huge problem globally, and the Pacific Islands are are very vulnerable to this model of Chinese lending that's nontransparent and has hidden conditions attached to it. This is something that there's been great work done on this by a group at the— in Williamsburg. Sorry, AidData. Thank you. AidData and also the Center for Global Development here in in Washington have done some great work on trying to expose the contracts and the terms on which China is making this 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, and it is a it is an absolutely critical issue. But the final thing is the U.S. 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 scoring, equity scoring problem, and make it a more capable organization. Because at the end of the day, that's what the Pacific Islanders want. They want us to have a better offer.

Rep. Johnny Olszewski (D-MD)SPEAKER_07

Yeah, and I think we all agree on the reauthorization. Any other points on that one? I have a second question, a trade question, on the AGOA-like trade pact that could signal, I think, a new commitment to the region and its growth. What would—and this can go, we can start with Ms. Cutler, and, again, we'll open it up if there's time. What would the economic benefits be for the Pacific Islands and U.S. businesses from a trade agreement modeled on AGOA? And what sectors hold the most promise for expanding trade? And how can we better incentivize more public-private partnerships like we mentioned with InventWood back in Maryland?

Ms. Wendy CutlerSPEAKER_05

Well, I think you raise an excellent suggestion, some kind of AGOA program for the Pacific Islands, because countries like this, as Matt said and you said, they very much want us to show up, they want to work with us, but they need some benefits, right? And so even though these programs provide unilateral benefits, they also very much provide an opportunity for continued connectivity and cooperation between the United States and these countries. So I think that's a model that's worth looking at.

Rep. Johnny Olszewski (D-MD)SPEAKER_07

I have 20 seconds if any of the witnesses wanted to chime in. Yeah,

Dr. William NorrisSPEAKER_09

I was going to say I think that your comments raise some awareness around making sure you understand what the partners need. What are they looking for? So, listening to what is going to be resonant for them. And also this idea of building capacity, being able to have that transparency around these debt agreements, 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.

Rep. Johnny Olszewski (D-MD)SPEAKER_07

Thank you all. Madam Chair, yield back. Thank you.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. Let me recognize Rep. Moylan for his 5 minutes of questioning.

Rep. James Moylan (R-GU)SPEAKER_04

Thank you, Madam Chairwoman. 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. By 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. As the U.S.-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. While we've already implemented export controls on PRC, the U.S. 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 U.S. to compete. So the United States is faced with unique problems: how can the U.S. economy, diplomacy outcompete 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-constrained economic policies. In 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. So, Ms. Dezenski, the Department of Commerce has published the dire nature of U.S. critical mineral supply chains. With regard to our supply chain reliance on foreign sources, what diplomatic tools and institutional changes do you think could properly address our dependency issues?

Ms. Elaine DezenskiSPEAKER_00

Thank you. I'll just highlight that we have a report coming out on this very issue in the next few weeks, which is very specific to looking at dependencies in the advanced battery supply chain and the role of critical minerals. But let me just highlight a couple of the key elements from that report because it applies across the board for the challenge we face. Number one, we have to get control on processing of critical minerals. We need to break that chokehold. China is not necessarily controlling all critical minerals, but they're definitely controlling the processing, and that has to stop. We need to look at controlling for price volatility around core commodities. It's making it really difficult for Western manufacturers and processors to get into the critical mineral space because of that. We also need to look at much deeper partnerships with allies and partners who have the very same problems about access 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, whether we're talking about currency controls, capital controls, dumping, which is a massive enforcement issue now for us, rules of origin questions, you name it. These all contribute to why it becomes so, so difficult for US manufacturers and others to compete in this global trade order.

Rep. James Moylan (R-GU)SPEAKER_04

Thank you. Ms. Cutler, based on your experience at the Office of the U.S. Trade Representative, how should the U.S. approach known adversaries in the competitive economic realm? Additionally, is there a point where the U.S. should consider revoking items like the Permanent Normal Trade Relations?

Ms. Wendy CutlerSPEAKER_05

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. And so, I am concerned that with our current trade policy, 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 have expressed concern with, with respect to China.

Rep. James Moylan (R-GU)SPEAKER_04

Thank you very much. I'm out of time. I thank the panel for your testimonies. Thank you, Madam Chairman.

Chairman Young Kim (R-CA)SPEAKER_01

Let me now recognize Representative Sherman for your 5 minutes of questioning.

Rep. Brad Sherman (D-CA)SPEAKER_02

comment on Mr. Barr statement that we need to deal with the deficit. That's why we need to avoid the tax cuts that are being proposed in 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. Mr. Barr also talks about how important it is that we have the U.S. dollar be a 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. Our chair asks us, where should USTR be? I 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 dream of a Nobel Prize and study how Metternich dealt with the Congress of Vienna. We've got a distinguished panel here. You've all spent a lot of time with State Department people. Putting aside the political appointees, just on 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 see one. 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—do you know anyone with 15 years' international business experience who's a civil servant or a with the Civil Service or the Foreign Service at 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. But there's no way in which the State Department has a greater flaw than their process of issuing visas. Nobody 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 the cable company, I was on the phone with them for an hour and flipping it around and around. And I thought that was the worst experience possible until last night when I tried to deal with the consulate in Karachi. 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. Ms. Dezenski 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. Not since the Greeks left a gift outside the walls of Troy have we seen such a bad gift acceptance. We're going to have to disassemble the plane looking for bugs. Then we're going to have to 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. But more important perhaps is the $2 billion Abu Dhabi has announced they're going to put in the Trump stablecoin. That is at minimum a $2 billion interest-free loan to the Trump Organization. And then finally, we have Trump coin. Maybe we can put up the chart. Some 96% of this coin is owned by 40 wallets. Press reports say they're all owned by the Trump family. And so, anybody who buys the Trump coin is putting 96% of their money into those wallets. Everyone on this subcommittee, I believe, voted to limit TikTok. We know how important that is. We gave them 75 days. And now, I would like to put on the record an article from yesterday's New York Times: Tiny Company with China Ties Announces Big Purchase of Trump Cryptocurrency and an announcement that $300 million is going to be put into those 40 wallets by an entity with ties to TikTok that has the entity itself has eight employees and no revenue, but they've been able to raise $300 million from mysterious sources in a tax-haven country. And I want to quote 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, the only thing worse than not having a Pentagon is having a a leading general who's been bought off. And with that, I think my time has expired.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you, Rep. Sherman. I think we're going for another round of questioning. So let me first ask the next 2 minutes—I mean, next few minutes, if Ms. Dezenski and Dr. Norris could answer the question of if you can assess the economic vulnerabilities of the United States to China, and what should the United States do to take more active steps to limit those vulnerabilities? And if so, what policies can you recommend?

Ms. Elaine DezenskiSPEAKER_00

Thank you. I would point out a couple of major vulnerabilities, one which I mentioned, which is the dependency of the U.S. defense industrial base on Chinese parts and Chinese technology. I think that's something that is untenable for us and needs to get rectified. How do we do that? We have to look deep within those supply chains to understand where to pull out that vulnerability and either bring production home or transfer that to allies and partners through some sort of ally-shoring. There are critical dependencies on Chinese magnets, certainly on critical minerals coming from China. These are harder to solve, but we need a game plan, and that also needs to include some very targeted innovation. The defense industrial base and the, let's call it the U.S. industrial base writ large, is beginning to merge. A lot of the advanced technologies are the same, whether we're talking about manufacturing drones or manufacturing computers, etc. A lot of the inputs are the same. So we also need to think differently about these dependencies and how to get to that. In terms of what else we can be doing to highlight those vulnerabilities, this is where we need a lot more of that trade analysis and economic analysis that I highlight in the testimony. We need to have an all-of-government understanding of where these vulnerabilities are and then start applying the tools to call out where, for example, Chinese economic coercion may be stealing innovation from the U.S. and forcing us to fall further behind.

Dr. William NorrisSPEAKER_09

Yeah, I think I would classify the US vulnerabilities to China in this domain of economic statecraft 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. This idea of creating alternative orders that exclude the United States or have an alternative center of gravity. So I think those acute ones have gotten quite a bit of attention. Items like when China is the unique source of key inputs, things like for some pharmaceutical precursors. The list I think is well known to this committee. And what to do about that, I think the thing I like to do about this is stockpile if your competitor is subsidizing. I like buying at 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. Diversifying to partners and allies, when you have complementarity that exists among trusted partners and allies. 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 can really benefit the United States. And then of course, bringing it in-house. And some of this is going to be able to be brought in-house, particularly if you're concerned about security externalities and if there's very clear reasons to be worried about stuff. But I do want to couch my remarks in a broader concept that the 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 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 timeframe. In the bigger timeframe, if there's a real desire to decouple, that's another sort of conversation, another strategy. Is that ultimately in America's best interests, I think, is a conversation we ought to be having as a nation. I don't necessarily have the right answer for you this morning on that.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you, very helpful. Let me now ask the ranking member to ask questions.

Ranking Member Ami Bera (D-CA)SPEAKER_03

Great, thank you. We do find ourselves at a pretty interesting time, and I would agree with each of the witnesses that the rest of the world, whether it's Europe, countries in Asia, or elsewhere, are trying to figure out where the United States is and what our strategy is and so forth, and that's creating some uncertainty. But in my interaction with, again, in my travels abroad, but also with ambassadors here in the United States, there's also a deepening recognition that they don't want the United States to leave. And I would say, particularly in Southeast Asia, they recognize that they understand the terms by which China does business, and they want a robust US presence there as an alternative partner. And they also, while we're not, our trade policy, economic policy isn't just based on benevolence, 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 our companies, and we did very well in that construct, but so did many of the other nations that share similar values to us. And I think that creates an interesting opportunity for us as well, because, while they don't like the uncertainty, and I do think most countries around the world appreciated the rules-based order that we had put in place, I think there's a growing recognition that American economic policy is changing a bit. Again, I'd go back to my 13 years in Congress. We all would have guessed TPP would have—trade deals were never easy—didn't get across the finish line, and we saw in the 2016 presidential candidate both candidates turn against TPP. I would have thought the renegotiation of—or the negotiation of USMCA, which was the largest bipartisan trade bill, close to 400 members of the House of Representatives, more Democrats than Republicans voted to support that process. Would have thought we'd then say maybe we build off of that. Again, we're in a much different place with—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 the orthodoxy around tariffs and what that looks like, again, the president might take this as a compliment, has been incredibly disruptive. I think he's using a very blunt instrument, a blunt tool, but it is getting everyone's 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 what does that context look like moving forward? Also think the pandemic was a real wake-up call for not just the United States, but most of the world because of the real dependence on, whether it's the pharmaceutical sector and APIs, protective equipment, rare earths, et cetera, just exposed tremendous vulnerabilities that we have. And if we were to get into a direct confrontation with China, those vulnerabilities, we're seeing it a little bit around the tariff conversation and the trade conversation with China, but it does expose real economic and national security vulnerabilities that not just us, but others have. So the reason why I talk about things like the Minerals Security Partnership, and which again I think is a really good idea, but I also think how we approach trade and economic development in the 21st century is probably going to be more alliance, values-driven with partners. What I mean by that is I think we should work with the Koreas of the world, the Japans of the world, the Australias of the world. Rare earth elements aren't super rare. It's just, as you pointed out, Ms. Dezenski, 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 a Malaysia or a Vietnam or places that would be willing to do it and build those markets. We don't have to do that by ourselves. I would say we should do that with like-valued allies that want these redundant supply chains. Australia certainly has expressed an interest. That may cost us a little bit more, and I think that's something that we'll have to try to address. Dr. Norris, I certainly think it's a great idea for us to have a national stockpile of these critical earths, and that is something that we as Congress should explore with the administration of creating that stockpile so we don't have those vulnerabilities. It's going to be different, and again, I will just go back to 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 relative open markets, relative democracy, freedom, because it's not a given what the next 75 years looks like, who dominates those 75 years. But I do think, again, in my travels, my conversations, the actions of the first 100 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. We may not like what America is 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 characterizing it in the right way. And maybe we'll start with Ms. Dezenski.

Ms. Elaine DezenskiSPEAKER_00

I do think that's the right characterization. There is a long-term strategy here, but there's also a lot of tactical back and forth right now that is probably causing some confusion. I think what we're seeing now is the display of economic power in a way that we haven't seen it before. And whether we agree or don't agree with how the tools are being used, we do have an administration that's using them in some pretty interesting ways. I'll go back to an earlier comment that 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 countries that don't want to participate in a free and open market. And to your point, we ally shore. We ally shore where we can. We bring home production where that's required and necessary. We do that. And where we can't do that, we work with allies and partners.

Ranking Member Ami Bera (D-CA)SPEAKER_03

Dr. Norris.

Dr. William NorrisSPEAKER_09

Yeah, i'm going to agree with a lot of what you said. And also what my fellow panelists are saying. 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 taking full advantage of that opportunity. And I think that when we think about this competition, it's important to maintain flexibility, the ability to adapt. We have to be able to do us better. We are an incredible nation that has incredible capabilities. And when we think about how we're 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. We have to preserve that capability. That's really important in a long-run competition. I also think that your point about 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 4-year sprints or 2-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. I think that's really important, and I just would also agree that the idea of having trade and economic development be somewhat contingent on similar shared values, I think, makes a lot of sense. There's nothing that quite clarifies who your friends are 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? And that's kind of the moment we're in right now. And I think we can— to your point, this is kind of a unique moment we should try to capitalize on. On it as best as we can to position ourselves for success for decades to come.

Ranking Member Ami Bera (D-CA)SPEAKER_03

Ms. Cutler.

Ms. Wendy CutlerSPEAKER_05

I also agree with almost everything he said, and particularly I do think there is an opportunity here, okay? But what my concern is, we may squander that opportunity. And this is such a critical time where, based on all our discussion this morning, our allies and partners are extremely important 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. But I worry through heavy-handed tariff requests, win-lose trade negotiations, and then the dismantling of a lot of our soft power, we may squander this opportunity if we don't all work together, Congress, the administration, the private sector, to really double down on our strengths and work with our allies and partners.

Rep. Andy Barr (R-KY)SPEAKER_08

Burchett.

Mr. Matthew P. GoodmanSPEAKER_06

Yeah, I— we're— a colleague and I are doing a project in which we've been talking to a bunch of trading partners, mainly through their embassies, a few capitals, and we actually started this with before the election, and we were trying to look at 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 a lot of this uncertainty and confusion around tariffs. 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 They recognize it's going to be different, but they want our engagement. They want our markets still. They want our products. They want our leadership. They want, you know, maybe access to our innovation ecosystem, which is 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. So I do think there's a big opportunity, and I think the key is 2 things I want to say about trade policy going forward. One, we need a trade policy that combines sort of 3 things. One, it has to advance American interests economically, strategically, other ways. 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. But I do think the second point I want to make is it's really important for you guys to figure this out because in the end, if If we don't have a trade policy that is embedded in law through you, 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.

Chairman Young Kim (R-CA)SPEAKER_01

Thank you. I think we all agree that economic policy is foreign policy. With that, our goal of this hearing was to evaluate how we can position the United States as the the center of the economic statecraft. So thank you everyone for engaging the members of Congress in a very, very productive conversation today. It really was helpful in assessing that our current economic statecraft is an incoherent network of more than a dozen agencies and organizations with many of the overlapping responsibilities. As the saying goes, when everyone is in charge, no one is in charge. And I think that is true of economic statecraft architecture now. So let me once again thank all of our witnesses for your valuable insights, the suggestions, the recommendations that you provided to us. We will definitely keep our conversation today in mind and take those suggestions in mind as our committee works to authorize the State Department. With that, the members of the subcommittee may have some additional questions to the witnesses, and we will ask you to respond to those in writing pursuant to committee rules. All members may have 5 days to submit statements, questions, and extraneous materials for the record, subject to the length limitations. So without objection, the committee now stands adjourned. Thank you.