[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE ANNUAL TESTIMONY OF THE
SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
=======================================================================
SHEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JULY 12, 2018
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-107
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
_________
U.S. GOVERNMENT PUBLISHING OFFICE
31-506 PDF WASHINGTON : 2018
HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Shannon McGahn, Staff Director
C O N T E N T S
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Page
Hearing held on:
July 12, 2018................................................ 1
Appendix:
July 12, 2018................................................ 55
WITNESSES
Thursday, July 12, 2018
Mnuchin, Hon. Steven T., Secretary, U.S. Department of the
Treasury....................................................... 5
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven T....................................... 56
Additional Material Submitted for the Record
Mnuchin, Hon. Steven T.:
Written responses to questions for the record submitted by
Representatives Beatty, Moore, Sinema, Tipton, and Waters.. 59
THE ANNUAL TESTIMONY OF THE
SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
----------
Thursday, July 12, 2018
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Present: Representatives Hensarling, Royce, Lucas, Pearce,
Luetkemeyer, Huizenga, Hultgren, Ross, Pittenger, Wagner, Barr,
Rothfus, Tipton, Williams, Poliquin, Love, Hill, Emmer, Zeldin,
Trott, Loudermilk, MacArthur. Davidson, Budd, Tenney,
Hollingsworth, Waters, Maloney, Velazquez, Sherman, Meeks,
Clay, Lynch, Scott, Green, Cleaver, Moore, Himes, Foster,
Kildee, Delaney, Sinema, Beatty, Heck, Vargas, Gottheimer,
Crist, and Kihuen.
Chairman Hensarling. The committee will come to order.
Without objection, the Chair is authorized to declare
recess of the committee at any time, and all members will have
five legislative days within which to submit extraneous
materials to the Chair for inclusion in the record.
This hearing is entitled, ``The Annual Testimony of the
Secretary of the Treasury on the state of the International
Finance System.'' I now recognize myself for 5 minutes to give
an opening statement.
Whether you are looking at unemployment, disposable family
income, GDP (Gross Domestic Product), small-business optimism,
you name it, it is clear that many, if not most, Americans are
enjoying the very best economy of their entire lifetimes. And
no man is more responsible than President Donald Trump.
However, if we find ourselves mired in a full-fledged
global trade war with no end in sight, all of the economic
gains he has helped bring us may well be lost.
I have heard the President boldly call for the elimination
of global tariffs. I enthusiastically applaud the President for
doing so. However, I also continue to hear talk from the
Administration of, quote, ``ending trade deficits,'' and,
quote, ``imposing reciprocal trade policies.'' These are not
identical goals to reducing trade barriers. For example, we
could end trade deficits tomorrow by simply outlawing trade and
then watch as GDP and disposable family income plummet.
With respect to reciprocal trade agreements, just because
other nations punish their consumers with tariffs, doesn't mean
we should necessarily follow suit, because at the end of the
day, a tariff is a tax, a tax that is usually passed on to the
consumer. So, for the example, when the Administration first
announced their tariffs on steel, aluminum, and washing
machines earlier this year, it became more expensive for
working Americans to share a six-pack with their friends at the
local laundromat.
As of last Friday, when the Administration announced $34
billion in tariffs on an array of Chinese goods including auto
parts, it also became more expensive to work on your car in the
same laundromat parking lot. And now with an additional $200
billion in tariffs announced, who knows whether the laundromat
will even be here at year's end.
As my constituent Chris in Mesquite, Texas, wrote me about
tariffs, quote, ``I am now facing increased cost in auto parts
and housing,'' it can't get any closer to home than that. Not
only do tariffs harm American consumers, they harm many
American employers and their American workers as well, since
over half of our imports are intermediate components or raw
materials for American businesses.
As my constituent Elizabeth from Dallas wrote me, quote,
``I am a metal manufacturer. Since the tariff talks began in
February, I have seen major increases, well over 25 percent
from steel vendors and the mills. Soon my end users won't be
able to afford the cost of our products. I may have to actually
lay off workers,'' end quote. This is the voice of one American
business, but she undoubtedly speaks for many.
Tariffs can also damage entire industries, including
strategic ones like our domestic energy industry. For most of
my life, America has been energy dependent. Now we are on the
cusp of producing more oil than any country in the world, but
the oil and gas industry imports specialty steel and aluminum
for pipelines, wells, and other infrastructures. The tariffs
may just harm our ability to remain energy independent.
And I have yet to speak of the retaliatory tariffs of the
E.U., Canada, Mexico, and China. Needless to say, it is a bad
time to be an American SUV producer or an American soybean
farmer.
The soybean prices have dropped to their lowest level in
almost a decade. One farmer said about his family farm, quote,
``That is $100,000 that has disappeared into thin air. We were
already in the red, now it is even worse,'' unquote.
We have known since the days of Adam Smith and David
Ricardo that trade is a win-win situation; no trade, in
contrast, is a lose-lose situation.
I understand that our trading partners have more to lose
than we do because their economies are far more export-
dependent, but losing less is not the same as winning more.
When the dust finally settles, the Administration's trade
policy may prove to be brilliant. I hope so. With patience,
short-term pain may pay off in long-term gain if tariff and
non-tariff trade barriers are actually reduced. But in the
meantime, capEx check books are closing and expansion plans are
being put on hold as growing uncertainty creeps throughout our
economy. So I hope it is time that we get on with it.
I would respectfully call upon the Administration to
concentrate time, resources, diplomacy on those nations that
consistently violate WTO guidelines, enforce involuntary I.P.
and technology transfers. In other words, it is the moment we
should be uniting with our traditional allies to confront
China.
I would also call upon the Administration to drop any
effort to unilaterally impose auto tariffs under Section 232.
The 11-year-old Honda Accord I drove to work today in, simply
does not threaten national security, nor does any other
imported vehicle. I fear further efforts in this regard are
counterproductive and will simply undermine the
Administration's credibility.
I do wish, though, to compliment the President, and
Secretary Mnuchin, for working with Congress on vital CFIUS
(Committee on Foreign Investment in the United States) reform.
Thanks to the leadership of Mr. Pittenger, Mr. Heck, Mr. Barr,
and the Ranking Member, the House's bill was passed 400 to 2,
and we look forward to going to conference with the Senate.
This shows how the Administration and Congress and both
parties can work together on shared trade goals. The
Administration should continue to work collaboratively with
Congress on trade, and yesterday's Senate 88 to 11 vote is
indicative of its importance.
I now yield 3 minutes to the Ranking Member for an opening
statement.
Ms. Waters. Thank you very much, Mr. Chairman.
I am looking forward to hearing Secretary Mnuchin's
testimony today on the state of the international financial
system.
I must admit that I was surprised to learn that the Trump
Administration had agreed to back a $13 billion capital
increase for the World Bank and the IFC; that is the
International Monetary Fund (IMF). This positive step is a
notable departure from the Trump Administration's unprecedented
and harmful approach to multilateral agreement.
However, it would be a serious mistake for the World Bank
to take my support for this capital increase for granted. I am
extremely concerned about the bank's recent recommendations in
its upcoming World Development Report for the wide-scale
dismantling of regulations protecting workers, including lower
minimum wages and greater firing powers, particularly in
developing countries. The World Bank should not be rewriting
the social compact to recast the balance of power between labor
and capital.
This will lead to greater inequality and undermine social
cohesion and, ultimately, harm the bank's legitimacy and
relevance in the fight against global poverty. That said Mr.
Chairman, while I do appreciate the Administration's support of
the World Bank, I am very concerned about the actions this
Administration has taken in many other areas that fall into the
purview of the Treasury Secretary.
As we meet here today, the Trump Administration is waging a
trade war that will have wide-ranging economic consequences.
Last week, Mid-Continental Nail, America's largest nail
manufacturer, laid off 60 workers and announced that the whole
company would go out of business by Labor Day.
Volvo no longer plans to hire 4,000 workers in South
Carolina. The U.S. Chamber of Commerce is warning that 2.6
million jobs are at risk. Hard-working Americans are already
suffering as a result of the retaliatory tariffs provoked by
the ensuing economic uncertainty caused by this President.
And moreover, this trade war comes at a time when our
deficit has bloomed due to the Republican tax law, which has
been nothing more than a giveaway to very wealthy individuals,
Wall Street banks, and big corporations.
I look forward to hearing Secretary Mnuchin address the
adverse impact this Administration's policies are having and
will have on small businesses and consumers, and I yield back
the balance of my time.
Chairman Hensarling. Gentlelady yields back, the Chair now
recognizes the gentlelady from Wisconsin, Ms. Moore, Ranking
Member of the Monetary Policy and Trade Subcommittee for 2
minutes.
Ms. Moore. Thank you so much Mr. Chairman, and I want to
welcome Secretary Mnuchin back to the committee. I appreciate
your reply to my letter that I sent on May 17th, you replied
just recently. The letter was related to the transfer of the
Universal Service Fund (USF) to the Department of Treasury.
So I look forward to your testimony, but during the Q&A, we
have already alerted your staff so that you could be prepared
for my questions. There are outstanding issues surrounding the
Universal Service Fund that are important to both my urban
constituents and rural constituents of many of my Republican
colleagues here who really rely on these services.
Like the Rural Healthcare Program, the Connect America
Fund, and in my district, there are over 50,000 households that
subscribe to the Lifeline, just one of the programs that is
supported. It connects disabled people, poor people with jobs
and with health care assets.
I am going to appreciate hearing a detailed explanation of
the regulations, resources, and staff you have put in place to
ensure that the FCC continues to use these funds to provide
telecommunications access to Americans, and assurance from you
that these services will not be disrupted.
The specific funds that you deposited into the Treasury
account and the funds that you are still waiting to be
transferred, that you referred to in your letter, and how you
plan to make up for the loss of interest that the funds were in
interest-bearing accounts in a private sector when they were
there and how you will make up the deficit so there won't be
any lapse in ability to serve those constituents.
And so I look forward to your testimony, Mr. Secretary, and
I yield back the plethora of time that I have.
Chairman Hensarling. Gentlelady yields back. Today we
welcome back to the committee, for his third appearance, the
honorable Steven Mnuchin, Secretary of the U.S. Department of
Treasury. Secretary Mnuchin has previously testified before
this committee, and so because of that, I believe he needs no
further introduction.
Without objection, the witness' written statement will be
made part of the committee record. Secretary Mnuchin, welcome
again and you are now recognized to give an oral presentation
of your testimony. Thank you.
STATEMENT OF HON. STEVEN T. MNUCHIN
Secretary Mnuchin. Thank you.
Chairman Hensarling, Ranking Member Waters, and members of
the committee, it is good to be here with you today to discuss
the National Advisory Council (NAC) on International, Monetary,
and Financial Policies Report to Congress and other priorities
of the Treasury Department.
The NAC Report highlights international financial
institutions (IFIs) roles in encouraging global macroeconomic
growth and financial stability, advancing U.S. national
security priorities, supporting the development of markets for
U.S. business and working to alleviate poverty.
The Treasury has promoted reforms at the IFI's to help them
better contribute to these objectives, and we will continue our
efforts to increase the IFI's effectiveness and value to
taxpayers. I would like to note that the International Monetary
Fund's periodic review of quotas is scheduled to be concluded
next year.
Every 5 years, the fund reviews its financial resources and
decides whether to increase them. At this time, the United
States finds that the IMF's overall resources are adequate
following the 2016 implementation of the 2010 quota and
governance reforms.
I also want to highlight the strength of the U.S. economy.
We continue to implement President Trump's economic agenda
focused on tax cuts, regulatory reform, and trade. In only 6
months since the Tax Cuts and Jobs Act, Americans are seeing
faster GDP growth, more money in their paychecks and better
career opportunities.
Unemployment numbers are historically low, with an average
of over 200,000 jobs added each month of the second quarter
this year. Over 500 companies have announced bonuses, wage
increases, and enhanced benefits. The National Federation of
Independent Business, the National Association of
Manufacturers, and the Consumer Confident Index are all at
reporting level records of optimism.
Americans are keeping more of their hard-earned money and
U.S. business is more competitive. Our efforts to eliminate
unnecessary burdensome regulations are also having a tremendous
impact. We have worked closely with this committee and others
in Congress, as well as our colleagues across the
Administration, to create a regulatory environment that is more
efficient and predictable for business.
These reforms are enhancing the flow of credit and
supporting job creation and wage growth. At the same time, we
remain committed to ensuring the stability of the financial
system and protecting taxpayers and consumers.
Our tax and regulatory reform agenda compliments our trade
efforts. We strongly support Congress' bipartisan effort to
strengthen and modernize the commodity on foreign investment in
the United States CFIUS review process and its inclusion in the
National Defense Authorization Act.
The Administration is pleased to work with members to
maintain our open investment environment, while ensuring that
certain transactions are reviewed for national security
purposes. We have made great progress in the last 18 months in
implementing the President's agenda.
We are working every day to guide multilateral financial
organizations toward a limited role that is more consistent
with free markets, faster growth, and U.S. national interests.
Hardworking taxpayers across the country are optimistic that
they will have a more prosperous and secure future, and we are
seeing America's great potential come to fruition.
Thank you very much. I look forward to answering your
questions.
[The prepared statement of Secretary Mnuchin can be found
on page 56 of the appendix.]
Chairman Hensarling. Thank you, Mr. Secretary.
I will now yield to myself for questioning.
Clearly, as you heard from my opening remarks, I am most
concerned about the status of global trade. And I realize that
most of this was within the bailiwick of USTR and Commerce, but
clearly America's trade policies do have an impact on the
international finance system.
So again, as I said, I have been heartened by comments by
the President and by Secretary Ross that our goal appears to be
to eliminate, or at least significantly reduce, trade barriers,
but I am concerned because in the one trade agreement that has
been modified since the Administration began its policy, Korea,
what I think I saw in the Korean agreement is the imposition of
a quota on Korea and steel exports to the U.S. and a 20-year
extension of a 25 percent tariff on Korean trucks.
So I would hope that the answer and the goal would be for
America to export more, not necessarily import less. And so the
question, Mr. Secretary is, is Korea the template for future
modifications of our bilateral or multilateral trade
agreements?
Secretary Mnuchin. Mr. Chairman, thank you very much.
And I have had the opportunity to work very closely with
Ambassador Lighthizer and Secretary Ross and others in the
Administration with the President. The President is very
focused on free and fair trade, as you mentioned.
At the G-7, the President specifically said, let us sign a
free-trade agreement with no tariffs, no barriers, no
subsidies. So the President is very much focused fighting every
day on having free and fair trade.
In regards to your question, there is no specific model for
other agreements. We are very focused on NAFTA (North American
Free Trade Agreement) and renegotiating that.
Chairman Hensarling. I will just say again, Mr. Secretary,
I appreciate the words, but I am concerned about the deeds as I
look at how the Korean trade agreement has been modified.
Mr. Secretary, I also want to speak again--I could not say
it more clearly--that many Americans are seeing an economic
miracle and it is because of the President and, frankly, the
work you have done and others on tax cut, increased jobs,
rightsizing regulation. But I think the greatest economic
stimulus I have seen is business optimism. And unfortunately my
fear is that may be receding.
I am not sure if you are familiar, CNBC does a survey of
CFOs of major U.S. companies, and 65 percent have reported that
they fear U.S. trade policy will negatively impact their firms
over the next 6 months.
It's been reported as of July 6th that the FOMC's (Federal
Open Market Committee) minutes of the June meeting had this in
it. Quote, ``Most FOMC participants noted that uncertainty and
risk associated with trade policy had intensified and were
concerned that such uncertainty and risk eventually could have
negative effects on business sentiment and investment
spending.''
So I am just curious, Mr. Secretary, how does the
Administration think about business uncertainty as it
calculates its trade policy?
Secretary Mnuchin. Mr. Chairman, I can assure you that the
President is very focused on economic growth, and I can also
assure you that I am monitoring the situation very carefully.
I am not familiar with that specific poll, but I speak on a
regular basis to many industries as well as people within the
Administration, and we are monitoring the economic situation.
We have not yet seen any negative impact, although as you
have said, we are monitoring carefully the impact on
uncertainty on investments.
Chairman Hensarling. Mr. Secretary, even as of today, the
actual tariffs are a small part of our global trade, but that
is soon to change if the $200 billion that has now been
threatened against China actually comes to be in 60 days.
I guess the last question I would have, Mr. Secretary, is I
am curious how the Administration thinks about the possibility
of a global recession. In the U.S. we are facing rising
interest rates, the Fed needs to have an orderly wind down of
its balance sheet.
You know better than others that we may be looking at an
inverted yield curve that at least historically has been a
leading indicator of the recession. We know about tightening
monetary policy in other segments.
So there is already a threat to economic growth. How do you
factor that in, again, to the Administration's trade policy?
What is the risk?
Secretary Mnuchin. Mr. Chairman, let me just comment
specifically on the--we don't have an inverted yield curve,
there is a flattening of the yield curve that somewhat reflects
people's future view of rates and where rates will be.
I don't think that is indicative of any way of recessionary
concerns. And as I said, we are monitoring very carefully the
impact of tariffs and we will continue to do so and we are very
focused on economic growth and look forward to what hopefully
will be a very big quarter of GDP and future growth for the
balance of the year and next year.
Chairman Hensarling. The time is expired, I now recognize
the Ranking Member for 5 minutes.
Ms. Waters. Thank you very much. Mr. Secretary, because of
this President's trade war, again, Mid-Continental Nail that I
mentioned in my opening statement, America's largest nail
manufacturer based in Missouri, laid off 60 workers last week
and expects to go out of business by Labor Day.
Harley Davidson, this company is as American as motherhood
and apple pie, based in Wisconsin, is moving jobs overseas to
Europe to avoid tariffs on its exports. Volvo, again, will no
longer hire 4,000 new workers in South Carolina and the U.S.
Chamber of Commerce warns that 2.6 million jobs are on the
chopping block because of Trump's policy on tariffs.
On top of all the job loss, American families will pay
higher prices for the goods that they buy since tariffs are a
tax paid by Americans. And it seems things are only going to
get worse. Just yesterday, Trump announced that he may levy an
additional $200 billion in tariffs on China.
China responded that it would take further retaliatory
measures, possibly including more tariffs on U.S. goods,
letting its currency depreciate or even selling off billions of
treasury bonds.
The Trump Administration appears to be flying by the seat
of its pants with no plan for how to address the possibility of
a recession, the higher prices consumers will pay and the
resulting losses of millions of American jobs.
Further, reports indicate that while the Federal Reserve is
concerned about the possibility of a recession resulting from a
trade war, it does not have the tools necessary to combat such
a self inflicted disaster.
As each day brings another announcement of jobs being
eliminated or shipped overseas and consumers paying more for
goods, what are you doing as Treasury Secretary to prevent
further harm to our economy from the growing trade war?
I know that you have attempted to answer this when the
chairman questioned you about it, but I want to hear more in
depth about how you are thinking about this and what you plan
to do if there is further harm to our economy.
Secretary Mnuchin. Thank you very much. First of all, I
have noted the nail company and I will reach out to the
Secretary of Commerce to see if that company is subject to some
type of exemption, because obviously we don't want companies
losing jobs.
As it relates to Harley Davidson, I have previously
publicly commented on this, I think the President has been a
huge advocate of Harley Davidson. I think it is unfortunate
that they are talking about moving jobs. My sense is that this
was before tariffs.
I will comment specifically on China, because I personally
have been very involved in China. I have had multiple
negotiations with them. Our objective is to create a level
playing field for our companies to stop force technology
transfer. We put a modest amount of tariffs on China as a
result of technology transfers, China reciprocated.
Our tariffs were less than 10 percent of what they shipped,
they matched that dollar for dollar, and the President
threatened if they did that, that he would retaliate, and we
are now in a comment period on the $200 billion.
And again, I would just assure you, we are monitoring the
impact on the economy of all these different issues.
Ms. Waters. I want to thank you for that. But I want to get
back to Harley Davidson, because this is something that the
American public really understands. They understand that Harley
Davidson is a company that we would not like to see export
overseas.
So you mumble that the tariffs had nothing to do with them
exporting jobs overseas. What did you just say?
Secretary Mnuchin. So first of all, let me apologize if I
mumbled. I will try to be clearer. First of all, in all
fairness, I have not spoken to the Harley Davidson people
direct. I know that the President has spoken to them.
I can tell you, as I have sat in meetings with the
President, other leaders, he always talked about tariffs on
motorcycles and cutting tariffs on motorcycles. My sense is
that Harley Davidson had previously planned on moving some of
this manufacturing, and it is not just a result.
In all fairness, I have not spoken to them direct. I share
your concern very much of any jobs being moved by Harley
Davidson or other people as a result of tariffs.
Ms. Waters. What will you do to try and get them not to
move the jobs overseas?
Secretary Mnuchin. I am going to specifically reach out to
them and find out the details with the Secretary of Commerce.
Ms. Waters. And are you saying the President's tariffs have
nothing to do with them moving those jobs overseas?
Secretary Mnuchin. I have not spoken to them direct, so I--
Ms. Waters. Have you spoken to the President?
Secretary Mnuchin. Yes I have, I--
Ms. Waters. And what did he say?
Secretary Mnuchin. Again, he President has been a huge
advocate of Harley Davidson, and is very disappointed on Harley
Davidson's--
Ms. Waters. Did he ask them to stay?
Secretary Mnuchin. Yes, he did.
Ms. Waters. And they turned him down?
Secretary Mnuchin. No, I--they asked them afterwards, and I
don't know the status of those--
Ms. Waters. Thank you, I yield back the balance of my time.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr, chairman of our Monetary Policy and Trade Subcommittee.
Mr. Barr. Mr. Secretary, I certainly support the
Administration's objectives to promote fair and reciprocal
trades, but since we are on the topic, I will stick with the
topic for a little while.
I do appreciate your testimony that you and the
Administration continue to monitor the impact of tariffs, but I
do have concerns the tariffs and retaliatory measures on
American industries could very well suppress or even reverse
the record level of growth and job creation we have seen under
your leadership and the President's leadership and in the
booming economy.
As we have discussed, my home State of Kentucky's signature
bourbon and distilled spirits industry accounted for more than
$450 million in exports worldwide in 2017. Of that, nearly $200
million was exported to E.U. countries where the market for
bourbon has been growing at record levels in recent years. An
extended trade war would not only harm that iconic industry but
also Kentucky's farm family suppliers, tourism, and ultimately
consumers through higher prices and limited availability.
Similarly, our companies and workers in the auto industry
are facing steep international competition for jobs, sales, and
innovation that has been intensified by the ongoing tariffs.
Toyota's 30-year-old plant in my district in Georgetown,
Kentucky, is Toyota's largest manufacturing plant globally. It
employs more than 8,000 team members that produce more than
550,000 vehicles and 650,000 engines last year. Toyota has told
us that the tariffs have negatively impacted their supply
chain.
For example, the price of rolled steel is up 40 percent and
the current price increase for engine and transmission parts is
closer to 20 percent. I know that you, Mr. Secretary, and the
President fully appreciate that neither Toyota Camrys nor
bourbon implicate national security. But I do want to ask you,
does the Administration have plans to mitigate the negative
impact of retaliatory tariffs in ongoing trade negotiations
that it has on American jobs and industries?
Secretary Mnuchin. First of all, I appreciate the specifics
and I am familiar with them. I think that you know the
President is in Europe; he just concluded meetings yesterday
with several European leaders and discussed trade, that was a
very significant issue. There is a planned meeting with the
E.U. later in the month. Again, we are very focused on the
retaliatory measures and resolving them.
Mr. Barr. Thank you. And again, we do want to hear more
about your plans to mitigate the negative impact that these
retaliatory measures are taking, so please stay in touch with
us on that.
Switching gears to North Korea really quickly. By all
accounts the Singapore Summit was successful, but we are now
hearing that North Korea is actually in the process of
expanding its nuclear facilities despite the Summit and last
week the North went on to criticize our quote, ``gangster like
calls, for nuclear disarmament.''
I appreciate that this Administration is not making the
same mistake as the JCPOA (Joint Comprehensive Plan of Action)
in the upfront sanctions relief but I do want to ask you for
some reassurance about us not taking the foot off of the
sanctions pedal when we continue to hear this belligerent
rhetoric from the North. And in answering that question, I just
remind you that this committee produced the Otto Warmbier North
Korea Nuclear Sanctions Act. That bill passed the House 415 to
2 and it's over in the Senate and that represents the toughest
economic sanctions ever directed at North Korea. Can you use
that legislation as leverage to continue to focus that maximum
pressure as we continue to negotiate?
Secretary Mnuchin. First of all let me just say there are
no plans to loosen up on sanctions, if anything quite the
contrary. The sanctions have been very effective. In regards to
the legislation, we appreciate your efforts. We have tremendous
tools at our disposal right now.
I am not going to comment on some of the specifics that you
have said about what North Korea may or may not be doing. I can
assure you I have the utmost confidence in Secretary Pompeo. I
think there is nobody better to be leading this effort for the
Administration. We speak regularly on the specific status and I
would just say don't believe everything you read in the press.
Mr. Barr. Thank you. And finally on Iran, is the
Administration on track to have sanctions fully re-imposed by
the November deadline and what role do you see for Congress in
the process of implementing sanctions with respect to the new
policy toward Iran?
Secretary Mnuchin. We are enforcing the maximum sanctions
on Iran. They have been very effective. I have had many
discussions with my European counterparts. There are few
situations where we will have modest wind down periods and
other things, but we expect compliance with the sanctions and
we have made that very clear and many European companies have
already done that.
Mr. Barr. Thank you.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you Mr. Chairman. Secretary Mnuchin,
following the 2008 financial crisis, we learned that banks and
mortgage companies engaged in deceptive marketing practices and
provided fraudulent information to homebuyers in concerted
efforts to disguise a mortgage's true cost to homebuyers. These
dishonest practices fueled the subprime mortgage crisis which
helped drive the broader financial crisis, which brought the
world's financial system to the brink of collapse.
Just a few years ago, we also learned that Wells Fargo
fraudulently opened more than three million customer accounts
in order to inflate their cross-selling business and increase
their bottom line.
Most recently, it has been reported that UBS executives
both in Puerto Rico and here on the mainland purposely withheld
and disguised the true risk of Puerto Rican government bonds
that UBS packaged into mutual funds and sold to residents on
the island, wiping out $10 billion in retirement savings.
So, Mr. Secretary, my question to you is, in your role as
both Treasury Secretary and Chair of FSOC (Financial Stability
Oversight Council), do you believe that fraudulent and
deceptive actions practiced by financial institutions could
pose a threat to financial stability?
Secretary Mnuchin. Thank you. I do not believe that they
could pose a threat, at this point, to financial stability.
Although I do acknowledge there are some very specific cases
which the regulators are dealing with of improper practices.
Ms. Velazquez. Do you believe that fraudulent and deceptive
financial practices should be criminally investigated and, if
necessary, prosecuted by the Department of Justice (DOJ)?
Secretary Mnuchin. It's not my role to comment on
prosecution but definitely I believe that if there are rules
broken or anything else, the regulators should be responsible
for--
Ms. Velazquez. So we know that executives knowingly
committed financial crimes or covered them up, they should do
the time, don't you think?
Secretary Mnuchin. I would just say my role in FSOC is to
deal with the regulators. I am not commenting on--obviously its
DOJ's responsibility to enforce the laws. That is not within my
purview.
Ms. Velazquez. On Tuesday, President Trump imposed a second
round of tariffs on the additional $200 billion of Chinese
goods. This led financial markets to tumble all day Wednesday.
The Dow opened more than 100 points lower and continue to fall
throughout the day, losing almost 200 points at the market
close.
Mr. Secretary, media reports indicate that high level talks
between Chinese officials and the Trump Administration on
tariffs and trade have ground to a halt. Do you believe that
talks will be reopened and do you plan to participate in those
discussions?
Secretary Mnuchin. Yes, I plan to participate. Second of
all I would say, that the Chinese want to make serious efforts
to make structural changes, I and the Administration are
available any time to discuss those. As it relates to the $200
billion, I would just comment that had been previously
announced; all we did the other day was announce the list which
is now out for public comment and review.
Ms. Velazquez. I yield back, Mr. Chairman.
Chairman Hensarling. Gentlelady yields back.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, Chairman of our Financial Institutions
Subcommittee.
Mr. Luetkemeyer. Thank you, Mr. Chairman, and welcome, Mr.
Mnuchin.
I will give you a little respite from the trade talk here,
I have a couple other questions with regard to guidance,
derisking, and harmonization. So with regard to guidance, over
the years, a large amount of agency guidance, handbooks, and
circulars have been issued. Almost none of it has been
withdrawn or rescinded.
Almost none of it went through notice and comment
rulemaking or was submitted to Congress pursuant to the
Congressional Review Act. I recently sent a letter to the
Federal Financial Regulators, asking them that they issue
directives affirming that agency statements, including
guidance, that haven't gone through the notice and comment
rulemaking do not establish binding legal standards.
I have asked this question of Chairman Powell and
Comptroller Otting, among others, so do you agree with your
colleagues that guidance is guidance and rules are rules?
Secretary Mnuchin. I do.
Mr. Luetkemeyer. As Treasury Secretary and head of FSOC,
would you consider such an affirmation be included on future
guidance coming out of your department, agencies you oversee,
and FSOC?
Secretary Mnuchin. Again, I assure you that we will address
this at the next FSOC meeting and discuss it; I don't think we
need guidance coming out of FSOC, but we will review that with
the regulator.
Mr. Luetkemeyer. My hope would be, Mr. Secretary, that you
would take the lead in having harmonization with all the
agencies with regards to guidance and with the guidance that is
issued. Whenever a guidance is issued, say something in there
to the effect that this is guidance, it is not a rule, that
guidance is something that punitive action can be taken on
because it is guidance, it is best practices, it is a
suggestion of somehow how a bank should be doing something
versus a rule that says, you will do this.
And I think it is important there be a distinction there
and it is important that I think in your position, as head of
FSOC, that you could take the lead in harmonizing all this
across all the financial agencies, to be able to make this
happen.
Secretary Mnuchin. I have always believed there should be
consistency across the regulators, so that is an issue we will
address with them. Thank you.
Mr. Luetkemeyer. OK, appreciate that very much.
With regard to derisking, 2 weeks ago Congressman Clay and
I sent you a letter on derisking following a hearing that we
held in the Financial Institutions Subcommittee. Our
subcommittee has held several hearings on the issue and heard
from a variety of stakeholders. What we have learned is that
this is not only a domestic problem, but an international one.
We are talking about an entire geographical region losing
access to financial services and being cut out the most
regulated financial sector in the world. According to testimony
given a couple of weeks ago, it is the regulator regime, namely
BSA (Bank Secrecy Act)/AML (anti-money laundering) that is
driving this dangerous trend.
And the problems go beyond banking. Right now it is
impeding the flow of humanitarian aid across the globe. We have
passed bipartisan legislation on Operation Choke Point and the
regulators tell us that it isn't happening.
But every witness, Mr. Secretary, that we had before the
subcommittee that day, told us a different story, as have our
Nation's financial institutions and their customers.
Number one, are you familiar with a letter that we wrote to
you with regard to this?
Secretary Mnuchin. Yes.
Mr. Luetkemeyer. Does this trend alarm or are you concerned
about it, do you recognize that there's a problem?
Secretary Mnuchin. It is something we think there is an
issue with, we are looking at BSA reform, AML reform, we need
to strike the right balance on that. I am not aware of any
humanitarian aid that hasn't gone through as a result of this,
but BSA reform is something we are studying carefully and the
derisking issue is something we share your concern with and we
are looking at.
Mr. Luetkemeyer. When the IMF actually is concerned about
derisking, that raises some alarm bells for me, because they
are not necessarily on the cutting edge sometimes, the
regulatory oversight, but I appreciate your comments, sir.
Obviously, I couldn't let this opportunity go by without
discussing the customer due diligence (CDD) rule. We have had
some concerns about that as you well know the BSA/AML bill that
we are talking about, we are trying to find a way to deal with
beneficial ownership. We are looking for guidance from you,
would you be willing--I know we have talked about this in a
number of settings already and tried to set up meetings and
hopefully we will be able to get that done, we want to get the
commitment from you to continue to work on that issue.
Secretary Mnuchin. Yes, you have our commitment to continue
to work on that issue.
Mr. Luetkemeyer. Do you have any suggestions today for us?
Secretary Mnuchin. I have no suggestions today for you
other than I have shared in the past.
Mr. Luetkemeyer. Mr. Secretary, I appreciate your comments
today, and I know that this is an issue that is paramount with
a lot of the banking industry. Those folks have become
basically deputized law enforcement officers, and with some
punitive outcomes if they don't do this. And they don't need to
be in the middle of this so we want to really sincerely work
with you, try and find a way to get this situation resolved. I
appreciate your comments.
I yield back the balance of my time to the Chairman.
Chairman Hensarling. Gentleman yields back.
Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Thank you, Mr. Chairman.
We in the United States have a good problem; the economy is
good so we have to fight over who gets the credit. The facts
are these: Dodd-Frank stabilized the financial system, and
coincident with its effective date, we have had a massive
economic expansion that has produced 17 million new jobs. Of
those 17 million new jobs, 15 million occurred during the Obama
Administration, and 2 million occurred under the Trump
Administration. That is 15 million under the Obama
Administration, 2 million under the Trump Administration.
Now, this committee has seen a lot of charlatans in the
financial services world, but we haven't seen one quite as bad
as what I am going to say. Go to a consumer and you say we are
going to give you a $500 bonus--no, a $1,000 bonus, right here
is the check, and then you fail to disclose to them, in any way
they understand, that you are going to slap a $34,000 mortgage
on their house.
If any charlatan had done that, this committee would have
nailed them. But that is exactly what the tax bill does. People
are told they got a $1,000 bonus. A few of them did as a result
of this tax bill, some only got $500, most got nothing. But
what wasn't mentioned was the $34,000 which is the share of the
average family of five of the increase in the national debt.
As to trade, and, Mr. Secretary, I am going to send you the
transcript of the hearing we did yesterday in the Asia
Subcommittee, I am going to be perhaps the one person in this
room that says that Mr. Trump's focus on China has been a
little too late, a little too hesitant, and a little too weak.
We gave China MFN, Most Favored Nation status in the year 2000.
When that happened, two thirds of democrats voted, no.
Now, Wall Street trotted out some economists who said that
the increase from that MFN bill would only be--the increase in
the trade deficit with China would only be $1 billion a year.
Two thirds of democrats were right, the Wall Street economists,
bought and paid for, were wrong. They were off by a factor of
25,000 percent.
And so I would hope that, and we have a chart behind you
that shows the massive increase in the trade deficit with China
since the beginning of this Administration, but I do not think
that anti-Trump democrats, and on most things I am anti-Trump,
should change our position. Two thirds of us were right 18
years ago, and we are right today, and MFN should be provided
to China only in the context of fair and free trade.
Now, something far less controversial, I want to thank you
for your last appearance here when we talked about the U.S.
Armenia Tax Treaty. You made a commitment then that you would
have at least one tax lawyer spend 28 hours on the project. And
that work has not begun and it is not your fault. The Armenian
government has had a lurch toward democracy and transparency
that many of us applaud. Things are a little bit of a state of
tumult still in Yerevan.
I am assured that when things calm down, the Armenian
government will approach us, committed to the kinds of
transparency that our model tax treaty calls for, and then I
will hold you to the 28 hours. As a matter of fact, that 28
hours was based on that 28 Members of Congress have asked you
to do that. It is now up to 31, so I may ask for another 3
hours.
Marijuana, legal in a lot of States, I hope that you would
act so that the activities of the Treasury Department don't
mess up the economies of those States, whether it be large
amounts of cash being moved around, very dangerous to society
and an invitation to crime. Or the risk to land title, where
people say, well, maybe I don't own this property, because
maybe 10 years ago it was used for marijuana and the Federal
Government might seize it.
In the insurance area, the International Association of
Insurance Supervisors (IAIS) is continuing to pursue insurance
capital standards that seem incompatible with the U.S. system
of State insurance regulation. And I hope that you would answer
for the record how you will ensure that the U.S. State-based
regulatory system will be protected in the negotiations, and I
will have another question for the record on mutual funds.
And I yield back.
Chairman Hensarling. Gentleman yields back.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, Chairman of our Capital Markets Subcommittee.
Mr. Huizenga. Thank you, Mr. Chairman, and I am sure
Secretary Mnuchin, yes, you are encouraged as well as I am by
my colleagues' newfound concern with our debt situation,
especially in light of $1 trillion-plus deficit spending that
had happened under the last Administration on an annual basis.
And I hope these same colleagues will have that same
enthusiasm to tackle the entitlement situation that we have
here so we can actually have a safety net system that will
exist for future generations. So that is where we need to focus
and concentrate on.
But I want to hit on a couple of things, one very briefly
here on the Volcker Rule. I need to take this opportunity as
Chair of the Capital Markets Subcommittee to do that. Then I
want to talk a little bit about China and our debt with China
and some trade.
So recently, last month, Treasury announced that the five
Federal financial regulatory agencies dealing with Volcker had
come together and had proposed some changes to ease compliance
while still implementing Section 619 with the 60-day comment
period, you said, quote, ``the five agencies responsible for
regulation of the Volcker Rule coming together on this notice
is an important first step.''
I am wondering, could you explain a little bit about how
these reforms help address the Volcker Rule so that compliance
can be streamlined, rules clarified, and markets can be made
more efficient?
Secretary Mnuchin. I think on the Volcker Rule, it is all
about providing more clarity and making sure that the
appropriate people can properly execute the rule. So I think
there was a lot of ambiguities. Some people refer to, you
should have a lawyer and a psychiatrist to interpret it. But
this is about, we want to make sure it can be enforced but it
can be enforced clearly.
Mr. Huizenga. And what are the next steps Treasury is
exploring to help appropriately tailor the Volcker Rule?
Secretary Mnuchin. This is now--we had a series of
suggestions on this in the executive report but this is now
being led by the regulators and is being executed by them.
Mr. Huizenga. Turning to China, obviously China has a very
large chunk of our debt. It's somewhere in the neighborhood of
$1.2 trillion, $1.2 trillion that China directly controls. Do
you have any fear that they could use that as an alternative
trade weapon? And if so, are there any contingency plans that
have been established as countermeasures if that were to
happen?
Secretary Mnuchin. I would just comment, to a large extent,
the big component of the reason why they have that debt is
because the giant trade deficit and then reinvesting that cash.
I have no reason to believe that is of concern to the market at
this point. The market is very liquid and has a lot of depth,
but that is something we will continue to monitor.
Mr. Huizenga. I appreciate that. I, like some of my
colleagues, I know Mr. Barr and others have expressed desire to
push for better, fairer trade deals. I would join that
sentiment as well, but we do know that sometimes victory comes
at a heavy price. And I wanted to explore a couple of things
real briefly with this. I chair the U.S.-Canada IPG, the inter-
parliamentary group; it is the official exchange between the
parliament and the U.S. House.
And I can tell you our Canadian allies and friends,
neighbors, trading partners, are genuinely confused about why
Section 232 was used to designate some of the tariffs on that.
And what are you telling your colleagues internationally about
this?
Secretary Mnuchin. I have had very direct conversations
with many of my colleagues on this, specifically the Canadians.
I don't want to go in detail in this setting. But I can assure
you we have had very detailed discussions. I am on my way to
Mexico tomorrow with Secretary Pompeo, and obviously NAFTA is a
big focus now that there are the elections there.
Mr. Huizenga. I would like to maybe explore this offline
with you. And while I commend the goal, I am afraid that there
may be some actions trying to recapture a world that frankly no
longer exists. The largest trading partnership in the world is
U.S. and Canada. Sixth largest trading partnership in the world
is the State of Michigan and Canada, a lot of that surrounding
autos, office furniture, and agriculture.
And what we are seeing here is an integrated supply system
that has parts for vehicles traveling back and forth across the
border sometimes nine different times, and thousands of parts
doing that. So we have to be very careful with that and I look
forward to our conversation. Thank you.
I yield back.
Chairman Hensarling. Time of the gentleman has expired.
Chair now recognizes gentlelady from New York, Mrs.
Maloney, Ranking Member of our Capital Markets Subcommittee.
Mrs. Maloney. Thank you, Mr. Chairman, and welcome,
Secretary Mnuchin.
The last time you testified, I asked you about beneficial
ownership and you said you wanted more time to look at it. I
think it is a critical challenge before our country. I
introduced a bill at the request of, really law enforcement,
that said they would track money and terrorism and drugs and
guns and hit an LLC and not know who owned it. They just want
to know who owns it so that they can protect us better.
And the best time to do it is when they are filing. We have
a bill in, many of us in a bipartisan way are supporting it,
that this information would be available to Treasury, kept at
State level if they so wished and also law enforcement. I live
in a city, New York, that continually faces terrorist threats
and there are no threats unless there is financing.
So cracking down on terrorism financing is critical and I
now want to know that since you have had a chance to look at
this, and in light of the testimony that the FinCEN director
gave recently, that he believed companies should be required to
disclose their beneficial owners at the time that they are
formed and they are a part of Treasury, so I would now like to
ask you if you have had a chance to look at this and what is
your feeling now on supporting beneficial ownership and having
this information available to Treasury and to law enforcement?
Secretary Mnuchin. So first of all, let me just say I fully
support that it is a very important issue and we need to be
able to figure out an efficient and prudent way that we have
access to beneficial ownership. I wish I could tell you I
already had this solved. We are having a lot of discussions.
We look forward to continuing this discussion with you and
members of the committee to find a solution. We need an
appropriate solution to this.
Mrs. Maloney. Thank you, our committee has been discussing
legislation to reform the Bank Secrecy Act and anti-money
laundering rules. I believe that any legislative package on
this issue must address the issue of beneficial ownership
because anonymous shell companies are routinely used to finance
criminal and terrorist organizations.
So do you believe that a legislative package to strengthen
our anti-money laundering rules should address the use of
anonymous shell companies by criminals and terrorist
organizations?
Secretary Mnuchin. As I said, I believe this issue needs to
be solved. Whether it is solved as part of BSA or whether it is
solved separately, these are both very important issues but we
do need to be able to have access to beneficial ownership
information for law enforcement and for combating terrorist
financing.
Mrs. Maloney. Also in February, Treasury, you released a
report recommending that we keep Dodd-Frank's Orderly
Liquidation Authority for winding down large financial
institutions as an emergency option, and I agree with you, and
I want to thank you for that report. The report also
recommended changes to the Orderly Liquidation Authority and if
there are changes that need to be made, I think we should have
that discussed because I strongly oppose repealing this
authority.
Can you discuss why you think, as your report stated, that
the authority is a far preferable alternative to destabilizing
financial contagion or ad hoc government restructuring or
bailouts?
Secretary Mnuchin. This is an issue we reviewed very
carefully and we do support keeping it. I look forward to
speaking with you about some of the specifics of the changes
that we would recommend they would require legislation.
Mrs. Maloney. Thank you and I look forward to those
discussions.
And finally, as chairman of the Financial Stability
Oversight Council, in that capacity as chair, what do you see
as the biggest risk to the financial system right now?
Secretary Mnuchin. I think the good news is from a capital
and a credit standpoint that not of a major concern. I would
say the issue that I focus on at the moment of the most
significance is cyber-security. And I am not implying in any
way that there is a cyber-security risk but this is the area
that we need to continue to invest in, we need to continue to
have public-private partnerships and I am very focused on the
safety and security of the financial infrastructure.
Mrs. Maloney. Thank you. I yield back.
Chairman Hensarling. Gentlelady yields back.
The Chair now recognizes the gentlelady from Missouri, Mrs.
Wagner, Chair of our Oversight and Investigation Subcommittee.
Mrs. Wagner. Yes. Thank you, Chairman Hensarling, and
welcome, Secretary Mnuchin.
Secretary Mnuchin, according to the most recent numbers
provided by the United States Trade Association, Missouri
exports support some 88,000 jobs in 2016, totaling $13.9
billion worth of goods. That is why earlier this year I joined
many of my colleagues in urging the President to rethink his
tariffs on steel, aluminum, and other goods.
The retaliatory tariffs levied by Mexico will absolutely be
felt in my home State of Missouri, which I noted earlier,
depends heavily on trade. My constituents are concerned, as am
I, that these tariffs will have a serious impact on our State
and will create winners and losers in communities across
Missouri.
Mr. Secretary, as I mentioned before, some of these tariffs
have targeted our allies. Can you describe in detail the
expected endgame for these trade actions and what is a specific
timeframe you expect for these policies to achieve their
desired effect?
Secretary Mnuchin. First of all let me just comment I share
your view that exports create enormous job opportunity. So our
overall view is we should be doing things to make sure that our
companies can fairly compete and export fairly into these
markets.
We were in, to put these in different buckets, there is
obviously the NAFTA-related issues, there is the E.U.-related
issues, and there is the China-related issues. As I mentioned,
this is something we meet with the President on weekly. The
economic team is very focused on all of this.
Mrs. Wagner. Timeframe?
Secretary Mnuchin. I can't commit to a specific timeframe.
Although, as I previously mentioned, NAFTA is now a big
priority since we have the Mexican election behind us.
Mrs. Wagner. Mr. Secretary, I want to take a second to
focus on China. In 2017, growers in the United States sold
nearly 1/3 of their soybean harvest to China. The recent
Chinese tariffs on American soybeans will hit Missouri hard and
already have. Reports of farmers are expected to sell their
crops at a loss. What would you say to my constituents that
will be directly impacted by the President's actions on trade,
especially vis-a-vis my farming community?
Secretary Mnuchin. I can assure you I never was an expert
on soybeans, but I have now become an expert on soybeans.
Mrs. Wagner. As have I, Mr. Secretary.
Secretary Mnuchin. I follow this market daily. I can assure
you that we are focused on this; we are in discussions with
Secretary Purdue and others about this. As I said, this is an
unfortunate impact of what we are trying to do, which is get
free and fair trade with China and they have unfairly targeted
specific markets and that is not coincidental.
Mrs. Wagner. No, it is not coincidental and it is causing
real harm in present day to the farming community and the
soybean farmers in my home State of Missouri.
Secretary Mnuchin. And I can assure you, I and the
President understand that and we are focused on that.
Mrs. Wagner. If trade relations with China remain strained,
commodity producers in Missouri will need to find new markets,
Mr. Secretary, for their goods. ASEAN (Association of Southeast
Asian Nations) countries seem to be natural trade partners.
Over half of U.S. Congressional districts export more than $100
million in goods to ASEAN every year. ASEAN countries
themselves wish to see stronger trade relations with the U.S.
If U.S.-ASEAN trade relations become more formalized,
whether that is multilateral, bilateral, whatever it is, Mr.
Secretary, would China be pressured to institute fairer trade
practices? I like to make sure that I do put in a plug that we
enter into some of these bilateral, or a multilateral, with
ASEAN countries as an opportunity to have new markets for my
farming and ag community and others in the district.
China's ascension, Mr. Secretary, to the World Trade
Organization (WTO) has done little to change its predatory
trade policies. Mr. Secretary, how can the World Trade
Organization be restructured, in your thoughts to better
restrain China's behavior?
Secretary Mnuchin. That is a complicated issue that I don't
have time to go through now. I would be happy to discuss that
more with you. Ambassador Lighthizer is really the expert on
this. I would say again, the rules-based system is OK if the
rules are being followed. The problem is that, as you have
outlined in the case of China, they are not following many of
the things that they have previously--
Mrs. Wagner. And they subsidize everything, Mr. Secretary.
Secretary Mnuchin. That is correct.
Mrs. Wagner. There are two kinds of companies in China--
those that are owned by China and those that do everything
China says. So we are going to have to look at some of I think
those issues when it comes to interstate commerce and such in
dealing with the WTO. So, I look forward to continuing our
conversation.
I thank the Chair and I yield back.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from New York, Mr.
Meeks?
Mr. Meeks. Thank you, Mr. Chairman, Mr. Secretary, good to
see you again.
Let me just start off with a basic question. Let me just
see, if you were a business person and you are buying a
business, what would be the easiest way or best way for the
business to move forward. If you bought a business that was
deep in the hole or you bought a business that was at level and
moving in the right direction. What would you think would be
the hardest task for one to accomplish?
Secretary Mnuchin. I am not trying to be coy but that is a
little bit of a hypothetical question, that there are
opportunities in both.
Mr. Meeks. The hypothetical question is if there is
something, if you have a company that is deep in the hole,
going in the wrong direction, problems all over the place, as
opposed to a company that you are buying that is, they have
corrected some of the problems that were in there. They are
moving forward in the right direction. Things are starting to
improve. They are starting to hire people. Things are moving in
the right direction. Which, as a CEO if you came in, I figure
you were a business man, what would put you in the best
situation?
Secretary Mnuchin. Again, it is completely hypothetical but
sometimes it is easier to buy things that are broken and
sometimes it is easier to buy things that are fixed. I can't
comment on hypotheticals.
Mr. Meeks. OK, you don't want to comment on it, well let me
not give you a hypothetical. Let me give you a fact. This
country, when President Obama was the President, was in deep
debt and was losing hundreds of thousands of jobs a month and
was in serious problem and the worst financial crises since the
Great Depression.
That was the situation of this country when Barack Obama
was the President or became the President of the United States
in 2008. Fact; fact, not hypothetical. When the stable genius
became the President, and that is what he calls himself--self
proclaimed stable genius. This country, because over one
hundred months ago we were gaining jobs--that is 8 years ago;
moving forward in the right direction creating jobs. What
situation do you think is better for a President of the United
States?
Secretary Mnuchin. I--
Mr. Meeks. Not a hypothetical. That is a fact unless you
can deny that fact. Mr. Stable Genius denies all the time
different facts. Now, let us move forward because I am
concerned about what I saw today at NATO and at the G7 because
you would agree that we are more interconnected today as a
world than ever before, is that not correct? That is not a
hypothetical either, is it? Or isn't it a fact that we are more
interconnected as a world today, Mr. Secretary?
Secretary Mnuchin. More relative to when?
Mr. Meeks. To any other time in our history.
Secretary Mnuchin. I don't know if we are more, we are
interconnected.
Mr. Meeks. With technology, are you denying with technology
today and the way that our trade system works and all of the
things that are moving around the world and how fast things
are, we are not more interconnected today than we were ever?
Secretary Mnuchin. Again we are interconnected so I am
happy to answer other questions?
Mr. Meeks. So when were we more interconnected?
Secretary Mnuchin. More is a relative issue. I don't know
if we are--
Mr. Meeks. Are you a stable genius, Mr. Secretary?
Secretary Mnuchin. Am I a stable genius? I am stable and I
won't refer to myself as a genius one way or another.
Mr. Meeks. I am just trying to find out because I know that
sometimes working for stable geniuses is--I would like to know
how that is. Does the stable genius--and I am not--it is not
words that I have used, it is the words that he said he is. He
said he is a stable genius. Does he listen to you because I am
listening to some of my colleagues ask a lot of the things
especially around tariffs we agree upon. We agree that we are
losing jobs.
We agree that there are scenarios that are worrying all of
us, Democrats and Republicans and I am hearing you saying some
of the kinds of things, and some of the Administration, and
some of the people around him might be saying the same thing.
So I am wondering whether or not the President, when you are in
those rooms, is he listening to you or because he is a stable
genius he just does whatever the heck he wants to do without
listening to your advice. Does he listen to your advice?
Secretary Mnuchin. Yes, I can assure you that the President
listens to my advice. He is the President. Sometimes he follows
my advice and sometimes he doesn't which I respect, but I would
not be in this job if I did not think he listens to my advice
and I couldn't be happier with the economic plan we are on.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from California, Mr. Royce,
Chairman of the House Foreign Affairs Committee.
Mr. Royce. Thank you very much Chairman and Mr. Secretary,
thank you for being with us. The President offered a laudable
goal at the G7 meeting in Quebec when he challenged our leaders
to get to no tariffs, no barriers. It has been reported, the
German automobile makers are open to the idea of zero tariffs;
that would certainly be a win if we could de-escalate with
Europe on that basis of zero tariffs between us and them.
But we have seen little talk elsewhere of this as the
endgame and instead what we see is a two front trade war; one
with China, which frankly is not playing by the rules, and
another with our close economic allies in the E.U., Canada, and
such and our domestic industries in agriculture are being
threatened. On the list of targets are bourbon, bikes, blue
jeans, and even Mr. Poliquin's beloved Maine lobsters. So could
we do a reposition in a different direction here because zero
tariffs, for example, if we looked at autos, would be a victory
for free trade and fair trade and maybe get us in a position
where our allies are on the same page.
And when we talk to our allies in the E.U. and our largest
export market, Canada, are we reiterating zero tariffs as the
goal? I would think that might be a first and second option in
order to try to advance a way to get us together.
Secretary Mnuchin. We are advocating no tariffs, no tariff
barriers, no subsidies; it is a package altogether. We are
advocating growing exports for U.S. companies so they can
compete fairly and if we have fair trade, we will increase
exports significantly and we won't have the outsized trade
imbalance that we have.
Mr. Royce. And I think that outcome would also give us a
position with our allies where if we can set high standards, we
can then maybe do something collectively to discuss the problem
with Beijing's lack of following the rules. But the other thing
I wanted to ask you, and this is something that Blaine
Luetkemeyer brought up and he and Steve Pearce and I have
talked about. It is this fact that criminal organizations are
infamous for using anonymous shell companies, both foreign and
domestic, to open bank accounts to launder money, to perpetrate
fraud, and frankly now to finance terrorism.
And this is an area where the United States, frankly, and
Kenya, have not been not front and center in terms of doing
something about beneficial ownership. There was a 2016
financial action task force report that found the U.S. had an
absence of any measures to ensure that there was adequate,
accurate, and timely information on the beneficial ownership.
Would you agree that this is a vital issue where we should work
together and work in a bipartisan way to move something
quickly?
Secretary Mnuchin. I would indeed and I actually just wrote
that down. We have to figure out this beneficial ownership in
the next 6 months. I don't want to be coming back here next
year and don't have this solved, so we need to work with
Congress on a bipartisan basis on this.
Mr. Royce. Thank you, Mr. Secretary. And last, in recent
months, the Administration has twice raised concerns about
recent legislative action on international insurance matters.
First was in a memo from the Department of Justice raising
constitutional concerns that H.R. 4537 would, in their words,
contravene the President's exclusive authority over the conduct
of diplomatic relations.
I will just share with you, I am concerned that such
actions would limit the flexibility of the Treasury Department
to lead international negotiations on financial insurance
standards and potential future covered agreements, and I think
the results of that could be quite negative.
And I just ask if you share those concerns.
Secretary Mnuchin. I am going to follow up with you on the
specifics of those offline, but thank you.
Mr. Royce. Thank you very much, Mr. Secretary. And, Mr.
Chairman, I yield back.
Chairman Hensarling. Gentleman yields back, the Chair now
recognizes the gentleman from Massachusetts, Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman, and the Ranking Member.
Mr. Treasurer, thank you for being here. I want to follow up on
Mr. Barr's line of questioning about sanctions. And obviously
as a result of the President's withdrawal from the JCPOA, we
are going to have to--well, you are going to have to
reinstitute sanctions against those companies, banks, and
countries that continue to do business with Iran.
So--and that includes some of our closest allies, our
national security partners, and countries that are cosigners of
that agreement, including Great Britain, Germany, France, the
E.U., Russia, and China.
Earlier in your testimony, you said you have frequent
conversations with China. Is China going to reinstitute the ban
on importing Iranian oil to China?
They are the largest single purchaser of Iranian oil right
now. Have they agreed to join our sanctions?
Secretary Mnuchin. Again, I think it would be inappropriate
for me to comment on the specifics--
Mr. Lynch. I think it would be entirely appropriate.
It is the ball game, right here.
Secretary Mnuchin. But I will tell you--
Mr. Lynch. If the largest single purchaser of Iranian oil
is not part of this deal, then those sanctions are meaningless.
Secretary Mnuchin. What I was going to say is I think it
would be inappropriate for me to comment on specifics of a
conversation. But what I will tell you, it is our intent to
enforce sanctions on Iran related oil against everybody
including China.
Mr. Lynch. Right, and so we are in the middle of a trade
war with China, I am asking you whether they are going to join
us.
Secretary Mnuchin. Again, we intend to enforce sanctions on
them, on Russia, on Europe, and others against Iranian oil.
Mr. Lynch. Wait a minute, the sanctions against Iran is
going to raise the value of Russian oil. So by withdrawing from
the JCPOA, you are helping Russia. There goes your sanctions
against Russian oil.
This is going to be a windfall for Russia, they are going
to do much better now because they will be a much important
source of oil in that region. So they are going to, I am sure,
be the big winner and I think the American consumer with higher
gas prices will be the big loser, quite honestly.
I think that is the natural consequences of that. Now,
Treasury, and importantly, OFAC, the Office of Foreign Asset
Control, is the Department within Treasury that is really
keenly responsible for this, although obviously you are going
to have to work with Secretary Pompeo in State Department to
reinstitute these sanctions.
Secretary Mnuchin. That is correct and we have already
activated that plan.
Mr. Lynch. OK. In terms of having--first of all, you only
have about 200 people up at OFAC. They are very, very
hardworking but with all this extra work, I am very concerned
whether you have the resources to do this. You just lost your
top three people that do the sanctions work. They just left,
they just quit. So your reassurances to Mr. Barr, I don't think
are well-founded.
The other problem is, on State Department--so we have to
work with the host countries to make sure that the sanctions
are observed. So it would be ideal if we had an ambassador in
Saudi Arabia, for example. But we don't have one. None has been
nominated. We don't have an ambassador or a nominee--the
President hasn't even nominated anybody. Nobody in Saudi
Arabia. We have no Ambassador in Turkey. I was just there a
couple of weeks ago.
I was in Jordan a couple of weeks ago, we don't have an
ambassador in Jordan. We don't have an ambassador in Egypt, I
was there like 3 weeks ago. Mexico, you would think we would
need an ambassador to Mexico with everything we have going on
with the immigration at the border, plus NAFTA. You think we
might get an ambassador to Mexico? Qatar, another key country.
Australia, Azerbaijan, another key source and we are going
to try to shut down oil shipments, they would be good people to
talk to. We don't have an ambassador in Qatar, Australia,
Azerbaijan, Georgia, Somalia, Libya, Tajikistan, Panama,
Venezuela. All key countries if we are going to ask people to
join us in these sanctions. You just said earlier that you have
weekly meetings with the President. Ask him to pick a few of
these 20 or so countries and appoint an ambassador so that your
Treasury personnel, OFAC--they do a wonderful job, very
hardworking people, can actually work with--and your Treasury
liaisons, you need a few more of those. You have some members
over there, some Treasury liaisons that work with FinCEN that
are handling four and five countries in the Middle East.
We have a lot of work to do and I don't buy the
reassurances that these sanctions are going to go like you
think they are.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from New Mexico, Mr. Pearce,
Chairman of our Terrorism and Illicit Finance Subcommittee.
Mr. Pearce. Thank you, Mr. Secretary. Thank you for being
here. Thank you, Mr. Chairman. So the discussion on the oil is
one that is especially timely. The U.S. is just right now in
the next month or so in the position of overtaking Saudi Arabia
as the number two producer. We will surpass Russia in the very
near future. And all of that is occurring because Republicans
actually put into a bill, in December 2015, the ability to
export our oil for the first time in 40 years.
That has allowed an unprecedented expansion into fields
that were before probably not really economic. So again, I
compliment you on the stances of the Administration with regard
to energy. That energy revolution is taking place in my home
county and the county right next to it, so that many of the
entry level workers are making 100,000 bucks. So the
Administration's policies of the Tax Cuts and Jobs Act along
with this energy export is revolutionizing the world market on
oil.
And if we will continue to allow that export, then we are
going to replace a lot of those foreign countries who have had
free range in the export market. So again, Mr. Secretary, I
appreciate that. My main questions have to do with CDD and its
implementation. You are aware of the TIF Subcommittee's
discussions on beneficial ownership. Mr. Royce just mentioned
those.
When the CDD rule was implemented and banks began to say,
``We don't know exactly how to respond to this'' and so they
were being told, ``OK, we have a couple of facts out but really
no guidance.'' Is there any idea of when we will have more
specific guidance on the CDD rule?
Secretary Mnuchin. I don't have the specifics of that but I
will look into it and get back to you.
Mr. Pearce. OK. Now, when Director Blanco was here in front
of the committee a couple months ago, he said that really they
weren't worried too much about compliance right now in the CDD
rule, that it was implementation. Is that a full agency
position or is it just him trying to manage the affairs under
his purview? Is that a broader directive or something that he
is just working out?
Secretary Mnuchin. I think you should know it is a
multiagency issue but that is not a directive from me.
Mr. Pearce. OK, that was what I was trying to come up with.
Now, again, you just mentioned that your full intent is to get
back with us in the next 6 months and try to figure out in a
bipartisan way if we can accelerate that time, if we could
accelerate the meeting. We really have the BSA reform bill
ready to go except for this one piece and we keep bouncing back
and forth between the two sides on that.
As we in the country really don't have our minds clearly
made up, we see the effects of not having the beneficial
ownership and we then become one of the key places that shell
companies come to operate because they know that we are in
conflict on this. The other side worries about too much
information in the hands of the government. Have you wrestled
with this any at all in your approach to it? Are you still
leaving that to the FinCEN level to try to work it out?
Secretary Mnuchin. No, I have been actively involved in
discussions and I am going to ask the chairman to set up a
meeting with the appropriate people on the committee. As I have
said, there are different solutions. There is not a perfect
solution. But I do believe we need to solve this and move on.
Mr. Pearce. I would agree wholeheartedly. It penalizes
legitimate businesses when the shell companies can come in and
operate and launder money. Right now the oil field has a lot of
companies come in and they compete mercilessly with cash that
is not generated from legitimate operations. And it takes away
from the strength of the local business community.
Now, when you testified before us about a year ago, you
said about 50 percent of your time was used on cybercrime and
cyber terrorism financing. Is that still true? Is it still the
pushing wave?
Secretary Mnuchin. It is.
Mr. Pearce. It's something that we wrestle with in the TIF
Subcommittee. We just plan to continue to work with you on it.
Again, appreciate your leadership. It has always been steady
and Sigal has just been good to work with and so the stability
of the agency is something that I appreciate from my
perspective. The rising wage market, rising employment markets,
those are things that all of America is in awe of right now.
The growth rate projected by the Atlanta Fed last month is
phenomenal. So again, Mr. Secretary, thanks for your work.
Yield back.
Chairman Hensarling. Gentleman yields back. Chair now
recognizes the gentleman from Georgia, Mr. Scott.
Mr. Scott. Thank you very much. Welcome, Mr. Secretary. Mr.
Secretary, the people of this Nation are very worried. They are
very concerned about this trade war. Make no mistake about it.
Both Democrats and Republicans are very much worried about it.
Now I really want you to listen very carefully to me, because
there is no State that could be so devastatingly impacted on
this than my beloved State of Georgia.
Let me explain to you how. Let's take the fact that poultry
for example--Georgia is the leading producer of poultry in the
world. And according to our National Chicken Council and
leading chicken producers like Tyson's Food, they have informed
me that in 2014, for example, U.S. chicken exports to Mexico,
one of our most important markets alone, totaled $800 million.
But during the same period, Mr. Secretary, Brazil's exports
went up from $50 million to $200 million. If we continue to put
up these trade barriers in Mexico, it is clear as a bell to
anybody looking at this that they will take even more of the
market, leaving American chicken farmers and producers out in
the cold.
Let us go to another one. Let us take aluminum for example.
In Georgia, we have massive users of aluminum, manufacturers.
And it is not just Georgia, but all across the Nation.
Imagine--go into a grocery store and just look at how much of
our food, our beverages are contained in aluminum cans. Can you
imagine the impact that will have? I want to go to another
point, our pecans. Did you know that half of the pecan
production in Georgia is exported to China, in which we are in
the middle of? And Georgia produces one third of all the pecans
in the United States.
I want you to have that, I want you to recognize Georgia. I
want you to tell the President how damaging this will be to
Georgia businesses, Georgia farmers, Georgia manufacturers, and
not only that, to the employees, because when the aluminum
manufacturers come in, that is going to be a one to 18 ratio in
loss of jobs.
Mr. Secretary, let me just ask you this. My question is
this, to you, are you prepared, are you ready to be the one who
will take full responsibility as the Treasury Secretary in
charge when Georgia and this Nation inevitably enters into this
high inflationary rate?
Who's going to pay for this increase? It is the Georgian
American consumers going to do that. What about the loss of
jobs in manufacturing? It is going to be the American people.
You say well the economy's moving on all cylinders. I agree
with you, but what I am curious about is the cavalier attitude
this Administration has of the loss of jobs, of the impact on
this. The side effects while we are riding on this sugar high.
And I want to just ask you this question, are you ready to
assume full responsibility of the downside when the darkness
comes? Are you ready to take full responsibility?
Secretary Mnuchin. I am, and I share your concerns, and as
I have said, we are not taking this lightly. We are monitoring
all these specific issues carefully. We are concerned about the
job losses on the areas that you have impacted.
Mr. Scott. And you understand a real outside impact this is
going to have on our people in Georgia? I want to make sure,
because we are going to be paying close attention. Now, in the
Senate, someone mentioned this, but the Senate passed a
resolution 88 to 11, the resolution was largely symbolic.
But it said that there may be and should be an expanded
Congressional role in overseeing the tariff decisions. And I am
concerned do you support this?
Secretary Mnuchin. I do not.
Mr. Scott. Very good. Thank you, sir.
Chairman Hensarling. Time of the gentleman has expired.
Chair now recognizes the gentleman from Oklahoma, Mr. Lucas,
former chairman of the House Agricultural Committee.
Mr. Lucas. Thank you, Mr. Chairman. Mr. Secretary, I want
to raise with you one capital requirement rule that has been
the subject of this committee's scrutiny. Mr. Luetkemeyer has a
bill, of which I and others are co-sponsors, which would offset
for purposes of capital rules, any client margin that is posted
to a clearing member.
This idea was a recommendation of your department's first
report in 2017 and has been discussed in Europe as a regulatory
change. As this hearing is about international issues, I would
call to your attention a recent CFTC report stating that the
market share of U.S. banks in terms of futures options
positions has decreased 10 percent in the last 5 years compared
to European banks.
While I do think this fact points to a competitive
imbalance between us and the Europeans, I am more concerned
about the health of clearing for derivatives.
If these data are correct, some capital rules might be
hindering the laudable goal and policy of clearing that
Congress mandated in 2010. And it will not help markets if
capital rules encourage participants to go elsewhere for
derivatives clearing.
Given that, do you think that the SLR rule needs to be
tweaked to offset client margin and would such a change make
sense for purposes of helping clearing in the United States?
Secretary Mnuchin. It's something we are discussing with
the regulators as you have outlined.
Mr. Lucas. Thank you, Mr. Secretary. And could we turn for
just a moment, since trade seems to be the topic of discussion
here, and I represent an ag and energy district, and in both
situations, we produce more in my region and generally of those
products than we can consume in the United States, thinking of
natural gas as well as certain ag matters.
The situation that we find ourselves in that the President
and the Administration are trying to address both with China
and the rest of the world would seem to me to be something that
has evolved not in the last few months or days or weeks, but
literally the positions of our predecessors in Congress and
previous Administrations starting after the Second World War.
Give the world an opportunity to do business with the
United States, encourage economic development, capitalism and
democracy will follow. Now the Europeans have a strong economic
system. From the ashes of the Second World War, they created
it. And a strong politically democratic system, a democracy
patterns there.
Our friends on the other side of the Pacific, while they
seem to have understood that communism was not the best
economic model and have adopted capitalism, some might even say
the old mercantilist version of capitalism.
They have not made the political steps forward that perhaps
our predecessors have hoped for, but is it fair to say that
what the Administration is trying to do now is, in general,
reset the trade field for the entire planet in a more equitable
fashion?
Secretary Mnuchin. That is absolutely correct, free and
fair trade.
Mr. Lucas. The old days of giving everyone else advantages
in order to help them develop, to create a more stable and
peaceful world--that stage is now gone and it is time to make
sure we are treated fair and equitably. Right, Mr. Secretary?
Secretary Mnuchin. That is correct.
Mr. Lucas. And when you reorder the entire world, it is not
a simple process. Correct, sir?
Secretary Mnuchin. Definitely not.
Mr. Lucas. The battle will be politically and economically
challenging? So staying the course is something we need to do?
Secretary Mnuchin. It is. Thank you.
Mr. Lucas. That said, I was a young wheat farmer when
President Carter did the embargo against the Russians, which
also led to our boycotting the 1980 Olympics, using agriculture
for a political tool on some other issue.
But in all industries in the United States that depend on
trade, this is not using us as a tool for some other political
goal; this is trying to achieve the survival of those
industries for the long haul. Correct, Mr. Secretary?
Secretary Mnuchin. It is about economic fairness, as you
have outlined.
Mr. Lucas. Thank you, Mr. Secretary.
Yield back, Mr. Chairman.
Chairman Hensarling. Gentleman yields back.
The Chair now recognizes the gentleman from Texas, Mr.
Green, Ranking Member of our Oversight and Investigation
Subcommittee.
Mr. Green. Thank you, Mr. Chairman. I thank the witness for
appearing as well.
I would like to visit with you about something a little bit
closer to home, if I may. The CRA, the Community Reinvestment
Act, was enacted in 1977. It was enacted because of redlining,
which impacted poor people and minority people, for the most
part. There is now some talk of reforming the CRA to some
extent. And it has been recorded that there is a desire to
expand the definition of community development.
I am concerned about this, Mr. Secretary, because I have a
good many constituents who believe that the CRA should be
strengthened to aid more poor people. It seems that there is
the possibility of adding business lending, some aspects of
business lending to the CRA such that banks can get credit for
business lending.
Tell me, where are we currently on the CRA and this
reformation that may take place?
Secretary Mnuchin. First of all, I am going to suggest that
Mr. Otting comes to visit you to get your views on this. I
firmly believe that this is something that we should take a new
look at because I think CRA can help communities much more so
than it does. And this is something I was personally involved
in from running a bank. I think that banking has changed, and I
think we need to figure out how CRA really can help
communities. And I am going to suggest he comes and speaks to
you about that.
Because I can assure you, our desire in changing CRA is not
about weakening CRA in any way; it is about making it more
effective for communities, and making sure that the benefits go
to the communities.
Mr. Green. I appreciate what you just shared with me, and I
look forward to the visit. But I do have to indicate this, Mr.
Secretary, a lot of the push is coming from the banks. And the
banks are back, the banks are doing quite well, they are making
record profits, $167 billion annually over the last 3 years.
Profits are up 135 percent since Dodd-Frank became the law.
Business lending is up 80 percent since Dodd-Frank became the
law, and the big banks will receive a $15 billion windfall in
2018 as a result of the tax bill.
So I am concerned that we are overemphasizing paperwork and
the notion that the bureaucracy is creating a loss in some way
for banks. Banks are doing quite well. And my concern is this,
if we change the CRA such that business lending becomes a means
by which banks will be able to acquire additional credits, that
may harm the lending to poor people, which is what the CRA was
envisioned as a means of helping by way of dealing with the
redlining that was taking place.
So I welcome the visit, but I have to ask you this, before
you enact whatever these changes are, I would like to visit
with you, Mr. Secretary. You are where the buck will stop. I
would like to have an audience with you so that you can know
more about how this will impact my constituents. And, by the
way, I speak for a good many people who are not speaking on
this subject; people across the length and breadth of this
country who depend on banks being fair. So I beg that you and I
would have an opportunity to meet and discuss this.
I am not a person who needs a lot of time; I am fairly
pithy and concise. I don't deal in small talk. I go right to
the point. So I think that it would be beneficial for us to
have this meeting.
Secretary Mnuchin. Mr. Green, I would be more than happy to
meet with you, and, again, I can give you my personal assurance
that this is actually an issue that I have asked the regulators
to look at because of my personal concern and experience, that
the money is not going into the communities where it should be.
This is not an effort that is being driven by the banks to
avoid CRA; this is about, in my mind, and we look forward to
working with you, how would banks better service communities.
Mr. Green. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. Time of the gentleman has expired.
The Chair now recognizes the gentleman from Florida, Mr.
Ross.
Mr. Ross. Thank you, Chairman.
And, Mr. Secretary, thank you for being here, and thank you
for your service to this country. I will tell you, since you
have taken office, we have, as a committee and as a Congress,
tried to give you tools to do better for our economy, to do
better for our consumers. Tax law, we did a little banking-lite
to open up some capital in the community banks and reduce their
regulation.
There's a lot more we would like to do, but we are running
out of time. And there is a lot you can still do in the
Department of Treasury, especially when it comes to housing
finance. We can't forget what happened in 2007 and
unfortunately, we have not been able to prevent statutorily a
recurrence of what may happen in a housing bubble. And I would
love to see credit risk transfers being implemented from the
private sector to release some of that burden that the
government now has in backing these mortgages.
But yet, we are moving slow. And so we have to rely on you.
And in public remarks earlier this year, Craig Phillips, one of
your counselors, stated, ``the Department of Treasury is fully
committed to the successful implementation of the Single
Security Initiative being undertaken by the FHFA, Fannie Mae
and Freddie Mac.''
I understand that taxpayers have sunk nearly $1 billion
into this effort, and I would be interested in your perspective
on things, where things stand with this effort.
Secretary Mnuchin. It is being implemented. It is something
we support, but more broadly I would just say I also support--
we need GSE (government-sponsored enterprise) reform. This is
something I am determined and the next Congress should be a
major focus of ours.
Hopefully on a bipartisan basis, but we can't just leave
these things sitting the way are as they have been.
Mr. Ross. And which is why we are relying on your
department, I think, to do as much as they possibly can,
including the common securitization platform that compliments
this that allows for the implementation of this.
Do you think that platform, the common securitization
platform, should be available to all market participants, not
just Fannie and Freddie?
Secretary Mnuchin. My strong preference is as part of GSE
reform that we create a system of competition that if other
people wanted to compete with the GSEs they could. But
obviously that is dependent upon certain changes to
legislation.
Mr. Ross. We have to make. And it is your understanding
that there's plenty of capacity in the market to take some of
that, is there not, from the GSEs?
Secretary Mnuchin. I believe there is, but again, we need
an overall solution to this.
Mr. Ross. And just for guidance, are there any other
principles that you think are important we should be following
in order to do in effect of GSE reform?
Secretary Mnuchin. Again, I have said that as part of this,
if there is either an explicit on an implicit guarantee, my
preference is if there is a need for that, there is an explicit
and the Government is paid and taxpayers are compensated.
Mr. Ross. And I think that is reality in government and
insurance anymore unfortunately. But as a last back stop is
where we are trying to get government to be when it comes to
the guaranteeing.
Today there are about half as many companies that are going
public than they did 20 years ago. In your opinion, why is
that? Is it lack of access to capital, regulatory burdens?
Secretary Mnuchin. I think it is regulatory burdens, and
that is something we look forward to working with you on.
Mr. Ross. Excellent, and one of the things I want to just
close by saying is that we have probably the best system of
regulation when it comes to insurance with State regulators.
And under your direction through FIO (Federal Insurance
Office), we are negotiating with the International Association
of Insurance Supervisors. I think it is important that we deal
from a position of strength and that we assert our ability to
regulate on behalf of consumers, on behalf of capital
requirements and solvency requirements so that we are not
influenced unduly by foreign markets when it comes time to
reaching our deals with the IAIS.
And for that, if you have any comments, I would appreciate
that. Otherwise, I will yield back the balance of my time.
Secretary Mnuchin. I think we agree with you and we are
comfortable where we are and we will be unduly influenced.
Mr. Ross. Thank you. Mr. Chairman, I yield back.
Chairman Hensarling. Gentleman yields back. Chair now
recognizes the gentleman from Missouri, Mr. Cleaver, Ranking
Member of our Housing and Insurance Subcommittee.
Mr. Cleaver. Thank you, Mr. Chairman. Last week, I had a
meeting in Higginsville, Missouri, town of 5,000 people in my
Congressional district in Missouri. I had a meeting of farmers,
standing room only, we couldn't get anybody else in there in
the center.
Not one person in there believed that this tariff move by
the President is good for them. Every three rows of soybeans
that grows in Missouri goes to China. But I don't blame the
President for this.
I may be the only person in the country, I don't blame the
President. And I told them this. I blame Congress. We have
allowed over the last 30 years, the President, whomever was the
occupant in the White House, to gradually take the
constitutional responsibility of Congress.
From the War Powers Act of 1972, we went onto this--for
example, the President shouldn't have the authority to do this,
because as the law--the 232, the Tax Expansion Act requires
that there is a 270 day period during which we are supposed to
be studying the issue and the President is supposed to be
waiting on us to do that. But because the founders never
envisioned a compliant Congress and so what has happened, the
presidents just snatched power. I know if we could almost
breakdown because of anger when President Obama stood up at the
state of the union and said he would sign no earmarks.
He doesn't have that power, he doesn't have that power. The
constitution gives the power of the purse to the Congress, and
we are just constantly giving more and more and more and on
something as critical as this whole tax issue, we are just
saying to the President of the United States, in spite of the
fact that there's legislation that would prohibit it or give
direction to him, they will do whatever he wants to do, and we
are going to sit here.
Now, having said that, Secretary, do you believe that in
spite of my farmers going crazy, Kansas City Southern world
headquarters is in my district, Kansas City's Southern
Railroad, which means they go south through Kansas down through
Texas and into Mexico, and they are extremely concerned and
frustrated.
So are you saying all these people are just misguided and
they will be OK next week?
Secretary Mnuchin. I don't want to in any way imply that
they are misguided, because again, I understand the impact that
this is having on specific areas, especially the farmers which
I think are being unfairly targeted.
And as I said, it is a major focus of ours to make sure
that we can compete fairly and we are very focused on these
trade issues, as you have outlines. But I understand the
issues.
Mr. Cleaver. Do you think that these trade wars have ever
worked? Discuss Smoot-Hawley, 1930. Did that work?
Secretary Mnuchin. Again, I would just say, I don't think
we are in a trade war. We are in a situation of trade disputes,
OK, these are not trade wars. And we are very focused, as I
said, on the NAFTA issue, which is renegotiating an old
agreement.
We are very focused on the China issue which is very
complicated as you have outlined in fair trade.
Mr. Cleaver. OK, so if I hit Al Green with my fist, we are
not really in a fight, we are in negotiations? We hit China,
China hit us back. That is not a war, a fight?
Secretary Mnuchin. No, I wouldn't say we are in a fight at
all. And matter of fact, the President has specifically
commented on his relationship with President Xi and how they
are helping us with North Korea and other areas.
And again, as I have just said, I don't think in any way we
are in a fight with Canada and Mexico, quite the contrary. We
are very focused on these agreements, and I am going down to
Mexico tomorrow as a sign of the importance of that.
Mr. Cleaver. Do you also agree then that Smoot-Hawley,
based on economist, your people that you would respect, agree
that it was the Smoot-Hawley Act of 1930 that created less
confidence in the markets, which contributed to the length of
the collapse of the world economy, which happened, actually,
back in 1929, a few months earlier. That that did not
contribute?
Secretary Mnuchin. I think it wasn't the only issue, but it
did contribute and that is why I said we are monitoring this
very carefully.
Mr. Cleaver. Thank you.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognized the gentleman from North Carolina, Mr.
Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman.
Again, thank you, Mr. Secretary, for being with us today.
Really want to appreciate, of course, your strong work and
support for our FIRRMA legislation to reform CFIUS.
Of particular note, I would like to publicly thank
Assistant Secretary Heath Tarbert for his great work in
brokering this with multiple agencies and committees,
individuals in the House and Senate. He did an incredible job.
So thank you to him, please.
Mr. Secretary, are there any aspects or concerns that you
have of the current legislation that would create a loophole or
other manner in which it could be exploited by an adversarial
interest?
Secretary Mnuchin. I am sorry, you are referring to the
current CFIUS or you are talking about FIRRMA?
Mr. Pittenger. FIRRMA--the FIRRMA bill as we are
negotiating it between the House and Senate.
Secretary Mnuchin. All right. First of all, thank you for
thanking us on the work of FIRRMA. I would like to thank the
House and Senate for the enormous bipartisan support. And as I
have emphasized to the chairman and leadership on both sides,
we want to get this passed as part of the NDAA. This is very,
very important to the Treasury and our role of CFIUS.
Mr. Pittenger. Yes, sir. Are there any aspects of it that
you would favor or be concerned about or at the end of the day,
the final legislation that you feel like needs to more clearly
or focus address on any issues that remain outstanding?
Secretary Mnuchin. Again, we are very happy with the
legislation. I think there are some slight differences between
the House and the Senate version.
And I actually had the opportunity to meet with the
chairman before this morning's testimony, and I think we are
going to work together and with the conferees on trying to get
this done quickly.
Mr. Pittenger. Yes, sir. Thank you very much. Mr.
Secretary, following the President's trip last year to Riyadh,
to meet with the Arab and Muslim countries, some 55 or so
countries; from that, I recall an announcement of an anti-
terrorism financing center to be set up in Riyadh. Do you have
any further information on that or what has happened following
that announcement?
Secretary Mnuchin. Sure. I have a lot of information on
that because we are the focus of that at Treasury. That was a
major focus of ours for the President's trip. I actually had
the pleasure of signing the MOU (memorandum of understanding).
On my trip last year, it was a major focus. I went to Saudi
Arabia and saw the opening of the center. I will be going back,
I believe in October, and I have committed on an annual basis
to go back. We have issued the first sanctions jointly out of
the TFTC (Terrorist Financing Targeting Center), and this is
one of our major priorities at Treasury.
Mr. Pittenger. Thank you, sir. As well, would you have any
comments that you could make, referencing the MOU with Qatar,
given the concerns we had in the past regarding the complicit
role that Qatar had with harboring known financiers or funding
for kidnapping or other foundations that were utilized, that
there was the State Department MOU, which I have read, that
would encourage Qatar to be more engaged with us in our
oversight?
Secretary Mnuchin. I can't comment on past activities, but
I can comment on current activities.
Mr. Pittenger. Yes, sir.
Secretary Mnuchin. I think they have made significant
progress. We are working with them very closely. They are part
of the TFTC. We have also had bilateral discussions. I have met
with them recently on an ongoing basis, and we are very focused
on working on terrorist financing with them.
Mr. Pittenger. Yes, sir. Do you see any remaining concerns
in terms--do you feel like they have fully turned the corner?
Secretary Mnuchin. Again, I want to be careful in what I
say on this. There is always more work to do. But they have
made very significant efforts in the right direction.
Mr. Pittenger. Just changing the focus a little bit, now.
In reference to 2155, could you give me some idea of the role
that Treasury will play in terms of the implementation of that?
Secretary Mnuchin. We are going to be actively involved--
just checking the number. We are going to be--
Mr. Pittenger. I am sorry.
Secretary Mnuchin. Because I always refer to it as FIRRMA.
I apologize. We are going to be actively involved. We have
already started working on drafting regulations. We have a team
of people that are ready to implement this immediately.
So I would hope that as soon as this is passed in the early
fall, we can begin implementing this. We are going to work with
Congress on additional funding. But, again, this is one of the
top priorities at Treasury, and this is critical to close holes
in CFIUS that we need, particularly around joint ventures and
in other areas.
Mr. Pittenger. At the end of the day, we don't want to look
back, two or 3 years from now, and see that we have not done
the full job. Thank you.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentlelady from Wisconsin, Ms. Moore,
Ranking Member of our Monetary Policy and Trade Subcommittee.
Ms. Moore. Thank you so much, Mr. Chairman.
And Mr. Secretary, again, let me say welcome to you and
welcome to the committee. Let me get right to it. Our chairman
here referred to the economic miracle of the tax cuts. And I
just want to say that the only time that income inequality has
been greater than it is now is upon the dawn and advent of the
Great Depression. So income inequality is not a good thing for
our economy and other people's economy.
So before I go on to talk about that a little bit more, I
just want to refer back to the things that I talked about in my
opening statement, the universal service fund.
There are many, many, many more poor people who have fallen
out of the middle class because of the bifurcation of benefit
from that tax bill. And so despite the declarations that people
are better off we have seen wages not stay flat but actually
fall.
So this notion that we have less unemployment but flat
wages or lower wages that we are having bonuses given out.
Walmart is a good example, was up there. They gave $400 million
of bonuses to its employees and then simultaneously laid off
10,000 people. So this notion that Joe Sixpack is better off is
not something that is provable.
Having said that, there are more poor people and so I am
just very concerned about the Universal Service Fund. And even
though Brad Bailey responded to my letter, very short. He did
not really--he was very unresponsive to my requests about how
you all intend and plan on administering the Universal Service
Fund to make sure that it retains its purpose.
And so I will be asking you offline to do that. Now I want
to go back to the economic miracle here, because of course when
we implemented the tariffs, that was a double hit. I grew up in
the neighborhood where Harley Davidson has its international
headquarters in Milwaukee, Wisconsin.
And I am just in--the President to start picking on my
little hometown company, and I am just wondering why he was so
surprised. Given the structure of the tax bill, I just want to
know why you are surprised. They had their corporate rate
lowered from 35 percent to 21 percent.
Then, of course, they repurchased $15 million of their
shares valued at nearly $700 million. It incentivized them to
do that. The repatriation of tax benefits to corporations,
rewarded people for bad behavior.
They laid off workers in Cleaver's district, 800 workers,
but they are going to hire 400 new ones in Thailand. Why is the
President surprised, since we had a tax bill that incentivized
not raising wages? Why are you surprised? Why is the President
surprised by Harley?
Secretary Mnuchin. I--again, I would beg to differ. But I
think the tax bill actually encouraged significant investment
and that is--
Ms. Moore. But it didn't happen. Walmart--
Secretary Mnuchin. There absolutely has. In Wisconsin,
there's a tremendous amount of jobs coming into Wisconsin as a
result of the tax bill and as the result of new facilities new
facilities that are available--
Ms. Moore. Oh, Foxconn?
Secretary Mnuchin. Yes.
Ms. Moore. Oh yes, well Foxconn is going to be a $4 billion
cost to the taxpayers. It's what I call socializing the costs
and privatizing the profits. It is bigger than our doggone
State budget. What we are giving as an incentive, so that dog
don't hunt, quite frankly.
The math doesn't work out, Mr. Secretary of Treasury.
Secretary Mnuchin. Again, I am not going to comment on the
State numbers, which again I wasn't--
Ms. Moore. Right, they are my State.
Secretary Mnuchin. My understanding is that the State's
analysis was quite well thought out--
Ms. Moore. No, I read the State analysis, and it is going
to cost more than we are going to benefit. The--and so I am
trying to understand why the President is surprised that this
tax bill didn't trickle down into wages, but just became a way
to buy back shares of stockholders and didn't trickle down to
Joe Six Pack.
Secretary Mnuchin. I--again we would be happy to follow up
with your office and show you wage growth, which we have
already seen and anticipate more.
Chairman Hensarling. Time of the gentlelady has expired,
the Chair now declares a recess for 15 minutes.
[Recess.]
Chairman Hensarling. The committee will come to order. The
Chair now recognizes the gentleman from Illinois, Mr. Hultgren.
Mr. Hultgren. Thank you Mr. Chairman. Mr. Secretary, good
to see you, thank you for being here. Honestly, from the bottom
of my heart, thank you for your work. I am so encouraged as I
travel around my district in Illinois of the optimism that the
Chairman talked about of this new growth that we are seeing of
opportunity for everybody.
And that when we have an economy, markets that are working
and growing, that there is this wonderful spiral of optimism
that we see happening out there, and I just want to thank you.
I know it is a big commitment, it is tough even to be a
part of something like this, and yet I just want you to know I
appreciate your work and appreciate the work that you and
President Trump and others have done to get this economy
growing again, to lower unemployment, and to raise hope and
optimism.
So with that, just want to say thank you so much. I do have
a lot of questions and concerns, as many others have, of
tariffs, and thank you for listening on that. I want to talk
about other things, if that is all right. I understand that the
Treasury Department has been doing a lot of thinking about how
technology is disrupting the financial services industry.
Some people call it FinTech, which I believe is partly
attributable to how quickly the options for how consumers
access financial products and services is changing. I think it
is fair to say that depository institutions have been forced to
grapple with a lot of new regulation in the wake of Dodd-Frank
that has made it difficult to compete with non-depositories.
However, I also believe that it is best products and
services should be successful. So one, do you believe that
there is an unlevel playing field for depository institutions
and non-depository institutions when it comes to their ability
to adapt and innovate?
And wondered when the Treasury Department would publish the
report outlining some of its policy views on how technology is
disrupting financial services, including any recommendations
around the availability of a Federal charter?
Secretary Mnuchin. So we should be coming out with the
FinTech report shortly, I have had an opportunity to review a
draft of it, and it is just going through final review. Look, I
would say, like any legacy industry or any regulated industry,
there are good things that occur and developments outside in
the FinTech world, and there are concerns. And we want to
strike the right balance between both of those.
Mr. Hultgren. Thank you. The United States participates in
the Basel Committee on Banking Supervision and International
Association of Insurance Providers. I have been critical of
some of the standards established by this group, and other
international bodies because of their inapplicability to our
financial system, especially for smaller financial institutions
and insurance providers.
I wonder, do you believe these international standard-
setting bodies provide value to the global financial system,
and then as a global leader in financial services, banking,
insurance, and capital markets what do you believe the role of
the United States should be in such international standard-
setting bodies?
Secretary Mnuchin. I think in general they do provide value
because we do need to be careful and make sure we have
consistency and deal with issues. On the other hand, so I think
our role is both a leadership in that we provide leadership in
the financial markets, but also to make sure our companies are
represented in our industries fairly.
Mr. Hultgren. Thank you. The Treasury Department includes
Federal Insurance Office, recently FIO has been involved with
the establishment of covered agreement with the European Union
among other things. I wonder if you have any concerns with the
amount of independence this office has, how should we institute
prudent oversight and accountability of the file director
without undermining his or her ability to effectively represent
the views of the Treasury Department in the United States?
Secretary Mnuchin. I am not concerned about the
independence; we have worked closely with that area and been
actively involved in the covered agreements.
Mr. Hultgren. Great. Since you last testified before our
Committee, Director Mick Mulvaney also sat in the same chair
that you are sitting in and expressed his support for turning
the Consumer Financial Protection Bureau (CFPB) into a
bipartisan commission. I asked my friend, Mick, who was a
classmate of mine, coming in to Congress if he still believes a
Commission provides greater certainty to market participants
and consumers?
And he testified, he said, I still believe that. And that I
was a co-sponsor of that bill when I was here. I wonder if you
support turning the CFPB into bipartisan commission, why or why
not? And what steps the Treasury Department is taking through
its work with Congress to turn the bureau in to a bipartisan
commission, if they are doing that at all?
Secretary Mnuchin. I do share his view; we are not taking
any steps on pursuing that at the moment more because it would
need bipartisan support.
Mr. Hultgren. Again, Secretary, thank you for your work. I
have a few seconds I would yield back to the Chairman.
Chairman Hensarling. Gentleman yields back.
The Chair now recognizes the gentleman from Maine, Mr.
Poliquin.
Mr. Poliquin. Thank you Mr. Chairman, very much, thank you,
Mr. Mnuchin, for being here, again, appreciate it very much. Up
in the great State of Maine, sir, where you would likely need
to go on vacation this year because we are vacation land, it is
a great stress-free environment that I am sure your wife would
enjoy also.
But our economy is doing quite well, Mr. Mnuchin. We have
about 2.8 percent unemployment, there are thousands more jobs
and we have workers available, our paychecks are getting
bigger, and it is easier to change jobs if you don't like the
one you have now.
One of the problems we have had, sir, in our great State is
the export of our young adults, because we didn't have an
economy that was conducive to the employment they want, and now
we have some of our young adults being able to come back home.
So, I am thrilled about this. Now, this didn't happen by
accident; it is because taxes are lower, and workers and
employers can keep more of their own money since they are able
to invest and create more jobs, more opportunities for our
young adults, and it is because regulations are also lower, at
the State and Federal levels. So this whole war on jobs is
over.
Now, thank you for your support in getting us there, first
of all, Mr. Mnuchin. Second of all, I am really concerned about
our small savers and investors throughout rural Maine, a nurse
in Lewiston or a teacher in Bangor who is trying to save for
his or her retirement, or maybe their kids' education through a
529 plan.
And when you deal with increasing regulations and cost, for
any business in particular, in this case a pension manager, a
retirement manager it means that the rate of return for that
saver is going to be lower and the nest egg is going to be
smaller.
So you, sir, are the Chairman of FSOC. You have a
tremendous amount of influence on that 10 member panel. I think
it would be incredibly helpful if you were able to lead an
effort, or support an effort at FSOC to give certainty when it
comes to the rules and the guidelines that oversee non-bank
asset managers who manage retirement funds for thousands and
thousands of small savers in Maine.
Because if you can avoid the unnecessary burden of being
designated by FSOC as a SIFI, then you can avoid all these
expensive regulations that are unnecessary, build up the nest
egg for these small savers in Maine and elsewhere. Do you think
that is a good idea, and can I get your commitment from you,
Mr. Mnuchin, that you will help us down that path? Yes?
Secretary Mnuchin. Yes.
Mr. Poliquin. Good, I want to make sure we all heard that.
Thank you very much. Do you have any timeframe within which
this great staff behind you, and others over at U.S. Treasury,
will get to this project?
Secretary Mnuchin. We will follow up with your office
promptly and talk to you about that.
Mr. Poliquin. I appreciate that very much, thank you, sir.
I am also guessing that you attribute our strong economy
throughout the country, and better paying jobs and fatter
paychecks--because of the lower taxes, and less regulatory
environment in the country, is that correct, sir, in our
economy?
Secretary Mnuchin. That is correct.
Mr. Poliquin. Do you think it is a good idea, Mr. Mnuchin,
that Congress should work toward certainty when it comes to the
tax code for individuals and small businesses to make those
lower taxes permanent so our economy can continue to grow and
give more opportunities to our kids?
Secretary Mnuchin. I do, and that is something we are
already talking to Chairman Brady about, and the President is
very focused on.
Mr. Poliquin. Wonderful. Last, sir, I introduced a bill
this Congress, the Iranian Leadership Transparency Act, H.R.
1638, and 6 months ago when you were here, sir, we discussed it
a little bit. This simply requires the United States Treasury
to post on its website in several different languages including
English of course, and the three languages used in Iran, to
make sure the world and the Iranian people can see the type of
wealth that has been built up among the 70 or 80 Iranian
political and military leaders, so they can see how they are
being ripped off in order to promote the interests of these
mullahs that chant, death to America.
Can I agree with you, or do we agree with each other that
it is good, it is better for there to be more transparency for
the world to see how this small group of political and military
leaders whose suppressing their citizens in the country of
Iran?
Secretary Mnuchin. In general I support full transparency
as it relates to the specifics, and us publishing that, that is
something I want to talk to my group about and speak to you
about.
Mr. Poliquin. I really appreciate that because that did
pass this Committee and the house flew with a big bipartisan
vote, and we greatly appreciate that support. Thank you very
much, Mr. Secretary, for being here, I appreciate your candid
answers.
Secretary Mnuchin. Thank you.
Mr. Poliquin. Thank you, Mr. Chairman, I yield back.
Chairman Hensarling. Gentleman yields back.
Chair now recognizes the gentleman from Arkansas, Mr. Hill.
Mr. Hill. Thank you, Chairman, appreciate the Secretary
being with us today, thanks for your forbearance for all of our
questions, and also appreciate your consistent voice and
leadership on the success of the tax cuts, bill, and the
regulatory reforms that the Treasury's been at the forefront
of.
One thing I have heard I might say from a lot of my
regulative financial institutions in Arkansas, that they like
the appointees that are in the oversight. They like the S. 2155
which repealed some of the aspects of Dodd-Frank.
But they are still not necessarily seeing a change in the
exam process or the impact of turning the Administration from a
regulatory burden point of view. I would interpret that from a
tailoring point of view. So I think that might be something in
your FSOC capacity when you are talking to your colleagues you
may want to consult on.
Also, speaking of the tax bill and regulation I think you
are aware that some foreign banks who we want to attract the
United States and set up intermediate holding companies here
and prosper in America lending money here and serving clients
in America, are put at a disadvantage potentially by the tax
code and those who have the regulatory obligation of having a
TLAC or a total loss absorbency capacity, regulatory
requirements are in conflict some with the tax bill on how we
tax dividends from foreign companies. Are you aware of this
conflict?
Secretary Mnuchin. I am extremely aware of this and we are
working on specifics. We understand the conflict between the
tax bill and the regulatory environment.
Mr. Hill. Good. I know you are in the right spot with the
domestic finance and tax expertise to try to sort through how
best--I hope you will bring it to the Legislative Branch if we
need to take action on a resolution.
Secretary Mnuchin. We are hoping that we can fix it without
legislation, but if we can't, we will definitely come back and
address it.
Mr. Hill. Good. Thank you. You also referenced to an
earlier question about the GSEs and I share your concern. That
is a something that in my long career in the public and private
sector I have been focused on. I can remember David Maxwell
when he was the CEO of Fannie Mae testifying to the Senate
Banking Committee when I was a staffer about the essential
nature that if Fannie Mae did not diversify its revenue sources
it would go out of business, and that was back in 1983.
And I raise that issue because of while we all want to
reform the GSE's, I noted that the FHFA has permitted the GSEs
to engage in a number of new activities, a host of pilot
programs which go well beyond their traditional secondary
mortgage market role, and that is while the ghost of David
Maxwell echoed in my head.
Don't you think that they ought to be focused on their core
mission of secondary mortgage market to low and moderate income
homeowners and not be allowed to go off and do things like
competing with the private sector and potentially purchase
mortgage service rights financing or private mortgage
insurance. Are you aware they are submitting these pilot
programs?
Secretary Mnuchin. I am aware of it and generally I agree
with you without commenting on every specific one. But yes, I
think they should stay to their core business.
Mr. Hill. Thank you. I want to echo the comments of my
Chairman. You know on the trade issue, there is no doubt that
the Constitution enumerates the power that article 1 is
responsible for regulating commerce between foreign nations,
that is clear. And over the years since the 1930's, we have
delegated under our oversight tariff setting parameters and
certain other negotiating parameters to the Executive Branch
and I think that is why you see the questions that Secretary
Ross got in the Senate and that you are getting today.
We all have farm customers that are concerned about soybean
prices and we have intermediate goods manufacturers concerned
about the steel imports and aluminum imports. I hope you will
be a voice for moving these discussions along quickly and also
suggest ways other than a blanket across-the-board imposition
of 232 tariffs under national security purposes, there are
other ways to stop transshipments and other ways to be dumping
steel and aluminum. And I would have preferred you going
directly to China, to the point, and using 301 on steel and
aluminum rather than the national security angle. Any comment
on that?
Secretary Mnuchin. I would just say as I said before, we
are monitoring all these markets, soybeans, steel, aluminum,
and everything else and we are looking at using 301
appropriately.
Mr. Hill. Thank you. I appreciate you. Mr. Chairman.
Mr. Hultgren [presiding]. The gentleman from Arkansas
yields back. The gentleman from Pennsylvania, Mr. Rothfus is
recognized for 5 minutes.
Mr. Rothfus. Thank you Mr. Chairman. Secretary, I have
previously expressed concerns about the financial stability
board's designation of U.S. insurers as systemically
significant.
These designations have typically proceeded domestic
determinations and it is especially troubling that the FSOC has
historically appeared to act as a rubber stamp to the FSB. I
understand that the FSB is currently reevaluating its approach
to systemic risk and is considering shifting to an activities
based approach.
What is the U.S. position on using an activities-based
approach to systemic risk as opposed to designated individual
companies?
Secretary Mnuchin. We absolutely support that; that is
something we are shifting toward at FSCO as well and part of
the reason why they are looking at it is because of discussions
with us.
Mr. Rothfus. I understand that you are traveling to Mexico.
Secretary Mnuchin. Yes.
Mr. Rothfus. I want to encourage you in your conversations
with them about the importance of developing their economy down
there, because the fact is we have a horrific drug problem
here. And if you talk to the Mexican officials they believe
that we're responsible because there is a demand-side part of
the equation. The fact of the matter is they have not produced
an economy down there where people are having the kinds of jobs
that would keep them gainfully employed.
So I continue to watch the situation in Mexico with alarm.
The impunity down there, the more than 1,000,000 people have
been killed, very few prosecuted on that. So I encourage you in
your talks with them.
While we are talking about Latin America though, illicit
financial networks continue to facilitate drug, human, and
weapons trafficking throughout Latin America. Groups like
Hezbollah are especially active in places like the tri-border
region in Venezuela.
This not only poses a threat to our national security and
regional stability, it also enables bad actors across the
continent to flood places like Western Pennsylvania with deadly
drugs. What is the Treasury Department doing to target illicit
financial networks in Latin America, including working with
countries individually any leverage that we might have to
organizations like the IMF or world bank.
Secretary Mnuchin. I can assure you it is a big focus of
ours. There is more work to do, but it is a big focus.
Mr. Rothfus. Are there specific groups or States that
Treasury has prioritized in Latin America?
Secretary Mnuchin. Again, I am happy to go through with you
privately. There are a whole bunch of different areas that we
are focused on there.
Mr. Rothfus. I want to thank you for your hard work on tax
reform. Just 6 months after enactment, the American people are
already seeing the benefits of this transformative law. Tens of
millions of American workers are receiving bigger paychecks
under the new withholding tables, four million workers have
received bonuses, raises or expanded benefits, and over one
million new jobs have been created.
For the first time in many years, there are more job
openings than job seekers. This is bringing workers who were
pushed to the sidelines during the previous Administration back
into the labor force. The Tax Cuts and Jobs Act coupled with
historic regulatory reform has once again made our country the
land of opportunity.
The Tax Cuts and Jobs Act also established a program that
will ensure that the benefits of our booming economy reach
areas that have historically been overlooked, the Opportunity
Zones Program.
My district in Western Pennsylvania has several designated
opportunity zones including tracks in Beaver Falls, Midland,
Johnstown, and Aliquippa. These are strong communities that can
once again thrive thanks in part to the attractive tax
incentives offered for Opportunity Zone investments.
Can you provide an update on the implementation process for
the Opportunity Zones program?
Secretary Mnuchin. I am glad you have asked about that,
because actually it is one of the most important parts of the
tax plan that gets the least amount of attention. I think it is
enormously powerful.
We have obviously been working with all the States on
designations of Opportunity Zones, we have actually also
traveled across the country in meeting with investors and other
groups promoting this.
So this is something the treasury is very actively involved
with, actually on my way to Puerto Rico next week, on my way to
the G20, all of Puerto Rico is an Opportunity Zone. So
something we are very excited about promoting.
Mr. Rothfus. Can you give us an idea of when we might see
any final regulations that might be required to implement this?
Secretary Mnuchin. I think you are going to see regulations
soon and again, people will be able to invest in it. We have
had very specific conversations with many investors about it.
Mr. Rothfus. Do you care to put some parameters around
soon, can I push you a little bit?
Secretary Mnuchin. Soon is this year.
Mr. Rothfus. Great. Is there anything that Congress can be
doing to help facilitate this process?
Secretary Mnuchin. No, I think we are all set, thank you.
Mr. Rothfus. Now that the U.S. has withdrawn from the Iran
deal, we have the opportunity to use additional sanctions to
change the hostile behavior of the Iranian government. How does
the Administration intend to apply sanctions going forward to
achieve the desires result?
Secretary Mnuchin. Again, we are going to snap back all of
the Iran nuclear sanctions, which are going in place, and we
will continue to roll out non-nuclear sanctions as we have in
the past.
Chairman Hensarling. Gentleman's time has expired. The
gentleman from Texas, Mr. Williams is recognized for 5 minutes.
Mr. Williams. Thank you, Mr. Chairman, and, Mr. Secretary,
thank you for being here and thank you for your candid
testimony today. We appreciate that this morning and for your
dedication to our country.
But this Congress and the Trump Administration are keeping
the promises that they made to the American people, promises
like rolling back regulations and reforming the tax code to
make businesses more competitive and put more money in the
pockets of hardworking Americans.
Unemployment is low, economic growth is high, and consumer
confidence is skyrocketing. These are just a few examples of
the United States' prosperous new trajectory under Republican
leadership and under your leadership.
While these are promising signs, I share some of the
concerns we have heard today from my colleagues regarding the
impact of tariffs on American jobs and businesses. Tariffs are
a cost directly passed on to the consumer and risk damaging
effects on the historic gains that we have made over the past 2
years, and I look forward to working with you and our trade
representatives and the President to combat unfair trade
practices, safeguard American jobs and promote free trade.
So, Mr. Secretary, as you are aware, I am a car dealer. We
have talked about that. And members in both chambers of
Congress are having difficulty understanding why we have
imposed 232 tariffs on our allies.
And we should be acting in unison to prevent China's
economic nationalism. We have also managed to impose tariffs on
washing machines from South Korea, a time when we need a united
front against Kim Jong-un, and soon we may be alienating Japan
as well through national security tariffs against auto imports.
So my question is can you describe in detail the expected
end game for these trade actions and what is the specific
timeframe you expect for these policies to achieve their
desired effect?
Secretary Mnuchin. I think the end game is that we are
focused on having free and fair trade for American companies
and making sure that American companies can compete fairly. And
as I have said, I put them in three buckets.
One bucket is NAFTA, Canada and Mexico, which are a big
priority. That is something we are very focused on. The other
is the E.U., the President was just in Europe having direct
discussions with European leaders.
He is going to meeting with the E.U. later in the month.
And the third is China, which unfortunately many of our talks
have broken down and they have reciprocated with tariffs.
But again, I think our objectives are pretty clear.
Mr. Williams. Another question, now that the Administration
has withdrawn from the JCPOA, how will U.S. sanctions bring
about the behavioral change in Iran required for a long term
suspension of the country's enrichment activities?
Secretary Mnuchin. I think we are already beginning to see
the impacts, so we have seen many companies already announce
that they are going to be withdrawing from their investments
there, I think we expect that the Iranian oil shipment will
decrease significantly.
We are already having conversations with our allies about
cutting their purchases. So I think we are beginning to see a
tremendous impact.
Mr. Williams. And last, can you comment on Treasury's use
of sanctions as a tool to cut off the flow of funds into North
Korea's weapons program and how can we pressure countries such
as China to do more and take a tougher stand against North
Korea's weapons program?
Secretary Mnuchin. I think the sanctions have been very
effective, and I think that is a major reason why they have
come to the table to negotiate and agreed to give up nuclear
weapons.
And as I mentioned earlier, China has been a very important
part of cooperating with us on that.
Mr. Williams. And I just want to close by saying thank you
for being here, appreciate your effort, that of the President
and speaking somewhat from main street small business, let us
keep what we are doing--business is good. Thank you a lot.
Mr. Hultgren. Gentleman from Texas yields back, the
gentleman from Minnesota, Mr. Emmer is recognized for 5
minutes.
Mr. Emmer. Thank you, Mr. Chair. Thank you, Mr. Secretary,
for being here and sitting through this rather long hearing.
Mr. Secretary, you have talked about the importance of initial
public offerings (IPOs) as a means of creating capital.
You have done that before this committee during your last
two visits. We have expressed our concerns, many of which you
share with the overall reduction or lackluster performance of
IPOs compared to historical trends. For its part, the committee
continues to move legislation to build on the success of
efforts like the JOBS Act to enhance capital formation.
Earlier this week the House unanimously adopted the Main
Street Growth Act, which will allow for the creation of
specialized venture exchanges to encourage small and emerging
companies to go public and help them generate the investor
attention and capital they need to be successful.
Encouraging more companies to participate in an IPO is one
thing, but encouraging small, early stage companies to go this
route is especially important. Based on your experience in the
financial sector, can you speak to why it is so important for
new and emerging companies to go public, how these new early
stage entrants make our markets more dynamic and help business
and everyday Americans alike?
Secretary Mnuchin. Despite the fact that there is an
abundance of private capital right now for early stage
companies, the IPO market has always been critical and public
financing that is what has made all of our companies very
successful, access to the most liquid capital markets in the
world to grow and raise capital.
And we look forward to working with you on it.
Mr. Emmer. Thank you. I understand the treasury is--and I
think Mr. Hultgren and others may have referred to your
upcoming reports, so I apologize because we come and go.
But I understand you are getting ready to release your
fourth and final report on financial innovation, in accordance
with the President's 2017 Executive Order.
I have been taking a closer look at how advances in
financial technology can be used to help entrepreneurs start a
business and improve the way they operate or enhance their
access to capital. I think you were asked, but I wasn't clear,
and again, I was coming and going, can you give us a timeframe
first on when you expect that report to be out?
Secretary Mnuchin. As I mentioned, I have just recently
reviewed a draft of the report, so I would hope it comes out in
the next 30 days.
Mr. Emmer. All right, and again I don't mean to cover old
ground, but I just want to be clear, because one of the
statistics that I found very concerning of late is that the
percentage of Americans under 30 years of age that own a
private year business is at a 24 year low, having fallen to
just 3.6 percent.
This figure, as recent as 2010, stood at 6.1 percent, and
its peak stood at over 10 percent in 1989. You commented a
little bit earlier, or at least you were asked, about the
FinTech issue. Is the draft you reviewed, and I didn't hear it
clearly, is that going to be covered in that draft?
Secretary Mnuchin. Yes, a lot of those issues will be
addressed.
Mr. Emmer. OK, wonderful. Last, I want to ask you, you are
no stranger to the complexity of the Bank Secrecy Act and the
Anti-Money Laundering Regulatory Structure. Last summer, when
you testified before this committee, Representative Luetkemeyer
asked about ways to improve the regulatory harmonization of our
BSA/AML system.
The committee has been working on legislation to encourage
Treasury to take a more prominent role in coordinating BSA/AML
policy and implementation, which I believe most of our
financial institutions and entities support.
As this committee and this Congress continue to work on
this issue, are there any additional efforts underway at
Treasury to improve regulatory harmonization among the other
Federal regulators when it comes to our BSA/AML regulatory
structure?
Secretary Mnuchin. Yes, we have a team that is working on
that now, so both a team at Treasury in our TFI area, FinCEN,
they are working with the OCC (Office of the Comptroller of the
Currency), the Fed, and others, so that is actively underway.
Mr. Emmer. And do you anticipate they will put out some
type of report? Obviously they will report to you, but will we
have an opportunity to see what the recommendations and
suggestions are and will we play a role--
Secretary Mnuchin. I am not sure it will be a form of a
report, but we will make sure we communicate back to you in
terms of us putting out some type of guidance or general
comments along this.
Mr. Emmer. Excellent, I will look forward to that. Thank
you for your time, sir. I yield back.
Mr. Hultgren. The gentleman from Minnesota yields back. The
gentleman from Michigan, Mr. Trott, is recognized for 5
minutes.
Mr. Trott. Thank you Chairman, thank you, Mr. Secretary for
your time today and all of your tremendous work on our economy
and job growth, it is just amazing. One of the benefits of
going toward the end of the batting order is I get to listen to
all of my colleagues and take license to respond to some of
them.
So for the record, I do consider you to be a stable genius.
Secretary Mnuchin. Thank you, I take that.
Mr. Trott. Please take it as a compliment.
Secretary Mnuchin. The fact that I lasted this long means
by definition, I am.
Mr. Trott. For the record, Mr. Meeks is misguided when he
suggests you go back and admonish the President to fill the
Ambassadorships. The real problem we all know is the Senate.
There are 569 bills that have been passed out of the House that
are dead in the Senate, and I, for one, am happy they are going
to have to be here in the month of August to get some work
done, and hopefully they will confirm a few Ambassadors.
Mr. Scott from Georgia suggested that his State would be
the most hard hit State by the trade war. I take issue with
that, my State of Michigan no doubt will suffer the most if the
trade war ends badly. Here's my concern, and I spent 30 years
in business, did a lot of deals, found working collaboratively
rather than a scorched earth approach was much more productive.
And when you consider the President's comments in Quebec,
his comments yesterday in Brussels, the comments about the
wall, I worry that it is going to be difficult to reform NAFTA
in a way that won't end up hurting my State, the State of
Michigan.
By the way, my district has the largest number of Ford
Motor employees of any districts in the country. And so I would
just like your thoughts, you said you have been to Canada, you
are going to Mexico. I would like to have some insight from you
on how you address some of the bluster from the President,
which again China's a whole different story, you said it is
complicated, so we will talk about China another day.
But with respect to our allies, I would like to know we are
going to end up in a good place, particularly as it relates to
my State of Michigan.
Secretary Mnuchin. Yes, I am cautiously optimistic, but I
expect we are going to end up in a good place, and that is a
major priority of Ambassador Lighthizer and the entire economic
team.
Mr. Trott. I think the rhetoric though, just to be more
specific--I think when you look at Prime Minister Trudeau, for
example, after Quebec, I think it makes it more difficult for
him to reach a fair and free trade agreement with the United
States.
Because if he does, in the politics in this country, I
think he will be lambasted. So for whatever that is worth, I
think there's a time and place for tough rhetoric. I do worry
as it relates to trade and our allies. In response to Mr. Ross,
you suggested that in the next Congress, housing finance reform
would be a priority. And I am glad to hear that, because I do
worry that we are moving toward more relaxed underwriting
guidelines that could allow history to repeat itself. With
respect to Fannie and Freddie, you had mentioned in your
earlier comments that you would like to see a bipartisan
solution.
That would be great. It has been very elusive for this
Congress to come up with a bipartisan solution on housing
finance reform, 10 years in the making perhaps. So assuming
that is not possible, which is not a big leap of faith, would
you support in the 116th Congress a more simple approach, which
is just to get Fannie and Freddie out of the second mortgage
market and to get them out of the refinance market?
Refinance loans represent two-thirds of Fannie and
Freddie's portfolio, that alone would significantly over time
diminish the Government's role in housing finance.
Secretary Mnuchin. Again, I want to be careful of specific
comments, but I don't support them getting out of the refi
market broadly. I think that refi loans are underwritten
properly, and there should be certain limitations on cash out
and other things.
But rates go down and homeowners want to refinance, I don't
think they should be penalized.
Mr. Trott. But again if rates go down and they have a good
credit score and they refinance and then property values drop,
then the government essentially can be exposed again.
Secretary Mnuchin. Again, without getting into all of the
details, I think that the problem that Fannie and Freddie had
was really a result of poor underwriting standards and buying
many loans, sub-prime loans and other things that they never
should have been purchasing.
So I think that there is a prudent solution. My preference
is we do this through Congressional action, if not, we will
look at administrative options.
Mr. Trott. Thank you, last question. The Orderly
Liquidation Authority outlined in Title 2 of Dodd-Frank
continues to be a concern, because I believe it to be a license
for FDIC to use taxpayer dollars at Treasury to bail out banks.
Will you--you think that should be a priority in the next
Congress, to try and revisit that process so that we can come
up with a better solution?
Secretary Mnuchin. I think there are recommendations we
have made on that, and we would be happy to work with you and
others if there's a desire to move forward on that.
Mr. Trott. Thank you, Mr. Secretary. I yield back.
Chairman Hensarling [presiding]. Gentleman yields back, the
Chair now recognizes the gentleman from North Carolina, Mr.
Budd.
Mr. Budd. Thank you, Mr. Chairman.
And thank you, Secretary Mnuchin, for being here. It is
good to see you again. I want to start by commending you for
your role in implementing and promoting the Tax Cuts and Jobs
Act. As many of us have thanked you, I want to continue in
that.
We are growing at 3 percent. Some would say even more. And
I know I speak for a number of us gathered here today, that we
appreciate the role you played in that.
But since this is a hearing on the state of international
financial systems, I wanted to switch from H.R. 1 and move to
some questions that are of importance to me and many in the
American insurance industry.
Mr. Secretary, we operate under a State-based system of
regulation. The U.S. insurance market has long been one of the
largest insurance systems in the world. In fact, more than half
of the world's 50 largest insurance markets are U.S. States.
North Carolina's market, for example, the State I hail
from, is bigger itself than the entire markets of Belgium,
Sweden, Denmark, and Finland. Yet, U.S. officials have been
engaging in overseas negotiations that would ultimately import
European-style capital standards for U.S. companies and their
policyholders on Main Streets across America.
This is why I co-sponsored and voted to pass Chairman
Duffy's International Insurance Standards Act on Tuesday, to
protect our companies here at home from being harmed by
European-centric regulation.
So, Mr. Secretary, would you agree that the U.S. system of
State-based insurance regulation works well? That it is well-
capitalized, solid for the most part, and that it is important
for the Treasury Secretary to defend that system from the
intrusion of both Federal and foreign regulation?
Secretary Mnuchin. I do.
Mr. Budd. So at the risk of sounding like my high school
English teacher a bit, would you care to elaborate? If you care
to share a little more on that?
Secretary Mnuchin. In general, we very much support the
State-based system. It works. It has worked well. There are
certain issues that, again, do require some Federal
intervention and oversight.
But this is a system that works. It is not broken and we
don't need to change it. And we need to make sure that U.S.
companies that do international business can operate
appropriately, and that is the reason to participate in the
international forums. But we are not looking to change the
system.
Mr. Budd. Very good. Thank you for that. So just to point
out, from many on the committee's perspective, one reason that
we passed Duffy-Heck is because we feel like U.S. interests
aren't being represented well overseas. If that is the case,
then Congress will step in, in a bipartisan fashion, as
referenced by this week's unanimous vote.
So switching briefly to another topic, Mr. Secretary, some
have called for Congressional action to improve and expand upon
existing information-sharing tools between financial
institutions and government authorities, as well as among
financial institutions in cases of suspected money laundering
and terrorist financing, including changes to the scope of
liability safe harbors and the types of information that may be
shared.
Can you please discuss Treasury's relationship with the
private sector to enhance and facilitate counterterrorist
financing objectives?
Secretary Mnuchin. We work very closely with the private
sector. It's very important to--I think I mentioned in the
past, terrorist financing is a major priority of the department
and a major priority of mine, and I think we have a very good
collaborative effort with the private sector.
Mr. Budd. So although Congress--just to follow up on that--
although Congress intended Section 314(b) of the PATRIOT Act to
allow banks to share information on illicit financial activity
between themselves, banks have felt constrained by the rules
interpreting that statute.
So is it time to readdress this issue, in allowing banks to
better share such information with appropriate safeguards, I
would add?
Secretary Mnuchin. That is a specific issue that we are
working with them on, yes.
Mr. Budd. Thank you. Would you be supportive of legislation
that achieves that objective?
Secretary Mnuchin. I would, but we would want to make sure
we work with you on the specifics of that.
Mr. Budd. Absolutely, and thank you. And, again, thank you
again for being here.
Mr. Chairman, I yield back.
Chairman Hensarling. Gentleman yields back. The Chair now
recognizes the gentlelady from Utah, Mrs. Love.
Mrs. Love. Thank you, Mr. Chairman.
And thank you, Secretary, for being here today. I just want
to be very clear that the questions that you are getting today,
I usually go into my district and ask them what questions they
would like me to ask of the secretary. So just know that these
are coming from people who have genuine concerns.
You are before Congress today--and forgive me, also, if you
have answered some of these questions. I need to make sure I
get some of these on record. So you are here before Congress
today to report on the status of international financial
systems including the U.S. involvement in the International
Monetary Fund.
In its recent World Economic Outlook, the IMF expressed
concerns that the prospect of trade restrictions and counter-
restrictions threatened to undermine confidence and derail
global growth prematurely. Do you share those concerns?
Secretary Mnuchin. I don't. And I would just comment,
although I support the IMF, I also question some of their
projections on the U.S. economy as well.
Mrs. Love. OK. Back in May 20th, you were quoted as saying
that tariffs were on hold. Yet, less than 7 weeks later, new
tariffs on Chinese goods went into effect and were immediately
met by retaliatory tariffs by China.
Clearly, other people in the Administration weren't as
interested in keeping things on hold. In the meantime, I heard
a lot of concern from many different people in Utah, industries
in Utah, about the negative impacts that they are already
seeing from the uncertainty and the new tensions in our trading
relationships.
Just yesterday, I actually had a small business owner from
my district come to my office--Utah Metal Works which recycles
metal and sends about 40 percent of its business overseas.
They are suffering from uncertainty and they want to see an
agreement be reached. Not just the President beating up on
trading partners. At the end of the day, they want to see some
results, that it is not going to impact their consumers.
So do you know what the end goal is? Is there a master
plan? I am trying to figure this out. We are answering
questions of our constituents, and it is very difficult to try
and figure out what the strategy is.
We know what the end goal is. But do you know what the
strategy is? Do you know if there is, like, a master plan?
Secretary Mnuchin. First, let me say, the tariffs were on
hold. We were close to having an agreement. We couldn't reach
an overall agreement and that is why the President decided not
to keep them on hold.
As it relates to a master plan, it is pretty simple. We
have told China. We have given them a long list of issues. I
think the answer is, we want to make sure that they open up
their markets and that they treat our companies fairly so that
we can increase exports.
I think you know, they buy about $130 billion of our goods,
we buy about $500 billion of their goods. There is a huge
opportunity, if our countries can compete fairly, to increase
exports significantly. So the master plan is for them to open
up.
Mrs. Love. The Federal Reserve, said last week, right
before the new tariffs on China imports were imposed, that the
possibility of a trade war has forced some companies to put on
hold their investment plans.
So we now find ourselves in a situation where the
uncertainty over global trade policy is causing businesses to
scale back or postpone their capital spending plans, plans that
were incentivized by what we did in Congress in terms of
implementing the new tax law.
And tariffs, on the other hand, we all know, are really
attacks on the consumers. And it will hit American businesses
and consumers. It seems like one hand is contradicting what the
other hand is doing, and they are not working.
What are you doing with the Administration to ensure our
trade policies don't undermine that growth that we are seeing,
that positive growth that we are seeing in our businesses and
that we are experiencing?
Secretary Mnuchin. Let me first say tariffs are sometimes
paid by the consumer and sometimes they are paid by the seller
and absorbed by the seller. So I don't believe they are
necessarily always a tax that is passed on.
I would also just say that the President is very focused on
economic growth, this is something that he campaigned on. From
the beginning, we have been focused on regulatory relief,
taxes, and trade, and I can assure that we are not going to do
anything that is going to jeopardize the great growth of the
economy, although I recognize there are certain areas in
certain markets that have been targeted, that we need to be
careful and sensitive to.
Mrs. Love. You do recognize that uncertainty does hurt our
economy, and it really makes it difficult for people to invest,
so--
Secretary Mnuchin. I recognize--
Mrs. Love. Just the uncertainty is--anyway, I implore that
you would work to end this thing soon. Thank you.
Chairman Hensarling. Time of the gentlelady has expired,
the Chair wishes to inform members that votes on the floor are
imminent and for agreement with our witness, he will be
released no later than 1:15. Currently I expect to clear three
more members.
Gentleman from Georgia, Mr. Loudermilk, is now recognized.
Mr. Loudermilk. Thank you Mr. Chairman and thank you Mr.
Secretary for spending a good part of your day with us. I know
this is probably not the most entertaining nor the most
productive thing you could be doing today, but it is very
important for us, it is very important for our republic to do
this.
Real quickly, just one issue I want to touch on, and it is
something that I am hearing when I go back to Georgia,
especially from local banks and credit unions, is the FinCEN
customer due diligence rule. And most of them feel that a part
of it is very intrusive and burdensome.
And they are still unclear on a lot of the compliance, and
they find it very difficult to implement because of the lack of
clarity. And if I can, I would like to share just a few
anecdotes of some of the things that I have been told recently
by these banks.
One of the most common frustrations is that FinCEN has been
very vague in telling banks what to do if a new customer wants
to open an account, but can't provide the required information.
They say the OCC has indicated they shouldn't even open the
account in that case, and that FinCEN has provided no guidance
on the issue.
Another one is if an existing customer wants to open a new
account but is unable to provide the required information or
refuses to do so, should the bank terminate the entire
relationship or just not open the new account, since the rule
went into effect on May 11th.
If the bank closes all the accounts, is that frowned upon
as de-risking by the regulators? So they get caught in this no
win situation. But if they do open the account, many times they
feel they are in violation of the regulation.
And so this has resulted in significant delay for a lot of
the customers. Another problem is when a customer opens a new
account, then 2 weeks later they want to get a debit card, and
a month later they want to enroll in online banking.
The banks don't know, do they have to fill out the forms
again for each one of those events? Some banks have used forms
that simply certify that the beneficial ownership hasn't
changed, but bank examiners say that is not acceptable.
Another main concern is that banks are now having to ask
people, who have been their customers for years, even decades,
for this information. The customers don't understand why their
bank is asking them, and now they think that the bank no longer
trusts them and it hurts the foundation of the bank's
relationship with the customer.
An example, a long-time customer simply changes their
address, nothing else is changed other than their new address.
The new beneficial ownership forms have--do they have to be
completed? This also applies to routine renewals of lines of
credit, certificate of deposits, et cetera.
And the last one, the rule is also causing issues for
accounts that may not have clear beneficial owners, such as
accounts for class reunions, civic organizations, school clubs,
and churches. In one case, a child was recently diagnosed with
cancer and the school did a fundraising campaign to help the
family.
The mother worked at the school and was a customer of the
bank, but the bank turned her away because they were afraid of
getting the beneficial ownership questions wrong. So my
question is, I am sure you are aware of these problems. And
since FinCEN currently does not have any plans to issue formal
guidance for the CDD rule, what would you suggest that banks do
to get clarity on these specific issues?
Secretary Mnuchin. You have asked some very good questions,
many of which I am not going to answer the specifics of, but I
will follow up with FinCEN and the OCC and others, because as I
have said before, I am a big fan of proper regulation, but I am
also a big fan of proper guidance so that they can follow the
regulation.
And I think you have raised a bunch of issues. I will say
as a broad comment, customer due diligence is very important.
We need to have banks know their customer, and we need to get
this right between what is particularly on small banks a big
burden and the customer in making sure we have the information.
I have been a customer who has to provide this stuff and I
know it is quite difficult, and many of the minor changes we
should make sure that the banks know how to deal with these
issues.
Mr. Loudermilk. OK, and I thank you and I look forward to
your response on these in a little more detail. Mr. Chairman, I
yield back.
Chairman Hensarling. Gentleman yields back, there is a vote
pending on the floor a little over 10 minutes. The Chair
expects to clear two more members, but restrict them to 3
minutes. The gentleman from Ohio, Mr. Davidson, is recognized
for 3 minutes.
Mr. Davidson. Thank you Chairman. Mr. Secretary, thank you
very much for your testimony today. And as CDD has been
discussed extensively, I appreciate your sentiment that perhaps
a heavy hand of government isn't necessary and perhaps the
presumption might resemble the way we treat the Second
Amendment more than the way that we treat other things, where
everyone's held liable to provide information, subject to
criminal penalties if they don't.
I don't think we need to find new ways to make more people
criminals. We do need to get after the terrorism and illicit
finance that is out there. And I think that is the sentiment
that unites us. The approach has us fairly divided, so I really
look forward to any way to collaborate on CDD or beneficial
ownership more broadly.
I really appreciate the emphasis you have given as
Secretary to terrorism and illicit finance, and we saw that
marginalize and take a backseat under the previous
Administration. Without going into any of the details in this
setting, are Operations Cassandra and Reciprocity back on the
table now?
Or is there--what is the status of those efforts?
Secretary Mnuchin. The things are being considered.
Mr. Davidson. So you are still assessing whether to pursue
those investigations?
Secretary Mnuchin. I want to be careful on commenting on
the specifics.
Mr. Davidson. OK, thank you. We have talked a lot about
trade, and there has been a lot of attention given to trade
deficits. And, mercantilism emphasized the importance of trade
deficits, and of course under mercantilism we were largely
using gold to settle current accounts. And gold can be hoarded,
so there was an idea that it was a zero-sum game.
Today, we don't have that. We have something consumable,
the petro dollar, basically the premise for our currency. And
it is consumed, so people don't hoard it. Trade deficits are
commonly misunderstood as a zero-sum game.
Are you confident that the dialog that is being had today,
as we negotiate with our allies and with our competitors,
strategic competitors in the marketplace, that we are focused
on free, fair, reciprocal trade and not a more mercantilist
zero-sum idea?
Secretary Mnuchin. I am completely. But in many of the
cases where we have the trade deficits, it is because there are
unfair trade practices in place.
Mr. Davidson. There are certainly unfair trade practices.
Prior to coming to Congress, I was a manufacturer and have been
on the receiving end of many of those unfair trade practices.
However, the deficit is largely attributable to the current
account balance. So we have the free flow of goods and
services, but we also have the free flow of capital. Could you
address the idea that, in reality, the only likely way for us
to decrease our deficit is to enter into a recession?
Secretary Mnuchin. No. I don't agree with that at all. But
we can follow up on that.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentlelady from New York, Ms. Tenney,
for 3 minutes. She will be the last member recognized before we
dismiss the witness.
Ms. Tenney. Thank you, Mr. Chairman.
And thank you, Secretary Mnuchin, for being here. And I
always get to be last. So you get to be--just a little
commentary and some quick questions.
I do appreciate the President's position, and your position
on realigning our global markets and making sure that anyone
who has access to the greatest marketplace in the world, the
U.S., does it in a fair and reciprocal way.
Although I am concerned, and I am just going to express
this because I know you have answered it--a little bit about
what is happening in New York State in my rural district, where
dairy is one of the number one industries.
And we contend that we think that Canada has violated Class
7 pricing. I know there are some differences of opinion on
that. I would like to--and obviously, New York State, we have
trouble with an oppressive tax-and-spend regime in Albany that
has made it really difficult for our dairy farmers to survive.
But also another area is in crops and particularly hay and
that, again, gets back to where we are going with the trade and
the tariffs and the ability of Canada and other border
countries to be able to dump agricultural products on the U.S.
And I just hope that, I know you have answered some of
these things, but I just want to bring those to light because
they are happening in New York State and I want to be sure you
are aware of those.
Also, I am sure the President, and comments made by my
colleagues on the other side, is delighted that he is occupying
some rent-free space in their head because they are reading his
Twitter account with regularity.
So I thought that was amusing. But I do happen to think
that you are a stable genius, and I do think the President's
geopolitical and political instincts are proving to be, maybe
true.
So I want to get to something beyond that, and a little bit
back and maybe a deeper dive into the idea of Iran sanctions
and the Iranian state model.
And I know going through, just quickly, we know you have
highlighted a little of this. But the waiver on the Islamic
Republic of Iran broadcasting, that actually expires, those
sanctions expire today.
Do you believe it is in the best interest of our Nation to
allow them to expire, and would you be willing to reinstate
those sanctions in light of the Administration's policies
toward Iran and the fact that OFAC has already placed the IRIB
under direct general sanctions? Would that be something you
could support as of today?
Secretary Mnuchin. Again, I would rather you follow up with
us privately and I get your views because it sounds like you
have an opinion on this. So I would like you to share it with
us privately.
Ms. Tenney. Thank you. Yes. I know it is something that is
headlining today, and it is happening and the past
Administration was pursuing waivers and I just want to know
where we are going to go today.
We know that some of the resources that have been used
under the former JCPOA, were used for terrorist means. So I
appreciate you getting back to us.
And thank you again. I am running out of time, but thank
you again for your great work and the Tax Cuts and Jobs Act
have been a difficult process, but have been a godsend for my
region and I have yet to go to a business, small, medium or
large, that hasn't praised the tax cuts and talked about new
jobs, raises and bonuses for their employees, and especially
their middle-income taxpayers. Thank you so much for that.
Chairman Hensarling. Time of the gentlelady has expired. I
would like to thank our witness for his testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing stands adjourned.
[Whereupon, at 1:12 p.m., the committee was adjourned.]
A P P E N D I X
July 12, 2018
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