[Senate Hearing 117-662]
[From the U.S. Government Publishing Office]


                                                      S. Hrg. 117-662

                      DEFENDING AND INVESTING IN 
                          U.S. COMPETITIVENESS

=======================================================================

                                 HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FISCAL RESPONSIBILITY 
                          AND ECONOMIC GROWTH

                                 OF THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 14, 2021

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                     
                                     

            Printed for the use of the Committee on Finance
            
                              __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
58-121 PDF                WASHINGTON : 2023                    
          
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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                 ______

       Subcommittee on Fiscal Responsibility and Economic Growth

                 ELIZABETH WARREN, Massachusetts, Chair

RON WYDEN, Oregon                    BILL CASSIDY, Louisiana
                                     RICHARD BURR, North Carolina

                                  (II)
                                  
                                  
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Warren, Hon. Elizabeth, a U.S. Senator from Massachusetts, chair, 
  Subcommittee on Fiscal Responsibility and Economic Growth, 
  Committee on Finance...........................................     1
Cassidy, Hon. Bill, a U.S. Senator from Louisiana................     3
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     7

                               WITNESSES

Spriggs, Hon. William E., Ph.D., professor of economics, Howard 
  University; and chief economist, AFL-CIO, Washington, DC.......     5
Houseman, Roy, legislative director, United Steelworkers, 
  Pittsburgh, PA.................................................     8
Gallagher, Mary, Ph.D., Amy and Alan Lowenstein Professor of 
  Democracy, Democratization, and Human Rights, University of 
  Michigan, Ann Arbor, MI........................................    10
Luna, David M., executive director, International Coalition 
  Against Illicit Economies (ICAIE), Washington, DC..............    11
Fanusie, Yaya J., adjunct senior fellow, Center for a New 
  American Security, Washington, DC..............................    13
Nakano, Jane, senior fellow, Energy Security and Climate Change 
  Program, Center for Strategic and International Studies, 
  Washington, DC.................................................    15

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Cassidy, Hon. Bill:
    Opening statement............................................     3
    Prepared statement...........................................    37
Fanusie, Yaya J.:
    Testimony....................................................    13
    Prepared statement...........................................    38
    Responses to questions from subcommittee members.............    47
Gallagher, Mary, Ph.D.:
    Testimony....................................................    10
    Prepared statement...........................................    48
    Responses to questions from subcommittee members.............    53
Houseman, Roy:
    Testimony....................................................     8
    Prepared statement...........................................    54
    Responses to questions from subcommittee members.............    58
Luna, David M.:
    Testimony....................................................    11
    Prepared statement...........................................    59
    Responses to questions from subcommittee members.............    71
Nakano, Jane:
    Testimony....................................................    15
    Prepared statement...........................................    73
Spriggs, Hon. William E., Ph.D.:
    Testimony....................................................     5
    Prepared statement...........................................    77
    Responses to questions from subcommittee members.............    80
Warren, Hon. Elizabeth:
    Opening statement............................................     1
    Prepared statement...........................................    83
Wyden, Hon. Ron:
    Opening statement............................................     7

                             Communications

Center for Fiscal Equity.........................................    85
Fortive Corporation..............................................    92

 
                      DEFENDING AND INVESTING IN 
                          U.S. COMPETITIVENESS

                              ----------                              


                        WEDNESDAY, JULY 14, 2021

                           U.S. Senate,    
         Subcommittee on Fiscal Responsibility     
                               and Economic Growth,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:10 p.m., 
via Webex, in Room SD-215, Dirksen Senate Office Building, Hon. 
Elizabeth Warren (chair of the subcommittee) presiding.
    Present: Senators Wyden, Brown, Whitehouse, and Cassidy.
    Also present: Democratic staff: Sally Laing, Senior 
International Trade Counsel; and Catherine Laporte-Oshiro, 
Economic Policy Advisor for Senator Warren. Republican staff: 
Owen Morgan, Policy Advisor for Senator Cassidy.

OPENING STATEMENT OF HON. ELIZABETH WARREN, A U.S. SENATOR FROM 
MASSACHUSETTS, CHAIR, SUBCOMMITTEE ON FISCAL RESPONSIBILITY AND 
             ECONOMIC GROWTH, COMMITTEE ON FINANCE

    Senator Warren. This hearing will come to order. I 
apologize for our delay in starting, but thank you. Good 
afternoon. Welcome to this hearing before the Subcommittee on 
Fiscal Responsibility and Economic Growth. I am very pleased to 
be working with Ranking Member Cassidy on this hearing on 
defending and investing in U.S. competitiveness.
    So how does America compete in a global economy? For too 
long the answer has been some variation of ``help giant 
corporations make more money.'' Big multinational corporations 
have no loyalty to our Nation. They say, quite openly, their 
loyalty is to their shareholders, and about 40 percent of the 
shareholders of publicly traded companies are not Americans.
    These multinational corporations pursue profits, even if 
those profits come at a cost to American workers or to our 
environment. It is not the job of the U.S. Government to work 
to boost profits of big multinationals that have no particular 
loyalty to the United States. Instead, the goal of economic 
competition should be to make our domestic economy strong, and 
to raise the standard of living for the American people. That 
means investing in American jobs and American workers. And here 
is the best part. If we give American workers the tools they 
need, they can compete with anyone, including global economic 
rivals like China.
    Economic competition is also political competition. Fair 
competition can produce and spread the best ideas. We have a 
chance to show China and the whole world that an American 
approach that invests in and empowers workers is the most 
effective way to compete.
    There are two aspects of global competitiveness that I 
would like to focus on in this hearing. The first is that, in 
order to compete in a global economy, American workers need to 
have a fair set of trade rules, which they do not have right 
now. Our existing trade rules have undercut our workers and 
promoted offshoring and a global race to the bottom in labor 
and environmental standards. And that is because, for decades, 
the U.S. Trade Representative has represented big multinational 
corporations while workers, environmentalists, and other parts 
of the diverse American economy were pushed to the side, with 
their interests and concerns given second-class status.
    That needs to stop. U.S. trade policy needs structural 
reforms to ensure that it reflects the interests of all 
Americans, not just a handful of corporations trying to 
maximize short-term profits.
    The second reason why workers are struggling against 
international competition is that we have failed to make 
critical domestic investments in our workforce. We know that 
American workers, given the right tools, can out-compete China 
and every other country in the world. China offers a clear 
counter-approach. It fundamentally devalues and disempowers its 
workers by barring them from organizing, by pressing ethnic 
minorities into forced labor camps, by making migrant workers 
second-class citizens, and by leaving working families to go it 
alone on child care.
    This has helped China cut production costs in the short 
term, but there are long-term costs. The Chinese Government 
recognizes that such an approach cannot build an innovative 
workforce, a strong middle class, or sustainable economic 
growth. Now China is desperately trying to invest in its human 
capital to fuel development, especially given its aging 
population, recognizing that these investments are crucial to 
China's future.
    This is the moment for the United States to step up. We can 
and we must do better for our workers. It is the right thing to 
do. It is the competitive thing to do. And it is the only way 
to build a strong future for our Nation and our people.
    Specifically, our investments in green technology should 
center on good jobs and building a top-quality workforce. My 
Build Green and Buy Green bills would do exactly that. These 
bills, and other clean-energy investments with strong labor 
provisions, should be included in the infrastructure package 
that Congress is working on now. Doing so is good for the 
environment, good for the economy, good for workers and their 
families.
    Similarly, we need to give American workers the security 
they need to be able to do their jobs and care for their 
families. Universal, high-quality, affordable child care and 
early education are investments in our current and our future 
workforce, working parents, and their children--and a far 
better way to compete with China than endless expansion of our 
spending on the U.S. military.
    We need $700 billion for child care in the infrastructure 
bill. It is a critical way to improve our global economic 
competitiveness.
    Finally, I was glad to see President Biden's executive 
order last week which takes critical steps to promote 
competition, strengthen antitrust enforcement, and tackle 
consolidation and anticompetitive practices. Reigniting 
competition will make markets work better for American families 
and workers at the same time that it bolsters U.S. 
competitiveness.
    I am looking forward to discussing these issues today and 
working with my colleagues and the administration to make sure 
that America's workers can compete in a global economy.
    Next, I will turn to the ranking member, Senator Cassidy, 
for his opening remarks.
    [The prepared statement of Senator Warren appears in the 
appendix.]

            OPENING STATEMENT OF HON. BILL CASSIDY, 
                 A U.S. SENATOR FROM LOUISIANA

    Senator Cassidy. Thank you, Chair Warren. Thank you to all 
the witnesses. We were having a mini-hearing before Chair 
Warren spoke up, and just based on the mini-hearing, it is 
going to be very interesting. So I thank you all.
    We, together, are just concerned about how does the United 
States and the rest of the world deal with China, which has 
many advantages of talented people, a large economy, that is 
quite willing to--how to put it?--break, defy, ignore 
international norms of behavior, and in so doing, achieve a 
competitive advantage over other countries that choose to 
acknowledge those international norms and behaviors.
    So strengthening U.S. competitiveness in the face of a 
country willing to do something such as that is something which 
should ignite all Americans. And it is our responsibility in 
Congress to defend our Nation's workers, citizens, and 
interests.
    So, common ground. We all recognize that China has been 
acting with impunity, and in part because countries around the 
world have been unwilling to act. But nonetheless, we suffer 
the consequences.
    There should be a robust discussion about China's role as a 
primary source of the fentanyl that flows into the United 
States, killing tens of thousands of Americans every year; and 
about counterfeit medical products and other goods that put 
Americans' health and lives at risk, like the counterfeit PPE 
that flooded Customs facilities during the pandemic.
    We should examine China's surveillance efforts and the 
potential for that to grow internationally as countries around 
the world are encouraged to use Chinese-developed equipment for 
5G networks and other things.
    We should also look at China's government-backed and -
operated blockchain-based service network, as well as their 
collection of vast amounts of genetic material.
    Another thing of interest is that China right now poses the 
greatest global threat to climate change. China's massive 
carbon emissions for every year since 2012 have exceeded the 
combined U.S. and European Union carbon emissions combined--put 
together, China's exceeds.
    China continues to build--and although China is committed 
to lowering their emissions, peaking out in 2030, they have 
continued to build outdated and polluting coal-fired power 
plants throughout the developing world; if you will, exporting 
a problem.
    A particular point of concern is China's blatant dismissal 
of international trade rules and compliance with standard labor 
and environmental practices. Chair Warren has mentioned forced 
labor. We could also speak of forced child labor and the 
absence of workers' rights. The United States does not have a 
trade agreement with China, so there are no standards for 
environmental or worker protections such as those that exist in 
the USMCA or the CAFTA-DR, so in a sense, that serves to lower 
the cost of production in China relative to those countries.
    Put differently, the cost of compliance that Mexico and 
CAFTA-DR countries have to invest for environmental and labor 
protections, China does not. Lowering their cost of production, 
if you will, incentivizes companies to move to China away from 
those countries. While I cannot say it is causally related, it 
is temporally related that between 2017 and 2019 China's 
foreign direct investment inflow increased from $136 billion to 
$141 billion, and in the same period the six CAFTA nations saw 
FDI inflows decrease from $9.7 billion to $8.4 billion.
    What's more, the cost of compliance inherent in the USMCA 
and CAFTA put these trading partners at risk. We need to think 
about how to adjust that. We try to build economies in Central 
America that would keep folks in Central America as opposed to 
migrating here, and yet paradoxically the standards that we ask 
them to employ--which we should ask them to employ--raise the 
cost of production and, once more, are an incentive for 
companies to move operations to China.
    There is so much more to discuss, but at this point I will 
turn it over to our witnesses. I look forward to those who are 
here, and those who will be participating online.
    And once more, thank you, Chair Warren.
    [The prepared statement of Senator Cassidy appears in the 
appendix.]
    Senator Warren. Thank you very much, Ranking Member 
Cassidy.
    So we have a great set of witnesses here today to share 
their views on U.S. competitiveness. I appreciate all of you 
being with us.
    First, joining us virtually, we have the Honorable Dr. 
William Spriggs, who is a professor of economics at Howard 
University, and chief economist at the AFL-CIO, as well as 
former Assistant Secretary of Labor for Policy. Dr. Spriggs is 
a leading expert on many critical issues for American workers, 
including workforce discrimination, national and international 
labor standards, and the unequal impacts of trade.
    Second, we have Roy Houseman, legislative director for the 
United Steelworkers. Mr. Houseman has been standing up for 
American workers for decades, including as a part of the USW's 
Legislative and Policy Department since 2011, and previously as 
president for USW Local 885 in Missoula, MT.
    Third, we have Dr. Mary Gallagher, who is the Amy and Alan 
Lowenstein Professor in Democracy, Democratization, and Human 
Rights at the University of Michigan. Dr. Gallagher is an 
expert in Chinese labor issues as well as Chinese politics, 
law, and society.
    Joining us remotely, we also have Yaya Fanusie, who is an 
adjunct senior fellow at the Center for a New American 
Security. His research focuses on the national security 
implications of cryptocurrencies and blockchain technology.
    Next, we have Mr. David Luna, who is executive director of 
the International Coalition Against Illicit Economies of the 
Terrorism, Transnational Crime, and Corruption Center at George 
Mason University. Mr. Luna is a former U.S. diplomat and a 
national security official, with expertise and experience in 
transnational crime and illicit trade.
    And lastly, Jane Nakano--I am getting that wrong--Jane 
Nakano joins us virtually. Ms. Nakano is a senior fellow in the 
Energy Security and Climate Change Program at the Center for 
Strategic and International Studies. Her research interests 
include U.S. energy policy and energy security and climate 
issues in the Asia-Pacific region.
    Economic competition from China presents serious challenges 
for American workers and businesses, but it also presents a 
call to action. We have a historic opportunity right now to 
invest in American workers and American families; in other 
words, to invest in U.S. competitiveness.
    So I want to thank you all for being here with us today. I 
look forward to hearing your testimony. We are going to ask 
everyone to hold themselves to 5 minutes. You are always 
welcome to submit longer remarks in writing.
    Dr. Spriggs, can we start with you?
    Senator Cassidy. Chair Warren?
    Senator Warren. Oh, please. Of course.
    Senator Cassidy. We have votes at 2:35. So how are we going 
to inform everybody how we are going to proceed?
    Senator Warren. So we are going to have the ranking member 
and I trade out. One of us will go, and the other will have the 
gavel, and we will make it through as quickly as we can. We 
will find out how fast you move through the halls, and we will 
try to both be here, but we may be moving in and out.
    All right; good. Thank you very much.
    And now, Dr. Spriggs, are you with us?
    Dr. Spriggs. Yes, I am.
    Senator Warren. Good. You are recognized for 5 minutes, 
sir.

   STATEMENT OF HON. WILLIAM E. SPRIGGS, Ph.D., PROFESSOR OF 
  ECONOMICS, HOWARD UNIVERSITY; AND CHIEF ECONOMIST, AFL-CIO, 
                         WASHINGTON, DC

    Dr. Spriggs. Thank you, Chair Warren and Ranking Member 
Cassidy, for this invitation to give testimony before your 
committee today on the issue of our Nation's competitiveness. I 
am happy to offer this testimony on behalf of the AFL-CIO, 
America's house of labor representing the working people of the 
United States, and based on my expertise as a professor at 
Howard University's Department of Economics.
    My testimony today will discuss gaps in the U.S. 
infrastructure compared to our leading trading partners. Many 
of these gaps do not require Federal fiscal resources but do 
require updating our institutions and legal structures to meet 
the challenges of the 21st century. The current crisis of the 
COVID pandemic highlights our need to improve. While Congress 
has reacted swiftly and admirably with aid to support the 
economy, in many dimensions the U.S. is less resilient than our 
leading trading partners and is set to have major challenges 
ahead that we can avoid.
    Because of Congress, and now the leadership of President 
Biden, the American Rescue Plan has been well received by those 
who compare global economic activity. The International 
Monetary Fund and the Organisation for Economic Co-operation 
and Development revised their forecasts upward for this year 
and next based on the passage of the ARP. And given the 
importance of the U.S. economy to global economic growth, this 
changed their optimism for a faster global recovery. Yet they 
both still see a full recovery more than a year away.
    Thanks to the rapid deployment of vaccines in the U.S., 
American hospitalization and death rates from COVID plummeted, 
and, after being far above the rest of our trading partners, we 
have finally now surpassed them in having lower rates of severe 
outcomes from COVID. That has allowed U.S. economic activity to 
accelerate and, buoyed by the ARP's support of American 
households, has helped accelerate our job growth. But even if 
we maintain this current record-setting pace, we will have a 
hard time getting back to normal levels.
    We should shift our focus to the lessons learned and make 
changes to sustain the recovery to make our economy more 
resilient. Several of the changes that Congress improvised to 
fix our labor market safety net show key gaps the U.S. faces 
relative to our competitors. Our labor market regulations are 
clearly out of date. The scale at which we needed these 
institutional changes highlights how, on a regular basis, the 
resiliency we need is not present.
    Among our leading trading partners, we have a lower level 
of workers covered by collective bargaining agreements. Last 
year during the pandemic, while we lost jobs across almost all 
industries, relatively more non-union than union jobs were 
lost, so the share of workers in unions rose. This presence of 
a collective bargaining agreement helped firms in two ways. One 
is that firms could retain workers and negotiate to share the 
responsibility of making decisions on how to adjust hours and 
pay and safety conditions. The other is that, for some 
industries like the airlines, it meant management and workers 
could present a consensus view to Congress and policymakers on 
the best way forward to maintain an orderly slowdown of 
business and keep maximum flexibility to allow for the fast 
restart.
    Similarly, within the trade context itself, researchers 
have found that industries with stronger collective bargaining 
structures had fewer jobs lost in the face of the China trade 
shock of this century than in industries with lower union 
density. When comparing labor market performance of OECD 
nations, the OECD's research shows that stronger central 
bargaining systems outperform weak systems in wages, 
employment, and gender and younger workers outcomes, primarily 
because they are better at smoothing economic shocks and 
reducing inequality. Updating our NLRA to address changes in 
the workplace since the 1940s, such as passing the PRO Act, is 
key.
    Our unemployment insurance system was clearly outdated and 
overwhelmed. Congress reacted, and several studies showed that 
the extra benefits did not slow people returning to work but 
helped ensure cash balances for all households, and helped to 
speed our recovery. A higher minimum wage has made people more 
resilient.
    Another shortcoming is that we do not have paid sick days 
or holidays. This has hurt the labor force participation of 
women and their recovery, coupled with our lack of Federal 
policies to ensure child care. The U.S. stands out as being 
sixth among the seven G7 nations for women's labor force 
participation. With an aging economy, we have to have more 
workers active, and we need those changes to get women at work.
    We need to change the global playing field and lead in 
that. We need a floor for corporate taxation so that we can 
have all nations provide the help, the labor, and economic 
support that we need to raise the standards for the world, 
instead of a race to the bottom that hurts the United States.
    Investing in America is necessary, not just investing in 
our physical infrastructure. Thank you.
    [The prepared statement of Dr. Spriggs appears in the 
appendix.]
    Senator Warren. Thank you very much, Dr. Spriggs.
    I am going to pause here with our witnesses. We are joined 
by our chair from the Finance Committee, Senator Wyden, who is 
recognized for opening remarks.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Chair Warren, for this 
courtesy, and the ranking member, Senator Cassidy. We all look 
forward to going after this issue in an aggressive and 
bipartisan way.
    It seems to me what is so important about your hearing, 
Chair Warren, and our work with Senator Cassidy, is this is 
about one basic challenge. America is never going to out-
compete China with crumbling roads and bridges and a country 
full of struggling workers. That is a recipe for decline, and 
it is exactly what you and I and President Biden want to turn 
around. That is pretty much what we heard at lunch.
    And so I very much look forward to your continued 
leadership on this, because there are a lot of pieces to the 
puzzle; for example, the link between physical investment and 
people. And you and I have talked, for example, about the 
matter of how important it is to invest in roads and bridges 
and ports, but at the same time, if people do not have child 
care--which has been a huge priority for you--then the 
companies are not going to have people who can move goods from 
point A to point B.
    So I am juggling a lot today, but your ability to integrate 
the various pieces into a policy that lets us out-compete China 
is extraordinarily important. Our subcommittee is modest, but 
with your leadership, I like to think we are mighty, and I want 
you to know I am in your camp, and we are going to work closely 
with Senator Cassidy----
    Senator Cassidy. Wait; so the ranking member is chopped 
liver? [Laughter.] Is that what you're saying?
    Senator Wyden. I guess--you know, my wife always says, ``My 
husband is infamous rather than famous.'' But with you two, I 
feel like I am running with the right crowd, because this is a 
hugely important subject. It is bipartisan. I am glad that you 
wanted to do this. Chair Warren and Senator Cassidy have made 
this a big priority, and I expect that we are going to have 
lots of hearings like this in the days ahead.
    I will have questions for the record, Chair Warren, and I 
thank you for letting me run in here for a quick minute.
    To all our guests, I want you to know that we at the 
Finance Committee very much value your input. This is not 
indicative of my manners being boorish on a regular basis. It 
is just a particularly hectic day. We welcome you. You are in 
good hands with Chair Warren. Thank you.
    Senator Warren. Thank you very much. I appreciate your 
being here, Chair Wyden.
    So let's go ahead with our witnesses. Mr. Houseman, you are 
recognized for 5 minutes.

    STATEMENT OF ROY HOUSEMAN, LEGISLATIVE DIRECTOR, UNITED 
                  STEELWORKERS, PITTSBURGH, PA

    Mr. Houseman. Chair Warren, Ranking Member Cassidy, thank 
you for the opportunity to testify today on this important 
topic. As a former trade-impacted mill worker, now legislative 
director for United Steelworkers, the largest industrial union 
in North America, it is an honor to be a voice for organized 
workers in today's discussion, and our union's international 
president, Tom Conway, sends his regards.
    Manufacturing commodities which Americans and people across 
the globe use every day, from tissue paper to electric buses, 
is what our union does. It provides a unique lens into 
defending and strengthening U.S. competitiveness.
    With this in mind, my remarks will focus on three strategic 
efforts: refocusing Federal domestic investments on critical 
infrastructure, retooling our labor and environmental laws for 
a 21st-century democracy, and exporting not just our goods but 
our ideals for a just global economy.
    Turning first to domestic investment, the USW takes a 
holistic approach to our country's infrastructure. Right now, 
Steelworkers local unions across the country are working with 
their respective employers in a campaign called ``We Supply 
America'' for infrastructure investment.
    This campaign emphasizes the critical role USW members play 
in America's infrastructure supply chain. We are hopeful and 
anxious to review the details of the $1.2-trillion bipartisan 
infrastructure framework. We know that new investment is needed 
when, for example, over 4 million gallons of drinking water is 
lost from leaking pipes across the country in the time it takes 
to read my remarks today.
    We can do better. In the strong Buy America provisions, our 
members who work at companies like McWane Pipe stand ready at 
the crucible to pour melted iron should Congress make this 
investment. The union also knows that the U.S. can achieve a 
net zero emissions economy while maintaining production and 
employment in energy-intensive trade-exposed industries. It 
will require workers and government and industry working 
together.
    The USW is engaged with our employers and community 
stakeholders to encourage investments in carbon capture 
utilization and sequestration, and direct air capture 
technologies, for example. Domestic investments in 
infrastructure and industrial capacity will be key to building 
a 21st-century clean economy. The physical infrastructure is 
really only one piece to a prosperous, equitable, and just 
democracy.
    Our human infrastructure needs investment. Take, for 
example, collective bargaining. According to the Economic 
Policy Institute, the wage gap between high- and middle-wage 
earners between 1979 and 2017 is roughly one-third higher 
because of the de-unionization. My written testimony includes 
several additional examples of human infrastructure, but 
Congress should start by passing labor law reforms like the PRO 
Act.
    Our country will also need to improve our training programs 
for both dislocated and incumbent workers. We must improve 
resources available for adult worker training. The U.S. funding 
for job training programs is among the worst of all 37 
countries in the OECD relative to the size of our economy.
    Public spending is less than half the spending levels of 
Australia, Canada, and the UK, and one-sixth the level of 
spending in Germany. Meanwhile, today a worker who loses their 
job to unfair practices from China, where we had a $310-billion 
trade deficit in 2020, cannot get Trade Adjustment Assistance 
benefits because of a program reversion. This is unacceptable, 
and a healthy TAA reauthorization, similar to legislation put 
forward by Senator Stabenow, is needed. As a past recipient of 
TAA benefits, I know how important this program can be.
    Lastly, we must build a robust worker-centered trade 
agenda. Trade policy must play a dual role of defending our 
communities from unfair trade practices, while ensuring that 
goods and services our workers produce can reach global 
markets.
    For example, our members have fought for their jobs in over 
100 antidumping and countervailing duty investigations. And the 
workers in steel and aluminum manufacturing stand behind the 
successful section 232 safeguards. For us, getting trade policy 
right is a must for jobs.
    This is vital, as China's Belt and Road Initiative has led 
to expansions of dumped and subsidized goods entering from 
third-party countries. However, our trade enforcement tools 
have not yet been upgraded to contain this growing problem. 
Fortunately, Senators Brown and Portman are leading with a 
much-needed update to our trade enforcement law, commonly 
referred to as the Leveling the Playing Field Act 2.0 or Senate 
bill 1187.
    Ensuring that the U.S. remains competitive while requiring 
a whole-of-government approach that includes investments in our 
country's infrastructure requires workers in an ever-evolving 
trade policy, and USW members are standing ready to make that 
future.
    Thank you.
    [The prepared statement of Mr. Houseman appears in the 
appendix.]
    Senator Cassidy [presiding]. Thank you, Mr. Houseman.
    Chair Warren has gone to vote, so, Dr. Gallagher, I will 
call upon you.

  STATEMENT OF MARY GALLAGHER, Ph.D., AMY AND ALAN LOWENSTEIN 
  PROFESSOR OF DEMOCRACY, DEMOCRATIZATION, AND HUMAN RIGHTS, 
             UNIVERSITY OF MICHIGAN, ANN ARBOR, MI

    Dr. Gallagher. Thank you for the opportunity to appear 
before you today to discuss China's working conditions, and how 
the United States should develop policies to improve our 
competitiveness while maintaining our values. I speak today as 
an expert on China's labor and social policies. These are my 
own views as a scholar on this topic for over 20 years.
    As a two-time recipient of a Fulbright award, I am deeply 
aware of the importance of area studies knowledge and language 
expertise. I hope the U.S. Government will continue to invest 
in training American students and scholars in area studies and 
world languages. It is a national security imperative that we 
maintain and cultivate this expertise.
    My written testimony highlights these key findings. Since 
2008, China's workplace laws and policies have expanded 
considerably to improve employment security and access to 
social insurance. Since 2009, the Chinese Government has 
expanded basic pension and medical insurance to both rural and 
urban residents. We should not ignore the achievements that 
China has made.
    However, in practice China's laws and policies on the books 
are weakly and unevenly enforced. They often leave out workers 
from rural areas, informal workers, and workers in the new 
digital economy. New social insurance policies based on 
residency, not employment, are insufficient, offering broad but 
shallow coverage.
    Let me expand a bit on the rural/urban divide in China, 
because it is by far the least understood part of the Chinese 
economy. Rural workers who live in cities without the legal 
rights to settle there by and large are not able to take part 
in the more generous pensions, medical insurance, and 
educational opportunities that urban residency promises.
    While 60 percent of China's population--over 850 million 
people--now lives in cities, 27 percent, or 230 million people, 
are still classified as rural and do not have the legal right 
to settle permanently, nor will their children, even if they 
are born in the city.
    China risks passing on these income, health, and 
educational inequalities to the next generation, imperiling 
China's shift to a new development model that is built on 
domestic demand. Short-term gains by cutting employers' costs 
risk long-term damage to China's ambitions to become a 
technologically advanced and innovative economy.
    Another important inequality is gender inequality. Since 
1990, Chinese women's labor force participation has dropped 
from 73 percent, one of the highest in the world, to 60 
percent. The gap between male and female labor force 
participation is also widening.
    Why? It is not because the men are choosing not to work. 
Instead, it is due to two main factors: widespread gender 
discrimination at the workplace, and lack of access to child 
care. Gender discrimination is exacerbated by the relaxation of 
China's one-child policy, which now permits Chinese couples to 
have up to three children. Employers have become much more 
reluctant to hire women.
    Child care that is both affordable and high-quality, 
particularly for infants and toddlers before preschool, is also 
very scarce in urban China. Rural Chinese women who migrate to 
cities for work most often leave their children behind in the 
countryside to be cared for by relatives, which has long-term 
negative effects on the health and the educational 
opportunities of Chinese children, of which two-thirds are 
stillborn in the countryside.
    China's demographic crisis has further pushed the Chinese 
Communist Party to promote women's roles as wives and mothers, 
but insufficiently protected their rights at the workplace and 
insufficiently provided access to affordable child care.
    In addition to weak enforcement of law, the current 
government has launched a severe crackdown on civil society 
which has impaired Chinese workers' ability to protect 
themselves. Since 2014, labor NGOs and other activists have 
been targeted with waves of detention and social media 
blackouts to end social mobilization around rights in the 
workplace, demands for freedom of association, and protection 
from discrimination.
    I last testified in front of a congressional subcommittee 
in 2012, and the difference between now and then is stark. The 
previous administration in China was far more tolerant of civil 
society's role and protecting rights at the workplace. But in 
the current era, civil society has been completely shut down.
    Thank you for this opportunity.
    [The prepared statement of Dr. Gallagher appears in the 
appendix.]
    Senator Cassidy. Thank you, Dr. Gallagher.
    Mr. Luna, you are recognized for 5 minutes.

 STATEMENT OF DAVID M. LUNA, EXECUTIVE DIRECTOR, INTERNATIONAL 
  COALITION AGAINST ILLICIT ECONOMIES (ICAIE), WASHINGTON, DC

    Mr. Luna. Good afternoon, Chair Warren, Ranking Member 
Cassidy, and distinguished members of the subcommittee. I 
appreciate the opportunity to testify at today's hearing.
    It is an honor to be here on behalf of the International 
Coalition Against Illicit Economies to outline the array of 
cross-border security threats that China continues to inspire 
to harm the U.S. national security, our competitiveness, and 
the health and safety of our citizens. Today's criminal markets 
are a multi-trillion-dollar global economy that undermines U.S. 
competitive policies.
    The United Nations has estimated that dirty money laundered 
from such criminal activities is between 2 to 5 percent of 
global GDP. China is a common denominator in expanding many of 
these illicit economies. Fentanyl, which is killing tens of 
thousands of Americans each year, is bought by the Mexican 
cartels and facilitated by Chinese criminal groups.
    When the fentanyl illegal trade converges with other 
criminal activities, the overall threat becomes multiplied many 
times over, including when China's state-sponsored IP theft and 
economic espionage of U.S. trade secrets harm our companies at 
an estimated $600 billion.
    Similarly, China counterfeits are flooding the U.S. market, 
accounting for 80 to 90 percent of all counterfeits seized in 
the U.S. and globally. The National Association of 
Manufacturers released a report last year, finding that 
counterfeits cost the U.S. economy $131 billion and 325,000 
jobs in 2019. Across a list of common platforms and Internet 
marketplaces, fake goods have increased the health and safety 
risks to all Americans.
    During the current pandemic, predatory criminals generated 
tens of billions of dollars selling fake PPE, mostly coming 
from China. The proliferation of counterfeit electronics hurts 
not only our electronics industry, but threatens the safety of 
our troops, including when they had been found to infiltrate 
critical military systems and supply chains.
    Every IP-protected product can be counterfeited. This is 
true for all consumer goods and services, but especially for 
the footwear and apparel industry, in which American brands are 
highly counterfeited, such as Nike, Under Armour, Polo, and 
sportswear from the National Football League, Major League 
Baseball, NBA, and NHL.
    Like other forms of illicit trade, the illegal tobacco 
trade is very profitable for criminal organizations and 
kleptocratic networks and terrorist groups. The China Tobacco 
Corporation is by far the largest cigarette company in the 
world and produces half of the world's cigarettes, which are 
moved illicitly through free trade sales in unregulated markets 
and across e-commerce.
    Auto parts similarly coming from China, counterfeit auto 
parts, end up hurting Americans, and really our auto companies 
like Ford, GM, and Tesla. Illegal logging, fishing, and mining 
of natural resources not only harm our natural world, but 
contribute to climate change and the financing of other 
converging threats.
    Chinese criminals are expanding their ties with the Mexican 
cartels and other criminals in the U.S., Canada, and Latin 
America, diversifying into areas such as human trafficking and 
environmental crime. China constitutes the biggest money 
laundering hub in the world, responsible for about half of the 
laundering in the world today.
    Trade fraud or trade-based money laundering are perfect 
asymmetrical threat vehicles to transfer money daily by 
kleptocrats, criminals, and terrorists in the form of trade 
goods out of the country, by importing goods at over-valued 
prices, or exporting goods at under-valued prices.
    China's Belt and Road Initiative (BRI) footprint tracks 
some of the biggest illicit trade routes known for corruption 
and money laundering and an array of traffic contraband that is 
a conduit for China to expand and bridge. A superhighway of 
illicit economies globally are advanced via BRI in parts of the 
developing world with debt traps.
    Finally, the call for action: we must heighten the 
political pressure on China and elevate the global fight 
against illicit economies in Congress. As part of a national 
security effort, including a bipartisan congressional caucus, 
we must empower law enforcement agencies with new legal 
authorities and develop a national strategy to combat trade-
based money laundering and related supply chain criminal 
infiltration and market penetration.
    In closing, China must become a more responsible partner. 
The corruptive influence that bad actors exploit in today's 
illicit economies is sabotaging legitimate commerce, American 
competitiveness, and the economic growth of nations that have 
played by the global trade system of rules, and by the rule of 
law.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Luna appears in the 
appendix.]
    Senator Cassidy. Please, Mr. Fanusie, for 5 minutes.

STATEMENT OF YAYA J. FANUSIE, ADJUNCT SENIOR FELLOW, CENTER FOR 
            A NEW AMERICAN SECURITY, WASHINGTON, DC

    Mr. Fanusie. Chair Warren, Ranking Member Cassidy, 
distinguished members of the subcommittee, and my fellow 
panelists, it is an honor to participate in today's meeting. 
Please allow me to add that, although I do consulting with the 
private sector on financial technology issues, my comments 
today are my personal opinion and are not on behalf of any 
clients.
    Today I will explain briefly how the Chinese Government's 
recent foray into financial technology, including by investing 
heavily in blockchain technology and piloting a central bank 
digital currency, is a long-term strategy to dominate the 
digital economy of the future. This strategy is a new financial 
dimension to the great power competition between China and the 
United States, but it is about more than money or currency. It 
is really about data. Specifically, it is about which country 
will be most successful at leveraging data for technical 
innovation, to set the standards for the new global financial 
infrastructure, and become the anchor for the information 
revolution that is on the horizon.
    No one entity or nation technically owns the underlying 
infrastructure of the Internet; however, it cannot be denied 
that the United States' decades-long investment in building it 
enabled U.S. companies to lead the technological and business 
growth that arose out of the Internet's information revolution. 
The clearest example now of China working to upend America's 
economic dominance on the Internet is its Blockchain-based 
Service Network, or BSN.
    It is a state-driven project that has partnered with 
Chinese private tech firms to build what the Chinese Communist 
Party believes is the next generation of Internet 
infrastructure. The BSN, like the U.S. endeavor to build the 
original Internet, is a decades-long campaign.
    The BSN vision is an Internet environment where data 
transmits through distributed broadcasting in which separate 
applications and business systems can simultaneously access and 
operate on agreed-upon authenticated data. This contrasts with 
the current Internet process where data is siloed between 
different systems and moves through the Internet in a linear 
fashion.
    In theory, this upgraded Internet would enable an Internet 
of things where all digital things can communicate and transact 
with each other, enabling a new era of digital innovation and 
economic possibilities, but it would be an Internet where China 
owns the underlying infrastructure.
    Although it is commonly said now that data is the new oil, 
it is more accurate probably to say that the Chinese Government 
sees data as the new electricity. Like electricity, data in 
China is becoming the force to power all applications and 
economic processes in the country, with individual users and 
their devices connected to national infrastructure.
    The disruptive potential of the BSM is similar to risks to 
the United States around China's Digital Currency/Electronic 
Payment, which is a decentralized central bank money project, 
popularly known as eCNY or the digital yuan. The eCNY is 
unlikely to displace the U.S. dollar as the top international 
reserve currency in the short-term or give China an immediate 
buffer against U.S. sanctions power.
    The risk though for U.S. displacement comes from the upper 
hand that China might gain in the long term by developing 
cross-border financial transaction infrastructure that a 
significant group of other countries eventually adopt. Data 
certainly is becoming the new electricity, but not just in 
China.
    Big data, machine learning, artificial intelligence, the 
Internet of things, they are all driving technological 
innovation in most advanced economies. The world is becoming 
more, not less dependent on data moving through the Internet. 
This trend is leading to a oneness of data that would appear to 
power almost every aspect of our public and private lives.
    At a time when advanced economies appear to be near the 
precipice of a fully digitized existence, now might be the best 
time for the U.S. to assert rules of the road for the 
increasing role of data in our lives. The first step is to 
accept the inevitability of this technological advancement in 
data transmission, while managing its societal shape.
    China's preemptive strategy to gain prominence in 
blockchain-based broadcast transmission of data is a wake-up 
call for U.S. innovation. The oneness of data does not have to 
be a tool of tyranny and dehumanization if it is molded by the 
principles of America's founding policymakers. Business people 
and other stakeholders must consider a framework for 
participating in this data revolution in a way that fits with 
the U.S. Constitution.
    Here are a few recommendations for how the U.S. can lead 
the next data revolution. One, the National Science Foundation 
should fund a decentralized Internet sandbox for colleges and 
universities. Two, the Small Business Administration, through 
its small business innovation research program, should offer 
grants to U.S. business for fintech R&D that supports both 
privacy and national security concerns. Three, the United 
States Federal Reserve should expand its research of central 
bank digital currencies. And four, the Securities and Exchange 
Commission should give more regulatory clarity around digital 
assets and blockchain technology.
    Thank you very much for your time, and I look forward to 
answering your questions in our discussion.
    [The prepared statement of Mr. Fanusie appears in the 
appendix.]
    Senator Warren. Thank you very much. I appreciate your 
being with us virtually.
    And now we have our last witness, Ms. Nakano. I recognize 
you for 5 minutes.

 STATEMENT OF JANE NAKANO, SENIOR FELLOW, ENERGY SECURITY AND 
CLIMATE CHANGE PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL 
                    STUDIES, WASHINGTON, DC

    Ms. Nakano. Chair Warren, Ranking Member Cassidy, and 
distinguished members of the subcommittee, thank you for the 
opportunity to appear before you to discuss the rise of Chinese 
competitiveness in energy technology sectors, and its 
environmental and climate implications.
    China's emergence as a globally competitive force in energy 
technology sectors is a complex and evolving story. Despite the 
country's 2060 carbon neutrality commitment, China continues to 
be the largest producer and consumer of coal. What's more, 
China is a major financier and exporter of the high-carbon 
energy projects in the world. Since 2000, China's two global 
policy banks have financed over $51.6 billion worth of coal 
projects globally. In 2020, the share of coal still accounted 
for 27 percent of China's global energy financing under the 
Belt and Road Initiative.
    A combination of the desire of the Chinese Government to 
address excess manufacturing capacity at home, the capacity of 
leading Chinese policy banks to support coal-fired power plant 
exports, as well as a wave of coal finance bans and the 
restrictions by multilateral development banks and western 
governments, has propelled Chinese banks to become a major 
source of financing for coal-fired power plants in the world.
    Unlike its peers in the advanced, industrialized countries, 
China's leading policy banks are not obligated to abide by the 
OECD restrictions governing coal-fired finance. In fact, these 
official Chinese institutions merely subject their coal 
financing to existing host market environmental regulations.
    At the same time, China has become a leading exporter of 
clean energy technology components. In solar PV value chains, 
China leads the world in several key segments, including 
polysilicon and wafer manufacturing. China's presence is less 
dominant in the wind power supply chains, but China is home to 
roughly half of the global manufacturing capacity for key wind 
and power components.
    Moreover, today China is not only the largest EV market in 
the world, but also a leading producer of key EV components 
such as cathodes, anodes, and separators that are then turned 
into battery cells. A key factor underpinning China's 
competitiveness in these clean energy technologies is its 
commanding position along the supply chains for rare earth 
elements, other minerals, and metals that are vital to these 
technologies.
    China has cultivated its mineral wealth and developed mid- 
and down-stream capabilities through various industrial 
policies. China's preeminence in the mineral supply chains has 
come with a high environmental cost, however. The mining and 
the processing of rare earth elements use a variety of chemical 
substances, and these activities--with limited environmental 
protections until the mid-2010s--have led to some known 
accounts of environmental and health damages in China.
    Lastly, nuclear energy is also a sector where China is 
emerging as a global technology supplier, following a 
remarkable expansion of its domestic nuclear power generation 
fleet during the last decade. China plans to expand its nuclear 
power fleet to 70 gigawatts by 2025, becoming the second 
largest in the world, only behind the United States.
    China is pursuing multiple deals in the world, in its 
efforts to become a global leader in nuclear power, by 
combining good-enough technologies with attractive financing 
that are again outside the bounds of OECD regulations. More 
needs to be done to address China's financing practices for 
energy exports that have market-distorting effects against 
cleaner energy sources and technologies, as well as energy 
technologies that are manufactured by advanced industrialized 
democracies like the United States.
    Also, while China's contribution to reducing the costs of 
low-emission technologies is undeniable, their practices in 
mining and processing minerals that are key to clean energy 
technology will warrant closer evaluation from the 
environmental, social, and governance perspectives.
    Concurrently, our over-reliance on Chinese supplies of 
these minerals and metals needs to be remedied. Fundamentally 
however, the United States needs to do more to enhance its 
energy technology competitiveness. Being competitive in energy 
technology sectors means preserving a strong innovation 
ecosystem, rebuilding the manufacturing base, and securing 
supply chains.
    Moreover, being competitive in clean energy technology 
sectors is not simply about doing our share in reducing 
emissions. These technologies are no longer niche, and they 
already account for hundreds of billions of dollars in 
investment and consumer spending, with strong outlook for 
further growth. The endeavor, therefore, has a strategic value 
to our Nation, as competitive clean energy sectors can augment 
the U.S. position in the global economy.
    Thank you very much.
    [The prepared statement of Ms. Nakano appears in the 
appendix.]
    Senator Warren. Thank you very much, Ms. Nakano. I 
appreciate your testimony here.
    So I now recognize myself for 5 minutes of questions. 
American workers are the foundation of U.S. competitiveness. 
When we empower our workers, they drive innovation, 
productivity, and sustainable economic growth. Investing in 
workers should be the core of our domestic agenda and our trade 
agenda.
    Too often trade rules undercut workers, which promotes 
offshoring and a global race to the bottom in labor and 
environmental standards. That is not an accident. That is a 
policy choice. For decades, workers and other activists have 
been systematically shut out of U.S. trade policy, while big 
corporations have bought and lobbied their way into writing our 
trade rules.
    Now back in 2001, the U.S. Trade Representative, the 
Federal agency that is in charge of our Nation's trade policy, 
spent years negotiating a trade deal that enabled China to join 
the WTO and lock in permanent preferential access to the U.S. 
market for China. So I want to talk a little bit about how that 
trade agreement worked.
    Dr. Gallagher, let me start with you. Before joining the 
WTO, China had to agree to a bunch of commitments that the 
United States spent years negotiating, so I want to ask you 
about those commitments. Did these commitments include 
enforceable labor protections like requiring that China allow 
free independent unions, or that China prohibit forced labor?
    Dr. Gallagher. Thank you, Senator Warren, for the question. 
China's accession to WTO did not require any commitments 
regarding labor protections that were enforceable. Most labor 
issues were either kicked up to the International Labor 
Organization, the ILO, which does not have strong levers to 
induce countries to comply with international labor 
conventions, or they were kicked down to companies to engage in 
private regulation such as corporate social responsibility 
protocols, or accreditation by different non-governmental 
organizations such as the Fair Labor Association, which have 
had limited impact.
    The Trans-Pacific Partnership, which was put forward by the 
Obama administration but never realized, and of which China was 
not a member, did try to include stricter labor protections and 
requirements for freedom of association with Vietnam, a 
communist country with a similar trade union structure to 
China's, so that would have been an interesting case. But as 
you know, the U.S. pulled out of the TPP in 2017.
    Senator Warren. Okay. So what you are telling me is, well, 
they might have been able to negotiate something when the 
negotiations were finished in 2001. Instead of making sure that 
American workers could compete on a level playing field, the 
U.S. Trade Representative worked with corporate lobbyists to 
make offshoring U.S. manufacturing jobs to China as cheap as 
possible, and as easy as possible.
    And that meant lots of profits for multinational 
corporations that wanted to build new Chinese factories that 
ran on cheap labor, but it meant zero protections for Chinese 
workers, because that would have raised labor costs for those 
companies. These new rules meant that investing in Chinese 
factories was a whole lot more attractive than investing in 
U.S. factories, and it was a lot cheaper then to buy Chinese 
imports instead of buying things that were made here in the 
United States.
    This had a big impact on American manufacturing 
communities, as well as a disproportionate impact on Black 
workers. Dr. Spriggs, let me ask you, how many U.S. 
manufacturing workers lost their jobs due to increased imports 
from China, and how did this impact Black communities in 
particular?
    Dr. Spriggs. Thank you for the question. Our best estimates 
now show 6 million jobs in manufacturing lost for the United 
States. My work shows a little over a million lost for Black 
Americans. This disproportionate impact on local labor markets 
led to other job losses, so that there were many communities 
that lost all jobs and lowered the share of workers employed in 
those communities, a lasting impact from which we have not 
recovered, even with the expansion since the Great Recession.
    Senator Warren. So 6 million lost jobs from this negotiated 
trade agreement that was great for multinational corporations, 
just not good for Chinese workers, and definitely not good for 
American workers. I really appreciate your important 
scholarship, Dr. Spriggs.
    Now we have a Federal program called Trade Adjustment 
Assistance to help workers who lose their jobs because of trade 
deals, if those trade deals are helping our economy overall--
that is the idea behind it. We should renew it, update it to 
make sure it is adequately helping Black and Brown workers. But 
let's face it, a program like this is a drop in the ocean.
    We should be addressing workers' concerns at the beginning, 
when a trade policy is negotiated, not trying to pay them off 
once they lose their jobs and their communities have been 
destroyed.
    Mr. Houseman, there is a Labor Advisory Committee that is 
supposed to represent worker's interests. So I actually just 
want to go through some questions about this. How much power 
does this committee really have as part of the trade 
negotiations? So for example, when the U.S. Trade Rep finalized 
the 2001 trade deal with China, did the labor negotiators get 
to have a sign-off on the final version of the bill? Did the 
Labor Advisory Committee get a chance to weigh in on that?
    Mr. Houseman. No, Senator. They provide advice and comment, 
but at the end of the day, it really is not meaningful; there 
is no ability to really stop the process for labor's voice.
    Senator Warren. Okay. So the committee was not permitted to 
weigh in on this. Let me ask you about another one. How about 
the workers themselves? Was the draft text of the deal ever 
published, so workers could see it before it was actually 
adopted?
    Mr. Houseman. Effectively, no. It is really hard for 
workers, rank and file members, to see a draft text of trade 
agreements.
    Senator Warren. Okay. So not the Labor Committee that is 
supposed to be watching out for labor during these 
negotiations, not the workers themselves; how about someone 
else? Did the U.S. Trade Rep, or any other agency, have to do 
any kind of analysis about how the deal would affect different 
groups of workers differently, for example by race or by region 
in the country?
    Mr. Houseman. If you look at the International Trade 
Commission that just recently did a report on our trade 
agreements, they highlighted very modest growth, less than 1 
percent from these trade agreements, while at the same time 
highlighting significant job loss in manufacturing. And then, 
when you really dive through the report, there is no language 
about communities of color, minority communities, or quite 
frankly, communities that experience high levels of poverty.
    I think about a lot of our manufacturing plants, and about 
10 out of our 13 tire plants, for example, are in communities 
where the poverty rate exceeds the national poverty rate.
    Senator Warren. Wow.
    Mr. Houseman. So you know, these manufacturing plants are 
key employers for a lot of these workers. So these trade 
agreements, as you have explained, without this ability to 
really review them, and have worker input, and have good 
analysis for you all to make a firm decision, should we enter 
into these trade agreements?
    Senator Warren. So thank you. That is very powerful 
testimony, and I appreciate the help on this, and the data. You 
know I am glad that the Biden administration is saying all the 
right things about putting labor, environmental, and equity 
issues at the center of our trade policy, but if we want trade 
deals to work for everyone, not just for big corporations, it 
is not enough to say we are going to put this on one President.
    We need to make structural changes to the trade 
policymaking process to ensure that workers are meaningfully 
represented at the negotiating table, both now and in all 
future trade deals. So thank you very much. Thank you.
    Ranking Member Cassidy, would you like to ask some 
questions?
    Senator Cassidy. Absolutely; thank you.
    Dr. Gallagher, you mentioned the demographic issues in 
China, and I noticed that I saw some statistics which suggested 
that they had underreported the number of COVID deaths, but the 
population actually maybe went down a little bit, and the 
number of births actually also decreased.
    I have also read that the--you mentioned how women have a 
difficult time having the same progress in the workforce, but 
nonetheless, many women work. And so for them to take off from 
work and have a child--it would take 20 years for that child to 
enter the workforce.
    So someone suggested that they really have begun a bad 
phase of their demographic period; that is, as soon as 20 years 
from now we could begin to see a dramatically smaller Chinese 
population. Would you agree with all that?
    Dr. Gallagher. Yes, that is a correct understanding of the 
problem, both the demographic----
    Senator Cassidy. Is your microphone on, or is it my bad 
ears?
    Dr. Gallagher. It says it is on.
    Senator Cassidy. Okay. Pull it a little bit closer, please.
    Dr. Gallagher. That is a correct summary of the demographic 
crisis that China is facing today, related both to the decline 
in the percentage of the working population--the very low 
fertility rates--and then the rapid aging, such that by 2050, 
without changes which are very hard to achieve in a short 
period of time, the population of Beijing, the capital of 
China, could be 50 percent people 65 and older, so China is 
not----
    Senator Cassidy. In terms of absolute numbers, are there 
1.2 billion people now?
    Dr. Gallagher. One-point-four.
    Senator Cassidy. One-point-four. If current trends 
continue, what will be their population in 2050?
    Dr. Gallagher. We believe--but I am not a demographer, so I 
do not want to get my numbers wrong--but we believe that the 
Chinese population will begin to shrink in absolute terms over 
the course of the century.
    Senator Cassidy. Now that is very vague. [Laughter.]
    Dr. Gallagher. Well, I think one way to think about China's 
population problems is that it is a country with a lot of 
people, right? It is still the most populated country in the 
world, although India will soon surpass it, but it is more the 
demographic, the structure of the population balance----
    Senator Cassidy. I get that: the older versus the younger. 
But in terms of absolute numbers, it would also be much 
smaller, correct?
    Dr. Gallagher. Over a longer period of time, yes. It is 
also imbalanced in terms of its sex ratio as well.
    Senator Cassidy. Male, female, which presumably also 
affects birth rates.
    Dr. Gallagher. Exactly.
    Senator Cassidy. So okay, and also I did not pick up until 
your testimony that there is a rural-urban divide; if you will, 
the rural area has less potential to be productive.
    Dr. Gallagher. Yes, the rural area traditionally was 
agriculture, and starting in the reform period, what started to 
happen is that hundreds of millions of people who are rural 
residents in China left for the cities.
    Senator Cassidy. I understand that. They have migrated in.
    Dr. Gallagher. Right.
    Senator Cassidy. But at the same time, even given that, 
there is still a difference in access to services and education 
such that people in the rural area, in particular those who are 
in the informal economy, you could almost say would be mired in 
a substandard level of living. So, when we speak about their 
productive workforce, it is even worse than you might imagine, 
given their demographic challenges.
    There is also this rural/urban divide which leaves a whole 
segment less productive.
    Dr. Gallagher. Right. And those rural people, many hundreds 
of millions of them, are in the cities, but their status is 
still related back to their birthplace, and that is very 
difficult to change unless you are very, very highly educated. 
And so, for most people who are born in the countryside, even 
if you migrate to an urban area and live there, it is a long 
time----
    Senator Cassidy. So let me ask, because I have limited 
time--I do not mean to keep interrupting you. But some of 
this--I read your testimony--I have a sense that I know. There 
have been some who have said that, despite everything we have 
spoken about with all these excellent witnesses, with regard to 
the advantages of China, their demography is destiny, and it 
will be difficult for them to overcome their demographic 
challenges, if we are speaking over the 30-year period or 50-
year period. Do you have a sense of that?
    Dr. Gallagher. The concern is that that population, which 
is still a large percentage of the population, will be left 
behind because they do not have the same advantages, 
particularly in education----
    Senator Cassidy. But I am speaking now in terms of U.S.-
Chinese competitiveness, that their competitiveness will be 
undermined by this demographic challenge, and we are speaking 
over the next 4 or 5 decades.
    Dr. Gallagher. Certainly.
    Senator Cassidy. Do you agree with that?
    Dr. Gallagher. Yes, I do agree with it. But I also do not 
think that the Chinese Government is unaware of it, and they 
are trying to address it.
    Senator Cassidy. I understand. But there is only so much 
you can do to coax people to have children, particularly when 
your male/female ratio is out of balance.
    Mr. Luna, I think I have read that as much as a billion 
dollars a day flows out of China in terms of capital flight. Is 
that just a figure I vaguely remember, or what is their capital 
flight issue?
    Mr. Luna. I think that is correct. There have been numerous 
international organizations that have those estimates, and they 
could be conservative estimates.
    Senator Cassidy. Really?
    Now, you spoke about trade-based money laundering, and I am 
very concerned about that. It seems as if trade-based money 
laundering is a way that somebody could move capital from China 
to a country outside of China and, if you will, avoid Chinese 
Government scrutiny, et cetera.
    So if you will, their participation in the TBML is not 
necessarily to further criminal activity, but to get their 
capital out. Is that possible?
    Mr. Luna. That is a fair assessment, Senator. Going back to 
your earlier question, if you look at the proceeds of 
corruption since 1995, they are about $2 trillion. In my 
testimony earlier, I mentioned that China is a money laundering 
hub, up to $1.5 to $2 trillion a year.
    Senator Cassidy. Two trillion a year.
    Now the Chinese Government is a surveillance society. I 
guess I am a little bit--how are they so incapable of capturing 
what might be a conservative estimate of a billion dollars of 
capital flight per day?
    Mr. Luna. Good question, Senator. It is a little bit 
complex there. You know, I think the issue of complicity is 
part of the challenge.
    Senator Cassidy. Now complicity in terms of a corrupt 
official, or in terms of official----
    Mr. Luna. Not necessarily at the national level. It could 
very well be a disconnect between the national and the 
subnational corrupt officials in the various provinces across 
China, where in fact you see often the highest level of 
corruption in China.
    Senator Cassidy. So, although we see many things that China 
does as threatening to the West, this is actually an area that 
we could potentially--I think you highlight this in your 
testimony--an area that we could potentially cooperate on, 
which is to address the trade-based money laundering aspect, 
which would address in turn their concern about capital flight. 
Is that a fair statement?
    Mr. Luna. Correct. I do think political pressure by the 
Congress, the Biden administration, working together bringing 
China to the table--if you just look at the various illicit 
markets and weave them together, China again is the common 
denominator and the major player in the global illegal economy.
    Senator Cassidy. I will come back to that, because I think 
it is Chair Warren's turn. I am a few minutes over. Can I go a 
little longer?
    So then let me ask, because it seems like we have tension 
here: on the one hand, they export more albeit counterfeit 
goods, which helps their economy. On the other hand, this may 
be a vehicle by which there is capital flight. Is there a 
tension there, or am I only imagining it?
    Mr. Luna. Well, there is illicit trade, but on the illicit 
trade--they do exploit illicit trade to move capital and to 
move illicit proceeds----
    Senator Cassidy. So, even though it is illicit goods, they 
are just mismatching the pricing between the recipient country 
and China in order to move capital out?
    Mr. Luna. Correct. It could be over-valuation, under-
valuation on its pricing; correct.
    Senator Cassidy. Got it. So the Chinese Government would in 
that case--they are savvy enough to evade the Chinese 
Government surveillance, correct?
    Mr. Luna. The complicit corrupt officials, correct.
    Senator Cassidy. Okay.
    And then I am through with you, and then we will come back, 
and I will ask other witnesses about a way to address that.
    Senator Warren. So I would like to talk for a minute about 
climate change. Climate change poses an existential threat to 
every living thing on this planet. The United States should be 
racing to make investments in green technology, green products, 
green infrastructure, so that we are prepared, and so that our 
economy grows as the rest of the world needs these products to 
fight climate change. If we fail to act, then we will spend the 
coming decades relying on China and other countries to sell us 
the things that we need to fight climate change, and we will 
cut U.S. workers out of the jobs of the future.
    China is already making these investments, seeking to 
combat pollution and to dominate new sectors. They are throwing 
the book at the problem. They are funding basic research, they 
are subsidizing commercialization of new technologies, and they 
are using government purchasing power to help new products gain 
a foothold in their market. Because China understands that the 
private sector cannot do this alone, they are putting a lot of 
government muscle behind making this happen.
    Dr. Spriggs, do the necessary comprehensive investments in 
green technology get made without help from the Federal 
Government?
    Dr. Spriggs. Thank you, Senator. No, they do not. There is 
too much policy uncertainty to make this size of investment in 
the type of research that needs to be taking place, and the 
fact of recouping the funds, which will be massive in 
transforming other elements of the economy, make it unlikely 
that individual firms would make the investment on the scale we 
need.
    Senator Warren. Okay.
    Mr. Spriggs. So we really need the government's signal and 
the government's support to help companies make those 
investments.
    Senator Warren. So that is a powerful point. It is 
important to understand what it takes to get a market like this 
up and running, and it is not as if we have an open field. 
China is actually already moving into this market very 
aggressively. You know China, I think, recognizes this 
challenge and the opportunity that it presents, so it is using 
every policy tool it can to develop and deploy green 
technologies.
    But China's approach is missing one key thing--meaningful 
protection for workers. And that means that China can cut costs 
of factory production, but it also means that the Chinese 
workforce is poor, it is less educated, it is less productive, 
and it is less innovative.
    Mr. Houseman, right now Congress is debating making 
historic investments in clean technology. So I just want to ask 
you, if we follow China's model--that is, if we make the 
investments in research, but we do not make the investments in 
workers and protecting our workers--what do you think happens?
    Mr. Houseman. I believe, when you look at 70 percent of the 
gross domestic product in the U.S., it is U.S. consumers; it is 
U.S. workers who are putting this effort together, using their 
purchasing power to grow the economy. And it means that you 
need to have good labor standards, right?
    I think of Joe Wrona, who testified before the Senate 
Finance Committee hearing, who had this opportunity where he 
was working in a Globe facility that made a subcomponent to 
polysilicone, and unfortunately lost his job to that.
    They made $70,000 to $100,000 a year with a good labor 
contract. And so when we think about these green investments, 
if we beef up our labor standards, which are historically 
really low and undermined after years and decades of adverse 
court cases and efforts to undermine collective bargaining, 
there is this opportunity to renew our green infrastructure, 
but we also have to renew our human infrastructure, our labor 
rights.
    Senator Warren. Well, I think this is a really powerful 
point. It is something I want us to all drive home and triple 
underline: that engaging in a race to the bottom with China on 
labor conditions does not make America more competitive. It 
undercuts our Nation's greatest competitive advantage: our 
hardworking, skilled, innovative workforce.
    So, this is the reason that I introduced the Buy Green Act 
with Congressman Andy Levin, which would require that the U.S. 
Government spend at least $1.5 trillion of the money it spends 
anyway to buy materials and equipment over the next decade, to 
use that money to purchase American-made, clean, renewable, 
emission-free energy products.
    This bill includes robust labor protections ranging from 
Buy America application to better wage standards to paid leave. 
Too often though, labor protections are just an afterthought on 
domestic investments, and I think that is the wrong approach.
    We need to think about U.S. workers, not at the end of the 
process, but at the beginning of the process. So let me ask 
you, Mr. Houseman, if we applied a minimum framework of labor 
protections across the board to our domestic investments, would 
that strengthen our global competitiveness?
    Mr. Houseman. Oh, absolutely, Senator. I mean, when you 
already start for such a low base--like we have some basic 
protections out there such as Davis Bacon, prevailing wage, 
these sorts of provisions that help certain industries. But 
when we start to talk about expanding labor access and labor 
rights for workers, it broadens that base, creates that 
opportunity for workers to collectively bargain for those 
opportunities: for health care, child care, these things that 
we talk about endlessly here around the Capitol. But it is an 
opportunity where we start from a low base, but with the right 
policy tools we can really make the U.S. worker not only just 
competitive, but competitive with an ability to thrive. And I 
think that is the key piece of what you are trying to do, yes.
    Senator Warren. So I love this--you know, it is fair wages, 
it is Davis Bacon, it is child care, fair labor standards, the 
ability to have a collective bargaining agreement--all of those 
help strengthen our workers. And when we help strengthen our 
workers, we help make our country more competitive.
    As you know, President Biden has called for historic 
investments in the green economy, and that is great, but it is 
critical that Congress guarantee that those investments create 
good jobs--jobs that sustain families, jobs that sustain 
communities for decades to come.
    It is not just the right thing to do; it is how we retain 
our competitive advantage against China, so thank you very 
much.
    Senator Whitehouse, are you with us?
    Senator Whitehouse. I am with you, Chair Warren.
    Senator Warren. I recognize you for your questions.
    Senator Whitehouse. Thank you very much.
    Let me start, if I may, with Ms. Nakano, and ask--well, 
right off the bat, what are your, or the Center for Strategic 
International Studies' positions on how important climate 
action is, and what your favored climate policy is with respect 
to climate action?
    Ms. Nakano. Thank you very much, Senator. I can only speak 
for myself. I am not allowed to speak for the Center. I mean, 
we are a bipartisan policy think tank.
    Senator Whitehouse. Good for you.
    Ms. Nakano. If I may, thank you. I do think that all these 
economies that do have means really need to electrify as many 
sectors as possible while decarbonizing energy sources as 
quickly as we can. And in that mix, I think there are many 
technologies that are new, but also some are very proven 
technologies that merit closer appreciation for some of the low 
carbon-emitting profiles, such as nuclear for example.
    Also, there is a robust role for renewable energy sources, 
and----
    Senator Whitehouse. Can I ask you if a price on carbon 
emissions is a policy tool that would be helpful in achieving 
those goals?
    Ms. Nakano. Yes, I believe so.
    Senator Whitehouse. And you said something really 
interesting in your testimony about electric vehicles, which is 
that China is beginning to establish a commanding position. As 
you know, the President's proposal with respect to climate is a 
very big push in the electric vehicle space.
    What advice would you have for us as we try to refine that 
policy in the U.S. electric vehicles market to try to protect 
against that commanding position of China's?
    Ms. Nakano. Yes, and thank you for that question. So China 
is not really there yet. I think in the high-capacity battery 
and EV sectors, there is no clear winner yet. Some of the 
things that China has not done so well include some of the 
technology advancements they have been working at that they 
have not really achieved.
    But they have been able to give a more clear signal on both 
the pace of infrastructure development, EV charging stations, 
but also the type of technical specifications that investors 
need to be able to go in, but then also clear demand. And 
looking at the U.S., the recent endeavors, I think we also 
really need to address the supply chain side as well.
    When it comes to the EV sector, as opposed to, let's say 
the solar PV or wind, China really does not have the absolute 
dominance on minerals and metals that go into it. For example, 
when we look at the lithium-ion battery-based EVs, countries 
like Australia and also Chile have lithium; however, China has 
invested quite heavily in processing and separation capacities 
for the last couple decades.
    Senator Whitehouse. Protect our supply chain would be an 
important piece of advice.
    Ms. Nakano. Yes, yes, and I would like to see----
    Senator Whitehouse. I am running down on time, so if I may, 
with appreciation, Ms. Nakano, for your answers, turn to--it 
will be the same question to Dr. Spriggs and Mr. Houseman. We 
are hearing an awful lot in this committee about the tax 
advantages of companies when they offshore, when they send jobs 
and equipment and manufacturing overseas.
    And as a result of that, they pay no or little tax, and as 
a result of that, they are able to become more competitive. And 
that is basically the argument for defending tax advantages for 
offshoring manufacturing. But the argument fails to consider, 
in my view--and this is where I want your comment--that those 
big offshore companies are not just competing against foreign 
companies, they are also competing against American businesses, 
American companies, American manufacturers that either do not 
have the scale, or do not have the unpatriotic nature, to move 
their manufacturing overseas for tax advantage.
    And could you focus a little bit on that competitive 
disadvantage that American businesses suffer when we 
accommodate and indulge offshoring advantages for big American 
corporations?
    Dr. Spriggs. That is absolutely correct, Senator, that 
issue that you raise, because it is unfair to the domestic 
manufacturers that, when they increase production, are doing to 
it export. And it is unfair to the host countries around the 
world that are low-income, do not have leverage with major 
corporations, and cannot get the revenues to enforce their 
labor standards.
    It is a lose-lose all the way around if we do not have an 
agreement on a global minimum tax for corporations. We lose, 
and we lose by setting up a set of rules that ensures a race to 
the bottom by making sure that other nations cannot enforce 
laws.
    Senator Whitehouse. Mr. Houseman, keep your answer short, 
because I am over my time, but I would love to hear you chime 
in.
    Mr. Houseman. Sure. I think about Mohawk Paper out of New 
York. They are a small paper producer that makes high-quality 
specialty papers and are represented by USW. And for us, they 
are competing in an international market, and they can export 
to a ton of countries, but should they be competing on tax 
policy?
    It is something that we, the steelworkers, firmly believe 
is the last thing that workers should be competing on, and they 
should be competing on the quality of the product they produce. 
And so that is why we are supportive of your legislation like 
no tax breaks for outsourcing.
    I think it is a strong legislative piece that shows that, 
when we invest in America and we ensure that we have good tax 
policy that holds corporations accountable for those sort of 
offshoring practices, it will not only help domestic workers, 
but will help domestic companies.
    Senator Whitehouse. Thank you.
    Thank you, Chair Warren, for this important hearing. I 
think it is really important to remember the Mohawk Papers of 
America when you see an American corporation that competes with 
Mohawk Paper move offshore to get tax advantages to try to make 
Mohawk Paper's life more difficult. And there is no real 
competitive advantage there; it is artificial, and it hurts 
American manufacturing. So thank you, Chair Warren.
    Senator Warren. Thank you very much for joining us, Senator 
Whitehouse, and the very powerful point that you make.
    I want to turn, if we can for just a minute, to 
cryptocurrency. This is another area where U.S. leadership will 
be key to setting the rules of the road.
    Cryptocurrency has created new opportunities to scam 
investors. Crypto has helped criminals get paid, and crypto has 
made the climate crisis worse. Nothing will change unless 
regulators step in. So let me just pick one example: illegal 
financial transactions; things like online theft, drug 
trafficking, evading sanctions, ransomware attacks.
    Just last week, hackers infiltrated the networks of 
potentially thousands of small businesses across the world, 
including at least 200 American companies, and demanded $70 
million in cryptocurrency, the single largest ransomware attack 
on record so far.
    Last year, criminals collected $412 million in ransom 
through cryptocurrency. This year the number may turn out to be 
higher. So, Mr. Fanusie, I know you are an expert on the 
national security implications of cryptocurrency, so I want to 
ask you, do you believe that cryptocurrencies are a threat to 
the safety and security of our financial system?
    Mr. Fanusie. Thank you for that question, Chair Warren. I 
think how I would respond is that, after looking at this issue 
for quite some time, I would say that this new Internet of 
value that cryptocurrencies are a part of, is simply a part of 
our economic ecosystem now. You know, as someone who is focused 
on illicit finance and national security issues, it is true 
that I have seen multiple illicit actors--from state actors, 
whether it is North Korea, to non-state actors, even a 
terrorist overseas--dabble, experiment, and gain revenue 
through this new technology.
    But I would say that what we have to do is, we have to have 
the framework where we see that this is not going away. 
Cryptocurrencies are not going away. I think we kind of have to 
maybe double down on what we have done well, what the U.S. has 
done well.
    I have looked at a lot of the anti-money laundering part of 
this, and interestingly, I think the U.S. leadership has 
actually been good on AML. I mean, I did a study a few years 
back where we compared the U.S. and other countries, and how 
much elicit activity was happening in other regions. And even 
though there was an absolute value which was maybe more in the 
U.S. because there was a lot of crypto activity, the percentage 
of illicit activity was actually smaller in the U.S. compared 
to other countries.
    And the reason is Treasury, FinCEN specifically, had 
actually put out guidance about how to regulate cryptocurrency 
businesses. So there are still gaps. There are still issues, 
but I think, on the AML front, we have to sort of plug the 
holes maybe a little bit, but I actually have seen progress on 
that front.
    Senator Warren. I am very glad to hear you say that, 
because what I am hearing from this is that effective 
regulation is possible; that the crypto risks are real, and 
recent ransomware attacks on Kaseya and the Colonial Pipeline 
may just be the tip of the iceberg here; that we need to update 
our anti-money laundering infrastructure to keep up. But I 
think what you are saying is, that is possible. That is 
something we could do.
    Let me see if I can just expand our thinking about this a 
little. The United States has maintained leadership in global 
financial markets over the past century. I worry that we risk 
losing that competitive advantage if we do not take action to 
address the risks in this rapidly and growing market in crypto.
    So, Mr. Fanusie, can I ask you how important it is that the 
U.S. lead in writing the rules of the road when it comes to 
regulation of the cryptocurrency market?
    Mr. Fanusie. Chair Warren, it is extremely important 
because, as I have mentioned, even though I would say we have 
done well on a lot of the AML front, there are a lot of 
innovations. This technology sort of moves ahead of regulators, 
I would say. There are a lot of new types of applications and 
protocols that challenge our regulatory framework.
    So there are gaps there, and I would say that the big 
concern is that a lot of these new innovations within the 
crypto space could sort of either get out of hand, or the best 
innovation that may capitalize on some of this innovation 
because it is so decentralized, could move elsewhere. It could 
move overseas.
    So it is sort of important for the U.S. to look at this 
technology, accept that it is really here to stay, accept that 
a lot of this innovation does not fit into some of our 
regulatory framework, and then really do the tough diligence of 
figuring out, well, how should protocols be regulated? How 
should decentralized applications be regulated? What is the 
framework that we need to have? And I think the U.S. is going 
to have to do that, or other jurisdictions may provide more 
opportunity for entrepreneurs.
    Senator Warren. Thank you very much. I think that is a 
powerful point. Cryptocurrencies are going to play a 
significant role in our financial system for years to come. And 
the United States has two options. You know, we can set the 
rules of this market ourselves, or we can sit back and let 
other countries do it.
    We have an opportunity to lead the way by fostering a safe 
cryptocurrency market that respects privacy, but that also 
mitigates illicit activity and protects consumers. So I think 
we have real challenges in front of us on this. Thank you.
    Senator Brown, you are now recognized.
    Senator Brown. Madam Chair, you are going to vote, I 
understand?
    Senator Warren. Yes. And if I am not back by the time you 
finish, you keep asking questions. The gavel belongs to you, 
all right?
    Senator Brown. I do not want the gavel. I just want to keep 
talking.
    Senator Warren. Okay, keep talking.
    Senator Brown. All right; thank you.
    Senator Warren. Thank you, Senator Brown.
    Senator Brown. Thanks for holding this hearing, and I 
appreciate, Madam Chair--I know this is your doing that labor 
is represented at this table. So thank you for doing that, 
because I do not talk about what happens at Democratic caucuses 
often, but I will say today at the lunch it was clear that 
President Biden puts labor at the center, workers at the center 
of all of his policies, from trade, to enforcement, to wages, 
to all that. So it is a new day in Washington, and I welcome 
that, and I thank Chair Warren for doing that.
    Let me talk about the PVLT tire case, if I could. 
Competitiveness starts on a level playing field in Ohio. 
American steel companies like Cleveland Cliffs are being 
targeted with unfair trade practices from China.
    I did a call today on something that should be as simple 
and as clean as the Made in America label. We know that company 
after company--most are not--but enough are cheating and 
slapping that label on and deceiving the buyer, because they 
are not products typically in many cases, in some of these 
cases made in Ohio. Fortunately though the Biden Federal Trade 
Commission has stepped up and is going to begin to enforce that 
much, much, much better, especially on e-commerce, than has 
been done in the past.
    As we know--back to Cleveland Cliffs--steel is not the only 
industry that suffers. This kind of targeted dumping is rampant 
throughout our economy, including everything from mattresses to 
solar energy manufacturing. China's goal clearly--it is in 
their national interest, they see it that way--but their goal 
is to erode our industrial base.
    Cheating is just one way to do that. They also outright 
steal American IT. They exploit the loss of American innovation 
that occurs when a product moves overseas. I do not entirely 
blame the Chinese. I blame this Congress, and Congresses 
before, who have passed trade laws and tax laws that end up 
shutting down production in Mansfield and Ashtabula and Dayton, 
OH and move it overseas.
    So, Mr. Houseman, I am glad to support the Steelworkers 
most recent petition for AD/CVD duties against the dumping in 
the U.S. Thank you for the work you are doing, and can you 
elaborate on your experience with the PVLT tire case?
    Mr. Houseman. Yes, Senator. You know the United 
Steelworkers is the largest union in tire manufacturing, 
representing workers across the country in PVLT tires. These 
are the tires that go on your car and your truck, right? And in 
2014-2015, the United Steelworkers filed a petition against 
China because we had 50 million tires come pumping into the 
U.S. market, undercutting domestic workers, impacting over 
5,000 domestic jobs.
    And that petition--as you know, we were successful in 
getting the duties put in place. Now we are 5 years later, and 
we have seen strategic investments by China in South Korea, in 
Thailand, in other countries where we have seen significant 
increases in PVLT tire imports, so much so that in the last 
year the United Steelworkers--because they have this union 
density and are able to file freight cases--they filed a new 
petition against South Korea, Thailand, Taiwan, and Vietnam, 
and were successful in that petition.
    And we thank you, Senator, for sending a letter in support 
of that petition. But this became this whole point of Whac-A-
Mole, where we stopped dumping from China, but China is now 
investing in these third-party countries, and now dumping into 
the U.S. market all over again.
    So, this Whac-A-Mole issue is one of the reasons why I was 
supportive of your legislation and Leveling the Playing Field 
2.0, because we have to hold China's Belt and Road Initiative 
accountable in our trade enforcement laws.
    Senator Brown. Let me take that in a different direction. I 
am going to go way over my 5 minutes because nobody else is 
here to stop me.
    I was talking to a tire manufacturer last night who said 
that--I am not sure I fully understand, and you can expand, or 
any other person on the panel can. Apparently, he said that the 
tire retread market production is down. We do not have the 
ability. We have lost jobs in retreading tires because cheap 
Chinese tires do not have the base to be able to retread, while 
American tires, Goodyear in Akron for instance, and others, 
Bridgestone and others, can actually provide the base tire, the 
core tire, whatever the term is to do that.
    I apologize for my ignorance. Is that generally right? Can 
you comment on that?
    Mr. Houseman. From a top level, yes. You know, our members 
make--they call them off-the-road tires. Those are the big 
tires that go on tractors for example. And you know from our 
membership and what we have heard is that they do some of this 
retreading work, and what we have heard is that yes, these 
Chinese imports, they are of a lower quality, and you cannot 
actually do this retread work.
    So ultimately, the energy and all of the effort that is 
expended here, you are not able to even recycle this product, 
right? And I think that is why----
    Senator Brown. Reuse.
    Mr. Houseman. Reuse; yes, yes.
    Senator Brown. Thank you.
    Dr. Spriggs, I assume you are here.
    Dr. Spriggs. Yes.
    Senator Brown. I do not see you, but you are on the screen. 
Okay, good to see you. A connection to Oberlin College; nice to 
see you.
    Ohio workers have paid the price, as you know, Dr. Spriggs, 
for previous administrations' policies that have eroded our 
manufacturing industrial base. This administration has a 
different approach.
    I want to work with them to make sure investments in R&D 
and manufacturing, and clean energy in particular, translate 
into good-paying union jobs. For Ohio workers that means making 
investments in the first place to undo the decades of harm to 
these industries. It also means passing the Protect the Right 
to Organize Act to make sure workers have a voice in the 
workplace.
    Dr. Spriggs, explain what--potentially this is a really 
long answer, so make it as short as you can. But explain what 
the erosion of American manufacturing has done to our economy, 
and what we do about it moving forward.
    Dr. Spriggs. It has created--thank you for the question, 
Senator. It has created this hollowing out of our communities. 
The impact is not just to the immediate workers who lose their 
jobs to trade, but it is to the communities. And so, if I did a 
map and colored red where we have an increase in joblessness, 
you would see that map light up very heavily in Ohio, but also 
in other places where we see this big impact of the loss of 
jobs because of trade.
    It means we have to reenvision Trade Adjustment Assistance 
to understand we must also help communities. Money needs to go 
for active labor market policies at the worker level so that we 
can ensure the community can generate enough jobs to make up 
for the jobs lost. And especially, targeting our young people, 
we need to have an expansion of WIOA investments and new 
training and new job opportunities, because that is who gets 
hurt when we lose these jobs, in addition to the workers who 
are immediately impacted.
    And this slowdown that took place between 2000 and 2008 
with the massive expansion and shock of the China trade had 
implications going even to the recovery that we had from the 
Great Recession.
    Senator Brown. Thank you. And when you say--using the term 
``hollowing out'' is a tragic sort of term, when you look at 
how it applies in real life. I know that people on this panel, 
and the people watching, will know, just sort of intuitively 
understand, what has happened to Cleveland and Dayton and 
Youngstown and Toledo, in relation to Cincinnati and Columbus, 
perhaps a bit less so.
    But they won't have heard of so many of the mid-size towns 
in my State where I grew up: Mansfield, Lima, Chillicothe, 
Springfield, Ravenna; and smaller towns like Defiance and 
Freemont and Canton--a little larger city--that have lost so 
many good industrial jobs.
    Where I grew up was a union town, a working-class city 
where a lot of kids I went to high school with had futures and 
had an opportunity because they could get good-paying union 
jobs. Westinghouse at one point had 8,000 manufacturing jobs. 
General Motors had 5,000. Mansfield Tire had 2,000. Gorman-
Rupp--company after company after company, so you are exactly 
right when you talk about the hollowing.
    And my last question, Dr. Spriggs, is for you. You spoke in 
your testimony about the importance of family policy as 
infrastructure, not just the narrow definition, which is water, 
sewer, bridges, highways, but a broader definition of housing 
and education and broadband and child care and the Child Tax 
Credit.
    Tell me what the expanded Child Tax Credit--and the checks 
will go out this week; people will see them in their mailboxes 
this week, probably tomorrow, or by direct deposit. What is 
that going to mean to working families?
    Dr. Spriggs. It is going to be very important to working 
families on both sides of the equation when it comes to child 
care. We can make child care affordable to all families, and 
affordable so that the workers in the industry can finally get 
the kind of wages that they need to help their families.
    And so that is why it is so important. We need to increase 
the labor force participation of American women. We cannot go 
forward with our population growing older, the population of 
the United States shrinking, without increasing the labor force 
participation of women to respond to that.
    We rank sixth--sixth--among the G7 nations when it comes to 
women labor force participants, and as a result of this 
pandemic, we were pushed back to 1985 for women's labor force 
participation. We have only made it back to 1988. We cannot 
continue without having paid leave, without having child care, 
and without helping families pay for child care so that the 
workers in the industry can get decent wages.
    Senator Brown. Thank you, Dr. Spriggs.
    Senator Cassidy, thank you for your indulgence.
    Senator Cassidy. Thank you, and sorry to be gone so long. 
It has just been an incredibly hectic day.
    Ms. Nakano, one thing that has struck me--you mentioned the 
increasing greenhouse gas emissions from China, and one thing 
that has occurred to me is that, as the EU and the United 
States ratchet down emissions, it only encourages some high-
polluting enterprises to move to China.
    Would you agree with that assessment?
    Ms. Nakano. Thank you so much for your question, Senator. I 
think that generally without proper protections, yes, a lot of 
high-emission intensive manufacturing could move to China. And 
my understanding is that is why at least the EU is very much 
interested in coming up with a border carbon adjustment and 
other measures to ensure that these goods that are manufactured 
in countries with less-than-desired levels of environmental 
protections will not then be exported back to societies and 
economies that do have stringent----
    Senator Cassidy. So let me interrupt you, please, just 
because we have limited time.
    Ms. Nakano. Sure.
    Senator Cassidy. The point I made in my opening statement 
is that the requirement by the U.S. of certain environmental 
and labor standards in CAFTA-DR, USMCA, Columbia Free Trade 
Agreement, et cetera, effectively works as a subsidy if China 
chooses to ignore those standards, therefore does not incur the 
cost of compliance.
    And that works against our interest in a variety of ways. 
Would you agree with that?
    Ms. Nakano. So, I do not follow trade policy agreements 
closely enough to really have----
    Senator Cassidy. Well, let me phrase it differently. I 
assume that the reason that coal is being used is that coal 
is--and particularly if you are not putting in scrubbers for 
SOx and NOx--that is the cheapest form of 
electricity that can be generated. Is that a correct statement?
    Ms. Nakano. Yes. Coal-fired power plants without proper 
equipment could be cheapest. Although if I may add, China does 
have fairly high SOx and NOx and also a 
particulate matter limitation since about half a decade ago.
    Senator Cassidy. Don't I know from--I think I have seen 
some air quality data that shows that China builds their coal-
fired plants on their Pacific seaboard, and that the trade 
winds blow it away from China over to the U.S. west coast. I 
was also told by somebody who is a native of Seoul that they 
have a lot of particulate matter that blows into South Korea 
from China. So, when you mention that they have these stringent 
standards, are those stringent standards enforced?
    Ms. Nakano. The enforcement has always been a challenge, 
yes, whether it is environmental, or even the health side of 
issues that are associated with many of the energy production 
activities in China.
    Senator Cassidy. Thank you.
    Mr. Fanusie, in my last set of questions with Mr. Luna, we 
were speaking about how there might be common ground in U.S.-
China relations in terms of stopping capital flight. To what 
degree could using cryptocurrency, because I understand there 
are some cryptocurrencies that actually--where you typically 
think of it as a way to launder money, or otherwise move 
dollars that should not be moved in a certain fashion--there 
are some cryptos that actually allow for legitimate 
transactions, if you will, those that can be traced, those that 
can be ensured not to be tied to the illicit economy. Do I 
understand that correctly?
    Mr. Fanusie. I think you are in the right direction in 
that. So natively, cryptocurrencies are usually anonymous, or 
maybe 
pseudo-anonymous. There is no identity connected to them. And 
the way that we address that issue from a regulatory 
perspective is that we ensure that places where people purchase 
cryptocurrencies, that those places, those websites--we call 
them exchanges--that they are regulated, that they are places 
where they follow anti-money laundering rules, and that users, 
customers, have to go through a process to be vetted and 
identified.
    Senator Cassidy. Now what I do not understand, sir, and I 
am asking this just because I do not know the answer; I just 
want to learn from the expert.
    Mr. Fanusie. Sure.
    Senator Cassidy. Why would a bad person choose to use that 
sort of exchange as opposed to another exchange which would 
allow them to remain anonymous?
    Mr. Fanusie. No. You are absolutely right. They often 
would, they would prefer to. The challenge is that there are 
lots of jurisdictions that are not regulating their exchanges, 
so you are right. I mean, sometimes bad actors do go to the 
regulated exchange. They will often do it because there is more 
liquidity there; it is easier to use.
    Senator Cassidy. So I think I read though in your 
testimony, or someone's, that China, with their cheap 
hydroelectric, is a place where Bitcoin people specifically go 
to mine. Does that give China more insight into--I do not 
understand the process. Because people mine Bitcoin in China, 
does that give China a greater ability to monitor the 
transactions?
    Mr. Fanusie. Well, the thing that is happening in China is, 
China is actually cracking down on the mining, and it actually 
maybe relates to your conversation with Mr. Luna, because there 
is a lot of capital flight. China has actually been threatened 
by the cryptocurrency trading sector, so really the past couple 
of years China has tried to stamp it out. They are actually in 
the middle of a big crackdown, and miners are actually leaving 
because China is even cracking down on mining.
    So I think you are actually going to see a lot of the 
crypto activity that is happening in China--just because of 
what the Chinese regulators want--a lot of it is going to 
leave, move elsewhere in the region.
    And so the key probably is to get others in the region to 
make sure that they are regulating, because if people cannot do 
exchanges in China, they are going to go to other parts of Asia 
to do that activity.
    Senator Cassidy. Well, you know I am about to sign this 
back over to Chair Warren, and I have been kind of stretched 
today. I have to leave once more. But my question for the 
record for you, Dr. Gallagher and Mr. Luna, is that there is an 
opportunity to cooperate with China on the issue of 
cryptocurrency being used for illicit financing from their 
perspective, from capital flight.
    Is there some way that we can suggest that we work 
together? I mean, China is a little bit of a frenemy, and I 
want the accent to be on the ``fre'' and not on the ``enemy.'' 
And so, if there is a way that we could collaborate, I would 
love to think about that, and you three are the ones who are 
the experts on that.
    And so with that, I will turn it back over to Chair Warren.
    Chair Warren, I am supposed to be someplace else now again, 
but I thank you for cohosting this, and a ``thank you'' to all 
the witnesses for your testimony, which I read. And each one of 
you just has really fabulous testimony, so thank you.
    Senator Warren. Thank you very much. I really appreciate 
it, Ranking Member Cassidy. And I know it has been a tough day 
with the ins and outs, but we have still gotten a chance to 
hear from good people, and ask some good questions--so, good.
    I am going to ask one more round of questions, if you all 
will bear with me. I want to talk about, once again, what are 
the elements of building a stronger economy and competing with 
China.
    Too often in Congress the metric for whether we are making 
the United States stronger and more competitive in the world 
gets reduced to the number of bombers, submarines, and missiles 
we have compared with China, or another country. And the U.S. 
buys a lot of bombers, submarines, and missiles. Real 
investment in American competitiveness would mean spending 
Federal dollars on things that help families succeed 
economically.
    This year, women's workforce participation hit the lowest 
levels since 1988. Twenty-six percent of women who became 
unemployed this year said that it was due to a lack of child 
care. And understand, this problem was highlighted during the 
pandemic, but the problem has been out there for a long time.
    Dr. Spriggs, the United States does not have any program to 
provide affordable, quality child care to every family who 
needs it. Is that how other wealthy countries handle this?
    Dr. Spriggs. Thank you for that question, Senator. The 
answer to your question is, our competitors learned long ago 
that infrastructure means, how do I get to work? How is it that 
I am able to show up in the economy? That does not mean roads 
and bridges only.
    For many workers it means, do I have child care? Do I have 
help with my parents? Do I have elder-care help? They 
understood this a long time ago because they took seriously 
that their populations were slowing in terms of population 
growth, and they understood that to get people to work means 
more than roads and bridges.
    It means the whole infrastructure, the rules and everything 
that goes with supporting getting people to work. So it means 
you have to have access to high-quality child care, elder care, 
and you must have paid family leave. That is why we are sixth 
out of the seven G7 nations. They have those policies; we do 
not. Those two policies--paid leave and help with child care--
are the two best known policies for increasing women's labor 
force participation. We do not do either.
    Senator Warren. Well, that is very powerful. You know, when 
we do not have child care, elder care, paid family leave, 
women's workforce participation suffers. Children who need it 
cannot get quality care. It is too expensive. And providers are 
paid too little, so that we have a workforce that is barely 
scraping by and has high turnover doing some of the most 
important work in our Nation.
    Our failure to support working families, and especially 
working women, has left the U.S. behind. And we are not just 
falling behind countries like Canada. We are also undermining 
exactly the qualities that make our workforce competitive with 
China.
    So, Dr. Gallagher, let me come back to you. China is always 
going to have more workers than we have. China can pay their 
workers less, and they can spend less on benefits and provide 
fewer protections for their workers. So just bring this 
together by talking about what is the American worker's 
competitive advantage compared with the Chinese workforce.
    Dr. Gallagher. Well, in my written statement, and also 
earlier, I did talk a lot about the challenges that China will 
face related to its own workforce, particularly the rural/urban 
inequality. American workers are better educated, they are more 
productive, and there are far less government restrictions on 
our choices: how many children we would like to have, where we 
would like to work and settle down.
    Access to good schools, good jobs, good neighborhoods, is 
not based on the town my parents came from, though we do still 
have significant problems and challenges that I would not 
ignore related to race and other factors. We also cannot rest 
on our laurels, because China is aware of the problems that it 
faces and is trying to address them.
    We need to invest and further improve every child's right 
to a good education and access to college. Automation and 
rapidly changing technology require that we invest in basic 
academic skills. We also need to invest in child care. That is 
essential to a functioning and flexible labor market in a 
dynamic economy.
    And as a working woman and a mother who has worked both in 
China and the United States, I have struggled often to find the 
child care that I need, so I appreciate the attention to the 
problem. Thank you, Chair Warren.
    Senator Warren. I appreciate it too. I think of our 
advantages. We have a workforce that is more diverse, a 
workforce that is better educated, and a workforce that is more 
skilled. But in order to build on those advantages, we have to 
make investments in our people.
    Those advantages are not accidental. They did not fall out 
of the sky. They are the result of direct investment in 
education, in workers' rights. Public schools are free to every 
family no matter how much or how little money they make, no 
matter where they live.
    In the 20th century we made high school universal, and we 
invested to make sure that motivated students could go to 
community college or a public university, get an excellent 
education without drowning in debt. These investments have 
frayed over the past several decades, and we have a lot of work 
to do to restore their promise, but they gave us the most 
educated and skilled workforce in the world, and that workforce 
helped us build the strongest economy in the world.
    Now we are falling behind, especially when it comes to 
investing in our littlest ones. So let me just ask you. You 
will get the last word here, Dr. Gallagher. How does our 
failure to support working families with child care undermine 
the advantages that we have built up in our workforce vis-a-vis 
our competition with China and others?
    Dr. Gallagher. Well, I think in some ways the problems that 
we face are very similar to the problem that Chinese families 
face. The lack of access to child care means that mothers, 
particularly mothers who struggle to find child care and do 
more household work than men, particularly in China, drop out 
of the workforce when they cannot afford it or locate it.
    So it hobbles a large proportion of our working population 
at a time when we cannot risk it. Like China, we face also low 
fertility rates, we face an aging society, and when women, or 
men for that matter, drop out of the workforce because they 
cannot afford good child care, our human capital is 
underutilized.
    So it is not just that worker's individual choices are 
thwarted. It can hurt the entire economy.
    Senator Warren. I will say it again: child care is 
infrastructure. It supports our whole economy. I am fighting 
for universal, high-quality, available child care that will 
make sure that every child who needs it has access to it, and 
that people who are child care workers will be paid the wages 
that they deserve.
    Investing in American competitiveness means more than 
boosting semiconductor production and funding research and 
development. It means more than buying more missiles and more 
submarines. It means making broad-based investments in American 
workers and families, including child care. That's how we are 
going to keep up with our peers. That's how we are going to 
stay competitive with countries like China, and that's how we 
are going to build a future for all of our people.
    So I just want to thank every one of you for being here 
today, those who could come in person, those who joined us 
virtually.
    For Senators who wish to submit questions for the record, 
those questions are due 1 week from today, that's Wednesday, 
June 21st. For our witnesses, you will have 45 days to respond 
to any questions.
    Again, thank you very much for coming. Thanks for sharing 
your expertise; we really do appreciate it. This hearing is 
adjourned.
    [Whereupon, at 4:10 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


               Prepared Statement of Hon. Bill Cassidy, 
                     a U.S. Senator From Louisiana
    Good afternoon and thank you all for being here for today's 
hearing. Thank you to our witnesses for taking the time to testify 
today.

    Senator Warren and myself had agreed to a bipartisan hearing on 
defending and investing in U.S. competitiveness against China, which is 
growing more brazen in its mission to undermine the United States and 
international institutions. So that is what I will be focusing on in my 
remarks.

    Strengthening our competitiveness in the face of unfair actions 
from countries like China is an area that unites Republicans and 
Democrats. It is our responsibility as members of the U.S. Congress to 
defend our Nation's workers, citizens, and interests.

    We should find common ground here. China has been acting out with 
impunity due to world leaders' unwillingness to act. All the while, the 
rest of the world is left to deal with the consequences.

    We should have a robust discussion about China's role as a primary 
source of the fentanyl that flows into the United States and ravages 
our communities, killing thousands each year. We should talk about 
counterfeit medical products and other goods that put Americans' health 
and lives at risk, like the counterfeit personal protective equipment 
that flooded our Customs facilities during the COVID-19 pandemic. We 
should examine China's surveillance efforts, including their 
government-backed and -operated blockchain-based service network, as 
well as their collection of vast amounts of genetic data. We should be 
discussing the fact that China is the greatest global threat to climate 
change, whose massive carbon emissions, for every year since 2012, have 
exceeded combined U.S. and European Union carbon emissions, who have 
made it a point of foreign policy to build outdated and polluting coal-
fired power plants throughout the developing world, further increasing 
global emissions.

    We should discuss how to address these things.

    A particular point of concern is China's blatant dismissal of 
international trade rules and compliance with standard labor and 
environmental practices. Chinese labor practices include slave labor, 
forced child labor, and absence of worker's rights. The U.S. does not 
have a trade agreement with China, and therefore no standards for 
environmental or worker protections exist like those in the USMCA and 
CAFTA.

    Perhaps related, between 2017 and 2019 China's foreign direct 
investment (FDI) inflow increased from $136 billion to $141 billion.\1\ 
In that same time period, the six CAFTA nations saw FDI inflows 
decrease from $9.7 billion in 2017 to $8.4 billion in 2019.\2\
---------------------------------------------------------------------------
    \1\ China Statistical Yearbook 2019, 2019, www.stats.gov.cn/tjsj/
ndsj/2019/indexeh.htm.
    \2\ ``Foreign Direct Investment, Net Inflows (BoP, Current 
U.S.$),'' The World Bank, https://data.worldbank.org/indicator/
BX.KLT.DINV.CD.WD?end=2019.

    The cost of compliance inherent in USMCA and CAFTA puts these 
trading partners at a competitive disadvantage relative to China. In 
practice, this means that goods made in China are subsidized by the 
permitted lack of worker and environmental standards. The U.S. would 
never accept this in such a treaty.\3\ Yet this is the playing field we 
are passively permitting China to exploit.
---------------------------------------------------------------------------
    \3\ ``Workers' Rights and Labour Relations in China,'' China Labour 
Bulletin, August 13, 2020, https://clb.org.hk/content/workers%e2%80%99-
rights-and-labour-relations-china. Xu, Vicky Xiuzhong, ``Uyghurs for 
Sale: `Re-Education,' Forced Labour and Surveillance Beyond Xinjiang,'' 
Australian Strategic Policy Institute, vol. 26, 2020, s3-ap-southeast-
2.amazonaws.com/ad-aspi/2020-08/
Uyghurs%20for%20sale%2024%20August%202020.pdf?q0utM5u2Efa0YrzcjinWKIvkzF

_IZWMn.

    A main foreign policy goal is to decrease illegal immigration 
coming from Central America through improving economic opportunity in 
potential migrant's home countries. As long as China is allowed to 
undercut the U.S. and these nations economically by ignoring basic 
labor and environmental norms, pursuing this goal and improving overall 
---------------------------------------------------------------------------
American competitiveness will be difficult. We need to start now.

    Thanks again to our witnesses. I am looking forward to discussing 
these issues.

                                 ______
                                 
     Prepared Statement of Yaya J. Fanusie, Adjunct Senior Fellow, 
                   Center for a New American Security
 china's fintech strategy: seeking to dominate the next data revolution
    Chair Warren, Ranking Member Cassidy, the distinguished members of 
the subcommittee, and my fellow panelists, it is an honor to 
participate in today's hearing. Please allow me to add that although I 
do consulting with the private sector on financial technology issues, 
my comments today are my personal opinion and are not on behalf of any 
clients.

    Today, I will explain how the Chinese Government's recent foray 
into financial technology (fintech), including by investing heavily in 
blockchain technology and piloting a central bank digital currency, is 
a long-term strategy to dominate the digital economy of the future. 
This strategy is a new financial dimension to the great-power 
competition between China and the United States. But it is about more 
than money or currency. It is really about data. Specifically, it is 
about which country will be most successful at leveraging data for 
technical innovation, to set the standards for new global financial 
infrastructure, and become the anchor for the information revolution 
that is on the horizon. The Chinese Communist Party (CCP) intends to 
upend the United States' leading economic and geopolitical status by 
investing in nascent technologies that the United States is not 
currently prioritizing and building the digital infrastructure that 
will drive global commerce and shape the evolution of the Internet 
itself. If the United States does not understand China's fintech 
strategy and how it fits into seismic technological shifts that are 
emerging, the United States will not be able to develop an appropriate 
strategic response and could lose the geopolitical leadership position 
it has held since the end of World War II. In my testimony, I will 
explain key elements of China's fintech strategy, how they fit into a 
continuum of innovations in the world's history of data revolutions, 
and recommend ways that the United States must adapt and position 
itself to compete with China in the 21st-century economy. But first, 
I'd like to start with some historical context.

    From the late 1960s and into the early 1980s, a revolution in 
humankind's transmission of data occurred, slowly. The Internet was 
born. The infrastructure of the Internet was constructed over decades. 
It was a quiet data revolution. It happened largely outside the 
limelight because building a network for computers to talk to each 
other across great distances had little practical value for the broader 
population, most of which had no direct access to computers at the 
time. So, creating the Internet then was not a profit-seeking endeavor 
at first. Its impetus was military. At the height of the Cold War, the 
U.S. Department of Defense funded computer science academics and gave 
them a long innovation leash.\1\ However, the DoD funders tethered the 
research to an ultimate objective: to build computer infrastructure 
that would support the U.S. military's information and communication 
needs around the world.\2\ The Internet protocol that we all engage in 
today, known as TCP/IP, emerged in 1983.\3\ But it was not until mostly 
American firms built civilian applications on top of it, such as public 
websites and private email accounts, that the Internet offered 
mainstream value and revolutionized the world.
---------------------------------------------------------------------------
    \1\ Ben Tarnoff, ``How the Internet Was Invented,'' The Guardian, 
July 15, 2016, https://www.theguardian.com/technology/2016/jul/15/how-
the-internet-was-invented-1976-arpa-kahn-cerf.
    \2\ Defense Advanced Research Projects Agency, ARPANET: Advancing 
National Security Through Fundamental Research, https://www.darpa.mil/
attachments/ARPANET_final.pdf.
    \3\ Justin Jaffe, ``Happy Birthday, Dear Internet,'' Wired, 
December 31, 2002, https://www.wired.com/2002/12/happy-birthday-dear-
internet/.

    No one entity or nation technically owns the underlying 
infrastructure of the Internet. However, it cannot be denied that the 
United States' decades-long investment in building it enabled U.S. 
companies to lead the technological and business growth that arose out 
of the Internet's information revolution. This position, however, is 
being challenged, slowly and steadily, by China. The clearest example 
of China working to upend America's economic dominance on the Internet 
is its Blockchain-based Service Network (BSN), a state-driven project 
that has partnered with Chinese private tech firms to build what the 
Chinese Communist Party believes is the next generation of Internet 
infrastructure. The BSN, like the United States' endeavor to build the 
original Internet, is a decades-long campaign. The BSN vision is an 
Internet environment where data transmits through distributed 
broadcasting, in which separate applications and business systems can 
simultaneously access and operate on agreed-upon, authenticated 
data.\4\ This contrasts with current Internet processes, where data is 
siloed between different systems and moves through the Internet in a 
linear fashion. In theory, this upgraded Internet would enable an 
Internet of things where all digital things can communicate and 
transact with each other, enabling a new era of digital innovation and 
economic possibilities. But it would be an Internet where China owns 
the underlying infrastructure.
---------------------------------------------------------------------------
    \4\ Yifan He, ``Consensus 2021: Rebuilding the Internet with 
Blockchain Broadcasting,'' Coindesk, May 6, 2021, https://
www.coindesk.com/consensus-2021-rebuilding-internet-blockchain-
broadcasting.

    Since blockchain technology emerged with the Bitcoin protocol in 
2009, many technologists and entrepreneurs have argued that its 
distributed architecture model could eliminate longlasting 
inefficiencies in data management and dissemination. In theory, this 
new way of recording and conveying data can revolutionize financial 
services, supply chain management, media, and government 
recordkeeping.\5\ In practice, these and other industries have yet to 
be disrupted by the new technology. So blockchain, also known as 
distributed ledger technology (DLT), today remains an experimental 
computer science niche with no single private or public sector entity 
dominating its development. Yet, it is interesting that, instead of 
dismissing blockchain as over-hyped and underperforming, China is 
doubling down on it. To understand why, let's look at China's overall 
approach to new technologies and the state of global blockchain 
development over the past few years.
---------------------------------------------------------------------------
    \5\ Sam Wood, ``Technology vs. Trust: Why This Wharton Professor 
Thinks Blockchain's Time Is Yet to Come,'' The Philadelphia Inquirer, 
March 11, 2019, https://www.inquirer.com/business/weed/blockchain-
kevin-werbach-wharton-school-mit-press-20190311.html.
---------------------------------------------------------------------------
            building infrastructure instead of applications
    China's research and development (R&D) strategy has two prongs, as 
described by Yifan He, the BSN's executive director.\6\ One approach is 
to invest in critical technologies that have evident benefits and 
established applications.\7\ Some examples are robotics, 
semiconductors, and artificial intelligence. However, China faces stiff 
competition with the United States, which is also prioritizing R&D in 
these areas. The second approach is to pursue nascent technologies that 
no country has yet to dominate (and that perhaps most countries 
ignore). Such technologies may have fewer current applications, but 
would offer great potential first-mover advantage. Developing 
blockchain infrastructure is an example of this second approach. 
Executive Director He also explained that China increasingly prefers to 
build new underlying technology, rather than develop applications on 
top of Western-dominated infrastructure. This approach seeks to capture 
market share at the outset of a relevant new technology. According to 
He, China's approach is to look 50 to 100 years ahead and then work 
toward the technological future.\8\
---------------------------------------------------------------------------
    \6\ BSN, ``Understand China's Pursuit in Emerging Technologies,'' 
Medium, June 10, 2021, https://medium.com/bsnbase/understand-chinas-
pursuit-in-emerging-technologies-af2104958a4
a.
    \7\ Arjun Kharpal, ``In Battle with U.S., China to Focus on 7 
`Frontier' Technologies from Chips to Brain-Computer Fusion,'' CNBC, 
March 5, 2021, https://www.cnbc.com/2021/03/05/china-to-focus-on-
frontier-tech-from-chips-to-quantum-computing.html.
    \8\ BSN, Understand China's Pursuit in Emerging Technologies.

    There are reasons why many outside China would ignore or dismiss 
the BSN. For example, although blockchain technology has received 
excessive media attention in the past few years, there are no 
blockchain use-cases that have wide adoption except for cryptocurrency 
trading and speculation. And the largest U.S. software companies that 
trumpeted the potential benefits of distributed ledger technology in 
early 2016 \9\ have mostly shuttered their blockchain service offerings 
by mid-2021.\10\ Blockchain has not led to a massively popular software 
application that is central to daily life and dominates a consumer 
market. There's no blockchain killer app yet.
---------------------------------------------------------------------------
    \9\ Jamie Redman, ``Microsoft and IBM Declare Blockchain Open for 
Business,'' Bitcoin.com, February 17, 2016, https://news.bitcoin.com/
microsoft-ibm-declare-blockchain-open-business/.
    \10\ Ian Allison, ``IBM Blockchain Is a Shell of Its Former Self 
After Revenue Misses, Job Cuts: Sources,'' Coindesk, February 1, 2021, 
https://www.coindesk.com/ibm-blockchain-revenue-misses-job-cuts-
sources; Joshua Mapperson, ``Microsoft Quietly Closing Down Azure 
Blockchain in September,'' Cointelegraph, May 14, 2021, https://
cointelegraph.com/news/microsoft-quietly-closing-down-azure-blockchain-
in-september.

    However, this failure to achieve blockchain mass adoption and 
private-sector profitability is similar to what would have happened if 
U.S. firms had launched Internet service business divisions in the 
1970s. Computer networking was a niche technology space with 
infrastructure that was too immature to support any profitable business 
applications. IBM was producing computers at that time, but the 
Internet likely would not have arisen by IBM or any other private firm 
trying to build global networking infrastructure single-handedly. The 
Internet arose through computer scientist collaboration where academic 
researchers iterated upon their protocols, seeking to build common 
infrastructure for all networked computers. In contrast, in the 
blockchain space, a wide variety of startups and developer groups 
around the world have been launching their own blockchain protocols, 
each one competing with the others and touting its architecture as the 
best system to eventually deploy new, decentralized applications on the 
---------------------------------------------------------------------------
Internet.

    The Chinese Communist Party views blockchain technology as 
strategically important, but its assessment appears separate from the 
blockchain hype of 5 years ago. It was only in late 2019 that China's 
President Xi Jinping called on the country to excel in blockchain 
research and development.\11\ In one interview, BSN Executive Director 
He said that he personally only started looking at DLT in 2018.\12\ But 
much of the global hype around blockchain had already started to fade 
by this time.\13\
---------------------------------------------------------------------------
    \11\ ``China's Xi Urges Acceleration of Development of Blockchain 
Technology,'' Reuters, October 25, 2019, https://www.reuters.com/
article/us-china-economy-xi/chinas-xi-urges-acceleration-of-
development-of-blockchain-technology-idUSKBN1X419Y.
    \12\ A.J. Cortese, ``Red Date Is Lowering the Entry Point to the 
Blockchain Network for SMEs,'' KrASIA, April 24, 2021, https://kr-
asia.com/red-date-is-lowering-the-entry-point-to-the-blockchain-
network-for-smes-inside-chinas-startups.
    \13\ Yaya Fanusie, ``The Crypto Space Is Void,'' Forbes, December 
18, 2018, https://www.forbes.com/sites/yayafanusie/2018/12/18/the-
crypto-space-is-a-void/?sh=3cad8fad70ad.

    No blockchain killer app has emerged due to the regulatory 
uncertainty around the technology, the lack of interoperability between 
blockchain protocols, and the unsustainable costs for startups unable 
to find product-market fit with unproven tech. However, a cursory study 
of how the United States developed the Internet through government-
funded R&D has likely given the Chinese government a more promising 
blueprint for leveraging blockchain technology, which is to play the 
long game and pursue decades-long computer science experimentation and 
collaboration until universal architecture emerges that can support 
practical applications. But instead of developing Internet plumbing 
that no one owns like the World Wide Web,\14\ China's vision of an 
upgraded Internet is more proprietary. The BSN secretary-
general commented in late 2020 that the BSN is constructing an online 
environment where China has ``independent intellectual property rights 
and China controls the rights to Internet access.''\15\
---------------------------------------------------------------------------
    \14\ ``History of the Web,'' World Wide Web Foundation, https://
webfoundation.org/about/vision/history-of-the-web/.
    \15\ See 24-minute mark, ``How Blockchain Technology and BSN 
Support Fintech Development,'' Youtube, November 4, 2020, https://
www.youtube.com/watch?v=k9Gtq-j__3U.
---------------------------------------------------------------------------
                      data is the new electricity
    The BSN, as well as China's central bank digital currency, must be 
understood as part of the Chinese Communist Party's broader fintech 
strategy. In late 2019, China unveiled a 3-year fintech development 
plan.\16\ That strategy focuses more on data than money. The plan calls 
for China's financial system to get more nimble at acquiring and 
leveraging data, and to develop a ``nationwide integrated big data 
center.''\17\ The fintech plan is intertwined with similar CCP 
directives in recent years promoting the national development of big 
data analysis and artificial intelligence.\18\ The Chinese Government 
aims to collect and centralize as much data as possible for the state's 
monitoring and management, whether for economic aims or other party 
priorities.
---------------------------------------------------------------------------
    \16\ ``Chinese Central Bank Releases Fintech Development Plan for 
2019-2021,'' China Banking News, August 23, 2019, https://
www.chinabankingnews.com/2019/08/23/chinese-central-bank-releases-
fintech-development-plan-for-2019-2021/.
    \17\ ``The Central Bank Issued the `FinTech Development Plan': 
Strengthening the Development and Application of Distributed 
Databases,'' Blocking.net, https://blocking.net/14752/the-central-bank-
issued-the-fintech-development-plan-strengthening-the-development-and-
application-of-distributed-databases/. 
    \18\ Derek Grossman, Christian Curriden, Logan Ma, Lindsey Polley, 
J.D. Williams, and Cortez A. Cooper III, ``Chinese Views of Big Data 
Analytics'' (RAND Corporation, 2020), https://www.rand.org/content/dam/
rand/pubs/research_reports/RRA100/RRA176-1/RAND_RRA176-1.pdf.

    China's aspirations to lead the Internet's evolution rely on data 
innovation. Digitization, intelligentization, and informatization are 
terms promoted in recent CCP national strategy documents.\19\ While 
these terms differ slightly in meaning, each is a political directive 
that involves edifying state knowledge with intermeddler data. Although 
it is commonly said that ``data is the new oil,'' it is more accurate 
to say that the Chinese Government sees data as the new electricity. 
Like electricity, data in China is becoming a force to power all 
applications and economic processes in the country, with individual 
users (and their devices) connected to national infrastructure.
---------------------------------------------------------------------------
    \19\ Elsa B. Kania, Adjunct Senior Fellow in the Technology and 
National Security Program at the Center for a New American Security, 
``Chinese Military Innovation in Artificial Intelligence,'' testimony 
to the U.S.-China Economic and Security Review Commission Hearing on 
Trade, Technology, and Military-Civil Fusion, June 7, 2019, https://
www.uscc.gov/sites/default/files/
June%207%20Hearing_Panel%201_Elsa%20Kania_Chinese%20Military%20Innovatio
n%20in%20
Artificial%20Intelligence_0.pdf; Katja Drinhausen and John Lee, ``The 
CCP in 2021: Smart Governance, Cyber Sovereignty and Tech Supremacy'' 
(MERICS, June 15, 2021), https://merics.org/en/ccp-2021-smart-
governance-cyber-sovereignty-and-tech-supremacy.

    Data also is the lens through which the United States must judge 
the geopolitical and economic implications of China's fintech 
advancement. The best way to do so is to consider what China's fintech 
architects say about the data architecture they are building. Again, 
the planning around BSN exemplifies China's wide-reaching data 
---------------------------------------------------------------------------
strategy.

    For example, throughout the world, most discussion on safety 
systems for self-driving cars proposes capabilities like simple 
vehicle-to-vehicle communication to allow cars to check nearby 
vehicles' current and anticipated movements.\20\ Each vehicle would 
acquire and analyze data emitted from other cars directly, but in 
piecemeal fashion, through linear transmissions. However, the BSN's 
designers propose that blockchain-based broadcast transmission would 
allow all self-driving cars within a set vicinity to exchange and 
synchronize data simultaneously, allowing for more efficient and 
comprehensive analysis of road activity.\21\ Assuming transportation 
and safety authorities also access such broadcast data, these ongoing 
streams of information could feed hazard monitoring, and help emergency 
response vehicles map quicker routes to crash sites and medical 
facilities. In China, such data would be distributed to approved 
parties, but would likely be centralized for government big data 
analysis. This constant feed of data would also inform machine learning 
and lead to greater artificial intelligence capabilities for the 
government and possibly private entities (like Chinese car 
manufacturers), if given permissions to the data.
---------------------------------------------------------------------------
    \20\ National Highway Traffic Safety Administration, Vehicle-to-
Vehicle Communication, https://www.nhtsa.gov/technology-innovation/
vehicle-vehicle-communication.
    \21\ He, ``Consensus 2021: Rebuilding the Internet with Blockchain 
Broadcasting.''

    The implications for China's transportation system and its 
automobile manufacturing sector would be straightforward: potentially 
safer roads and more intelligent vehicles and infrastructure. But these 
enhancements would likely catalyze adjacent innovation in China's food 
delivery sector, ride sharing, car insurance, mapping and geolocation 
---------------------------------------------------------------------------
software, and countless other areas.

    The international implications would arise from the response to one 
question: will other nations choose to implement this type of 
transportation intelligence system, run on capable and tested BSN 
infrastructure? It should not be assumed that such a complex system 
could be built outside China without years of R&D. If many major cities 
around the world plug their transportation networks into the BSN, car 
manufacturers would be incentivized to either make their vehicles 
compatible with BSN applications or to develop apps run on the BSN 
themselves. What would start as a domestic transportation sector 
innovation in China could transform into a significant hurdle for U.S. 
automobile industry competitiveness, especially if U.S. regulators 
prohibit U.S. firms from building BSN compatibility due to national 
security concerns around data. And as other nations seek the adjacent 
innovations for other industries operating on BSN's transportation 
apps, U.S. firms in those industries could also find themselves at a 
competitive disadvantage. Even if the BSN is somehow constructed in a 
way where U.S. data is protected from Chinese Government acquisition 
and regulators allow U.S. engagement, American firms would be forced to 
develop important business applications on underlying infrastructure 
run by the Chinese tech sector. This would be the inverse of the 
relationship between U.S. and Chinese technology firms today.
     the digital yuan is a long-term concern for the united states
    The disruptive potential of the BSN is similar to the risks to the 
United States around China's Digital Currency/Electronic Payment, which 
is digitized central bank money known popularly as the eCNY. This new 
project is better understood more as a new Chinese Government-owned 
data network rather than just as a currency.\22\ Like the BSN, the 
eCNY's implications for economic and geopolitical competition are long 
term. This central bank digital currency (CBDC) also exemplifies the 
Chinese Government's pursuit of first-mover advantage in nascent 
technologies.
---------------------------------------------------------------------------
    \22\ Matthew D. Johnson, ``China's Digital Renminbi Initiative Is a 
Network, Not a Currency,'' The Strategist, Australian Strategic Policy 
Institute, June 16, 2021, https://www.aspi
strategist.org.au/chinas-digital-renminbi-initiative-is-a-network-not-
a-currency/.

    The eCNY is unlikely to displace the U.S. dollar as the top 
international reserve currency in the short term or to give China an 
immediate buffer against U.S. sanctions power.\23\ The U.S. dollar is 
too central to international trade and China's restrictive monetary 
policies make the yuan, digitized or not, less attractive for global 
users.\24\
---------------------------------------------------------------------------
    \23\ ``Digital Yuan Gives China a New Tool to Strike Back at 
Critics,'' Bloomberg, April 20, 2021, https://www.bloomberg.com/news/
articles/2021-04-20/digital-yuan-gives-china-a-new-tool-to-strike-back-
at-critics.
    \24\ Yaya J. Fanusie and Emily Jin, ``China's Digital Currency: 
Adding Financial Data to Digital Authoritarianism'' (Center for a New 
American Security, January 26, 2021), https://www.cnas.org/
publications/reports/chinas-digital-currency.

    The risk for U.S. displacement comes from the upper hand that China 
might gain in the long term by developing cross-border financial 
transaction infrastructure that a significant group of other countries 
eventually adopt. The eCNY is only in a pilot stage and its monetary 
and economic benefits for China are uncertain. What is clear is that 
China is seeking through the eCNY to build a more data-driven financial 
environment that would enable more technological innovation in its 
financial sector. For example, in early 2021, the People's Bank of 
China announced a domestic call for academic research relating to the 
implementation of its digital currency.\25\ In particular, the PBOC 
sought input on how smart contracts \26\ could be integrated with the 
eCNY, including what legal frameworks would be needed. The central bank 
also requested research work on incorporating the state's digital 
currency with 5G and Internet of things systems in order to spur more 
innovative payment applications.\27\
---------------------------------------------------------------------------
    \25\ ``Fading shuzi huobi chuangxin yanjiu kaifang keti shengqing 
zhinan (2021 niandu) [Application Guidelines for the Open Project of 
Legal Digital Currency Innovation Research (2021)],'' The People's Bank 
of China, March 26, 2021, http://archive.today/t84QT.
    \26\ A smart contract is computer code that executes an agreement 
programmed within a blockchain platform. See: Stuart D. Levi and Alex 
B. Lipton, ``An Introduction to Smart Contracts and Their Potential and 
Inherent Limitations,'' Harvard Law School Forum on Corporate 
Governance, May 26, 2018, https://corpgov.law.harvard.edu/2018/05/26/
an-introduction-to-smart-contracts-and-their-potential-and-inherent-
limitations/.
    \27\ ``Application Guidelines for the Open Project of Legal Digital 
Currency Innovation Research (2021),'' The People's Bank of China.

    Such research and experimentation is likely to give China leading 
expertise in the global pursuit of CBDCs. This knowledge advantage 
would put the Chinese Government in position to drive the CBDC 
technical design and policy standards that other nations adopt. Signs 
of this are visible now. For instance, China is part of a Bank for 
International Settlements pilot project with the central banks of Hong 
Kong, Thailand, and the United Arab Emirates.\28\ The project, known as 
the Multiple CBDC or mCBDC Bridge, is testing cross-border transactions 
between those central banks using a DLT platform. The United States 
does not appear to be closely involved with the pilot project.
---------------------------------------------------------------------------
    \28\ ``Multiple CBDC (MCBDC) Bridge,'' The Bank for International 
Settlements, February 19, 2021, https://www.bis.org/about/bisih/topics/
cbdc/mcbdc_bridge.htm.

    Because China is the largest economy with the most progress in CBDC 
development, it is likely to have an outsized influence in the 
multilateral organizations that will recommend CBDC prototypes and 
standardization. This fits squarely with the CCP's strategic approach: 
gain the first foothold in a nascent technology and dominate its 
---------------------------------------------------------------------------
proliferation as the rest of the world adopts it.

    The long-term risk for an alternative cross-border payment system 
to arise should not be dismissed. U.S. adversaries are not the only 
nation-states seeking to remove the centrality of the dollar to the 
global economy. Even central banks in U.S. ally countries are looking 
to lessen the world's dependence on the dollar. In 2019, the governor 
of the Bank of England suggested that the international community 
should construct a new ``synthetic hegemonic currency'' through a 
network of CBDCs to facilitate international trade in the long run.\29\ 
The mCBDC bridge seems to be piloting that idea.
---------------------------------------------------------------------------
    \29\ Mary Carney, ``The Growing Challenges of Monetary Policy in 
the Current International Monetary and Financial System'' (Jackson Hole 
Symposium, Jackson Hole, Wyoming, August 23, 2019), https://
www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-
challenges-for-monetary-policy-speech-by-mark-carney.pdf.

    If the future global financial system is built on the backbone of 
CBDC infrastructure, then the nation with the most CBDC expertise is 
likely to influence how the system is run. And although the U.S. 
Federal Reserve is conducting some initial CBDC research and plans to 
release a discussion paper on the topic soon,\30\ China is clearly 
leading in this arena. The People's Bank of China has been researching 
digital currency since 2014 \31\ and has released over $300 million 
worth of eCNY to the public in pilots around the country.\32\ Those 
pilot transactions are likely generating immense data for the Chinese 
Government to analyze and learn from.
---------------------------------------------------------------------------
    \30\ Lael Brainard, ``Private Money and Central Bank Money as 
Payments Go Digital: An Update on CBDCs'' (Consensus by CoinDesk 2021 
Conference, Washington, DC, May 24, 2021), https://
www.federalreserve.gov/newsevents/speech/brainard20210524a.htm.
    \31\ Fanusie and Jin, ``China's Digital Currency: Adding Financial 
Data to Digital Authoritarianism.''
    \32\ ``Spending with China's Digital Yuan Around $300 Million, PBOC 
Says,'' Reuters, November 2, 2020, https://www.reuters.com/article/
china-currency-digital/spending-with-chinas-digital-yuan-around-300-
million-pboc-says-idUSL1N2HO0B1.
---------------------------------------------------------------------------
                          the oneness of data
    Data certainly is becoming the new electricity, but not just in 
China. Big data, machine learning, artificial intelligence, and the 
Internet of things are driving technological innovation in most 
advanced economies. The world is becoming more, not less, dependent on 
data moving through the Internet. This trend is leading to a oneness of 
data that would appear to power almost every aspect of our public and 
private lives.

    The prospect of living in a world plugged into ubiquitous and 
seemingly omniscient data can seem scary, and for good reason. The 
risks of undermining privacy, strengthening authoritarianism, and 
increasing digital financial crime are great as more of our life 
activity operates online. There are also various social spillover 
effects from our culture getting more fixated and dependent on our 
devices, screens, and data feeds.

    But at a time when advanced economies appear to be near the 
precipice of a fully digitized existence, now may be the best time for 
the United States to assert rules of the road for the increasing role 
of data in our lives. The first step is to accept the inevitability of 
this technological advancement in data transmission, while managing its 
societal shape. China's preemptive strategy to gain prominence in 
blockchain-based broadcast transmission of data is a wake-up call for 
U.S. innovation. In order to chart a way forward that is consistent 
with American values, it is essential to understand the long history of 
data revolutions.

    Data is simply information recorded and conveyed in written form. 
One of the world's first data revolutions occurred around 3000 BCE when 
the ancient Egyptians began writing on papyrus. That plant-based 
papyrus technology allowed for ink to be retained more easily on a 
portable writing surface compared to writing on walls, stone, and clay. 
Later, the Egyptians began using parchment made from animal skins as a 
writing tool. Parchment was more durable than papyrus and it became the 
medium that members of the early Jewish, Christian, and Islamic 
traditions used to record and spread the Abrahamic message.\33\ The 
Chinese are credited with inventing paper from plant fibers and cloth 
around the second century CE, but for hundreds of years, it was used 
very selectively and the art of papermaking was a closely guarded 
skill.\34\ It wasn't until the rising Islamic civilization in the 
eighth century CE learned of paper from the Chinese that papermaking 
received assembly-line-like production. Thus, the scholars of the 
Golden Age of Islam wrote and reproduced hand-copied manuscripts on 
paper to transmit the leading scientific and literary knowledge of 
their time.\35\ However, interestingly, the Chinese were the first to 
invent paper money during the Tang Dynasty between the 7th and 10th 
centuries CE.\36\ Papermaking spread throughout areas under Muslim 
control and to Europe by the 11th century through the Moorish influence 
in Spain.\37\ Within a few hundred years, paper mills were common 
throughout Europe. It is important to note that initially, some 
European rulers resisted paper, seeing it as an unworthy, 
heathen-derived form of data transmission, especially unsuitable for 
Christian religious texts, which continued to use parchment.\38\ The 
civilizational tables turned with Johannes Gutenberg's printing press, 
invented in Germany in 1440. European church leaders initially rejected 
the new technology, with clergy in France claiming that books 
duplicated with movable type were ``work of the Devil.''\39\ However, 
soon, printing press technology spread throughout Europe. It can be 
argued that the printing press was the most revolutionary technology 
the world has seen, perhaps rivaled by the steam engine. More books 
were printed in the 50 years after the printing press than in the 
previous 1,000 years.\40\ It enabled a flourishing of scientific, 
religious, and philosophical knowledge. Data transmitted through the 
printing press eventually sparked the Protestant Reformation and seeded 
the Renaissance. But it was banned by the Ottoman Empire for hundreds 
of years, which some say accounted for much of Islamic civilization's 
scientific and economic decline.\41\
---------------------------------------------------------------------------
    \33\ Keith Houston, ``Hidebound: The Grisly Invention of 
Parchment,'' Longreads, December 1, 2016, https://longreads.com/2016/
12/01/hidebound-the-grisly-invention-of-parchment/.
    \34\ Neathery Batsell Fuller, ``A Brief History of Paper,'' St. 
Louis Community College, July 2002, http://users.stlcc.edu/nfuller/
paper/.
    \35\ Holland Cotter, ``SHELF LIFE; The Story of Islam's Gift of 
Paper to the West,'' The New York Times, December 29 2001, https://
www.nytimes.com/2001/12/29/books/shelf-life-the-story-of-islam-s-gift-
of-paper-to-the-west.html.
    \36\ Szczepanski, Kallie. ``The Invention of Paper Money in 
China.'' ThoughtCo, https://www.thoughtco.com/the-invention-of-paper-
money-195167.
    \37\ Fuller, ``A Brief History of Paper.''
    \38\ Fuller, ``A Brief History of Paper.''
    \39\ Tom Wheeler, From Gutenberg to Google: The History of Our 
Future (Washington, DC: Brookings Institution Press, 2019), 42.
    \40\ Keith Houston, The Book: A Cover-to-Cover Exploration of the 
Most Powerful Object of Our Time (New York: W.W. Norton and Company, 
2016), 128.
    \41\ Benjy Cannon, ``A Brief History of Disruptive Innovation, Part 
I,'' Disruptive Competition Project, August 7, 2013, https://
www.project-disco.org/competition/080713-a-brief-history-of-disruptive-
innovation-part-i/#.V081avkrLcs.

    Elements within societies often initially rejected a new technology 
of data transmission due to the concern that it was associated with 
unworthy individuals or subversive activity. Special interests 
typically focused on the new technology's downsides, especially the 
displacement it could cause to established institutions. Many scribes, 
for example, were disintermediated by the printing press. Today, many 
people criticize the proliferation of Bitcoin and other 
cryptocurrencies due to their easy exploitation by criminal elements. 
But the broadcast data capability of blockchain is not an easy function 
---------------------------------------------------------------------------
to dismiss.

    Historically, new data transmission technology, when it was better 
at recording, preserving and spreading information, and in the long 
run, more cost efficient, has always won out over legacy systems. 
Blockchain technology has similar potential. The ``broadcast 
transmission'' of the Internet is likely to be the world's next data 
revolution. This new capability, if it scales up for mass use, would 
allow for different parties and different technical systems to operate 
off of the same data, simultaneously. The ability to harness data in 
unprecedented ways will likely spur new inventions and new occupations, 
just as the original Internet did. And it eventually would eliminate 
certain applications, jobs, and business lines. But this data 
revolution is in its infancy. The United States has time to compete in 
this technology and influence its development in an American way.
                american values and the oneness of data
    The oneness of data does not have to become a tool of tyranny and 
dehumanization if it is molded by the principles of America's founding. 
U.S. policymakers, business people, and other stakeholders must 
consider a framework for participating in this data revolution in a way 
that fits with the U.S. Constitution. Rising data ubiquity should be 
anchored with the Bill of Rights. For example, many former U.S. 
officials are arguing for a digital dollar.\42\ If the United States is 
to develop its own central bank digital currency system, it must be 
constructed so that the government's access to data does not violate 
the Fourth Amendment's protection against unreasonable search and 
seizure of one's ``person, houses, papers, and effects.''\43\
---------------------------------------------------------------------------
    \42\ Michael B. Greenwald and Michael A. Margolis, ``Why a Digital 
Dollar Is Good for the World'' (Harvard Kennedy School Belfer Center, 
June 4, 2021), https://www.belfercenter.org/publication/why-digital-
dollar-good-world; Hon. J. Christopher Giancarlo, ``Building a Stronger 
Financial System: Opportunities of a Central Bank Digital Currency,'' 
Statement to the Subcommittee on Economic Policy, Committee on Banking, 
Housing, and Urban Affairs, U.S. Senate, June 9, 2021, https://
www.banking.senate.gov/imo/media/doc/Giancarlo%20Testimony
%206-9-21.pdf.
    \43\ ``Fourth Amendment: Search and Seizure,'' Constitution Center, 
https://constitutioncenter.
org/interactive-constitution/amendment/amendment-iv.

    Fourth Amendment protection can be threatened by transactions 
involving digital assets due to their ``always on,''\44\ trackable 
nature. Complete access to real-time financial transaction data is not 
possible in the current banking system where there is no single 
database (government or otherwise) of everyone's digital transactions. 
If the United States launches a CBDC, permission to access CBDC data 
would need to be strictly controlled and compartmentalized so that the 
government cannot search one's digital person without legal probable 
cause. And CBDC architects would need to design the system so that 
personal data discovered even under subpoena power is expunged from 
monitoring and analysis when an individual is no longer considered a 
legitimate suspect in wrongdoing. This requires smarter information 
systems than we have in financial regulatory infrastructure today, but, 
in principle, could borrow from practices in the intelligence community 
that mask identities of U.S. persons when disseminating FISA-derived 
intelligence reporting.\45\
---------------------------------------------------------------------------
    \44\ Tony McLaughlin, ``The Regulated Internet of Value,'' 
Citibank, June 2021, https://www.
citibank.com/tts/insights/articles/article191.html.
    \45\ Office of Civil Liberties, Privacy, and Transparency, Office 
of the Director of National Intelligence, Protecting U.S. Person 
Identities in Dissemination Under the Foreign Intelligence Surveillance 
Act (November 2017), https://www.dni.gov/files/documents/icotr/CLPT-
USP-Dissemination-Paper---FINAL-clean-11.17.17.pdf.

    As the U.S. Government and private sector seek to develop 
decentralized applications powered by broadcast transmission data, both 
must think through potential scenarios where new technological 
capabilities would infringe upon key constitutional rights. It will be 
challenging to build forward-looking guidelines to manage data ubiquity 
when most innovations are unforeseen. But this is why the United States 
must advance in blockchain technology research and experimentation. The 
way to anticipate the risks from a new technology's spread is to pilot 
its deployment and learn from it slowly, just as the United States did 
in developing the Internet in the 1970s and 80s. Below are 
recommendations for how the United States can lead the next data 
---------------------------------------------------------------------------
revolution.

        The National Science Foundation (NSF) should fund a 
Decentralized Internet Sandbox for Colleges and Universities (DISCU). 
The NSF should fund the development of an interoperable blockchain 
ecosystem where university students and faculty in the United States 
can build decentralized applications. This would require two phases. 
The first would be to develop a common architecture across institutions 
for programmers to build blockchain protocols that talk to one another. 
The second would be to create and test applications in this academic-
only sandbox environment. I found the practical need for such an 
environment when I taught a college course on blockchain technology at 
Morgan State University's business school in 2018.\46\ My students 
developed and pitched ideas for decentralized applications to solve 
long standing business efficiency problems on campus. The class came up 
with several intriguing business propositions. However, there was no 
easily accessible platform for students to test out and deploy their 
ideas, especially since they were not trained blockchain programmers. A 
nation-wide, academic-only sandbox would provide a low-risk environment 
for blockchain-related research and collaboration. It would enable 
students and professors from around the country to work in an 
interoperable programming environment, share best practices, and 
iterate on projects. As the functionality of projects on the DISCU 
system matures, universities could propose to move elements of the 
sandbox into the open Internet. The aim should be to create open 
architecture for the world to use, just like the Internet, and not 
infrastructure wholly owned or controlled by one nation or any other 
entity. This process would take several years, but would be a critical 
investment in digital infrastructure for future generations.
---------------------------------------------------------------------------
    \46\ Morgan State's First Blockchain Course Finds Use Cases on 
Campus, Stephen Babcock, Technical.ly, December 5, 2018, https://
technical.ly/baltimore/2018/12/05/morgan-state-blockchain-course/.

        The Small Business Administration, through its Small Business 
Innovation Research (SBIR) program, should offer grants to U.S. 
businesses for fintech R&D that supports both privacy and national 
security concerns. The scope of U.S. digital finance innovation is 
likely to correlate to the extent to which transactions can conform to 
global regulatory standards for anti-money laundering and counter-
terrorist financing. Financial platforms that operate fully 
pseudonymously are unlikely to scale to mass use due to the regulatory 
considerations of financial crime risks that come from pseudonymous 
transactions. And at the same time, as digital transactions attached to 
personal identification grow in volume and in their relevance to the 
economy, data privacy is likely to become more vulnerable to 
exploitation and abuse. Recently, the U.S. Treasury's Financial Crime 
Enforcement Network (FinCEN) announced it would host an innovation 
workshop for tech firms to present privacy-preserving technologies that 
could secure privacy and deter illicit financing.\47\ This is a good 
step to help inform financial regulators about the current innovations 
available to preserve privacy, but more investment is actually needed 
to develop such solutions. The SBIR's competitive, private-sector-
focused award system would be a fitting way to incentivize small 
businesses to take on this important digital challenge.\48\
---------------------------------------------------------------------------
    \47\ ``FinCEN to Host Innovation Hours Program Workshop on Privacy 
Enhancing Technologies,'' FinCEN, press release, May 26, 2021, https://
www.fincen.gov/news/news-releases/fincen-host-innovation-hours-program-
workshop-privacy-enhancing-technologies.
    \48\ Small Business Innovation Research and Small Business 
Technology Transfer Programs, About: The SBIR and STTR Programs, 
https://www.sbir.gov/about.

        The United States Federal Reserve should expand its research 
of central bank digital currencies. Digital currency experts working on 
the Fed's CBDC research have spoken to Congress about a variety of CBDC 
models and called for more multidisciplinary research.\49\ 
Cybersecurity is likely to be a key concern. But evaluating the 
appropriateness of a digital dollar should not just be a technical 
affair. The United States must also consider many complex public policy 
and social questions relating to privacy, financial crime, and 
financial access. Instead of just one Fed study, it would make sense 
for various branches to conduct CBDC research, each focusing on a 
specific policy or technical dimension of digital currencies. More 
extensive Fed research will help U.S. public and private sector 
stakeholders gain expertise needed to navigate the rise of CBDCs, 
whether the United States creates a digital dollar or not.
---------------------------------------------------------------------------
    \49\ Dr. Neha Narula, ``Building a Stronger Financial System: 
Opportunities of a Central Bank Digital Currency,'' Statement to the 
Subcommittee on Economic Policy, Committee on Banking, Housing, and 
Urban Affairs, U.S. Senate, June 9, 2021, https://
www.banking.senate.gov/imo/media/doc/Narula%20Testimony%206-9-21.pdf.

        The Securities and Exchange Commission (SEC) should give more 
regulatory clarity around digital assets and blockchain technology. 
While U.S. anti-money laundering requirements for cryptocurrency 
exchanges have been clear since FinCEN issued guidance in 2013,\50\ 
securities regulation has been murky to many U.S. blockchain 
innovators. The threat of SEC enforcement actions \51\ has lessened 
much of the fraudulent and unregistered securities activity that has 
been rampant in the crypto space, but it also has likely discouraged 
many legitimate innovative U.S. fintech projects and encouraged some 
American blockchain entrepreneurs to relocate abroad. To compete in the 
digital economy race with China, the United States must foster a more 
innovative fintech environment. It might even be possible to transfer 
the technical benefits of blockchain technology into conventional 
finance by tokenizing the regulated securities market.\52\ If U.S. 
securities regulation does not evolve to account for the new technical 
and entrepreneurial capabilities offered by blockchain technology and 
broadcast data transmission, the United States could be hamstrung in a 
data revolution that is only just beginning.
---------------------------------------------------------------------------
    \50\ ``FinCEN Issues Guidance on Virtual Currencies and Regulatory 
Responsibilities,'' FinCEN, press release, March 18, 2013, https://
www.fincen.gov/news/news-releases/fincen-issues-guidance-virtual-
currencies-and-regulatory-responsibilities.
    \51\ Tom Robinson, ``Crypto Enforcement Actions by U.S. Regulators 
Reach $2.5 Billion,'' Elliptic, June 21, 2021, https://www.elliptic.co/
blog/https/www.elliptic.co/blog/crypto-enforcement-actions-by-us-
regulators-reach-2.5-billion.
    \52\ McLaughlin, The Regulated Internet of Value.

                                 ______
                                 
          Question Submitted for the Record to Yaya J. Fanusie
                  Question Submitted by Hon. Ron Wyden
    Question. The Chinese Government imposes strict capital controls on 
its citizens, which may cause some who would otherwise rather stay 
within the rules to use illicit means such as trade-based money 
laundering (TBML), sometimes through cryptocurrencies, to move money 
out of China, facilitating illicit finance and organized crime in the 
United States and Latin America. It seems like there is room for us to 
cooperate here, since both countries have an interest in stopping TBML 
and other similar crimes.

    Is there some way that we can suggest that we work together?

    Answer. No matter where criminals are located, they will exploit 
jurisdictions with weak financial regulations. So, the most important 
way for the U.S. and China to cooperate on countering illicit activity 
associated with cryptocurrencies is to help close the gaps across 
jurisdictions where cryptocurrency businesses are poorly regulated. 
This should happen mainly through the Financial Action Task Force 
(FATF), the intergovernmental body that sets global standards for anti-
money laundering and combating the financing of terrorism (AML/CFT). 
There already is a precedent for U.S.-Chinese collaboration on this 
issue. The United States prioritized the development of global AML/CFT 
standards for the virtual asset industry during the U.S. presidency of 
FATF from mid-2018 and mid-2019.\1\ China served as FATF vice president 
at that time.\2\ FATF released its landmark formal guidance on virtual 
assets in June 2019.\3\ China then succeeded the United States for the 
FATF presidency from 2019 to 2020 and FATF continued to push 
jurisdictions to strengthen virtual asset regulations.\4\ But despite 
this progress, FATF is still struggling to address some of the 
innovations in the virtual asset space that challenge longstanding 
regulatory frameworks. In particular, jurisdictions need clearer 
guidance on how to account for rising activity around non-custodial 
wallets, decentralized finance (DeFi) protocols, and decentralized 
exchanges.
---------------------------------------------------------------------------
    \1\ ``Objectives for the FATF During the U.S. Presidency (2018-
2019).'' Financial Action Task Force, June 2018, www.fatf-gafi.org/
publications/fatfgeneral/documents/objectives-2018-2019.html.
    \2\ ``FATF Presidents Since 1989.'' Financial Action Task Force, 
www.fatf-gafi.org/pages/fatfpresidentssince1989.html.
    \3\ ``Guidance for a Risk-Based Approach to Virtual Assets and 
Virtual Asset Service Providers.'' Financial Action Task Force, June 
21, 2019, www.fatf-gafi.org/publications/fatfrecommendations/documents/
guidance-rba-virtual-assets.html.
    \4\ ``Xiangmin Liu's End of Presidency Statement.'' Financial 
Action Task Force, www.fatf-gafi.org/publications/fatfgeneral/
documents/chinese-presidency-outcomes.html.

    China has taken a hardline approach to the cryptocurrency industry, 
banning cryptocurrency trading activity in its borders.\5\ Some 
blockchain analysis shows that Chinese illicit finance in virtual 
assets has decreased in recent years, probably due to this 
crackdown.\6\ But banning the cryptocurrency industry has not been the 
U.S. approach, nor should it be. I coauthored a study in 2018 that 
showed that the United States' early and clear AML regulatory guidance 
is likely to have accounted for much lower percentages of illicit 
cryptocurrency transactions in the United States compared to other 
cryptocurrency-active jurisdictions.\7\ Although both countries have 
very different regulatory approaches, they should share with other 
nations, through FATF, lessons learned from their successes in reducing 
illicit cryptocurrency crime over time.
---------------------------------------------------------------------------
    \5\ MacKenzie Sigalos, ``China's War on Bitcoin Just Hit a New 
Level with Its Latest Crypto Crackdown.'' CNBC, July 7, 2021, 
www.cnbc.com/2021/07/06/china-cracks-down-on-crypto-related-services-
in-ongoing-war-on-bitcoin.html.
    \6\ Samuel Haig, ``China Crypto Crime: Still `Top Ranked' for 
Illicit Activity, but Crime Is Falling.'' Cointelegraph, August 4, 
2021, www.cointelegraph.com/news/china-crypto-crime-still-top-ranked-
for-illicit-activity-but-crime-is-falling.
    \7\ Yaya J. Fanusie, and Tom Robinson. ``Bitcoin Laundering: An 
Analysis of Illicit Flows into Digital Currency Services.'' Foundation 
for Defense of Democracies, January 10, 2018, www.fdd.org/analysis/
2018/01/10/bitcoin-laundering-an-analysis-of-illicit-flows-into-
digital-currency-services/.

    On a more tactical level, China and the U.S. could collaborate more 
effectively on law enforcement operations involving drug money 
laundering. According to the U.S.-China Economic and Security Review 
Commission, Chinese law enforcement cooperation with the United States 
has improved in recent years, but is still lacking at the ground 
level.\8\ In the appendix to a recent report on illicit fentanyl from 
China, the commission outlined the step-by-step process in which 
Chinese brokers typically launder funds for Mexican drug cartels.\9\ 
U.S. and Chinese drug enforcement authorities should study this process 
and assess how launders might be adapting this typology with virtual 
assets and cryptocurrency exchanges.
---------------------------------------------------------------------------
    \8\ Lauren Greenwood, ``Illicit Fentanyl from China: An Evolving 
Global Operation.'' U.S.-China Economic and Security Review Commission, 
August 24, 2021, www.uscc.gov/research/illicit-fentanyl-china-evolving-
global-operation.
    \9\ Ibid.

                                 ______
                                 
 Prepared Statement of Mary Gallagher, Ph.D., Amy and Alan Lowenstein 
 Professor of Democracy, Democratization, and Human Rights, University 
                              of Michigan
    Chair Warren, Ranking Member Cassidy, distinguished members of the 
committee, thank you for the opportunity to appear before you today to 
discuss China's working conditions, gender discrimination at the 
workplace, and ongoing problems in the implementation and enforcement 
of China's labor and employment laws.

    As the director of the International Institute at the University of 
Michigan (UM), and the former director of the Lieberthal-Rogel Center 
for Chinese Studies, I would like to acknowledge the important support 
that I personally have received and that our centers at UM have 
received from the United States government as a grantee of the 
Department of Education's title VI awards to promote expertise in area/
international studies and world languages. As a two-time recipient of a 
Fulbright award, I am deeply aware of the importance of area studies 
knowledge, language expertise, and time in the field to complete 
academic research. At the University of Michigan, we have five National 
Resource Centers (title VI), and six centers are recipients of the 
Foreign Language and Area Studies (FLAS) fellowships for language 
training. We train the next generation of scholars, area specialists, 
foreign policy experts with this funding. I hope the USG will continue 
to invest in training American students and scholars in area studies 
and world languages. It is a national security imperative that we 
maintain and cultivate this expertise.

    My testimony will discuss these key findings:

        Over the course of the last 2 decades, China's workplace laws 
and policies have expanded considerably to improve employment security 
and access to social insurance. Since 2009, the Chinese Government has 
expanded basic pension and medical insurance to both rural and urban 
residents.

        However, laws and policies ``on the books'' are weakly 
enforced. They often leave out workers from rural areas, informal 
workers, and workers in the new digital economy. New social insurance 
policies based on residency, not employment, are shallow and 
insufficient.

        Income, health, and educational inequalities between rural and 
urban citizens threaten China's shift to a new development model that 
is built on domestic demand and consumption. Short-term gain by cutting 
employers' costs risks long-term damage to China's ambitions to become 
a technologically advanced and innovative economy.

        An ongoing crackdown on civil society and social activism has 
impaired Chinese workers' ability to protect themselves. Labor NGOs, 
lawyers, and other social activists have been targeted in waves of 
crackdown to silence grievances and social mobilization.

        In light of new concerns about China's demographic challenges, 
the Chinese Government has relaxed its restrictive population policies. 
Women are now encouraged to have two children, but face increasing 
discrimination at the workplace and lack access to affordable early 
child care.

        There is ample evidence that in addition to forced detention 
in reeducation camps, China's Muslim minorities are also being forced 
to work in factories or other worksites located nearby. Forced labor in 
the Xinjiang Uyghur Autonomous Region has been linked to global supply 
chains.
    background on workplace protections and social security in china
    Nine years ago, nearly to the day, I gave testimony to a hearing on 
Working Conditions and Workers Rights in China for the Congressional 
Executive Commission on China. Rereading that testimony as preparation 
for today provided me with a stark reminder of how much China has 
changed since 2012. It is a wealthier and more powerful country, but it 
is also far more closed and politically repressive than it was then. 
The new labor and social security laws of 2008 and 2010 have failed to 
deliver their promises of increased employment security and closing 
income and social security gaps between rural and urban workers. Social 
activism around workplace protections, better conditions and wages has 
also been nipped firmly in the bud. Lawyers and labor activists have 
been detained. Student activists have been harassed and tormented. 
Nascent civil society organizations and legal aid centers have 
shuttered. Social activism now brings accusations of treasonous 
behavior. The nationalistic administration of Xi Jinping has painted 
these experiments as foreign attempts to destabilize China.

    The previous administration of Hu Jintao and Wen Jiabao championed 
policies of redistribution and social protection. From 2008 until 2012, 
China's National People's Congress passed several laws to enhance 
workplace rights, employment security, and access to social insurance 
and to simplify the dispute resolution system for labor disputes. The 
Hu-Wen administration also expanded China's social insurance system by 
developing new pension and medical insurance programs for rural 
residents and expanding urban programs for the unemployed and those 
working in the informal sectors. Coupled with the new legal protections 
in the 2008 Labor Contract Law, these laws and policies significantly 
expanded the rights ``on the books'' for Chinese workers. For the first 
time, the Chinese government began to offer social welfare to its rural 
residents who at the time still made up over 60 percent of the entire 
population.

    The Hu-Wen administration was also relatively tolerant of social 
mobilization that advanced their policy goals. There was much greater 
political openness toward social and legal activism by civil society, 
including labor NGOs, cause lawyers, and university-run legal aid 
clinics. The Chinese media was often openly sympathetic toward the 
plights of workers and covered stories about industrial unrest, 
corporate malfeasance, and workplace disasters. To be clear, repression 
and crackdowns still occurred, but in comparison to today's China, 
there was much greater latitude for civil society actors to advocate 
for change and to use social mobilization and media attention to gain 
public support. In sum, there were both top-down and bottom-up levers 
to improve China's income equality, investments in human capital and 
social security (Gallagher 2017).
        how china's weak laws and social security net threaten 
                       its new development model
    This period of relative political openness and legislative activism 
ended as Xi Jinping took office in 2013. By the following year, Xi's 
government had launched a series of crackdowns on social activism, 
including the 2014 crackdown on labor activism, the July 2015 crackdown 
on lawyers, and the 2018 crackdown on activist students. The 2008 Labor 
Contract Law has been weakly enforced such that the main goals of the 
law, to reduce informality and improve workers' access to social 
insurance, have been completely thwarted. Rozelle and Boswell (2021) 
find that informal employment increased from 144 million workers in 
2013 to 227 million workers in 2017. At the same time, formal 
employment has fallen slightly from 181 million workers to 176 million 
workers. Many of the informal workers are in China's burgeoning digital 
and platform economies, such that the most dynamic part of the Chinese 
economy is not held to its legal standards for workplace conditions 
(Lei 2021; Liu and Friedman 2021).

    These developments should be of great concern to the Xi government 
because these policy failures undermine the new economic development 
model championed by Xi Jinping and his administration. This new 
economic model is premised on boosting domestic consumption and relying 
on China's internal markets to foster new economic growth that is less 
reliant on both government investment and export markets (Blanchette 
and Polk 2021). It is also premised on human capital improvements and 
education inclusion such that the Chinese workforce can withstand the 
transition away from labor-intensive manufacturing toward more skills-
intensive/capital intensive manufacturing and services. These goals 
have only intensified in importance with the downturn in U.S.-China 
bilateral relations and the 2018 trade conflict.

    The academic research on the advancement of informality 
demonstrates that the Chinese workforce continues to be bifurcated 
between the relatively well-off and secure formal workforce in cities 
and the less well-off, less secure informal workforce in rural areas 
and among the rural workforce temporarily residing in cities. 
Informality is also a problem for older workers and for workers in 
China's dynamic digital and platform economies. This problem of 
informality continues and deepens despite central government policy 
pronouncements for nearly 20 years to close the gap (Rozelle and 
Boswell 2021; Yang 2021; Rozelle and Hell 2020; Gallagher et al. 2015; 
Kuruvilla, Lee and Gallagher 2011).

    Research by Scott Rozelle and his research team has also found that 
work-related inequality and the need for long-term temporary migration 
by parents has also left a generation of left-behind children who face 
significant educational and health inequalities, which will have knock-
down effects on the next generation of rural residents. So little of 
these problems are known outside of China that Rozelle and Hell's book 
on the topic is entitled ``Invisible China'' (Rozelle and Hell 2020).

    In addition to the inequalities between China's urban and rural 
populations, these challenges thwart the Chinese Government's goal of 
using urbanization to boost economic growth and consumption. Rural 
migrants overwhelmingly do not have the education or skills to find 
formal employment in China's cities (Rozelle and Boswell 2021). Yet 
formal employment is the key to accessing China's much more generous 
employment-based social insurance programs that mostly are out of reach 
for China's rural populations (Yang 2021; Huang 2015). Formal 
employment is also the key to legal residency in cities, which can 
ensure access to better educational opportunities for the children of 
migrant workers and more reliable health care. Permanent legal 
residency in cities, through hukou transfer, is also the key to 
intergenerational social mobility. And yet, despite the importance of 
formal employment to China's future development, the number of people 
employed in the formal sector has stagnated while informal employment 
is growing rapidly.
    china's demographic challenges and rising gender discrimination
    During the first 3 decades of China's ``reform and opening'' (1978-
2008), rapid economic growth was fueled in part by favorable 
demographics. China's working population was large in proportion to 
both dependents and the elderly. It was also overwhelmingly rural and 
poor. Once internal migration restrictions were lifted, rural migrants 
could leave the countryside for China's booming cities and development 
zones. Year after year, hundreds of millions of rural migrants poured 
into cities and kept wages extremely low. Labor-intensive 
manufacturing, global trade liberalization, and supply chain 
consolidation with other Asian economies produced a Chinese growth 
miracle. This miracle would not have been possible with China's rural 
migrant workforce (Roberts 2020).

    By 2021, China's demographic dividend had disappeared. Population 
aging and a rapid decline in the birth rate, accelerated by China's 
restrictive ``one child policy,'' have now produced an unprecedented 
demographic crisis and imbalances of both age and sex. Due to these 
restrictive population policies and a traditional preference for male 
children, boys continue to be born at a far higher rate than girls 
(Ljunggren 2021). China's demographic structure, especially its rapid 
aging and declining fertility, pose significant challenges to its 
future growth and to the sustainability of its pension and social 
insurance systems.

    To address these problems, the Chinese Government lifted the one 
child policy in 2016, allowing each family to have up to two children. 
After it became clear that this relaxation did not arrest the decline 
in fertility, in 2021 the Chinese Government further expanded the birth 
quota to three children. It also pledged to improve child care and 
workplace policies for families. However, research on China's 
demographic crisis and its impact on women, both as mothers and 
workers, has shown that these more generous population policies are 
unlikely to reverse China's extremely low fertility rate. Gender 
discrimination at the workplace, expensive and scarce child care, 
particularly for infants and toddlers, and economic concerns about the 
costs of raising children to adulthood all contribute to young women's 
reluctance to have children (Zhang, Hannum, and Wang 2008; Zhou 2019; 
Wallace 2020).

    As with other labor and employment issues, social mobilization and 
activism around gender issues have become more sensitive during the Xi 
administration with several crackdowns on activists and movements (Hong 
Fincher 2020). Most recently, the online accounts of groups advocating 
for LGBT rights in China were removed from Chinese social media 
platforms. In April 2021, accounts of women activists and organizations 
were also removed. Xi Jinping has put greater emphasis on the role of 
women as wives and mothers to encourage family values and greater 
propensity to marry and have children (Deng 2021). It remains to be 
seen whether the government will also develop concrete policies to 
supply early child care that is affordable and to deter employers from 
rampant discrimination against women of child-bearing age.
         forced labor in the xinjiang uyghur autonomous region
    The problem of forced labor in the Xinjiang Uyghur Autonomous 
Region (XUAR) is a separate and distinct problem. The forcible 
detention of China's Muslim minorities in reeducation and ``vocational 
training'' camps has been well documented by academic researchers and 
the media (Smith Finley 2019; Roberts 2020; Milward and Peterson 2020). 
Both the detentions and the related occurrence of forced labor are 
policy choices to assimilate China's Muslim population (Lehr and 
Bechrakis 2019). The government envisions participation in factory or 
agricultural work as a mechanism to foster assimilation and to reduce 
religiosity among its Muslim citizens. The government has targeted a 
wide range of religious and cultural practices as indications of 
extremism or propensity for extremism. Engaging in these practices are 
reason enough to be involuntarily detained in the camps. Engaging in 
work, Chinese language study, and political indoctrination are all part 
and parcel of a campaign to dilute Uyghur cultural identity and to 
assimilate Muslim citizens into the dominant Han majority (Zenz 2019). 
As with other forms of forced labor that have been used by the Chinese 
Communist Party for decades, labor is seen as an important component of 
an individual's transformation into a new kind of citizen--patriotic, 
obedient, and hardworking for the collective goals of the nation. 
Despite foreign condemnation of these practices and fears of cultural 
genocide, the Chinese Government has defended these policies as 
necessary to reduce threats of domestic terrorism.

    Forced labor in cotton and solar panel production in XUAR has 
implicated the supply chains of many multinational corporations (Lehr 
and Wu 2021). Some forced companies have found themselves caught 
between external condemnations of the Xinjiang camps/forced labor and 
Chinese public opinion that is overtly supportive of the Chinese 
Government policies. When H&M, a large Swedish apparel company, 
expressed concern about the use of forced labor in cotton production in 
Xinjiang, it faced a Chinese consumer boycott, was dropped from some 
app stores and online retail platforms, and rejected by some Chinese 
celebrities who cut ties with the brand (BBC 2021).

    The forced labor issue in Xinjiang underlines important challenges 
that foreign governments and corporations must increasingly confront. 
Both the camps themselves and related forced labor demonstrate the 
widening gap in the conception of human rights between the Chinese 
Government and much of the rest of the world. Involuntary and 
extralegal detention of China's own citizens on a mass scale is now 
justified by the government, and apparently, supported by a wide swathe 
of Chinese society. Corporations must consider the reputational costs 
of producing in China and the economic costs of arousing the ire of the 
Chinese government and public.
                            recommendations
    In China's current political environment, foreign support for 
Chinese civil society can backfire because foreign support is construed 
as evidence of an external plot to foment social instability. It is 
also increasingly difficult for journalists and academic researchers to 
have access to China. However, there are steps that can and should be 
taken to support our values and promote pluralism and inclusion.

        The United States should invest in our infrastructure and in 
our workforce to compete in the global economy. This includes education 
and a social security system that provides for illness, injury, and old 
age. Access to affordable childcare is also essential. While China 
falls short in many of these areas now, it has already made impressive 
investments in its infrastructure and technological base. In labor and 
social policy, it has at least developed the legal and policy framework 
to make future improvements. We ignore these achievements at our peril.

        Support freedom of expression and freedom of association, 
domestically and abroad.

        As supply chains in China become more fraught with risks, of 
both rampant human rights violations in Xinjiang, and national security 
risks elsewhere, the United States should invest in trade partnerships 
with other countries that share similar political values and 
commitments to human rights and labor rights.

Citations

``H&M: Fashion Giant sees China sales slump after Xinjiang Boycott.'' 
        BBC News, July 2, 2021. Accessed July 12, 2021, https://
        www.bbc.com/news/business-57691415.

Blanchette, Jude and Andrew Polk. ``Dual Circulation and China's New 
        Hedged Integration Strategy.'' Center for Strategic and 
        International Studies, https://www.csis.org/analysis/dual-
        circulation-and-chinas-new-hedged-integration-strategy.

Deng, Chao and Liyan Qi. ``China Stresses Family Values as More Women 
        Put off Marriage, Childbirth.'' The Wall Street Journal, April 
        19, 2021.

Gallagher, Mary E. Authoritarian Legality in China: Law, Workers, and 
        the State. New York: Cambridge University Press, 2017.

Gallagher, Mary, John Giles, Albert Park, and Meiyan Wang. ``China's 
        2008 Labor Contract Law: Implementation and Implications for 
        China's Workers.'' Human Relations 68, no. 2 (February 2015): 
        197-235. https://doi.org/10.1177/0018726713509418.

Hell, Natalie, Rozelle, Scott. Invisible China: How the Urban-Rural 
        Divide Threatens China's Rise. United Kingdom: University of 
        Chicago Press, 2020.

Hong Fincher, Leta. Betraying Big Brother: The Feminist Awakening in 
        China. United Kingdom: Verso Books, 2020.

Huang, Xian 2015. ``Four Worlds of Welfare in China: Understanding 
        Subnational Variation in Chinese Social Health Insurance.'' The 
        China Quarterly, Vol. 222 (June): 449-474

Human Rights Watch. `` `Take Maternity Leave and You'll Be Replaced': 
        China's Two-Child Policy and Workplace Gender Discrimination.'' 
        Human Rights Watch, 2021, https://www.hrw.org/report/2021/06/
        01/take-maternity-leave-and-youll-be-replaced/chinas-two-child-
        policy-and-workplace.

Kuruvilla, Sarosh, Lee, Ching Kwan, Gallagher, Mary E. From Iron Rice 
        Bowl to Informalization: Markets, Workers, and the State in a 
        Changing China. United States: Cornell University Press, 2011.

Lei, Ya-Wen. ``Delivering Solidarity: Platform Architecture and 
        Collective Contention in China's Platform Economy.'' American 
        Sociological Review 86, no. 2 (April 2021): 279-309.

Ljunggren, Borje. ``The Chinese Population Implosion: An Unparalleled 
        Demographic Challenge with Global Consequences.'' The Ash 
        Center for Democratic Governance and Innovation, Harvard 
        Kennedy School, 2021, https://ash.harvard.edu/publications/
        chinese-population-implosion-unparalleled-demographic-
        challenge-global-consequences.

Lehr, Amy K. and Mariefaye Bechrakis. ``Connecting the Dots in 
        Xinjiang: Forced Labor, Forced Assimilation, and Western Supply 
        Chains.'' CSIS Human Rights Initiative, October 2019.

Lehr, Amy K. and Henry C. Wu. ``Addressing Forced Labor in the Xinjiang 
        Uyghur Autonomous Region: Collective Action to Develop New 
        Sourcing Opportunities.'' CSIS Human Rights Initiative, 
        February 2021.

Liu, Chuxuan and Eli Friedman. ``Resistance Under the Radar: 
        Organization of Work and Collective Action in China's Food 
        Delivery Industry.'' The China Journal 86 (2021): 68-89, 
        https://weblogin.umich.edu/?cosign-apps.lib&
        https://apps.lib.umich.edu/login?dest=/proxy-login/
        ?qurl=https%3A%2F%2F
        www.journals.uchicago.edu%2Fdoi%2Fabs%2F10.1086%2F714292.

Roberts, Dexter. The Myth of Chinese Capitalism: The Worker, the 
        Factory, and the Future of the World. United States: St. 
        Martin's Publishing Group, 2020, https://weblogin.umich.edu/
        ?cosign-apps.lib&https://apps.lib.umich.edu/login
        ?dest=/proxy-login/
        ?qurl=https%3A%2F%2Fdoi.org%2F10.1080%2F0163660X.
        2021.1932097.

Roberts, Sean R. The War on the Uyghurs: China's Internal Campaign 
        Against a Muslim Minority. United Kingdom: Princeton University 
        Press, 2020.

Rozelle, Scott and Matthew Boswell. ``Complicating China's Rise: Rural 
        Underemployment.'' The Washington Quarterly, 44:2 (2021): 61-
        74. DOI: 10.1080/0163660X.2021.1932097

Smith Finley, Joanne. ``Securitization, insecurity and conflict in 
        contemporary Xinjiang: Has PRC counter-terrorism evolved into 
        state terror?'' Central Asian Survey, 38:1 (2019): 1-26. DOI: 
        10.1080/02634937.2019.1586348

Wallace, Claire. ``Between State, Market and Family: Changing Childcare 
        Policies in Urban China and the Implications for Working 
        Mothers.'' International Sociology 35, no. 3 (May 2020): 336-
        52. https://doi.org/10.1177/02685809198852
        82.

Yang, Yujeong. ``The Politics of Inclusion and Exclusion: Chinese Dual-
        Pension Regimes in the Era of Labor Migration and Labor 
        Informalization.'' Politics and Society 49, no. 2 (June 2021): 
        147-80.

Zenz, Adrian. `` `Thoroughly reforming them towards a healthy heart 
        attitude': China's political re-education campaign in 
        Xinjiang.'' Central Asian Survey, 38:1 (2019): 102-128.

Zhang, Yuping, Emily Hannum, and Meiyan Wang. ``Gender-Based Employment 
        and Income Differences in Urban China: Considering the 
        Contributions of Marriage and Parenthood.'' Social Forces 86, 
        no. 4 (2008): 1529-560. Accessed July 12, 2021. http://
        www.jstor.org/stable/20430820.

Zhou, Yun. ``The Dual Demands: Gender Equity and Fertility Intentions 
        after the One-Child Policy.'' Journal of Contemporary China, 
        28:117 (2019): 367-384, DOI: 10.1080/10670564.2018.1542219.

                                 ______
                                 
      Questions Submitted for the Record to Mary Gallagher, Ph.D.
                 Questions Submitted by Hon. Ron Wyden
    Question. Ensuring that American workers can compete with--and out-
compete--China and other countries around the world requires us to 
invest in our workers. It also means that we need to enforce laws 
already on the books that protect our workers from unfair competition. 
One of those laws is the ban on importation of products made with 
forced labor. From a moral perspective alone, forced labor is 
abhorrent. And from a competitiveness angle, the use of forced labor 
effectively acts as a subsidy that puts American workers at a 
competitive disadvantage.

    U.S. law bans importation of products made with forced labor, 
depriving those goods of access to the American market. How can the 
United States work with our allies to ensure that we are taking 
concerted action and ensuring that goods produced with forced labor are 
not simply sent to other markets around the world? Do you have any 
views on the EU's new provisions regarding ensuring supply chains do 
not include products made with forced labor?

    Answer. As I noted in my original statement regarding forced labor 
in the XUAR, multinational corporations operating in some supply chains 
in China (cotton apparel, for example) are at some risk of having 
forced labor in their supply chains and related condemnations from 
outside NGOs and activists, while also earning the ire of Chinese 
citizens who oppose boycotts of Chinese cotton and goods made in China 
with forced labor. The United States should work with its allies to 
encourage stronger international condemnation of the re-education camps 
in the XUAR and the related forced labor in the camps. It should also 
work with allies and other economies to rebuild supply chains outside 
of China. The EU new provisions are laudable, but are not sufficient to 
deal with state-sponsored forced labor of religious and ethnic 
minorities, which is strongly supported by some large portion of the 
Chinese dominant majority ethnic group.

    Question. China's digital environment is subject to sophisticated 
and comprehensive censorship. In addition to government monitoring and 
blocking of Internet access, major Internet platforms in China are also 
required to establish self-censorship mechanisms. U.S. companies 
seeking to participate in the Chinese market are expected to meet 
similar requirements.

    Can you describe the impact of China's censorship and digital 
policies on both workers seeking to identify jobs, organize or 
otherwise participate in the Chinese economies and innovators who are 
seeking to start new firms in China? Are these policies helpful or 
harmful to these groups?

    Answer. China's censorship and digital surveillance policies are 
harmful to Chinese workers' ability to organize and mobilize for better 
workplace conditions and protections. These policies limit workers' 
ability to communicate to each other about workplace issues and they 
significantly raise the risks of mobilization, whether virtual or real. 
Workers and labor activists have been detained and imprisoned for such 
mobilization.

    Question. Can you describe the impact of China's censorship and 
digital policies on small and medium-sized enterprises, and the workers 
upon which they rely, operating in China or seeking to enter the 
Chinese market?

    Answer. China's censorship and digital policies place certain 
burdens of self-
censorship on all companies entering or operating in the Chinese market 
regardless of the companies' size. Many companies entering the Chinese 
market have also faced pressure to comply with Chinese censorship 
restrictions (Google, most famously, which then left the Chinese 
market.) These restrictions might place heavier burdens on small and 
medium-sized companies if they lack the internal expertise on these 
issues. Non-compliance with China's censorship demands also pose 
significant economic risks to all companies, regardless of size. 
Chinese Government threats to restrict or reduce access to the Chinese 
market have compelled some very large multinational companies to comply 
with Chinese censorship policies.

                                 ______
                                 
                Question Submitted by Hon. Bill Cassidy
    Question. The Chinese Government imposes strict capital controls on 
its citizens, which may cause some who would otherwise rather stay 
within the rules to use illicit means such as trade-based money 
laundering (TBML), sometimes through cryptocurrencies, to move money 
out of China, facilitating illicit finance and organized crime in the 
United States and Latin America. It seems like there is room for us to 
cooperate here, since both countries have an interest in stopping TBML 
and other similar crimes.

    Is there some way that we can suggest that we work together?

    Answer. This question is outside my area of expertise. There were 
at least two other panelists providing testimony who are better 
equipped to answer Senator Cassidy's good question.

                                 ______
                                 
       Prepared Statement of Roy Houseman, Legislative Director, 
                          United Steelworkers
    Chairwoman Warren, Ranking Member Cassidy, thank you for the 
opportunity to testify today on defending and investing in U.S. 
competitiveness. As a former trade-impacted mill worker, and now 
legislative director for the largest industrial union in North America, 
it is an honor to be a voice for organized workers in this discussion, 
and our union's international president Tom Conway gives his regards.

    The United Steelworkers (USW) is the largest industrial union in 
North America, representing workers throughout the manufacturing 
sector. Our union's representation in commodities, which Americans and 
people across the globe use every day--from paper, steel, fiber optics, 
to tires--provides a unique lens into U.S. competitiveness. It is also 
important to note that as our economy has changed over the decades, our 
union continues to evolve, representing workers in industries from 
software development to electric bus assembly to health care.

    Defending and strengthening our country's competitiveness requires 
at least three key strategic shifts: (1) refocusing Federal domestic 
investments on critical infrastructure; (2) retooling our labor and 
environmental laws for a 21st-century democracy; and (3) exporting not 
just our goods, but our ideals, for a just global economy. Trade policy 
in particular must play a dual role of defending our communities from 
unfair trade practices by governments and foreign multi-national 
corporations, while ensuring the goods and services our workers produce 
can reach global markets.
                          domestic investment
    Turning first to domestic investment, the USW takes a holistic 
approach to our country's infrastructure. Right now, Steelworkers local 
unions across the country are working with their respective employers 
to send letters to the Biden administration in a campaign called ``We 
Supply America.'' This campaign emphasizes the critical role USW 
members play in America's infrastructure supply chain. For example, on 
our country's interstate highway system Steelworkers provide everything 
from steel for the over 6 million tons of guard rails to the pigment 
for paint that guides travelers every day.\1\ They provide the steel 
that supports our bridges and buttresses our ports. From roads and 
bridges to our electric grid to broadband and so many other areas, our 
members produce the products that are needed. That is why we are 
hopeful and anxious to review the details of the $1.2-trillion 
bipartisan infrastructure framework.
---------------------------------------------------------------------------
    \1\ https://pubs.usgs.gov/fs/2006/3127/2006-3127.pdf.

    If done right, this framework has the potential to upgrade our 
crumbling infrastructure and coupled with strong domestic procurement 
policies that ensure American manufacturing workers benefit from the 
tax dollars spent across the country. We know this new investment is 
needed when, for example, 6 billion gallons of treated water is lost 
each day in the U.S. That is over 4 million gallon jugs of lost 
drinking water in the 5 minutes set aside for my oral testimony. We can 
do better, and our members who work at companies, like McWane, stand 
ready at the crucible to pour melted iron for the next generation of 
---------------------------------------------------------------------------
water infrastructure should Congress move on this historic investment.

    As the largest union in hard rock mining, we recognize the 
potential that a changing transportation infrastructure creates for 
miners of copper and other metals here in the U.S., and the new 
opportunities that clean technology will present for workers in the 
supply chain. But even aggressive electric vehicle (EV) uptake will not 
completely replace traditional fuels in the near term. For example, 
Bloomberg estimates that EV sales will only reach 34.3 percent by 
2030.\2\ This means there will be a continuing need for traditional 
fuels and refineries, most of which are represented by our union. These 
workers have bargained generous pay and benefits for safely and 
efficiently refining hydrocarbons over the years, supplying America 
with the needed fuels to drive the country and our military.
---------------------------------------------------------------------------
    \2\ https://www.bloomberg.com/news/articles/2021-06-26/where-we-
are-on-the-road-to-electric-vehicles-quicktake?sref=HEwoTbCT.

    The U.S. can achieve a net-zero emissions economy by 2050, while 
still maintaining production and employment in energy-intensive, trade-
exposed industries, but it will require workers, government, and 
industry working together. Our union is prepared to tackle this 
challenge in the many carbon intensive industries where we have 
members. That is why we are working closely with our member companies 
and community stakeholders to encourage investment in Carbon Capture, 
Utilization, and Sequestration (CCUS) and Direct Air Capture (DAC) 
Technology and supporting legislation like the SCALE Act (S. 986) and 
---------------------------------------------------------------------------
the CATCH Emissions Act (S. 2230).

    A mix of policies will be needed for these changes. For example, 
the USW urges Congress to invest in section 132 Manufacturing 
Conversion/Industrial Retooling Grant program, which was established 
under the Energy Independence and Security Act (EISA) of 2007, but 
never funded. This and other strategic manufacturing investment 
programs would provide capital for the conversion and retooling of 
industrial facilities.\3\
---------------------------------------------------------------------------
    \3\ https://docs.house.gov/meetings/AP/AP10/20210317/111330/HHRG-
117-AP10-Wstate-BrownR-20210317.pdf.
---------------------------------------------------------------------------
                     investing in american workers
    Domestic investments in infrastructure and industrial capacity will 
be key to building a 21st-century economy. But physical infrastructure 
is only one leg in a stool toward a prosperous, equitable, and just 
democracy. Our human infrastructure needs investment as well to ensure 
that America's workers have the knowledge and skills to face global 
competition and to combat growing income inequality. Whether it is 
preparing for the next pandemic, eliminating systemic racism, improving 
child care, or increasing worker power--the tools to empower workers 
and their communities need improving.

    According to the Economic Policy Institute, de-unionization 
explains approximately a third of the growth of the wage gap between 
high- and middle-wage earners over the 1979-2017 period.\4\ Unions have 
played a key role in improving hours, wages, and working conditions for 
the country's 150 million plus workers, but eroded labor laws are 
undermining take home pay for everyone. The drop in union membership 
has taken $52 weekly out of nonunion working men's wages alone since 
1979.\5\
---------------------------------------------------------------------------
    \4\ https://www.epi.org/publication/unions-help-reduce-disparities-
and-strengthen-our-democracy/.
    \5\ Ibid.

    Economic disparities for communities of color are also reduced with 
unionization. Black workers--both men and women--are more likely than 
White workers to be covered by collective bargaining, and the wage 
boost that they get from being covered by collective bargaining is 13.1 
percent, above the 10.2 percent average wage boost for unionized 
---------------------------------------------------------------------------
workers overall.

    These are a few of the reasons why the USW supports the passage of 
the PRO Act (H.R. 842). Labor law reform has the potential to reduce 
income inequality, which is vital to creating a competitive economy. 
For example, research indicates in Organisation for Economic Co-
operation and Development (OECD) countries, the average increase in 
inequality of 3 Gini points over the past couple of decades is 
estimated to have cut GDP by around 8.5 percent.\6\ We are seeing 
reduced economic mobility for the middle class and fewer children 
growing up in the bottom of the income distribution are able to climb 
to the top.\7\ Improved bargaining power through simple things, such as 
holding corporations truly accountable for unfair labor practices and 
allowing workers to get a contract, when combined with investments in 
our children and our working families, will bend the arc of inequality 
back in favor of workers.\8\
---------------------------------------------------------------------------
    \6\ https://www.oecd-ilibrary.org/docserver/9789264246010-6-
en.pdf?expires=1625932386&id
=id&accname=guest&checksum=DE7CCC1AD26D92DBB4C2F988581753B6.
    \7\ https://www.theguardian.com/commentisfree/2021/mar/13/american-
dream-broken-upward-mobility-us.
    \8\ https://edlabor.house.gov/imo/media/doc/PRO%20ACT%20-
%20Fact%20Sheet.pdf.

    Inequality destabilizes and undermines long term educational 
achievement as well, creating jarring inequities. Research has shown 
spending on ``enrichment'' activities for children like books, child 
care, and non-school activities among the bottom fifth of the income 
distribution rose by just over 55 percent between the mid-1970s to 
around $1,300 in the mid-2000s. Among the top fifth, however, it rose 
by over 155 percent to $9,000 per child.\9\ We are permitting an 
increasingly tiered society with an enormous waste of human potential, 
but the Steelworkers union sees a path to reverse this trend with the 
Biden administration's proposals to upgrade and invest in child care 
facilities, while providing aid to workers who need child care through 
the American Jobs Plan and American Family Plan.
---------------------------------------------------------------------------
    \9\ https://www.oecd-ilibrary.org/docserver/9789264246010-6-
en.pdf?expires=1625932386&id
=id&accname=guest&checksum=DE7CCC1AD26D92DBB4C2F988581753B6.

    Our country will also need to improve our training programs for 
both dislocated and incumbent workers. Unions already provide a 
significant role in training the manufacturing workforce. As an 
example, United States Steel and USW have contract language, which 
incorporates training coordinators who work with management to ensure 
that workers ``receive sufficient training to allow for all reasonable 
opportunities to progress within the workforce and maximize their 
skills to the greatest extent possible.''\10\ For manufacturing 
employers who often have specialized equipment that require hands-on 
experience, the Federal Government should provide resources to support 
hands-on training coordinators, and also to reward employers who have 
established relationships with incumbent worker training programs 
through collective bargaining.
---------------------------------------------------------------------------
    \10\ https://uswlocals.org/system/files/2018_uss-
usw_pm_bla_printer.pdf.

    The U.S. must improve resources available for adult worker 
training. The U.S. is among the worst of all 37 countries in the OECD 
in job training programs relative to the size of our economy. Public 
spending is less than half the spending levels of Australia, Canada, 
and the U.K., and one-sixth the level of spending in Germany.\11\
---------------------------------------------------------------------------
    \11\ https://www.oecd.org/unitedstates/back-to-work-united-states-
9789264266513-en.htm.

    The USW is dismayed that Congress has allowed the Trade Adjustment 
Assistance (TAA) for dislocated workers impacted by an increasing 
globalized economy to revert to an inadequate older program. Today a 
worker who loses their job to unfair competition from China--with which 
we had a $310.8 billion trade deficit in 2020--cannot get TAA 
benefits.\12\ This is unacceptable and the union supports a healthy 
reauthorization of the TAA program similar to legislative proposals put 
forward by Senator Stabenow.\13\ As a past recipient of TAA benefits, I 
know how important this program is.
---------------------------------------------------------------------------
    \12\ https://www.thebalance.com/u-s-china-trade-deficit-causes-
effects-and-solutions-3306277.
    \13\ https://www.stabenow.senate.gov/news/senators-stabenow-peters-
introduce-bill-to-support-workers-impacted-by-trade.
---------------------------------------------------------------------------
                     a worker-centered trade agenda
    This discussion on dislocated worker training leads to the final 
leg of the U.S. competitiveness stool: building a robust worker-
centered trade agenda. The USW, which has participated in over 100 
anti-dumping and countervailing duty investigations, and is the largest 
union in steel and aluminum manufacturing vital to our critical 
infrastructure and national security, and currently benefit from 
section 232 safeguards. For us, getting trade policy right is a must 
for a sustainable, competitive economy.

    Our trade policy must continue to evolve. The United States-Mexico-
Canada Agreement (USMCA) was a significant improvement over inadequate 
multilateral trade agreements like the Trans-Pacific Partnership. The 
Brown-Wyden rapid response mechanism is already leading to 
investigations of labor violations by employers in Mexico and the first 
remediation plan was announced last week.\14\ We will closely watch the 
results of this remediation plan, but remain concerned that Mexico's 
labor reforms are moving too slowly. The resources must be quickly 
deployed to enhance on-the-ground labor capacity building.
---------------------------------------------------------------------------
    \14\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2021/july/united-states-and-mexico-announce-course-
remediation-workers-rights-denial-auto-manufacturing.

    Other elements of the USMCA agreement also provide framework for a 
more worker-centered trade policy. The rules of origin for automobiles, 
which require 75 percent of a vehicle content to originate in North 
America, is a solid step to rewarding employers who manufacture in 
North America. Combined with the novel labor value content rule for 
automobiles, future trade agreement negotiations can no longer ignore 
wages and benefits. These provisions were an improvement over the 
original flawed NAFTA, but they are far from perfect. They provide a 
floor for potential future trade agreements, but they are not a 
---------------------------------------------------------------------------
template.

    It should also be noted that the voting margins in support of USMCA 
in Congress show that the Trade Promotion Authority or expedited voting 
authority is unnecessary if stakeholders are meaningfully engaged.

    U.S. competitiveness requires a ``zero tolerance'' policy toward 
forced labor and the countries who permit its existence in their supply 
chains, from manufacturing to fishing, and must be severely sanctioned. 
Earlier this year USW member and tire worker Joe Wrona testified before 
the full Finance Committee on the impact of forced labor on his job and 
the solar supply chain in China.\15\ Broader reforms are needed to 
combat forced labor, particularly in China, and the USW supports 
Representatives McGovern and Smith's bipartisan Uyghur Forced Labor 
Prevention Act (H.R. 1155).
---------------------------------------------------------------------------
    \15\ https://www.finance.senate.gov/download/03182021-wrona-
testimony.

    But there must also be broader unilateral and multilateral reform 
efforts to uphold democratic values in our trade negotiations. Global 
overcapacity in products, such as steel and aluminum, will need to be 
reduced if we are to preserve strategic domestic industries and push 
back on state-capitalist models. China's Belt and Road Initiative has 
led to expansions of dumped and subsidized goods entering from third-
party countries. However, our trade enforcement tools have not yet been 
---------------------------------------------------------------------------
upgraded to contain this growing problem.

    Fortunately, Senator Brown and Senator Portman are leading with a 
much-
needed update to our trade enforcement laws. Commonly referred to as 
``Leveling the Playing Field Act 2.0,'' S. 1187 recognizes that as 
globalization accelerates, our trade enforcement mechanism must move at 
the speed of our increasingly digitalized economy. USW urges the 
Congress to pass this legislation.

    The World Trade Organization (WTO) will also need to be reformed to 
better account for labor and environmental protections. Trade policy 
debates can no longer be conducted simplistically in terms of Economics 
101 notions of comparative advantage, but require a recognition that 
repression of fundamental workers' rights in China and other countries 
violates international law and adversely affects American workers. We 
are heartened by Ambassador Tai's recent remarks at the AFL-CIO on 
increasing workers' voices at the WTO to improve global labor 
rights.\16\
---------------------------------------------------------------------------
    \16\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2021/june/remarks-ambassador-katherine-tai-outlining-biden-
harris-administrations-worker-centered-trade-policy.

    Finally, 52 years ago a U.S. river physically catching fire from 
industrial pollution finally pressed lawmakers over the line to create 
the Environmental Protection Agency, an agency responsible for dramatic 
improvements of our air and water quality.\17\ But, a lack of 
recognition that corporations will outsource their pollution if 
permitted has led to ecological disasters such as less than a third of 
Mexico's industrial wastewater being treated.\18\ This lack of equal 
treatment and accountability has meant corporate investments abroad 
have avoided domestic pollution controls such as those for lead acid 
batteries.\19\ And, it is well documented that trade agreements can 
also shrink the ``policy space'' available to countries to tackle 
climate change.\20\
---------------------------------------------------------------------------
    \17\ http://ohiohistorycentral.org/w/Cuyahoga_River_Fire.
    \18\ https://www.nytimes.com/2019/12/30/world/americas/mexico-
environment-trade.html.
    \19\ https://www.sierraclub.org/sites/www.sierraclub.org/files/
uploads-wysiwig/NAFTA%
20and%20Climate%20Report%202018.pdf.
    \20\ https://iccwbo.org/content/uploads/sites/3/2019/03/icc-report-
trade-and-climate-change.pdf.

    Future trade policy will also need to address carbon in a sensible 
way that prevents ``carbon leakage.'' The USW has long advocated for 
sensible climate change policy, including policy which addresses carbon 
border adjustments so carbon intensive industries are not disadvantaged 
as they adhere to new government policies.\21\
---------------------------------------------------------------------------
    \21\ https://www.congress.gov/116/meeting/house/110026/documents/
HHRG-116-CN00-20190926-SD003.pdf.

    Ensuring that the U.S. and its workers remain competitive will 
require a whole of government approach that includes both investment in 
our country's infrastructure and workers, and an ever-evolving trade 
policy, which defends against trade abuses and encourages exports while 
raising global labor and environmental standards. USW members stand 
---------------------------------------------------------------------------
ready to make this the future.

    Thank you for the opportunity to testify.

           Questions Submitted for the Record to Roy Houseman
                 Questions Submitted by Hon. Ron Wyden
    Question. In the past, U.S. infrastructure policies focused on 
short-term repair and bare-bones maintenance of our physical 
infrastructure, instead of smart, bold, long-term investments. When it 
comes to human services infrastructure, we have seen a similar lack of 
investment in the safety net programs and training programs that 
support our workforce.

    Please describe the importance of the United States taking bold 
action to invest in both physical and human services infrastructure, 
and how these significant investments today can pay off in the future.

    Answer. The lack of Federal investment in our physical and human 
services infrastructure has meant decreased competitiveness for U.S. 
businesses, and for workers it means additional insecurity and 
uncertainty in planning for long-term decisions that allow for a more 
solid economic well-being. United Steelworkers in May of 2020 put out a 
press release after the failure of the Edenville and Sanford dams, 
which caused historic flooding and forced at least 10,000 people from 
their homes in and around Midland, MI. Besides the immediate human 
costs, USW represented employers like DOW were impacted as well.\1\ 
That is why our union is supportive of the Infrastructure Investment 
and Jobs Act and urges final passage. Recently workers across the 
country provided testimony of the various products they make and how 
infrastructure investments would benefit not just them but their 
communities. It is available on Facebook: https://fb.watch/91nKmUSWUH/.
---------------------------------------------------------------------------
    \1\ https://www.usw.org/news/media-center/releases/2020/usw-dam-
failure-disaster-spotlights-need-for-large-scale-infrastructure-
commitment.

    Social infrastructure is important as well. A better quality of 
life for workers in America means ensuring workers don't have to worry 
about child care costs, know that their parents and grand-parents can 
access affordable dental and vision care through their Medicare 
programs and that we reduce the cost of collective bargaining by 
creating an above the line deduction for union dues. When we care for 
---------------------------------------------------------------------------
our communities, we make better communities.

    Question. Please explain why such investments are needed now, and 
whether in your view such investments are urgent.

    Answer. The need for immediate investments are obvious in a global 
competitive setting. In late 2020, USW provided testimony to the Senate 
Banking committee which highlighted how the People's Republic of China 
has invested heavily into the country's manufacturing and physical 
infrastructure and how the impacts of those investments have led to 
decreased competition globally. For example, in 2019, the U.S. spent 
just 2.5 percent of our GDP on infrastructure, down from 4.2 percent in 
the 1930s.\2\ This decrease in domestic spending has meant that 
businesses lose sales to international competitors and workers have to 
spend more of their take home pay fighting clogged streets and 
inadequate infrastructure.
---------------------------------------------------------------------------
    \2\ https://www.banking.senate.gov/imo/media/doc/
Houseman%20Testimony%2012-16-20.pdf.

                                 ______
                                 
       Prepared Statement of David M. Luna, Executive Director, 
       International Coalition Against Illicit Economies (ICAIE)
    Chair Warren, Ranking Member Cassidy, and distinguished members of 
the subcommittee, I appreciate the opportunity to testify in today's 
hearing.

    As the executive director of the International Coalition Against 
Illicit Economies (ICAIE, https://www.icaie.com/), it is an honor to be 
here today to outline some of the national security impacts related to 
China's involvement in the expansion of illicit economies, the booming 
trade in counterfeit and fraudulent goods, money laundering/trade-based 
money laundering, and the corruptive and malign influence of the 
Chinese Communist Party (CCP) that continues to harm American 
interests, our economy and competitiveness, and the health and safety 
of our citizens.

    In my testimony, I will discuss some concerning trends and cases of 
the illegal trade and cross-border criminal activities that are harming 
U.S. national security and impacting numerous American brands across 
industries, including ICAIE members and partners.

    I will then devote the last part of my testimony to possible 
solutions and approaches that can help to not only check and sanction 
illicit trade from China, but that can serve as a basis for more 
constructive engagement with the Chinese Government to investigate and 
prosecute complicit bad actors in an array of cross-
border trafficking crimes.

    First, let me state that having in the recent past chaired and 
participated in several initiatives on fighting corruption and illicit 
trade as part of the U.S.-China Anti-Corruption Working Group of the 
Law Enforcement Joint Liaison Group (JLG ACWG), and multilaterally in 
several diplomatic fora such as the Asia Pacific Economic Cooperation 
(APEC) economic forum and the G20 in which China is also a member, I 
always believed that it was important to have frank and direct talks 
with China on the tough issues in order to work together to solve 
complex and difficult challenges.

    China is an adversary with numerous geopolitical ambitions that 
threaten U.S. national security interests. However, China can also be a 
responsible partner working with the United States where national 
interests align to do good in our world including safeguarding the 
peace, promoting shared prosperity, and addressing today's 
transnational illicit threats.

    But before the United States can embark on encouraging China to 
shutdown illicit trade flows and tackle unfair trade and business 
practices, it is important to have an understanding of the increasingly 
diverse array of market security threats that China continues to 
inspire across borders. These threats are harming U.S. national 
interests, including our economic competitiveness internationally, and 
also have had a considerable impact domestically on our businesses and 
the well-being of our citizens.

    To put in perspective China's role in diverse forms of illicit 
trade and dark commerce, we must recognize that the global illicit 
economy is booming as Dr. Louise I. Shelley--Director, Terrorism, 
Transnational Crime and Corruption Center (TraCCC), Schar School of 
Policy and Government, George Mason University--has often highlighted 
in her research.\1\
---------------------------------------------------------------------------
    \1\ Louise I. Shelley, ``Dark Commerce: How a New Illicit Economy 
Is Threatening Our Future,'' Princeton University Press, 2018, 
accessible at https://traccc.gmu.edu/publication-and-resources/
external-resources/.

    The effects of illicit trade and illicit economies are 
multifaceted. Corruption and illicit finance are at the core of these 
complex cross-border issues, and corrode the underpinnings of 
democracy, good governance, clean markets and supply chain security, 
and economic development efforts. They also impede progress on human 
rights and implementation of national sustainability strategies related 
to the UN Sustainable Development Goals (SDGs).\2\
---------------------------------------------------------------------------
    \2\ United Nations, Sustainable Development Goals (SDG), 2030 
Agenda for Sustainable Development, accessible at: https://www.un.org/
sustainabledevelopment/sustainable-development-goals/.

    The lucrative criminal activities enabling and fueling the multi-
trillion-dollar illicit economies include the smuggling and trafficking 
of narcotics, opioids, weapons, humans, counterfeit and pirated goods; 
illegal tobacco and alcohol products; illegally harvested timber, 
wildlife, and fish; pillaged oil, diamonds, gold, natural resources and 
precious minerals; and other contraband commodities.\3\
---------------------------------------------------------------------------
    \3\ Channing (May) Mavrellis, ``Transnational Crime and the 
Development World,'' Global Financial Integrity, March 27, 2017, 
accessible at https://www.gfintegrity.org/report/transnational-crime-
and-the-developing-world/.

    Such contraband and illicit goods are sold on our main streets, on 
social media, in online marketplaces, and on the dark web every minute 
of every day. The United Nations has estimated that the dirty money 
laundered generated annually from such criminal activities is between 2 
and 5 percent of global GDP, or $1.6 to $4 trillion.\4\
---------------------------------------------------------------------------
    \4\ https://www.imf.org/external/pubs/ft/fandd/2018/12/imf-anti-
money-laundering-and-economic-stability-straight.htm.

    Make no mistake: China today is helping fuel this global illegal 
economy through the illicit manufacturing and unauthorized exporting of 
harmful products, such as the chemical precursors to make deadly 
fentanyl and other opioids, fake goods that can cause great bodily harm 
or death, and other contraband that hurts our industries, supply 
chains, and economy.
                    fentanyl and precursor chemicals
    Among the harms to our homeland and health and safety of American 
citizens is the lethal trade in fentanyl, synthetic opioids, and 
precursor chemicals from China.

    Such dangerous contraband is killing tens of thousands of Americans 
each year, especially our youth. Its potency is fueling the addiction 
crisis in the United States, especially when it is mixed with heroin or 
cocaine to increase profits for the Mexican cartels and other criminal 
organizations in their narco-trafficking operations.\5\ Mexican 
criminal networks earn tens of billions of dollars a year supplying 
narcotics, fentanyl, and other synthetic drugs to U.S. users.\6\
---------------------------------------------------------------------------
    \5\ Earl Anthony Wayne and David M. Luna, ``Attack Fentanyl Flows 
Across Borders: A Real Emergency'', The Wilson Center, March 18, 2019, 
accessible at https://www.wilsoncenter.org/article/attack-fentanyl-
flows-across-borders-real-emergency.
    \6\ Drug Enforcement Administration (DEA), ``2020 National Drug 
Threat Assessment,'' DEA, U.S. Department of Justice, March 2021, 
accessible at https://www.dea.gov/sites/default/files/2021-02/DIR-008-
21%202020%20National%20Drug%20Threat%20Assessment_WEB.pdf.

    China is a principal source of the lucrative illicit synthetic 
fentanyl, its analogs, and precursor chemicals that are arriving in 
North America, bought by Sinaloa and Cartel de Jalisco Nueva Generacion 
(CJNG), and facilitated by Chinese organized criminal groups.\7\ 
Significant quantities flow from China through Mexico and Canada, as 
well as arriving directly in the U.S. from China. Most fentanyl or 
fentanyl analogs (as well as other synthetic opioids), pill presses, 
and binding agents are smuggled through legal points of entry and via 
international mail carriers.\8\ As our law enforcement officials have 
discovered, containers are often mislabeled and packets hidden to avoid 
detection at legal ports of entry. Selling fentanyl on-line via the 
open Internet in China and the ``dark'' web in the U.S. has also become 
prevalent.
---------------------------------------------------------------------------
    \7\ Naveed Jamali and Tom O'Connor, ``Chinese Chemicals in Mexican 
Cartel Hands Feed Deadly U.S. Fentanyl Crisis,'' Newsweek, May 5, 2021, 
accessible at https://www.newsweek.com/chinese-chemicals-mexican-
cartel-hands-feed-deadly-us-fentanyl-crisis-1588948.
    \8\ Ibid.

    In recent years, as the U.S.-China Economic and Security Review 
Commission has noted, there has been no substantive curtailment of 
fentanyl flows from China to the U.S. due to weak regulations governing 
pharmaceutical and chemical sectors in China.\9\ Moreover, in China 
webs of corruption and criminality have complicated both U.S. and 
Chinese law enforcement agencies' ability to disrupt manufacturing, 
distribution, and trafficking of illicit drugs, including fentanyl and 
chemical precursors into Canada, Mexico, and the United States.
---------------------------------------------------------------------------
    \9\ U.S.-China Economic and Security Review Commission, ``Fentanyl 
Flows From China: An Update Since 2017,'' November 26, 2018, accessible 
at https://www.uscc.gov/sites/default/files/Research/
Fentanyl%20Flows%20from%20China.pdf.

    When these illegal drugs converge with other criminal activities 
across illicit economies, the overall threat becomes multiplied many 
times over. Such crime convergence fuels greater violence, corruption, 
insecurity, instability, and sometimes conflicts in many parts of the 
world.\10\
---------------------------------------------------------------------------
    \10\ David M. Luna, ``Biden's foreign policy shift should address 
cross-border corruption and illicit trade,'' South China Morning Post, 
February 17, 2021, accessible at https://www.
scmp.com/comment/opinion/article/3121847/bidens-foreign-policy-shift-
should-address-cross-border-corruption.

    As I will continually stress today, we need to heighten the 
political pressure on China to work with the U.S. to disrupt these 
illicit trafficking flows and target complicit criminals' dirty money.
                   illicit trade and illicit markets
    Chinese state-sponsored hackers and criminals are stealing the 
intellectual property (IP) of the United States and American companies. 
Intellectual property theft and economic espionage of U.S. trade 
secrets are estimated to be as high as $600 billion annually. China is 
responsible for much of this IP crime, hurting American innovation, 
competitiveness, good-paying jobs, and economic growth.\11\
---------------------------------------------------------------------------
    \11\ Federal Bureau of Investigation (FBI), ``China: The Risk to 
Corporate America,'' U.S. Department of Justice, 2019, accessible at 
https://www.fbi.gov/file-repository/china-risk-to-corporate-america-
2019.pdf/view. See also, Dennis C. Blair and Keith Alexander, ``China's 
Intellectual Property Theft Must Stop,'' August 15, 2017, Opinion, The 
New York Times, accessible at https://www.nytimes.com/2017/08/15/
opinion/china-us-intellectual-property-trump.html.

    Another harm to American interests driven from China's illegal 
trade and unregulated economy are the flooding of counterfeits--
oftentimes dangerous and toxic fake products--into U.S. markets 
including foodstuffs, footwear and apparel, toys, electronics, and 
pharmaceuticals. This is especially true across ecommerce platforms and 
Internet marketplaces, including third-party sellers and online 
pharmacies that sell counterfeits and fake medicines that increase the 
health and safety risks to all American consumers. As the U.S. 
Department of Homeland Security (DHS) underscored in a 2020 report on 
counterfeits and pirated goods:\12\
---------------------------------------------------------------------------
    \12\ U.S. Department of Homeland Security, Combating Trafficking in 
Counterfeit and Pirated Goods, DHS, January 24, 2020, accessible at 
https://www.dhs.gov/sites/default/files/publications/
20_0124_plcy_counterfeit-pirated-goods-report_01.pdf.

        Counterfeits threaten national security and public safety 
        directly when introduced into government and critical 
        infrastructure supply chains, and indirectly if used to 
        generate revenue for transnational criminal organizations. 
        Counterfeits also pose risks to human health and safety, erode 
        U.S. economic competitiveness and diminish the reputations and 
---------------------------------------------------------------------------
        trustworthiness of U.S. products and producers.

    The National Association of Manufacturers (NAM) released a report 
last year finding that counterfeits sapped the U.S. economy of $131 
billion and 325,500 American jobs in 2019.\13\ More globally, both the 
U.S. Department of Homeland Security (DHS) and the Organisation for 
Economic Co-operation and Development (OECD) have found China 
(including Hong Kong) accounts for up to 80-90 percent of all 
counterfeits seized in the United States and around the world ($509 
billion a year or 3.3 per cent of global trade).\14\
---------------------------------------------------------------------------
    \13\ National Association of Manufacturers (NAM), ``NAM Leads Fight 
Against Counterfeits During COVID-19 Pandemic,'' June 22, 2020, NAM 
Press Release, accessible at https://www.nam.org/nam-leads-fight-
against-counterfeits-during-covid-19-pandemic-9909/.
    \14\ Organisation for Economic Co-operation and Development (OECD) 
and European Union Intellectual Property Office (EUIPO), Trends in 
Trade in Counterfeit and Pirated Goods, March 2019, accessible at 
http://www.oecd.org/gov/risk/trade-in-counterfeit-and-pirated-goods-
978926
4252653-en.htm and https://euipo.europa.eu/tunnelweb/secure/webdav/
guest/document_li
brary/observatory/documents/Mapping_the_Economic_Impact_study/
Mapping_the_Economic_
Impact_en.pdf.

    While the COVID-19 pandemic brought economic malaise to most 
sectors during pandemic economic lockdowns, according to Euromonitor 
\15\ the illicit economy continues to accelerate, especially across the 
digital world with billions of vulnerable consumers on-line. This is 
especially true across online marketplaces that are generating 
tremendous prosperity for e-commerce platforms, scammers, fraudsters, 
counterfeiters, and other predatory criminals that are generating tens 
of billions of dollars selling fake pharmaceuticals and vaccines, 
personal protective equipment (PPE), counterfeit apparel and footwear, 
copyrighted electronics knock-offs, and other illicit goods mostly 
coming from China.
---------------------------------------------------------------------------
    \15\ Euromonitor International, ``Coronavirus Accelerates Demand 
for Illicit Trade,'' Market Research Blog, March 1, 2021, accessible at 
https://blog.euromonitor.com/coronavirus-accelerates-demand-for-
illicit-trade/.

    As a factory to the world, China's illegal production is being 
generated not only from state-owned enterprises (SOEs) but among some 
---------------------------------------------------------------------------
of its registered companies.

    In other specific sectors, the story is the same on the economic 
impact of counterfeits from China.
Pharmaceuticals
    Counterfeit and fake pharmaceuticals is an illicit market which 
generates billions of dollars for criminal entrepreneurs. According to 
a 2019 Better Business Bureau study, companies based in China, Hong 
Kong, Singapore, and India shipped 97 percent of the counterfeit 
medicines seized in the U.S.\16\ Across numerous illicit trafficking 
routes, Chinese counterfeit medicines arrive in American, European, and 
other markets around the world in dangerously high volumes.
---------------------------------------------------------------------------
    \16\ Better Business Bureau (BBB), ``Fakes Are Not Fashionable: A 
BBB Study of the Epidemic of Counterfeit Goods Sold Online,'' BBB, May 
2019, accessible at https://www.bbb.org/globalassets/local-bbbs/
council-113/media/scam-studies/bbb-study-of-counterfeit-goods-sold-
online.pdf.

    According to the World Health Organization (WHO), 10 percent of 
global commerce involves counterfeit and fake medicines, which have 
caused hundreds of thousands of deaths in some of the world's most 
impoverished countries.\17\ For example, counterfeit anti-malarial and 
other fake medicines from China end up causing tremendous health 
complications and fatalities.\18\ Other known counterfeited and fake 
pharmaceuticals seized have been intended to treat cancer, heart, 
diabetes, COVID-19, human immunodeficiency virus (HIV), genitourinary 
diseases, and other serious medical ailments. Often the ingredients in 
these counterfeit prescription drugs or fakes found in open markets 
contain no active ingredient or in some cases, chalk, flour, pollen, or 
even toxic and deadly chemicals such as rat poison, boric acid or anti-
freeze.\19\
---------------------------------------------------------------------------
    \17\ World Health Organization, ``Substandard and Falsified Medical 
Products,'' WHO, January 31, 2018, accessible at https://www.who.int/
news-room/fact-sheets/detail/substandard-and-falsified-medical-
products.
    \18\ Jackson Thomas, Erin Walker, Gregory Peterson and Mark 
Naunton, ``Are Fake Drugs the Reason Malaria Sickens Millions a 
Year?'', Smithsonian Magazine, April 24, 2018, accessible at https://
www.smithsonianmag.com/science-nature/fake-drugs-are-one-reason-
malaria-still-kills-so-many-180968882/.
    \19\ The Center for Safe Internet Pharmacies (CSIP), ``Top Poisons 
Found in Counterfeit Drugs,'' Blog, SafeMedsOnline, July 31, 2013, 
accessible at https://safemedsonline.org/2013/07/top-poisons-found-in-
counterfeit-drugs/.

    On counterfeit PPE products related to the COVID-19 pandemic, 40 
million 
Chinese-produced counterfeit N95 and other face masks that are 
substandard and do not protect medical workers and first responders, 
have been seized in the U.S.,\20\ after having entered the legitimate 
supply chain. Other Chinese counterfeit PPE and pharmaceuticals that 
have endangered our medical professionals and citizens during the 
pandemic have similarly been seized by U.S. law enforcement 
authorities.
---------------------------------------------------------------------------
    \20\ U.S. Customs and Border Protection (CBP), ``CBP Seizes 
Counterfeit N95 Masks,'' U.S. Department of Homeland Security, CBP 
Press Release, April 15, 2021, accessible at https://www.cbp.gov/
newsroom/local-media-release/cbp-seizes-counterfeit-n95-masks. (Numbers 
cited reflect update as of July 1, 2021.)

    In the U.S. and several other countries, fake websites are 
purporting to sell COVID-19 vaccines with the purpose of obtaining 
people's personal information. According to The Wall Street Journal, 
Pfizer confirmed counterfeit versions of the COVID-19 vaccine it 
developed with BioNTech SE had been seized in Mexico, highlights how 
criminals are exploiting the current pandemic for profit especially the 
world-wide vaccination campaign.\21\ In March 2021, INTERPOL seized 
hundreds of fake COVID-19 vaccines, while early this month in India, 
thousand were being scammed into getting similar pandemic fakes made of 
salt water.\22\
---------------------------------------------------------------------------
    \21\ Jared S. Hopkins and Jose de Cordoba, ``Pfizer Identifies Fake 
COVID-19 Shots Abroad as Criminals Exploit Vaccine Demand,'' The Wall 
Street Journal (WSJ), April 21, 2021, accessible at https://
www.wsj.com/articles/pfizer-identifies-fake-covid-19-shots-abroad-as-
criminals-exploit-vaccine-demand-11619006403.
    \22\ Sarah Al-Arshani, ``Thousands of people in India may have been 
scammed into getting fake COVID-19 vaccines made of saltwater,'' 
Insider, July 4, 2021, accessible at https://www.insider.com/thousands-
people-india-scammed-fake-covid-19-vaccines-2021-7/.
---------------------------------------------------------------------------
Electronics
    The proliferation of counterfeited electronics significantly hurts 
not only our electronics industry but threatens our national security, 
the safety of our troops, American jobs, and our consumer-citizens. In 
the electronics industry, fake parts cost component manufacturers about 
$100 billion annually. Cell phones such as the Apple iPhones, tablets, 
computers, smart watches, bluetooth earbuds, Microsoft software, and 
other high-demand consumer electronics are also counterfeited in the 
tens of billions every year.\23\
---------------------------------------------------------------------------
    \23\ Akash Bhatia, Zia Yusuf, Usama Gill, Neil Shepherd, Maciej 
Kranz, and Anoop Nannra, ``Stamping Out Counterfeit Goods with Block 
and IoT,'' May 17, 2021, BCG, accessible at https://www.bcg.com/
publications/2019/stamping-out-counterfeit-goods-blockchain-internet-
of-things-iot.

    With regard to our national security, counterfeit electronic parts 
from China have been found to have infiltrated critical military 
systems and supply chains, including military war fighting jets and 
tanks, special operation cargo planes, navigation and radar systems, 
missiles, and other hardware and software.\24\ In the past, counterfeit 
computer microprocessor-chips have been falsely labeled as products 
coming from Intel, Motorola, and Texas Instruments.
---------------------------------------------------------------------------
    \24\ Brett Daniels, ``10 Shocking Facts About Counterfeit 
Electronics'' (Defense and Aerospace), February 18, 2021, Blogs by 
Trenton Systems, accessible at https://www.trentonsystems.com/blog/10-
shocking-facts-counterfeit-electronics.
---------------------------------------------------------------------------
Luxury Handbags, Footwear, and Apparel
    It is expected that the global luxury goods market will reach $300 
billion by 2026.\25\ MarkMonitor reports that almost half (47 percent) 
of brands will lose sales revenue due to counterfeiting or pirated 
goods.\26\
---------------------------------------------------------------------------
    \25\ Global Industry Analysts, Inc., ``Global Luxury Goods Market 
to Reach $296.9 Billion by 2026,'' May 27, 2021, accessible at https://
www.prnewswire.com/news-releases/global-luxury-goods-market-to-reach-
296-9-billion-by-2026--301301077.html.
    \26\ MarkMonitor, ``MarkMonitor Online Barometer: Global Business 
Survey 2018--Brand Protection Challenges,'' Clarivate, April 10, 2018, 
accessible at https://clarivate.com/news/nearly-half-brands-admit-
sales-lost-counterfeiting/.

    Every IP-protected product can be counterfeited. This is true 
across all consumer goods and services but especially for the footwear 
and apparel industry which accounted for more than a third of all 
customs seizures from China and Hong Kong.\27\ The most commonly 
counterfeited American footwear and apparel products are NIKE, the 
North Face, Under Armour, Levi's, Michael Kors, Polo, and other brands. 
Clearly such criminal counterfeiting hurts the creative innovations, 
investments in R&D, intellectual property, and trademarks of American 
footwear and apparel companies.
---------------------------------------------------------------------------
    \27\ Organisation for Economic Co-operation and Development (OECD) 
and European Union Intellectual Property Office (EUIPO), Trends in 
Trade in Counterfeit and Pirated Goods, March 2019, accessible at 
http://www.oecd.org/gov/risk/trade-in-counterfeit-and-pirated-goods-
9789264252653-en.htm.

    Social media sites like Instagram and Facebook as well as online 
marketplaces have become a boon for criminals in counterfeiting luxury 
fashion brands, including footwear and sportswear from American team 
sports from the National Football League (NFL), Major League Baseball 
(MLB), National Basketball Association (NBA), National Hockey League 
(NHL), and those associated with international sports federations such 
as Union of European Football Associations (UEFA), FIFA, and 
---------------------------------------------------------------------------
International Olympic Committee (IOC).

    In addition to this counterfeit sportswear and gear, anonymous 
companies and money laundering--including trade-based money laundering 
(TBML)--have helped criminals across the United States sell in recent 
years several billion dollars in fake and counterfeited luxury handbags 
and apparel accessories coming from China including those branded as 
Burberry, Louis Vuitton, Gucci, Fendi, Coach, and Chanel.\28\
---------------------------------------------------------------------------
    \28\ David M. Luna, ``Anonymous Companies Help Finance Illicit 
Commerce and Harm American Businesses and Citizens,'' The Fact 
Coalition, May 2019, accessible at https://thefactcoalition.org/report/
anonymous-companies-help-finance-illicit-commerce-and-harm-american-
businesses-and-citizens/.
---------------------------------------------------------------------------
Tobacco
    Like other forms of illicit trade, the illegal tobacco trade is 
incredibly profitable for criminal organizations and kleptocratic 
networks. According to a Department of State report, the illicit trade 
in tobacco products costs governments and taxpayers between $40 billion 
and $50 billion annually in tax revenues.\29\
---------------------------------------------------------------------------
    \29\ U.S. Department of State, ``The Global Illicit Trade in 
Tobacco: A Threat to National Security,'' December 2015, accessible at 
https://2009-2017.state.gov/documents/organization/250513.pdf.

    China National Tobacco Corporation (CNTC) is by far the largest 
cigarette company in the world and produces nearly half of the world's 
cigarettes.\30\ The Chinese state-owned conglomerate is vying for a 
larger market share within the tobacco industry, and it has been 
forging new markets from Africa to Europe. According to experts, 
smuggling is an important part of that strategy, especially across Free 
Trade Zones and unregulated markets where Chinese illicit cigarettes 
are often re-shipped to Somalia, Libya, Syria and other hot spots of 
instability.\31\ Panama's lax oversight and law enforcement has enabled 
CNTC's push into Latin America.
---------------------------------------------------------------------------
    \30\ Organized Crime and Corruption Reporting Project (OCCRP), 
``China's State Tobacco Company Is Massive at Home. Now it's Ready to 
Take Over the World,'' June 22, 2021, accessible at https://
www.occrp.org/en/loosetobacco/china-tobacco-goes-global/chinas-state-
tobacco-company-is-massive-at-home-now-its-ready-to-take-over-the-
world.
    \31\ United Nations Commodity Trade Statistics Database (UN 
ComTrade Data), accessible at https://comtrade.un.org/db/mr/
rfCommoditiesList.aspx?px=H2&cc=24/.

    The Organized Crime and Corruption Reporting Project (OCCRP) has 
also recently uncovered Chinese smuggling networks that have flooded 
illegal markets with numerous CNTC illicit cigarettes, evading customs 
authorities and dodging taxes.\32\ Multiyear operations, Smoking Dragon 
and Royal Charm,\33\ led by the Federal Bureau of Investigation and 
numerous U.S. and Canadian law enforcement agencies, acquired over $40 
million worth of counterfeit cigarettes and other illegal commodities 
coming into the United States from China and North Korea. The route ran 
from China directly to United States ports such as the Port of Newark 
in New Jersey and ports located in Los Angeles and Long Beach, 
California. The operations led to the indictment of 87 individuals from 
the United States, Canada, China, and Taiwan.
---------------------------------------------------------------------------
    \32\ Ibid.
    \33\ Federal Bureau of Investigation (FBI), ``Operation Smoking 
Dragon,'' U.S. Department of Justice, July 5, 2011, accessible at 
https://www.fbi.gov/news/stories/operation-smoking-dragon.

    Tests on counterfeit cigarettes from China showed each cigarette 
had up to 80 percent more nicotine and emitted up to 130 percent more 
carbon monoxide than legally produced on in regulated markets. In 
addition, other impurities such as rat poison, feces and asbestos were 
found in some cigarettes.\34\
---------------------------------------------------------------------------
    \34\ Lorraine Kember, ``Toxic Black-Market Cigarettes Fuel 
Mesothelioma Concerns,'' Asbestos.com, January 22, 2021, accessible at 
https://www.asbestos.com/news/2018/01/22/black-market-cigarettes-
mesothelioma/.

    But China is not the only player expanding its footprint 
internationally and taking advantage of U.S. ports. Most recently, the 
United Arab Emirates has emerged as a large manufacturer of cigarettes 
intended for the sole purpose of being smuggled, with an estimated 
production of more than 80 billion cigarettes annually. These 
unregulated products are transiting through US custom bonded warehouses 
to be then illegally diverted into Mexico in collaboration with narco-
cartels such as CJNG or the Zetas Cartel. In 2020, DHS Homeland 
Security Investigations (HSI) of 422 million cigarettes in McAllen, 
TX,\35\ the single largest seizure of tobacco products in history.
---------------------------------------------------------------------------
    \35\ U.S. Immigration and Customs Enforcement (ICE), ``South Texas 
man pleads guilty of attempting to export millions of cigarettes,'' 
U.S. Department of Homeland Security, ICE Press Release, May 26, 2020, 
accessible at https://www.ice.gov/news/releases/south-texas-man-pleads-
guilty-attempting-export-millions-cigarettes.
---------------------------------------------------------------------------
Automotive Parts
    Another economic and safety harm caused by illicit trade relates to 
fake automotive components, which are also a highly lucrative business 
for counterfeiters and damage brand reputations of carmakers. Fake and 
counterfeited auto parts have caused great bodily injuries, and even 
deaths to consumer-drivers. According to World Trademark Review, the 
estimated global economic costs of counterfeiting in the automotive 
industry could reach $2.3 trillion by 2022.\36\
---------------------------------------------------------------------------
    \36\ World Trademark Review, ``Counterfeit automotive parts 
increasingly putting consumer safety at risk,'' May 13, 2019, 
accessible at https://www.worldtrademarkreview.com/anti-counterfeiting/
counterfeit-automotive-parts-increasingly-putting-consumer-safety-risk.

    In the United States, counterfeit parts are costing automotive 
companies like Ford, GM, Tesla, and others tens of billions of dollars 
a year with most of fakes originating in China. Among the most popular 
counterfeited auto parts are tires, batteries, airbags, oil and air 
filters, brake pads, spark plugs, transmissions, wheels, and electrical 
---------------------------------------------------------------------------
components.

    Across the digital world, especially ecommerce platforms and online 
marketplaces, automotive fakes are listed for sale that make it 
difficult for consumer to distinguish a counterfeited auto part from a 
real one.\37\ This is why it is important to know and trust reputable 
supply chains and parts distributors.
---------------------------------------------------------------------------
    \37\ Richard Brown, ``Fighting back against counterfeit parts,'' 
Automotive Logistics, January 28, 2021, accessible at https://
www.automotivelogistics.media/service-parts-logistics/fighting-back-
against-fake-parts/40052.article.
---------------------------------------------------------------------------
Endangered Wildlife
    The illegal wildlife trade generates between $7 billion and $23 
billion each year.\38\ Since 1970, humans have decimated animal 
populations by almost 68 percent according to World Wildlife Fund 
(WWF).\39\ For years, Chinese demand for illegal wildlife products has 
driven a global trade in endangered species including iconic animals 
such as rhinoceros, tigers, elephants, pangolins, bears, and so many 
other animals. Rhino horn and tiger parts are not only used for 
traditional medicinal treatments, but also to make exotic wines and 
aphrodisiac drinks.
---------------------------------------------------------------------------
    \38\ Global Environment Facility (GEF), ``Illegal Wildlife Trade,'' 
accessible at https://www.thegef.org/topics/illegal-wildlife-trade.
    \39\ World Wildlife Fund (WWF), ``Living Planet Report 2020,'' WWF, 
September 9, 2020, accessible at https://livingplanet.panda.org/en-us/.

    Investigations by Earth League International--an ICAIE Advisory 
Council member--have found strong Mexican cartel links with criminal 
syndicates in China who smuggle totoaba bladders from Mexico and U.S. 
into Asian black markets.\40\ These Mexican-Asian criminal joint 
ventures, that operate as well in the United States, have also been 
involved in human smuggling, money laundering, and other illicit 
trafficking areas.\41\
---------------------------------------------------------------------------
    \40\ Earth League International (ELI), ``Operation Fake Gold--The 
Totoaba Cartels and the Vaquita Extinction,'' ELI, accessible at 
https://earthleagueinternational.org/operations-re-
ports/. See also National Geographic's ``Sea of Shadows,'' accessible 
at https://films.
nationalgeographic.com/sea-of-shadows.
    \41\ Ibid.

    While China has made some good efforts in the past year during the 
COVID-19 pandemic to curtail the illegal wildlife trade, it remains a 
country of concern as a source, transit point, or consumer demand 
market of wildlife products. Chinese banks help to launder the funds of 
illegal wildlife traffickers and related Chinese triads involved in 
smuggling, in some ways being complicit in the further financing of 
other forms of crime as these bad actors have diversified their illicit 
portfolios, especially in the Golden Triangle in Southeast Asia.\42\
---------------------------------------------------------------------------
    \42\ TRAFFIC, ``Illegal Wildlife Trade and the Banking Sector in 
China,'' TRAFFIC Report, April 14, 2021, accessible at https://
www.traffic.org/publications/reports/the-illegal-wildlife-trade-and-
the-banking-sector-in-china-the-need-for-a-zero-tolerance-approach/.

    Illegal and predatory fishing, logging of rainforests, and mining 
of natural resources by Chinese criminal syndicates and facilitators 
also harm our natural world, contribute to climate change, and converge 
with other illicit activities such as corruption, forced labor, human 
smuggling, and sex trafficking.
                   human trafficking and forced labor
    Human trafficking and modern slavery are among the world's fastest 
growing criminal enterprises, generating an estimated $150 billion in 
illicit profits every year.\43\
---------------------------------------------------------------------------
    \43\ International Labour Organization (ILO), ``ILO says forced 
labor generates annual profits of U.S.$ 150 billion,'' ILO Report, May 
20, 2014, accessible at https://www.ilo.org/global/about-the-ilo/
newsroom/news/WCMS_243201/lang--en/index.htm.

    Human smuggling is also a major source of illicit trade. The U.S. 
Department of State has continually called China a source, destination, 
and transit country for men, women, and children subjected to forced 
labor and sex trafficking. In its most recent 2021 Trafficking in 
Persons report,\44\ the State Department noted that in China there 
continue to be ``reports of law enforcement officials benefiting from, 
permitting, or directly facilitating sex trafficking and forced labor, 
[while] the government did not report any investigations, prosecutions, 
or convictions of law enforcement officials allegedly involved in the 
crime.''
---------------------------------------------------------------------------
    \44\ U.S. Department of State, ``2021 Trafficking in Persons 
Report,'' Office to Monitor and Combat Trafficking in Persons, June 
2021, accessible at https://www.state.gov/reports/2021-trafficking-in-
persons-report/.

    In this 2021 report, there was also mention of state-sponsored 
forced labor as part of China's mass detention, political 
indoctrination, and labor transfer campaign against the Uyghurs and 
other members of Muslim minority groups.\45\ Chinese nationals 
reportedly are suffering forced labor in several countries in Asia, 
Africa, and Europe that are hosting Belt and Road Initiative (BRI) 
projects.
---------------------------------------------------------------------------
    \45\ Ibid.

    Human smuggling from China to the United States--both by land and 
by sea--is reported to be on the rise. The going rate per person 
smuggled is believed to be $50,000 or more.\46\ From a crime 
convergence perspective, Chinese criminal syndicates are expanding 
their ties with the Mexican cartels and other criminal organizations in 
Latin America and diversifying into other illicit markets. According to 
the Polaris, human trafficking and massage parlors involving Chinese 
organized criminals are also a significant concern to the United States 
especially related to illicit massage businesses (IMBs), which generate 
$2.5 billion annually.\47\ The vast majority of women reported to have 
been trafficked in IMBs are from China, with a relatively high number 
coming from the Fujian province.\48\
---------------------------------------------------------------------------
    \46\ Michael Lipin, ``U.S. Media Scrutinize Wave of Chinese 
Migrants Illegally Crossing From Mexico,'' Voice of America, June 28, 
2016, accessible at https://www.voanews.com/usa/us-media-scrutinize-
wave-chinese-migrants-illegally-crossing-mexico.
    \47\ Polaris, ``Human Trafficking in Illicit Massage Businesses,'' 
Polaris, 2018, accessible at https://massagetherapy.nv.gov/
uploadedFiles/massagetherapy.nv.gov/content/Resources/
FullReportHumanTraffickinginIllicitMassageBusinesses.pdf.
    \48\ Ibid. See also United States of America v. Zongtao Chen a.k.a. 
Mark Chen, Weixuan Zhou, Yan Wang a.k.a. Sarah, Ting Fu, Chaodan Wang, 
November 15, 2018, retrieved August 5, 2019, accessible at https://
www.justice.gov/usao-or/press-release/file/1124296/download. Department 
of Justice, U.S. Attorney's Office, District of Oregon, ``Nationwide 
Sting Operation Targets Illegal Asian Brothels, Six Indicted for 
Racketeering,'' January 16, 2019, retrieved August 5, 2019, accessible 
at https://www.justice.gov/usao-or/pr/nationwide-sting-operation-
targets-illegal-asian-brothels-six-indicted-racketeering.
---------------------------------------------------------------------------
   china's money laundering, tbml, and cross-border illicit finance 
                               activities
    On the Chinese threats related to money laundering including trade-
based money laundering (TBML), John Cassara, Global Financial Integrity 
(GFI), and board member of ICAIE, has been doing some innovative 
research on the breath and scale of China's involvement in money 
laundering and trade-based money laundering operations globally.\49\ 
Mr. Cassara characterizes Chinese criminals' cross-border illicit 
finance activities as the biggest money laundering hub in the world, 
introducing and laundering approximately $1.5 to $2 trillion of illicit 
proceeds into the world's licit economy every year.\50\ In other words, 
according to Mr. Cassara, China is responsible for approximately one-
half of the money laundering in the world today, as measured by 
China's/the CCP's involvement in predicate offenses for money 
laundering.\51\
---------------------------------------------------------------------------
    \49\ John Cassara, ``Money Laundering and Illicit Financial Flows: 
Following the Money and Value Trails,'' @John Cassara, 2020, accessible 
at https://www.uscc.gov/sites/default/files/Research/
Fentanyl%20Flows%20from%20China.pdf.
    \50\ John Cassara, ``China Is the Biggest Money Laundering 
Threat,'' August 21, 2020, accessible at http://www.johncassara.com/
articles.html.
    \51\ Ibid.

    The U.S. Department of State similarly recognizes China as a global 
center for money laundering for criminals in the country and from 
around the world, and notes that ``corruption is a major factor in 
money laundering.''\52\ An estimated $2 trillion representing proceeds 
in corruption alone have been laundered out of China since 1995.\53\ 
Given the illicit enrichment from the numerous criminal activities that 
I have already mentioned here today, when you include corruption and 
illicit financial flows, it should not come as a surprise that 
trillions of dollars in illicit proceeds are being generated from the 
predicate offenses for money laundering that touch China's jurisdiction 
and markets.
---------------------------------------------------------------------------
    \52\ U.S. Department of State, ``International Narcotics Control 
Strategy Report, Volume II, Money Laundering,'' Bureau of International 
Narcotics and Law Enforcement Affairs (INL), March 2021, accessible at 
https://www.state.gov/wp-content/uploads/2021/02/21-00620-INLSR-
Vol2_Report-FINAL.pdf.
    \53\ Christine Duhaime, ``$2,000,000,000,000 in Proceeds of 
Corruption Removed from China and Taken to U.S., Australia, Canada and 
Netherlands,'' Duhaime Anti-Money Law in China, January 2, 2017, 
accessible at https://www.antimoneylaunderinglaw.com/2017/01/qa-on-the-
2-trillion-in-proceeds-of-corruption-removed-from-china-and-taken-to-
us-australia-canada-and-netherlands.html.

    In both the 2016 report by the Organisation for Economic Co-
operation and Development (OECD) on counterfeit and pirated goods as 
well as the 2017 GFI report ``Transnational Crime and the Developing 
World'' that outlined some of the top illicit markets, China seems to 
be the common denominator, with Chinese illicit proceeds dwarfing all 
others.\54\
---------------------------------------------------------------------------
    \54\ Channing (May) Mavrellis, ``Transnational Crime and the 
Development World,'' Global Financial Integrity, March 27, 2017, 
accessible at https://www.gfintegrity.org/report/transnational-crime-
and-the-developing-world/. Organisation for Economic Co-operation and 
Development (OECD) and European Union Intellectual Property Office 
(EUIPO), Trends in Trade in Counterfeit and Pirated Goods, March 2019, 
accessible at http://www.oecd.org/gov/risk/trade-in-counterfeit-and-
pirated-goods-9789264252653-en.htm.

    Building on earlier illicit finance methodologies such as the Black 
Market Peso Exchange (BMPE)--where drug proceeds were used to purchase 
trade items such as electronics, garments, and toys--money launderers 
today import cheaply manufactured Chinese goods or counterfeits at 
overvalued prices to wash criminally derived dirty money.\55\ There 
have been major multi-billion-dollar investigations showing that 
Chinese authorities actively obstructed justice and did not work with 
law enforcement counterparts in jurisdictions where money laundering 
predicate offenses have occurred.
---------------------------------------------------------------------------
    \55\ John Cassara, ``China Is the Biggest Money Laundering 
Threat,'' August 21, 2020, accessible at http://www.johncassara.com/
articles.html.

    Shadow banking, Chinese underground banking systems (CUBS), the use 
of mirror accounts, Chinese capital flight, and alternative remittance 
systems such as ``fei-chein'' (flying money) all sometimes use trade-
based value transfer. Trade fraud is the largest component of TBML. 
Trade-based value transfer is a perfect vehicle to transfer money/value 
in the form of trade goods out of the country by importing goods at 
---------------------------------------------------------------------------
overvalued prices or exporting goods at undervalued prices.

    China is the biggest trading nation in the world. The magnitude of 
international trade masks the occasional illicit trade transaction, 
making it very difficult for Customs and law enforcement to identify 
individual instances of TBML, Yet, according to a 2020 GAO report on 
TBML, Homeland Security Investigations notes that China is one of the 
countries of most concern.\56\
---------------------------------------------------------------------------
    \56\ U.S. General Accounting Office (GAO), ``Trade Based Money 
Laundering: U.S. Government Has Worked With Partners to Combat the 
Threat, but Could Strengthen Its Efforts,'' GAO-20-333, April 2020, 
accessible at https://www.gao.gov/assets/gao-20-333.pdf.

    According to FATF,\57\ China has not effectively enforced their 
anti-money laundering laws which has enabled corrupt officials and 
criminals to launder cash through anonymous shell companies and other 
methods. For example, recent reporting has highlighted how Chinese 
citizens are leveraging the ``flying money'' informal value transfer 
systems to circumvent the current strict foreign currency controls and 
personal foreign exchange transaction limits (U.S. $50,000) or smurfing 
of lesser amounts of the thresholds.\58\
---------------------------------------------------------------------------
    \57\ Financial Acton Task Force (FATF), ``China's progress in 
strengthening measures to tackle money laundering and terrorist 
financing,'' FATF Mutual Evaluations, Follow-Up Report China, September 
2020, accessible at https://www.fatf-gafi.org/publications/
mutualevaluations/documents/fur-china-2020.html.
    \58\ Vaishali Basu Sharma, ``China emerging as a global hub for 
money laundering operations,'' The Week Magazine, September 18, 2020, 
accessible at https://www.theweek.in/news/world/2020/09/18/china-
emerging-as-a-global-hub-for-money-laundering-operations.html.

    Cybercrime, virtual currency, and online e-commerce have enabled 
some criminals to convert electronic funds in China into hard currency 
overseas.\59\ There has been discussion in China on easing of capital 
controls and whether it will further accelerate money laundering and 
TBML activities in China. This is difficult to answer given the growing 
influence of cryptocurrency and other value transfer systems in licit 
and illicit transactions, the lack of transparency in China, and 
continued weaknesses in fighting corruption and predicate crimes to 
money laundering. But it is possible that the easing of capital 
controls across borders could ``encourage money laundering and asset-
stripping'' through the commingling of licit and illicit funds.\60\
---------------------------------------------------------------------------
    \59\ Ibid.
    \60\ Yu YongDing, ``The Temptation of China's Capital Account,'' 
Project Syndicate, March 27, 2013, accessible at https://www.project-
syndicate.org/commentary/the-risks-of-easing-china-s-capital-controls-
by-yu-yongding.

    In addition to TBML, Chinese criminal syndicates and their money 
facilitators have laundered great sums of dirty money through the use 
of anonymous shell companies and the purchasing of expensive real 
estate in the United States, Canada, Europe, UAE, luxurious resort 
islands, and top offshore destinations such as the British Virgin 
Islands, Singapore, Cook Islands, and Panama. According to the National 
Association of Realtors (NAR), China has continued to exceed all other 
buyers in the United States both in units and dollar volume of 
residential housing.\61\ Despite capital flight controls in China, many 
of the purchases are made in cash. There is also a lack of beneficial 
ownership information.
---------------------------------------------------------------------------
    \61\ National Association of Realtors (NAR), ``Realtor Survey Shows 
Decline in Foreign Investment in U.S. Residential Real Estate,'' NAR 
Press Release, July 17, 2019, accessible at https://www.nar.realtor/
newsroom/realtor-survey-shows-decline-in-foreign-investment-in-u-s-
residential-real-estate.

    Canada, in particular Vancouver, has also been a favorite place for 
Chinese organized crime and corrupt officials to launder their ``hot 
money'' through real estate and other investments such as luxury sports 
cars and apparel.\62\ Chinese Organized Crime in Canada is connected to 
a global network and ``has strong linkages to Hong Kong and China, 
which is a source country for counterfeit goods, contraband tobacco, 
and chemicals used to produce synthetic drugs, as well as migrants who 
are smuggled into this country.''\63\
---------------------------------------------------------------------------
    \62\ Stephen Schneider, Ph.D., ``Money Laundering in British 
Columbia: A Review of the Literature,'' report submitted to The Cullen 
Commission of Inquiry into Money Laundering in British Columbia, May 
29, 2020, accessible at https://www.researchgate.net/profile/Stephen-
Schneider-3/publication/
343655967_Money_Laundering_in_British_Columbia_A_Review_of_the_Litera
ture/links/5f36ae4992851cd302f44852/Money-Laundering-in-British-
Columbia-A-Review-of-the-Literature.pdf.
    \63\ Ibid.

    Finally making matters worse, China has shown little cooperation 
with the international law enforcement community in combatting many of 
the criminal activities and corresponding money laundering that I have 
been underscoring at this hearing. Here let me take a moment to thank 
Senator Cassidy for his leadership in the Congress in elevating the 
importance of fighting trade-based money laundering, as a critical tool 
in our arsenal to protect our national security.
            free trade zones and belt and road initiative: 
                   the expansion of illicit economies
    A few points on the abuse of free trade zones and how China 
leverages the Belt and Road Initiative to expand illicit economies 
around the world.

    Free Trade Zones (FTZs) can have a catalytic effect on economies, 
including attracting Foreign Direct Investment and helping to expand 
economic growth.\64\ But in too many parts of the world, those FTZs 
that are unregulated or unmonitored are exploited on a daily basis by 
criminals to facilitate illicit activities that produce broader market 
reputational harm and put the physical security of many communities in 
danger.\65\
---------------------------------------------------------------------------
    \64\ The Economist Intelligence Unit (EIU), ``The Global Illicit 
Trade Environment Index: Free Trade Zones,'' EIU and Transnational 
Alliance to Combat Illicit Trade (TRACIT), 2018, accessible at https://
www.tracit.org/uploads/1/0/2/2/102238034/
eiu_ftz_illicit_trade_paper.pdf.
    \65\ OECD, ``Trade in Counterfeit Goods and Free Trade Zones,'' 
OECD Task Force on Countering Illicit Trade (TF-CIT), March 15, 2018, 
accessible at https://www.oecd.org/gov/trade-in-counterfeit-goods-and-
free-trade-zones-9789264289550-en.htm.

    The FATF has identified FTZs as posing a high risk for money 
laundering and a threat to the integrity of global financial regulatory 
standards. For example, as recently reported by the U.S. State 
Department in this year's Country Reports on Terrorism, the free trade 
zones in the Tri-Border Area of Argentina, Brazil, and Paraguay 
remained regional nodes for money laundering and are vulnerable to 
terrorist financing.\66\
---------------------------------------------------------------------------
    \66\ U.S. Department of State, ``Country Reports on Terrorism,'' 
Office of the Coordinator for Counterterrorism, accessible at https://
www.state.gov/country-reports-on-terrorism-2/.

    The reality is that criminals are diligently moving illegal 
products from FTZs into surrounding markets, evading customs, not 
paying excise duties, and putting locally manufactured and legitimately 
imported goods at a competitive disadvantage.\67\ Payments for 
counterfeits being trafficked through the UAE from China and on to 
Africa may eventually wind up in Panama or Europe, where they then help 
to fund other types of illegal activity, be it more illicit trade or 
other forms of criminality.\68\
---------------------------------------------------------------------------
    \67\ Royal United Services Institute (RUSI), ``Criminal Risks in 
Free Trade Zones,'' April 26, 2021, accessible at https://rusi.org/
explore-our-research/projects/criminal-risks-in-free-trade-zones.
    \68\ The Economist Intelligence Unit (EIU), ``The Global Illicit 
Trade Environment Index: Free Trade Zones,'' EIU and Transnational 
Alliance to Combat Illicit Trade (TRACIT), 2018, accessible at https://
www.tracit.org/uploads/1/0/2/2/102238034/
eiu_ftz_illicit_trade_paper.pdf.

    China's Belt and Road Initiative (BRI) is an ambitious multi-
trillion-dollar economic development assistance program that is funding 
massive projects across the developing world including roads, ports, 
pipelines, electrical power grids, mining, telecommunications, 
railroads, and other infrastructure.\69\ The licit trade channels and 
supply chains that the BRI is constructing are also creating illicit 
pathways exploited by kleptocrats, furthering market penetration by 
criminals, and contributing to the expansion of illicit economies 
globally.\70\
---------------------------------------------------------------------------
    \69\ Judy Woodruff, ``China's massive Belt and Road initiative 
builds global infrastructure--and influence,'' PBS News Hours, 
September 27, 2019, accessible at https://www.pbs.org/newshour/show/
how-historic-belt-and-road-infrastructure-project-is-building-chinas-
global-influence.
    \70\ Will Doig, ``The Belt and Road Initiative Is a Corruption 
Bonanza: Despots and crooks are using China's infrastructure project to 
stay in power--with Beijing's help,'' Foreign Policy (FP) Magazine, 
January 15, 2019, accessible at https://foreignpolicy.com/2019/01/15/
the-belt-and-road-initiative-is-a-corruption-bonanza/. Elaine Dezenski, 
``Below the Belt and Road--Corruption and Illicit Dealings in China's 
Global Infrastructure,'' Foundation for Defense of Democracies (FDD), 
May 6, 2020, accessible at https://www.fdd.org/analysis/2020/05/04/
below-the-belt-and-road/.

    The BRI global footprint tracks some of the biggest illicit trade 
routes known for corruption, money laundering, and the trafficking of 
narcotics, weapons, counterfeits, humans, illegally mined natural 
resources, and other contraband. The use of AI and data mapping can 
show overlays of illicit routes and criminal networks and how China is 
helping to expand and bridge a super highway of illicit economies 
globally, exporting forced labor practices, and violating human rights 
of both Chinese and local workers.\71\ China's economic exploitation, 
reliance on cheap labor, and unfair trade practices in BRI projects are 
against the spirit of free trade, puts U.S. competitiveness at a 
disadvantage, and the ability of U.S. firms to compete in these 
markets.\72\
---------------------------------------------------------------------------
    \71\ Jennifer Hillman and Alex Tippett, ``Who Built That? Labor and 
the Belt and Road Initiative,'' Council on Foreign Relations (CFR) 
Blogs, The Internationalist, July 6, 2021, accessible at: https://
www.cfr.org/blog/who-built-labor-and-belt-and-road-initiative.
    \72\ Ibid.

    In Africa, Southeast Asia, and other parts of the world, China's 
BRI saddles recipient countries with long-term loans. These serve as 
debt-traps that impoverish communities, as kleptocrats line their 
pockets and pad their offshore accounts while enabling China to expand 
its influence and control of these countries' natural resources and 
strategic critical infrastructure.\73\ Through its BRI leverage, 
China's investments have increased their influence and control of key 
ports in Latin America and the Caribbean.
---------------------------------------------------------------------------
    \73\ Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and 
Christoph Trebesch, ``How China Lends a Rare Look into 100 Debt 
Contracts with Foreign Governments,'' joint publication by Georgetown 
Law and Peterson Institute for International Economics; Kiel Institute 
for the World Economy; AidData, William and Mary, and Center for Global 
Development; and Kiel Institute, Kiel University, and CEP, March 2021, 
accessible at https://docs.aiddata.org/ad4/pdfs/
How_China_Lends__A_Rare_Look_into_100_Debt_Contracts_with_Foreign_Govern
ments.
pdf.

    Over the past 15 years, Chinese state-owned policy banks have 
provided close to $150 billion in loan commitments in Latin America, 
exceeding lending of the World Bank, the Inter-American Development 
Bank (IDB), and CAF Development Bank of Latin America combined.\74\ 
China's overall investments and expenses related to the BRI could reach 
$1.2-1.3 trillion by 2027.\75\ At the June 2021 G7 summit, President 
Biden and other G7 leaders announced a new ``Build Back Better World 
(B3W)'' to counter China's BRI and to help developing countries on 
their infrastructure needs and address some of their sustainable 
development national priorities.\76\
---------------------------------------------------------------------------
    \74\ Pepe Zhang, ``Belt and Road in Latin America: A regional game 
changer?'', The Atlantic Council, October 8, 2018, accessible at 
https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/
belt-and-road-in-latin-america-a-regional-game-changer/.
    \75\ Andrew Chatzky and James McBride, ``China's Massive Belt and 
Road Initiative,'' Council on Foreign Relations, January 28, 2020, 
accessible at https://www.cfr.org/backgrounder/chinas-massive-belt-and-
road-initiative.
    \76\ Steve Holland and Guy Faulconbridge, ``G7 rivals China with 
grand infrastructure plan,'' Reuters, June 13, 2021, accessible at: 
https://www.reuters.com/world/g7-counter-chinas-belt-road-with-
infrastructure-project-senior-us-official-2021-06-12/. See also, The 
White House, ``FACT SHEET: President Biden and G7 Leaders Launch Build 
Back Better World (B3W) Partnership,'' June 12, 2021, accessible at 
https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/
12/fact-sheet-president-biden-and-g7-leaders-launch-build-back-better-
world-b3w
-partnership/.
---------------------------------------------------------------------------
   conclusion: forward engagement, honest dialogue, and ppp vigilance
    The risks and gravity of China's cross-border support for illicit 
trade, corruption, and criminality are impacting market stability, the 
integrity of the international financial system, the competitiveness of 
our industries, the rule of law, and the public health and safety of 
people across societies.

    Given the scale of today's illicit economies, the U.S. Congress and 
the Biden administration, working with the business community and our 
international partners, must engage China constructively, honestly, and 
cooperatively to address many of the illicit trade threats that I have 
outlined today.

        We need to elevate the fight against illicit economies and 
crime convergence in Congress as a national security and foreign policy 
priority, including through a strong bipartisan congressional caucus 
and/or an Advisory Commission. Such a platform can send a strong and 
united message to China, and others, urging them to work with the 
United States towards collective action and high visibility to shut 
down illicit markets, investigate and prosecute corrupt and criminal 
actors and their complicit facilitators, and to confiscate their dirty 
money.

        We must find ways to further empower our law enforcement 
agencies with new legal authorities and the necessary resources to 
disrupt illicit markets and anonymized criminal communications, 
prosecute illicit actors and threat networks, and combat corruption and 
money laundering safe havens.

        We must develop a national security strategy to combat trade-
based money laundering (TBML) and to confiscate criminally derived 
proceeds; promote information sharing, coordinate actionable 
intelligence across borders; leverage blockchain, AI, and innovative 
technologies; and to develop more innovative and smarter global supply 
chain solutions to combat illicit pathways and illicit financial flows.

            We also need to build greater awareness on the 
threats posed by TBML and threat finance through training, education, 
and outreach. As the Co-Director of the Anti-Illicit Trade Institute 
(AITI, https://traccc.gmu.edu/projects/current/anti-illicit-trade-
institute/) of the Terrorism, Transnational Crime and Corruption Center 
(TraCCC, https://traccc.gmu.edu/), Schar School of Policy and 
Government, George Mason University, AITI-TraCCC has embarked on an 
innovative executive program to combat TBML and illicit trade.\77\
---------------------------------------------------------------------------
    \77\ Anti-Illicit Trade Institute (AITI) of the Terrorism, 
Transnational Crime and Corruption Center (TraCCC), Schar School of 
Policy and Government, George Mason University, accessible at https://
traccc.gmu.edu/.

        We urge Congress to pass the Shop Safe Act \78\ and other laws 
that stipulate all on-line items for sale must list in the product 
description clearly identifiable country or origin; sanction high-risk 
violators that are shipping and receiving illicit contraband through 
international mail facilities and express consignment hubs; establish 
trademark and contributory liability for online marketplace platforms 
when a third-party sells a counterfeit product that poses a risk to 
consumer health or safety, and other harms, and where platforms do not 
follow best practices; incentivize through best practices and due 
diligence the verification and vetting of such third-party sellers to 
ensure their legitimacy, removing counterfeit listings, and removing 
sellers who repeatedly sell counterfeits.\79\
---------------------------------------------------------------------------
    \78\ The Shop Safe Act 2020, accessible at https://
judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf.
    \79\ John H. Zacharia and Kari Kammel, ``Congress's Proposed E-
Commerce Legislation for Regulation of Third-Party Sellers: Why It's 
Needed and How Congress Should Make It Better,'' Business Law Journal, 
21 U.C. DAVIS BUS. L.J. 91, February 8, 2021, and accessible at https:/
/blj.ucdavis.edu/archives/vol-21-no-1/zacharia-and-kammel.html.

    We should also explore more effective cooperative partnerships 
between China, Mexico Canada, and the United States through a new four-
way framework--a Quadrilateral Commission against Illicit Trade and 
International Organized Crime--to halt this deadly commerce, and the 
flooding of illicit goods into the United States. Such a four-party 
confidence-building process would reinforce the homeland security of 
each country.\80\
---------------------------------------------------------------------------
    \80\ Earl Anthony Wayne and David M. Luna, ``Attack Fentanyl Flows 
Across Borders: A Real Emergency,'' The Wilson Center, March 18, 2019, 
accessible at https://www.wilsoncenter.org/article/attack-fentanyl-
flows-across-borders-real-emergency.

        There are no global problems that can be solved by any one 
---------------------------------------------------------------------------
partner working alone or in any one sector.

            We need more holistic whole-of-society 
approaches in dealing with China in order to strengthen their political 
will, including dynamic public-
private partnerships, to end illicit economies including those that the 
BRI is aiding. That's why ICAIE is proud to support the United to 
Safeguard America from Illegal Trade (USA-IT) public education 
initiative, and other public and private sector partnerships such as 
the U.S. Council for International Business (USCIB)-led efforts with 
the OECD, G20, and APEC, working to protect American security and 
prosperity from black markets, illegal trade, and criminal 
entrepreneurs.\81\
---------------------------------------------------------------------------
    \81\ United to Safeguard America from Illegal Trade (USA-IT), 
accessible at https://www.usait.org/.

    As long as China continues to aggressively build a ``great wall of 
steel'' as President Xi recently said during the celebration of the 
100th anniversary of China's ruling Communist Party,\82\ the United 
States must be vigilant of its own national interests and hold China 
accountable.
---------------------------------------------------------------------------
    \82\ Ben Westcott and Steven Jiang, ``Foreign countries that 
`bully' China will meet a `great wall of steel,' says Xi during 
Communist Party centenary,'' CNN, July 1, 2021, accessible at https://
www.cnn.com/2021/07/01/china/ccp-100-beijing-china-xi-celebration-intl-
hnk/index.html.

    The U.S. must also confront and constructively engage China to be a 
more responsible market driver and citizen of the world in addressing a 
multitude of the illicit threats that harm U.S. national security, and 
the collective security of all nations.\83\ Working with China, we must 
end the corruptive influence of today's bad actors who are exploiting 
today's illicit economies and are sabotaging legitimate commerce and 
the economic sustainability of nations who play by the global trade 
system of rules, and by the rule of law.
---------------------------------------------------------------------------
    \83\ Congressional Research Service (CRS), ``China's Engagement 
With Latin America and the Caribbean,'' July 1, 2021, accessible at 
https://crsreports.congress.gov/product/pdf/IF/IF10982.

    Through shared responsibility, the United States must find common 
ground with China on mutually shared interests of economic growth, 
shared prosperity, and cross-border law enforcement cooperation to 
combat the multidimensional threats posed by illicit economies harming 
both countries and other nations across the globe, thereby helping to 
ensure greater market security, safer communities, and sustainable 
---------------------------------------------------------------------------
peace.

    Thank you, and I look forward to your questions.

                                 ______
                                 
           Question Submitted for the Record to David M. Luna
                Question Submitted by Hon. Bill Cassidy
    Question. The Chinese Government imposes strict capital controls on 
its citizens, which may cause some who would otherwise rather stay 
within the rules to use illicit means such as trade-based money 
laundering (TBML), sometimes through cryptocurrencies, to move money 
out of China, facilitating illicit finance and organized crime in the 
United States and Latin America. It seems like there is room for us to 
cooperate here, since both countries have an interest in stopping TBML 
and other similar crimes. Is there some way that we can suggest that we 
work together?

    Answer. If China wanted to stop the hundreds of billions of dollars 
in illicit financial flows related to illicit trade, corruption, and 
money laundering, it could easily do so. The failure to constructively 
engage China will continue to have long-term impacts to U.S. national 
security if unaddressed. This is why it is critical that the United 
States hold China accountable and ensure that it is a more responsible 
partner. The United States must bring China to the negotiating table 
towards more effective enforcement actions to counter cross-border 
trafficking threats harming U.S. national security.
    constructive diplomatic engagement for more fruitful cooperation
    On specific ways to harness political will and work together, we 
must:

        Elevate the fight against illicit economies globally in 
Congress through the creation of a bipartisan Congressional Caucus 
Against Illicit Economies (CCAIE) including democratic transparency and 
a strong rule-of-law playing field for constructive engagement with 
China.

        Halt the illicit commerce of deadly fentanyl, synthetic 
opioids, and other dangerous illegal goods from China into our country, 
and create a new four-way framework--a Quadrilateral Commission against 
Illicit Trade and International Organized Crime between Canada, China, 
Mexico and the United States. The U.S. should aim to strengthen law 
enforcement coordination with other Five Eyes (FVEY) partners. It 
should also engage in constructive dialogue with China bilaterally, and 
multilaterally through the G20, APEC, and other relevant diplomatic 
fora.

        Require greater transparency from China on its financial 
regulatory system, capital controls, beneficial ownership, anonymous 
shell companies, high-value asset purchases, cryptocurrencies, 
underground financial systems, use of offshores, Chinese underground 
banking (CUBS) and flying money, and third-party payment systems, and 
other methods.

        The U.S. may want to work with China and provide mutual legal 
assistance examining money laundering methodologies especially when 
licit and illicit funds are commingled related to financial controls 
and capital flight.

        Pass the CROOK ACT and TBML legislation to counter corrosive 
corruption, kleptocracy, and illicit finance in China, and other 
authoritarian states.

        A strong TBML legislation should leverage diplomatic 
engagement to strengthen the political will in China and other 
jurisdiction, and the development of a TBML national security strategy. 
Such a strategy would mobilize a TBML Interagency Task Force to 
prioritize, investigate and counter TBML threats; enhance information 
and intelligence sharing across sectors; harness distributed ledger 
technologies that help secure tracking of trade and standardized export 
data and invoices; support increased trade data for private-
sector and academic research that help to better understand the 
challenges and inform further policy reforms; and help foreign partner 
countries strengthen their technical expertise and capacities to 
identify, prosecute, and curtail TBML across borders.

        Support public-private partnerships such as those being 
advanced by ICAIE that leverage information sharing and federated 
machine learning to illuminate illicit networks in the shadow economy, 
and enable actionable intelligence to law enforcement communities for 
judicial action against illicit economies and crime convergence 
finance.
                sanctions and holding china accountable
    If diplomacy does not work, or if the Chinese Government is not 
committed to confidence-building measures to work with the United 
States to counter illicit economies, we must not shy away from 
sanctioning China, including blacklisting it for the continued flooding 
of U.S. markets with deadly opioids and counterfeits, stealing trade 
secrets, infringing on American intellectual property rights, the 
global laundering of dirty money, and cybersecurity crimes.

        Building on policies denying safe haven to, and tracking 
illicit financial flows of, kleptocrats and designated criminals and 
terrorists, the U.S. may also want to consider banning entry \1\ into 
U.S. ports maritime ships that fly flags of convenience (FoC) that do 
not provide beneficial ownership information to CPB prior to entering 
U.S. waters and which contravene the spirit of the Corporate 
Transparency Act and Anti-Money Laundering Act of 2020, where such 
ships may be involved in facilitating illicit activities, trafficking 
counterfeits, smuggling contraband, bribery, and evading sanctions.
---------------------------------------------------------------------------
    \1\ The United States has similarly done after 9/11 to enhance port 
security to protect against a dirty bomb being delivered by a ship; and 
when the US banned entry for any single-hulled tanker after the Exxon 
Valdez oil spill.

ATTACHMENT 1.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                 __
                                 
 Prepared Statement of Jane Nakano, Senior Fellow, Energy Security and 
 Climate Change Program, Center for Strategic and International Studies
    Chair Warren, Ranking Member Cassidy, and distinguished members of 
the Subcommittee on Fiscal Responsibility and Economic Growth, thank 
you for the opportunity to appear before you to discuss the rise of 
Chinese competitiveness in energy technology sectors and its 
environmental and climate implications.

    China's emergence as a globally competitive force in energy 
technology sectors is a complex and evolving story. The country is the 
largest producer and consumer of coal as well as the top official 
financier and exporter of coal-fired power plants in the world. At the 
same time, the country is a leading exporter of clean energy technology 
components, as well as the preeminent force along the supply chains for 
many minerals important for such technologies today. The rise of China 
as a manufacturer and exporter of a range of energy technologies has 
been fueled by their government's long-term commitment towards 
investing in public research and development capacity, and nurturing 
manufacturing clusters in these sectors. The lagging state of 
environmental protections as well as weak climate considerations have 
also aided China's emergence in various energy technology fields. While 
China may continue to manufacture and export carbon-intensive energy 
projects, the country is also a major manufacturer and exporter of 
energy technologies that have more limited emissions profiles. My 
testimony focuses on the status of the Chinese position in select 
energy technology sectors and their climate implications.
                      coal-fired power generation
    In his speech to the United Nations General Assembly in September 
2020, President Xi Jinping of China announced the country's intent to 
achieve carbon neutrality by 2060. Moreover, at the Leaders' Summit on 
Climate in April, Xi reaffirmed his earlier commitment to peak the 
country's emissions by 2030, and announced China's intent to begin 
phasing down coal consumption in the latter half of this decade. These 
are undoubtedly welcomed developments.

    However, coal continues to be a major source of China's energy 
supply as well as a focus of energy infrastructure exports and 
financing. While the share of coal-fired power generation has been 
declining in line with the country's official reduction targets, 
domestic construction has not ceased. In 2020, China built 38.4 
gigawatts (GW) of new coal-fired generation capacity domestically. 
What's more, China is a major financier and exporter of high-carbon 
energy projects in the world. While China has provided its energy-
related official development finance to a variety of fuel sources and 
technologies, the portfolio has historically been carbon-intensive. 
Since 2000, China's two global policy banks--the China Development Bank 
and the Export-Import Bank of China--have financed over $51.6 billion 
worth of coal projects globally, or about 21 percent of their total 
energy related financing.\1\ Although the share of coal financing under 
the Belt and Road Initiative (BRI) has declined since its peak at 46 
percent in 2015, it still accounted for 27 percent in 2020.\2\
---------------------------------------------------------------------------
    \1\ Boston University Global Development Policy Center, ``China's 
Global Energy Finance,'' https://www.bu.edu/cgef/#/all/EnergySource.
    \2\ Christoph Nedopil Wang, ``China Belt and Road Initiative 
Investment Report 2020,'' The Green Belt and Road Initiative Center, 
January 21, 2021, https://green-bri.org/china-belt-and-road-initiative-
bri-investment-report-2020/.

    A combination of the desire of the Chinese Government to address 
excess manufacturing capacity at home, the capacity of leading Chinese 
policy banks to support coal-fired power plant exports, as well as a 
wave of coal-finance bans/restrictions by multilateral development 
banks and other major investors have propelled Chinese banks to become 
a major source of financing for coal-fired power plants in the world. 
Coal-fired power plant export has allowed China to find work for its 
laborers and export plants that no longer met domestic environmental 
regulations.\3\ Unlike its peers in the advanced, industrialized 
countries, China's leading policy banks are not obligated to abide by 
the Organization of Economic Cooperation and Development (OECD) Sector 
Understanding on Export Credits for Coal-Fired Electricity Generation 
Projects that restricts coal-fired power finance. In fact, these 
official Chinese institutions merely subject their coal-fired power 
official development finance to existing host market environmental 
regulations.\4\ Moreover, Chinese policies governing the environmental 
aspects of their overseas investments are much weaker than those 
governing their domestic investment.\5\
---------------------------------------------------------------------------
    \3\ Council on Foreign Relations, ``China's Belt and Road: 
Implications for the United States,'' Independent Task Force Report No. 
79, Council on Foreign Relations, 2021, p. 57.
    \4\ Bo Kong and Kevin P. Gallagher, ``The New Coal Champion of the 
World,'' Energy Policy 155 (2021) 112334, March 11, 2021.
    \5\ Kelly Sims Gallagher and Qi Qi, ``Chinese Overseas Investment 
Policy: Implications for Climate Change,'' Global Policy (2021) doi 
10.1111/1758-5899.12952.
---------------------------------------------------------------------------
                        solar and wind power\6\
---------------------------------------------------------------------------
    \6\ Portions of this section are adapted from Sarah Ladislaw, Ethan 
Zindler, Nikos Tsafos, Logan Goldie-Scot, Lachlan Carey, Pol Lezcano, 
Jane Nakano, and Jenny Chase, ``Industrial Policy, Trade, and Clean 
Energy Supply Chains,'' February 2021, a report by the CSIS Energy 
Security and Climate Change Program and Bloomberg NEF, https://csis-
website-prod.s3.
amazonaws.com/s3fs-public/publication/
210224_Ladislaw_Industrial_Policy.pdf?DRja.V6axwy
BE_PV6Chmdi5k2VqOq33n.
---------------------------------------------------------------------------
    China's strong export position has come to extend to other energy 
technologies including those with much more limited emissions profiles, 
such as solar and wind power. The government's support to develop these 
industries included generous feed-in-tariffs and robust credit to new 
equipment makers by China's development finance institutions. By the 
early 2010s, Chinese manufacturing of solar and wind equipment was 
booming, driving down the equipment prices and facilitating their 
deployment in advanced, industrialized economies.

    In solar PV value chains, China leads the world in the 
manufacturing of polysilicon and wafers, accounting for two-thirds of 
the global polysilicon manufacturing capacity (regardless of factory 
location) and over 90 percent of the global wafer manufacturing 
capacity today. Even in the segments where China is less dominant, such 
as solar cell and module manufacturing, leading Chinese companies are 
vertically integrated, allowing them to exert better cost control and 
manage output certainty. For example, Chinese companies own about 72 
percent of the world's module manufacturing capacity (regardless of 
factory location) today.

    Chinese presence is less dominant in wind power supply chains as 
the industry preference for larger projects to drive down costs has led 
the components to be heavier and costlier to ship, thus encouraging 
supply chains to grow near demand centers. Nonetheless, China is home 
to about 40-60 percent of the global manufacturing capacity for key 
wind power components, such as nacelles, wind towers, turbines, and 
gearboxes.
                   electric vehicles and batteries\7\
---------------------------------------------------------------------------
    \7\ Portions of this section are adapted from Sarah Ladislaw, Ethan 
Zindler, Nikos Tsafos, Logan Goldie-Scot, Lachlan Carey, Pol Lezcano, 
Jane Nakano, and Jenny Chase, ``Industrial Policy, Trade, and Clean 
Energy Supply Chains,'' February 2021, a report by the CSIS Energy 
Security and Climate Change Program and BloombergNEF, https://csis-
website-prod.s3.
amazonaws.com/s3fs-public/publication/
210224_Ladislaw_Industrial_Policy.pdf?DRja.V6axwy
BE_PV6Chmdi5k2VqOq33n.
---------------------------------------------------------------------------
    China is beginning to establish a commanding position in the 
electric vehicle (EV) sector too. Today, the country is the largest EV 
market in the world. Notably, China has been focused on expanding local 
manufacturing capacity in every phase of 
lithium-ion battery and EV production, rather than overall EV sales 
numbers the way many western leaders in the EV industry have. As a 
result, China has also emerged as a leading producer of key EV 
components, such as cathodes, anodes, and separators. While the market 
is more diverse in the final stages of battery production given the 
legacy production capacities in Japan and South Korea for battery 
cells, and new facilities in Europe and the United States, cell 
manufacturing remains concentrated in China.

    A host of policies and actions, including demand and supply 
incentives, public procurement, and R&D (research and development) 
funding, has propelled the rise of China's EV sector. Since EVs were 
identified as one of seven ``strategic emerging industries'' in 2010, 
and as a key target industry under the Made in China 2025 plan, China 
has deployed multiple measures to support the sector. For example, 
under the Energy-Efficient and New-Energy Vehicles Industrial Plan 
2012-2020, China focused both on research and development work on EVs, 
especially to drive down battery costs as well as to improve 
performance, and on a mass rollout of EVs. The Chinese government spent 
a large sum of public R&D funding through national labs and 
universities, developed a few leading companies in each stage of EV 
battery value chain so as to avoid overcapacity issues, accelerated EV 
demonstration, and led the development of charging infrastructure. 
While China has rebalanced its spending towards R&D and government 
procurement in the recent years, direct purchase subsidies also played 
a major role in expanding EV sales.
                              minerals\8\
---------------------------------------------------------------------------
    \8\ Portions of this section are adapted from Jane Nakano, ``The 
Geopolitics of Critical Minerals Supply Chains,'' March 2021, a report 
by the Center for Strategic and International Studies, https://csis-
website-prod.s3.amazonaws.com/s3fs-public/publication/
210311_Nakano_Critical_
Minerals.pdf?DR03x5jIrwLnNjmPDD3SZjEkGEZFEcgt.

    A key factor underpinning China's competitiveness in these clean 
energy technologies is its commanding position along the supply chains 
for rare-earth minerals and other minerals as well as metals that are 
vital to clean energy technology components, such as wind turbines, 
photovoltaic cells, and EV batteries. China has cultivated its mineral 
wealth and developed mid- and down-stream capabilities through various 
industrial policies. For example, China accounts for roughly two-thirds 
of global production of rare-earth elements. Where it lacks access to 
minerals, China has invested in mining and upstream projects abroad. 
For example, limited in cobalt resources, China has invested in cobalt 
mines and participated in cobalt smelting projects in the Democratic 
Republic of the Congo, which accounts for nearly two-thirds of cobalt 
production in the world; China has come to account for about 70 percent 
---------------------------------------------------------------------------
of the global cobalt refining capacity.

    China made it a priority to ``develop research and production of 
advanced rare-earth applications and new materials (e.g., permanent 
magnets and lasers) for domestic consumption and export'' as early as 
in the mid 1980s, under the seventh National Five-Year Plan for Rare 
Earth Industry (1986-1990). By 1985, there already were more than 300 
public research institutes and university research centers in China 
working on research projects related to rare-earth mining, smelting, 
and applications. Moreover, export and production quotas were among the 
measures that helped to grow their materials industry.\9\
---------------------------------------------------------------------------
    \9\ The export quota, introduced in 1999, ended following a World 
Trade Organization (WTO) dispute settlement panel ruling against China. 
China's rare earth production quota, introduced in 2006, remains in 
effect.

    As China's own demand for minerals for advanced energy technology 
production rises, China has introduced plans, such as the National 
Mineral Resource Plan for 2016-2020, to establish the country's 
capabilities to safeguard its supply chains against various causes of 
potential supply disruptions. More recently, in January 2021, China 
introduced draft Regulations on Rare Earth Management. The regulations 
would reinforce the protection of what the government regards as the 
``prized resources [with] irreplaceable significance for the upgrade of 
traditional industries, and the development of emerging 
industries,''\10\ by strengthening the approval process for mining and 
processing projects, as well as the rare-earth trade.
---------------------------------------------------------------------------
    \10\ Liu Zhihua and Liu Yukun, ``China to step up protection of 
rare earth resources,'' China Daily, January 16, 2021, https://
global.chinadaily.com.cn/a/202101/16/WS60023d3aa31024ad
0baa3039.html.

    The country's preeminence in the mineral supply chains came with a 
high environmental cost, however. The mining and processing of rare 
earth elements use a variety of chemical substances and generate 
significant quantities of waste. In China, rare-earth ore is commonly 
laced with radioactive materials, such as thorium, and the separation 
process requires large amounts of carcinogenic toxins, such as 
sulphates, ammonia, and hydrochloric acid.\11\ Without proper 
environmental protections, such mineral extraction and process can be a 
source of soil and water contamination. There have been a numerous 
Chinese and western academic and journalistic accounts of environmental 
and health damages from these mining activities in China. While China 
began a large-scale mining of these minerals in the mid-1980s, it was 
not until the mid-2010s that the government introduced stringent 
environmental regulations, including technical standards and 
specifications for rare-earth mining processes.\12\
---------------------------------------------------------------------------
    \11\ Jonathan Kaiman, ``Rare earth mining in China: The bleak 
social and environmental costs,'' The Guardian, March 20, 2014, https:/
/www.theguardian.com/sustainable-business/rare-earth-mining-china-
social-environmental-costs.
    \12\ Hongqiao Liu, et al., ``Rare Earths: Shades of Gray,'' China 
Water Risk, June 2016, pp. 37-38, https://chinawaterrisk.org/wp-
content/uploads/2016/08/China-Water-Risk-Report-Rare-Earths-Shades-Of-
Grey-2016-Eng.pdf.
---------------------------------------------------------------------------
                              nuclear\13\
---------------------------------------------------------------------------
    \13\ Portions of this section are adapted from Jane Nakano, ``The 
Changing Geopolitics of Nuclear Energy,'' Center for Strategic and 
International Studies, March 2020, https://csis-website-
prod.s3.amazonaws.com/s3fs-public/publication/
200416_Nakano_NuclearEnergy_UPDATED%
20FINAL.pdf.
---------------------------------------------------------------------------
    Nuclear energy is also a sector where China is emerging as a global 
technology supplier, following a remarkable expansion of its domestic 
nuclear power generation fleet. Between 2011 and 2019, China brought 35 
reactor units online at home, 10 units more than all of non-Chinese new 
units combined worldwide. Although the Fukushima accident tempered its 
original, robust expansion vision, China's installed nuclear capacity 
targets remain strong. Per the country's 14th 5-year plan (2021-2025), 
China will have a total installed capacity of 70 GW by 2025, overtaking 
France (61 GW), as the second largest in the world behind the United 
States (96 GW).

    Thus far, China's only destination for its nuclear power plant 
exports is Pakistan. China is pursuing multiple deals in its effort to 
become a global leader in nuclear power, however, by combining ``good 
enough'' technologies with attractive financing. Again, not bound by 
OECD regulations, China has offered financing that is large (in total 
amount provided), cheap (with low interest rates) and long-lived (with 
long repayment periods). China's most active export efforts underway in 
the United Kingdom and Argentina suggest that China uses financing and 
a willingness to execute projects others find unattractive as a lever 
to land additional nuclear projects that can advance its interest. 
China's rise as a global supplier of nuclear energy technology has 
profound implications from nuclear safety and nonproliferation, as well 
as geopolitical perspectives.
                               conclusion
    More needs to be done to address China's financing practices for 
energy exports that have market distorting effects against cleaner 
energy sources and technologies, as well as energy technologies that 
are manufactured by advanced, industrialized democracies like the 
United States. The United States should work more closely with 
multilateral development banks and fellow OECD member governments to 
remedy the lack of international mechanisms to reign in China's public 
high-carbon financing and export practices.

    Also, while China's contribution to reducing the costs of low-
emission technologies is undeniable, their practices in mining and 
processing minerals that are key to clean energy technologies warrant 
closer evaluation from the environmental, social, and governance 
perspectives. Concurrently, our over reliance on Chinese supplies of 
these minerals and metals needs to be remedied.

    Fundamentally, however, the United States needs to do more to 
enhance its energy technology competitiveness. The effort to promote 
American global competitiveness will benefit from the U.S. government 
playing a strategic role in creating more demand for these 
technologies, investing in research and innovation, and providing a 
supportive environment for their manufacturing to thrive. The 
government also has an essential role to play in strengthening the 
supply chains for minerals and metals that underpin our clean energy 
economic activities.

    Being competitive in energy technology sectors means preserving a 
strong innovation eco-system, rebuilding a manufacturing base, and 
securing supply chains. Moreover, being competitive in clean energy 
technology sectors is not simply about doing our share in reducing 
emissions. These technologies are no longer niche and they already 
account for hundreds of billions of dollars in investment and consumer 
spending, with strong outlook for further growth.\14\ The endeavor 
therefore has a strategic value to our Nation as competitive clean 
energy sectors can augment the U.S. position in the global economy.
---------------------------------------------------------------------------
    \14\ Nikos Tsafos, Lachlan Carey, Jane Nakano, and Sarah Ladislaw, 
``Reshore, Reroute, Rebalance: A U.S. Strategy for Clean Energy Supply 
Chains,'' Center for Strategic and International Studies, May 2021, 
https://csis-website-prod.s3.amazonaws.com/s3fs-public/publication/
210519
_Tsafos_Reshore_Reroute.pdf?oIS49QNCeuHW43Hqwm83aOuBEuxfVqbx.

                                 ______
                                 
  Prepared Statement of Hon. William E. Spriggs, Ph.D., Professor of 
       Economics, Howard University; and Chief Economist, AFL-CIO
    Thank you, Chair Elizabeth Warren and Ranking Member Bill Cassidy, 
for this invitation to give testimony before your committee today on 
the issue of our Nation's crisis. I am happy to offer this testimony on 
behalf of the AFL-CIO, America's house of labor, representing the 
working people of the United States; and based on my expertise as a 
professor in Howard University's Department of Economics.

    My testimony today will discuss gaps in U.S. infrastructure 
compared to our leading trading partners. Many of these gaps do not 
require Federal fiscal resources but do require updating our 
institutions and legal structures to meet the challenges of the 21st 
century. The current crisis of the COVID pandemic highlights our need 
to improve. While Congress has reacted swiftly and admirably with aid 
to support the economy, on many dimensions the U.S. was less resilient 
than our leading trading partners and is set to have major challenges 
ahead we can avoid.

    Because of Congress, and now the leadership of President Biden, the 
American Rescue Plan (ARP) has been well received by those who compare 
global economic activity. The International Monetary Fund (IMF) and the 
Organisation for Economic Co-operation and Development (OECD) revised 
their forecast upward for this year and next based on the passage of 
the ARP. And, given the importance of the U.S. economy to global 
economic growth, this changed their optimism for a faster global 
recovery. Yet, they both still see a full recovery more than a year 
away.

    Thanks to the rapid deployment of vaccines in the U.S., American 
hospitalization and death rates from COVID plummeted, and after being 
far above the rest of our trading partners, we have finally now 
surpassed them in having lower rates of severe outcomes from COVID. 
That has allowed U.S. economic activity to accelerate, and buoyed by 
the ARP's support of American households, helped accelerate our job 
growth. But, even if we maintain this current record setting pace of 
hiring, it will still be more than a year to get employment back to 
normal levels.

    So, given we are still in the path of recovery, we should focus on 
lessons learned and make changes to sustain the recovery and make our 
economy more resilient. Several of the changes that Congress improvised 
to fix our labor market safety net show key gaps the U.S. faces 
relative to our competitors. Our labor market regulations are clearly 
out of date. The scale at which we needed our labor institutions to 
work only highlight how on a regular basis the resiliency we need is 
not present.

    Among our leading trading partners, we have a lower level of 
workers covered by collective bargaining agreements. Last year, during 
the pandemic, while we lost jobs across almost all industries, within 
industry, relatively more non-union than union jobs were lost, so the 
share of workers in unions rose. The presence of a collective 
bargaining agreement helped firms in two ways. One is that by having a 
partner with whom they could negotiate, firms could retain workers and 
share the responsibility of making decisions on how to adjust hours and 
pay and safety conditions. The other is that for some industries, like 
the airlines, it meant management and workers could present a consensus 
view to Congress and policymakers on the best way forward to maintain 
an orderly slowdown of business and keep maximum flexibility to allow 
for the fastest restart. Within the trade context itself, researchers 
have found that similarly, the response of industries with stronger 
collective bargaining structures led to fewer jobs lost in the face of 
the China trade shock of this century, than in industries with lower 
union density.\1\ Union workers are, generally, more satisfied with 
their working conditions than non-union workers,\2\ and this helps with 
worker retention; a problem firms are struggling with as the economy 
reopens. And when comparing labor market performance of OECD nations, 
the OECD's research shows that stronger central bargaining systems 
outperform weak systems in wages, employment and gender and younger 
workers labor outcomes, primarily because they are better at smoothing 
economic shocks and reducing inequality.\3\ Updating our National Labor 
Relations Act to address changes in the workplace since the 1940s, such 
as by passing the PRO Act, is key.
---------------------------------------------------------------------------
    \1\ Robert Baldwin finds that during the Japanese import boom, 
1977-1987, trade impacted less-than-college-educated union workers more 
than non-union workers, but from 1987 to 1997, trade had no different 
impact on jobs losses for union or non-union workers. Robert Baldwin, 
The Decline of U.S. Labor Unions and the Role of Trade (Petersen 
Institute: Washington, 2003). Alhquist and Downey find that between 
industries, those with higher union density fared better than lower 
union density industries in the face of the China trade shock. Though 
within manufacturing, union workers suffered more losses. John S. 
Ahlquist and Mitch Downey, ``Import Exposure and Unionization in the 
United States,'' https://ccd.ucsd.edu/_files/papers/Ahlquist
DowneyTradeUnionsApril2019.pdf.
    \2\ Richard Freeman, David Blanchflower and Alex Bryson, ``Unions 
Raise Worker Well-being,'' https://european.economicblogs.org/voxeu/
2020/blanchflower-bryson-unions-wellbeing.
    \3\ OECD, Negotiating Our Way Up: Collective Bargaining in a 
Changing World of Work (OECD Publishing: Paris, 2019).

    Our unemployment insurance system was clearly outdated and 
overwhelmed. It was designed primarily to deliver income support to 
manufacturing workers during business cycles prompted by inventory 
cycle busts. Yet, in February 2020 we had roughly the same number of 
restaurant workers as manufacturing workers and lost more restaurant 
jobs than the size of our nondurable manufacturing workforce in 2 
months. But in a normal economy, fewer than 10 percent of restaurant 
workers receive unemployment benefits.\4\ Going forward, losing the 
changes Congress enacted on this temporary basis, the system will be 
more fragile, exposing greater risk on the macroeconomy and reducing 
the resilience of individual households to economic shocks.\5\ The low 
wages of too many workers made them too precarious, and additions to 
State benefits were necessary. Several studies show the extra benefits 
did not slow people returning to work,\6\ but did help ensure cash 
balances for all households by income quintile and race.\7\ Those steps 
are key to the economy having a speedy recovery. The U.S. stood out 
among our trading partners because they leveraged their stronger labor 
market institutions to implement job retention programs, keeping 
workers and employers attached.\8\ A higher minimum wage, as most of 
our trading partners have, would make more families resilient.
---------------------------------------------------------------------------
    \4\ U.S. Bureau of Labor Statistics, Characteristics of 
Unemployment Insurance Applicants and Benefit Recipients News Release, 
November 7, 2019, https://www.bls.gov/news.release/archives/
uisup_09252019.htm.
    \5\ Josh Bivens, Melissa Boteach, Rachel Deutsch, Francisco Diez, 
Rebecca Dixon, Brian Galle, Aliz Gould-Werth, Nicole Marquez, Lily 
Roberts, Heidi Shierholz and William Spriggs, Reforming unemployment 
insurance: Stabilizing a system in crisis and laying the foundation for 
equity (Economic Policy Institute: Washington, June 2021), https://
files.epi.org/uploads/Reforming-Unemployment-Insurance.pdf.
    \6\ Arindrajit Dube, ``Aggregate Employment Effects of Unemployment 
Benefits during Deep Downturns: Evidence from the Expiration of the 
Federal Pandemic Unemployment Compensation,'' NBER Working Paper 28470 
(National Bureau of Economic Research: Cambridge, February 2021), 
https://www.nber.org/system/files/working_papers/w28470/
w28470.pdf?orgid=19
7&utm_att1=moneyorgid=197&utm_att1=money.
    \7\ JPMorgan Chase and Co. Institute, Financial outcomes by race 
during COVID-19, Research Brief (JPMorgan Chase Institute: Washington, 
June 2021) https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-
chase-and-co/institute/pdf/financial-outcomes-by-race-during-COVID-
19.pdf.
    \8\ OECD, OECD Employment Outlook 2021: Navigating the COVID-19 
Crisis and Recovery (OECD Publishing: Paris, July 2021).

    Another shortcoming the U.S. labor market faced is our lack of paid 
leave, either paid sick days or paid family leave. With the recent 
resurgence of COVID in many States, dealing with lost pay from 
hospitalizations will continue to be a challenge for too many 
Americans. And our lack of paid family leave will continue to keep too 
many workers out of the labor market. Labor force participation for 
women fell to 54.6 percent in April 2020, its lowest level since late 
1985, and has only rebounded to its levels of 1988. Coupled with our 
lack of a Federal policy ensuring access to child care, the U.S. sticks 
out among our trading partners for remaining to have labor regulations 
designed for a male dominated manufacturing world. In 2018, the U.S. 
ranked 10th among G20 economies for women's labor force participation, 
and 6th among the G7 economies, only ahead of Italy.\9\ Given the aging 
of the American population, it is imperative that the U.S. adopt the 
leading recognized policies that support women's labor force 
participation, or our economic growth will stall faster.
---------------------------------------------------------------------------
    \9\ OECD and ILO, Women at Work in G20 countries: Progress and 
Policy action [Paper prepared under Japan's G20 Presidency (2019)], 
https://www.oecd.org/g20/summits/osaka/G20-Women-at-Work.pdf.

    These shortcomings were laid bare by the COVID crisis. They show on 
the macroeconomic level how destabilizing our labor market institutions 
are. To be competitive on a global level, we need to understand how, on 
a local labor market level, crises have been occurring throughout this 
century. In addition to updating our labor regulations, we need to 
expand our vision of what we need for trade adjustment assistance. A 
consensus has developed from research that trade in this century has 
had a devastating impact on those local labor markets that faced the 
greatest low wage and low labor standard competition from trade.\10\ 
This was true of workers in those communities, and the destabilizing of 
sources of high wage jobs had a bigger impact on Black workers. Trade 
Adjustment Assistance needs to give additional focus to supporting 
communities that are impacted by trade with the tools to engage active 
labor market policies, especially adding youth job and training 
programs.
---------------------------------------------------------------------------
    \10\ See for example: David Autor, David Dorn and Gordon Hanson, 
``The China Syndrome: Local labor market effects of import competition 
in the United States,'' American Economic Review 103, No. 6 (October 
2013): 2121-2168; and William Spriggs, Nyana Browne and Bethel Cole-
Smith, ``China Import Penetration and U.S. Labor-Market Adjustments'' 
(May 2021), https://economics.howard.edu/sites/
economics.coas.howard.edu/files/2021-06/Impact_of_China_Trade
_Shock_on_Black_Employment___May_2021.pdf.

    And, to remain competitive in the 21st century, the U.S. needs to 
go back to find its future. In the middle of the 20th century, the U.S. 
made massive investments in supporting American students getting 
broader access to, and completing, higher education. It propelled us to 
be number one among OECD nations, and yielded American dominance of 
computer technology innovations at the end of the 20th century. In the 
20th century, America pioneered in free college education or highly 
subsidized financing of higher education loans, including substantial 
loan forgiveness, to achieve that competitive advantage.\11\ But, in 
the 21st century we reversed course, raised the cost of student 
borrowing, and dramatically cut public support of higher education 
transferring the bulk of financing higher education from State provided 
funds to instead burden student tuition revenue. The result is a crisis 
of student debt for Black and Latino students and low-income students 
that are now most of America's potential college students.\12\ To 
maintain U.S. leadership we must increase our college graduates among 
the groups with the lower the college attainment.
---------------------------------------------------------------------------
    \11\ John Bound and S. Turner, ``Going to War and Going to College: 
Did World War II and the GI Bill Increase Educational Attainment for 
Returning Veterans?'', Journal of Labor Economics 20 No. 4 (October 
2002): 784-815; K.W. Olson, ``G.I. Bill and Higher Education: Success 
and Surprise,'' American Quarterly, 25 No. 5 (December 1973): 596-610; 
P.E. Flattau, J. Bracken, R. Van Atta, A. Bandeh-Ahmadi, R. de la Cruz 
and K. Sullivan, The National Defense Education Act of 1958: Selected 
Outcomes (Science and Technology Policy Institute, Institute for 
Defense Analysis: Washington, 2006), https://
d1wqtxts1xzle7.cloudfront.net/8411877/NDEA
%20D3306-FINAL.pdf?1328607798=&response-content-
disposition=inline%3B+filename%3DThe_
National_Defense_Education_Act_of_19.pdf&Expires=1624918411&Signature=Qc
oluWInYlBJNs
SytaaindfPmeNyLVNkIv0-M92kzq2wOjQn.
    \12\ M. Mitchell, M. Leachman and M. Saenz, State Higher Education 
Funding Cuts have Pushed Costs to Students, Worsened Inequality (Center 
on Budget and Policy Priorities: Washington, 2019); J. Bound, B. Barga, 
G. Khanna and S. Turner, ``A Passage to America: University Funding and 
International Students,'' American Economic Journal: Economic Policy 12 
No. 1 (February 2020): 97-126.

    I have emphasized American workers in my testimony. Clearly, to be 
competitive America must have 21st-century physical infrastructure: 
safe roads, bridges, reliable clean energy public transportation and 
clean drinking water, up-to-date school and university buildings and 
laboratories. But, as we look to the 21st century, we cannot forget 
America's true competitiveness lies in its people and our ideals as a 
Nation. This century sees old challenges of American democracy on the 
rise: fascism and the state-controlled economy of China. Our previous 
leadership was attained by having a government that bet on the American 
people and invested heavily in Americans. Unfortunately, not always all 
Americans and not all Americans equally. But this century we must 
---------------------------------------------------------------------------
strive to do better, and this time invest in all Americans.

    And we must lead by being the beacon on human and labor rights, as 
the global champion of democracy. To be competitive in this century we 
must advance and broaden the right to vote: those States that have 
started attacking the right to vote are the States that are not 
investing in K-12 public education or reversing course to invest in 
higher education or in this pandemic crisis ensure expanding access to 
health insurance. Here at home democracy is important to economic 
growth, as it is globally.

    And we must protect and lead in labor rights, to show other nations 
that is the way to more sustainable economic growth. That means paying 
those incarcerated the Federal minimum wage, at least; and adopting far 
more ILO conventions so we can pull other countries forward in our 
trade agreements to raise the global floor instead of getting us all in 
a race to the bottom. And that means, again raising the global floor, 
by insisting there is level playing field between nations and 
corporations when it comes to paying a fair share of taxes. Without 
that revenue, we cannot have all nations make the investments in 
health, education and labor standards we need so the rules of global 
competition are rules that raise the world, instead of lowering 
American standards.

    So, to be competitive, let us build our roads, but let us not lose 
focus on strengthening Americans. Let us lead by example as a Nation, 
to define the rules of global competition.

                                 ______
                                 
  Questions Submitted for the Record to Hon. William E. Spriggs, Ph.D.
                 Questions Submitted by Hon. Ron Wyden
    Question. In the past, U.S. infrastructure policies focused on 
short-term repair and bare-bones maintenance of our physical 
infrastructure, instead of smart, bold, long-term investments. When it 
comes to human services infrastructure, we have seen a similar lack of 
investment in the safety net programs and training programs that 
support our workforce.

    Can you discuss the importance of the U.S. taking bold action to 
invest in both physical and human services infrastructure, and how 
these significant investments today can pay off in the future?

    Answer. Since the 1950s when the United States made a significant 
investment in laying out a commitment to a Federal interstate highway 
system and in a massive increase in the infrastructure of select 
universities' science and research capacities, our investments have 
been concentrated on the maintenance of what was 
cutting-edge 20th-century infrastructure. We are now in the 21st 
century. That means we must have the backbone of 21st-century 
infrastructure.

    Infrastructure is government investments that increase the 
efficiency of the marketplace by increasing the return on private 
investment. Government investment is complimentary to private 
investment. The government investment ensures that there is a universal 
``on ramp'' for key investments the private sector can build on to get 
people and products to market. In the 21st century, the backbone is 
different than in the 20th century. Our challenges are different.

    In the mid-20th century, we made a massive increase in human 
capital investments. In 1946, fully half of all our college students 
attended a small set of our finest institutions free, because of the 
huge investment in the human capital of the ``greatest generation'' 
made using the GI Bill. We followed by making it possible for students 
to attend college by creating a capital market for student loans, 
including forgiving the debt of those who pursued careers in public 
education in the sciences and foreign languages. This gave our business 
community a huge leg up. They could benefit from a significant pool of 
highly trained workers that let them develop and implement new 
technologies to scale. With a large pool of highly educated workers, 
the United States had a workforce that could invent, develop and 
manufacture the transistors, printed circuits, and solid-state 
electronics that fueled the computer age and America's advantage in 
those technologies.

    Today, we must continue that commitment. But we must do more. That 
20th-
century investment was heavily slanted to developing a workforce of 
white males. We need to fully develop our entire workforce.

    The United States ranks sixth of the seven largest economies in 
women's labor force participation. Our businesses need access to the 
talents of what has become half our workforce. That means in the 21st 
century we cannot ignore the need to invest in the care economy that 
can make it possible for more people to be active in the paid labor 
force. On their own, businesses cannot make the investment to create 
childcare and elder care options available to scale. That ``on ramp'' 
to access the human resources of our Nation is as necessary as a deep-
water port is to accommodating modern ocean freighters.

    Further, our Nation's commitment to opportunity and equality that 
was the hallmark of the post-World War II economy, meant we could 
freely rely on the market to function for the details of human capital 
investment for the specifics. Labor unions could negotiate workplace 
specific skills training and reward systems. This makes passage of the 
Richard Trumka Protecting the Right to Organize Act imperative. Public 
investment at the State and local level made educational opportunity 
affordable to the emerging middle class created by a host of policies 
that included easy access to education and training. This was combined 
in the middle of the 20th century with our aggressive steps to 
dismantle the barriers that white supremacists constructed through then 
legal segregation that denied equal educational resources.

    Our reversal to our commitment to equality has resulted in a much 
smaller purchasing power for the middle class and the shrinking of the 
middle class and our cutting investment in public higher education has 
revealed that in the 21st century we are on a path to scarce, not 
abundant, supplies of highly skilled workers. So, we must also expand 
the set of institutions where we invest. And correcting that by 
investing in the Historically Black Colleges and Universities that were 
passed over is part of that strategy. We also now know, the vital role 
of the care economy in providing the kick-start to elementary school 
education. So, we must invest in early childhood education to both 
level the playing field that will increase our supply of skilled 
workers, and to free women to enter the paid workforce.

    Clearly, in the middle of the 20th century we realized that the 
12th grade education that was needed to produce autoworkers, flight 
mechanics, x-ray technicians would not be adequate for an age of 
computers. That is more abundantly clear today. So, we must expand and 
renew our vision of the basic skills needed for a 21st-century 
workforce. That means expanding the affordability of higher education 
and increasing access points to help education and training beyond high 
school. This is merely a renewal of commitment made from 1940 to the 
1970s to previous generations.

    In the 20th century, an interstate highway system was needed to 
increase the efficiency of our transportation network. The ``last 
mile'' problem of getting goods to people and markets, required a 
highway system for trucks. But, in the 21st century the new highway is 
an information highway. Businesses need a fast thoroughfare to get high 
speed Internet information to and from consumers, and the potential to 
tap into workforces that can be spread across the country. So, we must 
commit to a massive increase in our investment in broadband Internet.

    Finally, we clearly understand the result of building up carbon 
emissions threatens human life. The earth will continue, but humans 
will be like dinosaurs, unable to sustain the species with life as we 
know it on planet with higher temperatures, greatly reduced arable land 
for crops and livestock, and rising sea levels that will remove large, 
populated areas. Businesses will not be able to absorb the huge 
uncertainties of more frequent and powerful storms and flooding, and 
the ever-present threat of wildfires.

    We must make investments that can let us transition to a new 
economy that is sustainable. This investment must be done in a 
coordinated way to allow for a just a transition. Only through 
government action can the change in the economy be engineered to 
accommodate the reallocation of resources from carbon dependent 
industries so workers and communities can get the investments they need 
to keep good jobs and economically viable communities. Those ``wiser'' 
investments include investment in public and mass transportation, that 
expands job opportunities, including rural communities. Failure to act 
will doom farmers, rural America, those living in coastal communities 
and those in the path of hurricanes, tornadoes and drought caused 
disasters to lose. Workers who make their living in food processing, 
farming, timber products and fishing will all lose jobs as the 
environment stresses the land and sea. People living in our coastal 
cities will lose their properties to rising seas. We must engineer a 
transition that can stall, and hopefully reverse global warming, to 
create clear paths for those who produce carbon to benefit most from 
new technologies and new energy sources. This can all be done with 
proper vision and proper investment choices.

    Question. The coronavirus pandemic has illustrated critical faults 
in our economy. It has shown how an unexpected crisis or economic 
downturn can set workers back in ways that can be difficult to recover 
from. Your testimony focused on the gaps in U.S. policy that, if 
filled, could make our economy more resilient and supportive for 
American workers.

    Please expand on the top three policy actions the Federal 
Government could take to ensure workers are better supported during the 
next crisis. How will those actions ensure a more resilient economy 
going forward?

    Answer. The most glaring problem Congress confronted was our 
inadequate unemployment insurance system. Touted as being an 
``automatic stabilizer,'' clearly our unemployment system, when 
confronted with a large influx of unemployed workers, was wholly 
inadequate. It covered too few workers and had an income replacement 
rate that could hardly be called ``insurance.'' Our States had failed 
to make the proper investments to create an information infrastructure 
adequate to the size of our workforce. The system currently contains 
incentives for States to retreat from making the system robust. 
Instead, the current system rewards States for making the system less 
``automatic'' and encourages them instead to reduce those covered and 
to limit their ``insurance.'' Several States ahead of this crisis had 
already limited their programs, and more have legislation pending to 
reduce coverage and benefits more.

    Congress should be congratulated for its rapid response to this 
crisis and its transformation of the program. A very key element was 
increasing the replacement rate of benefits. For those workers who have 
low savings levels this was crucial. Workers with low cash savings, use 
less of their unemployment checks to keep up their buying power. 
Instead, they increase their savings to try and stretch the 
unemployment checks. The lack of savings is disproportionately a burden 
for Black and Latino households. This is a direct effect of Black and 
Latino workers lower earnings and higher probabilities of being 
unemployed during economic downturns; and the substantial racial wealth 
gap--true for Black and Latino households of all income levels. In this 
downturn, because the disproportionate share of the unemployed were 
Black or Latino, the added benefit was crucial to sustain the buying 
power in low-income neighborhoods and protect the cash flow of 
businesses in those communities. The result was that employment in 
businesses in low-income neighborhoods was protected better than in the 
past. When the economy takes a huge downturn, and the key function of 
the unemployment insurance is to be an automatic stabilizer of 
aggregate demand, it is important that the unemployment insurance 
system adopt to account for the liquidity problems of low-income and 
low-wealth households.

    The unemployment system also fails to adequately cover part-time 
employees. The use of an earnings test, instead of an hours worked 
test, to determine who is eligible to receive benefits left too many 
workers outside the regular State unemployment insurance system 
benefits. This has clear racial and gender equity issues, that have 
been well documented, and were glaringly clear this downturn.

    The second glaring inequality was the painfully slow recovery of 
Black employment. Though Black workers did not suffer the same 
proportionate loss of jobs as some other communities, they did suffer 
such a slow recovery, that they quickly became the set of workers left 
most vulnerable. For most of the recovery, the unemployment rate of 
high school dropouts has been lower than the Black unemployment rate 
(averaged for all education levels) and lower than the Black 
unemployment rate for Black workers with associates degrees. Despite 
claims that companies were desperately looking for workers, the Black 
unemployment rate climbed 2 months at the beginning of this summer. Our 
national enforcement of anti-discrimination in employment must take 
clear center. And it is vitally important to bolster anti-
discrimination in hiring for infrastructure projects to ensure we do 
not repeat the way that highway construction in the 1950s exacerbated 
racial inequality.

    Finally, a major problem encountered in helping Americans was the 
uneven level of access to banking that was revealed. This was true 
among small businesses trying to access the Payroll Protection Plan, 
and to families that needed to receive their various benefits through 
the IRS. It was also clear that the Federal commitment to a robust 
information infrastructure for the IRS was almost as woeful as the 
State level investment in the unemployment insurance system. A bigger 
investment is needed in the IRS's data infrastructure. We will continue 
to have needs to deliver timely aid to Americans as wildfires threaten 
America's great Pacific Northwest, and hurricanes ravage our Gulf Coast 
states. Improved access to banking, whether through Postal Savings 
Banks, improved Community Reinvestment Act enforcement or other means 
and a better infrastructure at the IRS would make implementing programs 
that could prevent fraud could be implemented quickly and efficiently. 
Unfortunately, as we see the painfully slow implementation of the 
renters' assistance program to prevent evictions, there are serious 
consequences to these gaps.

                                 ______
                                 
             Prepared Statement of Hon. Elizabeth Warren, 
                   a U.S. Senator From Massachusetts
    Good afternoon. Welcome to the hearing before the Subcommittee on 
Fiscal Responsibility and Economic Growth. I am very pleased to be 
working with Ranking Member Cassidy on this hearing on ``Defending and 
Investing in U.S. Competitiveness.''

    So how does America compete in a global economy? For too long, the 
answer has been some variation of ``help giant corporations make the 
most money.''

    Big multinational corporations have no loyalty to our Nation. They 
say quite openly their loyalty is to their shareholders, and about 40 
percent of the shareholders of publicly traded companies aren't 
Americans. These multinational corporations pursue profits--even if 
those profits come at a cost to American workers or to our environment.

    It is not the job of the United States Government to work to boost 
profits of big multinationals that have no particular loyalty to the 
United States. Instead, the goal of economic competition should be to 
make our domestic economy strong and to raise the standard of living 
for the American people. That means investing in American jobs and 
American workers. And here's the best part: if we give American workers 
the tools they need, they can compete with anyone, including global 
economic rivals like China.

    Economic competition is also political competition. Fair 
competition can produce and spread the best ideas. We have a chance to 
show China and the whole world that an American approach that invests 
in and empowers workers is the most effective way to compete.

    There are two aspects of global competitiveness that I'd like to 
focus on in this hearing. The first is that, in order to compete in a 
global economy, American workers need to have a fair set of trade 
rules--which they do not have right now. Our existing trade rules have 
undercut our workers, promoted offshoring and a global race to the 
bottom in labor and environmental standards, and that is because, for 
decades, the U.S. Trade Representative has represented big 
multinational corporations while workers, environmentalists, and other 
parts of the diverse American economy were pushed to the side, with 
their interests and concerns given second-class status. That needs to 
stop. U.S. trade policy needs structural reforms to ensure that it 
reflects the interests of all Americans, not just a handful of 
corporations trying to maximize short-term profits.

    The second reason why workers are struggling against international 
competition is that we have failed to make critical domestic 
investments in our workforce. We know that American workers--given the 
right tools--can out-compete China and every other country in the 
world.

    China offers a clear counter-approach. It fundamentally devalues 
and disempowers its workers by barring them from organizing, by 
pressing ethnic minorities into forced labor camps, by making migrant 
workers second-class citizens, and by leaving working families to go it 
alone on child care. This has helped China cut production costs in the 
short term, but there are long-term costs. The Chinese Government 
recognizes that such an approach cannot build an innovative workforce, 
a strong middle class, or sustainable economic growth. Now China is 
desperately trying to invest in its human capital to fuel development, 
especially given its aging population, recognizing that these 
investments are crucial to China's future.

    This is the moment for the United States to step up. We can and we 
must do better for our workers. It is the right thing to do, it is the 
competitive thing to do, and it is the only way to build a strong 
future for our Nation and our people.

    Specifically, our investments in green technology should center on 
good jobs and building a top-quality workforce. My Build Green and Buy 
Green bills would do exactly that. These bills and other clean energy 
investments with strong labor provisions should be included in the 
infrastructure package that Congress is working on now. Doing so is 
good for the environment, good for the economy, good for workers and 
their families.

    Similarly, we need to give American workers the security they need 
to be able to do their jobs and care for their families. Universal, 
high-quality, affordable child care and early education is an 
investment in our current and our future workforce--working parents and 
their children--and a far better way to compete with China than endless 
expansion of our spending on the U.S. military. We need $700 billion 
for child care in the infrastructure bill. It is a critical way to 
improve our global economic competitiveness.

    Finally, I was glad to see President Biden's executive order last 
week which takes critical steps to promote competition, strengthen 
antitrust enforcement, and tackle consolidation and anticompetitive 
practices. Reigniting competition will make markets work better for 
American families and workers, at the same time that it bolsters U.S. 
competitiveness.

    I am looking forward to discussing these issues today and working 
with my colleagues and the administration to make sure that America's 
workers can compete in a global economy.

                                 ______
                                 

                             Communications

                              ----------                              


                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Warren and Ranking Member Cassidy, thank you for the 
opportunity to submit these comments for the record to the Committee on 
this topic.

For many years, trade policy has focused mostly on cheap prices over 
plentiful jobs. Selling products gathers income while making them 
incurs cost. Advocating for or against tariffs provides campaign chairs 
a valuable resource to cultivate donors and hold them hostage in the 
face of changes.

The status quo will continue until the Dollars and Treasury Notes lose 
their status as world money and the premium investment for bond 
holders. Unless action is taken to raise taxes on those who we would 
otherwise borrow from, they will continue to privately be fine with 
increasing debt. The actual obligation to repay the debt is a function 
of income tax paid (FICA creates assets, not debt). Please see the 
first attachment for more information on who owes and owns the debt and 
why it qualifies as class warfare.

Replacing tariffs with border-adjustable value-added taxes is also 
donor bait. Unless VAT enactment is broad-based as part of a tax reform 
that leaves most families off of the tax rolls, industries will pour 
money into campaign coffers to try to get exemptions for their 
products. Please see the second attachment for more about how trade 
policy and tax reform interact.

VAT enactment's advantage is that incurring such taxes without inviting 
retaliation. Raising tariffs invites trade wars, as our recent 
experience proves. The biggest improvement in our trade policy is the 
recent change in Administrations. Our current President will not pursue 
gunboat trade policy and will make infrastructure happen without having 
an elusive infrastructure week.

Trade is an area where climate change must be addressed. Global warming 
requires a global solution. On warming in general, there is no doubt 
that it is man-made. While there was a warm period around the first 
millennium, we came to it gradually.

Industrialization may have ended what is called the Little Ice Age, but 
that warming is sudden and has dire consequences. We do not know that 
it will stop the way it did in the Middle Ages, indeed, it is not 
likely to, which makes these hearings vital. Starting with the coasts, 
there will be sea level rise. The flooding shown in Vice President 
Gore's latest film shows how bad it is getting.

The wealthy don't seem to care about sea level rise, because they have 
flood insurance. The most basic step to at least get wealthier 
taxpayers on board (including the upper-middle class) is to cap flood 
insurance benefits to a level where beach houses properties can no 
longer be insured. Even that small step could never be enacted. Too 
many donors have beach houses.

Our economic system is the problem. Until we move to something more 
cooperative, the well-off will turn their economic power into political 
power.

Without a technical solution (like fusion, which Koch et al. are slow-
rolling) all the incentives in the world will not stop plutocrats from 
scuttling every attempt at regulating emissions. Historically, unless 
people start dying from the air, as they are in China and did in 
Pennsylvania from the smog, nothing gets done. The river had to be 
actually burning in Cleveland before anything was done.

Expanding freight rail should be a big part of that story. It saves 
energy and emits less carbon. While this will impact long-haul 
trucking, a growing economy, fueled by families with more money, will 
more than make up the difference in short-haul delivery.

Many ports will need to change configurations to expand freight rail 
and reduce reliance on long-haul trucking. This is a luxury problem. 
Such problems are a perfect object for expanded federal assistance to 
our railroad infrastructure. Either loans or grants should fit the 
bill. Higher motor vehicle fuel taxes can help transport goods as well 
as people.

A carbon value-added tax (rather than a simple carbon tax embedded in 
the price) will better allow consumer choice for both consumers and 
distributors. Polluters will only accept carbon taxes as an alternative 
to direct regulation. If we dropped fuel efficiency standards and 
imposed carbon taxes instead, I suspect that car makers and the energy 
industry would jump on board.

Some level of regulation, like some level of social welfare, helps save 
business owners from themselves. One need only remember the smog that 
blanketed Beijing during their Olympics to see what happens from 
minimal regulation. China is now going all in on renewable energy. Will 
we learn the same lesson?

We have the capacity to do both. Regulations need to be ramped up AND 
Carbon Value-Added Taxes need to be enacted to fund infrastructure and 
research into technical solutions like Helium-3 fusion and electric 
cars which receive computer control and power from a covered roof 
deck--preferably one topped with grass.

I use the term carbon value-added tax (CVAT) because energy prices are 
tax inelastic. When energy is needed, it is purchased, especially for 
transportation. Unless gasoline taxes approach $4 per gallon, people 
simply fill up their SUV's and cope with the price changes. There is 
plenty of space to increase gas taxes before consumers change their 
behavior.

Because energy expenses are inelastic, price information needs 
invoicing to help make intelligent choices and to educate the public on 
the necessity for these taxes. Nothing wakes people up like seeing 
something on an invoice.

The Fair Tax, the Green New Deal, Carbon Taxes, and Goods and Services 
(Credit Invoice) Taxes all assume some sort of subsidy to hold poor 
families harmless--some kind of rebate or prebate. Many even believe 
that levying such taxes could be a good way to increase household 
income to for poorer families, which would also produce economic 
growth. I agree that subsidizing families will increase growth, however 
I submit that the best way to do so is through either existing 
subsidies or wages.

Recent changes to the Child Tax Credit are the best trade 
infrastructure we can hope for, although a higher minimum wage is even 
more desirable. People need more money to buy imported goods and to go 
back into the labor force. There are many discouraged workers, some of 
which turn to less than legal means to earn an income. It is time to 
allow them back into the light. Work does not meet the needs of many 
workers. Now is the time to change this.

Increasing the Child Tax Credit, making it permanently refundable and 
establishing a carbon VAT should all be elements of comprehensive tax 
reform. The nation has already taken steps on the journey to reform in 
passing the American Rescue Plan Act. Reform should be bipartisan so 
that it has staying power. One possible point of compromise is to end 
the requirement for all but the wealthiest to file income tax.

Our tax reform plan is designed to provide adequate income and services 
to families (both with increased minimum wages and child tax credits) 
through employer-paid taxes, funding government services through a 
goods and services tax, separating out taxation of capital gains and 
income from income to an asset value added tax and higher tier 
subtraction VAT collections on wage income up to the $340,000 level and 
above, with additional personal income taxation for incomes over 
$425,000. Please see our third attachment for details.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

Attachment One--Debt as Class Warfare, September 24, 2020

Visibility into how the national debt, held by both the public and the 
government at the household level, sheds light on why Social Security, 
rather than payments for interest on the public debt, are a concern of 
so many sponsored advocacy institutions across the political spectrum.

Direct household attribution exists through direct bond holdings, 
income provided by Social Security payments and secondary financial 
instruments backed with debt assets. Using the Federal Reserve Consumer 
Finance Survey and federal worker and Social Security payment and tax 
information, we have calculated who owes and who owns the national debt 
by income quintile. Federal Reserve and Bank holdings are attributed 
based on household checking and savings account sizes.

Responsibility to repay the debt is attributed based on personal income 
tax collection. Payroll taxes create an asset for the payer, so they 
are not included in the calculation of who owes the debt. Calculations 
based on debt held when our study on the debt was published, 
distributed based on the latest data (2017) from the IRS Data Book show 
a ratio of $16.5 of debt for every dollar of income tax paid.

This table shows a summary level distribution of income, national debt 
and debt assets in three groupings based on share of Adjusted Gross 
Income received, rather than by number of households. This answers the 
perennial question of who is in the middle class.


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Amounts (Billions)
                                                                 -------------------------------------------------------------------------------------------------------------------------------
      Descending Cumulative         Millions of     Millions of                                                       Held by
           Percentiles             Returns Filed  Returns Paying                    Income Tax      Gross Debt        Federal                         Held in         Held in      Assets Net of
                                                        Tax             AGI            Paid          (Factor)       Reserve and    Held in Bonds     Personal       Government    Debt Liability
                                                                                                       16.55           Banks                         Accounts          Debt
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All returns total                          143.3            99.4          10,937           1,601          26,500           5,238           4,222           3,854           5,384         (7,802)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Top 5% IRS, 8.5% CPS, $208,053               7.2             7.2           3,995             947          15,671           2,926           3,693           2,411             294         (6,347)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5%-25% IRS, 8.5%-37.2% CPS,                 28.7            28.3           3,566             432           7,146           1,399             529           1,046           1,238         (2,934)
 $83,682
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bottom 75% IRS, 62.8% CPS, $0              107.5            63.9           3,375             223           3,683             913               -             397           3,852           1,479
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


The bottom 75% of taxpaying units hold few, if any, public debt assets 
in the form of Treasury Bonds or Securities or in accounts holding such 
assets. Their main national debt assets are held on their behalf by the 
Government. They are owed more debt than they owe through taxes.

The next highest 20% (the middle class), hold few bonds, a third of 
bond-backed financial assets and a quarter of government held 
retirement assets.

The top 5% (roughly 8.5% of households) own the vast majority of non-
government retirement holdings and collect (and roll-over) most net 
interest payments. This stratum owns very little of retirement assets 
held by the government, hence their interest in controlling these 
costs. Their excess liability over assets is mostly attributable to 
internationally held debt. Roughly $4 Trillion of this debt is held by 
institutions, with the rest held by individual bond holds, including 
debt held by members of this stratum in off-shore accounts.

Source: Settling (and Squaring) Accounts: Who Really Owes the National 
Debt? Who Owns It?, available from Amazon at https://www.amazon.com/dp/
B08FRQFF8S.

Attachment Two--Trade Policy

Consumption taxes could have a big impact on workers, industry and 
consumers. Enacting an I-VAT is far superior to a tariff. The more 
government costs are loaded onto an I-VAT the better.

If the employer portion of Old-Age and Survivors Insurance, as well as 
all of disability and hospital insurance are decoupled from income and 
credited equally and personal retirement accounts are not used, there 
is no reason not to load them onto an I-VAT. This tax is zero rated at 
export and fully burdens imports.

Seen another way, to not put as much taxation into VAT as possible is 
to enact an unconstitutional export tax. Adopting an I-VAT is superior 
to it's weak sister, the Destination Based Cash Flow Tax that was 
contemplated for inclusion in the TCJA. It would have run afoul of WTO 
rules on taxing corporate income. I-VAT, which taxes both labor and 
profit, does not.

The second tax applicable to trade is a Subtraction VAT or S-VAT. This 
tax is designed to benefit the families of workers through direct 
subsidies, such as an enlarged child tax credit, or indirect subsidies 
used by employers to provide health insurance or tuition reimbursement, 
even including direct medical care and elementary school tuition. As 
such, S-VAT cannot be border adjustable. Doing so would take away 
needed family benefits. As such, it is really part of compensation. 
While we could run all compensation through the public sector.

The S-VAT could have a huge impact on long term trade policy, probably 
much more than trade treaties, if one of the deductions from the tax is 
purchase of employer voting stock (in equal dollar amounts for each 
worker). Over a fairly short period of time, much of American industry, 
if not employee-owned outright (and there are other policies to 
accelerate this, like ESOP conversion) will give workers enough of a 
share to greatly impact wages, management hiring and compensation and 
dealing with overseas subsidiaries and the supply chain--as well as 
impacting certain legal provisions that limit the fiduciary impact of 
management decision to improving short-term profitability (at least 
that is the excuse managers give for not privileging job retention).

Employee owners will find it in their own interest to give their 
overseas subsidiaries and their supply chain's employees the same deal 
that they get as far as employee ownership plus an equivalent standard 
of living. The same pay is not necessary, currency markets will adjust 
once worker standards of living rise. Attachment Three further 
discusses employee ownership.

Over time, ownership will change the economies of the nations we trade 
with, as working in employee-owned companies will become the market 
preference and force other firms to adopt similar policies (in much the 
same way that, even without a tax benefit for purchasing stock, 
employee-owned companies that become more democratic or even more 
socialistic, will force all other employers to adopt similar measures 
to compete for the best workers and professionals).

In the long run, trade will no longer be an issue. Internal company 
dynamics will replace the need for trade agreements as capitalists lose 
the ability to pit the interest of one nation's workers against the 
others. This approach is also the most effective way to deal with the 
advance of robotics. If the workers own the robots, wages are swapped 
for profits with the profits going where they will enhance consumption 
without such devices as a guaranteed income.

Attachment Three--Tax Reform, Center for Fiscal Equity, March 5, 2021

Individual payroll taxes. These are optional taxes for Old-Age and 
Survivors Insurance after age 60 for widows or 62 for retirees. We say 
optional because the collection of these taxes occurs if an income 
sensitive retirement income is deemed necessary for program acceptance. 
Higher incomes for most seniors would result if an employer 
contribution funded by the Subtraction VAT described below were 
credited on an equal dollar basis to all workers. If employee taxes are 
retained, the ceiling should be lowered to $85,000 to reduce benefits 
paid to wealthier individuals and a $16,000 floor should be established 
so that Earned Income Tax Credits are no longer needed. Subsidies for 
single workers should be abandoned in favor of radically higher minimum 
wages.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $85,000 per 
year, will range from 6.5% to 26%. This tax will fund net interest on 
the debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction. Transferring OASDI employer funding from 
existing payroll taxes would increase the rate but would allow it to 
decline over time. So would peace.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises and inherited assets will be reset, with prior tax payments 
for that asset eliminated so that the seller gets no benefit from them. 
In this perspective, it is the owner's increase in value that is taxed. 
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will 
fund the same spending items as income or S-VAT surtaxes.

This tax will end Tax Gap issues owed by high income individuals. A 26% 
rate is between the GOP 24% rate (including ACA-SM and Pease surtaxes) 
and the Democratic 28% rate. It's time to quit playing football with 
tax rates to attract side bets. A single rate also stops gaming forms 
of ownership. Lower rates are not as regressive as they seem. Only the 
wealthy have capital gains in any significant amount. The de facto rate 
for everyone else is zero.

The mutual fund exemption will be repealed. It is the biggest tax 
shelter is the use of money market funds to accumulate capital gains 
and income without taxation. This practice must end if salary surtaxes 
no longer include non-salaried income. 75% of such funds are held by 
the top 10% of households as measured by the 2019 Survey of Consumer 
Finance by the Federal Reserve. I suspect the other 20% are held by 
high income retirees. The working class will not be harmed. Applying 
the Pareto Rule to higher income households leaves the top 1450 
households with 30% of wealth. The proof of this proposition is the 
shareholders list of Berkshire Hathaway.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.

      Employer paid educational costs in lieu of taxes are provided as 
either employee-directed contributions to the public or private 
unionized school of their choice or direct tuition payments for 
employee children or for workers (including ESL and remedial skills). 
Wages will be paid to students to meet opportunity costs.

      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee-ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits. Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility, 
which allows comparison shopping based on carbon content, even if it 
means a more expensive item with lower carbon is purchased. C-VAT would 
also replace fuel taxes. It will fund transportation costs, including 
mass transit, and research into alternative fuels (including fusion). 
This tax would not be border adjustable.

Summary

This plan can be summarized as a list of specific actions:

1.  Increase the standard deduction to workers making salaried income 
of $425,001 and over, shifting business filing to a separate tax on 
employers and eliminating all credits and deductions--starting at 6.5%, 
going up to 26%, in $85,000 brackets.

2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

3.  End personal filing for incomes under $425,000.

4.  Employers distribute the child tax credit with wages as an offset 
to their quarterly tax filing (ending annual filings).

5.  Employers collect and pay lower tier income taxes, starting at 
$85,000 at 6.5%, with an increase to 13% for all salary payments over 
$170,000 going up 6.5% for every $85,000--up to $340,000.

6.  Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes to 
employers, remove caps on employer payroll taxes and credit them to 
workers on an equal dollar basis.

7.  Employer paid taxes could as easily be called a subtraction VAT, 
abolishing corporate income taxes. These should not be zero rated at 
the border.

8.  Expand current state/federal intergovernmental subtraction VAT to a 
full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

9.  Change employee OASI of 6.5% from $18,000 to $85,000 income.

                                 ______
                                 
                          Fortive Corporation

                           6920 Seaway Blvd.

                           Everett, WA 98203

                              425-446-5000

                          https://fortive.com/

We appreciate the opportunity to provide comments on the hearing before 
the Senate Finance Committee, ``Defending and Investing in U.S. 
Competitiveness,'' particularly as these goals implicate tax and 
economic policies that stand to impact the U.S. business community 
domestically and abroad. We offer our commentary in the hope that it 
will assist the Committee in its ongoing efforts to draft tax 
revisions, provide additional context as to how certain proposals will 
impact Fortive Corporation (``Fortive,'' ``We''), and highlight the 
impacts of the proposals on the Committee's goal of promoting U.S. 
competitiveness.

Furthermore, we refer to the proposals issued thus far in the White 
House's American Jobs Plan (released March 31, 2021) and the Treasury 
Department's General Explanation of the Administration's Fiscal Year 
2022 Revenue Proposals, commonly referred to as the Green Book 
(released May 28, 2021), collectively throughout the following as the 
``Administration's Proposals.''

Fortive is a provider of essential technology for business customers 
that helps them accelerate progress in their critical workflows across 
diverse set of global industries. Headquartered in Everett, Washington, 
Fortive earns approximately $5 billion in annual revenue and proudly 
employs over 11,000 highly skilled individuals in all U.S. states and 
the District of Columbia.

Fortive businesses are leaders across their respective industries, 
driving breakthrough innovation in three segments: Intelligent 
Operating Solutions, Advanced Healthcare Solutions, and Precision 
Technologies. Fortive's Intelligent Operating Solutions segment 
provides software and advanced instrumentation solutions to ensure 
safety and compliance, improve energy efficiency, and optimize 
performance. Our Advanced Healthcare Solutions segment provides 
advanced technologies to help healthcare providers ensure critical 
safety standards are met, medical instruments are operating at peak 
performance, and complex procedures are followed accurately in a 
dynamic environment. The Precision Technologies segment provides 
precise and reliable solutions to technical challenges in food and 
beverage production, semiconductor and electronics manufacturing, next-
generation communications, and clean energy.

Recognizing how critical robust infrastructure is to the U.S. economy, 
we support the current legislative efforts to invest in necessary 
improvements. We appreciate such investments will provide opportunities 
for U.S. businesses, like Fortive, that provide essential technologies 
utilized in infrastructure projects. We recognize that to invest in 
infrastructure, revisions to tax and economic policy must be 
considered. With that in mind, we firmly believe that the Congress and 
its Committees should maintain focus on broad goals that will benefit 
the community of highly innovative, U.S.-headquartered companies with 
an approach of ``Keep, Create, and Capture''. Such an approach to 
potential U.S. tax revisions will ensure the U.S. will continue to 
support domestic economic prosperity by enhancing business growth, 
creating jobs, stimulating innovation, and expanding the United States 
tax base, to the benefit of the country and its citizens.

To that end, Fortive proposes to the Committee the following 
principles, which we believe will help achieve the purported goals 
identified by this hearing of investing in and defending U.S. 
competitiveness:

    (i)  Ensure the U.S. keeps or retains valuable assets and 
activities, including U.S.-based intellectual property (IP), critical 
manufacturing, high-value-added services, research and development 
(R&D), and supply chain.

    (ii)  Incentivize the creation and growth of valuable, domestic IP 
and associated high-value jobs and services.

    (iii)  Foster an environment that supports the ability of U.S. 
businesses to capture high value assets and activities that are 
currently outside of the U.S. in a cost-effective manner.

With that approach in mind, we provide the following comments and 
suggestions in connection with certain aspects within the proposed 
themes for tax revision released thus far.

  I. Foreign-Derived Intangible Income (FDII) and Other R&D Incentives

Our experience as a taxpayer is that the FDII deduction has provided a 
compelling incentive for keeping and expanding within the United States 
valuable, taxable economic activities that otherwise might not have 
remained in the United States. To that end, the FDII regime has proven 
to be an effective tool for keeping economic activities in the United 
States, including R&D conducted by highly skilled U.S. employees, which 
has been one of the long-standing, bipartisan goals of Congress.

The Administration's Proposals have questioned the effectiveness and 
incentives created by FDII, focusing on certain fact patterns that have 
been perceived as creating undesired results. The Administration's 
Proposals would repeal FDII and replace it with a much narrower 
incentive for R&D leaving behind current incentives to other types of 
activities and functions that can be equally valuable to R&D (e.g., 
highly skilled services provided to support global operations).

We agree that R&D incentives, such as an enhanced credit, will be 
effective in creating new value-driving assets. FDII and R&D incentives 
should complement each other to keep and create value, while protecting 
the United States tax base.

Fortive's position: Retain FDII and the valuable incentives that keep 
investment in highly valuable functions and assets in the United 
States. Where necessary, Congress should consider implementing 
targeted, limited revisions to the FDII regime addressing fact patterns 
perceived as undesired. Additional R&D incentives must be considered by 
Congress to further create taxable valuable activities in the United 
States.

          II. On-Shoring of IP and Other Value-Driving Assets

In addition to maintaining the FDII regime, Fortive also identifies the 
need to address both policy that imparts penalizing action for positive 
behavior and other effective incentives that could assist in greater 
capture of value-driving assets and subsequent taxable income in the 
United States.

Specifically, certain elements of existing tax law penalize U.S.-
headquartered multinationals like Fortive for taking proactive steps to 
onshore to the United States high-value assets and functions. For 
example, a foreign income ``exit'' tax related to tested income-
generating activities (i.e., subject to the GILTI) may not be fully 
creditable in the United States, thereby resulting in double-taxation 
and creating barriers to the inbounding of high-value assets and 
functions to the United States.

Fortive's position: With the purpose of capturing an increased tax 
base, Congress should consider creating measures to facilitate 
efficient distributions of IP and other high-value assets and functions 
into the United States; for example, allowing for such distributions to 
be a return of basis and utilizing an available tax attribute. Further, 
Congress should consider including such transactions in the general 
basket, when they would otherwise be captured in the GILTI basket. This 
proposal would address the current unintended penalty a U.S. company 
faces when they do not receive full foreign tax credit, thus facing 
double-taxation, when on-shoring valuable assets.

            III. Global Intangible Low-Taxed Income (GILTI)

The GILTI was enacted in 2017 as part of the TCJA, enhancing the United 
States' anti-deferral regime and capturing the great majority of 
foreign earnings of certain foreign corporation of U.S.-headquarter 
multinationals.

The GILTI is currently determined on an annual basis, without any 
opportunity for adjustments based on timing differences and without any 
opportunity for the carry-forward of foreign taxes to prevent double-
taxation. Considering the wide base of the GILTI, certain changes in 
the Administration's Proposals can exacerbate the competitive 
disadvantages faced by domestic companies relative to their foreign 
competitors.

Under the Proposal, GILTI would be calculated on a jurisdiction-by-
jurisdiction basis. For Fortive (and other U.S.-headquartered 
multinationals), this would result in added complexity and increased 
compliance cost. Further, the year-by-year calculation requirement of 
the GILTI and disallowance of adjustments for timing differences 
(related to earnings (losses) and foreign taxes) are expected to result 
in double taxation and an increased tax cost to U.S.-headquartered 
corporations in doing businesses in most foreign countries, reducing 
competitiveness of U.S.-headquartered corporations.

Fortive's Position: The country-by-country determination of the GILTI 
must be reconsidered and properly weighted against its costs to 
taxpayers and expected adverse impact on the competitiveness of U.S.-
headquartered corporations relative to their non-U.S. peer companies. 
In addition, Congress should consider allowing for adjustments related 
to timing differences within the GILTI regime.

                               IV. SHIELD

The Administration's Proposals would repeal the TCJA's Base Erosion 
Anti-Abuse Tax (BEAT) and replace it with a regime named ``stopping 
harmful inversions and ending low-tax developments'' (SHIELD). The 
SHIELD would apply to financial reporting groups with greater than $500 
million in global annual revenues. The SHIELD would disallow deductions 
by reference to all payments made or deemed made to ``low-taxed 
members'' of the taxpayer's financial reporting group. Notably, the 
SHIELD does not carve out cost of goods sold (COGS), effectively 
treating it as a deduction rather than a reduction to gross revenue. If 
captured by the SHIELD, the COGS disallowance can result in double 
taxation by effectively recasting U.S.-headquartered companies as 
inverted companies.

Fortive's position: Congress should minimize the potential for double 
taxation when considering the SHIELD. COGS should be treated as a 
reduction to gross revenue and not as a deduction that may be subject 
to disallowance. In addition, deductible payments that are included in 
income under the subpart F or GILTI regimes should be carved out from 
the SHIELD regime.

                   V. Interest Deduction Limitations

Existing tax law, found under Sec. 163(j), includes provisions that 
limit the deductibility of interest expense over certain thresholds. 
Companies, like Fortive, face strategic cash-management decisions when 
making significant investments, such as building new manufacturing 
sites, investing in large-scale R&D, or making business acquisitions. 
Given the anticipated increase in the baseline U.S. federal income tax 
rate, taxpayers will face a direct impact to their cash position that 
will complicate and potentially deter such investment decisions.

Fortive's position: Congress should consider offering relief on 
interest deduction limitations to provide taxpayers with treasury 
management flexibility to make U.S. investments in light of the cash 
impact of an incremental federal tax rate.

                             VI. Conclusion

In sum, our aforementioned suggestions are rooted on the principles to 
keep, create and capture IP and other high-value assets and functions 
in the United States. These suggestions are respectfully intended to 
assist the Committee and Congress in achieving their objective to 
strengthen the global competitiveness of U.S.-headquartered companies 
like Fortive who continue to invest in innovation, high-skilled jobs, 
and services within the United States. We believe this principled 
approach will facilitate economic growth, whilst increasing the U.S. 
tax base and collections for Treasury. We sincerely thank the Senate 
Finance Committee for taking the time to consider our principled 
approach to tax policy of keep, create, and capture.

If you have any questions regarding our comments or need more 
information, please contact Jenn Bowers, VP Tax at 
[email protected] or 425-446-5000.

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