[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
NATIONAL ECONOMIC SECURITY, ADVANCING U.S.
INTERESTS ABROAD
=======================================================================
HEARING
OF THE
SUBCOMMITTEE ON EAST ASIA AND PACIFIC
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
May 14, 2025
__________
Serial No. 119-18
__________
Printed for the use of the Committee on Foreign Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov
or http://www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
60-912PDF WASHINGTON : 2025
COMMITTEE ON FOREIGN AFFAIRS
BRIAN J. MAST, Florida, Chairman
MICHAEL T. McCAUL, Texas GREGORY W. MEEKS, New York,
CHRISTOPHER H. SMITH, New Jersey Ranking Member
JOE WILSON,, South Carolina BRAD SHERMAN, California
SCOTT PERRY, Pennsylvania GERALD E. CONNOLLY, Virginia
DARRELL ISSA, California WILLIAM R. KEATING, Massachusetts
TIM BURCHETT, Tennessee AMI BERA, California
MARK E. GREEN, Tennessee JOAQUIN CASTRO, Texas
ANDY BARR, Kentucky DINA TITUS, Nevada
RONNY JACKSON, Texas TED LIEU, California
YOUNG KIM, California SARA JACOBS, California
MARIA ELVIRA SALAZAR, Florida SHEILA CHERFILUS-McCORMICK,
BILL HUIZENGA, Michigan Florida
AUMUA AMATA COLEMAN RADEWAGEN, GREG STANTON, Arizona
American Samoa JARED MOSKOWITZ, Florida
WARREN DAVIDSON, Ohio JONATHAN L. JACKSON, Illinois
JAMES R. BAIRD, Indiana SYDNEY KAMLAGER-DOVE, California
THOMAS H. KEAN, JR, New Jersey JIM COSTA, California
MICHAEL LAWLER, New York GABE AMO, Rhode Island
CORY MILLS, Florida KWEISI MFUME, Maryland
KEITH SELF, Texas PRAMILA JAYAPAL, Washington
RYAN K. ZINKE, Montana GEORGE LATIMER, New York
JAMES C. MOYLAN, Guam JOHNNY OLSZEWSKI Jr, Maryland
ANNA PAULINA LUNA, Florida JULIE JOHNSON, Texas
JEFFERSON SHREVE, Indiana SARAH McBRIDE, Delaware
SHERI BIGGS, South Carolina BRADLEY SCOTT SCHNEIDER, Illinois
MICHAEL BAUMGARTNER, Washington MADELEINE DEAN, Pennsylvania
RYAN MACKENZIE, Pennsylvania
James Langenderfer, Majority Staff Director
Sajit Gandhi, Minority Staff Director
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SUBCOMMITTEE ON EAST ASIA AND PACIFIC
YOUNG KIM, California, Chairwoman
MICHAEL T. McCAUL, Texas AMI BERA, California, Ranking
ANDY BARR, Kentucky Member
AUMUA AMATA COLEMAN RADEWAGEN, BRAD SHERMAN, California
American Samoa JOAQUIN CASTRO, Texas
RYAN ZINKE, Montana JARED MOSKOWITZ, Florida
JAMES MOYLAN, Guam GABE AMO, Rhode Island
SHERI BIGGS, South Carolina JOHNNY OLSZEWSKI, Maryland
RYAN MACKENZIE, Pennsylvania
Tom Hill, Subcommittee Staff Director
C O N T E N T S
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REPRESENTATIVES
Page
Opening Statement of Chairwoman Young Kim........................ 1
Opening Statement of Ranking Member Ami Bera..................... 2
WITNESSES
Statement of Elaine Dezenski, Senior Director and Head of the
Center on Economic and Financial Power, The Foundation for
Defense of Democracies......................................... 4
Prepared Statement............................................. 7
Statement of William Norris, Associate Professor, Texas A&M
University..................................................... 16
Prepared Statement............................................. 19
Statement of Wendy Cutler, Vice President, Asia Society Policy
Institute...................................................... 39
Prepared Statement............................................. 41
Statement of Matthew P. Goodman, Director of the Greenberg Center
for Geoeconomic Studies, Council on Foreign Relations.......... 47
Prepared Statement............................................. 49
APPENDIX
Hearing Notice................................................... 74
Hearing Minutes.................................................. 76
Hearing Attendance............................................... 77
Material for the Record
Slides submitted by William Norris............................... 78
NATIONAL ECONOMIC SECURITY, ADVANCING U.S.
INTERESTS ABROAD
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Wednesday, May 14, 2025
House of Representatives,
Subcommittee on East Asia and Pacific,
Committee on Foreign Affairs,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2172, Rayburn House Office Building, Hon. Young Kim (chair
of the subcommittee) presiding.
Ms. Kim. Good morning, everyone. The Subcommittee on East
Asia and the Pacific will come to order. The purpose of this
hearing is to discuss how the United States could prioritize
economic statecraft more effectively and efficiently, taking
special notice of the role of the Department of State. So let
me now recognize myself for an opening statement.
OPENING STATEMENT OF CHAIRWOMAN YOUNG KIM
Ms. Kim. Good morning and welcome to the East Asia and the
Pacific Subcommittee's National Economic Security, Advancing
U.S. Interests Abroad. In 2019, Ambassador William Burns, one
of our most decorated diplomats and former CIA director,
described the Department of State as adrift. Over the years,
the department has had trouble finding its purpose, as
functions and authorities have been stripped away or absorbed
by the National Security Council, Department of Defense, and
even agencies traditionally focused on domestic issues.
For more than 170 years, economic statecraft was led by the
Department of State. This changed in 1961, when President
Kennedy sought to expand the administrative State, pulling
functions and authorities out of the department to create new
agencies and organizations, including the United States Trade
Representative, which would be responsible for conducting all
U.S. trade and investment diplomacy.
The justification for pulling these trade and investment
functions out of the department was to improve the government's
capacity to prioritize and support U.S. businesses, strengthen
the export performance of U.S. industry, and assure fair
international trade practices. However, it has, effectively,
split our economic interests from our diplomatic priorities,
which has resulted in several challenges.
The first challenge is that it has not helped increase the
ability of U.S. businesses to access foreign markets. In
practice, the Foreign Commercial Service and Foreign
Agriculture Service officers are few in number and often
positioned at U.S. embassies without alignment to
ourpriorities. When I travel abroad, I routinely meet with FCS
personnel who explain that they spend most of their time
engaged in trade shows and organizing events with minimal
direct work on increasing and securing market access for
American businesses. Because they are siloed off from our
diplomatic efforts of the Department of State, they are
restricted in leveraging the other tools in our diplomatic
toolkit to assist American companies.
The second challenge is that the American market has been
left susceptible to predatory foreign competition. Our ability
to protect American businesses and workers has been severely
hampered, leading to calls from across the country for the
executive to act and repatriate entire industries and sectors.
President Trump, like his predecessors, has repeatedly said
that economic security, economic policy is. Unfortunately, we
have not implemented the structural reforms needed to mobilize
that sentiment.
Even President Obama asked Congress for the authority to
consolidate six agencies with trade and investment functions in
2012. This request was not supported by Congress. Bipartisan
administrations have independently come to the same conclusion:
the current alignment of functions and agencies charged with
leading our economic statecraft effort is in need of structural
reform.
I agree that economic security is national security, and
the key question we will be asking today is what structural
reforms are necessary to reflect this prioritization? So we
intend to answer that question in our committee's first
comprehensive State authorization legislation that we will be
doing in more than 20 years.
Let me now recognize Ranking Member Ami Bera for your
opening remarks.
OPENING STATEMENT OF RANKING MEMBER AMI BERA
Mr. Bera. Thank you, Madam Chairwoman. And I also just want
to recognize and appreciate that, in our conversations setting
up this hearing, that we set up a bipartisan panel, so I do
appreciate that because, again, market access, you know,
helping our companies be successful around the world is not a
Democratic or a Republican agenda item. It is something that I
think we all care about.
I appreciate the witnesses. You know, I obviously have
gotten to know Wendy Cutler and Matt Goodman over the years and
have had the pleasure of working with them and certainly
looking forward to hearing from the Republican witnesses. I
have said this a lot, you know: had I had a magic wand, we
would go back to 2014 and we would have had TPP in place and,
you know, we would have had a framework for the movement of
goods and services. We are not there yet, so we are where we
are.
I do think it is incredibly important for us, as we go
through a State Department authorization process, this is not
exactly how I would have gone about reorganizing the State
Department. I would have done it in a slightly different way
than President Trump has chosen to do it, but we find ourselves
with an opportunity to think about what a 21st century State
Department would look like, what 21st century tools of economic
engagement, economic development, of trade, of tariffs would
look like and where that's best housed.
I know, in our analysis, as we have talked to others, I do
think it is incredibly important to have economics as part of
the State Department, to have representatives around the world
within our embassies out there promoting U.S. goods, products,
working with our companies to help them navigate, you know,
foreign markets and so forth. I also think it is very
important, you know, as we watch these tariff conversations
unfold, that we take it as an opportunity perhaps to remove
tariff barriers. You know, again, this isn't exactly how I
would have gone about doing it. I certainly would not have
targeted, you know, countries like Australia where we actually
have a trade surplus, you know, close allies, like Japan and
Korea. But I am happy that the president is prioritizing some
of the Indo-Pacific nations as first places to enter into
negotiations and, you know, having just returned from Korea,
having some real interesting conversations. The U.S. Trade
Representative is in Korea right now engaging in some of those,
have had conversations with the Japanese and others.
Also, I think there is a unique opportunity with the ASEAN
nations. We had dinner a few weeks ago with the ASEAN
Ambassadors, and they are looking for guidance here in terms of
how to approach this. But there is a very real recognition from
the Southeast Asia nations that they don't want the United
States to leave these markets, so I do think there is an
opportunity there.
I think some of the important things that were accomplished
under the Biden administration were programs like the Mineral
Security Partnership. These are important programs in the sense
that, you know, as we look for redundant supply chains, so
we're not solely dependent on a single source, in this case on
Beijing and the PRC. It is an opportunity for us to work with
like-valued allies, like Japan, Korea, Australia, to build
redundant supply chains for these rare earth elements and
critical minerals. I think you need State Department diplomacy
to help negotiate a lot of these deals and so forth. So I think
we should be very careful in dismantling some of this
expertise.
Last, I would say, you know, while IPEF was not exactly how
I would approach trade, I think digital trade is incredibly
important to what we do economically. I think getting a digital
trade, digital services deal done that doesn't disadvantage
U.S. companies, U.S. technology companies where we're dominant
is incredibly important. I think, again, in these trade tariff
negotiations and conversations, I think there is strong
bipartisan support for us to get a context and some digital
services trade framework done.
So, again, I look forward to hearing from the witnesses and
from your expertise. Thank you, and I will yield back.
Ms. Kim. Thank you, ranking member. The other members of
the committee are reminded that opening statements may be
submitted for the record.
We are pleased to have a distinguished panel of witnesses
before us today on this very important topic. First, Ms. Elaine
Dezenski. She is a Senior Director and head of the Center on
Economic and Financial Power at the Foundation for Defense of
Democracies. The center produces actionable research and policy
proposals to address global economic threats, illicit finance
and supply chain vulnerabilities, while promoting the forceful
use of economic power to advance American interests. She has
more than two decades of experience in government, industry,
academia, and international organizations, building an
expertise in economic statecraft, supply chain resilience,
illicit finance, anti-corruption, and national security. Thank
you for joining us.
Dr. William Norris is an Associate Professor of Chinese
Foreign and Security Policy at the George Bush School of
Government and Public Service at Texas A&M University. He is
also the director of the Economic Statecraft Program where he
focuses on the strategic relationship between economics and
national security. He is a recipient of the World Politics and
Statecraft Fellowship by the Smith Richardson Foundation. Thank
you for joining us.
Ms. Wendy Cutler, Vice President at the Asia Society Policy
Institute and the managing director of the Washington D.C.
office. In these roles, she focuses on leading initiatives that
address challenges related to trade, investment, and
innovation. Previously, she spent nearly three decades as a
diplomat and negotiator in the office of the USTR working on a
range of bilateral, regional, and multilateral trade
negotiations and initiatives. Thank you for joining us.
Last, Mr. Matthew Goodman is a distinguished fellow and
director of the Greenberg Center for Geoeconomic Studies at the
Council of Foreign Relations. He leads the RealEcon:
Reimagining American Economic Leadership initiative, exploring
the U.S. role in the international economy. Prior to joining
the council, he served as the senior vice president for
economics and Simon chair in political economy at the Center
for Strategic and International Studies. He was also the
Director for International Economics on the National Security
Council staff during the second administration under President
Obama. Thank you so much for joining us.
Now, the committee recognizes the importance of the issues
before us and we are so grateful to have you here to speak with
us today. Your full statements will be made part of the record,
and I will ask each of you to keep your spoken remarks to 5
minutes in order to allow time for member questions.
Let me now recognize Ms. Dezenski for your opening remark.
STATEMENT OF ELAINE DEZENSKI
Ms. Dezenski. Chairwoman Kim, Ranking Member Bera, members
of the subcommittee, thank you so much for the opportunity to
testify. It is an honor to be here today.
The United States has too often responded to serious
geopolitical challenges in an unserious way, failing to prepare
for either crises or opportunities and poorly employing one of
America's most potent weapons: our economic power. In 2008,
Russia invaded Georgia. America was unprepared. In 2014, Russia
invaded Ukraine and illegally annexed Crimea. Again, America
was unprepared. In 2022, Russia, again, invaded Ukraine and
started a war that killed hundreds of thousands of soldiers and
civilians. Somehow, once again, we were unprepared.
In each case, our economic power was either underutilized
or disregarded. Sanctions, when they came, were ad hoc,
incremental, and did more to push the war into a stalemate than
to bring peace. Poorly enforced export controls led to blatant
evasion, and leaky oil caps gave rise to a shadow fleet
flotilla.
Russia is not the exception. The Arab Spring blossomed and
died without meaningful U.S. economic support. Venezuelan
elections were stolen, and a handful of officials are
sanctioned. A coup overthrows democracy in Myanmar, and
America's enormous economic power sits idle. Over and over, the
U.S. responds to global crises with a fragmented toolkit: a
sanction here, an export control there. Disconnected, delayed,
and diluted.
Still, we have unmatched strengths: the world's reserve
currency, deep capital markets, innovative companies. And, yet,
we spread our economic power across dozens of siloed agencies
without a central strategy or command structure. Technology
isn't maximized, enforcement isn't prioritized, intelligence
isn't operationalized.
Now is the ideal time to change this. We are in an economic
moment of opportunity that we haven't seen in 80 years. We need
to seize this period of trade awakening to elevate economic
statecraft as a key tenet of U.S. foreign policy and driver of
national security. We can no longer treat adversaries and chaos
agents the same as allies and rule followers. To push back, we
must use the power of our markets to defend our markets by
creating a Near-Global Economy. American capital and consumers
should not be open to every rogue nation or evil empire. Access
to our markets must be reserved for those who accept market
principles, and access to our currency must be granted to those
who don't manipulate their own.
The status quo must change and quickly. As my written
testimony lays out, the State Department is well placed to meet
the new global moment of economic engagement by reinforcing
foreign policy strengths and developing new economic policy
capabilities.
We must begin, however, with a recognition that we may have
launched an economic war without an economic pentagon. To
address our organizational deficiencies will require dedicated
new leadership, such as establishing a Deputy Secretary of
State for Economic Security, that could lead a new Interagency
Economic Command Center. It will require new specialists on
economic security within the diplomatic corps to translate
strategies into country-level action and feed local
intelligence back into policy.
It will require new planning capacities to proactively war
game risk scenarios and develop pre-planned economic strike
packages and reserve staff to call up in times of crisis. It
will require innovative new tools, like an Economic Strike
Force, to provide a conditional support package when a regime
is toppled or a reformer comes to power to support banking,
trade, and sustain jobs for potential new allies during periods
of upheaval. And it will require modernizing our economic
statecraft efforts with new technology, real-time data, and
innovative intelligence tools.
New capacities, better training, and leading-edge
technology are all essential. But there must also be an
institutional shift of culture and mindset. Economic security
must go beyond isolated sanctions and export controls to a
coordinated strategy that deploys tariffs, investment
screening, supply chain initiatives, transparency mechanisms,
and foreign development in a more integrated way.
As I show in a graphic on the final page of my written
testimony, the wide variety of statecraft tools are integrated
gears that drive the engine of America's economic power
projection. With the right leadership, the right tools, and the
right strategy, we can unleash the full potential of that
engine. We can bring American economic power to bear faster,
smarter, and with purpose. We can deter aggression, support
allies, and help anchor a Near-Global Economy that is stable,
free, open, and fair.
Thank you. I look forward to your questions.
[The prepared statement of Ms. Dezenski follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Kim. Thank you. I now recognize Dr. Norris for your
opening statement.
STATEMENT OF WILLIAM NORRIS
Mr. Norris. Thank you, Chairwoman Kim, Ranking Member Bera,
members of the subcommittee. I thank you for the opportunity to
speak today. My comments are my own. I am not representing my
employer, Texas A&M University, nor the Bush School of
Government and Public Service. This testimony represents my own
views and does not reflect the endorsement or perspective of
any other organization with which I am or have been affiliated.
I would like to cover three topics in my oral testimony
today. First, I am going to provide an innovative definition of
economic statecraft itself, which I hope will be constructive.
Then I will briefly suggest a simple way to improve how we
approach economic statecraft strategy. I will be suggesting
that we shift our way of thinking away from a tools-based
approach oriented exclusively around the authorities that exist
in the U.S. Government and toward more of an end-State approach
of desired effects and what we are trying to accomplish with
that. I will end with some general principles that I hope will
help guide our path forward as we endeavor to do economic
statecraft better.
Economic statecraft itself can be something of a Rorschach
test. What you see when you look at it depends heavily on where
you sit. For example, if you're at OFAC and you are an analyst
at Treasury, you think of economic statecraft primarily as
sanctions. If you are in the Commerce Department, economic
statecraft is about promoting U.S. businesses abroad or perhaps
it is about economic export controls if you are at the Bureau
of Industry and Security. The point is many people now care
about economic statecraft, but we don't really have a common
definition or lexicon on this important topic yet.
My work at the Economic Statecraft Program at Texas A&M
University has thought long and hard about this, and we have
come up with what I think might be a useful way for thinking
about the phenomenon of economic statecraft. It starts with
commercial actors themselves. Most of economics is not done by
countries, although we report macroeconomic data at the
national level. Most of the actual work being done in economic
domains is done by firms. I call them commercial actors because
they also want to include things like state-owned enterprises
or sovereign wealth funds. These entities will make decisions
primarily based on their own self-interests, and, from time to
time, those decisions about where to locate a factory, how to
design a supply chain, are going to have implications for
national security that matter for countries.
When countries decide that they care about these
externalities or these kinds of strategic effects and they
decide they want to shape the incentives facing those
commercial actors, that is economic statecraft. And that
definition, I think, allows us to have a much wider aperture
about what is inbounds, and I think a lot of the comments
already have kind of listed through a number of different tools
that we have used in the recent past, but what is lacking is a
sense of coherence of strategy, of integration, and of
coordination across those tools.
So the typology that I included in the slides in the
written testimony provides a little bit of a framework for
thinking about the different ways that economic activity can
read down to an impact on national security.
We are a rules-based society; and, currently, we are
organized on the basis of legal authorities that the U.S.
Government has to do economic statecraft. But these authorities
are scattered across more than 1,400 different offices that are
spread across 13 departments and 10 agencies with very little
coordinating capacity across those silos. Most parts of the
U.S. Government lack the ability to do any kind of economic
statecraft campaign planning, contingency modeling, strategic
forecasting, any kind of meaningful economic analysis from a
statecraft perspective or an evaluation of impact. So there is
very little capability to kind of do that coherently and in a
strategic fashion today.
Instead of this tools-based approach, I suggest organizing
ourselves around the desired strategic effects is a better way
to do economic statecraft. Those are those six externalities I
kind of walk through in the written testimony.
In conclusion, I would like to suggest a few key principles
that I think might be constructed to help guide us as we
endeavor to more effectively design mechanisms by which to do
economic statecraft. In many ways, we are embarking on
unchartered territory for the United States. As we proceed, I
think you will be well served to keep efforts grounded in
longstanding values and principles that have been a key part of
the U.S. success story. Here is a couple of them as I see them:
The first one is we have to work with the American private
sector, not against it. A lot of the sanctions paradigm
inherently pits interests that the commercial sector are going
to have against the wishes of government, and that is just
fundamentally a conflictual kind of relationship.
The second, our national power ultimately derives from U.S.
economic growth and innovation. Increasing long-run
productivity gains is really the key to succeeding in any
international competition of duration.
Third, we need to be very careful about industrial policy,
protectionism, or other sorts of market-distorting measures, as
these can easily become politically ingrained and they can lead
to inefficiencies and a failure to innovate in the long run.
Fourth, government initiatives are most effective when they
are focused simply and directly on addressing market failures.
And, last, I think it is important for us to be humble. We
are going to try out a lot of things. The stakes are just too
high for us to simply do nothing in the face of the challenges
that you have already heard about this morning. As you proceed,
I would suggest building in the capacity to reevaluate and
explicitly take stock of whether things are working or not.
In my written testimony, I have also included a number of
specific ideas and recommendations for how we might think about
enhancing the USG abilities in this domain of economic
statecraft. These involve organizational ideas, ways to improve
our human capital, and processes to enhance effectiveness.
I would now like to respond to any questions that the
committee may have.
[The prepared statement of Mr. Norris follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Kim. Thank you, Dr. Norris. I now recognize Ms. Cutler
for your opening statement.
STATEMENT OF WENDY CUTLER
Ms. Cutler. Thank you, Chairwoman Kim, Ranking Member Bera,
and distinguished members of the subcommittee. Thank you so
much for inviting me to testify before you today. Having worked
on trade policy in the U.S. Government for over 30 years,
mainly at USTR, but also Commerce, I have seen firsthand what
has worked and what could stand improvement. And I
wholeheartedly agree with the committee's premise for this
hearing: namely, that in today's environment, economic policy
is, indeed, foreign policy and economic security is national
security.
Over the past few months, I have traveled to Asia
extensively and have conversed with many delegations in
Washington negotiating trade agreements. My Asian colleagues
have shared with me their deep concerns about the direction of
U.S. trade and economic policy and the atmosphere of
uncertainty it has created. They do not understand the U.S. end
game, particularly if we seek their cooperation to counter
China. Some have gone so far as to say they no longer know the
United States, which looks increasingly unreliable and inward-
looking. And though encouraged by the recent de-escalation of
U.S.--China trade tensions, Asian partners are concerned that
their window for navigating between American and Chinese
pressure is closing.
As a result, diversification efforts are underway away from
the United States. These efforts have taken on a new urgency.
Asian partners are launching new trade and economic
initiatives, updating existing trade pacts, and seeking new
members to join these arrangements. And as we continue to
retreat from leadership, Chinese officials are stepping up
their so-called charm offensive, trying to woo countries by
offering to build new railways and bridges, lift sanctions, and
portraying Beijing as the defender of the multilateral rules-
based system.
While Beijing is extending carrots, the U.S. is favoring a
stick approach in the form of high tariffs as we dismantle many
U.S. foreign aid and assistance programs. The contrast could
not be starker. Successful economic statecraft cannot be
achieved solely by thinking how we should reorganize or
restructure at home. It must be anchored in a coherent, fair,
and sustainable economic and trade policy framework.
The global economic landscape has changed dramatically in
recent years but our economic policy frameworks have not kept
pace. And based on my decades of working with State Department
officials, I offer a few personal observations:
First, I believe that the personnel rotational system at
State works against State officials playing a more central role
on economic matters. Trade negotiations often require technical
expertise and take multiple years to negotiate, while State
Department assignments typically last two or 3 years.
Second, economic jobs are generally viewed more as
backwater assignments at State with ambitious Foreign Service
officers preferring to stay in the foreign policy and security
lanes. Regarding how the U.S. Government should organize itself
to address economic statecraft, economic security, and trade
more effectively, it's safe to say that, if we could start from
scratch, our current model whereby key functions are scattered
among many agencies would not be the first choice.
If we look to centralize all of these functions under one
roof, in my view, none of the existing agencies are fit for
purpose. At a time when the United States is trying to rebuild
a bipartisan consensus supportive of trade, I believe moving
the trade policy functions to State would send the absolutely
wrong signal, namely that broader geopolitical objectives would
be given more weight than the views of U.S. workers,
businesses, and communities.
Moreover, creating a new agency that brings all of these
functions under one roof, I believe, would be fraught with
bureaucratic and cost challenges. Thus, I contend that the best
way to proceed is to implement a set of specific reforms and,
in my testimony, offer four proposals for your consideration,
including elevating the importance of economic matters at the
State Department; having State clearly in the lead on specified
international economic matters; establishing a new U.S.
governmentwide fast-track program to recruit and promote and
retain international economic officers; and, finally, as
Chairman Kim suggested, folding the Foreign Commercial Service
back into the State Department.
But, in conclusion, let's keep in mind that government
reorganization, while a worthy exercise, will not succeed if we
don't get our policies right. Thank you.
[The prepared statement of Ms. Cutler follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Kim. Thank you, Ms. Cutler. I now recognize Mr. Goodman
for your opening statement.
STATEMENT OF MATTHEW P. GOODMAN
Mr. Goodman. Thank you, Madam Chairwoman, ranking member,
members of the committee, for this opportunity to testify
today. I would like to make three points, and I might sneak in
a fourth one based on what Wendy just said if I have time.
First, at a tumultuous time, we need to keep our eye on
enduring U.S. interests. In my written submission, I said we
are going through a kind of historical hurricane in which the
global economic order that the United States, effectively,
created and championed for decades was being upended. The Trump
administration's tariffs and disruption of the institutions and
norms of that order are clearly the latest phase of that storm,
but you could argue the order has been teetering since the
first decade of this century, buffeted by the so-called China
shock, the inflows of cheap manufactured goods before and after
China joined the WTO in 2001, that devastated certain sectors
and geographies in the United States and the global financial
crisis later that decade. And, of course, we have had the
emergence of other risks, from global pandemics to climate
change to technological developments that have given rise to a
new area of policy in Washington: economic security or managing
economic-related risks to the threat in national security or
the foundations of the economy.
When you are in a hurricane, naturally, your focus is on
protecting your family and property, on battening down the
hatches, on ducking and covering; and it is hard to see past
the storm to the landscape beyond. But for the United States,
we have other enduring interests that go beyond just protecting
ourselves. To advance our economic and strategic interests, we
need to engage affirmatively in the global economy.
Economically, we need trade and investment, fair and resilient
trade and investment, to tap into the three-quarters of the
global economy and 95 percent of consumers located outside the
United States.
Strategically, we need to complement our military presence
around the world with economic engagement. Our allies and
partners want us to do both. And we have what I call strategic
economic interests, namely the need to continue championing our
preferred rules, norms, and standards around the world, while
others are seeking to champion theirs.
As this committee knows well, all of these interests,
economic, strategic, and strategic economic are especially
important in the Asia-Pacific region where most of our big
challenges and opportunities lie. I am very concerned that we
have no Asian economic strategy to speak of at the moment and,
arguably, haven't for a number of years, leaving others to move
ahead with their own arrangements to advance their economic and
strategic interests and spread their own preferred rules.
Against this backdrop, my second point is that the United
States needs a smart economic statecraft to advance our
interests. Economic statecraft is a two-sided coin: using U.S.
economic power and leverage to advance our strategic and
foreign policy interests and using our diplomacy to advance our
economic interests. Smart economic statecraft needs to be
balanced, especially between defensive and offensive efforts.
We need to both promote and protect--sorry--protect and promote
our economic interests through policies ranging from export
controls to affirmative trade negotiations. We also need to
balance costs and benefits and balance international and
domestic policies to make sure that we are maximizing our
economic position and our strategic benefits and to win the
support of Americans, which is very important.
Strategic economic statecraft also needs to be leveraged in
the sense that the U.S. Government alone doesn't have the
resources and capabilities to do everything we need to do. We
need to crowd in both the private sector and our allies and
partners to reinforce our statecraft on both the offensive and
defensive sides.
My third and final point is that all of this requires a
capable State Department that puts a priority on economic
diplomacy. State's comparative advantage among U.S. Government
agencies is its reach, its presence in 175 countries around the
world and ability to operate across government and society in
those countries. The so-called E-line at State where the
economic bureaus are housed is one of the few parts of the U.S.
Government that works on both promote and protect sides of
economic statecraft, everything from commercial advocacy to
economic security, such as the Minerals Security Partnership
that Congressman Bera mentioned and pushing back on economic
coercion, for example. They have done a lot of great work
there.
What the State Department needs is a culture that values
economic work more highly, and this, in turns, requires
leadership and signaling from the top and resources to do the
job. And I fear that the cuts to State's budget that have been
proposed will come disproportionately at the expense of the
department's economic functions.
Thank you for your attention. I have more to say about
government reorganization and happy to talk about that if you
would like to ask questions----
Ms. Kim. We can do that during Q&A, I'm sure. So thank you,
Mr. Goodman.
[The prepared statement of Mr. Goodman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Kim. I now recognize myself for the 5-minutes of
questioning.
I want to start by saying there has been a lot of
suggestions about ways to elevate our economic statecraft
regime. You may know Dr. Henry Farrell and Dr. Abraham Newman,
they wrote in their article for Foreign Affairs in October 2023
that the U.S. needs a comprehensive economic security strategy
to outline how the U.S. could implement its de-risking
strategy.
Dr. Norris, I know the working group that you led has done
a lot of outside-the-box thinking on how to align economic and
national security resources. So can you share your thoughts on
the idea advocated by some to create an economic security
intelligence apparatus aligned with other intelligence arms of
the U.S. government?
Mr. Norris. Sure. I think that the suggestion is probably
coming into a space that has, for a long time, been relatively
under-resourced and under-provisioned. A lot of intelligence
focuses around military or strategic intelligence. Economic
intelligence is done widely in the private sector but not
nearly to the same scale or breadth in government, and so I
think that there is potentially a positive contribution to be
made around building out our capacity of being able to do
economic security intelligence.
The comment about Farrell and Newman's work, I think it is
pretty emblematic in political science because it tends to
conceive of economic tools of national power through a
relatively coercive lens. And I agree that is an important part
of how these things work, but it is not the only part. And it
may not necessarily be the thing that the United States is best
at, so I would encourage the committee to think more broadly
and holistically about economic tools of national power. Thank
you.
Ms. Kim. Thank you. You know, should Congress consider
reviving the Office of Technology Assessment, that provided
legislative branch with scientific advice? What is your
thinking on that?
Mr. Norris. I am not a technical specialist, so I always
find technical advice to be very constructive in a policy
domain. I think that it is useful in terms of informing good
policy. It provides that kind of information flow back and
forth.
Ms. Kim. Let me go to Ms. Dezenski. In April 2024, you
wrote an article published in the FDD website. I think the
title was Economic Security is National Security in which you
seem to support the idea of creating a new Economic Security
Council to be used as a referee to mitigate the disputes
between the NSC and NEC. Is that still your view, and how do
you feel about the Economic Security Council idea today?
Ms. Dezenski. I do think it is still a good idea to have
that strong interagency engagement and the ability to close the
gap across the siloed organizations and regulatory authorities
and policies that are being used right now. So I think we need
that more than ever.
Ms. Kim. Thank you. The department has struggled to find
its purpose as its most important authorities and functions
have been absorbed by other agencies, as I mentioned in my
opening remarks. This is especially true when it comes to our
economic statecraft. Presidents Obama, Trump, both made efforts
to move USTR. And President Obama proposed to consolidate it
with five other agencies, and President Trump said it should be
absorbed by Commerce. So there is bipartisan belief that USAR's
current independent status is undesirable.
Dr. Norris, where should USTR reside? And I would like to
ask Ms. Dezenski to also answer the question. Should
international economic statecraft be led by single agency? And
if so, which agency should lead it? Can you both tackle that?
Mr. Norris. Sure. So USTR plays a very important role in
spearheading trade efforts on the part of the U.S. Government.
I think what is missing has been the ability to integrate that
into a larger strategy and security strategy. At various times,
we have integrated it. And so I think that, when we think about
where it ought to live and what functions it performs, I think
it needs to be considered under the larger umbrella of strategy
and how that role feeds into U.S. strategy. Whether it is to
expand free trade agreements or to constrict them, all those
things kind of matter from a strategy perspective.
Ms. Kim. Thank you. Yes, I am going to give some time.
Ms. Dezenski. Thank you. With respect to who should lead on
economic statecraft, I think there's a leadership role across a
variety of organizations and tools and authorities, as I
mentioned in the testimony; but I do think there is an
opportunity for State Department to take a lead coordination
role. It just feels like the time is right for this. It has to
reside somewhere. The interagency process is valuable and
meaningful, but there needs to be leadership that connects
strategy to operational implementation and coordination. And
because we are now in what I think is a full-scale pivot to an
economic security power projection era, that [economic
security] is foreign policy now. So I believe it makes sense to
create a leadership function within State Department.
Ms. Kim. Thank you. Let me now recognize the ranking member
for your 5 minutes of questioning.
Mr. Bera. Thank you, Madam Chairwoman. Just kind of
listening to the opening statements of the four witnesses, I
actually think you guys agree on a lot more than you disagree
upon, and I think that is going to be incredibly important
because we are at a pivotal moment where we are rethinking what
national security, global security, economic security looks
like in the 21st century.
It's a simplistic view, but the 75 years post World War II,
I do think the United States put together an economic framework
that benefited the entire world, you know, created relative
peace and prosperity and, at times, disadvantaged us. But,
again, being the dominant economy in the world, I think we
could do that in those 75 years, rebuilding Japan, creating a
natural competitor but also a stable democracy, you know,
watching South Korea go from one of the poorest countries in
the world to the tenth largest economy in the world and a
natural ally, a stable democracy, rebuilding Europe, you know,
through the Marshall Plan but also creating relative stability
on the peninsula.
I'd argue, you know, two decades ago, three decades ago
with China, the approach was the same, thinking that, Okay, if
we normalize trading relations, you know, China would create a
middle class, an entrepreneur class. And you could argue in
2010 that they were on that path, but, today, it is very
different. I mean, Xi Jinping has, you know, taken China into a
very different direction.
I think some of that is rethinking where we are, but I also
think the internal politics of the United States have changed
where the basis of the Democrat Party was the working class
union workers in the middle of the country. That formed the
base of a lot of Donald Trump's victory right now, and, you
know, it is interesting to hear me, as a Democrat, sometimes,
be more of a free trade person than some of my Republican
colleagues. Again, there's just a recasting.
So a couple of things. You know, I do think it will be
incredibly important in these next, you know, 2 years, 4 years,
10 years, as we try to think what is a 21st century global
economic order, it is going to be different than the past. And
I think this is a worthwhile exercise, but it can't be a
partisan exercise because, if all it is is Republican policy
for 2 years or 4 years, then Democratic policy for 2 years or 4
years, that will really disadvantage us as a Nation. And what
served us well in the 20th century was we had an American
policy, an American strategy, whether you agreed with that or
didn't.
I have a couple of things that do cause me some worry,
though. One is where the private sector and shareholder
activism sits here, and what I mean by that is, you know, when
I was in Shanghai a decade ago visiting a GM plant, the Chinese
owned 51 percent of that plant and GM owned 49 percent of that
plant, and they very much knew the Chinese were learning how to
build cars. And as soon as they figured out how to build those
cars and sold that technology, they would kick them out. Yet,
they continued to do that because they were so concerned about
quarter-over-quarter profits because of what their shareholders
and the pressure that CEOs were under.
I think that is a bad way to drive economic strategy
because I think, you know, there is short-term profits but
long-term disadvantages. I don't know exactly how to solve
that, but I have raised that with many of the American leading
CEOs. And they would love for us to solve that issue because
they don't want to deal with those shareholders and that
activism. They would rather build companies for long-term and
long-term profits. I think that is incredibly important.
I do think, you know, Ms. Cutler and Mr. Goodman, both of
you, I think, Wendy, you said the economic policy jobs were
backwater jobs at State. We have heard that repeatedly. And, in
this framework, I think we have to elevate and make those jobs
more significant. What that looks like across an interagency
process, I don't exactly know. I think it is components of
diplomacy. It is components of market access, promotion, et
cetera, and how that looks, if it's a single agency, if it is
an interagency task force. Again, you guys are smarter than I
am on this.
Mr. Goodman, you talked a little bit about, you weren't
able to get to government re-framework, so let me give you the
last 30 seconds to touch on that.
Mr. Goodman. Thank you, Congressman. And I agree with
everything you've just said. And the point I wanted to make is
to foot stomp what Wendy said, which is that it is really less
about organization than it is about strategy and policy. I
mean, we have to get that right.
I actually, having worked twice in the National Security
Council staff under very powerful deputy national security
advisors for international economics, respectively in the Bush
and Obama White Houses, they ran a pretty good process of
pulling agencies together and getting them to coordinate. I
actually think you could do it that way. You still need a very
empowered State Department, but I would keep the agencies with
their individual comparative advantages doing what they do best
and then have a really tight White House process to coordinate
it.
Mr. Barr. The gentleman's time is expired. I recognize
myself now for 5 minutes. And as I reflect on the insightful
testimony of all of our witnesses, I want to make an initial
observation. I wholeheartedly agree with Mr. Goodman's
observation that sound smart foreign policy involves economic
statecraft, involves economic engagement. And there is a
narrative, I think, communicated by some that the America First
strategy of the current administration is disengagement and
that allows China to fill a vacuum. I actually see it the
opposite way. As Secretary Bessent rightly pointed out, America
First is not America alone. And while the tariff strategy has
created some uncertainties and turbulence, what it has done is
actually deepened engagement, not disengagement but deepened
negotiations with partners, allies, and adversaries, like
China, to actually get us to a point where there is more
American leadership and engagement in the world on the economic
front.
I think this has the enormous potential to achieve greater,
more bilateral, more reciprocal trade deals that give American
exporters more market access and, therefore, more leverage and
economic influence in the world. And look just to yesterday to
see the $600 billion commitment from Saudi Arabia of more
foreign direct investment in the United States to see that
there is massive economic engagement like we have never seen
with this America First strategy.
Let me ask Dr. Norris a question about what Mr. Goodman
says is smart economic statecraft. In February, President Trump
issued a national security memorandum entitled America First
Investment Policy directing Federal agencies to address
outbound investments into China. I think this is smart economic
statecraft. I think it is very smart to stop financing Chinese
military industrial complex companies.
I also would say, though, I very much appreciate, Dr.
Norris, your pointing out that we should not try to fight the
American private sector, that our national power ultimately
derives from U.S. economic growth and innovation, and so we
need to be careful about mimicking Chinese industrial policy.
We should counter China not by becoming more like China but by
being the best version of ourselves. Our advantage, I always
say, is that we are capitalists and they are communists, and so
they misallocate capital and their industrial mercantilist
policy is not what we want to emulate.
So can you speak about what is the right way to screen and
stop investments and capital flows into China that threaten our
national security while, at the same time, adhering to our free
market cross-border capital flow ethos?
Mr. Norris. So I think this idea of outbound investments is
an important topic. I think that you are exactly right when you
say we need to do us better and not try to copy what they are
doing or try to mimic exactly what they are doing. The way I
think about this is these kind of investment flows are going to
generate things that matter for national security, so what can
we do better on this? We have to be specific and precise in
saying here is why this is bad for national security. It
doesn't have to be public, but somebody needs to know, they
need to be able to do that analysis. And then they need to be
able to have mechanisms that allows us to put a stop to that
kind of behavior because it is going to be detrimental to U.S.
national security.
I think this dovetails with something that Ranking Member
Bera also talked about in terms of the key to U.S. success for
most of the 20th century was that we found a system that was
able to have other countries' pursuit of their self-interests
read down to America's best interests. That is the secret
sauce. That is what we are after today, I think.
As we start thinking about strategies and ways to design
systems, we want to capture and harness these naturally
incurring incentive structures. So companies want to make
money. They want to manage their quarterly profits. That is a
feature, not a bug, in my opinion; but you also have the
importance of long-term capital. Warren Buffett has achieved a
lot of success with a very long-term vision. There is a space
for that, but we have to be smart about harnessing these
incentives. That is where the policymakers come into play. That
is our jobs. We have to think creatively, and we have to think
about what are those incentives. If everybody looks out for
their best interests, what is going to be the macro result of
that?
That is kind of the framework that I am trying to suggest
to you all is, as you think about these security externalities,
that is the thing that is not going to be endogenized into the
transaction.
Mr. Barr. I wanted to talk about DFC as an important tool
for economic statecraft. I don't have time. Let me just ask
this final simple question. Dr. Norris, can you speak to the
importance of fiscal responsibility and lowering our deficits
to protect strong demand for U.S. Treasury securities and the
dollar's dominance? Why is that important to national security?
Mr. Norris. Yes. As all of you will appreciate, the U.S.
serving as the world's reserve currency gives us a lot of
privileges. We are unique in this regard. The United States is
a $30 trillion economy, and we, as government stewards of
public capital, always have to think about being prudent with
how we allocate and use those resources.
In my opinion, our real strength resides in the private
sector. What we have to do is find a way to harness those
proclivities and naturally occurring tendencies to read down to
the national security interests.
Mr. Barr. My time is expired. Growth, growth, growth. Thank
you very much. And, at this point, I recognize the gentleman
from Texas, Mr. Castro, for 5 minutes.
Mr. Castro. Thank you, Chair. Thank you all, each of you,
for your expertise and testimony today. We started the year as
the most powerful, most prosperous nation on Earth, and the way
I approach it is, when you're going to make changes to that,
those changes better be such that they make us even stronger.
That is not to say that there aren't deep challenges that we
face, particularly domestically, issues that we need to address
for workers and so forth and even in trade policy. But I think
it is fair to say that the last few months, in terms of
economics around the world and trade policy, it has been
chaotic.
I remember, when President Obama was in office, one of the
critiques of the American business community of his presidency
was the uncertainty. Everybody was using that word, the
uncertainty. Well, if that was uncertainty, this is chaos with
tariffs changing from day to day, a million different
negotiations supposedly going on with different countries. And
one of the effects, as I have had meetings with embassies and
with foreign leaders, is that the world is starting to move
around us.
Ms. Cutler, you mentioned diversification, and I imagine
you meant diversification, countries are diversifying their own
economics and their trading partners. And I wanted to see if
you would speak to that a little bit with respect to Asia and
the fact that, as to them, from their perspective, not our
perspective, but, to them, as we become a less reliable trading
partner and economic partner, what do they do?
Ms. Cutler. Well, it is not only that they are viewing us
as unreliable, but they are also viewing us as no longer as
interested in the rules-based trading system. And so I think
both of those factors are motivating other countries to become
less reliant on us and work with countries where they have
common interests and, frankly, for many small and medium-sized
countries, a strong WTO, for example, is in their interest.
What we are seeing now, though, is countries forging new
agreements and expediting negotiations that seemed impossible
just years ago. So, for example, the U.K. and India, just 2
weeks, concluded an agreement that was under negotiation for
many years. We have seen now the European Union express
interest in somehow aligning itself with the CPTPP, something
that, for years, they said they would never do. And we are also
seeing other countries express interest in either joining the
Regional Comprehensive Economic Partnership or CPTPP or
different digital agreements. And, ultimately, as all of these
agreements are being forced without us, we are disadvantaged.
We do not get those benefits.
I think this trend is very concerning, and I hope that we
can work together to find a way to convince our partners that
we want to engage with them, we want to seek win/win
agreements, and that we still see merit in a rules-based
international order.
Mr. Castro. No, absolutely. And I think it is fair to say
that this has been a kind of shakeup, but the world is not a
snow globe. Things don't just go back to exactly where they
were once everything settles down, right?
I'm the ranking member on the Western Hemispheres
Subcommittee and was meeting with folks from Mexico who said
they are pursuing a free trade agreement with Brazil, for
example. And so you see different regions of the world trying
to come together in their own ways. Mr. Goodman.
Mr. Goodman. Yes. I totally agree that this is really the
problem, that we used to write rules, get others to agree with
our approach to rules, standards, norms, of international
economic behavior, and that was very much in our interest.
Frankly, it was in their interest, too; but it was, ultimately,
in our interest. And we are giving up that by not having some
kind of more affirmative offering of our preferred rules,
including, by the way, I meant to say earlier, to Congressman
Bera's point in the digital space, I think that is really
critical where we pulled out of an effort to try to get people
to agree to our preferred digital rules. So we need to do more
of that, or others are going to make other arrangements.
Mr. Castro. In my 20 seconds, other witness, quick
comments?
Ms. Dezenski. I will just say that, from my perspective,
the rules-based system is broken. The global trade order is no
longer something that we have been able to manage, and the
problem behind this is China. And this requires a reset of
significant magnitude. Why? Not only because we need to
rebalance trade but because we need to free our defense
industrial base from dependency on Chinese supply chains, and
we need to move toward real wage growth and productivity in
this country. And we won't get there if we continue to be in
this deficit orientation without a rebalancing of trade.
Mr. Castro. My time is up. I apologize.
Ms. Kim. Thank you, Mr. Castro. You know, during my travels
and visit with our embassies abroad, we always, in a bipartisan
way, express our appreciation for the work that they do to
represent our U.S. interests. But I have also been unimpressed
with the efforts made to assist American businesses in gaining
market access and competing on an international level.
So I want to ask all panel what inhibits our current export
promotion regime from producing the results that our companies
and constituents desire? Let's start with you, Ms. Dezenski.
Ms. Dezenski. Sure. Thank you. Well, first and foremost is
the ability to be competitive. So I think we need to do a
better job at providing some incentives through EXIM, for
example, and export financing. We need to be better
cheerleaders for U.S. companies abroad. We need better terms of
engagement, which is what at least some of this tariff
negotiation is about: opening up foreign markets in ways that
were not open previously.
So we need to do a much better job in terms of setting the
conditions for American companies to be successful abroad and
to be able to compete in what is a fair and open market. That
is not what we have now.
Ms. Kim. Thank you. Mr. Norris. Dr. Norris.
Mr. Norris. Yes, I agree. I think there is a lot of
variation by country teams. In my experience, I think that some
countries do this really well and others don't; and so studying
that variation, why is it working somewhere, why is it not
working somewhere else, would be a useful way to proceed.
The thing that I would suggest is you might find in those
places where the country teams are really killing it is going
to be a very close working relationship with the major
industries and sectors and private sector players that have
opportunities in their host nations. That is probably not
coincidental. In formal mechanisms, a lot of what we are doing
today, I think a number of other panels have talked about this,
we are using these workarounds to get past some of the
institutional design failures that we are currently enmeshed
in, so that would be something else to kind of pay attention
to.
Ms. Kim. Thank you. Ms. Cutler.
Ms. Cutler. With respect to export promotion, I think this
is an area where State Department could play a more effective
role, particularly in our embassies abroad. And I think this
gets back to the whole notion of looking at the Foreign
Commercial Service and the State Department's economic offices.
I think, if they were merged, then there would be a lot of
synergies to help promote exports.
But, also, look, we need an infrastructure to help us
promote exports. It is one thing just to advise companies; but,
you know, our companies are competing against financing that
other governments are giving their private companies. And,
again, that puts our companies who are incredibly innovative
and competitive at a disadvantage. So I would urge the
committee to look at those structures, as well.
Ms. Kim. Thank you.
Mr. Goodman. And just very quickly to agree with all of
that and just say that I think, you know, the problem has
really been we haven't had a commitment at the highest levels,
that this is really important for our interests. Frankly, in
the last couple of administrations. So I think that is the
first thing: you need a real commitment from the top, I mean
from the president, to why this is important.
And then you need finance and you need other removal of
legal constraints, like other countries can just go and
advocate for a particular company. We can't do that, and, you
know, there is an argument about that because we don't want to
pick winners. But I think there is a way between our approach
and the French or Chinese approach that would be more helpful
to getting our products and services forward.
Ms. Kim. Ms. Cutler mentioned and then you also, Mr.
Goodman, financing is another way, and our committee is also
charged with authorizing or reauthorizing DFC, so we will
addressing that issue. But, in addition to that, what
suggestions do you have to improve our export promotion regime?
I want to ask the two, Mr. Norris and Dezenski, to also address
that, as well.
Mr. Norris. Yes. I think that capital provision is an
important dynamic here, not least because we're dealing with an
unfair playing field often. There is either a different risk
appetite or a different cost of capital.
One of the things, again, I don't want to sound like a
broken record, but I think it is really important to think
about how we can be good stewards of public resources and crown
in private capital. So things like EXIM, when they think about
being able to take some of the riskiest tranches off the table
and then the rest of it looks commercially viable, that is the
way to kind of get good leverage and good maximization when we
think about those resources.
Ms. Dezenski. I would just add that I think we need to
focus on the U.S. ground game abroad, and that is about
bringing together all of the capacities that we have in key
markets of interest to us, where we see the big opportunities
to expand our manufacturing and export opportunity. There are a
lot of them, but we don't really have a game plan.
Ms. Kim. Thank you. Let me now give the podium to Mr.
Olszewski for your 5 minutes of questioning.
Mr. Olszewski. Thank you, Chair Kim, to our Ranking Member
Bera for holding this hearing. It is actually a good followup
to an outstanding roundtable discussion we had just last week
with some of our Pacific Island Ambassadors discussing
partnerships and strengthening those in the region.
My takeaway was the overwhelming consensus was that that
region wants the U.S. to show up. They want us to be there,
even as they see what I think is a global retreat. And, again,
they were concerned about the on again, off again tariffs from
the administration. In some ways, it reinforced the point made
by my colleague, Representative Castro, about the world is
still moving. So, appreciate all of your testimony today on
that front.
That roundtable specifically touched on two issues I hope
to focus on with my time. One is the mounting debt crisis being
driven partly by Chinese lending practices, as well as
strengthening economic growth through a pact modeled on
something like AGOA, the African Growth and Opportunity Act.
We know that China's extensive lending policies on Pacific
Islands has resulted in unsustainable debt burdens. Tonga, for
example, relies heavily on international loans and is currently
saddled with more than $100 million in debt to China. That is
about 20 percent of its GDP. Not a one-off story. Over the past
20 years, China has become one of the largest lenders in the
region, and, often, governments then face an impossible choice:
do we cut spending on critical services or do we default on our
loans and risk access to future financing.
So we know that this is possible. We need to show up and
support our businesses, to the chair's point. Actually, there
is a great company in my home State of Maryland doing great
work. It is a company called InventWood. It is a supplier of
climate-resilient building materials in Frederick, Maryland. It
signed a landmark partnership with Tonga to advance climate-
resilient construction across the Pacific. So we want to be
incentivizing more partnerships like that for a model for
sustainable development.
We will start on the debt crisis, and we will start with
you, Mr. Goodman, and if others want to jump in. From your
perspective, how has Chinese lending contributed to the current
debt crisis in the Pacific Island countries and what are the
key risks for U.S. interests resulting from that?
Mr. Goodman. Yes. It is a huge problem globally, and the
Pacific Islands are very vulnerable to this model of Chinese
lending that is nontransparent and has hidden conditions
attached to it. This is something that there has been great
work done on this by a group in Williamsburg, AidData, and also
the Center for Global Development here in Washington have done
some great work on trying to expose the contracts and the terms
on which China is making this lending. I think that is one
thing that more transparency would be helpful.
I think we also need to find a way through diplomacy to try
to pull China into some of the international arrangements, like
the Paris Club, even if we have to rename it because China
doesn't want a club that was set up without them in it
originally. But we need to get them at the table to help with
some of the resolution of these debts, and it is an absolutely
critical issue.
But the final thing is the U.S. also has to offer some
alternative, and I haven't said the word DFC myself but just,
since others have mentioned, I should have said it is really
important that we reauthorize the DFC, give it more muscle,
power, let it fix the equity scoring problem, and make it a
more capable organization because, at the end of the day, that
is what the Pacific Islanders want: they want us to have a
better offer.
Mr. Olszewski. Yes. And I think we all agree on the
reauthorization. Any other points on that one? I have a second
question, a trade question, on the AGOA-like trade pact that
could signal, I think, a new commitment to the region and its
growth. What would--and we can start with Ms. Cutler and,
again, we will open it up if there is time. What will the
economic benefits be for the Pacific Islands and U.S.
businesses from a trade agreement modeled on AGOA? And what
sectors hold the most promise for expanding trade, and how can
we better incentivize more public-private partnerships like we
mentioned with InventWood back in Maryland?
Ms. Cutler. Well, I think you raised an excellent
suggestion, some kind of AGOA program for the Pacific Islands
because countries like this, as Matt said, then you said, they
very much want us to show up, they want to work with us, but
they need some benefits, right? And so even though these
programs provide unilateral benefits, they also very much
provide an opportunity for continued connectivity and
cooperation between the United States and these countries. So I
think that's a model that's worth looking at.
Mr. Olszewski. I have 20 seconds if any of the witnesses
wanted to chime in.
Mr. Norris. I was going to say I think that your comments
raise some awareness around making sure you understand what the
partners need, what are they looking for. So listening to what
is going to be resonant for them. And, also, this idea of
building capacity, being able to have that transparency around
these dead agreements, these are all things that are going to
reinforce good governance and I think are going to play to our
strengths. The key really is the commercial viability,
particularly with the Pacific Island nations. And some of them
struggle with that.
Mr. Olszewski. Thank you all. Madam Chair, I yield back.
Thank you.
Ms. Kim. Thank you. Let me recognize Rep. Moylan for his 5
minutes of questioning.
Mr. Moylan. Thank you, Miss Chairwoman. While national
security is often dominated by military sectors, the economic
domain has historically been the strongest tool in shaping
international affairs. So sitting on this committee and Armed
Services, I fully understand the importance of national
economic security's role alongside traditional military power,
but economic tools don't often get the bureaucratic limelight.
By advancing our cutting-edge technologies and building more
resilient supply chains, the United States continues to build
peace through trade deals and deter bad actors through
sanctions and tariffs.
As the U.S.--China trade negotiations become increasingly
high profile, we can't talk about national economic security
without addressing the relationship with the People's Republic
of China. While we have already implemented export controls on
PRC, the U.S. must do more to maintain our leadership in key
industries, like cyber, quantum technology, and AI.
Ultimately, the PRC's unilateral decisionmaking structure
makes many of its economic policies expedited and reliable,
making it hard for democracies like the U.S. to compete. So the
United States is faced with unique problems: how can the U.S.
economy diplomacy outcompete the PRC while maintaining our
values?
And as Guam sits closer to Asia than North America, I can
certainly tell you my appreciation for working with our foreign
partner nations. Large partnerships with organizations like
ASEAN or smaller free trade agreements have continued to
demonstrate the willingness and success that comes with less
constraint economic policies. In the State Department's
reauthorization, I think it is clear that we must combine
greater domestic investments while collaborating with our
allies in areas where the United States has comparative
disadvantages.
So, Ms. Dezenski, the Department of Commerce has published
The Dire Nature of U.S. Critical Mineral Supply Chains. With
regard to our supply chain reliance on foreign sources, what
diplomatic tools and instructional changes do you think could
properly address our dependency issues?
Ms. Dezenski. Thank you. I will just highlight that we have
a report coming out on this very issue in the next few weeks,
which is very specific to looking at dependencies in the
advanced battery supply chain and the role of critical
minerals. But let me just highlight a couple of the key
elements from that report because it applies across the board
for the challenge we face.
No. 1, we have to get control on processing of critical
minerals. We need to break that choke hold. China is not
necessarily controlling all critical minerals, but they are
definitely controlling the processing, and that has to stop. We
need to look at controlling for price volatility around core
commodities. It is making it really difficult for Western
manufacturers and processors to get into the critical mineral
space because of that. We also need to look at much deeper
partnerships with allies and partners who have the very same
problems about access to markets.
More broadly, I would say that we have a host of problems
with nonmarket practices coming out of China, and now is the
time to put that on the table, whether we are talking about
currency controls; capital controls; dumping, which is a
massive enforcement issue now for us; rules of origin
questions; you name it, these all contribute to why it becomes
so, so difficult for U.S. manufacturers and others to compete
in this global trade order.
Mr. Moylan. Thank you. Ms. Cutler, based on your experience
at the Office of U.S. Trade Representative, how should the U.S.
approach known adversaries in the competitive economic realm?
Additionally, is there a point where the U.S. should consider
revoking items, like the permanent normal trade relations?
Ms. Cutler. I think the key to addressing the China
challenge is working closely with our allies and partners. I
don't think we can effectively do this on our own, and so I am
concerned that, with our current trade policy, when we are
hitting our allies and partners with tariffs, they are busy
negotiating with us and I think time would be better spent,
frankly, working with them to address many of the practices
that my colleagues have expressed concern with with respect to
China.
Mr. Moylan. Thank you very much. I am out of time. I thank
the panel for your testimoneys. Thank you, Madam Chairwoman.
Ms. Kim. Let me now recognize Representative Sherman for
your 5 minutes of questioning.
Mr. Sherman. Comment on Mr. Barr's statement that we need
to deal with the deficit: that is why we need to avoid the tax
cuts that are being proposed in the Ways and Means Committee at
the present time. We did balance our budget in the 90's because
we locked in Clinton's tax policies, and then, in 1995, we
started spending like Republicans.
Mr. Barr also talks about how important it is that we have
the U.S. dollar be reserve currency. The crypto advocates have
made it very plain they want to take that away from us. When
somebody says what they are going to do to you, you should
listen.
Our chair asks us where should USTR be. I think it should
be in the State Department, but my fear is that then State will
make trade concessions in order to achieve other foreign policy
objectives because the people we have hired at the State
Department are people who dream of a Nobel Prize and study how
Metternich dealt with the Congress of Vienna.
We have got a distinguished panel here. You all have spent
a lot of time with State Department people. Putting aside the
political appointees, just on Civil Service and Foreign
Service, do any of you know any CPAs who are employed by the
State Department? No hands go up. Do any of you know any MBAs
personally who work--I see one. You are nodding, sir. Do you
actually know somebody well enough to name, an MBA? No. So we
have no MBAs. And do any of you, please raise your hands if
this applies, do you know anyone with 15 years international
business experience who is a civil servant with the Civil
Service or the Foreign Service of the State Department? I
assure you that, if this was the House of Commons, lots of
hands would have gone up. In every other country, business is
important.
But there is no way in which the State Department has the
greater flaw than their process of issuing visas. Nobody
becomes a Foreign Service officer to issue visas. We don't hire
people who want to issue visas. And so I have got to send an
apology letter to my cable company because I was, well, the
cable company, I was on the phone with them for an hour and
flipping it around and around, and I thought that was the worst
experience possible until last night when I tried to deal with
the consulate in Karachi. The process that we put people
through to get a tourist visa or a visa to come here and buy
our products shows that we don't care about tourism, we don't
care about products.
Ms. Dezenski points out that we have perhaps started an
economic war without a Pentagon. There is only one thing worse,
and that is if you have your general being bought off the way
Benedict Arnold was bought off. We have got this $400 million
plane. Not since the Greeks left a gift outside the walls of
Troy have we seen such a bad gift acceptance. We are going to
have to disassemble the plane looking for bugs. Then we are
going to have to outfit the plane with the most advanced
communications device, and then we, as a government, don't own
the plane. It is owned by Qatar, and they are going to transfer
it over to the Trump Foundation.
But more important perhaps is the $2 billion Abu Dhabi has
announced they are going to put in the Trump stablecoin. That
is, at minimum, a $2 billion interest-free loan to the Trump
Organization.
And then, finally, we have Trump coin. We can put up the
chart. Some 96 percent of this coin is owned by 40 wallets. The
press report says they are all owned by the Trump family, so
anybody who buys the Trump coin is putting 96 percent of their
money into those wallets. Everyone on this subcommittee, I
believe, voted to limit TikTok. We know how important that is.
We gave him 75 days. And now I would like to put in the record
an article from yesterday's New York Times, a tiny company with
China ties announce big purchase of Trump cryptocurrency and an
announcement that $300 million is going to be put into those 40
wallets by an entity with ties to TikTok that has, the entity
itself has eight employees and no revenue, but they have been
able to raise $300 billion from mysterious sources in a tax
haven country. And I want to quote Charlie Dent who served here
with distinction, a Republican member, a former chair of the
House Ethics Committee, when he said: Make no mistake, these
foreign entities and government obviously want to curry favor
with the president.
So the only thing worse than not having a Pentagon is
having a leading general who has been bought off. And with
that, I think my time is expired.
Ms. Kim. Thank you, Rep. Sherman. I think we are going for
another round of questioning, so let me first ask the next 2
minutes, I mean the next few minutes if Ms. Dezenski and Dr.
Norris could answer the question of if you can assess the
economic vulnerabilities of the United States to China, and
what should the United States do to take more active steps to
limit those vulnerabilities? And if so, what policies can you
recommend?
Ms. Dezenski. Thank you. I would point out a couple of
major vulnerabilities, one which I mentioned which is the
dependency of the U.S. defense industrial base on Chinese parts
and Chinese technology. I think that is something that is
untenable for us and needs to get rectified. How do we do that?
We have to look deep within those supply chains to understand
where to pull out that vulnerability and either bring
production home or transfer that to allies and partners through
some sort of ally-shoring.
There are critical dependencies on Chinese magnets,
certainly on critical minerals coming from China. These are
harder to solve, but we need a game plan and that also needs to
include some very targeted innovation.
The defense industrial base and we'll call it the U.S.
industrial base writ large is beginning to merge. A lot of the
advanced technologies are the same, whether we are talking
about manufacturing drones or manufacturing computers, et
cetera. A lot of the inputs are the same. So we also need to
think differently about these dependencies and how to get to
that.
In terms of, you know, what else we can be doing to
highlight those vulnerabilities, this is where we need a lot
more of that trade analysis and economic analysis that I
highlight in the testimony. We need to have an all-of-
government understanding of where these vulnerabilities are and
then start applying the tools to call out where, for example,
Chinese economic coercion may be stealing innovation from the
U.S. and forcing us to fall further behind.
Mr. Norris. Yes. I think I would classify the U.S.
vulnerabilities to China in this domain of economic statecraft
as being there are some that are acute that are sort of in the
near term, the next 6 to 12 to 18 months. And there is another
set that are longer term, this idea of creating alternative
orders that exclude the United States or have an alternative
center of gravity.
So I think those acute ones have gotten quite a bit of
attention, items like when China is the unique source of key
inputs, things like for some pharmaceutical precursors. The
list, I think, is well known to this committee. And what to do
about that, I think the thing I like to do about this is
stockpile if your competitor is subsidizing. I like buying it
below market prices, and I would like to buy a lot of it if it
is something I feel like I need for a rainy day. Diversifying
to partners and allies. When you have complementarity that
exists among trusted partners and allies, China has a scale
that is going to be, in certain areas, difficult for the United
States to match unilaterally, and that is where I think
partners and allies can really benefit the United States. And
then, of course, bringing it in-house, and some of this is
going to be able to be brought in-house, particularly if you
are concerned about security externalities and if there is very
clear reasons to be worried about stuff.
But I do want to couch my remarks in a broader concept that
the U.S. and the Chinese economies are the world's largest,
single largest two economics. With $30 trillion and $18
trillion, there is a big gap before you get to No. 3. These two
are deeply integrated today, and there is a small portion of
that integration that has direct national security
ramifications and that is what we should really be focusing on,
particularly in the acute timeframe.
In the bigger timeframe, if there is a real desire to
decouple, that is another sort of conversation and another
strategy. Is that, ultimately, in America's best interests, I
think, is a conversation we ought to be having as a Nation. I
don't necessarily have the right answer for you this morning on
that.
Ms. Kim. Thank you. Very helpful. Let me now ask the
ranking member to ask questions.
Mr. Bera. Great. Thank you. We do find ourselves in a
pretty interesting time. You know, I would agree with each of
the witnesses that the rest of the world, whether it is Europe,
countries in Asia or elsewhere, are trying to figure out where
the United States is and what our strategy is and so forth, and
that is creating some uncertainty.
But in my interaction with, again, in my travels abroad but
also with Ambassadors here in the United States, there is also
a deepening recognition that they don't want the United States
to leave, and I would say, you know, particularly in Southeast
Asia, they recognize that, they understand the terms by which
China does business and they want a robust U.S. presence there
as an alternative partner.
Our trade policy, economic policy, isn't just based on
benevolence. You know, much of it, again, in that 75 years
post-World War II was benevolent, didn't disadvantage our
companies, didn't disadvantage our economy, certainly opened up
markets for our companies and we did very well in that
construct, but so did many of the other nations that share
similar values to us. And I think that creates an interesting
opportunity for us, as well, because, you know, while they
don't like the uncertainty, and I do think most countries
around the world appreciated the rules-based order that we had
put in place, I think there is a growing recognition that
American economic policy is changing a bit. Again, I go back to
my 13 years in Congress. We all would have guessed TPP would
have--you know, trade deals were never easy. It didn't get
across the finish line; and we saw in the 2016 Presidential
candidate both candidates turned against TPP. I would have
thought, you know, the renegotiation or the negotiation of
USMCA, which was the largest bipartisan trade bill, you know,
close to 400 members of the House of Representatives, more
Democrats than Republicans, voted to support that process. I
would have thought we would then say maybe we build off of
that. Again, we are in a much different place with either
President Trump to say, Okay, if you have issues with Mexico
and Canada, you have got a renegotiation coming up, let's use
that as a vehicle by which to address some of this.
Then the orthodoxy around tariffs and what that looks like
again, the president might take this as a compliment, has been
incredibly disruptive. I think he is using a very blunt
instrument, a blunt tool, but it is getting everyone's
attention. I would hope that we, on this committee, we, in
Congress, along with the administration, as we start to
approach this, I can't undo the past, but what does that
context look like moving forward.
I also think the pandemic was a real wake-up call for not
just the United States but most of the world because of the
real dependence on whether it's the pharmaceutical sector and
APIs, you know, protective equipment, rare earths, et cetera,
just exposed tremendous vulnerabilities that we have. And if we
were to get into a direct confrontation with China, those
vulnerabilities we are seeing a little bit around the tariff
conversation and the trade conversation with China, but it does
expose real economic and national security vulnerabilities that
not just us but others have.
So the reason why I talk about things like the Mineral
Security Partnership, which, again, I think is a really good
idea, but I also think how we approach trade and economic
development in the 21st century is probably going to be more
alliance values-driven with partners, and what I mean by that
is I think we should work with the Koreas of the world, the
Japans of the world, the Australias of the world.
Rare earth elements aren't super rare, it is just, as you
pointed out, Ms. Dezenski, the processing of these, it is a
dirty business and I don't know if we are going to do that in
the United States. But we ought to go into Malaysia or Vietnam
or places that would be willing to do it and build those
markets. And we don't have to do that by ourselves. I would say
we should do that with like-valued allies that want these
redundant supply chains. Australia certainly has expressed an
interest. Now, it may cost us a little bit more, and I think
that is something that we will have to try to address. Dr.
Norris, I certainly think it is a great idea for us to have a
national stockpile of these critical earths. That is something
that we, as Congress, should explore with the administration of
creating that stockpile, so we don't have those
vulnerabilities.
It is going to be different, and, again, I will just go
back to my supposition, which is this can't be a Democratic or
Republican strategy. This has to be an American strategy, and I
think an American strategy in concert with countries that share
similar values of relative open markets, relative democracy,
freedom, because it is not a given what the next 75 years looks
like, who dominates those 75 years. But I do think, again, in
my travels, my conversations, the actions of the first 100 days
of the Trump administration have shaken a lot of countries
around the world, but it also has brought them to the table and
say, hey, wait a minute, we may not like what America is doing,
but the last thing we want is America to leave our markets.
I would be curious, just quickly, if you feel like that is
characterizing it in the right way. And maybe we will start
with Ms. Dezenski and just go----
Ms. Dezenski. I do think that is the right
characterization. There is a long-term strategy here, but there
is also a lot of tactical back and forth right now that is
probably causing some confusion. But I think what we are seeing
now is the display of economic power in a way that we haven't
seen it before. And whether we agree or don't agree with how
the tools are being used, we do have an administration that is
using them in some pretty interesting ways.
I will go back to an earlier comment. I do think it is time
for a pretty broad trade reset, and we need to think about it
holistically and, ultimately, getting back to this Near-Global
Economy idea. So we box out the countries that don't want to
participate in a free and open market, and, to your point, we
ally shore. We ally shore where we can. We bring home
production. Where that is required and necessary, we do that.
And where we can't do that, we work with allies and partners.
Mr. Bera. Dr. Norris.
Mr. Norris. Yes. I'm going to agree with a lot of what you
said and also what my fellow panelists are saying. I think the
United States does enjoy a significant incumbency advantage for
having written a lot of the international rules of the order. I
don't always think that we are taking full advantage of that
opportunity, and I think that, when we think about this
competition, it is important to maintain flexibility, the
ability to adapt.
We have to be able to do us better. We are an incredible
nation that has incredible capabilities. And when we think
about how we are going to compete, we are not going to compete
because we are going to mimic and do something that they are
doing and try to make it fit for us. We have to think about
what are we good at, and that's why I come back to innovation.
I mean, we can completely change a paradigm with our radical
capacity to innovate in this country. We have to preserve that
capability; that's really important in a long-run competition.
I also think your point about making this bipartisan,
making it something that is not going to lurch from one
administration to the next or one Congress to the next is
really important. And this is a long-run competition that is
going to have to be run in a series of sprints, and they are
going to be 4-year sprints or 2-year sprints, and we need to
find strategies that are sustainable politically, economically,
and socially for our fairly partisan and fairly divided country
right now. I think that is really important.
I just would also agree that the idea of having trade and
economic development be somewhat contingent on similar shared
values, I think, makes a lot of sense. There is nothing that
quite clarifies who your friends are than a pretty significant
new challenge that you collectively face, and you have to sort
of say, Okay, who do I want to have on my side. And that is
kind of the moment we are in right now, and I think we can--to
your point, this is kind of a unique moment. We should try to
capitalize on it as best as we can to position ourselves for
success for decades to come.
Mr. Bera. Ms. Cutler.
Ms. Cutler. I also agree with almost everything you said.
And, particularly, I do think there is an opportunity here.
Okay. But what my concern is, we may squander that opportunity,
and this is such a critical time where, you know, based on all
our discussions this morning, our allies and partners are
extremely important to work with in order to achieve our
objectives.
So my view is carrots and sticks. Let's keep those carrots
in mind. I think, to date, we have been doing a pretty good job
competing with China for the hearts and minds of third
countries, but I worry, through heavy-handed tariff requests,
win/lose trade negotiations, and then the dismantling of a lot
of our soft power, we may squander this opportunity if we don't
all work together, Congress, the administration, the private
sector, to really double-down on our strengths and work with
our allies and partners.
Mr. Goodman. Yes. A colleague and I are doing a project in
which we have been talking to a bunch of trading partners,
mainly through their embassies, a few capitals. And we actually
started this before the election, and we were trying to look at
what the U.S. really needs from its trading partners and what
it is willing to offer, what it needs to offer to get them to
give those things.
The conversation has diverted to, you know, a lot of this
uncertainty and confusion around tariffs. But I take away the
same point you do, which is, while people are disturbed and
troubled by that, there's a demand signal they want to work
with the United States, maybe in a slightly different way than
in the past. They recognize it is going to be different, but
they want our engagement, they want our markets still, they
want our products, they want our leadership. They want, you
know, maybe access to our innovation ecosystem which is sort of
a new thing that we may be able to--it is not new, but we could
package it as a new offer.
So I do think there is a big opportunity, and I think the
key is--two things I want to say about trade policy going
forward. One, we need a trade policy that combines sort of
three things: one, it has to advance American interests,
economically, strategically, other ways; second, it has to
incentivize our partners to want to work with us and give them
something, some reason to give us the things we need; and,
third, it has to win the support of the American people, and
that's really your job.
I do think the second point I want to make is it's really
important for you guys to figure this out because, in the end,
if we don't have a trade policy that is embedded in law through
you, it is not going to stick. It is going to be a house made
of cards. You need the pylons dug deep into the soil, and that
means you need legislated trade agreements, in my view.
Ms. Kim. Thank you. I think we all agree that economic
policy is foreign policy. With that, our goal of this hearing
was to evaluate how we can position the United States as the
center of the economic statecraft.
So thank you, everyone, for engaging the Members of
Congress in a very, very productive conversation today. It
really was helpful in assessing that our current economic
statecraft is an incoherent network of more than a dozen
agencies and organizations with many of the overlapping
responsibilities. As the saying goes, when everyone is in
charge, no one is in charge, and I think that is true of
economic statecraft architecture now.
So let me once again thank all of our witnesses for your
valuable insights, the suggestions, the recommendations that
you have provided to us. We will definitely keep our
conversation today in mind and take those suggestions in mind
as our committee works to authorize the State Department.
With that, the members of the subcommittee may have some
additional questions to the witnesses, and we will ask you to
respond to those in writing. Pursuant to committee rules, all
members may have 5 days to submit statements, questions, and
extraneous materials for the record subject to the length
limitations.
So, without objection, the committee now stands adjourned.
Thank you.
[Whereupon, the committee was adjourned at 11:37 a.m.]
APPENDIX
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