Transcripts For CSPAN2 Hearing On China And U.S. Economic Policy 20240712

Geostrategic challenge with the rise of china poses for the United States, not just today but in the future. The communist party led people were public of china through unfair trade practices, intellectual property theft, market manipulation and very prominently, in my view, nonreciprocal treatment, not just in the economic round but in many realms i has been a fore in the Global Economy that undercuts the resiliency and strength of the u. S. Economy. China has been one of the worlds fastestgrowing economies averaging close to 10 growth from 19792015. In 2014 china overtook the United States ass the Worlds Largest economy purchasing power parity basis according to the International Monetary fund. I believe that there is a strong eipartisan interest hopefully we will see that today in establishing a longterm economic United States strategy with our allies that focuses on reciprocity, intellectual property theft, and ultimately, from the United States perspective out competing the chinese. In may the white house issued its document called the United States strategic approach to the peoples republic of china and this document stated quote, the Chinese Communist parties expanding use of economic political and military power compels acquiescence from nationstates across the globe harms vital American Interest and undermines the sovereignty and dignity of countries and individuals around the world. This document is part of the Broader National Security strategy issued a couple of years ago by the Trump Administration and National Defense strategy issued by the garment of defense. These documents, although you dont see it in the press, in my view, have very strong bipartisan support in the congress for laying out the challenge that our nation faces with regard to china. What they lack right now is implementing documents, implementing strategies, particularly as it relates to the economic challenge that china poses so what are hearing intends to do today is to start the focus on the implementation and execution of these strategies and as i mentioned the strategies have broadbased bipartisan support but we will need to be able to bring our government, our society together for the long term, literally decades like we did in the cold where with thewe soviet union if we will execute these and away that protect American Interests, or workers, economic National Security interests. I am hopeful that is the path that we are beginning on in the Trump Administration in a series of speeches through cabinet members in the last few weeks has started to lay out this strategy and i know secretary pompeo, as we speak, is testifying in front of the Senate Foreign Relations Committee and i am hopeful with our two panel of Witnesses Today that government witnesses and experts from the private sector and think Tank Community will be able to start informing the congress on this issue which i think is one of the most important issues facing the United States. That is our goal and i am excited to have a Ranking Member markey as my Ranking Member here and i know he feels the same on a lot of these issues with regards to the challenges that china poses and with that i will turn my turn to the Ranking Member for his Opening Statement. Thank you, mr. Chairman. Thank you so much for convening this hearing and for your continued partnership on the subcommittee and i want to thank our witnesses for their willingness to participate today. As the Ranking Member of both the skunk subcommittee and east asia Foreign Relations committee i believe meeting the china challenge should be a bipartisan priority. We must compete against beijing efforts to unfairly tilt the Playing Field against American Workers and businesses. Those actions include states and companies, intellectual property theft as well as increasingly using multilateral institutions to set standards that privilege Chinese Companies and technology. China also uses its vast economic tools to threaten freedom around the world and beijing is already exploiting the size of its market to coerce american citizens and Business Leaders as well as foreign governments into selfcensorship to protect official chinese cecigovernment messaging. We know china is using exports and foreign assistance including through the belton Road Initiative to embed around the world, not only surveillance technologies but also the values and practices that activate those technologies for authoritarian repression. As we engage in this competition as systems we must remember that the Chinese Government is testing their authoritarian tools first and foremost on the people of china. I want to make clear that in todays hearing and otherwise we are focused on the threats posed by the chinese. Excuse me. We are focused on the threats posed by the chinese [inaudible] [audio difficulties] but while countries around the world look to the United States week, International Coalition to push back on chinese aggression they note the United States has retreated from our historic support of democracy and human rights. Pillar of our Foreign Policy. They note that the trauma administration has abandoned International Institutions like the World Health Organization or the Chinese Governmentn has only stuck up their influence campaign and they note this administrations unprecedentedun support for [inaudible] over allies but rather than take a leadership role in pulling together a Global Coalition to combat chinas policy objectives this administration has pursued an aggressive go it alone approach that swings between pandering to china including an apparent green light from President Trump while we hear of detention camps to the closing of the chinese consulate in houston without any reason or expiration of what we seek in return. We cannot consider china policy in a vacuum. Every policy decision for the past 3. 5 years impacts of the rest of the world views our legovernment. It is clear to meet we have failed to rise to this moment. As china stepped up its Propaganda Campaign in the midst of the coronavirus it is hard for the United States to point fingers when our own virus response has been so inadequate. The president s and explicable failure to lead a National Response to the Coronavirus Crisis is attacks against science, free speech and the media has left the United States flailing as other countries lead and responding to the pandemic. As china continues to dominate manufacturing and require companies to bring on chinese partners and share intellectual property the United States has caught relevant areas of the massive spending and has not leverage the full resources of the government to spur economic development. We should be investing in our research and development and Technology Sectors andnd putting money into education with a particular focus on stem. We should also be utilizing the defense production act to its full potential to mobilize the economy during the pandemic. As china engages in a conference of campaign to exploit International Institutions for their own purposes we havent retreated even further from the world stage. When the United States is absent on the world stage china is only too happy to fill the void. Competition with china is fundamentally about a free society versus authoritarianisma must utilize all tools at our disposal to remain competitive, resilient in this as we work with democratic countries around the worlds as a pushback in a connected way to protect the values we hold so dear and the challenges are too important the stakes are too high in the United States and play cannot afford to seed leadership. Thank you, mr. Chairman for this very important hearing and thank a who all of the witnesses are at this meeting today. This is clearly a very important segment. Thanker you, senator markey. I appreciate your partnership on this committee were we have had good hearingstt and i think a lt of overall bipartisan agreements on a number of issues that is important as it relates to china. I noticed that the chairman of the Commerce Committee, senator wicker is here and i would ask him to give an Opening Statement as well. Mr. Chairman. Thank you very much, mr. Eachairman. I appreciate your leadership on this issue and Ranking Member markey this is an ambitious two Panel Hearing this morning and should be quite valuable. The focus of course is the Chinese Communist party and their predatory economic practices and their impact on American Companies and workers both at home and abroad. Confronting these practices and protecting our economic advantages for the future will require an aggressive u. S. Government response supported by congressional action and oversight. Inmate the white house published its whole of government Response Plan and a document called the United States strategic approach to the peoples republic of china and todays hearing will focus on the economic dimensions on the overall u. S. Strategy. As the white House Strategic points out the ccp uses a variety of weapons to undermine americas economic competitiveness, including cyber attacks, intellectual property theft, force Technology Transfers and illegal subsidies to state owned enterprises. I hope our witnesses will describe the particular impact of chinas campaign with respect to industries under the Commerce Committees jurisdiction such as tillich medications, Maritime Aviation and space. Americas future Economic Prosperity is not the only thing at stakenl in a strategic competition. As the covid19 pandemic continues china is apparently using tactics from its predatory playbook against our Public Health sector. Last week the department of justice indicted two chinese hackers for a widespread cyber attack campaign supported by the chinese intelligent service. The targets allegedly included at least for u. S. Pharmaceutical and biotech working on a covid19 related testing and treatment product. Covid19 crisis has revealed unacceptable vulnerabilities housed by years of letting the ccp and gauge and destructive and economic packages. Without an effective coordinated response hopefully that is about to change. Here in the initial phase in the outbreak chinese exporters and exporters and shipping ground to a halt in the u. S. Businesses were forced to go without [inaudible] and in particular the United States pharmaceutical industry has been shown to be overly reliant on chinese suppliers. We cannot tolerate having these economic vulnerabilities and the ccp is unlikely to stop its predatory practices. Therefore the u. S. Governmentes should help our economy become more resilient against constant pressure from beijing. I would ask our witnesses from the state department and the Commerce Department to detail the measures there are taking to support [inaudible] congress can play a sufficient role in supporting the efforts of the executive branch. The Commerce Committee is doing as part to help by producing not partisan Bipartisan Legislation just as the recently secured and trusted Communications Network act known as the rip and replace and there are funds in the covid19 more proposal by the majority leader in this regard. This lot will help protect american can medications networks from threats posed by ccp suppliers such as huawei and dte, by supporting the removal of that equipment i was open to suggestions from all our witnesses on how congress can continue to bolster the administrations efforts but mr. Chairman and Ranking Member markey have been champions in this regard and i appreciate the bipartisan support and i think the witnesses for [inaudible] thank you very much. Thank you very much but i want to welcome our witnesses and i have instructions here that say if the witness does not take their seats, ask them to do so. We have no witnesses actually here in the room but i think they have taken their seats virtually so i can see them on the screen and i want to welcome mr. Michael wetzel my commissioner of the u. S. China economic and Security Review Commission and mr. Rush, director of the China Strategy Initiative at the Brookings Institution and gentlemen, you each will have five minutes to deliver an oral statement, longer written statement will be included for the record and thanks again fort being here and mr. Wetzel why dont we begin with you. Thank you for the invitation to appear before you today. The topic of todays hearing correctly affects every one of our citizens. My name is Michael Wetzel and i am appearing before you today as a commissioner on the u. S. China economic and security View Commission but as a normal washington disclaimer i am speaking for myself although my comments are informed by my service on the commission and all the work i have been involved in for many years. Todays hearing raises the critical issue of t how to respd to the china challenge. What chinas policies and actions pose the greatest threat to our competitive posture other nations are watching americans response to determine whether they should emulate chinas actions or whether america will stand tall and defend and promote its interests. Last week chinas foreign minister said that quote, the Current Situation in chinese u. S. Relations is not what china desires to see. The United States is responsible for all of this. I agree that we dont want the current relations to continue but i strongly disagree that the u. S. Is solely responsible. Years of repeated attacks on our industrial based continuous theft of our intellectual property, countless unfair trade practices, massive subsidies state owned and statesupported entities and many other predatory and protectionist policies along with chinas human rights abuses, current actions in hong kong and power of production in the South China Sea and elsewhere require that we more seriously confront china. Chinas actions led to their response. Chinas leadershipd has made clear their intentions for numerous policy pronouncements and activities. They dont pose their approach as being winwin but rather winning and dominating. The chinese common as parties policies have contribute itbu to the hollowing out of production and the dangerous reliance on uncertain and risky supply chains and a loss of resiliency. Countless jobs have been lost and in my prepared testimony i outlined many of the ccp policies and practices to form the basis from our concerns. They are well documented in the dangerous dependence on china for our medicines, medical devices and personal protective equipment has painted a stark picture from the public but that dependence exists in many other sectors, including the ccp istated goals. But ministry is right as a relates to policy failures here and the rest that must be addressed and our inaction on certain and actions on others have intuited to the current problems. [inaudible] many u. S. Businesses began to set up operations to china with the stated goal of serving the Chinese Market and despite facing the requirements forr joint Ventures Technology transfer and other policies the amount of investment by u. S. Firms in china increased as did their employment which rose by almost six 100 to 1. 7 Million People by 2017. R d by u. S. Firms in china has increased an average of 13. 6 since 2003 almost double the rate of their drastic [inaudible] and the promise of serving the Chinese Market has not yielded plain benefits but Research Shows 60 of chinas exports to the u. S. Emanates from Foreign Investment enterprises, not all of those are u. S. But many are. Now with chinas rising debt and the need for capital is beginning to open its financial to foreign firms its not doing it to the vantage of these firms but to serve its own needs. The rest of foreign investors, our investors, significant and economic returns and terms for advancing chinas military and technological capabilities. Hundreds of billions of dollars they flow to china over the next two years and this bears careful and strict scrutiny. On these and many other fronts we should examine policy options to promote our interests. In my testimony identified several recommendations made by the commission as well as several of mine but we need a comprehensive approach and i believe that emulating the congressional effort that fostered the omnibus trade competitiveness of 1988 which this committee played a Critical Role in is worth considering. We not only need to confront the edpolicy fostered by the ccp but need to invest in our own competitiveness and adopt rules that will advance our interests. We also need to focus, not only on todays challenges but those over the horizon. H i thank you for the opportunity to appear before you this morning and i look forward to your questions. Thank you, mr. Wetzel. I would like to now ask the commissioner for his opening. I thank you very much, chairman sullivan. Ranking member markey, deceivers rsmoms of the committee i thank you for the privilege of being able to testify is important hearing on efforts to build u. S. Resiliency and competitiveness. I will focus my remarks on three subjects and first beijings ambition for the Global Technology leadership, second, beijings current activities and the challenges they pose to our Global Technologyen leadership d policy recommendations to bolster our competitiveness and resilience this super cow maritime. Gentry. [audio difficulties] chinas leaders believed were in the middle of the Fourth Industrial Revolution and made up of Artificial Intelligence,. [audio difficulties] desires are not driven by b commercial motivation but also driven by geopolitical ones. Beijing argues the last three Industrial Revolutions because divergence that allowed countries to become political leaders with others as theiritical actors but overview of the history is worth reminding that the first Industrial Revolution brought steam power and coal and helped build the British Empire for the second Industrial Revolution made the United States the leading state in the third Industrial Revolution was Information Technology kept the u. S. A leading state. Beijing missed out on these evolutions and now hopes to rewrite the fourth global revolution. China almost all of the technology is the main battlefield between the u. S. And china. That leads to the second topic that what is china doing to seize Global Technology and leadership and here there are a few broad studies. First the r d spending already in some cases a sequel to our if not greater even though china has [inaudible] china may be outspending us as ten times what we do on computing and second e beijing police the industrial policies given in beijing has a 1. 14 plan to build 5g across china and they launched the 25 initiative. [audio difficulties] of course, it has 100 technology plans with 10 degrees of space. This is predatory behavior. [audio difficulties] third, Chinese Forces agree or rather argue that although the u. S. Has innovation we cannot bring products to market without china factors which gives them the opportunity to use reverse O Engineering and forced Technology Transfer of information. That postcode with the free world is trying to diversify the supply chains away from china but for that reason president xi has declared the protecting chinas supply chains is now the countries top National Priorities and so far the european chambers of commerce fhave the vast majority of ther members are not concerned. Its not all about cost and china has the center of supply chain keeps the companies in many cases adversely affecting the technological leadership. Third and final broad question what canpl we do about that ands much more submitted testimony but also here that chinas. [audio difficulties] first, we need information on our supply chains. We need to know where we are vulnerable and that requires some entity to audit our supply chains, stress test them and build institutionalized knowledge about them to assist with those requirements. Second, we need better coordination. [audio difficulties] we dont have a National Strategy yet per competitiveness and resiliency. In fact, taiwan is inspiring this regard. Only government that has been successful in restoring from china over 33 and 2017 and they did it by having one office served a onestop shop for all businesses in taiwan. [audio difficulties] tax policy and increased shareholders equity positions and we need pro competition approaches well. Innovation Frontier Companies are making Big Investments on the future and we only have one company at a high Tech Industry and they makee the wrong investment we are out of luck. If we have multiple Companies Taking multiple risks that we got multiple options and that is something we can uniquely have. Finally, we should reinvest in american [audio difficulties] or superpower marathon with china is as much about what we do at home as it is what we do abroad. This committee will be the center of those efforts. Thank you for your time and consideration. I look forward to your questio questions. Thank you, gentlemen. Outstanding Opening Statements by both of you giving us a lot to think about. Hands a lot to agree on. Let me begin by asking both of you some kind of very general openended questions and i spent a lot of time in china and in workingn on this relationship from a lot of different perspectives but one core principle that i think we need to focus on and i think again is something that considered and viewed as very bipartisan is the issue of reciprocity and right now in the u. S. China relationship across so many spheres the relationship is not reciprocal and at the end of the day the prosody really is an issue of fairness and what we enable chinese journalists or businesses or academic institutions do in america we cant do over there it is a very long list across many spheres of the relationship and in my meetings with the chinese they sometimes even in knowledge th this. Remarkably what they do when they say the relationship is nonreciprocal they say and ive said this as a u. S. Senator ive heard in other positions senator it is because we are still a developing country and your development and i heard that from the ambassador and pretty ridiculous payment but i would like the two of you to comment on this issue of the lack of reciprocity and reciprocity as a core principle that we need in the relationship between the United States and china and secondly if you can talk about an issue that i refer to as you promised the t, promised the teague. This is the issue of the last three decades almost every major agreement that the chinese have undertaken with regard to the United States they dont follow through. Two examples, during the Obama Administration president obama led the effort to have a comprehensive agreement on intellectual property theft, bush and administration to the Obama Administration did this and they continue to steal intellectual property at higher levels and in 2015 and the rose, garden said we will not militarize the South China Sea and the president said that in the rose garden with the president of United States but within weeks they broke that promise. Promise fatigue is another issue that i would like the two of you to address. If you can look at reciprocity, promise fatigue as the opening questions and this hearing. Thank you. Thank you for the excellent question which goes to the heart of the relationship at this point and the challenges we face. Let me first go to promise fatiguee and then i will address the question of reciprocity. I am a democrat but one of the great statesmen Ronald Reagan said trust but verify and i think we failed to have the kind of provisions in place that would do just that, meaning that when a promise is made we need to implement automatic provisions to ensure that promises are kept. Too often we rely on those promises and hope for the best and find out many years later or even quicker sometimes that the promises are broken andok then e look at what tools may be available to fix that. We need more automatic trade measures and provisions to put into place and number two i will rely on my colleague who is skilled in the chinese language. Eans it requires reading core documents. When one looks at the Bilateral Agreement on cyber hacking for example it was the fundamental misunderstanding here because the chinese said that they would not have for economic benefit alone. The fact is they view economics and military security is inextricably intertw securityin as inextricably intertwined, and the results for the economic game it is for the military and national g security gain, so we were using different definitions. Finally, it is an appropriate tool to use in certain sectors. We dont want to be like the chinese but we want them to understand when they take certain actions at verse to our interests, they have to expect to see and hear so reciprocity as a wolf. Has a role. I pose this issue to the chinese when i was in asia in. The lack of reciprocity in areas like journalists, they have hundreds if not thousands of journalists in our country is pretty much free roaming we should be able to have James Madison institute for freedom and liberty. The. D if teachers the Institute Freedom and liberty would teach propaganda. I think that is a fundamental misunderstanding of James Madison, but these are examples. Would you care to comment on these questions quickly before i turn to some of the other senators who have questions . Thank you very much. Reciprocity should be the cornerstone of the relationship. I would note back in the cold wacoldwar or they they have a rl relationship it had more access than i it is presently but its less likely they would provide it because they see it as a direct threat to the hold on power so for them it becomes of a challenge and difficult to assist. They booted a bunch of journalists recently. If they lafayette american journalists that in our interest to say okay you get five chinese journalists, we know a lot of them are mouthpieces for the Chinese Communist party anyway. Some of them are not even journalists but what does make sense to . At ththe institute for freedom d liberty at the universities does that make sense . Is and important question and the issue will very. We should be able to find some kind of arrangement where we have better access with china in the long term but for now it wouldnt do as much. Thats an area we get more from that reciprocity is their mouthpiece isnt particularly effective. But you raise a very important question and im not sure i have ethe quickest answer. I agree with thoma how mr. Ks a significant issue. There are so many that have been broken. Great. Senator klobuchar. Thank you chairman sullivan and Ranking Member marquee for holding this important hearing today. Ive long been critical of unfair methods of competition. It hits home with field dumping in northern minnesota, and i think we know its not just manufacturing and trade on which we need to be vigilant. China is using old and new tools including expansion of state owned businesses, requiring disclosures and outright theft of intellectual property. And as we have seen during this pandemic, our dependence has highlighted weakness ensuring access to critical medical supplies. I will start with you. Both under the Obama Administration we took this on and made a difference and that continued into the advocacy ive made with the Trump Administration. Do you agree with standing up to the practices that harmm our workers such as illegal steel dumping . I couldnt agree more. The fact is when our workers work hard and play by the rules, they deserve to know that they will be enforced and they will have a fair chance to compete. China not only in steel but so many other industries has a broad crosssection of protectionist practices designed to win and dominate and steel is an example where as you know they would have close to a billion natural tons capacity far more than they need and then the community can consume and that is simply skewing Market Forces and undermining the ability of our companies and workersbi to survive. That covers steel, aluminum, rubber, fiber optics and probably 15 to 17 different sectors. Standing up to the nonmarket activities is vital for the preservation of our own industry but also our own economic success. In your testimony you also report intellectual property theft costs america up to 600 billion a year. According to your testimony china accounts for most of that ieloss. Do you believe that the administrations response has been sufficient to protect our economy from harmful influence . I believ the i believe theyve taken some initial steps but as we have pointed out, phase number one of their agreement was insufficient. It doesnt get too many of the structural issues, state owned enterprises and nonMarket Forces. And its somewhat problematic to believel that intellectual property will change as a result of the phase one agreement weve already seen those that continue to be issued virtually every d day. And its still dependent on joint ventures. They required hi require them te intellectual property. Its the cost of doing business and that hasnt changed. So trade alliances and other things to push on these issues. I think you would agree they see the continued weakening of the alliances and the disengagement of the globe as an opportunity to fill the vacuum. How should we respond to efforts by china and to expand its influence with our largest Economic Partners and regions around the globe, specifically what role should strengthening alliances and u. S. Leadership in multilateral institutions play in this effort . Can we just go it alone or do we have to work with the rest of the . I think we have seen that it isnt working as well asn it should. You are seeing Great Britain on as chairman wicker talked about earlier and the leadership of the committee looking at the threat. We have to reform organizations to make sure that they work for us and i think we are past the point that our allies increasingly realize that it isnt just opposed to u. S. Interests, but their own as well. They need to come to the forefront work with us and if not need to goe it alone to protect our industry and our people. But i think the world is waking up. We have to work on reforming those organizations, doubling down and participating where it can be helpful but where we need to give it a loan when he did it for our people. Thank you, senator klobuchar. Senator wants. Thank you, chairman. To both of the panelists, a couple of questions. What has china done in their effort to make it difficult for have ownership and other things that makes it easy for us to leave and how are the dramatic demographic changes going to impact their ability to continue to compete, to keep wages low . In a country that is changing in terms of what it looks like and how is that going to affect their global position and continuing economic model. Thank you for that question. It really is the key question in how china is going to approach its own future and we have an aging population with over time fewer replacement workers and thats going to put new stresses on their system. One way that we have seen one of the most evident changes is in healthcare with the 1. 4 billion people aging quickly or faster pace than expected thats why they are trying to dominate the technology in the medical supply areas to meet their own needs. And also on the need for them to promote Economic Growth, productivity and efficiency and as a result they are trying to move upal the value chain. Now its about quantum computing, biotechnology and other critical industries. So all of the demographic changes are helping influence their economic choices. Thank you for the question. [inaudible] they make it hard for a company to leave. Its illuminating some of the advantage so they are hoping to move towards automation and manufacturing with 1. 4 trillion hoping to make sure they use pressure sometimes and therefore to make themselves the center of their success. The first thing they try to do they have dominance in the supply chain. The second area on demographics, the challenge is enormous and they have the least favorable demographics than anywhere in the world today and they know they will get old before they get rich and that is why youre standing up for the policy to target our highTech Industry because theyy are hoping they cn grasp of applying before they left was the last one which is lowwage Manufacturing Survey had enormous challenges in transition and thats why we are seeing so much money being spent on the Chinese Industrial policy. That the impact of what they have been doing so for . I heard the comment that we need to have more help coming. Certainly australia and some of our friend have stood up to resist the chinese inability to be willing to work with others. What about moving forward, and what are the likelihood in this economic fight that we should be thinking comes next . Are they the transpacific countries were tony would have been fair, but if you. It is a great question. Countries are now beginning to appreciate the challenge. For a long time they look to the u. S. To lead, whether it is the wto or elsewhere and they would always follow, so overcapacity where there were multilateral talks and does little to no help from our allies. I think the last two or three years and is certainly what happened with the pandemic has woken awoken many of our trading partners and allies to the dangerous vulnerabilities and lack of resiliency and unacceptable dependence on chinese supply chains, and i think we are entering an era where theres opportunity to have greater ally support. But we need to chart a course that they see themselves winning in as well and institutions that are able to enforce those measures. Enforcement measures and institutions are limited. That you, senator. China believes our allies are the a single biggest. They think the structure is the most important thing that we have going for us. We are going to work with them particularly in thebu ecological stasis and now as mentioned, post covid, the rates are plummeting around the world including countries that we have very close ties with including European Countries and india, parts of the asiapacific. So its an opportunity to work with those countries to create coalitions at the forefront of technology. People talkedol about a coalitin of democracies to Work Together but theres no reason we couldnt expand thatea and work with other countries outside of that coalition on a variety of issues everything from biotechnology to medical supply chains to Artificial Intelligence, so in many ways the future of American Power competition and technology is going to be coalition thank you, senator bond. That is a very insightful comment. Good morning mr. Chairman thank you for holding this important hearing today. I want to thank both the witnesses for being here. I want to talk about the work shortfall. Technology of course increasingly at the center of the u. S. China competition i think we can all agree that competitiveness with china we must invest in the work force and continue to be the most innovative country inon the word would be to make the workforce innovate and the United States is expected to take the shortfall nearly 3. 4 million skilled technical workers in just a few years by 2022. A recent study found if they are getting any cyber related education. So to promote the workforceproduced multiple bipartisan bills, ones that prepare students for careers in Stem Education excuse me, sorry i have something caught in my throat. I apologize. I will go right to my questions. In the testimony the trade deficit with china eliminated millions of american jobs, then factoring and agricultural sectors but they havent migrated to otherur industries. What kind of programs do you think we should be investing in to prepare students to enter the workforce . Thank you for that excellent question, and you are spot on in terms of the question with the need to invest in our children, our young adults and workers in terms of not just stem but of course lifelong learning. We need to make sure that our workers have the skills to compete in the world economy. It also requires that we fight more for some of those hightech jobs, the new jobs of the future whether they are in biotechnology or quantum computing or anything else, so haat the investments that the workers make in their own success and families make ten achieved a good return that they knowtu they have a Bright Future ahead of them both without skills, they dont have the critical template we need to succeed in every industry now has advanced whether its agriculture, which as you know it was on iowa for a portion of last summer. R. Every track is hightech. When you look at any factory, there is computer assisted support. Its different than the fact that these 100 years ago. We need to constantly upgrade the skills. Im going to ask both of you. Based on National Security issues, they mandated the Primary School and watched their action plan and the United Statesct in contrast [inaudible] including stem and in a lot of ways it doesnt include nonprofits or industry partnerships, so for both of you, how can we best help our states, School Districts and schools, to invest in a publicprivate partnership, government, legislation, what can we do to create an action plan of our own, if thats where the learning is going to happen and we can start with you this time. That is the right question and your diagnosis of china is right. The fact that research and development historically supported this research and education both. In fact it is the universities does come from our federal grant making institutions when it comes to science andg technology and graduate students. But right now as many of us know it is. 61 of gdp at the federal level. Thats far lower than any point in the cold war and its also interesting is that nick was of course catalyzed so its a little for what the before whath sputnik. Theres a lot we cano do their. We raise that amount to 200 billion it would make it possible to better educate the population. I believe my time is expired but i like to think of this as an investment that has a calculated return we can project the economic return by investing in the staff early at all levels k12 universities. Thank you. Senator capito. Thank you, chairman and for the remarks on having the hearing today. As we know this is a very complicated and ever evolving relationship. [inaudible] can you hear me ok, i got a little feedback. We aree good, okay. It is complicated. Officials raised the phase one trade agreement. As you know, trade discussions remain ongoing. Concerns have been brought to my attention that a Steel Company was recently acquired by a chinese steel manufacturer. They leave a consumption and it hurts our American Products and continues to the European Countries such as the one i mentioned in the uk. Has the commission conducted any research into the impact of investment in the uk and what it would have on our own domestic Steel Industry . Thank you for that question. No, the commission has not yet addressed that but let me point out quickly i also am a chair tr for the labor advisory committee, which advises the department of labor and that issue has come up. The question about whether a chinesee state entity acquired s the largest Steel Company in Great Britain how is this going to be dealt with in the u. S. Uk agreement, and our trade policies need to deal not only with what is happening in our own market andnd the state that has been ground zero for much of this but also whats happening with our partners like the u. S. Agreement. So in terms of taking ourselves out of the uk with india and other countries, are we digging down to the active ownership issues, i mean is that something of concern whether or not they are now the primary owner that material and other things in other countries, how did you address that issue . It is a fundamental problem and you are right it is a problem that is going to be increasing importance. How china and s. And what they do to support those entities in the uk for india they may be providing zero or no cost financing that goes through only minor transformations and then comes here and under prices are own terms. That has to be done in these agreements. We cannot allow the nonmarket activities china seeks to export mwith another country to be used as a platform to undermine your interests. I have great concerns about that. A different product that is applicable to end u and defend e coal industry. Theyve been very hard hit a in response to the investigation but for the phase onene negotiations provided, they are still not living up to their purchase agreement. Do you think that its for the overall economy or is this something that is consistent across all and what can i tell folks to expect in the future whether its relevant t it willr purchase requirement fax senator, thank you for the question. I have to do a bit more research on those particular products and others. We saw china was actually buying soy from china rather than the u. S. Each is different but as i said earlier, and as the chairman raised in terms of a promise, we need to make sure the promises made to the industry workers in states are kept and its not ift there is a swift and shared response. That is absolutely critical to and it will impact all different products across the state. The last thing i would mention, and this is a part of trade but something that we see popping up. Recently in the states to the individuals that were tied with china and were prosecuted for income tax fraud and other things, but they were heavily connected to the chinese universities and china as general. I think that cascading across the country as we look at what is happening in the universities and colleges is that part of what you look at or am i out of your wheelhouse here . We do look about on both a classified and unclassified reporting scenario every year. The fbi and other Law Enforcement as well as Intelligence Services have been diving deeper over the last two to three years to the activities of individuals. Theyve seeweve seen them in ts universities as you point out researchers etc. We need to have an understanding of what is going on. In my testimony i talk about engaging in the fbi and the University Systems so they have a betterav understanding not ony the rules but what to look out for, and we need a much more coherent strategy. Some of that has been done with much more remains to be done. The realization that a lot of these things have been embedded not just for a couple of years but as many as decades. Thank you for your service and i thank you mr. Chairman for the opportunity. Thank. You senator capito. Im going to continue on. I think we have a few more senators are going to be attending this questioning. In the meantime let me ask a few followup questions from this interesting discussion. Of course theres challenges but in any relationship that is good to be sustainable theres challenges with regards to the relationship between the United States and china. We talk about the Trump Administrations phase one approach with regard to trade and that is something i was quite involved in trying to ensure that the president of the u. S. Trade rep, the entire team was focused on many different sectors, including our Fishery Sector and that was something i was very focused on. Alaska is the superpower of seafood as i like to call it. Over 60 of seafood harvested in the United States comes from alaska. Alaska was waters, and we export about. So, you mayou have seen when the president announced phase one, he did talk about the aspects of that agreement that included chinas agreement to increase its purchases of american seafood dramatically increase data. However, i worry i didnt that we might be dealing with another promise fatigue moment with regards to phase one. Can either of you talk about how we press as we are really in many ways reevaluating the relationship tha but still lookt opportunitieske for American Workers, fishermen, farmers to take advantage and benefit from the market lacks is a balance, isnt that correct . Ive opened it up to both. Thank you for the question and i will turn to you quickly. What, beyond seafood, im talking aboutt the market i understand, but i guess seafood has been under appreciated and does deserve particular attention as the chinese incomes have risen, the desire or the demand for sources of protein rises with income and so there are new markets for u. S. Seafood, lobster and many others. China has a critical problem in its fishery areas primarily around seafood safety because of the factory farming techniques as you are well aware many of the ship sincbushs plans have d entry because of concerns about the safety of their products but china needs to understand if it doesnt open its market its goingg to have an increasingly difficult time selling here to the u. S. And we need to work with our allies as well to make sure they understand from your initial question that reciprocal Market Access has to be the approach thats taken when they limit access to their own companies, we need to take a responsive approach. Do you have a view on that . The opportunity and export balancing that with of course the many challenges. Thank you, senator, for the question. I agree with the commissioner that there are a lot of opportunities particularly with china and the dependence on the United States, with partial dependence on thehe united stat. If you look at the food security, it is a major concern for the party leadership. They like to be able to make sure they are more secure in every aspect which is why you see the Party Sometimes push over to reimport the food back into stability. Its a long way of saying there arere places where there are opportunities for us to export to them and its in their interest to import and i think we will be able to make progress on those if we are able to speak about the trade disagreement. I also heard in addition to export, theres also the question of technology exports andd in those cases we have a more direct competition with china than to work on specific areas of agreement butin we see that which we are all going to provide so there are areas we can make progress but they have to bwe have tobe careful about e risks and rewards. Senator clyburn. Thank you, mr. Chairman. And i am so pleased that we are doing this hearing today. I know that its difficult many times for you all to join us virtually, but we do appreciate that you are doing that. Letha me ask you all, and this s a question for the panel, so i would appreciate a response from each one. Looking at the budget, as we talk about china and Great Power Competition and. The fact you never know where the commercial complex and military complex began and ended. China has traditionally brought about new innovations from them, but what they do is to reverse engineer and steal information. Looking at what theyve spent on r d, 2000, they were not spending much on rmd at all and they have gone through some explosive growth with their budgets. In 2017, i was looking at what the commencement was from the u. S. For our empty, an it is 549 billion. China spent 496 billion on r d. So, can each of you comment on the potential consequences . That this will have as we look at the next century, as we look at Great Power Competition, and we talk about the digital silk Road Initiative and the belt and Road Initiative. And also as we talk about fire chief which is another bucket of issues that is worthy of our time to discuss. But lets look at those numbers, and then i would like to hear from you all, your take on the consequences of these expenditures. Would you like to go first . Sure. Thank you. First let me say this is such an important question. When we have rmd, we have the. Sderal spending and a business component. When we add those together, the u. S. And china are even even though it there is a smaller economy they are still even with us on r d spending which is concerning. They look at the government components and inun our system t supports research but also education and a wide variety of science. The federal component essentially has been falling for a long time. Right now its at the lowest level in almost 60 years. Whereas china sees that the things lets emulate that so they look at our successes and say we shouldwa do more of what the unitedit states does. I think it is an area we can raise a small amount of money or this could make an enormous difference. Let me ask you this just to add on to that, if you could address where are they primarily focusing their rmd or do you know is it in telecommunications, supercomputing, other Artificial Intelligence . What is gainingng attention . Thank you, senator. Theres been a lot of specifically where all the funds go. We have some big numbers and some were suggested if they cant give the answer is the document indicates, a lot of thatdi investment is going to te technologies of the Industrial Revolution to include Artificial Intelligences probably at the top of the list and manufacturinin manufacturingis. Telecommunications, wanted for 20 allocated to build out. So its many of these sectors and many of them are identified in the plan that targets a specific sectors for the spending of state support. I can give more specific answers after the hearing. We would appreciate that. We are very concerned about the national lab and the focus that is there with our national lab. Of course we have the worlds fastest computer, we are looking at those applications t for the 21st century warfare, Artificial Intelligence, autonomous vehicles, so Additional Information would be appreciated and i believe youll back. Senator blumenthal. Thinks mr. Chairman, and thanks to both of the witnesses that are here today. This morning senator hawley and i are sending a letter to the department of justice requesting a National Security investigation into zoom and tiktoc. They are vulnerable to surveillance, data harvesting and censorship by the Chinese Government. There are a number of reports that theyve engaged in censorship on behalf of the Chinese Government. Those reports are reliableor and alarming for example in early june, several advocates including a dissident based in the United States were suspended by zoom following a demand by the Chinese Communist party. What was the crime . Holding a peaceful commemoration of the Tiananmen Square demonstrations zoom. Senator hawley an hawley inviteh other members of congress have repeatedly sought answers from both companies about who has access to the data of the american users and how decisions about content moderation are made. Zoom and tiktoc has utterly failed to answer even the most basic questions about their business operations. In the case of the tiananmen vigil, zoom still failed to answer the question of whether it turned over information to the Chinese Government about people who attended the meeting, and that failure among others simply supports the request weve made for investigations by the department of justice. So my question to both of you is do you agree with me that reports about zoom and tiktoc entering, collecting information from disclosing information to the Chinese Government based on requests from the government are alarming in their investigation . Thank you for that question, senator and for your leadership along with the senator on this and others. The fact is this is a critical issue. Weve seen it not only with these others putting the very lives of citizens at risk as well as our own economic and intelligence and security interests. So what you are doing is critical. For me quite frankly i do not trust the answers of those companies because the chinese basic law requires the National Security law requires any chinese firm hand over when requested the information that the government requests. We have seen overr many years criticisms of this activity and the confidence we could have chinesebased platformse and equipment. Tiktoc and others as you note and time after time, we have seen both from Law Enforcement and the Intelligence Community but also the private sector continuing cyber intrusions, the lack of security and espionage, the shipment of data through multiple tasks, for those in hong kong and others. Thank you. Thank you senator for your leadership on this. I want to add speed if about the social media platform instruments into artd is clearly a need to controles those platforms and its simply going to be a content provider. To shape Public Opinion and in my concern with tiktoc in particular it could be interference should tiktoc [inaudible] Going Forward. Thank you both for your comments. I think theres really strong bipartisannk agreement that the United States needs to protect privacy and liberty from this kind of illegal action. The committee on Foreign Investment in the United States is currently considering how they operate the tiktoc but so far, this government has failed to act to protect americans and thats why i believe the investigation by the department of justice and action is necessary and i am so glad that you are supporting it, and i hope that we can add action by this committee as well. Thank you, senator blumenthal and thank you for your work on these issues while. I agree the vast majority is bipartisan and we need to keep it that way because this issue is too important for the future of our own nation to have it turn into a partisan issue so i want to ask the witnesses as we get ready for the second panel i was asked to give a speech last year, last september and i entitled it winning the cold war with china and how the United States should respond. I emphasized the areas of response that i thought had gained bipartisan support, that we talked about the numbe membey and id like each of the witnesses to comment on the use and what you see as important elements and strategies and im sure we are missing things and a broadbased u. S. Strategy. What would those be im also going to submit this for the record without objection. The focus that i have in mind remarks last year as we touched on demanding reciprocity we already talked about the next one, reinvigorating american competitiveness to outcompete china, rebuilding our military strength and capability, have not talked about, deepening and expandingin the Global Network d global alliances, and importantly, and i think it was a critical element of winning the cold war, employee in our Democratic Values as a competitive advantage in the authoritarian influence. I think at the end of the day they fear theirri own people and just look at whats going on in hong kong, and i think that this is an enormous competitive advantage that we have and its certainly benefited us along the struggle of the cold war with the soviet union who also fear their own people. Would you care to comment on any of those key aspects of the strategy and what do you think that they are also missing . Senator, thank you for the question and for the leadership on looking at this post. Thumbsuckers of policies that are critical. I think that you hit on all of the major areas. I appreciate that and they all need to be dealt with at the same time within understanding, the public understanding of what a clear comprehensive and consistent policy is. The fact is we failed to identify consistency to the chinese at times and also the Business Community has people so they know what our plans are, what our red lines are and what our objectives are. So in each of the areas you identify, we need to be even more clear and have more comprehensive identify the plans of the limits of our plans as it has been noted from your colleagues everything from the Stem Education to dealing with the surveillance platforms etc. So china understands what we do is acceptable and acceptable behavior in a fairly automatic response with those lines across. Thank you. Do you have any views on that . Thank you, senator i do. I thank you for your leadership and i remember your speech and its extremely comprehensive. I did add to them a small point which simply is this will be a long time competition that will continue for many years to come. There should be a consistent approach from the finance and develop a end o and b. Act on hg kong and all that to me indicates that there is a greater consensus that this could be the bedrock Going Forward so i will leave it there but the most important thing will be having a consistency over time that takes those areas to make sure we continue to make progress with them in a systematic way. F like the accompaniment that defined our relationship with the soviet union and as very bipartisan, consistent over decades and ended up successfully winning the cold war, correct . Yes, absolutely, senator. Thats exactly what im thinking about some of the consistency and focus in the past only to be again marshaled in the present for multiple parts of society we have to have business on board in publiand public onboard and consistent leadership in many ways we already have. Let me ask one final question before we turn to the next panel. Both of you hav these testifiedt the importance of securing our supply chains in the National Defense authorization act i was proud to have a provision included. There was a very strong bipartisan vote just last week on that bil a bill that passed e with Critical Minerals which we rely on way too much with regardsal to china, and get in r own nation and certainly in my great state of alaska where they can process and produce these in a much more environmentally responsible way than the chinese do, and yet we continue to rely on their elements and other things. Of course the supply chain theres been a big focus with regards to medicine and ppe given the pandemic and the republican s. E. A. L. S that we are debating now and hopefully we will have some compromises to get some additional relief for the American People from this pandemic. A lot of bipartisan support in some of the issues we were discussing today but making sure we are d not relying on china, e medicines from a Semi Conductors were Critical Minerals. Theres a lot of suspicion. My provision passed the bill senator murkowski and i found in the current version of the bill we are debating and trying to move forward in the senate now on Critical Minerals. Can you talk briefly about the importance and the longterm importance and benefits to america of securing our supply chain in a way where we are not socalled double to enhanced manufacturing andhi health works faxed to me it is the Silver Lining of the pandemic we are already starting to see Bipartisan Legislation, and i think that we need to t continue it. Thank you for your leadership and with other actions you and the committee have taken as well. W the fact is i think that the American Public has spoken out because of the pandemic with our dangerous dependence and reliance on china. As you well know, your state and several others have deposits on and have shown its willingness to organize the supply chain. Theyve done that with rare earths and otherwise. As we also saw with this pandemic it usedde to ppe as a diplomatic tool to try to gain access and sanctions from many of our allies. Anthe fact is we do have the ability to reclaim many of the supply chains if we have a concerted plan. We have the ability to have a fully lined to magnet strategy. We used to produce rare earths here not only in a facility in california they also have been indiana enactment clinch the speed to 1996 has no we sold to the chinese and i believe that was shortsighted and the chinese predatory practices to the California Mine into bankruptcy. We have to make clear what our longtermm needs are and our economic success in technological and military competitiveness and we need to invest and ensure we have the ability to meet our needs with allies at times but clearly meet needs where the interest of the American Public or down on. Thank you very much for that excellent answer and service on these issues is very commendab commendable. I wanted to add to mr. Russells points just a few thoughts. Its the case china recognizes the supply chain and wants to keep that in position so we have to look at those efforts and it will be a long time competition to diversify the supply chain. There are indicators that theyve suggested the face repercussions for some of their political stances when it comes to ppe for the official anthem on the official levels, so we need a different approach and what concerns me is we are not always sure where we are formidable to beijing so i think that it can more effectively audit the supply chain and cacongress perhaps even this tet certain companie companies beliy stressed Financial Institutions and Institutional Knowledge about the connection. And i think if we have that we will be in a better position to compete and also think more effectively about the economy. The last item has been inspiring and we can learn a lesson from some of theirr approaches. Thank you for that very detailed andnd wise answer. I want to thank the witnesses again. I think that this is exactly what we need not only i only mst with regards to as you mentioned, the American Public. There is growing bipartisan support you solve in the strong participation of the numerous senators on both sides of the aisle in this first panel and expertise and i want to thank both of the witnesses who showed strong expertise and insight on what i believe is going to be an issue that is the forefront of american domestic and Foreign Policy for the next 50 to 100 years. We need to wake up to it and we need to address it and execute it in a bipartisan way, and i think they are and thats an timportant beginning. But again, to the first panel of haessays, thank you again. Im sure there will be additional questions for the record, and you are now excuse. We are going to turn the second part of the hearing today, and im pleased to have in the hearing room two Senior Administration officials who can talk more specifically with regards to the policies that the Trump Administration is not only formulating its beginning to implement and that is mr. Croft who is the undersecretary of state for Economic Growth, energy and the environment and has been given a very Important Role in the executive branch on the development and implementation of americas u. S. China strategy, particularly as it relates to the economic and geostrategic realm. Mr. Secretary, welcome. Thank you chairman and Ranking Member members of the subcommittee. I appreciate the opportunity to discuss the china challenge because it is at the epicenter of the Economic Security threatening landscape. Last week in the landmark speech secretary pompeo said today we are sitting wearing a mask watching the pandemic body count t rise. We have seen staggering statistics of chinese trade tcabuses watching them grow stronger our experience with the Economic Warfare firsthand i grew up in small town of ohio where my father ran a machine shop i saw china got my fathers shop. It was not lost on me. Vice president of General Motors i learned when you build a plant in china you dont just give them the blueprints but also treating the labor force provide spent the rest of my career in Silicon Valley where the intellectual property ripped off and china strategy firsthand of seducing firsthand with money while reinforcing with intimidation and retaliation. The first b2b Ecommerce Company now the largest with 7 trillion of commerce was conducted last year over that network and in the late nineties we welcome chinese visitors to our headquarters c only to have one of our concepts a stolen that was allie baba. Spending two weeks in china when i thought could be economic opportunities. Ive been there since 1981 but this time was different they spoke so passionately about their grand strategy for global dominationmi and how they position the United States. Then i got an indepth look at their technology and thats when it hit me. As soon as i got back i went to washingtonk, w and spoke to anyone who would listen and said you understand the country with the best Technology Wins . And that is when i was asked to serve. Sk and thats why i am here today because of the china challenge. My first week on the job secretary pompeo gave me a charge operation the Strategic Plan to operate a prize National Security and to combat chinese aggression a strategy we developed with three pillars to turbocharge the economics with prioritizing emerging technology in key areas critical to Economic Growth and security such as 5g and Semi Conductors china is also vying for the lead in each of these. I can tell you the communist Party Biggest fear is United States at this moment the second pillar of the strategy is to safeguard the assets including international on intellectual property this has the partners to demand reciprocity we must also understand they have used our assets against us including our openness and values we must view every chinese action with skepticism as secretary pompeo recently said this trust and verify. The next part of the plan turns the table to reclaim our coren freedoms and we will answer secretary pompeos call to build a new alliance of democracy to oppose china. We envision us to be likeminded Civil Society to operate under trust principles for all areas of economic collaboration and those are american a values. Integrity accountability reciprocity and respect for rule of law and property of all kinds and sovereignty of nations and the planet of human rights. Talking to my counterparts from other countries about this concept their reaction is, its about time. We been waiting for an alternative one of the Southeast Asian nation said china one belt one road to beijing the new alliance of democracy represents the clean alternativebl. Let me update you on the state departmentse campaign unlocking a Global Movement secretary pompeo also said last week we urge countries to become clean country so citizens doesnt end up in the hand of the Chinese Communist party starting with the 5g network for years they have strongarmed nation to purchase the huawai 5g infrastructure. Huawai is the backbone of the surveillance for this the ccc and the oneway china firewall where data comes in but not dout and propaganda goes out but the truth does not come in. The state departments requires all data entering or exiting facilities to transit only across trusted equipment. Making a difference to join the 5g clean path againstoin huawai and toward clean vendors as a result huawai deals are evaporating we saw earlier this month in the uk and last week withon france now there are 35 clean i 5g companies also recently the top three from singapore and top three telco in canada. The Clean Campaign has been so eccessful we are preparing to expand beyond cleanup including apps and cloud and clean cable. Its also important to have a clean supply chain recently the state department joined other agencies to issue a Business Advisory with supplychaineg exposure with the forced labor and human rights abuses. In a followup letter to all us ceos to say your institutions have a moral responsibility or fiduciary duty toitio establish clean Governance Principles to divest from companieses that contribute to human rights abuses at a minimum they should disclose the Chinese Companies soon groups will make recommendations on the transparency of chinese Public Companies to enhance Investor Protection and ensure American Exchanges are the standard for thes world. The powerful private sector and the secretary pompeo said a new alliance of democracy. Our moment is now to choose a clean back path for children and grandchildren. Thank you very much alike forward to your questions. Thank you mr. Secretary. Thank you chairman and members of the subcommittee good morning and thank you for the opportunity tok f testify. We are at a historic crossroads in the china relationship and the steps we take now will chart the course of economic and technological leadership for decades to come in 2017 the us began for the first time to confront head on the challenges posed by epredatory practices. Those had been ignored for decades and as a result the United States loss capability sector after sector of manufacturing and technology that is so a critical in order to understand that predatory and then the most effective tool by design those that are t governed in the prc takes advantage to funnel massive amounts to resources to dominate the strategic sector. To destroy land and property in Raw Material Prices to export undervalued goods and services worldwide. The two underpriced competitors to force them out of the market and hollowed out our industry next it takes advantage of the Global Global overcapacity on competitive prices. This is tragedy of optic fiber cables like Semi Conductors and those that will be targets next. The prc monopolizes strategic assets and for example the increasing control of the Raw Materials necessary for hightech products by purchasing minds a broad lithium nickel to name a few. The impact of this country with United States and allies in the Critical Materials cannot be replaced china is able to exert influence over the rest of the world by withholding access to a them. The prc regularly supports the appropriation of intellectual property but even when chinese firms are perceived to collaborate take huawai announcement is planning to build in the uk one. 2 billion dollars optical Fiber Research facility they will benefit with the collaboration a Broad International internationally and repatriate that technology to eliminate competition and then change the monopoly position in sectors like 5g were optical cable survives infrastructure the National Security implications are obvious. The International Standards to influence the markets and finally its worth emphasizing that because china is a sovereign state foreign laws could never be sufficient to address its conduct it doesnt adhere to International Laws the power the policies have failed as a predatory actor with those supply chains as a low cost producer to trade on those intellectual properties in exchange for shortterm markets as a result to transfer data and exported Manufacturing Capabilities to a nonmarket economy with transparency that does not exist we created a Global Economy with a nonmarket conditions. With a comprehensive strategy at the outset the United States must systematically for all items that are critical to National Security this administration on behalf of the white house we need to do this on a permanent basis the second essential component intensifies the inward investments of Manufacturing Capabilities and to boost innovation and growth. And then to generate immediate demands for those operations and to take a leap of faith and invest in the unitedea states and of course it is axiomatic us investments to grow we have a strategy to fight back against competition to undercut us production these elements are essential to a comprehensive strategy. That as a trained lawyer and economist they will be affected to build the supply chain that is robust i would like to conclude by emphasizing the Global Economy was developed by the United States shaping the economic order the 21st century its not too late to act the supplychain vulnerabilitieser are two great for another National Security crisis to expose the country to even more peril. Thank you. Take you secretary want to begin with you on the critical question the issue of alliances my a colleagues have been critical of the Trump Administration approach. I believe certainly in our Previous Panel we are an ally rich nation china is allied poor n and then to expand our alliances is very important i think this administration has been working hard onti that such asas vietnam, india the statement of the new Coalition Talks about p the idea of the Democracy Coalition can you talk about that in more detail what you and secretary pompeo are starting to do in that regard and the success you are seeing and how we in the senate with strong bipartisan support and how we can support that with many anecdotes we see a number of World Leaders and senior officials to come to the senate. A number of them say it has to be the United States to lead this coalition but we feel they will be creamed by the chinese of the United States leads we will support that under us leadership. Can you give us detail what you talked about in your opening testimony . With strong support. You are absolutely right. With chinas retaliation that terrifies countries and companies this is the whole reason for the Alliance Democracy which would also include the private sector. Because there is strength and power in unity and solidarity if you look at chinas tactics they are able leave. You believe like the piano that testified before that china recognizes this is our ultimate strength right now . The longterm deep local network of alliances and they dont have it all . Yes. By the way if you look at our strategies it takes the comparative advantage to amplifypa those to create compound advantages the big one is our likeminded partners so its time to turn the table. To use that against china and in terms of opportunity and strategy and i said thats when i got confirmed to strengthen our relationship with our allies and friends to leverage the private sector to amplify the moral high ground so to come by the into one is huge so when they are confronted we all experience this then they really back down if you have your friends by your side so thats why they said we will reconsider the huawai decision that was a few months ago you could see immediately the retaliation a fy the ccp beijing threatened in the chinese uk ambassador threatened to take away the Infrastructure Investment said we stand with the uk and whatever we need to do. And that is the most powerful concept because what china has done is they fragmented they go after the weakest gazelle of the heard so we see success in that realm of building a coalition of democracy. So what w we see is a network of trusted partners the fastest way to build a network is a network of networks. The network of infrastructure for high quality private section sector with developing nations. Another is the 5g addition also Rare Earth Minerals secretary pompeo said last year we envisioned Energy Security network as well. Also healthcare m Prosperity Network if you think of it like it these network its all areas of collaboration it is investment and commerce and energy Research Education those are the things will take advantage of. And it will be based on those trusted principles they are trying to take over International Standards. Thend way to counter that is to have an overriding set of principles they all have to comply with and you cannot participate unless you do. So with any Chinese Company or citizen to turn over any proprietary technology or suffer the consequences. Mr. Secretary focusing on allies and networks to have strong support here and focus on Critical Minerals and energy its important to america with comparative advantages we want to help you with that. Senator young. Thank you mr. Chairman welcome mr. Undersecretary thank you for the incredibleul f service you are doing. We know a new power competition is unfolding before the eyes of the world china is unscrupulous at authoritarian regime is the inverse of our own values. To meet the challenges we have to show america to have the resiliency that has been shown over the lastt century. We can harness the economy, we can renew the american project itself if we make the right moves during this moment in history. The front tier act is a piece of legislation i coauthored and we believe it will provide the rocket fuel for entrepreneurs moving forward. In this book bill we have Tech Innovation and boldly increasing free market investment we propose providing 100 billion of strategic investment of the national sciencece foundation and to deliver 10 billion around various areas of the country with the existing pockets of expertise in particular sectors and s technologyno that will lead to the launching of Innovative Companies to revive americare rynufacturing it across the country. In the coming years it would strengthen American Power increase prosperity and kaolin carryon the quest to improve through innovation. Weve done thisth before look at the 20th century. Do you believe the United States0t government should ramp up investments with largescale innovation for key technologies . Absolutely. I want to thank you senator young as well as senator schume schumer. Because that will tremendously move the needle in these ten nationalur security sectors and will be a great catalyst in that moment that we talk about one thing ive learned fromin Silicon Valley is American Innovation entrepreneurs of the best in thewo world but then time equals money so talk about 100 billion is huge as we discussed before we could get serious match from the private sector and we believe we could get it from our allies if we choose. Lets explore that further. Arguably the greatest geopolitical resources as a country with those alliance alliances, how do we leverage those relationships to speed up development and broaden the base of innovation . As an example chairman sullivann . Alluded to to start off with ten of our closest allies with two main objectives one is strategic assets but the other is from the offense off position in terms of joint collaboration and jointll research as well as investment screening and export controls. No doubt in the china competition the battlefield is high tech. The softs underbelly is the currency and to put this coupled with the private sector will dramatically move then kneels on the needle. So with china we shouldnt only play defense. Not only apply tariffs not only encourage our partners and allies with Huawai Technology if there is a fear of a backdoor and not only ensure our partners and allies are aware of the implications to the foreign Aid Initiative but also invest out innovate and outcompete and outgrow the chinese which is arguably the most important thing we did you take down the sovietta unio. That is by far the number one thing that is what we practice is Silicon Valley so this puts us on the offensive without reactionary posture. This is the communist partys biggest fear that we turn up the heat with these new technologie technologies. Let me change my line of inquiry. Youve been very thoughtful as if we met on this before but do you envision a future where countries around the world have to choose between either the United States or china cracks can we avoid this economic decoupling between china and the United States . We envision the alliance of democracy were not asking them to choose between United States and china were giving them an opportunity to participate. I had 85 lateral meetings with my a counterparts. I say how is your relationship going with china . They are a big trading partner but then they will look both ways and and say that we dont trust them. If you look at those values that we talk about they form theue basis and you can do business with people that you trust. Think about it with the greatest geopolitical resources, i challenge people name one ally the Chinese Communist part party, they have nine. And then to have genuine alliances. And with that tyrannical twins between china and iran. And they havent honor the agreement the hitler installer packed one Hitler Stalin pact. That is not an alliance but a marriage of convenienceth subject to divorce at any time. Thats why you hear these developing nations describe the one belt road it is a one belt one way toll road to beijing because the resources are sucked up and hard urinencies sucked up. There is a lot of thingss going on still thank you for your support and encouragement with the endless front tier act we are grateful for the service of you and your team. You have clearly elevated that department. I know colonel sullivan serve their before i think it to be elevated any further, but it is especially important that the economic statecraft is properly scoped and im grateful for your presence here today i yieldes bac back. Thank you for your leadership its important you are highlighting the section of the department. Thank you mr. Chairman thank you for being here today and thank you for your service to our country. I dont know if you are here for the last panel to hear my questions but i will repeat them for you. This morning we wrote to the assistant attorney general United States department of justice for an investigation of zoom and ticktock because of they are widelyt reported and repeated surveillance of the United States citizens and possible censorship of participants on their platform and possibly suppression of rights and liberties of people in this country whose reports of censorship and other abuses let us to ask for an investigation. The Justice Department along with other members of congress have written repeatedly asking them about their practices of collecting information about americans and providing it to the government of china and they both failed to answer the basic questions. But we in turn turn to the United States government to protect United States citizens. Is the administration aware of the cooperation between zoomom and tik tok and the company that owns it with the peoples republic p of china . What do you plan to do about it . Thats what i was talking about the 5g Clean Program if you look at apps like tik tok or cloud providers or drones underwater cable, it iss all part of that nervous system of china surveillance state. Thats why we are preparing now not just between the networks on the 5g side but the entire system. I could not agree with you more. Because they are appendages to the surveillance state see you will see similar to what we did with 5ggca. I cannot agree with you more, senator. I appreciate that that support is very meaningful and i hope youll take that back to the department of justice to put its money where its mouth is so to speak then it has to begannv right away that this surveillance and censorship and tracking of americans providing data to the government of china comes on our Civil Liberties we report to the department of justice . They have been great allies working arm in arm with us with a clean apps, clean cloud and clean store. Im glad they have been great hope they will sendil a message and respond to the senator and myself and favorably but im glad you will support that tonight i appreciate your republican endorsement of it. Are there measures of the review that could impose on chinese firms collecting information about americans and not sure the data will not wind up in the hands of the Chinese Government . State your question again. Are there measures like a hereview that word he impose to collect information barrier prohibition against sharing that with the chinese . Yes. Theres a number of rules to the United States government and by the way on that dimension with the everchanging landscape i have seen it change theres all kinds of ways to get around litigation. And with the industry to focus on china. That is a great tool. And that gives us the tools thatal we need. You mentioned drones. Tell us why we should be concerned about drones. 80 percent are owned by chinese. Look at dgi. So if youre doing something witht your son you want to take the video from up there. Those feeds go directly back to china unless you are pretty tech savvy and go through about seven different menus then it can download right to your iphone otherwise it goes ythere. With that military technology thats one of the things i saw on my last trip to china when he came to washington that there is more dronee technology by the way i dont know how you defend against this i know we are working on it and thats one of the other ones were working on clean drones. You say you dont know how we defend against it . , military aspect. Im the are on the Armed Services committee but im talking about ordinary civilians 90 percent of the market i because it does the same thing that tik tok is it sends back the video feeds they are collecting information on our children. I have five children i want the chinese spying on my children. So then do we m get chinese drones . Thats a very important thing to heavily consider i dont want to get out in front of it but its out on the table. We need to manufacture our own. Exactlyly t the best defenses a good offense we have to invest in our drone business because the last i checked i think they have 90 percent market share. We have a hearing on this topic and senator sullivan is right and to manufacture in thiss country and i would submit a matter of National Security that we do it because thats the only way to defend or protect our rights and liberties thats easier said than done and to engage in predatory pricing to squelch competition. So i would like to know from you in the future when you say its on the table im hoping it will report back to us on what is planned . Youou god it senator. You are absolutely right we have the entrepreneurs and the chinese subsidize others takes capital and money and it all comes out of the same pot the way china works in a deeply appreciate what congress is doing to make sure we get those funds also the Semi Conductor business a guide give then right to have a fabrication business we invented it beijing countries came over and bought itt from us and they subsidize the Semi Conductor business between 30 and 50 percent we could get taiwan Semi Conductor and then you pass the chips act and that money goes for the entire Semi Conductor industry will need 12 percent Semi Conductor fabrication is done in the United States that is the key. These things make a difference. And turning to senator cruis cruise. Thank you senator blumenthal. Thank you for your testimony today i want to start with what was discussed in the first panel of supply chain issues. Im deeply concerned about chinas control of our supply chain particularly with critical infrastructure. One area that poses a serious National Security threat to the United States with rare earth in critical mineral supplies introduce legislation the on shoring rare earth act to bring rare earth mining back to the unitedea states. How does the Administration View the threat of chinese control of minerals and what should we be doing to fix the problem . Of the every shoring strategy in my office is taking the lead we cannot underscore the importance with Critical Minerals report and to access we cannot stand for that and the solution will have certain pillars one of the first is providing financial incentive. That gives companies the leap of faith. The next part is Technology Sharing with our allies. If those supply chains are locatedin far away and to decide and then to go back and forth to one another for ourselves and every country and then to incentivize investments so at the end of the day which will invested in the United States so what measures will we think and then to talk about restricting import tariffs why it is the otheror alternatives with the predatory low prices we need to have a serious conversation about that. And certainly to look at the downturn effects and for financial incentives those that rely on rare earth and in particular what are some of the measures we can put in place with the predatory with the legal lens this is will give us the supply chain. You made a very important point the china strategy in terms of slashing prices and the way the Chinese Communist government has approached into those key vulnerabilities of america and so when they are pricing it with the antitrust context so the objective is not to earnne a profit these are military dominant efforts. For someone watching at home as a a practical matter why does where Minerals Matter . Why should we care china has a stranglehold . They are essential and today critical to National Security. We almost treat the hollowing out of the industries that christian famously said we need to sign a soviet bloc to declare war and in the peaceful war of trade to win over the United States and we trade for economic reasons and politicals and interestingly from the trade act in 1962, in the statement of purpose one of the purposes is through trade agreements to afford mutual trade benefits with communist economic penetration this was from the 1962 trade act and the same problem we are dealing with today. Guess much progress has been made . Zero. For the first time and rightfully so now to tackle these problems and then looking hard at it with congressional support and those are decades inec the makingue. Thank you very much. I want to comment on the rare earth and other Critical Minerals. We have them in america. We have them in my state. By the way our record on mining and producing them is much higher with Environmental Standards then the chinese, by far. Its important for National Security and we have a strong record on epa to mind them and it is jobs and we should utilize that. You are right Rare Earth Minerals are not that rare in the United States. But what the chinese have done is put our processing plants out of business to subsidize pricin pricing. The aim isnt just to compete but to drive you out of business they can jack up prices and then the next sector. And its been great to see in this administration coming in that what we are doing and commerce and with a strategic points and whats the product and how do we get them forward. And we are making progress on that. Madam secretary both of you to comment on this challenginghi issuead and that is the temptation by us companies to access the Chinese Market. And then what the ends up happening is they are forced to transfer Technology Beyond do or in want to some ways they kowtow to the interest on broader statements china finds objectionable with American Companies or organizations that toe the china line. Its a dilemma because it takes place in the private sector. Ceos making thes calls could be for shortterm profit to the market but longterm us strategy it might be undermining the broader Strategic Cold as a nation as some of the best companies are selling out their own ip are to gain access to the Chinese Market. So what should we as a sgovernment should be do about this very important issue with the private sector is leveraged to the market of china but then has to give up things or toe the line on broader issues relating to taiwan where they are forced to makehe statements that are online with Chinese Communist Party Objectives . Ihe will start to give the economistt perspective when you have no choice but to deal with exports and then with that cost structure. You not only have to transfer technology that now your flooding the local market so in many ways the company in order to compete with their own chinese competitors so china talks about Corporate Credit at any time it can Ask Companies operating in china to hand over their data and Sensitive Technology and ip the chamber of commerce says if you dont you will be sanctioned by the Chinese Government they are starting to get spooked and with respect to huawai they made some significant threat against no kia and ericsson which are European Companies but saidiaia if youre up advand huawai from the 5g networks then we will put restrictions on the exports have no kia and x one ericsson from china so now they are rethinking their operations. What should we be doing with government policy mostly in the sphere of the private secto sector, what should we be doing . There is one view to punish her own companies. I think that could backfire. What is the government of the United States, executive branch, view that we should be doing to give the ceos backbone not to comply with these demands we dont do this to Chinese Companies but what should we be doing . This exactly what i was getting is it cheaper to inoperate in china and we have to figure out how to give these companies a financialy boost we have to amplify so given everything i have said the European Countries the amplify the risk to be cost competitive. Its an important topic youve seen it in your government position but also the private sector. I would make three points. You hit on an important issue so when i hosted secretary pompeo for four days at the beginning of the year we say Corporate Responsibility is also National Security because its ana threat to democracy but an urgent threat to companies because they want to put you out of business. Now the elephant in the room is the retaliation. Its all about standing up to the bully. If you think of the laws we have put in place with anticorruption its illegal to give a bribe. By the way we may think some of the things that us Companies Need to say to china i cannot dohi that because they will obey the law getting our allies to do that to help promote or prohibit and with our allies and thats leverage point. This is one i recommend with collaborations of the private sector because they will tell you that has to be crafted just right and the other thing we have to do is shine the light on china but sometimes on ourselves and with Chinese Companies on the camerican Stock Exchange that they dont obey sarbanesoxley and cant get audited that makes me mad but thats not the point it puts american invest investment at risk and creates an a level playing orfield for our Companies Anyone understands a Financial Strategy or competitive strategy and this allows them to misstate earnings higher ssubsidize as revenue as perpetual revenue so it gives the Chinese Company a competitive advantage and it sacrifices the Gold Standard of the American Exchange so the average american and bondholder finances the oneway road in the emerging index fund its all buried in there. Thats one of the things i o wrote in the oped that it is incumbent on us companies to disclose who those Financial Institutions. The strate implementation and execution. I believe that its very bipartisan. As you saw from the number of senators, focusing on many of the same concepts and both of you were hoping tha do this witd sorstart to begin to establish a policy that can be utilized and implemented for decades like the containment policy against some of your and that was well regarded and accepte in accepted continued throughout administrations. At the beginning of the moment i think that this hearing is a hopeful beginning so with that the record will remain open for to be into during the time senators this questions. Upon receipt, we would respectfully ask witnesses to submit written answers as soon as they can back to s the committee but by no later than august 14. Thank you for the work youin are doing in educating the American Public on these challenges. We have a lot of work to do that we are finally realizing the challenge and they often a good start. With that, the hearing is adjourned. [inaudible conversations] part of liberty universitys Freedom Summit conference with two of my personal heroes, you know, i would think about this as the mother off five young children, three boys that someone must have really when these men were young boys theyve taken t t