C. Peter McColough Series on International Economics With Wally Adeyemo

Friday, February 23, 2024

Deputy Secretary, U.S. Department of the Treasury


President, Council on Foreign Relations

As the two-year mark of the Russian invasion of Ukraine approaches, U.S. Deputy Treasury Secretary Wally Adeyemo discusses the U.S. coalition’s sanctions strategy, its effectiveness, and the challenges that remain.

The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

FROMAN: Well, good afternoon, everybody, and welcome. I’m so delighted to see everybody here. In addition to the folks in the room, I’m told we have a couple hundred people on Zoom as well. So welcome to the Zoom audience. It’s really a great pleasure to welcome an old friend and a former colleague, Deputy Secretary of Treasury Wally Adeyemo, to the Council. Wally’s had a number of terrific jobs, both in government and the private sector. Of course, the most important job he had was as the G-20, and G-7 sherpa, and the assistant to the president for international economic policy, which happened to be my job. (Laughter.)  

But he’s gone on to bigger and better things from there, including playing an absolutely critical role on a whole range of domestic and international economic issues at the U.S. Department of Treasury. He is known throughout the world, highly respected. Whenever I travel, people say: Do you know Wally? And I say, yes, I know, Wally. And it has uniformly positive reaction from capitals around the world. You probably saw some of the news in the media this morning of a major announcement by President Biden. And we’re delighted to have the deputy secretary here to talk about those issues, and more. So please welcome the Deputy Secretary Wally Adeyemo. (Applause.) 

ADEYEMO: Well, Mike, let me thank you for having me here today and for your leadership of this institution. I know that I and your members are grateful for the fact that you’ve taken this on at this critical time around the world. And thank you to all of you for joining me today here. And while I wish I was here under different circumstances, tomorrow we will be marking the two-year anniversary of Russia’s horrific war on Ukraine. As the war stretches on, you know this and you’ve seen this, skeptics are starting to see Ukraine’s endurance as a denial of reality rather than what it is, a show of bravery that continues to frustrate one of the world’s largest armies.  

And it’s important that we be clear. The Russian invasion of Ukraine is a strategic failure for Russia. Putin expected to take the Ukrainian capital within days, and the entire country within weeks. He’s lost now 300,000 troops. He expected that this war would divide democracies around the world, but today NATO is larger and stronger than it was prior to Russia’s invasion. And in order to pay for his brutal war, the Kremlin is mortgaging Russia’s future. And they’re doing this at a time when hundreds of thousands of Russians are fleeing the country because they see the lack of economic prospects and refuse to be drafted into Putin’s war of choice.  

Foreign direct investment has dried up. The ruble is weak. The country is cut off from nearly every major financial sector and major financial capital in the world. And while GDP is up, it’s largely being driven by a 70 percent increase in military spending, which has driven inflation higher and has taken the place of critical investments in the Russian people and their future. And it’s important to note that for the first time in modern Russian history, Russia is investing more in its military than its in its people. Which over the medium and long term is not sustainable for any country, especially a country like Russia that is largely being cut off from much of the world.  

But despite Russia’s challenges, conventional wisdom is that Ukraine lacks the capacity to persevere and that our coalition is weakening. This is a narrative being pushed by the Kremlin, one that they are using usefully to try and demonstrate that they can outwait us. But I want to be clear that this is false. The truth is that Ukraine has the ability to defeat Russia. The truth is that our coalition has withstood the test of time, and the alliance between Europe and the United States is stronger than it’s been.  

And American history shows us that we know what it takes to stop a tyrant who seeks to unleash brutality, and also to rewrite borders, and to rewrite the global order. And cementing Russia’s failure requires us to use not only our diplomacy but also our sanctions and export controls to deny the Kremlin access to the goods they need to build the weapons they want. But it also requires us to provide Ukraine with the financial support and the weapons they need to defend their country.  

As I mentioned earlier, Russia today is more isolated from a global economy than at any point since the Cold War. The basic reason for this is that the countries that are part of our coalition represent more than 50 percent of the global economy. The breadth and durability of our coalition sends a strong message not just to the Kremlin but also to other regimes that seek to engage in unprovoked aggressions against their neighbors. A key part of our strategy is ensuring Ukraine has the military and economic support needed to defend itself and ensure that there is a country and economy left to defend, which I’ll touch on shortly. But before I turn to that, I want to discuss Treasury’s work using sanctions to make it harder for the Kremlin to wage its war of choice.  

Our sanctions have two goals. Ultimately, sanctions are a tool of a foreign policy strategy. And from the standpoint of this strategy, the president and other leaders have asked us to use sanctions to accomplish two things. One, reduced the Kremlin’s revenues in order to make sure that it’s harder for them to both fund their war of choice but also to prop up their economy. And, two, disrupt Russia’s ability to get the goods they need to build the weapons that they want.  

To that first point, we are going after—successfully—Russia’s most lucrative source of revenue, energy. Russian federal revenues from energy in 2023 were down 40 percent, while their expenses for their military were up 70 percent. In large part, this cut in revenues has been driven by our sanctions and export controls, which have made it harder for Russia to sell oil. And in addition to that, the actions that we’ve taken with regard to the price cap has meant that Russia has a simple choice. They can sell oil for under $60 or they can invest thousands upon millions of dollars and billions of dollars in building up their own ecosystem to sell oil. But that money that they invest in building up that ecosystem is money they can’t invest in building weapons to fight their war in Ukraine. 

Unsurprisingly, these investments by Russia is taking them—taking resources and time. But what we’re committed to doing is continuing to act to make sure that Russia’s revenues are decreased over time so they’re in a position where they face a choice between investing and propping up their domestic economy and continuing to invest in their war of choice in Ukraine. Today, we’ll impose additional price cap sanctions that will increase Russia’s circumvention costs as well as reinforce our policy of reducing the Kremlin’s revenues.  

In addition to taking steps to reduce their revenues, we’re making it harder for Russia to purchase the weapons of war that they need going forward. This includes sanctions on Russian companies. Importantly, we’re also sanctioning companies in third countries that are providing Russia with the goods that they need to build weapons that they’re using in Ukraine. We’re making it harder for the Russian military to build in Russia and to manufacture in their own country. President Biden recently signed an executive order that makes the choice clear for companies outside of Russia. You have the ability to continue to do business with Russia’s military-industrial complex. And if you do, we will use every tool at our disposal to come after you. 

Which means that fundamentally, you can continue to sell to Russia—a small economy that is likely to get smaller—or to do business with the United States and the members of our coalition who represent 50 percent of the global economy. It is a choice that company after company is finding easier because, ultimately, they care deeply about their larger—their largest customers, which are in the West and not in Russia. And as Russia struggles to evade our sanctions, we’re committed to continuing to take actions like the one that we took today to go after that evasion. But we also know that in order to evade those sanctions, they’re investing time from their intelligence apparatus, from their economy. And that is time that they are not spending on waging their war of choice in Ukraine.  

But ultimately, sanctions are only a part of our foreign policy strategy. At the same time that those sanctions can curb violence, ultimately Ukraine needs to be sped up. And in order to do that, Ukraine needs access to financial resources. Our partners around the world had been steadfast in their support. The European Union took important steps by agreeing to provide 50 billion euros’ worth of support to Ukraine. Canada, Japan, and the United Kingdom have each committed billions of dollars. But as those of you who are in this room know, 

this effort cannot be successful without American leadership and American support. 

The Senate recently passed a supplemental that includes $33 billion in investment in American companies and workers to build weapons for Ukraine, weapons they need to defend themselves. But in addition, the package includes $10 billion of economic assistance. Sustained economic assistance not only helps Ukraine defend itself from attacks on its infrastructure and economy, it makes it clear to Russia and other belligerent actors, United States will stand with countries fighting for our shared values. And as our partners stand up, it’s important that America stand with them.  

And while we are focused on making sure that in the short term the financial support from Congress comes through, the president has also made clear that he believes it’s essential the Kremlin pay for the damage they have done to Ukraine. Early on in the invasion, President Biden and the other leaders of our coalition made the decision to mobilize Russia sovereign assets held in our jurisdictions. In December, the G-7 stated clearly that it is not for Russia to decide if or when it will pay for the damage it has caused. With this direction, we are working actively with our G-7 counterparts to find ways to use these assets to support the Ukrainian people. Taking these steps will increase pressure on Russia to end its illegal war of aggression. 

It’s important that President Putin and the Kremlin know that if they choose to prolong this war, the Ukrainian people will continue to have access to the finances they need to defend themselves and to make sure that their economy continues to function. After two years, Putin’s blatant violation of international law has helped to forge an unprecedented show of strength in opposition to his aggression. Together, our international coalition has responded to his barbarism with innovation, collective countermeasures like the price cap, that we would not have been able to accomplish alone. But now the Kremlin continues to employ a strategy that’s aimed at destroying Ukraine’s will to fight.  

But I remain hopeful because of brave Ukrainians, like Roman Ratushny. In 2014, just sixteen years old, he joined thousands of protesters in Ukraine’s main square, demanding democracy and an end to government corruption. Eight years later, still a young man, he enlisted, ready to defend the fragile democracy that he helped restore. On the frontlines, Roman prepared a will, writing like a man who already knew his fate: Kyiv, I died far from you. But I died for you. Just two weeks later, he was killed in action, giving what Lincoln called, “the last full measure of devotion.” 

Roman understood the power of the values that bind the Ukrainian people with democracies all over the world. He joined the sea of demonstrators in Kyiv, driven by the same impulses that drove people to march in Washington, to bring down a wall in Berlin, and stand up to Apartheid in Johannesburg. Roman and countless others that summon the spirit of service and sacrifice did not die in vain. As brave Ukrainians fight for their future, we must continue to support them as long as Russia’s aggression continues. I thank you for your time and I look forward to your questions and continuing this conversation. (Applause.) 

FROMAN: Well, thank you for that. And it’s really a great honor to have you here on this really momentous day, for all the reasons that you said. You know, the Treasury Department is involved in everything—whole economy, tax policy, domestic financial regulation, IRS. Is IRS still part of the Treasury Department? 

ADEYEMO: It is part of the department. It is part of the department. 

FROMAN: It’s still part of the Treasury Department. I see Les Samuels is here, so I hope it’s a part of that. And yet, it feels like inevitably the Treasury Department’s had to spend most of its time on issues like sanctions and economic security. How do you—how do you spend your time? How do you make sure that the Treasury Department is having an equally important role on fiscal issues, tax issues, other issues? 

ADEYEMO: So you’re right that ultimately we have been—when we came into office, as all of you know, we were facing a global pandemic. And the place we spent our time with the Treasury Department was on implementing the American Rescue Plan. And a trillion dollars of that money came through the Treasury Department. Everything from the Advanced Child Tax Credit, which dramatically reduced child poverty in this country in some communities by as much as 50 percent, to the money that went out to state local governments, which included $13 billion on workforce training. And we spent a great deal of time implementing those programs.  

And just as we were seeing the economy start to grow, and we were starting to see people return to their lives, and we were seeing the impacts of those policy choices, Russia invaded Ukraine. And in addition to the human toll, I think we often forget now the economic damage that did not just in Ukraine, not just in Europe, but around the world. You think about a country like Egypt, that had to go to the IMF because of the fact that the cost of wheat went up significantly; or the fact that that a barrel of Brent went up to $120 and you saw gas prices go up to about $5 here in the United States. The actions Russia took had a significant economic impact.  

And we responded, of course. The president used the Strategic Petroleum Reserve. Gas prices are down $1.90 now. But ultimately, we think that—we think of the actions we’re taking here as both being things that we’re doing to reinforce our values, but also central to making sure that destabilizing activities, like the ones Russian are taking, don’t create economic headwinds for us here at home. But a great deal of my time today is spent on also the proactive agenda the president has in place, implementing the Inflation Reduction Act.  

I was just in Atlanta last week, where in the state of Georgia alone we have thirty-three projects in the last year that had been announced around the Inflation Reduction Act that are putting $14 billion into that economy. And I’m also working on making sure that we modernize the IRS. You know this well because you worked at the Treasury Department, but the IRS before the Inflation Reduction Act had a computer system that was still running on COBOL. It had been put in place before our country had ATM machines or the personal computer. And we finally— 

FROMAN: Hey, if ain’t broke don’t fix it, right? 

ADEYEMO: Don’t fix it, yeah, exactly. (Laughter.) So we’re working on both modernizing our government but making it more effective, and investing here in the United States. Because we know that ultimately our ability to use tools like sanctions, our strength around the world, comes from having a strong economy. And what we’re seeing in the data is the American economy is stronger than anywhere around the world because of the policy choices we’ve made, because the dynamics within the American economy that are created by the American people. 

FROMAN: So let’s talk about the sanctions. We have a number of robust sanctions programs—Iran, North Korea, Cuba, now Russia. How do you rate how strong the sanctions program is against Russia right now compared to those other programs? I’m always surprised when you have five hundred more sanctions to impose—(laughter)—like you did—do you have, like, another five hundred up your sleeve? Or how much—how much more could we ratchet the sanctions up on Russia? 

ADEYEMO: So I think the—and those of you who spend time on sanctions, you know this. Over time the impact of sanctions grow, because what you’re doing is you’re constraining the access of those who are sanctioned or the economies that are sanctioned to things like foreign direct investment. And we’ve already seen that foreign direct investment in Russia is now negative. So it’s going to over time have more of an impact on the Russian economy.  

But what we also have seen is that the Kremlin has asked their intelligence services to go out and find ways to evade our sanctions. So a lot of what you’re going to see us doing now is as Russia sets up cutouts companies, and take steps to try and evade our sanctions, we’re going to continue to go after those cutouts and finding ways to identify to further constrain Russia has access to two things. The weapons they need and the money they need to buy those weapons are going to be our focus. And when you compare the programs that we’re implementing in Russia versus those other programs, the most important thing is that we’ve taken the lessons we’ve learned from those programs, we’re applying them to the Russia program.  

When I started this job, Secretary Yellen asked me to conduct a review of sanctions over the last twenty years, since 9/11. What we found in that review was things that I think many of you would find to be obvious. One, that making sure that sanctions are tied to a clear foreign policy objective are critical to both measuring success and knowing when you need to do more. And here, the president was really clear about what we were trying to accomplish, which was using the sanctions to slow Russia down. There are going to be others in our government who are going to help speed the Ukrainians up with financial support and military support, and you give them weapons.  

And I think the way we measure that is, are their revenues coming down and is it harder for them to build weapons? There’s going to be more for us to do because what Russia is trying to do is get around those sanctions going forward. But you should think about the impact of the sanctions similar to the sanctions on a country like Iran, North Korea, Venezuela, as getting worse over time. And Russia’s economy today looks a lot more like Iran’s than it does like Western Europe’s. But if you had looked before the invasion, Russia was a well-functioning economy with large numbers of FDI. If you were an investor, they were part of your EM basket. Today, anyone who’s an investor, the thing they’re trying to do is get money out of Russia rather than putting it in. So we think it’s successful, but it’s going to be more successful over time as well. 

FROMAN: There’s a robust debate going on about whether to take the frozen assets of the Russian Central Bank and redeploy them to Ukraine, either for reconstruction or conceivably even for military purposes. I gather the U.S. and Europe aren’t completely on the same page on this. How do you feel that issue is going to get worked out? And are you concerned—and I’ll build on this soon—on the next—on the impact that doing something like this might have on countries’ willingness to use dollar-based assets and keep their reserves in dollars? 

ADEYEMO: Yeah, I think the most important thing is I think that we are, across our coalition, unified on this front in terms of our leaders have said something very important. Which is, one, they made the decision early on in the invasion to mobilize Russia’s assets. That was a critical decision. It was one that surprised the Russians, but also it was a decision that we could only make because our coalition included the countries that held those assets, the ones with deep, liquid currencies that people want to put assets into. And that meant that not only were those assets immobilized, but that Russia was unable to use the war chest that they had created for this type of event to help pay for the weapons that they needed going forward. 

But in addition to mobilizing those assets, our leaders have now said that Russia is not getting back to those assets until they pay for the damage that they’ve done to Ukraine’s economy. And then in December, they finally said that Russia is not going to get to pick the time in place when they compensate the Ukrainians. After that, they asked experts across our coalition to start thinking about ways in which we can make sure that the economic value of Russian assets are helping to compensate the Ukrainians. And we’re continuing to work through that and talking through a set of ideas.  

I think a meaningful step that’s been taken here is Europe’s windfall profits tax, which may not touch the principal, but is using some of the money that’s generated from the investment of those assets to support Ukraine over time. And I think we’re going to continue to explore these. Because fundamentally the message we want to send to the Kremlin is that Ukraine is going to have the resources they need to continue to support their economy going forward. So you can outlast us. Ultimately, Russia has to pay for the damage they’ve done. And what we’re doing now is making sure that we’re bringing forward that commitment to ensure that Ukraine has access to the money they need to defend themselves. 

FROMAN: You know, over the last ten years there’s been a lot of concern about the weaponization of finance, starting with actually the sanctions after the first Russian invasion of Ukraine and the taking of Crimea, all the other sanctions program since. Now we’re talking about perhaps grabbing a foreign country’s reserves. Are you concerned that the particular position of the dollar in the global system, the really privileged position we have of being the global reserve currency, could be at risk as countries decide to do trade outside of the dollar, to rely on other currencies, which would raise the borrowing costs for us, and the domestic headwinds that you were referring to earlier? 

ADEYEMO: I think one of the things that we’ve learned through this process, reviewing sanctions since 9/11, including the actions we took when Russia invaded Crimea, is of the importance multilateralizing these sanctions. Both from the standpoint of sending a clear political message to the person or the country that we’re acting against, but also because it protects against some of the downside risks that people worry about in terms of giving some of these actors the ability to think about being able to invest in one country versus another. And I think we’ve done a successful job of making sure that across our coalition we’ve taken actions together in a way that has demonstrated that you can pick and choose amongst us. And mobilizing Russia sovereign assets was only possible because we acted together.  

Ultimately, after 2014, when Russia invaded Crimea and they saw the sanctions we put in place, what Russia did was they moved the vast majority of their sovereign assets out of the United States into other countries. They didn’t expect that Europe, Japan, and the members of our coalition would join us taking an action like immobilizing them. The key for us is going to be that we continue to act together in order to protect the rules-based order that we all believe in. Fundamentally, my view about this question of whether the use of sanctions is going to lead some challenges to the dollar is that the thing that’s going to matter to the dollar’s role in the global economy is the strength of our economy, ultimately.  

That’s why the vast majority of my time is spent implementing things like the Inflation Reduction Act, where you’ve seen today, based on the three historic pieces of legislation—the infrastructure law, the CHIPS and Science Act, and the IRA—more than $600 billion in announced investment in the United States. Our goal has got to be to turn that from announced investments into actual dollars that are being put in capex in projects here.  

And when I travel for work, and I sit down with companies or CEOs, and I talked to them not only about sanctions, about the economy, all of them around the world are looking to make investments here in the United States. As long as we are able to continue to do that, I feel good about the fact that the dollar—America’s financial system—is going to remain dominant in the world. And we’re going to make sure that we take sanctions as a tool to be used in a way that is targeted and multilateral, in order to make sure that they are effective. Because ultimately, that is what we all want to make sure happens. 

FROMAN: You’ve underscored the importance of it being multilateral or having allies—key allies with us. And in the case of Ukraine and Russia, that’s been made easier that the war is in Europe, and the Europeans have—really, there’s been a lot of coherence between the United States and Europe over this. Let’s go to another region of the world. If China were to invade Taiwan tomorrow, would you expect Europe to be there with us on sanctions? 

ADEYEMO: So I’m not going to do hypotheticals. But what I will say—(laughter)—what I will—what I will say— 

FROMAN: Very well trained. (Laughter.) 

ADEYEMO: What I will say is that ultimately the thing that has unified us—and we often talk about the U.S. and Europe being part of this coalition that has held Russia accountable. You have to remember that this coalition includes countries in Asia as well, including Japan. And a number of Asian countries have taken action because fundamentally this is about a violation of the rules-based order that matters to all of us. And it should be seen as a message to countries around the world that countries that represent 50 percent of the global economy are willing to act in a way to hold another major country accountable.  

And part of the reason that it’s essential that Congress act is because we want to make sure that aggressors around the world see that the United States is going to stand up for our values, and we’re going to stand with our allies and partners to do that. And that goes—and that goes beyond just the U.S. and Europe. But it includes a number of countries in the Asia-Pacific that aren’t close to Russia and Ukraine, but see the impact that Russia’s decision has had on the global economy but also on the rules that we all helped create after World War Two to ensure that we no longer had those types of global conflicts. 

FROMAN: Let’s talk about China for a moment. Traditionally—I don’t think this is an unfair characterization—Treasury has been more at the dovish end of U.S.-China relations. Usually strongly advocating for engagement and cooperation, while some other agencies like USTR—(laughter)—have tended to be more—you know, more combative. How— 

ADEYEMO: And it’s funny, because you worked at both agencies. 

FROMAN: No, no, exactly. 

ADEYEMO: So I don’t know where—what—(laughter)— 

FROMAN: How worried are you, first, about the Chinese economy and their capacity to work their way through their current challenges? And where do you see U.S.-China relations going in terms of where are we going to engage, where is engagement constructive, and where is engagement not constructive? 

ADEYEMO: Yeah. Maybe I’ll start with the second piece, because I think that over the course of the last year you’ve seen us engage with the Chinese, I think, both on a number of issues where we see mutual benefit—on everything from climate change and addressing the climate crisis to understanding what they’re doing in terms of their economic policy and what we’re doing. Because fundamentally, that matters not just to us but to the world. So I think there are clear places where we can engage and we want to work together.  

There are going to be places where we disagree. And we want to make sure that we’re also able to explain that to each other so we understand where people—where we each stand. And then our hope is that there are going to be lots of areas where we can compete with China on a level playing field. And fundamentally, this gets to the question about the Chinese economy. And it’s clear that the Chinese economy faces a number of challenges, many of them emanating from their property sector. But it goes beyond the property sector. They have a demographics challenge. They also have—economic sentiment for private sector actors there is quite poor as well.  

And I think that the—from a macro standpoint, our economy is quite strong at the moment. I am not concerned about the headwinds from China having a large impact on the U.S. economy. I think if you are in the region, you are more concerned. The thing that I am fundamentally concerned about from China is excess capacity coming from China and hitting the global economy. When you were at USTR we thought about excess capacity a lot in steel and aluminum. But now it’s in fields like solar panels, which we were concerned about then as well, electric vehicles. Where Chinese production outstrips Chinese demand, and fundamentally that overcapacity is going to go somewhere. 

Fortunately, we’ve taken a lot of steps in terms of the IRA that is helping to spur demand here. And we’re using some of our trade tools here to also make sure that we’re putting us in a position where our companies can compete on a level playing field. But fundamentally, this is going to be a challenge for the global economy. And it’s something we are talking directly with the Chinese about, that they need to—they need to compete on a level playing field, not just with the United States but with countries around the world. And one of the things that we’re doing is we’re actively talking to our partners and allies around the world about what we can do to make sure that China’s excess capacity doesn’t wash onto our shores in a way that is hurting our ability to compete on a level playing field. 

FROMAN: One of the things we’re doing some work on here is really around tradeoffs and making explicit some of the tradeoffs involved in policy decisions. When we look at international economic policy, for decades was really based on efficiency—the most efficient outcomes. Now efficiency is one value, but so is redundancy and resilience, and security. All of which come at a cost. Maybe higher cost of living for goods or for inputs. How do you explain—when you’re traveling around the country and you’re explaining our policies to the American people—how do you explain the tradeoff between becoming less dependent on China perhaps, as a manufacturing hub, but at the cost of raising the price of things that they may see at the store, or that they may need in their business? 

ADEYEMO: Yeah, I think the truth is that for most Americans today, they still remember the pandemic. And in the pandemic, one of the challenges we faced was the inability to get a supply of things. And many companies learn that efficiency without resilience could in some ways impact your ability to service your customers. So while you’re right to focus on the fact that government policy is leading to some of these changes, frankly, business policies leading to it far faster because businesses, while they may continue to invest in China for China, they’re looking to invest in other places to build both resilience for their companies, but also to bring production closer to their customers.  

So you’re seeing that be a huge gain to countries like Mexico, which are close to America and the United States as well, but also in places like Vietnam and in India. But the message really is around this idea that we don’t want to be overly dependent on one supplier for any good or one country for anything. Not only for geostrategic reasons, but because, ultimately, we want to make sure that the global economy is far more resilient going forward. I think that’s a message that the American people understand, because we know that in order for the U.S. economy to do well, we have to have access to supply of the things we need that are essential. Like chips. Like solar panels. The things that are critical to building the global economy of the future. 

And what the president has done is that we have strategically made investments in these areas to try and unlock the ability for us to produce those things in the United States, but not just in the United States. We’re creating incentives that are going to draw in our friends and our allies to be part of that ecosystem, or to make sure that we have resilience within the global economy and we’re not overly dependent on one country, on one company to produce the things we need for the modern economy. 

FROMAN: All right. Last point before we open it up for questions. Rapid fire answer. A scale of one to ten. Ten is a sure thing, one is absolutely no chance. What’s the likelihood that Congress passes the Ukraine-Israel-Taiwan support bill? 

ADEYEMO: I think they have to. I don’t think this is one of those things that you— 

FROMAN: I didn’t hear a number there. 

ADEYEMO: Yeah. (Laughter.) Yeah. I appreciate the binary choice of numbers. (Laughter.) But the view here is the—is when you look at the House of Representatives, a majority of House members are supportive of the Ukraine bill. It comes down to the speaker letting those House members vote. And the reason that I continue to have confidence that they’re going to do this is because the alternative is us being in a position where the young man I mentioned and the people in Ukraine who are fighting so bravely don’t have the weapons they need to defend themselves. And Secretary Austin put it best, that we know that Putin will not stop with Ukraine. So my view is that Congress is going to act. And it’s critical that the speaker give Congress the ability to do so. 

FROMAN: It sounds like a ten, yeah? OK. (Laughter.) I don’t want to put words in your mouth. Second one, again, one to ten. What’s the chance that the government closes? 

ADEYEMO: My view is we’ve been—we’ve seen this a number of times. I don’t expect the government to close. I think that Congress will find a way to continue to fund the government. But the more important thing that we have to step back and ask ourselves is, why do we continue to do this to ourselves? It makes absolutely no sense to do this. It’s not good for anyone. Fundamentally, the United States has the ability and the capacity to continue to pay its bills and keep government open. And this comes down to really the speaker making the decision to continue with a deal that he cut.  

And the people who are in this room, the people who are members of your organization, they run businesses, they run organizations. When you make a deal, the most important thing is that you keep that deal, and you don’t continue to renegotiate it. So my view is that we’re not going to see the government shutdown, but in order for that to happen it requires the speaker and others in Congress to keep the deal that they’ve cut. And that’s what I expect to happen. 

FROMAN: All right. Let’s open up for questions. First here in the room, and then we’ll go—we’ll go online. Dan Rosen. 

Q: Dan Rosen from Rhodium Group. 

You mentioned Egypt, a case of debt stress resulting from geopolitics. The past week, part of your team was in Beijing talking to the Chinese about global debt stress and the need to work together to deal with risks before they blow up. Is that an example of U.S.-China cooperation, or is that us requiring China to take responsibility for the debt mess it’s contributed to? 

ADEYEMO: I think it has to be an area of cooperation, ultimately. And not just the U.S. and China. As you know, traditionally for many in the past the Paris Club played a major role here. Ultimately, given the role that China plays in terms of the debt holdings of these countries, they have to play a role as well. And we have to work together to do this. It’s in—it’s fundamentally in China’s interest to address this challenge. And it’s in all of our interests to make sure that we’re in a position where these countries that face debt challenges are able to work these things out in a way that allows them to continue to contribute to the global economy. And that’s what our conversation has been about, not just between the U.S. and China—even though that’s part of the things that we’re talking about—but multilaterally as well. 

FROMAN: Yes, Rebecca. 

Q: Hi. Rebecca Patterson. Thank you for being here, for your comments, and your service. 

So I wanted to bring to things that you both talked about—tradeoffs, and multilateralism, and alliances. And it seems that one of the challenges for the U.S. and the West generally right now, making the Russian sanctions effective, is the fact that some of our alliances are somewhat opportunistic. And I think of India as a case—a case study, if you will. They’re our friend. We want them as a friend. But they also need cheap energy. I think about China. I know you’re not doing hypotheticals, but that could be even more challenging given the integration between the economies.  

So how are you processing those opportunistic alliances? How can we make them more our friends and have fewer loopholes? And again, I think of things like Mexico—our neighbor, our ally. And we’re reading more and more and seeing more data suggesting Chinese exports are going through Mexico to the U.S. to potentially avoid some tariffs. So how are you processing that? What steps could we take to make what we’re trying to do more effective? 

ADEYEMO: I think this comes down to incentives. And I think that’s why I think the price cap has worked, despite lots of people’s concerns that it never would. Ultimately what the price cap was doing was it was saying—it was helping with price discovery when it came to Russian oil, which was hard for anybody who’s purchasing it at that point. Western countries largely no longer purchasing Russian oil. But instead of shutting it in, because we thought that by doing that Russia would still sell oil to some players but the price would go up, which would increase their revenues. We said, you can continue to sell it as long as it’s under $60 a barrel. The big—one of the biggest beneficiaries, you’re right, is India, who’s buying oil. But with the price cap, they’re buying that oil far more cheaply than Russia would like to sell it. 

And fundamentally for them, the incentives are aligned so that they want to buy Russian oil as cheaply as possible. We want Russia to sell it as cheaply as possible because it reduces their revenues. Russia is the only one who doesn’t want to do that. So their—they’re the only ones who are not doing well in the strategy. And ultimately, what Russia is doing is they are getting a bunch of rupees. And they can’t—those rupees are hard to convert anything else. So you’re trying to buy as much as you can in India. And there’s—that’s hard for them to do, because it’s hard to use the banking sector there given the sanction regime that we’ve put in place, and India’s banks resistance to violating those sanctions.  

So from our standpoint, one of the most important things we can do using our sanctions and export controls is create incentives that make it hard for Russia to be able to earn revenues or get access to the goods they need, but get other countries to want to be in alignment with us. And the same is true when you think about refined products. When I would meet with finance ministers from countries in Africa or Latin America, they complain just as much as our countries about high headline inflation due to Russia’s invasion of Ukraine—be it Egypt, where you saw huge increases in the cost of wheat, or huge increase in the cost of energy.  

Fundamentally, many of those countries in Africa or Latin America are benefiting from the price cap we’ve put on refined products coming out of Russia, because it’s meant that because we’re not buying it they can buy cheaper diesel and cheaper refined products from Russia. So our goal is to try and get incentives aligned in a way that allow us to reduce Russia’s revenues, and to mean that companies and firms in these countries want to work less with Russia and more with us going forward. We think that’s the best way to effectuate the change we want in those countries. 

FROMAN: Let’s go to a question from our online audience. 

OPERATOR: We’ll take our next question from Carol O’Cleireacain. Ms. O’Cleireacain, please accept the unmute now prompt. 

Q: I’m sorry, that was a mistake. I did not have a question. (Laughter.) 

FROMAN: That’s all right. Do we have a second one online? 

OPERATOR: Yes. We’ll take our next question from Tess Davis. 

Q: Hi. Good afternoon. I’m executive director of the Antiquities Coalition, an organization dedicated to building a responsible art market. 

And, first, thank you for your work on this issue. You said today Russia is isolated from the global economy, but there remains an easy backdoor through the $30 billion American art market, which is arguably the largest unregulated market in the world, period. And the U.S. government has proven in great detail how art’s providing a lucrative, and unfortunately untraceable, funding source for blacklisted individuals and entities. We’re talking tens of millions to Putin’s top enablers, the Rotenberg brothers, but also 160 million (dollars) to Hezbollah. 

And Treasury itself sounded this alarm two years ago, very commendably, and called for action. But today, ma-and-pa pawnshops are subject to much more regulation than these multibillion dollar auction houses. And I was wondering, as we continue to ramp up these sanctions against Russia, very importantly given all that’s happening in the world, is Treasury planning to implement its own recommendations to close these art market loopholes? 

ADEYEMO: So, I appreciate the question. And I have to admit to you that it’s a place where I haven’t spent a great deal of my time. But I know that my colleagues at the Office of Foreign Asset Control are focused on the art market, and going after these ways in which wealthy oligarchs and others who are close to the Kremlin are able to move their assets. Coming out of the invasion, one of the things we set up was the Repo Task Force, which was a task force made up of not only the G-7, but also countries outside of the G-7 that were set up to make sure that we’re able to track things like art, and other things that these rich Russians are using to try and move money around the world.  

And going after those assets, freezing those assets, and working to seize them, and we’re committed to continuing to do that. And to implementing these types of recommendations. Ultimately, the thing that we know is that wealthy Russians have spent decades learning to evade not only our sanctions, but Russian taxes, frankly. So they are very good at this. But what we—by setting up the task force—the Repo Task Force, it’s put us in a position where we’re able to share more information not only in the United States, not only with the U.K., but with a number of our allies and partners to be able to go after their ability to move wealth in ways like this. But thank you for the question. 

FROMAN: More questions here? Yes, this gentleman there in the center? Yeah. Here comes a— 

Q: Scott Swid. Thank you. 

In the failed Russia-Israel-border security bill that didn’t happen, there was significant funding for border security that the president supported. Now that the Congress is sort of shut down to that idea, does Treasury have any ability to fund any of that, finance any initiatives in that program? 

ADEYEMO: I think it’s important to remember the president supports passing that commonsense legislation. And without that legislation, we lack much of the funding that we need to be able to do some of the things that we want to do on the border to make sure that we’re securing the border better. We don’t have options at Treasury without authorization and financing, which can help significantly to address those challenges. 

FROMAN: OK. Yes, this woman at the second table. 

Q: Hi. Tamara Klajn with Princeton University. 

You’ve discussed the Inflation Reduction Act a bit. And, you know, the aspects of the act, which are really about supporting American citizens at home, bringing jobs back home, expanding Industries at home, whether it’s in chips or elsewhere. We’ve also seen reporting that some aspects of the IRA have made European allies nervous and uncomfortable, for the obvious range of reasons. To what extent do you see this as a balancing act? And how do you think about aspects of the IRA that bring jobs at home versus support for industries within and among our allies abroad? 

ADEYEMO: I think it’s a great question, and it’s one I often get when I’m in Europe. And my view here is that the Inflation Reduction Act is not only about creating good-paying jobs here in America. It is—when you think about the climate provision, it is about dealing with the existential threat that is climate change, not only here in the United States but around the world. And before the IRA, the United States did not have the tools to do this. Now, with the IRA, we have—we’re making the investments that will mean that America is able to meet the commitments we’ve made in Paris, but also the longer term commitments we’ve made around the world to bringing down our reductions. 

And by making these investments in some of the sectors, we believe that it’s going to bring down the cost to some of these technologies by as much as 25 percent, which will mean that now that what was cost-prohibitive in emerging market economies hopefully will be more affordable for them as well. In addition to the investments we’re making here in the United States, it’s important to remember that many of the provisions of the IRA allow us to, for example when it comes to electric vehicles, build an ecosystem that includes countries that we have agreements with. We’ve entered into agreements like this with Japan, a critical minerals agreement that allows them to be part of our supply chain. We’re negotiating a similar agreement with Europe and with the U.K.  

And fundamentally, the thing that we know to be true is that the United States alone cannot build a clean energy ecosystem that will be able to meet the needs of the United States and the rest of the world, and also compete with China. We need to do that with our allies and partners, including in Europe. And we’re working very actively with them to make sure that we both get a critical minerals agreement signed, and we also think through how we build an ecosystem that allows us to have the resilience that is going to be important. Because the last thing we want is to go from a world in which some of our allies and partners were over-reliant on Russia for gas to one where they’re over-reliant on China for batteries. So we’re very focused on this issue as both an important one from a climate standpoint, but also from an energy security standpoint. 

FROMAN: Let’s go to an online question. 

OPERATOR: We’ll take our next question from Chris Wall. Mr. Wall, please accept the unmute now prompt. It looks like we’re having technical difficulties. Please go back to the room, Mike. 

FROMAN: All right. We’ll go back to the room. Yes, this gentleman there, by the pillar. 

Q: Hi. Dan Katz, former Treasury Department official. Thanks for being here. 

I wanted to return to the question of the price cap and this issue of tradeoffs. And one of the reasons I think it’s such an interesting innovation and sanctions policy is because it very clearly grapples with this tradeoff between reducing Russian revenue and not increasing the price of oil on global markets. So I was hoping maybe you could talk a bit more about how you think about that tradeoff, and where the level of the price cap is set? I mean, is it set today at a level where you believe there’s no impact on the global price of oil compared to the status quo? Or alternatively, is there ability to move that down in order to either achieve the goal of reducing Russian revenue or not increasing global energy prices? 

ADEYEMO: So I think one thing that people often miss was that in response to the price cap, what the Duma in Russia did was they passed legislation that said that because of the impact the price cap was having on the money that the Russian state was getting from the energy companies, instead of charging them taxes based on Urals, and the price of Urals, which is the price of Russian oil, now they are going to be in a position where they—when they need to, to charge them a tax based on the price of Brent. So what this means is that fundamentally the thing we’re trying to do is reduce the revenues that come to the Russian state that they can use to fund their war and prop up their economy.  

What they’re saying really is that they’re willing now to increase the taxes on their energy companies, regardless of how much money they make from selling a barrel of Urals. Our goal then became to continue to maintain the price cap because it was effective in reducing revenues of these energy companies. And now they’re going to have less money to invest in capex if they raise those taxes, but also to increase their costs. So instead of thinking about this as only one variable where we can go, where we can increase or decrease the price of oil, we’re now also thinking about what we can do to increase the cost to these energy companies going forward. 

In terms of how we think about the tradeoff right now in terms of oil, I think lots of people before we put in place the price cap thought the price cap would do one of two things—have no impact on Russian revenues, or that it would lead to energy prices going sky high because it would be mean—lead to shut in. Neither has been true. We’ve been able to both reduce their revenues while also making sure that Russia is still able to produce oil in the short term.  

I think from my standpoint, the most important thing we can do is also focus on our medium-term strategy of making it harder for Russia to extract energy from the ground. That is the place where we’re focused now, rather than only on these two levers. And right now, I think that strategy, of both focusing in the near term on reducing revenues while allowing oil to flow, is working. And the place where I want to increasingly focus is on what can we do to take away their ability to produce over the medium term? 

FROMAN: Next question. Danny Russell. 

Q: Thanks. Danny Russell, Asia Society Policy Institute. 

I’d like to go back to the China question from a slightly different angle. I think it’s fair to say that the Chinese government is highly self-interested. And as much as they sympathize with Putin, and as close and supportive as they would like to be, they are not doing anything that they calculate could cost them significantly. So they’re stopping short of the red lines. But can we do more than just get them to not do the worst sorts of things? You talked earlier about incentives. Have you thought about incentives, and tradeoffs, and ways that perhaps we could bring the Chinese a little closer on side in terms of reducing their financial and commercial interactions with Russia because of Ukraine? 

ADEYEMO: Yeah. Danny, as always, it’s a great question. I think the thing that we’ve increasingly focused on with these third countries is while we’re continuing to have engagement with their governments, more and more we’re now talking to their companies. And their incentives, especially in the private sectors, especially in some of their large state-owned enterprises, are to try and make sure they don’t run afoul of our sanctions or export controls, because they don’t want to lose access to our markets or to the dollar. So from that standpoint, there is more that we’re doing. And I think the president’s executive order that he put out in December—which happened, I think, on the twenty-third, so a lot of people who are away for the holidays missed it, is an important step in that way. 

Lots of you may have missed it. But soon after that went out, financial institutions from around the world, especially in third countries, were knocking on our door to understand what they had to do to make sure that they weren’t exposed to these secondary sanctions. I think that’s true for companies also when we identify for them that there’s a risk that if you continue to do this type of business, and you have to be very specific, you bear the risk of losing access to the dollar or losing access to our market. So a big part of our strategy now is that in addition to the ongoing diplomacy, which we’re doing with these countries to try and recommend that they do less with Russia, including China, we’re talking directly to their companies about the risks they face, and going after them in ways that is helping to create more sand in the gears of Russia’s ability to get access to these weapons. 

The other—and I think the other innovation is that we’ve focused in on certain items in terms of machine tools. And machine tools is something that, frankly, a year ago I knew nothing about. But in talking to the people who think about the production of weapons, these machine tools are critical. Once you have enough machine tools, you’re able to produce almost anything that you need. Fundamentally, that’s probably not in China’s interest for Russia to be completely independent. Sending the message to countries about the specific items that we’re concerned about and telling them that we want them to take steps to prevent those from getting to Russia, has been an effective means. But oftentimes it’s not—we can only go to the country. We have to go directly to the companies and the private sector, because of both the idea here that you don’t always know the beneficial owner of the thing that you’re buying. 

If you look at the list of companies we sanction today, and there are more than five hundred of them, many of them are small Russian companies you’ve never heard of. And the reason you’ve never heard of them is because they’ve been set up to purchase things and then deliver those things to the Russian military industrial complex. So it is both—even if these governments are trying to work with us to do this, we’ve also got to take steps to better empower their private sector to be able to identify when the things that are dual use are being sent to Russia to be used for their military industrial complex. So I think you’re right. There’s more that we can and we are doing to try and send that message not just to China, but to governments around the world.  

And we’re not doing it alone, which I think is also important. We’re doing it with our allies and partners in Europe, and in the U.K. Which I think matters because for many of these countries while they care about their relationship with the United States, they also care deeply about their relationships with these other countries as well. 

FROMAN: Let’s try and take one from our online audience. 

OPERATOR: We’ll take our next virtual question from Michael Leahy. 

Q: Hey. Thank you very much. Appreciate this conversation.  

And I wanted to build on two of the themes around energy security and the IRA that you were all talking about earlier. And I think if you look at the role of U.S. LNG and how critical it was to supporting our allies and partners in Europe and around the world, I’m wondering—building on that with the IRA, if we’d work to creating in scale a clean hydrogen industry here at home, that can also support our partners and allies—particularly in Europe—that’s really looking to import increasing amounts of hydrogen to diversify away from Russian gas. And I’m just wondering, as Treasury’s working through, you know, the issues around implementation, how we balance some of the tradeoffs in ensuring that we can create and scale this industry, while also addressing some of the climate and energy security concerns holistically? 

FROMAN: Let me take one more question, then you can answer both, or neither, or whatever combination. 

Rory MacFarquhar, in the back. 

Q: Thank you very much, Wally, for a really great presentation. 

Back to the oil price cap. At the start of the war, most Russian oil was exported on Western-owned ships with Western insurance. And that is essentially what gave the West and the Treasury Department a huge amount of leverage over the companies that were delivering those exports for Russia. Now we read that a substantial, if not almost all, of Russian oil is exported on a shadow fleet of second-rate old vessels with really questionable insurance. But so what is the next turn of the crank? How do you maintain the leverage that you had at the outset of this conflict, so that you can enforce the oil price cap? 

ADEYEMO: So, great question, and both related to energy. And I think that is significant, because when I think about the IRA we often are focused on the climate piece. But the energy security piece is critical here. And I think that, Michael, your point is very important, that we think of the ability to produce green hydrogen and hydrogen in general as something that provides a strategic advantage to us, especially if we’re able to provide this to our allies and partners.  

So I spend a lot of my time thinking about a bunch of tax rules around creating incentives for this. But we’ve also put money in the infrastructure act that has created infrastructure money that will help drive the creation of these hydrogen hubs here in the United States, ultimately to benefit the United States and our businesses, especially the hard-to-decarbonize businesses in places like steel. But fundamentally, if we’re able to deal with the cost curve and to produce this in large quantities, to also provide to our allies and partners as a critical part of our puzzle. 

And I think, Rory, to your, as usual, excellent question, I think this comes back to the question around how much does the $60 matter? I think it matters less today than it did at the beginning because Russia has decided that they’re going to try and build an alternative ecosystem to get around the price cap. But I think that from our standpoint, what that means for us is that we want to increase the cost of building that ecosystem. So that in the beginning we had two things we were trying to accomplish—reduce their revenues, and also make sure that oil is able to get in the market so you didn’t see price hikes where they sold less but they made more money. Today, we’re increasingly focused on imposing costs on the alternative ecosystem that they are building, because by doing that you’re going to increase their costs. And, as you know, revenues minus cost equals income.  

And part of what we’ve done here is go after ships in the shadow fleet, but the other thing that we’ve done is that we’ve sounded the alarm on the point you made of these are unsafe ships in some sense, and is the insurance reliable. And some of these jurisdictions have started to ask the Russians that in order for you to port my dock, let’s set up an escrow account where you’re putting money aside. And from my standpoint, every dollar that Russia is spending buying a tanker or putting in an escrow account is a dollar that they can’t invest in building a tank or fighting their war in Ukraine. So I think from our standpoint that is what’s next.  

There’s an excellent blog that was put out by my colleagues at Treasury today that talks about what we’re doing in terms of this cost imposition and how it fits within the price cap regime. And ultimately, you’re going to see more of that. And you should expect to see us take further actions that impose further costs. But in order for us to be successful in terms of making it harder for Russia or rogue regimes to use energy as a weapon—and you look at what they did in terms of gas with Europe—we’ve got to make sure that we add more renewables to our energy mix. And that’s why we’re so focused as well on implementing the IRA as quickly as possible and finding ways to deal with alternatives—bring alternatives like hydrogen—like green hydrogen online, in order to make sure that we’re better prepared to deal with times when countries like Russia take steps that can destabilize global energy markets. 

FROMAN: We are privileged to have Wally Adeyemo as a senior economic official in the U.S. government. We’re honored to have him here on this important day. And please thank me in having him here. Thank you. (Applause.) 

ADEYEMO: Thanks, Mike. Thanks for having me.  


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