A Conversation With Senator Pat Toomey

Wednesday, October 12, 2022

U.S. Senator from Pennsylvania (R); Ranking Member, Senate Committee on Banking, Housing, and Urban Affairs


Distinguished Fellow, Council on Foreign Relations; Former Deputy Secretary, U.S. Department of the Treasury (2018–2021)

MUZINICH: Perfect. So why don’t we get going? I’m Justin Muzinich, distinguished fellow here at the Council, and delighted to be joined by Senator Pat Toomey. Today’s audience consists of members here in Washington and a fair number of folks online. 

Senator Toomey, I’d like to begin with foreign policy. You are the ranking member on the Senate Banking Committee, which has jurisdiction over sanctions. How effective do you think sanctions have been in shaping Putin’s thinking?  

TOOMEY: Well, first of all, thanks for having me. It’s great to see you again, Justin.  

You know, this is—I think the reality we have to confront is that sanctions have not been able to change Putin’s behavior. I don’t think there’s any evidence that the threat of sanctions or the imposition of sanctions have actually changed his conduct or the course of the war. 

Having said that, I think they were necessary and appropriate. I think they have been insufficient and the one big, gaping gap in our sanctions regime is the fact that it has not applied to energy outlets, the biggest export, the big source of cash.  

So that’s been a problem, right. I think you can argue that Putin has been able to generate at least as much revenue from oil and gas exports post-invasion as he did preinvasion. So that’s a real serious problem. I am modestly encouraged by the negotiations among the G-7 to have a regime that will attempt to cap the price on oil. I hope it works.  

I think it’s hard to pull that off, but I hope it works. But even if it does my concern is it only applies to the G-7 and, you know, the folks that are going to step in and buy oil and gas from Putin, especially oil, are going to be outside of the G-7.  

And so I will shamelessly plug my legislation that I have with Senator Chris Van Hollen, which would have the effect of imposing sanctions on players outside the G-7 who would facilitate through, say, insurance or financing or shipping the transport of energy for purchase above the cap level.  

So that’s the idea, to, basically, try to make this a global cap. I think, on the margins, that could be helpful in diminishing Russian revenue.  

MUZINICH: Yeah. I think Russia is making something like, on average, a billion dollars a day— 

TOOMEY: That’s my— 

MUZINICH: —in revenue from energy. So, certainly, a significant gap.  

I mean, given the strong bipartisan support for Ukraine, where would opposition to your bill come from?  

TOOMEY: I think reservations will probably come—there is a reluctance to impose secondary sanctions, generally, right, as you know very well, and it’s a reluctance that is concerned that this will impose a cost or burden or punishment on some friends and allies who might have sort of understandable reasons for doing what they’re doing.  

So I think it’s seen as a powerful but blunt weapon, and I understand that concern. I think the circumstances outweigh that and this is so important that we help the Ukrainians prevail that we’ve got to—we’ve got to do things that, you know, in an ideal world you’d rather not do.  

MUZINICH: Mmm hmm. Mmm hmm. How concerned are you about Europe holding the line, especially if it’s a cold winter? 

TOOMEY: Yeah. So, look, I think that’s a very real concern. I don’t think anybody knows for sure how this all plays out until the Europeans have gotten through this, right. We don’t know how severe the winter might be and that itself could be a big, important variable in all this. 

I have been pleasantly surprised and impressed at the unity of the West. I’ve been really impressed at the way some of the most vulnerable countries have chosen to make an unequivocal and aggressive stand with the West as opposed to maybe thinking about cutting a deal so that they’re not as much at risk. I wouldn’t have been shocked if some countries had gone down that road.  

So this has held together extremely well, in my opinion. But a long, cold winter could test it again. I’m cautiously optimistic and I think the reason for my optimism is the unbelievable and heroic performance of the Ukrainians, right. I mean, it’s just breathtaking. If they were not performing the way they have been then you could see how it would be hard to hold together the support. 

But if anyone’s ever deserved the support of the Western world it’s the Ukrainians.  

MUZINICH: Yeah. Quite inspiring.  

TOOMEY: Absolutely.  

MUZINICH: Switching regions and staying on foreign policy, can you comment a bit on the administration’s recent semiconductor export controls?  

TOOMEY: Yeah. So a very interesting decision and, let’s be candid, it’s a significant escalation in the sort of the tension and back and forth between the United States and China. I think you can make a good case for limiting Chinese access to this technology. But there’s a few things that, I think, we should be careful about here.  

One is the semiconductor manufacturing equipment, the very, very advanced technology that the U.S. dominates, we’ve got a dominant position but we don’t have an exclusive position and the Japanese and the Dutch, for instance, have very viable competitors. And so, in the end, I don’t think we accomplish our goal if we don’t have the buy in from those governments as well and I’m not sure where we are in the process of getting to that.  

And the other thing I would suggest is I want to be really careful that these kinds of powers that the administration is exercising doesn’t morph into the exercise of these powers for the purpose of protectionism to limit the flows of trade and capital that some people would love to see us do. So that’s a concern.  

But I think they have a strong case for what they’re doing.  

MUZINICH: Mmm hmm. Picking up on that theme and zooming out a little bit, you know, the last few years have, clearly, seen a move away from free trade and towards protecting national security, which is, clearly, you know, justifiable in some cases.  

But how do you draw the line or how should the country think about drawing a line for making sure protectionism doesn’t sort of swamp national security concerns, especially given that, you know, many items are dual use?  

TOOMEY: Yeah. So I kind of look forward to the day when that’s the challenge directly in front of us. Like, right now it seems to me a bigger challenge is broadening the support for trade on economic grounds, trade that clearly and unambiguously does not adversely affect our national security.  

I think President Trump significantly undermined what had been a Republican consensus in favor of liberalizing trade and that’s—in my view, that’s a real problem. His protectionist instincts led him to flagrantly abusing some of the powers that he had such as the 232 tariffs that he imposed on Canada and Mexico. This is supposed to be invoked only when the national security requires it.  

I’m sorry. Buying a small amount of specialty steel products from Canada does not constitute a threat to our national security. He knows that. It was all about leverage in USMCA negotiations.  

So I worry about that, right. I mean, a genuine, significant physical threat to the country that’s something that has to take priority over any kind of trade interest. But we’re far from that and, by the way, the Biden administration refuses to lift any of the tariffs. The ones that they inherited from the misuse of the previous administration—the misuse of a tariff authority—they’re still in place.  

So it’s been pretty surprising to me that the Biden administration has chosen to be a continuation of the Trump administration on trade matters and, for that matter, our current U.S. trade rep is the first one that I can think of in a very long time who has not engaged in a single free trade agreement with any country in the world.  

There are big opportunities—the U.K., Kenya, South Korea. None of them are even in the works. So we’ve got a lot of work to do, I think, to reestablish a consensus in favor of trade. 

MUZINICH: Well, switching gears to another cheery topic, the economy, do you think we’re headed for a mild recession, severe recession? What’s sort of the state of the economy that— 

TOOMEY: Yeah. Well, I wish I knew, and I welcome input from folks here.  

I mean, my own sense is it’s a very unusual economic moment, right, where we had two consecutive quarters of economic contraction—a GDP contraction—but yet we’re very nearly at an all-time record low unemployment, right. We’re not back to quite the level of the workforce participation but we’re not far from it, and that’s happening in a very, very aggressive tightening, which, I think, has been necessary in part—the aggressiveness is necessary because they were so late to come to the game. I mean, it’s believable how long it took for the Fed to acknowledge that inflation was here, and it was real, and it was a problem.  

My own personal view is they were a huge contributing cause. I don’t think that view is shared at the Fed very much, but I think that’s the case.  

So my concern is now that they have made their pivot they have turned and they’re on an aggressive tightening campaign. They’re going to stay on this path because they are bound and determined not to bring back the pre-Volcker era, and given the delays that we know occur between the implementation of monetary policy and its manifestations in the economy I wouldn’t be surprised if they actually go too far, and that would increase the chances of a recession somewhat next year.  

I’m hoping that we go into it in a strong enough footing both in terms of employment and savings rates and banking and corporate balance sheets, all of which are quite strong, that if we’re in it now or if we’re in it a year from now it’s mild. That’s my— 

MUZINICH: Yeah. It’s certainly good news in the banking system and the corporate sector overall is pretty strong sort of going into the downturn. 

TOOMEY: I mean, I’m pretty sure that if you look at meaningful measures of liquidity and capitalization, the American banking system is in better shape than it’s been at any time in my lifetime, which tells you the problem will come from somewhere else, right. But it’s the banking system that is so interconnected and so essential to the plumbing of the economy.  

I think there’s serious problems in other parts of the world that are much worse shape than we are and which, over time, it’s going to, you know, come back and affect us adversely. But I’d rather be in our position than anybody else I can think of.  

MUZINICH: Yeah. Yeah.  

Based on your comments that the Fed may go too far, it sounds like you think inflation may be peaking. Is that fair?  

TOOMEY: Yeah. So, you know, I think this should be a moment for monetarists to say, wait a minute. Don’t we deserve a seat at the table at least, right? Some of us said, you know, if you expand M2 by 40 percent over a two-year period and maintain negative real interest rates in the face of a booming economy you probably ought to expect some inflation, and what the Fed said was, no, no. As long as perceptions are well-anchored, we’ve got nothing to worry about. Well, perceptions are going to change, you know, when you do this.  

Well, it also works the other way around, right. M2 growth has gone to zero. We now have positive real rates, certainly at the short end, I think, if you look at inflation on a month-to-month basis, and there’s a lot of data that suggests to me, like, maybe we’re at least at the peak, right. Commodities have almost all rolled over. Oil is more volatile. But it also has sort of exogenous reasons. But virtually every commodity has rolled over.  

Housing is in the process of rolling over, right. The Dow—there’s been so much tightening, right. The dollar is so strong against, basically, every currency in the world. The entire yield curve is backed up.  

When I look at these data points, yes, there are still some lagging indicators that are going to persist. Wages aren’t finished. Housing is going to—like, owner equivalent rent is going to look high for a while because of the run up that occurred in the past.  

But I think the data suggests there’s a reasonable chance that we’re at or close to the peak, and I sure hope so because the sooner we get this behind us the better.  

MUZINICH: OK. Staying on the economy but shifting to a new part of it, crypto. You’ve taken an interest in the crypto industry.  

Do you see a realistic path to regulation, which would give the industry some certainty? I mean, how do you see it playing out?  

TOOMEY: Well, I think it’s guaranteed that it’s going to be regulated. I just think that that regulation ought to follow legislation, right. We ought to have a thoughtful process where we have an open deliberation and pass legislation that’s informed by a public debate.  

So this is a huge space. As you know, my focus has been stable coins just because I think it’s a logical first place to start. It’s the simplest part of this ecosystem in some ways, and it’s also easy to understand by analogy because we have had products like money market accounts that bear strong resemblance.  

So I strongly hope that we get some sensible legislation passed that would provide the guardrails and a sensible regulatory framework so that the fascinating and, I think, very powerful underlying technology is able to thrive so that people can innovate and we use currency and a payment system in ways that we’ve never imagined before because it’s possible for the first time. 

If we don’t have sensible legislation, then I don’t know what happens. You know, does the Fed start to act unilaterally? Does Treasury go after this? We have Chairman Gensler at the SEC asserting jurisdiction over everything in this space. A dubious premise, in my view. But nevertheless, you know, that’s not a healthy environment for innovation.  

MUZINICH: And as you talk to your colleagues in the Senate what do you think stands in the way of a legislative sort of solution?  

TOOMEY: Well, let’s be honest. Part of it is we don’t legislate very much anymore, right. The Senate’s not functioning very well. So that’s a significant problem.  

There is a, I think, small but vocal subset of my colleagues who are extremely hostile to this whole space and are convinced it is exclusively the domain of people who want to rip off other people or engage in illicit activity and it serves no other useful social purpose.  

So, you know, that creates a little bit of headwind. So we’ve got a few—part of it is just the lack of familiarity. If you haven’t taken the time to do a deep dive it’s hard to be confident that you have a reasonably good understanding of these products. So I think it’s all of those things contributing to the challenge. I still think we got a shot at getting something done this year, though.  

MUZINICH: Great. Moving just to your career in the Senate, you’ll be retiring this year. Just as you look back over the twelve years is there a moment you’re proudest of?  

TOOMEY: Well, I would say two legislative accomplishments would be at the top of my list and, you know, one of the realities of the Senate is there’s a lot of important work you can do outside of purely legislative work.  

But I had the—a really rare and wonderful opportunity and you know this because you did too, and that was to work on the 2017 tax reform. I think that was an extremely constructive tax reform. I think it’s the most sweeping tax reform in at least thirty years, probably more so than the 1986 reform.  

I think the results have been terrific since its passage and, as I said, I had a privilege of having a seat at the table, being one of just a few guys who helped in a lot of the design work but also the challenge of persuading my Senate colleagues. 

Remember, this was always going to be—it was pretty clear from the beginning it was always going to be a party line exercise. We couldn’t afford to lose, really, any Republicans. I think we had fifty-two or fifty-three at the time. I forget what the number was. But a loss of one could easily trigger the loss of others.  

And so it was a very, very intense process of persuasion of some skeptical colleagues. But it was a lot of fun when we got it there.  

The other thing I’ll point out briefly is—that I think is a big deal, but the JOBS Act that we did where we created—this was a bipartisan consensus product, not like the partisan tax product—but the JOBS Act was where we created a path to going public, right, for the emerging growth companies, and I am deeply disturbed by the decline in the number of public companies in America. It is not—that cannot be a good thing.  

I’m a big fan of private markets but I think the absolute decline in the number of publicly-traded companies is not good for American investors. It doesn’t tell us anything encouraging about our capital markets and I think part of it is regulatory.  

So we created a pathway that made it easier to become public, and my understanding is since that went into effect something like 90 (percent) or more percent of all IPOs have come about using that pathway. So I feel like we’ve contributed to, at least on the margin, making it a little bit more viable to be a public company. That would be another project I was happy to be part of. 

MUZINICH: Yeah. Terrific.  

Staying on the Senate, what do you think the American public doesn’t understand about the Senate that it should? What surprised you as you came into the Senate and, sort of looking back, how do you think it’s misunderstood?  

TOOMEY: I think that there is maybe not a full appreciation for the role that the filibuster plays and the importance of the filibuster. It’s been maligned, obviously, and there’s people who don’t agree that it’s a good thing.  

But I think it’s absolutely essential and I felt this way when it was in the interest when—in the short-term parochial interest of Republicans to get rid of it.  

Remember, when Donald Trump first became president Republicans had control of the Senate and the White House and we could have gotten rid of the filibuster. Had we done so we could have passed anything for which there was Republican agreement.  

And, by the way, Donald Trump berated us on an almost daily basis for not doing exactly that. There was not a single Republican senator that was an advocate for getting rid of the filibuster at the time when it would have served our interest to do so.  

So there is a—so we’ve been consistent, and the reason it’s so important is just that it forces bipartisan consensus and legislation that passes with a bipartisan consensus is much more likely to be enduring.  

It’s much more likely to reflect the input from a wider cross section of Americans, and in the absence of a filibuster I think you’d see some pretty erratic swings in policy that would not serve our country well. I think that might be something that’s not understood as well as I would like.  

MUZINICH: Mmm hmm. Thanks.  

I’ll end with a political question and then open it up to other members.  

How do you think the Pennsylvania Senate race is going to play out?  

TOOMEY: Yeah. So I’m pretty optimistic and, for me to be optimistic, obviously, that means I think Oz has a good shot at winning. I’ve been very, very impressed by Mehmet Oz. He’s a very, very smart guy. He’s been very, very successful in completely unrelated fields and he’s also struck me as a guy who has the humility to know what he doesn’t know and to acknowledge that. That’s a good trait to have in general and particular in the Senate.  

But if you look at the dynamic of this race, right, it starts off being defined by very, very different primary experiences, right. John Fetterman had—did not have a competitive primary. You know, we thought it might have been but it wasn’t.  

The Republican side was incredibly competitive. Went down to the wire. It was a week or two after the election day before we even knew that Oz had narrowly won. So he comes out with whatever, 34 (percent), 35 percent of the vote. His favorable/unfavorable is way upside down. Meanwhile, Fetterman has a united Democratic Party. He’s got—he’s right side up.  

That dynamic kind of almost guarantees in a narrowly divided—pretty evenly divided state like Pennsylvania that the guy who had the free pass is going to be way ahead of the guy who had the brutal primary. So that is, in fact, what happened, and it took a while for Dr. Oz to consolidate Republican support—bring everybody, you know, back into the family, so to speak.  

But he’s done that now and I think we have, essentially, a tied race. I think he is a much better fit. I think John Fetterman—you know, his views are outside the mainstream of the Democratic Party, very, very compatible and consistent with someone like Bernie Sanders.  

But, you know, I don’t think Bernie Sanders would be electable in Pennsylvania. He is in Vermont. Probably would be in Massachusetts. But he’s not in Pennsylvania.  

So, for those reasons, I think this stays close, but I like Oz’s chances.  

MUZINICH: Thanks.  

Well, with that, we’ll open it up to other Council members. We’ll take the first question from here in D.C. and then we’ll go to someone online, and if you could just announce—give your name and your affiliation, please.  

And just as a reminder, we are on the record.  

Q: Beverly Lindsay from State College, Pennsylvania.  

So I will not ask you about the election because we’ll be voting in a few weeks. But I’ve met both Dr. Oz and John Fetterman. Went to the Dr. Oz show several times and had a chance to meet him. And, of course, Fetterman has been all over the state.  

My question is really about immigration and finances. We all know that there’s much to be done in terms of immigration, particularly from the border but from many other areas. The Commonwealth of Pennsylvania has a history of having immigrants and we have them now from Afghanistan in certain places.  

Historically, we had them in from Vietnam, although we know it’s under different conditions. Some of my Ph.D. students at Penn State where I was a professor—an actual professor—did their dissertations on immigrations and immigrants in the Commonwealth of Pennsylvania and the neighboring state of New Jersey.  

But there’s this busing and flying of people from my home state of Texas to different parts of the United States. If more people came, meaning the people from the—who come in through the southern borders and, particularly, Texas, the second largest state, and more came into Pennsylvania or neighboring states, what do you think some of the financial implications would be? Because a lot of that is handled now by charity and other kinds of organizations or by city governments. I could imagine that would be really hard for Pittsburgh or Philadelphia, for example.  

TOOMEY: Well, so there’s a lot packed into that, right.  

Let me step back for a second and just give you my sort of macro view is immigration has been a net positive for the United States from day one and I believe that remains the case today.  

You do have to have control of your borders. An uncontrolled border is going to result in chaos. It’s going to result in unmanageable numbers of people. It’s going to include people we don’t want here, including people who don’t mean us well.  

But I’m in the camp that finding a solution to deal with the several million people who are here illegally, the people who continue to cross the southern border in large numbers, but also the fact that we actually need a steady stream of people coming into this country. That is going to help us grow. That is going to be a net positive for the United States. 

I don’t think even low-skilled immigrants are a detraction from the country. If people want to come here and work hard to build a better life they’re contributing to this country. And that’s what my grandparents did. That’s what the vast majority of immigrants did.  

So I would love—and, obviously, this has been very elusive for a long time—but some combination of those three elements—dealing with the people who are here now, dealing with the ongoing problems at the border, and then creating a legal pathway that allows us to bring in significant numbers of people who want to come here and build a better life. That’s the combination that we really ought to be able to find a way to get to. But I acknowledge the political polarization has made that really hard.  

MUZINICH: We can go to a question from online.  

OPERATOR: We will take our next question from Tyler Godoff. 

Q: Senator Toomey, thanks so much for making the time.  

Back in June, we met briefly at the consensus conference in Austin and you did a great job speaking to that large room, and after you came down and spoke to the crowd, which I appreciated immediately, but then a few angry people came up and started berating you and I was just in shock that that was something that you probably have to encounter all the time. 

So the question I’ve got is with regards to crypto and how important it is to our competitiveness, going forward. Could you give us a grade so far on how the U.S. has done with regards to crypto and what are the key things that we need to do, going forward, that the U.S. is a competitive place and the best place to build with regards to crypto?  

TOOMEY: Sure. Well, thanks.  

Well, I mean, if we’re grading I would say we deserve either an A or an A+ in terms of the creative innovation coming from the people in this ecosystem. I mean, let’s face it, it’s Americans who’ve driven a tremendous—not all but a tremendous amount of the innovation in this space.  

But, as a government, we deserve a terrible grade because we have absolutely no regulatory certainty. We have—the only thing that’s certain is that regulators will exercise powers, whether legitimately or not, whether sensibly or not. But the absence of legislation that guides that is going to continue to foster the, I’m afraid, migration to other parts of the world.  

I’ll give you—I mean, to make this more tangible, you know, when I have traveled on the West Coast, which is where there’s, obviously, a concentration of the development community, and you meet with people who are coming up with these really, really interesting blockchain-based projects and there’s an associated coin that is the mechanism in one way or another that’s used to drive the underlying technology, I have looked in the eyes of these guys who’ve told me, you know, I go to bed at night worried that there’s going to be a knock at the door in the morning because the SEC considers me to be a criminal.  

And I don’t think that—first of all, I don’t think that’s true, right. I don’t think you can make the case that every crypto project is a security. Therefore, they’re, certainly, not all illegal activities.  

But that kind of doubt is going to have a chilling effect and it’s going to get people to think, well, you know, maybe we ought to be in the Bahamas or in Bermuda or in Singapore or in the U.K. There’s a lot of jurisdictions now that have gone much further down the road of creating a rational framework than we have.  

And so I think we deserve a terrible grade for creating the legal certainty for innovators to thrive and we better catch up or we’re going to—I mean, can you imagine the U.S. not leading the world in a major new technology? And I think this is a major new technology. But that’s what we risk if we don’t get our act together on the regulatory side.  

MUZINICH: Another question from the audience here. Yeah, there’s a mic right behind you.  

Q: Thank you for being— 

MUZINICH: And if you could just give your name and affiliation.  

Q: Ariel Cohen, the Atlantic Council. Thank you for being with us, Senator, and it’s encouraging to hear opinions from the Republican Party other than President Trump.  

The question, circling back to the beginning of the conversation, on sanctions—the sanctions on Russia and specifically in the energy trade space—Russia is selling a lot of oil, some gas, although that’s declining, but they need banking platforms to trade. 

Specifically with regards to India and China, do you see space for more G-7 or even broader sanctions in the energy space with regards to the banking? And also, as the Iranian government is brutally suppressing women and democracy in their country, is there anything else we can do?  

We’ve done a lot in terms—in the sanction space vis-à-vis Iran. Is there anything else we can do to drive the point home and to deny a revenue stream to the oppressive theocratic dictatorship in Tehran? Thank you.  

TOOMEY: Yeah. So, I mean, I think one of the very disturbing developments of this administration is the extent they’re going to these extremely autocratic and brutal regimes to plead for more energy.  

I mean, we might be striking a new deal with Iran, which—I’m not in favor of that but that could be in the works. We, apparently, are having discussions with Venezuela, and the obvious missing piece here is encouraging domestic production. I mean, we have—I get that we have a lot of domestic production.  

But I think we could have considerably more and the single message that the administration has sent from day one was hostility to fossil fuel development, and I think we’re seeing just how short sighted that has been. 

For the first part of your question, yeah, this is exactly why Senator Van Hollen and I have introduced our legislation on sanctions that will affect any company anywhere—originating anywhere in the world that facilitates the trade in oil above the capped price, right. 

The G-7 agreement is meant to obligate G-7 countries to prevent their companies from financing, trading, brokering, insuring, shipping—any of the services necessary to deliver oil if that oil is delivered above the capped price. Maybe that works. I hope it does.  

But there’s plenty of Chinese companies, there are plenty of Indian companies, that can provide those services and they need to be subject to a rigorous sanctions regime as well if we’re going to hope that there’s a meaningful cap on the price of oil that the Russians are selling.  

So that’s my answer. I think we do need a more rigorous sanctions regime and that’s our idea for how to do it.  

MUZINICH: We have another question online.  

OPERATOR: We’ll take our next question from Sarah Leah Whitson.  

Q: Hi, Senator. This is Sarah Leah Whitson from Democracy for the Arab World Now. 

I wonder what your view is in terms of the impact of Saudi Arabia and the UAE’s decision to decrease oil output despite the promises they made to President Biden in July. It’s been confusing trying to understand the extent to which this will or won’t impact oil prices. And also, you know, what is your position on the appropriate response to that decision with respect to the cutting of oil production by Saudi Arabia and UAE?  

TOOMEY: Yeah. So, honestly, I’m still thinking my way through that. You know, our relationship with the Saudis has always been very complicated, very difficult. The regime, certainly, governs with a different set of values than we do and, yet, there are some common interests. 

I think there are security interests with an enormous amount of overlap. The administration—President Biden, when he was a candidate, was extremely hostile. The things that he said were extremely aggressive with respect to the ruling Saudis.  

Well, that sort of thing gets remembered, and I don’t know how big a role that is playing. But if you look at it from the Saudi point of view, the extremely harsh criticism, including about individual members of the royal family, criticism about the way they’ve conducted the war in Yemen, they see what appears to be an interest in reviving the deal with Iran—a nuclear deal—that they’re extremely opposed to and feel very threatened by, and then someone comes and knocks on their door and says, by the way, we want more oil.  

You know, you got to figure out how to balance these things. I still go back to a fundamental point that, I think, we shouldn’t miss. The country that has the greatest capacity to be the swing producer in the world is the United States of America and we’ve chosen to, you know, cast a wet blanket on this sector. 

I get that there’s still a lot of oil being produced but there could be a tremendous amount more. There could be more natural gas. I mean, look, the Keystone Pipeline is still forbidden. We still can’t complete the Colonial Pipeline.  

We have in Pennsylvania natural gas. We are the second biggest state in the production of natural gas in America and if we were our own country we’d be the fourth biggest producer in the world. That’s much natural gas, and that’s just the Marcellus Shale. We haven’t even tapped into the Utica Shale, which is below it. 

For all practical purposes, it’s an unlimited supply of gas and, yet, we can’t move it out. We can’t ship it. The handful of pipes we got are all full and you can’t get approval for another pipeline. This is madness. This is self-inflicted. 

We should be the dominant energy producer and the global source and then we wouldn’t—you know, we wouldn’t have as many problems with some very, very prickly and challenging regimes. 

MUZINICH: In the back.  

Q: So, Senator—it’s on, right? 

So, Senator, I just want to pick up on what you just— 

MUZINICH: If you could just identify yourself.  

Q: Sorry. Robert Charles, Charles Group, former State Department, Republican. There we go. 

I want to pick up on what you just said and ask you to think deeply with me in a kind of an academic way but it has direct implications on the economy.  

There are those of us who think that the Fed is off course. You mentioned they might overdo it on inflation but that the fiscal policy and monetary policy put together are taking us almost by prediction in the wrong direction.  

And why? Because typically, and again, I’d like you to correct me if I’m wrong, but typically, the notion that you’re going to raise interest rates in order to respond to inflation has to do with roaring growth in which demand is outstripping supply.  

So you slow down the economy by raising the price of borrowing, right. Very logical.  

But there are other people who say the Phillips curve, really, is dead and the notion that you’re going to raise interest rates and that’s going to have a big impact on inflation actually is going to drive you in the other direction.  

It’s going to increase unemployment. It’s going to return you to stagflation. And the rationale for that perception is that we are overspending and have shut down a big part of the energy sector.  

So the notion—this is like following bad money with bad money, that you’ve created fiscal policy that is out of control, overspending in the extreme, what, 3 trillion (dollars) over the 4 trillion (dollars) regular order in the last eighteen months. And on top of that, you’ve shut down what generates 60 (percent) to 70 percent of the power grid.  

So my question is are we maybe just—you know, does the emperor have no clothes? Are we in the wrong direction here where the Fed is raising rates in an environment where maybe that’s not going to solve this problem?  

TOOMEY: Well, so I will agree with a number of the points you’ve raised. I think that the Fed had to raise rates, though, right. Maintaining negative real interest rates sort of semi-permanently that just—just intuitively that doesn’t make sense to me.  

That does seem to invite inflation, and getting your money growth to a reasonable level as opposed to the absurdly high level that it was at, I think, is necessary and that’s going to be constructive.  

But, look, I think the long term, even medium term, the picture has to encourage supply side growth and you have to get back to some sense, back—I mean, we didn’t think it was fiscal discipline but what’s happened in the last couple of years is just incredible. And, gosh, you really—we are testing the limits of what you can get away with when you are the world’s leading reserve currency and you are the least dirty shirt in the closet.  

I mean, everyone else’s situation is worse. But, boy, that’s not a good basis to run really, really imprudent fiscal policy and we have. We’ve been doing that for a long time. It got much, much worse in the last couple of years.  

But, you know, this has become a bipartisan problem. President Trump had no interest in fiscal discipline. He absolutely refused to have a conversation about putting the big entitlement programs on a sustainable path, none of which are on a sustainable path.  

So that made it easy for Republicans to say, OK, well, the president’s not for it. Let’s just put that aside and focus on other things.  

But I have a very big worry that at some point this comes back and bites us badly if we don’t get our fiscal house in order, and we’re far from it.  

MUZINICH: Another question online.  

OPERATOR: We will take our next question from Mara Lee (sp).  

Q: Hi. This is Mara Lee (sp). Thanks for taking my question.  

You talked about the shift towards protectionism in recent years, and I notice that your reform of Section 232 did not make it onto the list of amendments for the NDAA but the establishment of a Council on Economic Security did.  

Are you concerned that this Council on Economic Security could lead to more anti-dumping, more other kind of protectionism policies? Thanks.  

TOOMEY: Yeah. So I’d have to drill down on that. I’m not very familiar with that, off the top of my head. So let me drill down on this.  

But, yeah, the 232—you know, my legislation, for which I think I have half the members of the Senate Finance Committee as co-sponsors—my guys will correct me if I’m wrong—but I’ve got Ds and Rs, and it’s a very simple idea. The idea is—so Section 232 is the authority granted to the president to impose tariffs in the event that he perceives a threat to America’s national security. 

Well, as I mentioned earlier, President Trump famously abused this power and imposed sanctions on Canada, Mexico, Europeans, South Koreans, anybody he wanted to either punish or coerce into a trade negotiation.  

So the idea that I have is a very simple one and that is require—when the president reaches this conclusion he’s got to present the findings to Congress, and the tariffs don’t go into effect unless there’s an affirmative vote of Congress.  

I remind my colleagues the Constitution assigns to Congress the responsibility to regulate trade. This is, clearly, a trade issue.  

But the protectionists, frankly, in the Senate don’t want any part of this because they like the idea that a president could misuse this power and impose tariffs because that would restrict trade and that’s what they’re about. This is very, very, very frustrating.  

As I said, I think I’ve got a majority of members of the Finance Committee but I don’t have enough to even get a vote.  

Now, here’s what—go back to the question about how the Senate’s functioning. Is there—I mean, to me, this is a clear example of something that should be litigated on the Senate floor. Let’s have a big debate.  

Let’s have an argument about whether this tool should be used the way it has been, whether it’s appropriate for Congress to have the final say in the imposition of tariffs for national security and then let’s vote and let’s see where we are. We can’t have a vote. I’ve been wanting to vote on this for—since President Trump imposed these tariffs, and we can’t even get a vote.  

So I was not optimistic that we would get it into the NDAA and, unsurprisingly, we did not. But what’s really, really unforgivable is the fact that we can’t even adjudicate this on the Senate floor.  

MUZINICH: Here in the front.  

Q: Thank you, Justin.  

Senator, thanks for joining us. 

TOOMEY: Sure. 

Q: I’m Ricardo Herrero with the Cuba Study Group.  

I have a question that bridges several of the topics that we’ve been discussing—sanctions, banking, and crypto or, more broadly, financial innovation.  

There’s an inherent tension in U.S. policy towards some of these authoritarian regimes across the world—one that I spend a lot of time studying is Cuba but this extends to Russia, Iran, and others—in which, on the one hand, we want to keep the regimes and other bad actors within these countries outside of the financial system. We want to limit their access to money for obvious reasons that I’m not going to jump into now.  

But at the same time, we also want to support civil society, entrepreneurs, humanitarian aid workers that may be on the ground working in these countries, people that sympathize, that identify Western values, and we want to increase their access to digital tools, to digital payments, to the global economy.  

And under current OFAC regulations and in the sanctions programs to many of these countries there’s exceptions that are already in the books to allow for digital payments for individuals that fall in these categories—humanitarian, civil society, entrepreneurs, whatnot. They’re subject to certain end user verification requirements.  

Now, we have the technology to verify who those end users are. Yet, the banks won’t touch these markets because of over compliance. They don’t want to expose themselves to sanctions. It seems the technology is already there, allows us to be able to help out these individuals in these places, but the law isn’t and it’s keeping the banks from wanting to step in. 

Is the Banking Committee or the Senate, in general, are they looking at this at all and, if not, shouldn’t they be?  

TOOMEY: Yeah. I don’t think we’re doing enough in this space. We should have a series of hearings about this and we haven’t.  

But I do think crypto is a huge opportunity for—not just for moving value over the internet, which is the obvious first case, but the ability for people to have privacy, to be able to have communication that is not being monitored, for a lot of other applications.  

This is going to be extremely important in countries where people live under authoritarian regimes.  

So, yeah, to the extent that we have existing law that’s impeding American firms from facilitating this we really need to examine, and I don’t think we’ve done enough.  

MUZINICH: Over here.  

Q: Thank you. I’m Linda Lourie with WestExec Advisors.  

Senator, thank you for coming here. I should add that I’m a Lower Merion native, so opposite side of the state from—(laughs)— 

TOOMEY: Pennsylvania, by the way. 

Q: Yeah. (Laughs.) I wanted to ask—a couple of weeks ago you had a hearing on outside investments security screening, and Justin did a great job of outlining all the tools we have to deal with China and the dual-use space.  

One thing you didn’t mention was the outbound investment screening. You had mentioned during the hearing that you will be rolling out a proposal—a notification regime—and I wonder if you might be able to discuss a little bit what you’re considering in that context, including the NDAA.  

Would this be sort of a Casey-Cornyn supply chain focus or more of a critical tech area? And what would you include in a notification? And what would be the enforcement mechanisms for this process? Thank you.  

TOOMEY: In thirty seconds or less. (Laughter.) 

Yeah. No. Look, I appreciate you bringing it up. I think it’s a really important issue.  

So if you watch the hearing or you’re reading the transcripts you know that I’m very concerned about this being misused, and this is a theme that’s come up repeatedly during this conversation today that we’ve got a lot of folks in government, including past presidents and colleagues of mine, who are very openly protectionist and there are people who I think—I have colleagues who would publicly state for the record that they would support a ban on any kind of investment by an American citizen in China. I wouldn’t support that. I think that’s a terrible idea.  

But knowing that that kind of mindset is out there and getting some level of traction, I want to make sure that any outbound CFIUS power is very narrowly prescribed. And so part of my questioning with the witnesses that we had was about, well, why do we need this power? What are you concerned about? What exactly are you concerned about?  

Because the relevant authorities have told us they’ve got all the power in the world to prevent any technology transfer, any products, any tangible thing, any software, anything that would be an obvious source of a military application for the Chinese government. They’ve already got it.  

So then what—the witnesses who are in favor of this outbound CFIUS seem to end up sort of gravitating towards is this idea that, well, we don’t want, like, American private equity or venture capital investing in a company that we think might someday have, you know, technology that would be dangerous to us because they would inevitably imbue that company with the kind of expertise and entrepreneurialism and professionalism that Americans have and so we don’t want them to have that kind of advantage.  

Well, first of all, that’s pretty nebulous, right. Pretty hard to define. And then we have last week the administration’s announcement that they, apparently, have sufficient power to preclude any American from going overseas to China and working in these sensitive fields of semiconductor development.  

So if they already have that authority then why do they need an outbound CFIUS, exactly? So my—again, my big concern is that this gets misused by people who quite willfully want to block trade and investment. And so if we’re going to do it, at a minimum it’s got to be very well proscribed, very well defined.  

The investments, for instance, certainly, shouldn’t go beyond the technologies that are already on our restricted lists for exports, right. If there’s not an export control on something then why should there be an investment limitation in that field?  

So that’s what I’m hoping to do, to put some guardrails on this and if we’re going to do it, and, again, not clear to me that there’s a strong case for needing to do it. But if we were to do it, it absolutely has to be very well defined and narrow in scope.  

MUZINICH: We have time for one last question, coming from online.  

OPERATOR: We will take the next question from Valentina Barbacci.  

Q: Yes. Hello. Thank you very much. My name is Valentina Barbacci and I work for Burma Human Rights Network in Burma.  

I’m based in London, though, and as a longtime human rights advocate and working on human trafficking issues specifically, I’m a firm believer that in order to sort of point the finger abroad successfully you have to clean up your house internally first and I don’t believe we’re really doing that sufficiently in the U.S., as I’m sure you will agree, on many fronts.  

Although I’m grateful for your work on protecting children, specifically, from predators and, specifically, in schools, passing legislation that protects children from predators and such, my question is, you know, can you shed some light—and I respect that it’s a very challenging conversation to discuss openly but can you shed some light on where we face barriers internally on cleaning up our house, so to speak, in the U.S.? Because we still have forty-six states where child marriage is allowed in the U.S. and the human trafficking during the pandemic increased by 25 percent of which, of course, children are included.  

So I’d be really grateful for your thoughts, given that you’ve been at the forefront of some of the acts trying to address these issues.  

MUZINICH: And let’s keep it to two minutes.  

TOOMEY: Yeah. So I have to say this not—in general, not an area of great expertise of mine. The focus within this universe of mine has been what you alluded to, which is it came to my attention early in my career in the Senate that there was this practice where known pedophiles, teachers, especially, or people who were employed by a school who were abusing children, when it was discovered if it didn’t—if there wasn’t a sufficiently solid case to refer to the police and have the person locked up, which would be the optimal outcome, it was shockingly common to have the school dismiss the person with the understanding that they could have a letter of recommendation to some other place they might go. 

Now, doesn’t take a brain surgeon to figure out what happened. This—went to other schools so that they could continue to abuse another set of kids—came to my attention in particular because there was a child in Pennsylvania that was killed by a pedophile, who then left and was employed in West Virginia.  

And so Senator Manchin and I were working together on legislation that would require—as a condition of receiving federal grant money require states to have legislation that would make the act of knowingly recommending for hire someone that you suspected and had good reason to suspect of being a pedophile would be illegal. 

You wouldn’t think you’d need to even—right, who would imagine that you need such a law? But, believe me, it is shocking how many instances we discovered that were known to us. Can you imagine how many happen that we never find out about?  

So that was a focus and we put a lot of work and we ran into resistance, believe it or not, but we did. We ran into resistance from people who were concerned that the federal government shouldn’t be dictating policy for school districts.  

OK. I get that. I, generally, strongly prefer education to be determined at the local level.  

But, you know, when you find out that this is going on and the federal government is distributing billions and billions of dollars to local school districts, it didn’t strike me as an unreasonable condition. 

By the way, we required a—the Department of Education to get a report on the extent to which states are complying with this and it’s appalling how few states are properly complying with the requirement that they have statutes on the books to try to preclude this appalling practice. 

But that is an area where we do, indeed, have more work to do.  

MUZINICH: Well, Senator Toomey, thank you very much for the substantive conversation.  

TOOMEY: Thank you. Thanks for having me. (Applause.)  



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