Janet Yellen is a woman of firsts, including as chair of the Federal Reserve and possibly soon as secretary of the Treasury. She would also be the first Treasury secretary to be confirmed as a statutory member of the National Security Council, which will lead members of the Senate Finance Committee to explore a broader array of topics than ever before during her confirmation hearing on Jan. 19.
How Treasury Came to Join NSC
Established in 1947 at the dawn of the Cold War, the National Security Council, for its first 70 years, had only four statutory members—the president, vice president, secretary of state, and secretary of defense—and two statutory advisers—the chairman of the Joint Chiefs of Staff and director of the CIA (later the director of National Intelligence).
In recent years, other Cabinet officials, including the Treasury secretary, were invited to attend most (but not all) NSC meetings, but the meetings could proceed without them if they were unavailable.
Going back to the Gerald Ford administration, there were attempts by the Congress to add the secretary of the Treasury to the NSC, but the suggestion was resisted by successive administrations. That resistance was manifest even during the very collaborative transition between Presidents George W. Bush and Barack Obama.
Like most administrations, the Bush 43 NSC process had a “Small Group,” which discussed the most sensitive national security issues. As deputy secretary of the Treasury, I was part of that group, but, when the Bush “Small Group” met with the Obama transition team, I was asked not to attend because the Obama team did not expect Treasury to be part of its most sensitive deliberations.
With that institutional rebuff in mind, I recommended in testimony before Congress in 2016 and 2017 that the secretary of the Treasury be made a statutory member of the National Security Council, to ensure that economic and financial dimensions of national security policy were considered as carefully as traditional diplomatic, military, and intelligence dimensions. In 2018, Congress included a provision in the Foreign Investment Regulatory Review Modernization Act to do just that.
While some may see this development as merely bureaucratic or procedural, in fact it is quite substantive. Treasury Secretary Steven Mnuchin has played a more direct, more active role in the work of the National Security Council than any of his predecessors, and I expect the same to be said of Yellen, upon confirmation.
Urgent National Security Issues Await
While economic recovery will clearly be the secretary-designate’s top priority, the list of national security issues she would face on day one (and be questioned about at her confirmation hearing) is significant and growing.
They include sanctions programs overseen by Treasury’s Office of Foreign Assets Controls against Iran, North Korea, Venezuela, and, most recently, Chinese companies with links to the People’s Liberation Army; difficult investment decisions before the Committee on Foreign Investment in the U.S. (which Secretary Yellen would chair); and pandemic-driven economic deterioration in fragile states, making them ripe to become, or continue, as bases for terrorist organizations.
On the positive side, she also faces ensuring that financial services market access is central to key trade negotiations, starting—not ending—with China.
Yellen would also return to two forums she knows well from her time as chair of the Federal Reserve Board: the G-7 and G-20. Under President Biden, the U.S. is expected to become more active and engaged in these important groupings of major Western and global economies.
Yellen would represent the U.S. in these organizations from a different seat, and her counterparts would be finance ministers, not central bank governors.
It is crucial to note—and should be explored in her confirmation hearing—that, among that group of finance ministers, she alone does not have primary Cabinet responsibility for her country’s budget. Treasury relinquished that primacy in 1921, when the Bureau of the Budget (now Office of Management and Budget) was created in the Executive Office of the President.
Upon confirmation, Secretary Yellen’s new counterparts would be the Cabinet ministers most crucial to their countries’ budget decisions, including contributions to NATO, the U.N., and other international organizations where many of these countries are lagging in their financial pledges. These ministers will also make the final recommendations to their leadership regarding major government procurements, where Yellen’s advocacy could ensure that U.S. companies are given a fair shot at these major business opportunities.
Lastly, as the second most important member of their governments, finance ministers often ascend to be presidents or prime ministers (e.g. Gordon Brown, Nicolas Sarkozy, and Manmohan Singh), and engaging them early on issues of priority concern to the U.S. will pay long-term dividends.
Madam Secretary-designate, welcome to the Treasury and also to the National Security Council. Our country’s security will be greatly enhanced by the economic and financial perspectives you bring to the conference table in the Situation Room at the White House. All Americans have a stake in your success.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Ambassador Robert M. Kimmitt, a former deputy Treasury secretary, undersecretary of State, and ambassador to Germany, served on the National Security Council staff from 1976 to 1985 under Presidents Gerald Ford, Jimmy Carter, and Ronald Reagan. Currently, he is senior international counsel at WilmerHale.