'The Principles Should Endure': Sen. Pat Toomey on Fusionism, Tariffs, and What's To Blame for FTX's Collapse

It was a fitting final week of session for U.S. Sen. Pat Toomey (R–Pa.), who is heading into retirement after two terms in the upper chamber.

Toomey's final floor speech was a warning about how Congress has abdicated its role in setting trade policy, and how doing so has allowed the executive branch to erect new barriers to the free movement of goods across American borders—a battle Toomey has been fighting, unsuccessfully, against each of the past two presidential administrations. His final significant vote was a "no" on the $1.7 trillion omnibus bill that, nevertheless, passed Congress with bipartisan support.

Toomey's tenure, which began in 1999 when he won a congressional seat in eastern Pennsylvania and will officially end on January 3 when the new Senate session begins, serves as a useful illustration of the rise and fall of a certain kind of conservative sensibility in Washington.

Toomey was described in a 2004 New Yorker profile as "a conservative Republican of rigorous doctrinal purity: anti-abortion, anti-taxes, anti-spending (except for defense); a fiscal hawk, appalled by big deficits, a crusader for school choice, tort reform, Social Security privatization, and a smaller federal government." He's still that guy, but the Republican Party is no longer what it once was—and Toomey declined to run for re-election this year, rather than face an inevitable primary challenge after years of challenging former President Donald Trump's trade policies and voting to convict Trump in his second impeachment.

Toomey sat down with Reason last week for an exit interview about his tenure in Congress, the status of fusionism within the conservative movement, and the right way for the federal government to approach cryptocurrency regulation.

Reason: Senator, let's start with what you spoke about on the Senate floor yesterday—possibly the final time that you'll do that—in regard to the Biden administration's plans to impose to use Section 232 of the 1962 Trade Expansion Act to tax imports based on their carbon emissions. In the past, you've condemned the Trump administration's use of Section 232 to unilaterally impose tariffs. Is Biden now building on what Trump had done? 

Toomey: The Biden administration has apparently studied closely at the knee of Donald Trump to learn about trade policy. It's been a complete continuation of protectionism, and now it's taking the abuse and the misuse of the Section 232 provision to a new extreme.

The Trump administration clearly and blatantly abused this because they invoked national security when there was no national security risk as a result of the modest levels of steel and aluminum we were importing from our allies. Now, the Biden administration—after keeping the 232 tariffs in place despite the president having campaigned against Donald Trump's trade policies—is putting it on steroids. It's effectively a border adjustment with respect to steel and aluminum, based on carbon emissions. This is wildly incompatible with what Section 232 actually says. It is a grotesque overreach by the Biden administration, and this is exactly what I've been warning my colleagues of for quite some time now.

If Congress just allows executives to run over Congress on an area of policy that the Constitution unambiguously assigns to Congress, then some executives will take the opportunity to just keep running. That's what we have here. There is absolutely no congressional input whatsoever on this fundamental question of how and to what extent and how quickly we transition to a lower-carbon economy. And that is obviously a question of such magnitude that it has to be addressed legislatively. It's a terrible abuse of power.

Reason: The counterpoint to that would be that Congress delegated these powers to the executive branch and could take them back at any time, or clarify how the "national security" aspect of the law should be understood.

Toomey: There's a very simple and elegant solution to this, and that's the legislation that I've introduced. It's bipartisan. We have quite a number of co-sponsors. It says: When a president wants to use Section 232 as a justification for imposing trade restrictions, he needs to make the proposal to Congress and win an affirmative vote in both houses of Congress. If he does, then that's the consent that Congress is obligated to either provide or withhold. That would give Congress the final say.

If Congress wants the president to take this wildly expansive view of 232, then Congress could make that decision—but at least there would be an accountability mechanism on the part of Congress. That's what the constitution requires.

Reason: There's been a lot of debate, for years, about whether Trump was a cause or a symptom of some of the upheaval that his administration caused. On trade policy, specifically, we saw him do a lot of things that would have been more or less unthinkable for previous Republican administrations. In retrospect now, do you see him as being a cause of that change, or was he responding to a deeper shift in the conservative movement?

Toomey: The first time I ran for office was for the U.S. House in 1998. And I was a free-trader then as I'm a free-trader now. But I knew then, as I've always known, that this is not a universally held view among Republicans. There's always been some tension within the coalition. There was a big majority that supported free trade consistent with the general Republican support for greater economic freedom, but there was always a significant minority that was skeptical about trade.

Trump came in and was extremely hostile to free trade; extremely protectionist. So, I think he drove the erosion in the consensus. But, by the way, it's not gone. It's not as strong as it once was, but I strongly suspect that there would still be a majority of Republicans who would be supportive of free trade. It's just not as big a majority as it used to be.

Reason: Does that imply that, behind the scenes at least, there was more skepticism of what the Trump administration was doing on trade than what we saw in public?

Toomey: Oh, absolutely. There were a lot of Republicans discussing this among ourselves. There was a lot of pushback that the president got directly from Republican senators in private conversations. But you're right to observe that it was pretty muted in public.

Reason: We've just gone through this almost-annual process of rushing a massive omnibus bill through Congress in the final days before Christmas, with no time for anyone to read or process it. That makes me think that trade policy isn't the only area where Congress is a bit broken. If you could wave a magic wand and fix one thing about how Congress operates right now, what would it be?

Toomey: At a macro level, it's a return to regular order. Return to the traditional process of legislating by examining issues at the committee level, drafting legislation, debating it, and marking it up in committee. That can be a very effective vetting process. Then putting the legislation on the floor, and opening it up to debate and amendment. And, then, when the body is exhausted, a final yes-or-no vote.

That process used to work quite well and quite routinely, and now it hardly ever works that way. That dysfunction is the biggest thing that I would hope my colleagues would fix.

Reason: That's on leadership on both sides of the aisle to address, right?

Toomey: There's a lot of blame to go around. The leadership needs the complicity of the membership to pull this off. If the members, for instance, were sufficiently disgusted with this process, as I think they should be, then they could deny cloture to the final product or refuse to pass this omnibus bill and force the process to change. But I think you will witness today that that's not going to happen. They'll pass this. [Editor's note: The Senate did pass the bill with bipartisan support a few hours after this interview took place.]

The lesson that leadership will learn is we can do this yet again in the future. So at some point, the rank-and-file members are going to have to say we're simply not going to allow this to continue. They've got the power to do that when they've got the will.

Reason: You came into Congress, as you mentioned earlier, in 1999 and you were a member of the House until 2005. And now you've been in the Senate since 2010. So you've seen the George W. Bush years of Republican politics, and you were part of the "Tea Party" wave in the GOP, and now you've gone through the Trump upheaval of conservative politics. Having gone through all that, do you have the sense that there's another change just right around the corner, or is this moment somehow different? Will it hold in a way those others didn't?

Toomey: My hope and my intuition is that the core principles that have held together the big center-right coalition of American politics are still operative. It's the old three-legged stool—the fusionist concept of economic libertarians, national security hawks, and social conservatives. That coalition, I think, still works.

The one that is most in question, I would argue, is the first, if economic freedom gets supplanted by economic populism. There's a risk of that. But I think Donald Trump drove a lot of that, and I think his influence is waning.

There's been a trend of low- and middle-income working-class folks into the Republican Party. That trend was well underway before Trump came along, but he accelerated it. And I don't think we lose that for a variety of reasons. I think most of those folks will probably tend to continue to find their home in the Republican Party. So, I mean, is there going to be a bit of a shift toward populism? Maybe. But I'm hopeful that the kind of fundamental principles of this coalition survive this. They get applied to changing circumstances, but the principles should endure.

Reason: You stayed out of the two big races in Pennsylvania during the midterms—including the race for the seat you're giving up, which was won by a Democrat. After Republicans lost those two races, and others, in November, there was a lot of chatter about Republicans having picked poor candidates. What's your view on that, and do you think the Republican Party needs to change the way it selects candidates in primaries?

Toomey: It's a clear pattern that happened pretty much everywhere. There are a big set of Republican candidates who were seen as very close to or huge supporters of Donald Trump. And they did very, very badly relative to more conventional Republicans—including and especially Republicans who Trump had attacked.

This was true everywhere: New Hampshire, Pennsylvania, Ohio, Georgia, Florida, Arizona. In Pennsylvania, it was a case where the Trump stigma and a very weak candidate just led to an absolute debacle. It was a 15-point defeat, and that was probably too much for Dr. Oz to overcome. I thought he was actually a good candidate, ran a good race, and dramatically outperformed the top of the ticket. But my theory of politics includes the idea that it's very hard to overcome a massive headwind at the top of the ticket. I think that's what happened in Pennsylvania.

So, that's an important lesson. If a Republican candidate's primary qualification for office is subservience to Donald Trump, that's probably going to go badly. I think that's a lesson that we should learn.

Now, going forward, there might be some rule changes that we might want to consider in some of our primaries. But I think fundamentally, most people understand what happened and we will have better candidates in the future.

Reason: I want to finish up by asking about crypto, because you've been pretty vocal from your position on the Senate Banking Committee about the recent collapse of the trading platform FTX and the ongoing scandal surrounding its founder, Sam Bankman-Fried. Some of your colleagues have called for new regulations on cryptocurrencies and the marketplaces where they are bought and sold, but you disagree. Why?

We owe it to each customer to get to the bottom of the FTX implosion, and any violations of the law should be aggressively prosecuted. The Department of Justice and other enforcement agencies should expeditiously investigate the unseemly relationship between a company that was effectively a hedge fund and an exchange entrusted with customer funds. While all the facts have not yet come to light, we've clearly witnessed wrongdoing that is almost certainly illegal.

But I want to underscore a bigger issue here: The wrongful behavior that occurred here is not specific to the underlying asset. What appears to have happened is a complete breakdown in the handling of those assets. I hope we are able to separate potentially illegal actions from perfectly lawful and innovative cryptocurrencies.

Cryptocurrencies are analogized to tokens, but they are actually software. Currently, there are many competing operating systems and apps running on them. There is nothing intrinsically good or evil about software; it's about what people do with it.

To those who think that this episode justifies banning crypto, I'd ask you to think about several examples. The 2008 financial crisis involved misuse of products related to mortgages. Did we decide to ban mortgages? Of course not. A commodity brokerage firm run by former New Jersey Senator John Corzine collapsed after customer funds—including U.S. dollars— were misappropriated to fill a shortfall from the firm's trading losses. Nobody suggested that the problem was the U.S. dollar, and that we should ban it. With FTX, the problem is not the instruments that were used. The problem was the misuse of customer funds, gross mismanagement, and likely illegal behavior.

Reason: Don't consumers need to know that they won't lose their investments if they decide to buy crypto? Is there some role for the government to play in ensuring that?

Toomey: If Congress had passed legislation to create a well-defined regulatory regime with sensible guardrails, we'd have multiple U.S. exchanges competing here under the full force of those laws. It's not clear that FTX would have existed, at least at its scale, if we had domestic guidelines for American companies. The complete indifference to an appropriate regulatory regime by both Congress and the SEC has probably contributed to the rise of operations like FTX.

Congress can and should offer a sensible approach for the domestic regulation of these activities. This episode underscores the need for a sensible regulatory regime that, among other things, ensures a centralized exchange segregates and safeguards customer assets.

We could start approaching sensible regulations for cryptocurrencies by addressing stablecoins. This is an activity that my colleagues can analogize to existing, traditional finance products. There's clear bipartisan agreement that stablecoins need additional consumer protections. There are virtually none now. I've proposed a framework to do that, and I hope this framework lays the groundwork for my colleagues to pass legislation safeguarding customer funds without inhibiting innovation.

Reason: Last thing. As you're stepping away from Congress, what are you optimistic about?

Toomey: I'm most optimistic about the incredible resilience of the American economy. When I look around at the rest of the world, we wouldn't want to change places with anyone for anything. It's increasingly looking like the Chinese economy is not going to catch up with ours any time soon. We've got stronger growth than pretty much anywhere in the world.

As long as we continue to have more economic freedom and other forms of freedom than most of the rest of the world, we're going to continue to dramatically outperform. And that means rising standards of living and a better life for Americans.