Treasury Nominee Pressed on Global Tax Deal, China Tariffs, Inflation

No senator voiced specific opposition to Mr. Shambaugh’s nomination during the hearing before the Senate Finance Committee. An aide to Democrats on the committee said Mr. Shambaugh’s nomination should receive bipartisan support.

Mr. Shambaugh’s hearing comes as the Treasury Department is grappling with several pressing matters on the international stage. Those include coordinating with Western allies on sanctions related to Russia’s war in Ukraine and a push to revamp global tax rules—including implementing a minimum corporate tax on large companies—that has been stalled both in the U.S. and abroad. Treasury Secretary

Janet Yellen

is now on her first trip in her role to the Indo-Pacific region, where some of these issues will be at the center of her meetings with counterparts in Japan, Indonesia and South Korea.

In response to questioning about the tax deal from Sen.

Ron Wyden

(D., Ore.), the committee’s top Democrat, Mr. Shambaugh said a global minimum tax would reduce firms’ incentives to book profits in other countries. Ms. Yellen, who helped negotiate the deal, has often argued similarly.

Some committee Democrats expressed support for the global tax deal by highlighting their recent report that found Illinois-based pharmaceutical company

AbbVie Inc.

makes the bulk of its profits from an arthritis drug on sales in the U.S., but reports almost all its taxable income in foreign subsidiaries.

The global minimum tax aims “to harmonize policies across the world and have less of a race-to-the-bottom setup and, frankly, less of an incentive to use tax havens,” Mr. Shambaugh said.

Sen.

James Lankford

(R., Okla.) suggested the Biden administration should do more to inform Congress about the negotiations surrounding the tax deal.

“We get to read about the negotiations other countries actually get to participate in,” Mr. Lankford said. “I think that’s a problem and that needs to be corrected.”

The Biden administration is also considering whether to ease certain tariffs on Chinese imports as a means of addressing historically high inflation. Sen.

Catherine Cortez Masto

(D., Nev.) asked Mr. Shambaugh about the issue. He said some of those duties, implemented during the Trump administration, were imposed in response to specific Chinese actions.

“Some of the tariffs, though, seem like they were a bit more of a back and forth with China that maybe had less of a strategic orientation to them,” Mr. Shambaugh said. “And so I think looking carefully at which of these tariffs should be at what level, as the economy has changed since they were put in place, is an important issue.”

Mr. Shambaugh also said U.S. supply chains could be strengthened by moving more production closer to home or to allies in the Indo-Pacific region and Western Hemisphere. So-called friendshoring is an idea Ms. Yellen has also publicly supported amid supply-chain disruptions that have contributed to elevated inflation during the pandemic.

Some committee Republicans pressed Mr. Shambaugh on the run-up in consumer prices during the pandemic to 40-year highs. Sen.

Mike Crapo

(R., Idaho), the committee’s top GOP member, asked Mr. Shambaugh whether the $1.9 trillion coronavirus aid package passed by Democrats last year and championed by the Biden administration had contributed to inflation.

“I think inflation is generally seen by most economists to be a function of supply and demand in the economy,” Mr. Shambaugh said, adding that studies have shown the package did add some demand at the margins. He later said recent inflation has been driven by Russia’s war in Ukraine.

Mr. Shambaugh, a professor of economics and international affairs at George Washington University, served as a top White House economic adviser during the Obama administration. His research has focused on macroeconomics and international economics.

Mr. Biden in February said he would nominate Mr. Shambaugh for the Treasury post. Andy Baukol, a career Treasury official, has been serving in the position in an acting capacity.

Mark Sobel, a former Treasury official and now U.S. chairman at the Official Monetary and Financial Institutions Forum, said it was important for the undersecretary for international affairs post to be filled. There hasn’t been a Senate-confirmed nominee for the position during the Biden administration.

“It’s critical to have an undersecretary, chosen by the administration and confirmed by the Senate, who is seen by governments around the world as fully vested with the powers of carrying the U.S. flag abroad,” Mr. Sobel said.

Write to Amara Omeokwe at amara.omeokwe@wsj.com