Commerce Secretary Wilbur Ross On The Latest U.S.-China Trade Talks

First on CNBC: CNBC Transcript: Commerce Secretary Wilbur Ross Speaks with CNBC’s “Squawk Box” Today

Commerce Secretary Wilbur Ross

CNBC Video Screenshot

WHEN: Today, Wednesday, August 14, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a FIRST ON CNBC interview with Commerce Secretary Wilbur Ross on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Wednesday, August 14th. The following is a link to video of the interview on CNBC.com:

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Commerce Secretary Wilbur Ross discusses the latest on the China trade talks

All references must be sourced to CNBC.

JOE KERNEN: Let’s get to the big interview of the hour. For the latest on the U.S./China trade war, let’s welcome our special guest: Commerce Secretary Wilbur Ross joins us in studio. This was yesterday, the big trade war with China. Today, Wilbur, we’re going to get right to that. We will. But I have to ask you about the yield curve and as an administration official, I would not suggest that you should say we’ll have a recession in 12 to 18 months. That probably would not be the take that I would have on this. But a lot of people say that’s what this indicates. What do you think?

WILBUR ROSS: Well, formulas like that work when they work. And they don’t work when they don’t work. This is also a question of how far into the future. Eventually there will be a recession. So, the idea that 1,000th of 1% inversion, which is what I saw in your screen a little before, is going to be the end of the economy strikes me as a little aggressive.

JOE KERNEN: Yeah, I agree. It’s -- the point being made that rates are so low -- there’s a difference between a 7% short rate and a 6%, 30-year or a ten year – and when you’re down and it’s basis points too--

WILBUR ROSS: This is 1,000th of 1%.

JOE KERNEN: Yes. You’re good at that stuff. That’s how much the tariff on aluminum cans were, too. Remember when you -- you’re good at these really, really small numbers. Let me ask you about the deal that was announced yesterday, or the reprieve that we saw yesterday. I don’t know if we know for sure whether there were any concessions from China yesterday on that phone call or whether this was purely a move unilaterally by the President to make it easier for consumers at Christmastime. Did China blink on anything or was this totally unilateral?

WILBUR ROSS: There had been all sorts of research done before. There were public hearings about what items to put on. And nobody wants to take any chance of disrupting the Christmas season. We don’t think –

JOE KERNEN: So, you’re saying we didn’t extract anything from China to do this? There was no quid pro quo?

WILBUR ROSS: This is not a quid pro quo.

WILBUR ROSS: No quid pro quo.

WILBUR ROSS: It was a decision to do what we decided to do. Mainly, be a little extra protective--

JOE KERNEN: The President said, ‘We’ll see if they follow through this time on some AG buys,’ which seems to indicate there was behind the scene maneuvering and some tentative deal there, too. Do you know -- can you comment on that?

WILBUR ROSS: Well, going back to when we broke off the talks, they had very publicly, when we were all in the Oval Office, committed to buying lots of soybeans, doing all kinds of things, in addition to that we thought we had a very detailed deal on the basic trade issues. They didn’t deliver on any of that and I think that’s what the President was referring to.

JOE KERNEN: You also are saying that we’re -- where you’d like to get and maybe there’s a phone call resumption in two weeks that we’re going to see on the phone --

WILBUR ROSS: Right.

JOE KERNEN: Do you think there – you said they might be back to where they were before things broke down on some of the big issues some of the things that we are -- we say that they reneged on. Are they back to where they were or are they getting in that position where there’s been no movement whatsoever?

WILBUR ROSS: I think until something is really formerly announced and mutually agreed it’s a little premature to say where anybody is. But we had three objectives in the beginning. Those are the same three. One was increase current trade, reduce the deficit. That’s the easy part. If that’s all we wanted, we would have had a deal two years ago. Second part was structural reforms. The problem of technology transfers being for us, problems of not fair market access to foreigners. That whole list of things you’re familiar with. That takes legislation. And that’s a big ask. But the third and most important is the deal that’s verifiable and enforceable. We need all three components. So, it isn’t a question of just agreeing on something.

KAYLA TAUSCHE: But it’s often these in-person negotiations that are much more productive than any of the phone calls that have transpired. Did China commit to coming to Washington in early September?

WILBUR ROSS: I don’t think it’s a question about anybody committing to anything. What we’re interested in is having discussions that focus on where we thought we were. That’s the key.

KAYLA TAUSCHE: But the White House had said frequently that they have invited the Chinese delegation to Washington in early September for negotiations. Is that formalized?

WILBUR ROSS: I don’t believe a date has been set. You’ll notice all that was discussed was perhaps another phone call in a couple of weeks.

KAYLA TAUSCHE: Today is also a significant day because I believe it’s the day that the three month general license that was provided to Huawei comes up. Can you update us?

WILBUR ROSS: No, it comes up on Monday.

KAYLA TAUSCHE: Okay. Can you update us then on where that process stands to issue more licenses?

WILBUR ROSS: On Monday I’ll be happy to update you.

ANDREW ROSS SORKIN: Let me ask you a separate question, Mr. Secretary, which is: has the administration done any type of concrete analysis, economic analysis, of the economic impact of these tariffs, internally? Is there a piece of paper? Is there some real analysis that looks at this, given we take -- we talk about the analyses done by Goldman Sachs and all sorts of agencies and banks and investors and analysts. But what kind of analysis is done inside the administration on this?

WILBUR ROSS: About what we just did yesterday?

ANDREW ROSS SORKIN: Let What you did yesterday, but also what’s taking place over the last several months in terms of the bigger approach?

WILBUR ROSS: Sure. Well, in terms of yesterday, it was only certain products, namely those that are 75% or more supplied by China. And the reason we use that as a cutoff is that it’s very hard to replace quickly somebody who’s a 75% supplier. The earlier things we had done were ones where China was a much lower percentage. Therefore, much easier to replace them. So, that was one of the sorting devices.

ANDREW ROSS SORKIN: But -- is there an analysis that says, ‘Okay, if we put these tariffs on, this is who’s going to -- this is what the cost is going to be on the American consumer, here’s what the cost is going to be on the American farmers, this is what we’ll end up having to pay out.’ I mean, a full sort of analyses, if you will, in the same way that Goldman Sachs over the weekend put out its own analysis.

WILBUR ROSS: Well, they can put out analysis and someone else can put out a different analysis.

ANDREW ROSS SORKIN: Right. I’m suggesting -- is there an internal one and what does it look like?

WILBUR ROSS: We do a lot of analyses, but the important thing is that you’re trying to judge people’s reaction. What’s going to happen to currency? That has an impact on the inflation that might come from tariffs. What are they going to do by retaliation? You have to make guesses to each of those in order to make a sensible thing. So, you need a whole matrix, not a single point analysis.

JOE KERNEN: Do you know—

WILBUR ROSS: but the fact is there is not very much inflation in the economy. Import prices in fact have been very stable. And the study done in Europe indicated that of the 25% tariff we had put on, 20.5 or thereabouts was born by the Chinese and 4 point some odd was born by Americans.

KAYLA TAUSCHE: But how much of the import price stability is based on China’s currency devaluation, which the administration has criticized, but the President last week acknowledged actually benefits the U.S. consumers?

WILBUR ROSS: Well, it’s not a question of whether we like it or not. It’s a fact that the currency has gone down. That does offset tariffs. So, that’s a fact. It’s not a matter of opinion.

JOE KERNEN: on the phone call where we informed China that there would be the reprieve, it would said that we made it clear that this was not a concession to China. Was that a point that we thought was important to make?

WILBUR ROSS: Listen, it wasn’t even a debate. We had decided before that to –

JOE KERNEN: Okay -- The Hong Kong protests and there’s been criticism -- I mean, there’s going to be criticism every day, as you know. You’re used to it by now with the Trump administration. But that we have pulled back from our role in the world as supporters of freedom. By saying we’re neutral on what’s happening is creating a vacuum where we should be there saying we’re with the people that are looking for freedom and freedom of expression and everything else.

WILBUR ROSS: I think what the President said is that this was a tough decision and that he hopes he works it out well for all parties.

JOE KERNEN: Should we be taking a stronger tactic? Are the trade negotiations making it harder for us to do -- to lead in a way that we would have in the past would you say?

WILBUR ROSS: I don’t know that we would have done anything different in the past. What would we do, invade Hong Kong?

JOE KERNEN: It might warn China overtly in the very strong terms that we’re watching what’s happening with -- you know, no one wants another Tiananmen, obviously.

WILBUR ROSS: Well, the President has made clear that he is watching very carefully what’s happening. He talked about the possibility of troop build-ups -- so it’s not that we’re not watching it. The question of it is what role is there for the U.S. in that manner? This is an internal matter.

JOE KERNEN: Okay. The -- we have been hearing a lot about AG buys. And we have been hearing less about IP and some of the other bigger issues. Is it possible with the election coming and it’s getting closer -- I can’t believe how fast time goes, but is it possible that it becomes some type of -- let me get some big AG buys and resolution of Huawei and that’s all we get -- with the President at that point saying that’s all we’ll get and if he’s re-elected we’ll revisit this. But we’re going to sort of agree to disagree on these other things.

WILBUR ROSS: Well, the President’s the ultimate arbiter of trade policy, obviously enough. But I haven’t come off the firm objective that we need structural reform. That this is really after all about the section 301 action that we brought. All these tariffs are a section 301. And the purpose of section 301 was to induce the structural reform.

KAYLA TAUSCHE: But there’s been an expectation that there would be a short-term set of deliverables and then a longer-term set of deliverables. If you have a reprieve on Huawei and some agricultural buys, then that would usher a period of productive discussions where the two sides can negotiate the tougher issues, instead of just not talking at all. But that would push the longer-term outcome further down the road.

WILBUR ROSS: That’s a whole theory as to how the talks may evolve. There’s no basis for that. No basis saying that.

JOE KERNEN: Do you think -- Have you had a discussion or within the administration has there been a discussion on how the Hong Kong situation plays into the negotiations and whether it emboldens President Xi because of nationalism rising in mainland China or whether it’s something that adds to his -- you know, all the balls that he’s got in the air right now. This is not a great time to be having a slowing economy or something affected by a trade war. When you wonder whether this is the beginning of it -- really the beginning of something.

WILBUR ROSS: Well, there are lots of speculations that lots of people have. But the truth is we don’t know.

JOE KERNEN: Does it help our negotiations or hurt in our negotiations?

WILBUR ROSS: I don’t think we know the answer just yet because we don’t know what the outcome will be of the Hong Kong situation.

JOE KERNEN: I just wonder, you know, whether long term we think that -- how important it is for China to continue to make progress economically to sort of keep people, you know, in the fold and not -- you know – I mean, if that were to slow, you know, and the middle-class emergence we have seen were to slow, that would be a problem for President Xi and for the communist party.

WILBUR ROSS: Well, the Chinese economy has been slowing. It’s been slowing perceptively. You saw, their manufacturing output went 4.8% up in July. That’s the lowest in, what, 15 years or some such time period. So, there’s no question that it’s been slowing. There’s also no question that a lot of the supply chains are moving elsewhere. Some to the U.S., some to Mexico, some to Vietnam or other countries. So, there are some other economic problems that are -- that are partially induced by the trade situation.

JOE KERNEN: Some people said that move yesterday was purely a stock market put. And that the President had seen enough, in terms of 1,000 points on the Dow or the volatility and the averages. He loves the stock market going higher. He loves a good economy. Do you think there’s some truth to that?

WILBUR ROSS: No. Because I know that the decision had been planned quite a while before.

KAYLA TAUSCHE: But the tariffs -- the September 1st tariffs weren’t announced until a few weeks ago. So how long could it have been –

WILBUR ROSS: Well, we have been doing analysis since the hearings were announced by the USTR. We’ve had -- There have been hearings and written papers submitted about the whole idea of the last batch of tariffs. So, even though they were only announced as being imposed recently, the analytical work had begun well before that.

KAYLA TAUSCHE: I’d like to ask about your dialogue with Congress right now. Lawmakers are out right now but come September there’s going to be a lot of efforts, bipartisan efforts, to try to tie the administration’s hands on tariffs. Do you think any of them will be successful? Are you having any conversations with about them about how to craft the legislation so it’s effective?

WILBUR ROSS: Well, there’s been legislation proposed by one member of Congress or another for the last couple of years.

KAYLA TAUSCHE: But Senator Grassley, who Chair Senate Finance, which has jurisdiction over trade, has said he’s open to working with all of the lawmakers who are interested in this to find something that suits everybody.

WILBUR ROSS: Sure. If you look back I think you’ll find that Chairman Grassley has made similar statements in the past. So, it’s not new.

KAYLA TAUSCHE: But what about the efforts from Senators Van Hollen and Cotton, who are trying to limit what you’re able to do on Huawei?

WILBUR ROSS: Well, we’ll see what they do. Where we are on Huawei is where we are.

JOE KERNEN: As a private sector turn around guy, you would go in there to auto parts or mining or oil and gas and all of -- whenever you went in it was because it had way too much debt. So, you know about that. Do you see what’s happening in our balance sheet in the United States, and rates are low but do you look at this now and say, ‘Wow’? If this -- i know you can’t equate private sector and public sector debt but is there a problem yet in your mind with the amount of debt we’re running up?

WILBUR ROSS: I think the key to our debt situation is how fast the economy grows. If the economy grows at 3 plus percent, the debt problem –

JOE KERNEN: it’s not. And in ten months -- last year it was $1 trillion and in ten months we’re there already this year. And then you aren’t even talking about entitlements and what we owe there, Wilbur.

WILBUR ROSS: Absolute the amounts aren’t really the issue. It’s the relative amounts relative to the size of the GDP. The important thing is can we grow at 3 or 3 plus –

ANDREW ROSS SORKIN: But can I ask you a question about that? Which is it hasn’t. And you look at the tax policy and all of the things that have been implemented, what the President laid out as the goal and that line has never been hit yet in a meaningful way. So, do you look at that and say, ‘We have not succeeded yet’? Are you willing to –

WILBUR ROSS: No. Take for example the most recent quarter, Boeing’s problems with the 737 Max, probably took something like 0.4% off. That will come back when the 737 Max problems are ultimately fixed. We think that the economy is strong. The economy is headed in a good direction. The key to growing at 3% is three things. The amount of people in the working age population. That’s already been pretty well set. Second, labor force participation. And that’s starting to go up. That’s important. And then the third thing is productivity. Those three add up to 3%. We go at 3%.

KAYLA TAUSCHE: Mr. Secretary—

JOE KERNEN: --60% faster than almost -- the previous eight years. 2.4, 2.5 versus 1.7. So, just, not for nothing.

KAYLA TAUSCHE: Mr. Secretary, you have the Huawei issue coming up. But you have the census situation in the rear view. I just want to ask how long you continue to continue serving in this role and what conversations you have had with the President.

WILBUR ROSS: Well, you remind me with your repeated suggestions that I’m departing, of what P.T. Barnum said when they published his obituary. Namely that the reports of my death are greatly exaggerated.

KAYLA TAUSCHE: I never reported that you were dying. I reported that cabinet members serve at the pleasure of the President and sometimes the pleasures of the President change.

WILBUR ROSS: Well, I’m not going to debate with you, but you might be on that.

JOE KERNEN: I think you love doing this because we throw -- you love answering these questions. You’re like ready, bring it on. You’re like with us, Wilbur. You like to argue, don’t you.

WILBUR ROSS: This is the most stimulating thing I have done in the last 20 years.

JOE KERNEN: "Squawk Box"?

WILBUR ROSS: No, not "Squawk Box."

JOE KERNEN: Oh, okay. No, I knew what you meant.

WILBUR ROSS: Although with a little more belligerent questioning, it might be "Squawk Box."

JOE KERNEN: Wilbur, Secretary Ross, great to have you on for an extended interview. It’s especially nice to see you. We want to do it whenever we can.




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver