Michael Richard Pompeo: China’s Commitment To HK Agreement Is Key

CNBC Interview: CNBC Transcript: Secretary of State Michael Richard Pompeo Speaks with CNBC’s “Squawk Box” Today

Michael Richard Pompeo

Image source: CNBC Video Screenshot

WHEN: Today, Tuesday, August 20, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a CNBC interview with Secretary of State Michael Richard Pompeo on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, August 20th. The following is a link to video of the interview on CNBC.com:

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JOE KERNEN: Welcome back to "Squawk Box.” Let’s get right to our big newsmaker this morning. Welcome Secretary of State Michael Richard Pompeo. Mr. Secretary, it’s great to see you.

SEC. MICHAEL RICHARD POMPEO: It’s great to see you.

JOE KERNEN: In Hong Kong, it has been very peaceful, thank god. What is the end game if it stays peaceful but if there’s a third of the population in the streets? It’s not a third, but it’s a big number. It’s over a million and it’s not that – you know--

SEC. MICHAEL RICHARD POMPEO: It’s seven and a half million people in Hong Kong.

JOE KERNEN: 1.7 million. And, as we said, these things have a way of not going away unless something is done. Or they get some type of concession. Or something bad happens. How does – what’s the end game?

SEC. MICHAEL RICHARD POMPEO: Well, look, the end game is that the Chinese will uphold the commitment that they made. Right? They made a promise, which was one country, two systems, that they would allow Hong Kong to continue the operate. We talked a lot about the protests, they’re desiring freedom and liberty. But we should remember too there’s important businesses there, a lot of American interests. And the impact on Hong Kong, if this isn’t resolved in a way that is peaceful and in accordance with those agreements, I think will be significant. And so, we’re hopeful that this will be resolved in a, the President has used the word humane, way. A way that reflects the right of these people to protest. And we hope that the Chinese will honor their commitment to Hong Kong. One that they made a handful of years back.

JOE KERNEN: How do you think President Xi uses that calculus in his negotiations on trade with President Trump?

SEC. MICHAEL RICHARD POMPEO: The President talked about this a little bit on Sunday. If it ends in a way that there was violence, the President said something like Tiananmen Square, that it would make it more difficult. I think that’s true. I hope that’s not a factor. I hope that the trade negotiations move forward. And I hope that Hong Kong is resolved in a peaceful way. Those would be the best outcomes for China and the United States.

JOE KERNEN: I just wonder if President Xi says, ‘You know what? The last thing I need right now is this trade thing, when I’ve got really the possibility of some type of Arab Spring event in China. And I don’t know whether it gets to that. And we’re talking about a lot of people and it’s not Hong Kong – it’s Mainland China. But that’s what everyone – I think that’s what we’re all wondering.

SEC. MICHAEL RICHARD POMPEO: But Joe, remember, too: the trade deal is very important to President Xi as well. This is an economy that has grown at a rate of 6%, 7%, whatever number you believe. The impact of the re-imposition of tariffs on China will have an enormous impact on the Chinese population.

JOE KERNEN: It could be related. If the economy slows, it’s harder to keep everyone under the autocratic system. And the yearning for freedom becomes even more front and center, if the economy is slowing.

SEC. MICHAEL RICHARD POMPEO: Well, as President Trump has said, we hope we can get to a good resolution of these trade agreements and we can get fair and reciprocal trade without tariff barriers, without them stealing our intellectual property, without the forced technology transfer, where American companies can invest on the same terms in China, that Chinese companies can invest in America. Those are the simple things that President Trump is asking for. I hope that President Xi will see his way clear to do that.

ANDREW ROSS SORKIN: One of the main pieces of the puzzle, though, is Huawei. And there’s been mixed messages on Huawei--

SEC. MICHAEL RICHARD POMPEO: No mixed messages. Not at all.

ANDREW ROSS SORKIN: The President has said he doesn’t want to do business with Huawei at all if he can avoid it. And yet, Wilbur Ross has come out and said that there are these licenses which will be granted -- or should be granted. Meanwhile, you have the CEO of Huawei come out and say, ‘Look, if you tell Google that they can’t provide Android to us, we are going to build our own. And that means that there is going to be a new operating system effectively in the wild and perhaps the west isn’t going to like that.

SEC. MICHAEL RICHARD POMPEO: President Trump has been unambiguous. I don’t think there’s a mixed message at all. The threat of having Chinese telecom systems inside of American networks or inside of networks around the world presents an enormous risk – a national security risk. Our mission set is to find a way to reduce that risk, to take that risk down as much as we possibly can. I will concede: the world was late to the game. We let Huawei and Chinese telecoms get a big jump-start on us for a decade or decade and a half. It’s not political – it was across both political parties. President Trump has now said that’s a risk that we can’t take to our American national security to protect the American people’s privacy. You don’t want the Chinese communist party inside of your network. And so, we’re driving towards achieving that outcome.

BECKY QUICK: But why did the commerce department say just yesterday that they’re going to extend the waivers for the next 90 days?

SEC. MICHAEL RICHARD POMPEO: Because, no it’s, so there are elements. There are elements that don’t have anything to do with national security. There are components that make sense that don’t pose that threat. And we’re trying to find the right spot where the national security risks are addressed, but we compete fairly and allow our companies to trade.

BECKY QUICK: I thought this was for rural networks here in the United States.

SEC. MICHAEL RICHARD POMPEO: It is. We’re working our way through to figure out how to deliver, given the ten to 15-year head start that they had. You can’t get there all at once, but we’re driving towards it.

ANDREW ROSS SORKIN: But the other component to this is the defense department has effectively said, look, the manifestation of these Huawei networks around the world, in China and Africa and other places where effectively Huawei is not only licensing -- they’re providing loans to their technology gets there. That that unto itself represents a national security risk.

SEC. MICHAEL RICHARD POMPEO: That’s correct. Not only has the Department of Defense said it, so has the State Department.

ANDREW ROSS SORKIN: But if that’s true, then wouldn’t you want to shut them down entirely? So that’s where -- when we said there’s a mixed message or confusion, I think that’s where this waiver issue becomes complicated.

SEC. MICHAEL RICHARD POMPEO: Right. So, we’ve not been entirely successful around the world. There were install systems, there are install bases. There’s enormous costs in some of these transitions. The same is true in places inside the United States as well. You can’t rip and tear it all out at once. And so, our effort is to put together a pathway where these risks, connected to these -- and it’s not just Huawei. The focus is often Huawei. It’s broader than that. The risk from Chinese Communist Party connected telecom companies isn’t present in the United States or the trusted networks in which that the United States participates in all around the world.

BECKY QUICK: But you’re talking decades or longer before--

SEC. MICHAEL RICHARD POMPEO: No, I don’t think it will be that long. But it is true. If we ignore it and let it go away, we’ll never get it back.

ANDREW ROSS SORKIN: And you don’t see President Xi saying, ‘Look, if you’re going to put us in this position with Huawei, we can’t even talk to you on the other issues’?

SEC. MICHAEL RICHARD POMPEO: It’s not been our experience. And it’s not what’s happening today.

ANDREW ROSS SORKIN: So, you think that President Xi has effectively given up on Huawei to some degree?

SEC. MICHAEL RICHARD POMPEO: No, I think he’s prepared to engage in a complex set of trade negotiations that our team, Secretary Mnuchin and Ambassador Lighthizer, are engaged in. So, no. He hasn’t walked away and said I won’t talk if you do these things. He’s said we need to sit down and have a conversation about the trade relationship, not only between the United States and China, but China’s place in the World Trade Organization, all of the broader trade issues that exist as well.

JOE KERNEN: The other intersection of state and commerce and treasury is Iran, I think, because of oil prices. And, you know, the "R" word is being thrown around now. The last thing we need is an oil shock or something right now. But Iran, you know, you probably wake up in the morning and when they hand you those papers, you say, ‘I don’t know if I want to really look at that today.’ But, I’m ready for something from Iran every – you know, once a week, they’re stirring things up, are they not? When does it affect oil prices?

SEC. MICHAEL RICHARD POMPEO: I’m in the U.N. Security Council meeting. It’s why I came to New York today, talking about this threat from Iran. I remember back, Joe, when we withdrew from JCPOA, when the President made that decision, the right decision. Folks said crude oil would go to $100 a barrel, $110, you can go read some of the major financial institutions right in town. When I woke up this morning, Brent Crude $58, WTI a little less than that – $55, $56. We have managed to take almost 2.7 million barrels of crude oil off the market by denying Iran the wealth to create their terror campaign around the world and we have managed to keep the oil markets supplied. I’m confident we can continue to do that.

JOE KERNEN: Do you see the possibility of dealing with the Taliban in a good faith way in Afghanistan?

SEC. MICHAEL RICHARD POMPEO: So, my team has been out negotiating with the Afghan government and with the Taliban over the last six, seven months now. Our desire is to create conditions on the ground where we can achieve what President Trump laid out, which is to reduce what is $30, $35 billion a year in taxpayer money and the loss of American lives that I see out of Dover, I see injuries at Walter Reed. That’s the mission set. The conversations are going well. But in the end, it will be about what’s delivered on the ground, whether that’s from the Afghan government, other Afghans that aren’t inside the Afghan government, the Taliban. The truth will be in the reality. What really happens on the ground? If we can reduce violence, we’ll create a space where we can withdraw not only American support but NATO forces that are there as well.

JOE KERNEN: I think we need -- and I think, the most important thing, I think, in terms of our viewers is probably tariffs in China, obviously. And we still don’t know whether a big deal is possible before the election. And what we’re hearing, that the way that this is resolved near term is with some half measures that kicks the can down the road and maybe get some AG buys and some agreements that aren’t codified in the Chinese law. But, that you know, some assurances that we aren’t going to steal anything anymore, but those haven’t worked in the past. Can we expect anything better before November of 2020 when Xi knows there’s an election here? And he knows he doesn’t have one? Although he probably has one every day, really.

SEC. MICHAEL RICHARD POMPEO: Joe, I’ve not heard the President talk about these half measures that you speak of. He’s been very focused on achieving a set of priorities that he laid out for the team.

JOE KERNEN: Is that possible before the election?

SEC. MICHAEL RICHARD POMPEO: It’s up to President Xi. And the two of them have developed a good relationship. I hope the teams get back together in the next week or ten days, at least by phone and then perhaps in person shortly after that. I don’t know the outcome. In the end, the Chinese government has to make a fundamental decision about whether they want to compete in the world on fair and reciprocal terms or whether they want to continue to abuse the international trading system in the way that they have. President Trump has made it very clear, that those are essentially the two choices for China.

BECKY QUICK: What do you expect the reception to be at the UN today? I mean, how do you kind of look at the room and figure out where all these sides line up?

SEC. MICHAEL RICHARD POMPEO: Yeah, so, different folks have different views all across the world. We have many Europeans that are with us. We have the E3, who have a different approach to Iran than we have taken and they’ve stayed inside the JCPOA. We’ll have folks from all across the world and other regions as well. We’ll have the gulf states who are fully on board with our efforts. So, there will be a wide range of views. But consistent amongst all of them is the deep understanding that the greatest threat to stability in the Middle East is the Islamic Republic of Iran. However, they think about the JCPOA, there won’t be a voice in the room unless the Iranians show up themselves, who doesn’t agree with that.

JOE KERNEN: And you’re going to think I’m crazy but I’m going to ask you about bitcoin in terms of terrorism. G7 is this week as well. And both Japan and France both have working groups trying to figure out Libra and what would need to be done with Libra. So, everyone is thinking about how to deal with this. Now I’m hearing great fears that the terrorists are already being funded – or some of their operations with crypto. Have you seen this? It’s happening--

SEC. MICHAEL RICHARD POMPEO: I’ve seen some of the reports.

JOE KERNEN: We’ve seen Secretary Mnuchin come on express great angst about any type of virtual currency, and the type of nefarious activities that could from that. In fact he said – I said, ‘Well, we’ve had some nefarious activities with dollars, too.’ And he goes, ‘Well, I don’t know of any--’ and it was kind of funny, because we talked and it became a viral moment where -- because every nefarious activity prior to this has been – all the money laundering has been done with cash, so far.

SEC. MICHAEL RICHARD POMPEO: Some real currency.

JOE KERNEN: So, it happened.

BECKY QUICK: So just a warning--

JOE KERNEN: So, where are you on what kind of world we’d have if things were much harder, if things were not anonymous, but much harder to trace? Do you think that’s the world we are going have in five years?

SEC. MICHAEL RICHARD POMPEO: I hope not. It would decrease the security for the world if that’s the direction we travel. I’m going to try not to create a viral moment or meme this morning.

JOE KERNEN: In this case.

SEC. MICHAEL RICHARD POMPEO: Yes, exactly. I’m going to try. Look, the risk with anonymous transactions is one we all know well. We know this from 9/11 and the terror activities that took place in the fifteen years preceding that, where we didn’t have good tracking, we didn’t have the capacity to understand money flows and who was moving money. It has helped keep the entire world secure to fight terrorism and other nefarious activity, criminal activity as well, by having access to this information. We need to preserve a financial system -- a global financial system that protects that.

BECKY QUICK: Secretary, just very quickly, you rattled off crude oil prices today. So, clearly you watch that market pretty closely. Do you watch all markets? How much does that play into your role and how much the volatility we’ve seen recently have an impact on what you’re doing?

SEC. MICHAEL RICHARD POMPEO: Yeah, that’s a great question. I watch all the markets very closely. Our equity markets, the global equity markets, our bond markets as well, borrowing capacity in countries around the world. My job is quintessential economic to create a situation where the American economy can prosper, we protect American national security in the context of a growing U.S. economy.

ANDREW ROSS SORKIN: Let me ask you, we’re sort of popping around on different topics, but it relates to – he had mentioned Libra earlier, that got me thinking about Facebook. Facebook and Twitter just yesterday, there were reports that they effectively shut down some accounts, Chinese accounts that may have been spreading disinformation related to Hong Kong and whatnot. What do you think the roles of Facebook and Twitter and social media should be? The President expressed all sorts of concerns about those companies. We now have antitrust regulators looking at those companies at the same time. And yet, there is national security issues or even -- issues that you’re contending with.

SEC. MICHAEL RICHARD POMPEO: Sure.

ANDREW ROSS SORKIN: That they’re in the midst of.

SEC. MICHAEL RICHARD POMPEO: Look, I can’t do justice to that question in 15, 20 seconds, other than to say, I saw those reports, too. They’re very consistent with our understanding of Chinese efforts around the world. I remember when Russia thing was all in the news. And I reminded people that it is not just Russia. There is the same kind of activity taking place with China, out of North Korea, out of Iran. I think it is an international challenge. These are international businesses, grown here in America. We need to get the policy right from a security perspective. I’m happy to talk about it at greater length sometime.

ANDREW ROSS SORKIN: Do we, the U.S., use those services for propaganda in other countries?

SEC. MICHAEL RICHARD POMPEO: We do not. We do not spread false information intentionally anywhere in the world. It is against U.S. law and we don’t do it.

JOE KERNEN: Are you -- how long are you going to be Secretary of State? What is your future? You’re a young man. What about Kansas senate?

SEC. MICHAEL RICHARD POMPEO: I’m very focused on this job, Joe. I’m going to be the Secretary of State as long as President Trump continues to want me to be his Secretary of State.

JOE KERNEN: What if he said we need you in Kansas as a Senator?

SEC. MICHAEL RICHARD POMPEO: We would have a serious conversation.

JOE KERNEN: You never say never.

SEC. MICHAEL RICHARD POMPEO: You know, so focused on what I’m doing. I hear all the chatter. I see it. I think the only one not talking about my Kansas Senate run is me.

JOE KERNEN: Alright. You can serve with Beto and Hickenlooper, maybe, in case they don’t make it all the way this time. I don’t know –

SEC. MICHAEL RICHARD POMPEO: This is what I hear. I follow U.S. domestic politics less than I follow international financial markets, by a significant amount.

JOE KERNEN: So, back -- how do you regulate these things, Libra or bitcoin? What do you do? Bitcoin is tough to regulate. It’s already out of the bag, isn’t it?

SEC. MICHAEL RICHARD POMPEO: My sense is this, we should use the same framework that we use to regulate all other electronic financial transactions today. That’s essentially what these are. These are monies moving through markets or in some cases disintermediated transactions. But we should regulate them the same way. The same set of requirements that apply to things flowing through Swift or flowing through our financial institutions, ought to apply to those transactions as well. I can say, it will be difficult to do, but the theory, the regulatory theory we ought to apply is that one.

JOE KERNEN: Okay. We didn’t talk much about cybersecurity. That scares me to death too.

SEC. MICHAEL RICHARD POMPEO: Every morning.

JOE KERNEN: Every morning with that, too?

SEC. MICHAEL RICHARD POMPEO: Every morning there’s more risk--

JOE KERNEN: How thick is the brief –

ANDREW ROSS SORKIN: What was in the brief this morning?

JOE KERNEN: Tell us something no one else knows. Whisper it to us.

ANDREW ROSS SORKIN: It was a crowded briefing this morning. It takes me, depending on the time I have an hour, hour and a half to get through it with any level of detail.

JOE KERNEN: Do you need a cocktail after you see what’s going on around the world? Or that’s TMI?

BECKY QUICK: At 6:30AM.

SEC. MICHAEL RICHARD POMPEO: Diet Coke is my addiction, yes.

JOE KERNEN: Caffeine free. You don’t need to be more -- anyways, Mr. Secretary, great to have you on.

SEC. MICHAEL RICHARD POMPEO: Thank you all very much. Appreciate it.

ANDREW ROSS SORKIN: Thank you.



About the Author

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