Steven Terner Mnuchin on impeachment, Trade “deal” & more

CNBC Exclusive: CNBC Transcript: U.S. Treasury Secretary Steven Terner Mnuchin Speaks with CNBC’s “Squawk on the Street” Today

Steven Terner Mnuchin

Image source: CNBC Video Screenshot

WHEN: Today, Thursday, December 19, 2019

WHERE: CNBC’s “Squawk on the Street

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with U.S. Treasury Secretary Steven Terner Mnuchin and CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, December 19th. The following is a link to video of the interview on CNBC.com:

Watch CNBC’s full interview with Treasury Secretary Steven Terner Mnuchin

All references must be sourced to CNBC.

DAVID FABER: Fresh off its historic vote to have impeach President Trump last night, lawmakers poised to pivot their attention to trade today. The U.S. House is expecting bipartisan approval for that revamped NAFTA agreement. It’s called the USMCA. Joining us now exclusively for more on the President’s post-impeachment economic agenda is the U.S. Treasury Secretary Steven Terner Mnuchin. Secretary Mnuchin, always good to see you. Does anything change for your economic agenda, given that the President has been impeached?

STEVEN TERNER MNUCHIN: Well, first of all, it’s great to be here with you. And the answer is absolutely no. It’s been a terrific end of the year for the President’s economic programs. We’re looking forward to USMCA being passed today, the China Phase One agreement, and the president’s approval and passage of the appropriations bill which is very important to our military, and has lots of important policy wins for the President.

DAVID FABER: Yes, it was an interesting end here, as impeachment went on. We actually seemed to get some bipartisan work done by the Congress. Were you surprised?

STEVEN TERNER MNUCHIN: No, I wasn’t surprised. The impeachment is really a partisan issue. And, you know, these are very important economic issues that have bipartisan support that are going to be terrific for our workers and our companies. This is just, this is what the President has been delivering on the economy. And we look forward to all these year-end wins.

DAVID FABER: Let’s talk a bit about – well, we’ll talk USMCA, but China certainly perhaps more important in the greater scheme of things. You’ve spent so much time on it. We got the Phase One deal. Some are questioning, Mr. Secretary, the specifics when it comes to the purchases that will be made by the Chinese. For example, the adding of $100 billion to $186 billion total for each of the two years. And the idea being that basically we have to ramp up imports or excuse me, exports to China dramatically, to a level we’ve never seen. What gives you the confidence that that is going to be something that happens and that the Chinese are going to stick with?

STEVEN TERNER MNUCHIN: Well, let me comment on that. But let me just first comment on: Ambassador Lighthizer really did an incredible job in these negotiations. For the first time ever, dealing with structural issues. So, what, really, we’ve been very focused on is protection to intellectual property, structural issues for our agricultural community, the opening of financial services, a currency chapter that will maintain fair currencies and for the first time ever an enforcement chapter. So, this is really the important part of it.

Now, on purchases, you know, from the first time President Trump and President Xi met at Mar-A-Lago, both of them agreed that the objective was to rebalance the trading relationship. I think, as you know, our markets have been very open to them, and their markets have not been open to us. And a big component of the agreement was opening of those markets and commitments. In the case of agriculture, that’s going to be a doubling of the size of agricultural purchases. And I think our farmers will be able to deliver.

DAVID FABER: And you do. So, $186 billion is what U.S. exports of goods and services to China were in 2017. Under this new agreement, it would have to be about $200 billion more than that. That’s the number that think we can successfully get to?

STEVEN TERNER MNUCHIN: I do. It’s going to be over a two-year period of time, but they’re already in the market in agriculture today, and we’ve been working with industry. So, this isn’t something that just occurred overnight. The signing will occur in the beginning of January. But we’ve been working with U.S. industry to make sure they can take advantage of these new intellectual property protections, and the opening of the China markets.

DAVID FABER: Yeah, which obviously so many people had been focused on, as you point out, far beyond the numbers. You’re confident this thing is going to get signed in early January?

STEVEN TERNER MNUCHIN: I’m very confident. So, it’s just going through what I would consider to be a technical legal scrub and we’ll be releasing the document and signing it in the beginning of January.

MORGAN BRENNAN: Mr. Secretary, I want to go back to the structural promises or structural changes that are going to be a part of this Phase One deal. I realize that everything is still being put down to paper and translated right now. But, can you give us some specific examples of what that will look like? And also, when you talk about an enforcement mechanism, what the details of that will be.

STEVEN TERNER MNUCHIN: Sure, well let me just comment. It’s already on paper and it’s already translated. So, this is going through what I consider to be a technical review of the translation. It’s not that it’s open to renegotiation or that there are any open issues. The enforcement chapter is one of the critical parts to this agreement. For the first time, we have binding enforcement. There will be a mechanism, as we’ve described, in both countries that as there are issues, they will be elevated. There will be teams of people in both countries that first will try to resolve these issues. But if, for whatever reason, they can’t be resolved, the President maintains the authority to put tariffs on to enforce the agreement.

MORGAN BRENNAN: What needs to be seen in terms of enforcement in China actually carrying through on its promises for Phase Two to start being worked out?

STEVEN TERNER MNUCHIN: Well, I think our priority for the moment is to implement Phase One. But we are prepared to work hard on Phase Two. So, you know, again, our first priority is Phase One. This is an enormous opportunity for U.S. companies. And for the first time to have an enforceable agreement with China, as I said, Ambassador Lighthizer did an outstanding job leading these negotiations.

MICHAEL SANTOLI: Mr. Secretary, it seems as if the reports say the USMCA is due to pass with a very strong majority. As you know, Speaker Pelosi has been very positive about the terms that were set in the final version here. Are you okay with that, this idea that Speaker Pelosi feels as if this is a win for the priorities that she set out there? And what do you think is going to be, I guess, the tangible economic benefits we’re going to see?

STEVEN TERNER MNUCHIN: I think we will get an excess of 50 basis points of additional growth in GDP as a result of this agreement. And people who say, ‘This is just NAFTA 2.0,’ just don’t understand the technicalities of this agreement. This is a whole new agreement that really brings the trading relationship into the modern era. And as important as China is, this is our largest trading block and incredibly important to U.S. Workers and U.S. workers and U.S. farmers.

This addresses everything from enabling small businesses to be able to compete more fairly to expanding our agricultural opportunity and opening markets, to protecting digital trade, which is a big focus of the U.S., financial services, protecting that there will not be data localization in any of these countries, that’s a very important issue for us around the world, that data can reside in the world and be protected. But, you know, this is a very, very detailed agreement that Ambassador Lighthizer has led an interagency team that almost impacted every single one of our agencies.

MORGAN BRENNAN: Mr. Secretary, you just mentioned the digital trade component of the USMCA. We have so many conversations about rules of the road, where digital — digital services, digital – e-Commerce, et cetera, are concerned, what the regulations should be, digital taxes that are now being passed through in search countries arched the world as well. Could the component here, the outline here become a template for other trade deals?

STEVEN TERNER MNUCHIN: Absolutely. This trade agreement is going to be the model of what we use going forward, in many of the chapters. And a lot of the currency provisions that we developed in USMCA were put into the China trade deal. So, that’s one of the examples.

DAVID FABER: Mr. Secretary, you just made a prediction that the USMCA might add as much as 50 basis points in economic growth. I wanted to come back to some other predictions that you’ve made. In the Fall of 2017, as you were championing the tax bill, which would eventually pass. You said it would cut the deficit by about $1 trillion. That hasn’t happened. The budget deficit was $665 billion in 2017. It’s now $984 billion. Are you concerned at all about the budget deficit, which has continued to go up significantly, despite your promises to the contrary?

STEVEN TERNER MNUCHIN: Well, I’m glad you brought that up. Because I want to clarify this, because I think it’s important for people to understand. So, my comment on the tax bill, I stand behind. And when I said that it would cut the deficit by $1 trillion, that’s over a ten-year period of time. I never expected it would have any issues in year one or year two. Actually, quite the contrary.

There were many economic parts of the bill that incentivized the expensing of depreciation and investment that cost us revenues in the beginning, but we recouped those revenues in years four to ten. So, actually if you look at our receipts for this year, we’re right on our projections. And if we look at both the actuals for two years, and our interagency, our Troika projections with OMB for revenues for the next eight years, we’re still on track for that.

So, I’m glad I had an opportunity to clarify it. Now, as it relates to the budget deficit for this year, that had nothing to do with the Tax Act. That had more to do with the fact that we increased government spending. And I think you know, defense spending has been a major priority for the President. With all the issues around the world, it is absolutely important that we have the best military.

By the way, in this holiday season, I especially want to reach out and thank all of the military people and for their commitment to what they’re doing. And to get those military increases, the Democrats required non-military increases. So, that’s really the reason why the budget deficit has gone up. I am comfortable with these levels, but there’s no question over time we need to be growing the economy and decreasing the budget deficits.

DAVID FABER: Yes, and obviously we understand as a percent of the economy, it’s not as high as it’s been in other times, but as a dollar number of course it is something we haven’t seen in quite some time. Are you confident that you’re getting the revenues you expected from corporations? You know, there are some reports that say the average tax rate is something like 11% on profits, which is far below the stated level of roughly 21%.

STEVEN TERNER MNUCHIN: I am highly confident. As I said, we’re tracking almost exactly as we predicted. But again, if a business invests $100 million in new capital, they have the ability to write that off in year one. And what that’s going to do is that’s going to lower their tax rate in year one to incentivize them to invest in capital. But it will raise their tax rates in years four, five, six through ten. So again, this is performing exactly as we’ve modeled.

MORGAN BRENNAN: Mr. Secretary, before we let you go, the dollar–certainly the dollar index has come off a little bit in recent weeks, but is it still too strong?

STEVEN TERNER MNUCHIN: Well, I’m not going to make a comment if it’s too strong or not too strong. You know, when I sneeze and talk about the dollar, it tends to have impacts on the market. But what I will comment on is, I do think the strength of the dollar is a sign of the strength of the U.S. economy. And the dollar is the reserve currency of the world. It’s the safe haven, particularly as you see Europe slowing down, as you see China slowing down.

There’s more and more investment coming into the U.S., in a greater desire to hold dollars. And I think, as you know, despite all these digital payments are U.S. currency, the physical currency, is at an all-time high. And you know, banks are holding a lot of dollars in vaults, because with negative interest rates in Europe, people don’t want to hold European currencies.

DAVID FABER: Secretary, we have to leave it there, we’re told. But always appreciate your taking some time and joining us. Thank you.

STEVEN TERNER MNUCHIN: Thank you very much.

DAVID FABER: Secretary of the Treasury, Steven Terner Mnuchin.

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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