Wilbur Louis Ross Jr. on Trump’s latest comments on the trade war

Wilbur Louis Ross Jr. on Trump’s latest comments on the trade war
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CNBC Transcript: Secretary of Commerce Wilbur Louis Ross Jr. Speaks with CNBC’s “Squawk on the Street” Today

WHEN: Today, Tuesday, December 3, 2019

WHERE: CNBC’s “Squawk on the Street

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The following is the unofficial transcript of a CNBC interview with Secretary of Commerce Wilbur Louis Ross Jr. on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Tuesday, December 3rd. The following is a link to video of the interview on CNBC.com:

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All references must be sourced to CNBC.

DAVID FABER: Well, markets, of course, are down this morning. This largely on comments from President Trump that a trade deal might not get done until after the 2020 election. Joining us now at post-nine to perhaps shed some light on these latest comments regarding the trade talks is Secretary of Commerce Wilbur Louis Ross Jr.. Mr. Secretary, always good to have you here.

WILBUR LOUIS ROSS JR.: Good to be back.

DAVID FABER: And nice to have you in person as well. It seemed as though, given the recent commentary, things were getting closer and closer to a phase one deal being signed with the Chinese. Should we view the President’s comments out of London as a moment where things have changed in some fashion that we may be unaware of so that it becomes less likely a deal is near?

WILBUR LOUIS ROSS JR.: Well, the President’s objective always has been to get the right deal, independently of when or anything else like that. So, his objectives haven’t changed. And if we don’t have a deal, he’s perfectly happy to continue with the tariffs as he had. So, he feels we’re in a pretty good position one way or the other. I think the new variable is the whole Hong Kong situation. That’s complicated life for President Xi. Then, as you know, they got somewhat upset when the President signed the bill.


WILBUR LOUIS ROSS JR.: Well the reality is that bill was going to be enacted anyway, because they had a veto-proof majority in the Congress. So, that’s only a technical issue, whether the President signed it or not. Nonetheless, they did announce the retaliation about the navy vessels not going into Hong Kong. That’s not a big deal. We can very well live without the port of Hong Kong. So, that one I thought was fairly modest. But, you know, when you’re dealing in international things, everything affects everything.

DAVID FABER: Yeah. Understood. But it does seem as well that the Chinese have made it clear they would expect some sort of, well, not just no tariffs on the 15th of December, which is only 12 days away at this point, but potential rollback of the September tariffs. Is that the case as you understand it of what their ask is? And is that something that has put a new impediment of reaching a deal in the near-term?

WILBUR LOUIS ROSS JR.: Well, the idea of addressing existing tariffs over a period of time is not a new idea. That’s always been part of things. The real question is the total package. So, I don’t think it’s too useful to pick out one little piece or another. We should really focus, either we’re going to have a total package that works for both, or we’ll continue on as we are. I think it’s also important that the President make clear, he’s under no time pressure to get it done. Because otherwise there’s a tendency of the other side to say ‘Oh, he needs it for political reasons, so we’ll give them a worse deal than we would.’ He’s not going to play that game.

DAVID FABER: Right? He made it clear today. Is it your expectation the December 15th tariffs will be applied?

WILBUR LOUIS ROSS JR.: Well, unless there’s some real reason to postpone them. If there were a little bit of time needed for more talks, he probably would postpone it. If enough substantive progress had been made. he might. You really have to look at the exact situation as we get a little closer to that time.

CARL QUINTANILLA: Do you -- is he serious when he says it might be better to delay it until after the election? And what would the consequences be from that?

WILBUR LOUIS ROSS JR.: Well, I think he’s serious in this regard. That takes off the table something that they may think gives them some leverage. Because, once the election occurs, and the President seems to be in very good shape for the election, once it occurs and he’s back in, now that’s no longer a distraction that could detract from our negotiating position.

LESLIE PICKER: But ultimately, I mean even if he does get reelected that’s four more years. I mean, there’s still -- they still kind of have that leverage on the table because we have a democratic system here. Right?

WILBUR LOUIS ROSS JR.: Well, we have the leverage because we have much more ammunition left against them, than they have against us. It’s one of the few good things about a trade deficit, is you have more bullets you can fire than they have that they can fire. They’re pretty well out of bullets.

DAVID FABER: So, how are you feeling about things? I mean, we have talked about this issue now with you for years at this point. We’ve had sort of the same conversation. Are you optimistic still that something will get done in the next let’s call it few months?

WILBUR LOUIS ROSS JR.: Well, I’m optimistic we’ll eventually get something done for several reasons. One, they have their own economic problems in China, particularly the hallowing out of the supply chains that’s occurring. Even before the trade disputes, there were people starting to think maybe China is not the cheapest place in the world to manufacture anymore. Now, with all this uncertainty, there’s a clear movement of supply chains over to Vietnam, to Malaysia, to Bangladesh, to all kinds of other countries. That’s a trend that’s going to continue, especially as long as there’s the trade uncertainty.

CARL QUINTANILLA: But, aren’t the new steel and aluminum tariffs on Brazil and Argentina, some would argue that’s an admission they do have partners, China. They do have global partners who are willing to work with them and supply them.

WILBUR LOUIS ROSS JR.: Well, I don’t think the Brazil and Argentina things have anything to do with China. We’re Brazil’s main customer for steel. That’s why they’re so upset about it. Brazil ships us over 4 million tons a year of semi-finished, and that’s over 4% of our total steel consumption. So, they’re very important player here. But the President’s reasoning that he announced for putting the tariffs was not anything about China. It was about currency manipulation.

DAVID FABER: I would like to come back to this idea of the next 12 days and December 15th because it’s certainly being watched closely by the market as a barometer of how far or how much progress has been made. I mean, it’s only a week and a half or so. What do you expect between now and then that conceivably could change the way you’re looking at it so that they would not be applied, those tariffs?

WILBUR LOUIS ROSS JR.: Well, there is always the chance of a breakthrough. And, everybody is hoping for that. I do agree with the President, the Chinese want a deal, we want a deal, but it has to be a deal that’s appropriate.

DAVID FABER: I thought we had a breakthrough already. I mean, that seems to be the sense of many people, that we made that breakthrough.

WILBUR LOUIS ROSS JR.: We don’t have a breakthrough until it’s in black and white on paper, signed, sealed and delivered. What we had was an agreement at the 40,000-foot level. 40 to 50 billion of agricultural purchases, things like that. But going from there to: What will it actually be? What will be the products? How do you deal with pricing?  And how do you deal with market conditions? How do you deal with the contingency that they don’t perform? Those are questions you don’t deal with at the 40,000-foot level but you must deal with to make a real deal.

CARL QUINTANILLA: Why then announce the agreement in principle a couple of months ago when there was so much space between that and a signed deal?

WILBUR LOUIS ROSS JR.: Well, you always announce things as you make progress. And that was a big step. That’s the first time the Chinese have gotten to that big a number. So, that was an important breakthrough. $40, $50 billion is a huge number relative to American agricultural. So, it’s an important figure.

CARL QUINTANILLA: But you don’t regret announcing phase one, given the expectations it set up for the market?

WILBUR LOUIS ROSS JR.: No. Look, here on the floor of the Exchange of all places we’re a full disclosure country. So, the idea that you would want to keep out of the market the news that that kind of agreement in principle had been reached, I don’t think would have been a very good idea.

DAVID FABER: What are your expectations, then, in terms of near-term talks? Can we expect Trade Rep Lighthizer, Secretary Mnuchin and yourself to be engaged at all in the next few days?

WILBUR LOUIS ROSS JR.: There’s constant engagement at the staff level, and that will continue. There’s no big meetings scheduled right now. And there certainly is no signing date scheduled.

LESLIE PICKER: So, given that and the hurdles that you outlined earlier, what do you think is the likelihood in the next week and a half we reach some sort of agreement before those tariffs--?

WILBUR LOUIS ROSS JR.: Well, it’s your job to focus on each week, each day, each hour, each eighth, each quarter. It’s our job to try to get a proper deal done. So, we’re really focusing on getting the right deal done, not whether it’s done at quarter of 5:00 on a particular day.

DAVID FABER: Turning to Europe for a second, if we can, to where the President is right now, of course. He seems petered by the digital tax.

WILBUR LOUIS ROSS JR.: Well, rightly so.

DAVID FABER: He raised the prospect, Mr. Secretary, of 100% tariff on wine and cheese coming from France. Is that a real possibility?

WILBUR LOUIS ROSS JR.: Well, remember, the context in which we’re talking is we just won the W.T.O. case of Airbus versus Boeing. That gives a great deal of latitude in terms of what the President can do. Europe has consistently not lived up to the W.T.O. rules. They’ve consistently said they were and consistently not followed through. So, we have a very legitimate complaint. They dragged this out for, what, 12, 13 years. But now, it’s the reckoning day. So, he has flexibility to do tariffs.

CARL QUINTANILLA: Macron just said that the digital tax does not target the U.S. specifically. Do you disagree with that?

WILBUR LOUIS ROSS JR.: Well, absolutely. When you said criteria that if you have so many sales internationally and so much sales in a given country, and there’s only a handful of companies that meet those criteria, and by and large, they’re all American, hard to say that it wasn’t designed as an anti-American thing.

LESLIE PICKER: And France isn’t the only country that’s considering a digital tax. You’ve got Italy looking to impose one.

WILBUR LOUIS ROSS JR.: Well, they’re not the only country that’s anti-American either.

DAVID FABER: You view them as anti-American? What does that mean when you say that?

WILBUR LOUIS ROSS JR.: I view -- well they are anti-American in the sense that Europe doesn’t have the real high-tech champions and the real e-commerce champions that we do. There’s a tremendous amount of jealousy about that. I view this as having that as one of its roots and they’re all running budget deficits and looking for a way to tax someone other than their own voters. So, there’s that motive as well. Because, our companies don’t get to vote in France, they don’t get to vote in Germany.

DAVID FABER: No, but they’re selling services, which is hard to sort of -- it’s not a product, so to speak, that we’re accustomed to on a shelf, but that’s the way more and more of the world’s commerce is about services.

WILBUR LOUIS ROSS JR.: It is. And if what they said anybody doing any of those industries from penny one paid the tax on every dollar, that would be one thing. But that’s not. They’ve set very specific criteria and the criteria, deliberately or not, essentially only include American companies.

LESLIE PICKER: So then, if you start this – down this path of imposing tariffs on France as, you know, retaliation for the digital tax, do you then see yourself imposing tariffs on the other countries, Italy, UK, Turkey, that are considering a similar –

WILBUR LOUIS ROSS JR.: Well, remains to be seen. If they do the same thing, I would assume he would react the same way. But you certainly can impose tax on individual member states. There’s plenty of precedent for that. You can’t negotiate a trade agreement with individual states. That has to be at the European commission level. But you can, and we have. The Airbus retaliations are against the member countries individually, they’re tailored to the individual countries. So, there’s nothing strange about that.

CARL QUINTANILLA: Reuters has a piece out today, it says the White House considered kicking Huawei out of the banking system where they would be unable essentially to transact in dollars. And that it’s not completely off the table.

WILBUR LOUIS ROSS JR.: Well, we -- the only thing we’ve done on Huawei so far is we’ve put them on the entity list. And that means any American company that wants to sell them stuff that’s on the list has to get a license to do so. We have very serious concerns about Huawei as a security risk. We have very big concerns about what they contributed to the horrible treatment of the Uyghurs in China. There are a lot of problems with Huawei. They have a checkered history.

CARL QUINTANILLA: Is that a confirmation of the Reuters piece?

WILBUR LOUIS ROSS JR.: I didn’t see the Reuters piece.

CARL QUINTANILLA: That the Treasury considered putting them on a list barring them from transacting in dollars.

WILBUR LOUIS ROSS JR.: Well, we’re always considering all sorts of measures against all kinds of companies. But I don’t believe there’s anything imminent this morning on that score.

CARL QUINTANILLA: Do you believe China is going to have an entities list of their own and who do you think would be on it?

WILBUR LOUIS ROSS JR.: Well, it’s an interesting question. I’m not aware that we deal – use in our National Defense anything that comes from China. So, if they do have an entity list, it would be very interesting to see who they think from America belongs on it. I think it’s a very difficult problem.

DAVID FABER: Finally, Mr. Secretary, just to get your general views, what are you hearing from American or U.S. businesses, particularly those that operate around the globe? We talk often here about the strength of the U.S. consumer, but the enterprise, there has been some concerns about wanting to spend money with the uncertainty out there, specifically about the trade war itself. What are you hearing?

WILBUR LOUIS ROSS JR.: Well, the multinationals are obviously very concerned by their very nature. Everybody in business, what do you want? You want certainty, you want peace and quiet, you want to be allowed to do what you want to do. So, it’s not surprising that some of them would have concern about anything that could interrupt the pace of things.

DAVID FABER: Mr. Secretary, always appreciate your joining us.

WILBUR LOUIS ROSS JR.: Thank you. Good to be on.

DAVID FABER: Thank you for stopping by. Wilbur Louis Ross Jr., of course the Secretary of Commerce.

WILBUR LOUIS ROSS JR.: I was having withdrawal symptoms.

DAVID FABER: Yeah. Well, I know. It’s been a while. So, we’re glad to see you.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. 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

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