Secretary Mnuchin on US-China phase one trade deal

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CNBC Transcript: Treasury Secretary Steven Mnuchin Speaks with CNBC’s “Squawk Box” Today Discussing the agreement of Phase One with Chinese trade negotiators.

WHEN: Today, Wednesday, January 15, 2020

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a CNBC interview with Treasury Secretary Steven Mnuchin on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Wednesday, January 15th. The following is a link to video of the interview on CNBC.com:

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Watch CNBC’s full interview with Secretary Mnuchin on US-China phase one trade deal

 

BECKY QUICK: A historic moment will take place later this morning between the world’s two largest economies when the United States and China sign Phase One of the trade deal. We’re joined right now by one of the agreement’s lead architects, Treasury Secretary Steven Mnuchin. And Mr. Secretary, thank you for being here today.

SEC. STEVEN MNUCHIN: Thank you. It’s great to be with you.

BECKY QUICK: Walk us through--we were just beginning to get some of the details that are in this. We’ve heard stories about what’s in this. But to you what are the most important components of this deal today?

SEC. STEVEN MNUCHIN: Well, I think it’s a very significant deal. It’s the first time we’ve ever had an encompassing agreement with China on all these issues. It deals with intellectual property, forced technology transfer. Deals with agriculture, structural issues, financial services, currency, purchases and a fully enforceable agreement. So, there’s a dispute mechanism.

China trade details

BECKY QUICK: What didn’t make it in that you wish had?

SEC. STEVEN MNUCHIN: Well, I think there’s a lot of complicated issues. I think a significant amount of the technology issues are in Phase One. There are certain areas of other services away from financial services that will be in Phase Two. There’s certain additional cyber security issues that will be in Phase Two. So, there are still more issues to deal with. And we’ll address those.

BECKY QUICK: Let’s talk first about enforcement. Because that has always been one of the issues that people who have watched China over a long time have raised concerns about. How do we make sure that this is enforceable? And how would the United States follow up with that?

SEC. STEVEN MNUCHIN: The President has been very clear with Ambassador Lighthizer and myself from the beginning of this that if we’re going to have an agreement, it has to be a fully enforcement agreement. Ambassador Lighthizer really did a great job with a very large group. We had people with every single agency involved in both the negotiating and the legal issues. And he has developed a very thorough dispute resolution mechanism which makes this fully enforceable.

BECKY QUICK: Enforceable how? Does that mean the tariffs will be jacked back up if we feel like they’re not living up to their end of the bargain?

SEC. STEVEN MNUCHIN: That’s correct. The President has the ability to put on additional tariffs if the agreement is not enforced.

BECKY QUICK: Let’s talk about some of those specific issues, though. When it comes to intellectual property, in order for this to be addressed that would mean that the Chinese would have to make the admission that they have been stealing intellectual property. Is that the case?

SEC. STEVEN MNUCHIN: Well, it’s not a question of admission. It’s a question of what they’re going to do. And China has agreed to put together very significant laws to change rules and regulations and made very strong commitments to our companies that there will not be forced technology going forward. And I think that’s a very big win for our technology companies and for our businesses and for American workers.

BECKY QUICK: That was the huge sticking point when the deal talks first fell apart was that China didn’t want to make the structural changes or agree to make laws. What happened to change that mindset?

SEC. STEVEN MNUCHIN: I think these negotiations have been going on for a long period of time. This really started three years ago with President Xi and President Trump at the Mar-a-Lago Summit, where china agreed they would work with us on the structural issues and reducing the trade deficit. This is a complicated agreement, as people will see. This is the first time when we release the text. Very, very detailed commitments on both sides.

BECKY QUICK: One of the issue that’s been out there are the tariffs that still remain. I think about 7.5% on about $120 billion worth of goods. I think 25% on another batch of goods. What would have to happen in order for those tariffs to be lifted? Has there been anything laid out that says if they follow this glide path, then those tariffs too will be lifted?

SEC. STEVEN MNUCHIN: As part, just as in this deal there were certain roll backs, in Phase Two there will be additional roll backs. So, it’s really a question of – and as we’ve said before, Phase Two may be 2A/2B/2C. We’ll see. First step is really focusing on enforcement. But this gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved.

JOE KERNEN: Mr. Secretary, there was some work done last week about the effects of what the negotiations with China over the last year on GDP around 2% and it wasn’t nearly as bad as what a lot of people have predicted. The effect on the economy. But there was an effect on manufacturing and capital spending and agricultural and farming. If all we got was what’s in this deal, if that’s all we got, and we don’t get a Phase Two, was it worth it?

Absolutely. And let me just say, look at the President’s economic plan. The economy is performing SEC. STEVEN MNUCHIN: because of it. It was all about tax cuts, regulatory relief and trade. We now have USMCA that’s going to pass the Senate this week. We have China Phase One. There is a deal with Japan. A deal with Korea. These are all going to have significantly positive effects on the 2020 economy.

JOE KERNEN: Do you foresee the day, and this is an overall philosophical question, Mr. Secretary, do you see the day when the United States and China are walking arm and arm into the future as allies and friends or is this the beginning of a decoupling or a protracted cold war and we’re always going to realize that we’re both vying for global leadership.

SEC. STEVEN MNUCHIN: `I think both sides are trying towards the first. There’s a lot of work to be done on a lot of issues. The economic issues are one of the issues. But I would just say if we get this right, there’s 1-billion 350-million people in China. There’s a growing middle class. If we can open up there economy where we can compete fairly, that will be good for their middle class and that will be great for American workers.

BECKY QUICK: Senator Rick Scott from Florida joined us yesterday. He is not happy with this. He has been a big China hawk for a long time. His point is he thinks human rights should get wrapped into these talks. What do you say to him? Is that likely to happen in Phase Two?

SEC. STEVEN MNUCHIN: Well, first, let me just say, I like the Senator a lot and admire him and have known him for a long time. He’s done a great job as Governor. On this issue, I would just say you have to negotiate different pieces at different times. This was an economic negotiation. There’s also discussions that we’re having with them on national security issues. We have had discussions with them on Iran and our expectations that they will comply with Iran sanctions. I know we have had discussions on humanitarian issues and we’ll continue to have discussions with them on defense issues in the South China sea. So, this is a complicated relationship and there are a lot of issues to address.

BECKY QUICK: But is it fair to assume in the future that the human rights aspect will not get wrapped into economic talks? That that will stay on a separate track with security issues that you’re negotiating in a different frame?

SEC. STEVEN MNUCHIN: That is correct. And you know, just as we have different people internally, China has different people. We’re dealing with the Vice Premiere that’s responsible for economic issues, Secretary Pompeo is dealing with his counterparts on these other issues.

ANDREW ROSS SORKIN: Speaking of Secretary Pompeo, I wanted to get your thoughts on where we stand with Huawei, which has been described by some as a chess piece in this larger Phase Two negotiation. Recently, Secretary Pompeo described Huawei, again, as a national security threat. But also, I’m looking at a comment from Senator Marco Rubio who is supporting a bill to bolster western competitiveness on 5G. And he specifically says we cannot allow Chinese state directed telecommunications companies to surpass American competitors. So, how much of this is about national security and how much of this is about having national champions?

SEC. STEVEN MNUCHIN: Well, let me just say, I don’t view Huawei as a chess piece. What I do think and we have said this repeatedly across the administration: our national security issues are our primary concern. So, when it comes to our government networks, when it comes to sophisticated business networks, military networks and networks of all of our allies, we want to make sure that those networks are fully secure. And that’s fully secure whether it’s China or any other state actor out there. That’s what is important. I would also agree that from a—just a general technology issue, the U.S. has been the leader in technology. You look at this has been a great advantage for the U.S., and I would expect the U.S. will continue to be a leader in 5G. So, there are both issues that are real.

BECKY QUICK: Does that mean that Huawei is not going to be wrapped into these talks? Again, going back to this idea that China has wanted to separate security issues and human rights issues in some cases. But I think in some cases they wanted to wrap Huawei back into these economic talks. Will Huawei be part of the economic dialogue in Phase Two?

SEC. STEVEN MNUCHIN: Huawei is not part of the economic dialogue. It is part of the national security dialogue, which is ongoing. Now, that doesn’t mean at different times I don’t convey messages that are national security issues to them or they don’t convey messages back to us. So, we do have communications on these issues and they’re important. But again, these are going to be negotiated separately.

JOE KERNEN: We talked earlier. Just, philosophically. Again, I like to have you on because, you know, it’s not all just, just analysis hardcore. We were talking about Apple and what we want our role for Apple to be in terms of helping with certain security issues that the United States has.

You’ve seen the latest President Trump would like more help with the Pensacola situation. And then we look at Huawei which we view as kind of an arm of the Chinese government. How do we make sure that we don’t try to really get Apple in the same type of position as an arm of the government here? Why can’t they be totally independent and we take care of our own security? Where do you come down on that, Mr. Treasury Secretary?

SEC. STEVEN MNUCHIN: Well, let me just say, I understand the President’s view and it is absolutely critical for our technology companies to cooperate with law enforcement. T

his is a complicated issue. We’re not looking for our technology companies to be controlled in anyway by the government. We are looking for cooperation and there’s areas where Apple does cooperate and I know there’s ongoing areas of concern that are also being discussed.

BECKY QUICK: Does cooperation include creating an encryption key handed over to the government to use as it chooses?

SEC. STEVEN MNUCHIN: I’m not going to get into the specifics of the conversations.

Beyond Phase One to other foreign policy issues

BECKY QUICK: Let’s talk about where things stand with the Iranian sanctions. The additional sanctions that the Treasury Department handed down. How are those working right now and what have you seen in terms of cooperation from our allies on that front?

SEC. STEVEN MNUCHIN: There’s no question the sanctions are working. There’s no question since the President terminated this agreement. We literally cutoff tens of billions of dollars that would have gone to Iran, that would have supported additional terrorist activities, that would have been used to develop more missiles and more things that could attack our troops. So, there’s no question. The President has been very clear.

He’s prepared to lift these sanctions with two major conditions. One is that they agree they will never have nuclear weapons. And that’s a fully enforceable agreement with inspections. The second is that they deal with the regional terrorist activities, including ballistic missiles. So, the President has been very clear.

This is about protecting our interests and our allies interest in the Middle East. And I have had very direct discussions as well as Secretary Pompeo has with our counterparts. I spoke to several of them yesterday including Bruno Le Maire in France. I think you saw the E-3 did put out the statement and have activated the dispute resolution and we look forward to working with them quickly and would expect that the UN sanctions will snap back into place.

BECKY QUICK: Those two keys that you said have to happen – the idea they will agree to never have nuclear weapons and that they will agree to stop terrorist activities in the region, that seems like a big lift for this particular administration there. Do you think that this something that can happen with the existing regime?

SEC. STEVEN MNUCHIN: I do. I don’t think it’s a big lift. I think there’s a great outcome for the Iranian people. They have the opportunity to have great lives and have a great economy. And I think what we’re asking for is really what every member of the international community wants. So, this is about protecting the United States interests and our allies and peace in the Middle East.

Phase One and how it impacts companies like Apple

ANDREW ROSS SORKIN: I wanted to circle back on Apple and to some degree China can bring those topics together for just a moment. How would you feel if the Chinese government were to call up apple in an instance where they felt that they needed to get access to a phone for somebody inside of China or of an American citizen inside of China using their phone?

SEC. STEVEN MNUCHIN: Again, you’re getting into a very specific issue on a specific company where there are ongoing discussions. So, as I said, I’m not going to comment on the specifics of this at this point.

JOE KERNEN: We’re headed for a trillion dollar deficit again. Up about -- in the past three months, almost 12% from a year ago. Is it a one off because of defense spending? Record revenue but the spending is still putting us in that position. Rates are low and inflation is low.

And I’m not saying that it -- you know, it’s going to hurt us immediately. But do you think about that, Mr. Treasury Secretary, and the next three or four or five years? And I think once you said you might set a record for how long you stay at Treasury Secretary – you said 12 or 13 years which would be crazy if you did.

SEC. STEVEN MNUCHIN: Actually, I’m glad you asked me the question but the record is 13 years. I don’t think I’ll break it.

JOE KERNEN: You said it was possible.

SEC. STEVEN MNUCHIN: We’ll see. But let me comment on the deficit because I think this is important. First let me just say I’ll stand by my previous comments that the tax cuts will pay for themselves over a ten-year period. We had two years of actuals. We’re tracking exactly on our two-year average. So, in the first year the revenues didn’t go up quite as much as we expected because there was more expensing, which is actually a good thing, and in the second year the revenues went up more than we thought. So, we’re tracking our projections.

Now the President was very interested in military spending, to get military spending, we had to agree to nonmilitary spending. I think the deal with Speaker Pelosi and I negotiated will have bipartisan support. We got the debt ceiling extension and two-year deal on spending which met a lot of priorities. I think at this point this economy can handle these deficits.

But there’s no question, over time we need to look at these government spending issues. We can’t continue to increase government spending at the rate that we are. That’s really the cause of the deficit. It’s not the tax cuts or anything else. We’re actually having our tax revenues actually growing up on a very healthy basis as a result of what is a very strong Trump economy.

JOE KERNEN: Would entitlements be beyond the agenda or reform in the second Trump administration, Mr. Secretary?

SEC. STEVEN MNUCHIN: All I’m going to say is that we talked about there needs to be bipartisan review of government spending and that’s something at the appropriate time we’ll look at. Overtime we have to deal with the deficits. But right now have bipartisan support on what we’re doing and the defense numbers were very critical to this President.

BECKY QUICK: Secretary Mnuchin, thank you for being so generous with your time today. We do appreciate it.

SEC. STEVEN MNUCHIN:  Thank you as well. I don’t think I’ll break it.

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