Steven Mnuchin On Canada Trade Agreement: Not Many Sticking Points Left

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CNBC Transcript:  U.S. Treasury Secretary Steven Mnuchin on CNBC’s “Squawk Box” Today

WHEN: Today, Tuesday, August 28, 2018

WHERE: CNBC’s “Squawk Box”

Following is the unofficial transcript of a CNBC interview with Treasury Secretary Steven Mnuchin on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, August 28th. The following is a link to video of the interview on

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Treasury Secretary Steven Mnuchin on trade, tariffs and the US economy

Becky Quick: for the moment, the ball is in Canada's court. The united states reaching a preliminary deal with mexico with president trump’s request to revamp NAFTA. Right now attention turns north to negotiations with Canada. Joining us to talk about that is u.S. Treasury secretary, Steven Mnuchin. Mr. Secretary, thank you for being here today. We know that the agreement with Mexico really centers on the auto industry, just in terms of rules of origin and potential for pay in 40% to 45% of what has to go into these cars. What happens now with Canada? How firm do you think that these negotiations will be, and do you think something can wrap up this week?

Treasury Secretary Steven Mnuchin: well, I do. But let me first comment because there’s been obviously a lot of focus on autos. But these changes are much more than autos. This is about autos, this is about intellectual property, this is about agriculture, this is about better deals for financial services, currency transparency and greater market access for our companies. So this is really -- we did what the president’s objectives were, which was to rebalance the relationship, to modernize it and create more market access. And now we’ll turn to Canada and hopefully we’ll get Canada onboard.

Quick: where are the biggest sticking points with Canada right now of that list of things that you just laid out?

Mnuchin: well, I don’t anticipate there’s going to be a lot of sticking points. I think that ambassador lighthizer has done a terrific job over the last year working on details. We’ve made a lot of progress with Canada, coming along on a lot of those and hopefully they’ll come onboard. But if not, we’ll move forward with Mexico. This is a great move forward for trade.

Quick: let’s talk about what happens if Canada is not part of the deal. The president laid it out very clearly that he’s ready to move on and just have a U.S./Mexico agreement. Is that something that you think could get approved by congress?

Mnuchin: I do. I mean, I think our objective is to try to get Canada aboard quickly, but this is a great deal for American workers. If you remember one thing, this deal is about more trade for U.S. Companies in goods and services. And that’s what -- that’s what we’re focused on.

Quick: what would you think – I know you think that there’s been a lot that’s been already kind of cleared out with Canada. We have had some optimistic guests earlier this morning who have joined us to say that they think a deal can get worked out by Thursday or by Friday, but of all the issues right now, I mean what do you think is going to be potentially a problem? Is it agriculture, because that’s been such a huge sticking point between the United States and Canada?

Mnuchin: well, I’m not going to speculate on any one issue. What I would say is the u.S. Market and Canadian markets are very intertwined. It’s important for them to get this deal and it’s important for us to get this deal. So I think we’ll be successful. But again, if we don’t, we’ll move forward with Mexico and then we’ll reach a separate agreement with Canada. So this is really about a trade win, this is about the president’s economic agenda that we’ve been very clear from day one, tax reform, regulatory relief and trade. And this is the first major component of the trade agreements.

Quick: was Mexico able to walk out of this negotiation and feel like they got anything on the other side? I heard the long list of what we got.

Mnuchin: absolutely. I think this is a win-win for Mexican workers, labor prices. I think this is good for Mexican workers. I think it’s good for Mexican companies. It creates certainty around trade between Mexico and the U.S. And I think we look very much forward to working with the new government on their priorities.

Quick: some market analysts have looked at this and said, “great, if we can get a deal done with Mexico, bring Canada into that, wrap that up in quick succession and then we can move on to talks with china.” but others say, “wait a second, maybe what we’re doing is lining up our friends and allies so we can take a tougher stance when it comes to china.” what’s the more accurate representation of what you think is happening?

Mnuchin: well, our objective, and we’ve put them in three categories: the first was really NAFTA, the second is dealing with the EU, which we are making progress on, and the third is china. And we’ve been very clear, we need better market access to China, we need reciprocal trade. And these are issues that our allies in the g7 agree with us on. We need better protection for intellectual property. We need to make sure that we have reasonable access into their markets. This can’t be a one-way transaction where they have free trade here and we have no trade there.

Quick: if we are successful in wrapping things up with Canada by Friday and moving ahead with NAFTA, what’s the timeline for Europe and then the timeline for china? How do you see things playing out?

Mnuchin: well, as you know, these are complicated issues. We are progressing on the EU conversation, so since President Juncker was here we’ve made progress on those conversations and will continue to do so. I think china had a team here last week. These are not issues that are going to be resolved in any one or two meetings, but if they’re serious about the types of commitments they were talking about, then it’s a move in the right direction. But we’ve heard these issues before so it can’t just be talk, it has to be follow-through as well.

Wilfred frost: Secretary Mnuchin, after this talk last week the Chinese have stemmed the fall in the yuan late last week and early this week. Was that something you pressed them to do? And do you welcome that move?

Mnuchin: we do. One of the top issues we discussed was the currency. As part of any deal, we would want to make sure that they support their currency. We’re not going to have a situation where we pick up gains in trade to only lose them in currency devaluation. And as part of the NAFTA deal, for the first time we have a very strong currency chapter that talks about currency transparency. So this is something we’re very much focused on in all of our trading relationships.

Joe Kernen: so if they manipulate it stronger, it’s okay. It’s the way we’d like them to manipulate so we don’t call them a manipulator if it’s in the direction that favors us? Where are we on whether we do declare china as a currency manipulator, because it seems that they did some manipulation last week?

Mnuchin: well, if you look at what’s going on in the currency, and you are correct, to the extent that they go in and support the currency, and again, this is something -- their currency is more of a controlled currency than other markets that are completely free access but if they go in and support their currency, that is not currency manipulation. If they let their currency weaken, either for structural reasons or for actual manipulation, that is something that’s manipulation and, again, this is one of the important issues. But let me just say there’s lots of important issues. We need to make sure our technology is protected, we need to make sure our companies aren’t forced into joint ventures, and we need to make sure we have fair market access. That’s what this is all about. So that we can have a level playing field for our companies and our products.

Frost: secretary Mnuchin, what you’re trying to achieve with china, both the starting point and where you’re trying to get to, sounds like much bigger structural changes than the adjustments that you’ve made with Mexico, which even still took a full year. How optimistic are you that something can be agreed that’s palatable to you and the president? And if it’s not, how much pain are you willing to inflict on the Chinese economy? Do you think their economy is already starting to feel a bit of pain? And are you willing to push them to the brink, if necessary?

Mnuchin: well, if china just signed on to the same Mexico agreement, we’d have no problem. And we’d have a surplus with china so these are –

Frost: but they’re not going to do that.

Mnuchin: these are not complicated issues. But they’re not going to do that, but they have to open their markets. That’s what this is about. As the president said, it’s not just about buying more soybeans, but we’re happy for them to buy more soybeans. This is about structural changes that create fair market access.

Frost: and would you be content to push them into a recession, if necessary, and cause serious harm to Chinese workers?

Mnuchin: we’re not looking to do harm to them, we’re looking to create benefits for our workers. So, the tariffs are about protecting our companies and about protecting our workers. It’s not looking to have impact on their economy. But they have grown off of our workers and our companies and that’s something the president is very focused on. He wants a fair, reciprocal relationship. I think that’s something that’s pretty simple. It’s something that other countries in the g7 feel the same way about. And the good news here is a lot of people questioned whether we’d get a deal with Mexico, we got it. We’re now dealing with Canada, the EU, and we’ll simultaneously work on what we call WTO 2.0 to bring -- modernize the world trade organization into the 21stcentury, and that’s something that I’ve been speaking to my counterparts, ambassador lighthizer has done a phenomenal job speaking to his counterparts, and I’d also just say, Jared Kushner was terrific in managing these issues with Mexico as well.

Kernen: Mr. Secretary, did you listen to Jay Powell comments last week?

Mnuchin: I did read them.

Kernen: so is he -- can you give us a little color on how you felt -- we had Bullard on here saying don’t mess with the yield curve. He almost sounded like he thought we were at neutral already. I don’t think that’s what Jay Powell was saying. Do you think we’re already at neutral and would you persuade Chairman Powell not to raise rates any more? Do you agree with the president in that respect?

Mnuchin: well, I think, as you know, as treasury secretary, I respect the independence of the fed. I meet with jay powell on a weekly basis. We talk about a lot of economic issues. It would be inappropriate for me to comment on interest rates in that position. But what I would say is I think jay has been a phenomenal leader at the fed. I think he understands the issue of growth and he’s carefully monitoring the growth numbers and the inflation numbers. And we’ll see. I, for one, am not at all concerned about the yield curve. I don’t think that’s a predictor of economic growth. I think it’s a market condition. And for now having a flat yield curve with us issuing long-term debt is something we’re perfectly content with.

Kernen: but as rates go up, you know the dollar gets stronger. You prefer a weaker dollar, I’ve been told, in the past.

Mnuchin: I’m not going to comment on the dollar. I’m not falling for that one this morning.

Kernen: you’re so ready --

Mnuchin: I was close. It was a nice try.

Kernen: I take it back. I’m not saying – you -- there was that one time when you may have -- your body language may have intimated that maybe you’d be comfortable with a lower dollar and you’re not going to go there again. But I think --

Mnuchin: I thought at that time I gave a rather balanced comment on the dollar, which people interpreted because it was balanced, it was different than previous treasury secretaries. But I’ll leave it at that.

Quick: alright well, let me ask you this: what you just said is that you think we shouldn’t fear an inverted yield curve or something that’s happened with this and other people could interpret that to say you’re okay with rates being raised again. That it’s okay.

Mnuchin: no, you shouldn’t interpret that’s what I’m saying at all because I’m not commenting on rates. What I’m saying is that the shape of the yield curve itself is not something that I’m at all concerned about. The shape of the yield curve could be because of people -- the market’s projection of where rates are in the future and perhaps the market thinks that we’re gonna have a lower end point on rates. So I just -- I don’t think it’s something that we need to be so focused on. What I think we need to be focused on is great economic growth in this country. The fact that we’ve had 4% GDP, the fact that we’re going to be over 3% for the year. We are delivering on what was the president’s economic agenda about creating growth. I’d also just comment on wages are going up. I know some people comment that the numbers don’t show that, but let me just say with new people coming into the workforce at lower wages, that’s going to show on a gross level some different things, but wages are going up on same people. And the president is delivering on his economic plan. That’s what this is all about.

Frost: secretary Mnuchin, this morning UK Prime Minister Theresa may said in africa that a no deal Brexit wouldn’t be the end of the world. Do you agree with that and do you in fact welcome a sort of no deal from the UK side because it might allow you to do a fuller free trade deal with the UK?

Mnuchin: well, we are very much ready to do a free trade deal with the uk. So whenever they’re ready, as president trump has said, they’re at the front of the bus, not the back of the bus. They’re a great ally, they’re a great trading partner in financial services and goods, and we welcome more opportunities for u.S. Companies and u.S. Companies more trade.

Frost: it took you a year with Mexico. How quickly could this be pulled together after march 2019 when the uk leaves, a month, a year, how long?

Mnuchin: well, I’m not going to speculate, but, again, I would say we have a lot of similarities in the u.S. And uk markets that I think should allow us to do a quick deal.

Quick: I realize that in the month of April, the united states saw the largest-ever monthly budget surplus because individual tax receipts skyrocketed. What have we seen in the months since then?

Mnuchin: you know, the thing about the tax receipts, and we should be very focused because this obviously is a good thing as we see trillions of dollars coming back. But I wouldn’t be too short term focused on the numbers because as you know with automatic expensing, which creates enormous capital investment, that’s going to have a negative impact short term on taxes. So our tax plan was really designed to stimulate the economy and get growth. So we’re humming along on what our projections are. As I’ve said, at 3% economic growth, this tax plan will not only pay for itself but will create additional revenues for the government.

Kernen: but secretary, do you ever think about entitlement reform? Does that ever come into your aura in terms of -- and I’m just talking about I mean, deficits are rising. We’re -- not just from the last year and a half, but you saw what happened in the previous eight years. So we’re at a pretty big number and I never hear any talk about entitlements anymore. That’s where most of the spending is. Do you have a plan? Will it ever be on your plate? Maybe after the next election? Or --

Mnuchin: well, we do talk about deficits and it is something longer term we’re focused on. The first phase was to create growth. The next phase will be responsible on the deficit side. I think as you know the president was very focused on getting military spending. It was very important. That was a big strategic issue. And to get that, the democrats required an enormous increase in non-military spending which longer term we can’t afford. So we will be looking at deficits. But the good news is that the economic growth of the tax plan will create a lot of revenues to help reduce this over time.

Quick: Mr. Treasury Secretary, we appreciate your time today. Thank you for joining us.

Mnuchin: thank you.

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