WHEN: Today, Friday, March 9, 2018
WHERE: CNBC’s “Squawk Alley”
Following is the unofficial transcript of a CNBC interview with U.S. Treasury Secretary Steven Mnuchin on CNBC’s “Squawk Alley” (M-F 11AM-12PM) today, Friday, March 9th.
Reputed short-seller Spruce Point Capital Management released its latest short report this week. The firm is shorting Canadian dairy and grocery manufacturer Saputo. Spruce Point chief Ben Axler believes the company is entering a phase of declining growth and highlights the financial stress and growing challenges he sees it facing, not only in Canada but Read More
Treasury Secretary Mnuchin reacts to tariffs and strong jobs report
David Faber: all right. Yes. We are joined by the man we’ve been mentioning very often. Of course, Steven Mnuchin is the treasury secretary of the united states. He joins us at post 9. Nice to have you .
Steven Mnuchin: great to be here.
David Faber: trade is what we’ve been spending a the lot of time talking about. That and a very strong jobs report, which I’m sure you want to talk about. But let’s start on trade if we can. You’ve been addressing some questions on an even prior to the proclamation of yesterday and you most recently had said that you were comfortable that we’re going to manage through this, that being the tariffs, so that it is not detrimental to our growth projections for economic growth.
Steven Mnuchin: that’s correct.
David Faber: why are you comfortable?
Steven Mnuchin: as we talked about from the very beginning going back to the campaign, the president’s number one objective is to create economic growth. 3% sustained gdp. A year ago we had everybody saying we’d never get to that. We’ve now had two quarters of 3% or higher. So we’re well on our way. We got tax reform done. That was the first step. It was a big part of this. But we’ve been doing — we’ve been talking about trade from day one that’s part of this. And the objective is free and fair trade. So the president is very focused on creating better opportunities for u.S. Companies and that’s going to lead to more growth. So we’ve had very direct conversations with china. That’s obviously our biggest trade deficit. We’re very focused on nafta. So the president is very focused on — just as we were during tax reform and making sure that american business was competitive on taxes, now making sure we have a fair deal on trade.
David Faber: but what gives you the confidence that there won’t be delitirious effects from tariffs like this? Not just on the end users of the products and the potential for the price going up. But more importantly, as many discussed, the possibility of our allies in this, for example, the eu or china, not an ally necessarily, responding in kind and, therefore, an escalation of a trade war perhaps, that really does impact the economy.
Steven Mnuchin: obviously any time we do this we have to analyze the risks any time we do anything we have to analyze the risks. But if you want to move forward with the agenda for American companies, you have to be willing to take certain risks. And I would say let’s look at this situation with North Korea. The president went through with a series of maximum pressure. We have done more sanctions in the last year than the entire last ten years. And those sanctions worked. So we’re now sitting with a situation where north korea’s prepared to negotiate. It’s the same thing with our trading partners we have to defend the u.S. Interests. So tariffs are important to preserve the steel industry. We have already exempted out canada and Mexico. I can tell you I have had many conversations with many of my counterparts. We have two ways of doing exemptions. So, the president can do exemptions and my expectation is there may be some other countries that he considers in the next two weeks. And then to the extent that there are specific products that are going to create issues, the secretary of commerce has that authority and he will be publishing regulations very quickly on how those products could be exempted.
David Faber: at the end of the press conference, as the president was exiting the room, he was asked one question about transshipments. And he did indicate we would deal with that. What did that mean?
Steven Mnuchin: well, we’re very clear in our discussions starting with canada and mexico that if we’re going to exempt them, we’re not going to allow them to transship chinese steel. Having said that, in the case of canada, we have very good two-way trade of steel going back and forth and actually you had Bill Morneau on this morning and he commented which I would also say we spoke several times in the last week already.
Jon Fortt: secretary, the president made a statement near the end of his remarks, I believe, that raised a few eyebrows. He seemed to be referring to nato saying that some of our allies or so-called allies treat us the worst and over the next couple weeks well be looking alt military spending as a factor in how these exemptions might work. Can you explain how those two things are related?
Steven Mnuchin: well, the president’s going take into many considerations when you look at national security but, you know, the president’s been very clear. We’re spending 4% of gdp many of our allies are spending 1% of gdp and not making commitments to go up to the 2% so the president is very clear he — if we’re in nato, he wants to make sure that nato gets more money so that nato can protect all of us and fulfill its goal
Jon Fortt: do you have any reservations about tying a couple of issues like that together? Because some trade experts kind of weary of tying outside issues to trade that way.
Steven Mnuchin: look, I understand. But one of the great things is this is not a conventional president. And because of that, we’re getting results that we wouldn’t have otherwise seen. So we have to go back to tax reform. A lot of people said we would never get tax reform done. A lot of people said the u.S. Economy could never grow at 3%.
David Faber: it did grow — there were quarters it grew 3%. To be fair.
Steven Mnuchin; there were. No. But I’m saying there are a lot of people that still believe that we cannot get to 3% sustained growth and you’re right, we’ve had several quarters we’re not there yet. And that’s why we still have a lot of work to do.
Michelle caruso-cabrera: one more on trade theres not one but two editorials in the “Wall street journal” today, hardly liberal outlet, which say that the present moment is dangerous. The departure of gary cohn, someone that is pro free trade and the situation with the tariffs that they worry about him driving into the herbert hoover ditch s this a dangerous moment?
Steven Mnuchin: first of all on gary, gary and I worked together for a long period of time I like gary a lot. Were sorry to see him go. We have a very deep economic bench. Gary wasn’t the only person talking about trade. We’ve had a lot of economic analysis from kevin hasset and others I can assure you that president trump is going to be no herbert hoover so there is no risk. But, you know, look, “The wall street journal” is part of the classic free traders which don’t want to do anything to interfere with trade. And as the president said, he’s a free trader but, you know, why do we have the trade deficits? Why is it fair that china gets to sell anything they want into the united states other than things we block for national security while on the other hand, we can’t sell into their markets. Our cars have a 25% tariff going into china. Their cars have a 2.5% tariff.
David Faber: I’m still wondering what cars are we talking about from china by the way. I mean not a lot of americans are buying chinese cars.
Steven Mnuchin: not now. But trust me, they’re very focused on electronic cars electric cars. And they intend to be a big competitor so I mean we just use that as an example of where, you know, again, we can’t sell cars into china with 25% tariffs.
David Faber: understood. The focus on china, of course, is understood. It’s interesting you took it to electronic vehicles and their advances when it comes to technology which leads to my next question. We’ve been covering it closely here, the fight between broadcom and qualcomm. Broadcom a company that wants to take over qualcomm.
Steven Mnuchin: yes, I know them well, as you know.
David Faber: I just want to make sure for our viewers. We’re changing subjects here a bit. Treasury is part of the cfius review you chose to put out a four page letter earlier this week that was somewhat extraordinary outlining the potential objections that treasury as part of cfius has to broadcom’s potential acquisition of qualcomm related to 5-g, new technology advances the chinese may make. Why are you potentially opposed to that deal?
Steven Mnuchin: I want to be careful with what I say but I will comment broadly on it which is cfius is a very important set of tools that we have to protect national security I chair cfius. It’s an interagency process. And traditionally people think of it as very secretive. The reason why it’s viewed as secretive, we get a lot of confidential information we obviously cant share that information. We go through the process and at the end of the process one of two things normally occurs we normally tell the company that if they’re not going to get approval or not going to get approval and they can voluntarily withdraw a transaction and we won’t publicize that if the company refuses to do that, I have to send the transaction to the president and he signs it. And as I tell most of these companies, I can pretty much assure you that there’s a very, very high likelihood. So traditionally you don’t see a lot of publicity.
David Faber: which is why this was somewhat extraordinary. You did list a lot of the potential objections and concerns?
Steven Mnuchin: this was a unique situation. We did come out publicly where we dont normally do that. Im not going to comment on all the specifics of why we did that but this was a unique situation. And I, as the rest of the committee are fully prepared to use our powers to protect national security.
Caruso-Cabrera: so that deal is dead?
Steven Mnuchin: I’m not commenting on whether that deal is dead or not what we did come out and say is effectively that the board vote should be postponed while cfius could review additional information.
Jon Fortt: Mr. Secretary, I’m wondering whether there are other companies whose intellectual property and strength in r&d investment perhaps even a relationship with the u.S. Government put them in a similar category as qualcomm. You mentioned intel’s r&d investment in that letter but there are other companies like Microsoft, oracle, even apple that have certain assets where can you imagine if ios or certain chips fell into the hands of a country that U.S. wasnt comfortable with, it could potentially cause issues. Do you look at some other companies or might you look at other companies from a ficus perspective in a similar way.
Steven Mnuchin: to the extent that there is any proposed transactions on a significant technology company, I can assure you it will most luckily come under cfius jurisdiction and will be reviewed carefully.
Jon Fortt: but from a national security perspective, should we be thinking of technology companies, powerful technology companies based in the u.S., as more potential national security assets?
Steven Mnuchin: again, a lot of these issues have to deal with classified information, so I want to be very careful what I say. But again, broadly, you can assume that technology companies have significant national security interests to the united states’ government.
Caruso-Cabrera: but when we put together solar panels, washing machines, broadcom, qualcomm, steel, and aluminum, this is not a more protectionist administration?
Steven Mnuchin: very different situations. Again, let me just be clear, cfius is a national security issue. It has nothing to do with trade or anything else. So I don’t think you should in anyway put those in the other situation.
David Faber: but it does have to do with the concern about china potentially stealing our intellectual property. I mean, huawei was focused on in the treasury letter. And I know the ustr right now has a section 301 investigation of chinese trade practices or stealing of our intellectual property. Is that going to be the next battle ground, do you think, when it comes to trade?
Steven Mnuchin: that is something we’re discussing internally. We’ve updated the president on this. I think, as you know, I met with my chinese counterpart liu he last week, we had very good discussions for two days. I met with the chinese ambassador yesterday, so I can assure you on the trade areas, we’ve — we’re having very direct discussions. You know the president came out and said that our objective is to see them reduce the trade deficit by $100 billion over the next year. So we’re having very direct discussions. And we hope to make progress with them.
Caruso-Cabrera: speaking of –
David Faber: do you think the tensions with china though are bound to heat up given those investigations, given the move on tariffs yesterday?
Steven Mnuchin: I think the good news is president trump and president xi have the best relationship of any two presidents in the history of the u.S. And chinese relationships. So I think there is very good communication. And at a high level, president xi and others have acknowledged that it’s their objective and in their national interests as well, to work with us to reduce the trade deficit.
Caruso-Cabrera: speaking of direct discussions, president trump agreeing to sit down with kim jong-un sometime in the next two months. Already there are criticisms that the president shouldn’t be giving leader of north korea that kind of platform and that kind of standing. Why is this a good idea?
Steven Mnuchin: you know, I find it incredible, okay, how people comment on these things. We had the president through his leadership had the most direct and forceful impact on instructing me to do sanctions and come together of a pressure maximum pressure campaign against north korea. He was criticized because we were putting too much pressure on them. We worked very closely with china and our allies and the u.N. We had multiple resolutions. The president as you know is determined that there won’t be nuclear weapons on the peninsula. I think this is a very important movement forward that they were willing to say that they’ll stop the testing and that they’re willing to have discussions. So I view this as something that, you know, this is what we want to see in terms of movement going forward. But the president is also had also said that there is no sanctions relief while we’re having those discussions. So I find it hard to believe that the people who criticized him for putting on too much pressure are criticizing him for talking. It’s a bit amusing.
Jon Fortt: mr. Secretary, I want to get to this jobs report that’s got the market rallying this morning as well. Jeremy siegel just a few moments ago basically saying it hit the sweet spot. How much attention should we be paying to the participation rate versus some of the other positive factors that – you know, the upward revision in this jobs report?
Steven Mnuchin: well, you know, I’m glad you mentioned that. And let me first put this in perspective. I think all these numbers are important, but we do have to look at them and we want long term benefits. One of the things that I thought was good about the report this morning is the participation rate increased. So one of the things we’ve been talking about, everyone has said, aren’t you concerned about inflation given we’re at full employment and given the tax cuts and the growth and the economy? And my comment is we’re not really at full employment because of the participation rate. So I’m pleased it ticked up a little bit. That’s a number that I’m very focused on. I was at jet blue this morning meeting with the workers who had the benefits of the tax cuts. And one of the things they talked a lot about was job training and how to bring people into that industry early on. So I mean, I think one of the issues with the participation rate is we got to create more jobs. But we’ve also got to make sure we have the proper training for people to have the jobs.
David Faber: continued debate, of course, about just how much economic growth will be generated by the tax cuts. This week at harvard, you had a conservative economist robert barro and jason furman, a to the left economist, both come out and say we agree about $1.2 trillion in debt will be generated as a result. You obviously disagree with that, but how do you rebutt the claims from two people from opposite sides of the spectrum?
Steven Mnuchin: I acknowledge they’re smart people that don’t agree with us. Okay. But what I would say is we fundamentally think we’ll get the growth. If we get the growth, we’ll pay for it. So it’s a cause and effect. And what I can tell you from traveling around the country and meeting with not just ceos but the workers, we’re seeing this in the tax plan. We’re seeing the fact that moving from a worldwide system to a territorial system is making u.S. Companies competitive. When I was in davos, you know, we met with many companies that are now talking about putting operations in the u.S., building things here. There’s no question, you know, one of the single biggest parts of the tax plan was changing a broken system. Worldwide taxes deferral. I’m going to see apple next week and meet with their workers. As you know, they’re bringing back a ton of money into the u.S. Tim cook’s made very big commitments here. So we’re already seeing this working and already seeing workers get the benefit of this. Let me tell you, for the jet blue workers I met with today, they were very excited to get $1,000 bonuses.
David Faber: I’m sure.
Caruso-Cabrera: broad agreement on the tax cuts making us more competitive, but then a lot of economists said, wait, tax cuts but then there’s also this big increase in spending. The people who fret about all that treasury supply that’s going to come on in the next year, by large amounts, I mean rick santelli is going to be incredibly busy with all of these auctions, we shouldn’t be worried about rising interest rates because there is so much supply of this stuff coming on?
Steven Mnuchin: well, as you know, the forward curve expects rates to go up. So, again, without predicting rates, the market expects rates to go up. The question will be do they go up faster and further than the market predicts? And given my view of fed independence, I’m not going to make any comments on that.
David Faber: mp. But you’re issuing enormous amount of debt, mr. Secretary.
Steven Mnuchin: I think we’re very comfortable with our financing needs. We’re very comfortable with how we’re going to look at it across the curve. So we’ve extended the maturities quite significantly over the last few number of years. But I would acknowledge longer term we do have to look at the debt. The fact that the debt went from $10 trillion to $20 trillion in the last eight years is concerning. The president said a lot of that money was spent in the middle east. So those are issues we’re going to have to look at longer term.
Caruso-Cabrera: and you don’t worry about the chinese? If we talk more about trade, they’re such big buyers of treasury, those two issues conflat, they do a buyer’s strike and —
Steven Mnuchin: as I look at the treasury holdings all around the world, they’re very diversified. I’ts the most liquid market in the world. So I’m comfortable with our financing needs.
David Faber: and finally, with mr. Cohn’s departure, any sense as to who will replace him? Is your voice one of the lone voice that is not protectionist in the white house?
Steven Mnuchin: again, the president is not a protectionist. The president believes in fighting for fair trade. But we already have a lot of people who have volunteered for the job. We’ll look at this carefully as we looked at the fed jobs and other things and making recommendations to the president.
David Faber: fairly soon you think?
Steven Mnuchin: we’re going take our time. So we’ve got a good team and we’ll look at all the appropriate people.
David Faber: Mr. Secretary, thank you for spending time with us.
Steven Mnuchin: thank you very much.
David Faber: we appreciate it. Steven Mnuchin, treasury secretary of the united states.
For more information contact:
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, and CNBC World, CNBC is the recognized world leader in business news and provides real-time financial market coverage and business information to more than 409 million homes worldwide, including more than 91 million households in the United States and Canada. CNBC also provides daily business updates to 400 million households across China. The network’s 15 live hours a day of business programming in North America (weekdays from 4:00 a.m. – 7:00 p.m. ET) is produced at CNBC’s global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC at night features a mix of new reality programming, CNBC’s highly successful series produced exclusively for CNBC and a number of distinctive in-house documentaries.
CNBC also has a vast portfolio of digital products which deliver real-time financial market news and information across a variety of platforms including: CNBC.com; CNBC PRO, the premium, integrated desktop/mobile service that provides live access to CNBC programming, exclusive video content and global market data and analysis; a suite of CNBC mobile products including the CNBC Apps for iOS, Android and Windows devices; and additional products such as the CNBC App for the Apple Watch and Apple TV.
Members of the media can receive more information about CNBC and its programming on the NBCUniversal Media Village Web site at http://www.nbcumv.com/programming/cnbc.