Wilbur Louis Ross On The Trade Deficit With China [CNBC Full Interview]

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CNBC Transcript: Commerce Secretary Wilbur Louis Ross Jr. Speaks with CNBC’s “Squawk Box” Today

WHEN: Today, Thursday, January 24, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a CNBC interview with Commerce Secretary Wilbur Louis Ross Jr. Speaks with CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Thursday, January 24th. The following is a link to video of the interview on CNBC.com:

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JOE KERNEN: For the latest on the trade tensions with China and other issues, let’s welcome U.S. Commerce Secretary Wilbur Ross. Were you originally in the group Headed over before it was Canceled, Mr. Secretary?

WILBUR LOUIS ROSS JR.: Yes. Oh, yes, for sure.

JOE KERNEN: Yes, and it had been duly noted that the United States not sending one and many, many of the other countries-- that there is a paucity, if you will, of government officials here. So we are left to our own designs. And I can tell you, there’s bloom and doom over here, Wilbur. Do you think it’s warranted?

WILBUR LOUIS ROSS JR.: Well I don’t think that it’s warranted in terms of the U.S. because our economy continues very, very strong. There are some problems, some economic problems, developing in Europe, in China and in Japan. You’ve been seeing those in the recent statistics.

JOE KERNEN: Wilbur, it was – what day is it? -- today is Thursday. You saw market selloff on the word that there were problems with the upcoming trade talks with China. One of your co-workers, if you will, in the administration, Mr. Kudlow came on and dispelled some of those rumors. Can you give us the latest on where everything stands with the upcoming talks with China?

WILBUR LOUIS ROSS JR.: Well, where things stand is that there is a very large delegation of Chinese, about 30 people, coming over for a couple of days, 29th and 30th, next week. So there is a large group coming. There has been a lot of anticipatory work done. But we’re miles and miles from getting a resolution. And frankly, that shouldn’t be too surprising trade is complicated there are lots and lots of issues. Not just how many soybeans and how much LNG, but even more importantly, structural reforms that we really think are needed in the Chinese economy. And then even more important than that, enforcement mechanisms and penalties for failure to adhere to whatever we agree to.

JOE KERNEN: And complex enough to where anyone that’s been paying attention knew that it would be impossible to get a completely final deal wrapped up by the time that we get the deadline. So what’s the best we can expect – I mean I guess portions of things could be decided on, but then it’s going to be -- we’re going to meet for a longer period of time, and push out to another date trying to get a more complete – you know, to try to take care of other things you just talked about. Is that what we should expect?

WILBUR LOUIS ROSS JR.: Well, remember, we have until March 1st. That’s when the new tariffs are supposed to go in, the increase from 10% to 25%. So there’s quite a little bit of time between now and then to judge just where do we stand, is it worth going forward or have we reached an impasse?

BECKY QUICK: Secretary Ross, I’d like to ask you about the government shutdown. And I realize you’re not responsible negotiating this on either side, but you’re the only person that we have coming from Washington, anybody from the administration or either side of the aisle on this, so I am going to bring it up today. Because there was some disturbing news that came out earlier today. This is something from the National Air Traffic Controllers Association along with the airline pilots and flight attendants. They put out a statement that said: “In our risk averse industry, we cannot even calculate the level of risk currently at play, nor predict the point at which the entire system will break. It is unprecedented. Air traffic controllers, transportation security officers, safety inspectors, air marshals, federal law enforcement officers, FBI agents, and many other critical workers have been working without pay for over a month. Staffing in our air traffic control facilities is at a 30-year low and controllers are only able to maintain the system’s efficiency and capacity by working overtime, including 10-hour days and six-day work weeks at many of our nation’s busiest facilities. Almost 20% of (Certified Professional Controllers) are eligible to retire today. There are no options to keep these professionals at work without a paycheck when they can no longer afford to support their families. When they elect to retire, the national airspace will be crippled. The situation is changing at a rapid pace in an air safety system that is deteriorating by the day.” That’s incredibly concerning to hear. Do you worry about safety at this point?.

WILBUR LOUIS ROSS JR.: Well, I do worry about safety. And it’s kind of disappointing that the air traffic controllers are calling in sick in pretty large numbers. Depending on the week –

BECKY QUICK: Many of them can’t afford to support their families, though.

WILBUR LOUIS ROSS JR.: Well, remember this, they are eventually going to be paid. The president signed that into law—

ANDREW ROSS SORKIN: Mr. Secretary, but they’re – but many of these people need -- Mr. Secretary, many of these workers clearly need the paycheck on a week-by-week basis. They’re not, frankly, in my shoes, nor in yours. Nor in yours.


ANDREW ROSS SORKIN: So the question is, is this battle and fight at this point in the ball game worth it? Meaning, is the debate over everything else that the administration is fighting for worth more than the risk that’s being taken on at the moment and the affect it’s having on families of federal workers?

WILBUR LOUIS ROSS JR.: Well first of all, the banks and credit unions should be making credit available to them. When you think about it, these are basically government-guaranteed loans because the government has committed these folks will get back pay once this whole thing gets settled down. So there really is not a good excuse why there should be a liquidity crisis. Now, true, the people might have to pay a little bit of interest. But the idea that it’s paycheck or zero is not a really valid idea. There’s no reason why some institution wouldn’t be willing to lend. And indeed we’ve heard tales of some of the –

ANDREW ROSS SORKIN: So it should be put on the private sector? The private sector needs to step up where the public sector can’t?

WILBUR LOUIS ROSS JR.: No. What I’m saying is there have been ads run by a number of the public-sector credit unions, which are member organizations of the people who work in the departments. Those have announced very, very low interest rate loans to bridge people over the gap. That’s the kind of cooperation between financial community and employee that really is warranted. It’s a totally safe loan because at the end of the day it’s 100% government guarantee.

JOE KERNEN: Hey Wilbur, I don’t want to make too much out of 70 or 80 points, but there’s the S&P. But if we look at the Dow futures, we were up about 40 or 50 when we started, we’re now in negative territory. And, we, at the bottom of the screen we were quoting you, “miles and miles” to go before we have any type of agreement with China. Did you plan to come on to temper expectations? Is that a different tone than we would have been hearing from the administration over the last few days? Is something -- is it posturing? Are we trying to extract more? Is that a change, any change at all, from what we would have heard from the president, for example?

WILBUR LOUIS ROSS JR.: No. No. I don’t think so. I believe that China would like to make a deal. I believe that we would like to make a deal. But it has to be a deal that works for both parties. And all I’m trying to do is to say: people shouldn’t think that the events of next week are going to be the solution to all of the issues between the United States and China. It’s too complicated a topic. Too many issues. It’s not a realistic expectation. That’s different from saying that we won’t get to a deal. I think there’s a fair chance we do get to a deal.


BECKY QUICK: Fair chance that we get to a deal or, I guess let me ask this way, too. Just the idea of tariffs doubling come March 1st or March 2nd, that’s what I think would surprise a lot of people. Would you advocate not raising the tariffs even if we don’t have a completed deal if it looks like you are on track to getting towards a deal at that point?

WILBUR LOUIS ROSS JR.: Well, I think it’s very hard to pre-judge exactly where we’ll be at that point in time. As that date approaches, the president and those of us who are helping with the trade issues will get together. We’ll have a very serious discussion where we stand at that point. And there will be an announcement made once the decision has occurred. To judge now, weeks beforehand, what may happen over the next five or six weeks, it’s too hard to do that. My point is simply people shouldn’t think next week will be the solution to all of the problems of the world. Hopefully, we can make a good start on it and follow up later on.

JOE KERNEN: Wilbur, many times in the past you’ve used some examples of how much our economy is affected by some of the moves that we’ve made, some of our tariffs against China. We’ve talked about how many pennies per aluminum can or whatever. But -- and I know that you weren’t born last night obviously, but now we’re seeing that when China slows down, it doesn’t necessarily have to be what – how it directly affects the U.S. Economy. I mean we’re talking about global GDP possibly, you know, tenths of a point being cut off of that, for whatever reason that China is slowing down. There’s a piece in The Journal today that there is a real risk of a hard landing in China, not just because of the trade friction but because of the shadow banking policies of the country, et cetera. But does that go into our thinking, that if we do hurt China trying to extract a deal, it can come back to us kind of indirectly from a slowdown in the global economy? Are we ready to deal with that because of our actions?

WILBUR LOUIS ROSS JR.: I think there are several cross currents under way in the global economy. For one thing, there are quite a lot of companies are relocating production from China. In some cases to the U.S., in other cases to Vietnam and other low-income areas. There had been the beginnings of a move for that even before the trade issues because China is not the world’s cheapest place to manufacture products anymore. But it’s been accelerated a bit by the trade issues because that interjects a note of uncertainty into corporate decisions. So I think you’re seeing with other countries some backing and filling. Some good things coming out of the dispute with China, namely people relocating their sources to those countries and some bad things. Because a lot of what is finally assembled in China comes from other Southeast Asian countries. Something like 60% of the value added is brought into China and it is only the remainder added in China. So it’s a complicated situation. Europe is, again, another separate thing. You have got a lot of problems in a lot of countries there. And that’s probably why the European central bank is continuing to be so permissive in terms of its interest rate.

ANDREW ROSS SORKIN: Mr. Secretary, I wanted to come back for just a moment to the U.S. government shutdown. While here in Davos, I interviewed Alex Karp, he’s the CEO of Palantir, a major contractor in the United States working on behalf of the pentagon and the Defense Department. He said that the government shutdown, he believed, was terribly damaging to the brand of our country. Do you believe that?

WILBUR LOUIS ROSS JR.: I think that’s a great deal of hyperbole. We’ve had shutdowns before, albeit for not such a long period as we’ve been thus far, but put in the perspective. You’re talking about 800,000 workers and while I feel sorry for the individuals that have hardship cases, 800,000 workers. If they never got their pay -- which is not the case, they will eventually get it, but if they never got it, you’re talking about a thirty of a percent on our GDP. So it’s not like it’s a gigantic number overall.

ANDREW ROSS SORKIN: Mr. Secretary, but -- Mr. Secretary, there are reports there are some federal workers who are going to homeless shelters to get food.

WILBUR LOUIS ROSS JR.: Well, I know they are and I don’t really quite understand why. Because, as I mentioned before, the obligations that they would undertake, say borrowing from a bank or a credit union are in effect federally guaranteed. So the 30 days of pay that some people will be out, there’s no real reason why they shouldn’t be able to get a loan against it and we’ve seen a number of ads from financial institutions doing that.

JOE KERNEN: Wilbur, before we go. Just back to China, just real quickly. So there was some talk about a trade deficit deal where you know, we’d be at zero by 2024 or something. Is that -- what are we looking are we looking that? Are we looking that? Are we looking for solving intellectual property? Are we looking for the way that our companies or foreign companies do business in China? What is going to take ‘miles and miles’ and ‘years and years’? What’s the real sticking point if there was some talk about you know, having a trade deficit go to zero you know, in six years? What do we want? What’s the sticking point right now in your view that’s going to take so long?

WILBUR LOUIS ROSS JR.: Well, there are two problems. One is the so-called old economy. More or less the economies of the world as they are today. We do have an intolerably big trade deficit with China in them. So that’s one problem. The other problem is the future. That’s the 2025 plan that they have to try to dominate world high tech industries. We have to protect that. And then the third area is American companies doing business in China should have market access, should have a level playing field, should not be subject to disrespect for their intellectual property rights, all of that. So we need both structural reforms for the longer term and we need forbearance on the present trade deficit. And of those series of things the easiest parts for Chinese to solve is the trade part. Because if they buy LNG from us or they buy it from someone else, there’s really no economic cost to them. Same thing with soybeans. Same thing with a lot of products. The hard things are structural reforms and most importantly, making sure that they really live up to their agreements. Because the history hasn’t been a good one in terms of living up to commitments.

WILBUR LOUIS ROSS JR.: Alright, Mr. Secretary, thank you for all of your time this morning. We appreciate it. And we’ll – you know, hope things get resolved with all these issues. But I don’t know, ‘miles and miles,’ maybe if you here in a car it’s not as bad as if you’re walking. But it still doesn’t sound great. But thank you Mr. Secretary.

WILBUR LOUIS ROSS JR.: Well, we are making progress.

JOE KERNEN: Okay, all right, good, thank you.

BECKY QUICK: Thank you, sir.

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