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CNBC Transcript: Treasury Secretary Steven Mnuchin Speaks with CNBC’s “Squawk Box” Today

WHEN: Today, Thursday, September 12, 2019

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, Thursday, September 12th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/09/12/watch-cnbcs-full-interview-with-treasury-secretary-steven-mnuchin.html.

All references must be sourced to CNBC.

BECKY QUICK: President Trump announcing a brief delay of tariff increases that were set to hit at the beginning of next month. In a pair of Tweets last night, President Trump said the move was a gesture of goodwill. Joining to us right now talk more about this, the latest in the U.S./China trade negotiations and much more, Treasury Secretary Steven Mnuchin. And sir, thanks for being with us today.

STEVEN MNUCHIN: Good morning. It’s good to be with you.

BECKY QUICK: Mr. Secretary, earlier this morning we heard from China, the Chinese ministry, saying they are considering some moves, too, such as resuming purchases of U.S. pork. How would you describe the state of trade talks between the two countries right now?

STEVEN MNUCHIN: Well, I think you know we’ve had a series of principal level conversations. We have a deputies meeting planned in the next two weeks where the Chinese will be coming here and they’ll be working on material in advance of the Vice Premiere coming here in the beginning of October to meet with the Ambassador Lighthizer and myself. So, we look forward to hopefully making progress the next few weeks.

BECKY QUICK: What happened the last time you went to China? Seemed like that was a very brief trip.

STEVEN MNUCHIN: Well, I think as you know, we went to Shanghai. There was a real significance to them of us being in Shanghai, and the Shanghai agreement with Kissinger. We clearly didn’t make the progress that we wanted to, and we look forward to when they’re coming here that there is real negotiation and real forward movement.

BECKY QUICK: Is that why the President is putting these tariffs off, but only by a couple weeks, moving it from October 1st to October 15th? There really has to be some substance that takes place in those meetings in order for that to get pushed off or put back off?

STEVEN MNUCHIN: Well, the President delayed it because of a request from the Vice Premiere. The optics of us raising the tariffs on October 1st, which is their 70th anniversary, caused them grave concern on the symbolism. And as a sign of good gesture, the President honored that request and delayed the tariffs.

BECKY QUICK: There is a report from the "Wall Street Journal" just this morning suggesting that China is looking to try and narrow the scope of these negotiations to only trade matters. They would like to put thornier national security issues as a separate track, in an attempt to try and make some progress. What do you say to that?

STEVEN MNUCHIN: Well, I’m not going to comment on the specifics of our negotiations since I don’t think that will be helpful. But what I would say is we’ve been focused on many issues. I think you know when we were on our way to an agreement, there are seven chapters. And our number one concern is really around intellectual property, forced joint ventures, and making sure that we have a level playing field on trade.

BECKY QUICK: Fair to say, though, that Huawei and Hong Kong would be issues that would not be on the table?

STEVEN MNUCHIN: Well, Hong Kong is definitely not on the table. That is an issue for the Secretary of State to deal with. That’s not a trade issue. I think you know the President has urged restraint and wants to make sure that there is a peaceful solution to that. But that is definitely not part of trade.

BECKY QUICK: I know you don’t want to get into the deep details of what’s happened here. But, when we saw the last trip that you and Ambassador Lighthizer made to Beijing, it seemed like it was a very abrupt departure. And I guess, I wonder, what would it take to really feel like you’re making progress this time around when they come here to the United States? Do you have a guideline that seems to you to say, ‘Okay, if we can make some progress on this front, then it shows that we can move further down the road’?

STEVEN MNUCHIN: Well, it wasn’t an abrupt departure. And I know some of the reporting was that we left early. I think we left 15 minutes early, and really that was on our way to a commercial flight. But we expected that to be a short trip. But I would say, we did not make nearly as much progress as we wanted, and that’s part of the reason why we’re having deputy-level meetings in advance of our principal-level meetings to make sure that the necessary work is done in advance of this trip. We don’t want a trip that’s just a series of discussions. We want to make meaningful progress.

JOE KERNEN: So, Secretary, there is a notion that the President could make a deal with China any time, if it was kind of a deal that doesn’t accomplish as much as maybe we’ve stated that we want to accomplish. And I’m sure that it could be done with the idea that we really are accomplishing a lot. And I’m just wondering, how long do you think we engage in what some might even call Brinkmanship? You have a Chinese economy that’s weaker than what we know, so they probably have an impetus to make a deal. And we have an election coming up in November of 2020. Do you think the President would ever make a deal that is sort of watered down just to get it off the table before the election? Or are we in this to pass November of 2020 if necessary?

STEVEN MNUCHIN: Well, the President is correct, he could do a deal any time. But he only wants to do a good deal. And, let me remind you, these discussions have been going on 2 1/2 years. From the first meeting with of President Trump and President Xi, there was an acknowledgment from the Chinese they would rebalance the trade relationship. And it’s gone in the wrong direction. The President Trump is only going to agree to a deal if it’s a good deal, a deal that’s good for U.S. companies and U.S. workers.

JOE KERNEN: I mean, not just an AG buy or, you know, a couple half measures -- a lot of people, Wall Street guys that are trying to figure out what’s going to happen, that’s their base case. Is that something is going to happen that maybe pushes things past the next election, for lack of a better term, kicks the can down the road for a next term, whomever is President at that point. That’s not going to happen? He will go -- the President will go to the mat this time around to get to these type of concessions that he wants for America?

STEVEN MNUCHIN: Well, the President is a negotiator, and he is prepared to keep these tariffs in place. He’s prepared to raise tariffs, if we need to raise tariffs. So, this President is taking on an issue that’s been going on for 20 years. So, this isn’t an election issue. He’s trying to do the right thing for American companies and the American public. And we need to rebalance this relationship, and they acknowledge it. So, if China comes here with a proposal that makes sense, we will consider it. We will take it to the President. And again, I’m cautiously optimistic. I take the Chinese in good faith that they want to come here with a deal. Now, as it relates to agriculture, we expect and we want them to buy agriculture. We view that as a personal attack on our farmers. They need our agriculture, and they’ve always bought our agriculture. So, this isn’t about just selling them soybeans, but we want to sell them soybeans. I want to be clear that our farmers and our fishermen are important to us.

MICHAEL SANTOLI: Mr. Secretary, you note it’s a negotiation. I wonder, is there anything that the United States is prepared to offer or concede, aside from the eventual removal of tariffs under the right circumstances? And have the Chinese side asked for anything aside from the removal of tariffs? I mean, which – how does it go both ways in this negotiation?

STEVEN MNUCHIN: There are things that the Chinese have asked for besides taking off the tariffs. Certain things that they want. They’ve been on the table. We’ve negotiated that with our issues. I don’t want to go into the specifics of the negotiation, but there’s been very good two-way dialogue. And as I’ve mentioned, the Governor of the People’s Bank of China, my expectation is that he will be coming for the trip also. We will be having a specific discussion around currency and currency manipulation. I’ve already had discussions with the IMF. I think you know that’s another concern of ours.

JOE KERNEN: Should we skip the strong dollar question, Mr. Secretary?

STEVEN MNUCHIN: You can try.

JOE KERNEN: No, no. No, no, I don’t want to waste your time. How about the negative interest rate question? As Treasury Secretary, do you ever foresee that happening in our bond market here? Would it be a positive, in your view, if we had negative rates in the United States? And would you worry about mal-investment or no cost of capital and what happens when you get in? It doesn’t seem to be working too well in Europe. Do you think that’s something we should hope for or expect in the United States?

STEVEN MNUCHIN: Well, I will comment on Europe. Given my long-standing policy as Treasury Secretary, I won’t comment on the Fed and issues here. But, in Europe, I’m not surprised that Mario lowered rates the market expected that. Even though clearly Europe has slowed down significantly, I think negative rates in Europe are concerning for them for two reasons. One, it’s very hard for banks to make money in negative interest rates. And if banks can’t make money, it’s hard to have a good economy. And number two, I wouldn’t be surprised if a lot of people start selling foreign bonds at negative rates and buying U.S. treasuries, which would have the impact of narrowing those spreads.

BECKY QUICK: I know you don’t want to comment on the Fed. The President Tweeted yesterday that he would like to see, I think he called them ‘the boneheads at the Fed’ lowering interest rates. But he also talked about something that I believe is under your purview, and that is the longer term borrowing that we can do in the United States with lower rates. I know that is an issue you opened up for discussion, long-term borrowing of U.S. treasuries. Where does that stand and when might we see longer than 30-year bonds issued by the U.S. Treasury?

STEVEN MNUCHIN: Well, this is something I have talked about over the last two years, and it is something we are very seriously considering. We’re looking at issuing a 50-year bond, what we would call an ultra-long bond. We think there is some demand for it. And that’s something we’ll very seriously consider for next year. There’s obviously -- there are some technology issues we need to make sure we have in place. There are market issues. We would do this in a way that if there is demand, it’s something that we would meet. I personally think it would be a good thing to expand the U.S.’s borrowing capabilities. And although our job is not to market time rates, I would say it’s obviously quite attractive for us to extend and de-risk the U.S. Treasury borrowing. So, we’re also looking at extending the weighted average maturity of the treasury borrowings to de-risk this for the U.S. people.

MICHAEL SANTOLI: One of the criticisms of that idea of going very long term with issuance, Mr. Secretary, has just been that it’s hard to think that the United States could issue enough very long-term debt at very low rates to make much of a difference in the overall borrowing cost, especially since, you know, the 30-year right now, 2.15, presumably you’re paying much more every year over those 50 years than you would on the shorter end.

STEVEN MNUCHIN: Well, we’re going to look at what would be the spread of the 50-year to the 30-year, and we would only issue if we thought we could do it at an appropriate spread. But innovation is important thing. When the Treasury started TIPS, it was a small program and people said the same thing, ‘Is there really going to be enough demand?’ So, I think innovation for the U.S. Treasury is important. And as I said, this is somewhat market oriented. So, if there is market demand, this is something we’re seriously considering. We’ve reached out to the Treasury Borrowing Committee. We’ve reached out beyond that to investors. We’ll start speaking to foreign governments. And it’s not on the table for this year, but it is something very seriously on the table. We’re looking at doing next year.

BECKY QUICK: Secretary Mnuchin, on Tuesday you testified before Congress and laid out some of the plans for Freddie and Fannie, what you expect at this point. I have seen notes circulating this morning that they expect that the sweep, the profit sweep, the Treasury taking much of their profits, they expect that could end by September 30th. Is that overly optimistic or something you might think might be -- might happen?

STEVEN MNUCHIN: Well, that’s something the FHFA and we are working on. We are actively negotiating an amendment. And I think our objective is to try to get it done by the end of the month. And let me just comment, what we would be doing is allowing Fannie Mae and Freddie Mac to increase capital. And that is an important step on the way to recapitalizing them. And what we are negotiating is making sure the taxpayers receive proper compensation for that delay. But let me also just also comment, we are very focused on housing reform. We appreciated the opportunity to testify before the Senate. I was very pleased. There was a lot of bipartisan support for many of the issues. Issues like affordable housing, which is very important in this country, making sure we have more affordable housing. So, this is going to be a big priority of ours. We want to make sure that Fannie and Freddie don’t stay for another 11 years in conservatorship and go through another period where they put the taxpayers at risk.

JOE KERNEN: I can’t believe it, Mr. Secretary. I thought we were done with the dollar discussion, and then the President just Tweeted -- and I have got to read it to you anyway, “European Central Bank acting quickly, cut rate 10 basis points. They are trying, and succeeding, in depreciating the Euro against the very capital -- all four letters are capitalized there -- strong dollar, hurting U.S. exports and the Fed sits and sits and sits. They get paid to borrow money while we are paying interest.” So, I’m just wondering whether you feel some pressure to maybe not continue the strong dollar policy that all Treasury Secretaries seem to always have in the back of their mind? I mean, the President is telling you almost overtly that the dollar is too strong -- telling us.

STEVEN MNUCHIN: Well, the only comment I would make is we’ve been focused on a stable dollar, and that’s something over the long term, a stable dollar is important to the U.S. government. But I understand the President’s concerns. We talk about them all the time. And there is a lot of validity to the things that he’s saying.

JOE KERNEN: Are there times, and we’ve heard recently about the President’s relationship with some of the people in the administration, he likes to hear dissent, but only to a certain point? How do you handle that relationship about the dollar? What would you tell him today about whether the dollar should be depreciated?

STEVEN MNUCHIN: Well, that’s a nice try. I’m not going to tell you what I tell him, but I would say I’ve known the President for over 15 years. I’ve always felt completely comfortable telling him what I think. I’ve been in meetings with the President both on national security issues, economic issues and others. And he loves to hear people’s opinions. At the end of the day he’s the President, the elected official and he’ll make the final decision.

BECKY QUICK: Secretary Mnuchin, just back to the Freddie and Fannie negotiations that are taking place right now. We did have Diana Olick who was watching your testimony before the Senate Banking Committee Tuesday. You were asked several times if President Trump approved of the treasury plan to do this and she said you said at that point, I don’t know. Have you heard back from him? Does he approve of the plan you’re moving forward with?

STEVEN MNUCHIN: Yes. Let me clarify, he has approved it. It was a technical question I wasn’t sure of the answer at the time. I said we delivered it. I didn’t know if technically he had approved it. And the answer is the NEC I believe confirmed that yesterday and I’m happy to say that he approved the plan. But the more important issue is we’re going to do things either administratively or we’re going to work with Congress. And working with Congress is our first choice, and we’re going to make sure we spend the next 90 days – you know, Senator Kennedy said he thinks that the committee should markup a bill, and I agree with him completely. Let’s make sure that on a bipartisan basis we see what can be done on, on legislation. And it’s an important issue for the American public and the Treasury.

BECKY QUICK: It has been a busy week, probably like every week in Washington. I know on Tuesday you and Secretary of State Pompeo also unveiled some new sanctions on terror groups and financiers. Is the President going to meet with Rouhani to negotiate? And I just wonder what the impact of some of these additional sanctions you unveiled will be.

STEVEN MNUCHIN: As of now, there’s no plan for the President to meet with him, although the President has said that he is prepared to meet with no conditions. I would say there were some stories yesterday in regards to sanctions. Let me just clarify this, that Secretary Pompeo, I and the rest of the national security team are executing on a maximum pressure strategy with Iran. There’s no question it’s working. We have cut off their money. And that’s the reason why if they do come back to the negotiating table, they’re coming back. And again, no different than China. If the President can get the right deal that he’s talked about, we’ll negotiate with Iran. If not, we’ll continue the maximum pressure campaign which is working.

JOE KERNEN: You know, as the first real CEO. businessman in the White House, the President knows how to have people he wants working for him and knows how to get rid of people he doesn’t want around. And you’ve probably seen on other news networks, they’ll put up a list of people who have left you’re surviving. You’re a survivor, you have been there a long time, you’re on the island. Could you see yourself being part of the second term if the President were reelected, Mr. Secretary?

STEVEN MNUCHIN: Yes, I said before the expectation is the President will be reelected. I think it’s because of the economy and what he has delivered and his foreign policy. And if the President wants me to serve a second term, I’m here.

JOE KERNEN: So, Santoli, who is the longest running Treasury Secretary? Has anyone served eight years?

MICHAEL SANTOLI: I don’t know –

STEVEN MNUCHIN: I think you have to go back. It’s 13 years. But, I think it’s Gallatin, who was I believe the third secretary. So, it’s been a long time. I’m not breaking his record, I can assure you.

JOE KERNEN: Don’t give people more fodder. So, you’re thinking you might serve for the President for 13 years? Now the third and fourth term are going to come back in. Is that what you’re proposing now? Don’t start that.

STEVEN MNUCHIN: As of now I don’t think he expects to have a third or fourth term. But, if the American people want it, I guess he’d consider it.

JOE KERNEN: Oh, my god. Anyway –

BECKY QUICK: He’s saying that with a smile.

STEVEN MNUCHIN: I’m obviously joking.

JOE KERNEN: Yes, you are.

BECKY QUICK: Before we let you go, the President has also brought up the idea of slashing payroll taxes. He said that was something they’d consider, but it’s not on the table right now. Where do you stand in terms of coming up with that plan or implementing with one?

STEVEN MNUCHIN: Well, as has been reported, we had a good session in the Oval Office yesterday on taxes. The President is not considering cutting payroll taxes now. What the President is focused on is what we’ll call the Tax Cuts 2.0, which would require legislation. It’s something I think we’ll roll out later this year, yje beginning of next year. The President is really focused on things that are going to create growth that will have tax cuts for small and medium sized businesses and incentives and the middle class. So, unlike his competition, this President wants to grow the economy and make sure that we have tax cuts for the middle class and that they benefit.

BECKY QUICK: Would it address things that weren’t addressed in tax cuts 1.0 or would it fix things that were maybe -- maybe in hindsight weren’t as good? Or -- what would the basis of Tax Cuts 2.0 be?

STEVEN MNUCHIN: All of the above.

BECKY QUICK: Secretary Mnuchin, thank you. We do appreciate your time. It’s always good to see you.

STEVEN MNUCHIN: Great to see you, too. Thank you.

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