Following is the transcript of a "First On" CNBC interview with Wilbur Ross, U.S. Commerce Secretary. The interview was broadcast on CNBC on 27 September 2017.
All references must be sourced to a "CNBC Interview".
Interviewed by Bernie Lo, Anchor and Akiko Fujita, Correspondent, CNBC.
PART 1
Bernie Lo (BL): You had a nice sit down in the great hall with the Premier Li Keqiang and you told him what you expected in November. You get everything you wanted?
Wilbur Ross: Well we'll know in November. We had very good discussions with a variety of the Chinese officials but this was the first chat that we really had on that topic. So we'll see in the coming days exactly how it turns out. And then after today I'm on my way to Bangkok and then to Laos.
Akiko Fujita (AF): This of course comes at a time when the U.S. is putting increasing pressure on China to crack down on North Korea. Last week, we heard the PBOC calling Chinese banks to stop doing business with North Korea. We've also seen Beijing vowed to ban exports of oil exports or exports of oil. In your conversations in China what assurances did you get from the leadership that they will in fact follow through on these promises?
Wilbur Ross: Well that's really a matter more for the Department of State, Department of Treasury and Defense. But I got the impression they were quite serious about living up to the commitments that they've made regarding North Korea.
BL: What you say, they're very serious. It took until last week for the central bank to actually issue those statements and formally make the requests. It seems like, you know, a lot of people would have thought, a lot of our viewers were surprised that that hadn't been done long long ago as part of previous sanctions. Do you feel assured or what insurances do you have that on the trade front on your part on your mandate that they're cooperating.
Wilbur Ross: On the sanctions side we've been gradually ramping them up. So this was a logical next step in the sanctions. And a very very important one because the Chinese commercial banks had been a big route for facilitation of trade to North Korea. So the fact that the PBOC which is the central bank has really put out a taboo. That's a very big deal.
AF: There's Chinese customs data that came out that showed Pyongyang earned more coal export income in August than in January or February. Certainly the Chinese buying this up. This of course came before the latest UN sanctions. Doesn't that show that China is not entirely on board in cooperating in cracking down on North Korea.
Wilbur Ross: I think what you need to do is to look forward rather than backward. And that's a gigantic step for the PBOC step. So assuming that it's followed through and assuming that the other parts of the sanctions are followed through that's a very good sign. It's very very important pressure.
AF: So looking forward, what is the measure for the administration on the effectiveness of the sanctions. You've got the sanctions in place now at what point do you, can you determine that they have been effective in not just clamping down on North Korea's economy but the weapons program itself?
Wilbur Ross: Well remember the sanctions are an end in themselves, they're a means to an end. What we're hoping will happen is that this will bring a sensible resolution of the situation over there.
BL: We have talked a lot about you know what China can do on the official front versus the you know the unofficial economy. There's a great deal of trade, there's a great deal of, you know, don't want to a black market necessarily but, you know, unofficial transactions that go on. Were those discussed at all? Did you bring those up with the Chinese?
Wilbur Ross: No, my mission is not that. My mission was the pure trade parts and trying to get organized for the president's visit.
BL: You say you, you know obviously we want as say look forward not backward at the past history but what can be done in the future. This is what we have right now. But you know between the U.S. and China President Xi Jinping has made a great deal about you know ahead the 19th Congress he'll talk more about it. But about Made in China 2025 and which you know very well what that means. And as the narrative goes you know foreign participation the Chinese economy is always a difficult difficult juggernaut. I mean foreign content, the rules on partnering, that sort of thing. The narrative is that the PRC by 2025 wants to use automation and higher technology to boot out foreign participation, particularly Americans from the internal economy.
Wilbur Ross: Well I think that's going a little further than 2025 actually. When I don't think they named America as such in the 2025 but clearly they want to become more self-sufficient in areas like semiconductors of which they are the world's largest consumer. We don't mind competition. We just want the competition to be on a fair and level playing field. And that means not so much in the way of trade barriers. Not so much in the way of protectionist activities. Not so much in the way of impediments to companies operating there. Not so much in the way of forced technology trends through things of that sort.
BL: But we know that we know that the game is stacked. We know that China games this playing field in their own favor. And yet from 2002 until last year there were 38 cases involving force transfer of technology IP infringement filed against China. There were 78 filed by various countries around the world against the United States in that same time. Why is that? It sounds like a WTO was not designed for modern China.
Wilbur Ross: Well I don't think the WTO was designed necessarily for the modern trade world especially China but all parts of it. It's an archaic system. Remember this is the outgrowth of GATT which came into effect right after World War 2. That point in time the U.S. had concentrated surpluses and had made a very basic policy decision to help Asian and European countries recover from the ravages of World War 2. Problem is the things that were put in place with WTO back then haven't been changed. But it's very hard to say that China as now the world's second largest economy needs the same sort of preferential treatment that might have justified to have decades ago.
AF: Let me ask you about the administration's investigation into steel dumping because there are reports that suggest the president rejected a proposal that would have led - the proposal from China that would have led to significant cuts and steel overcapacity which is something that you had endorsed. What specifically is the administration's seeking on this issue?
Wilbur Ross: Well what we're seeking is an overall improvement in trade. And if you look at our trade balance, there's one geographic source of our imbalance and that's most importantly China. And there's one product source of our imbalance and that's mostly automobiles. Now the automobiles are not particularly from China. China is not yet exporting any meaningful number of cars especially not to U.S. If you solve the geographic problem and you solve the product problem you've pretty well solved our trade problem.
AF: This is of course a complex issue that comes at a very tentious time over in the U.S. as you're trying to push forward with tax reform. Is the administration willing to table some of these trade issues that perhaps some Republicans are not onboard with in order to get them onboard with tax reform.
Wilbur Ross: Well President Trump has made it clear that he's delayed this deal and some other events in trade in order to clear the decks so we don't have anything that confuses people while we try to get the tax thing. The tax program is the single most important thing after, obviously the budget and the lifting of the debt ceiling, but going forward the tax reform is important. Why. If you work it right it will increase the GDP growth by one percentage points, so 100 basis points. What does that mean over 10 years. Ten trillion dollars more GDP. 3 trillion dollars more revenues to the federal government. Those are gigantic numbers even for a country the size of the U.S. So the tax changes could be transformative events.
BL: When you talk about tax reform, when you talk about tax reform repatriation of overseas you know bundles of cash, there are a lot of American MNCs have it's a very big part of the conversation.
Wilbur Ross: Oh yes. And it's a very important objective. We believe that there will be a vast amount of it brought back if the president's notion of a very reduced rate on the immediate repatriation is goes through. So that's a very important part of our tax reform. And then the last important part is individual tax reform. Both rates not so much with the high end but for the middle and lower people. And simplification. Guess how many hours Americans spend filling up their tax returns each year, 6 billion. Imagine how much better an economy we'd have been if those 6 billion hours were devoted to productive activity, not trying to figure out the meaning of a 100 page tax instruction form.
AF: And very quickly, is 15 percent corporate tax rate pretty much off the table? Are we looking at a low 20 percent?
Wilbur Ross: We've not made an announcement. President Trump has indicated his goal and his hope would be to get as close to the 15 percent as we possibly can.
PART 2
BL: Secretary, want to ask you, the whole issue, you know, one of the first things the president did was say ok out of TPP. Everybody else is coalescing. China tried to take the mantle at that point to say, we are holding the mantle, we are the shining light of free trade and all that. Is there a rethink, is there some sort of reformation or a rethink going through the administration right now whether it's really good to isolate the U.S. or give the impression that the U.S. is isolating itself from so many things in the world.
Wilbur Ross: That was never our intention to isolate ourselves. That's the fiction that the media had invented. The idea though because we didn't think TPP was an advantageous deal for the United States. So we rejected the deal, not the geography. And if you notice, since the election and since the inauguration Vice President Pence and I were in Japan, he's going back again shortly. I'm over here now going through China, through Hong Kong, through Thailand, through Laos. We've got all kinds of people out here. And that's partly to show quite visibly that we're not forsaking the region at all. The region is hugely important to us. So it's different to say you're rejecting a particular contract from saying we're rejecting the region. Take for example NAFTA we're certainly not rejecting Mexico and Canada we're just saying we think the commercial arrangements with them need to be reformed.
AF: The intention is not isolation but as Bernie pointed out we have seen several multilateral trade deals going forward. TPP 11 of course looking to get signed by November. We've got RCEP led by China. We've got the Japan Europe free trade deal that's still being hammered out. I mean this is a trade bloc that would be equivalent to NAFTA. Do those deals come at the expense of the US?
Wilbur Ross: I don't think so because we after all are the largest of those import markets. So the trading position that we have, the need for these other countries to get better access to our market, those continue. Plus I would point out those deals have not been finalized. Those are deals under discussion. Big difference between discussion and finalization. And then when they do get finalized. Big question is well what do they really mean. What are the real provisions that are going into effect.
BL: Pandora's Box, I mean to use an analogy that's been opened here by revisiting NAFTA after all these years. This morning you came armed with your cell with you. Announcement of commerce you know issuing countervailing duties against mid-sized aircraft made in Canada. There's only one aircraft maker I know in Canada and that's Bombardier and they make 100 to 150 seaters. This wouldn't have happened in the past, would it?
Wilbur Ross: Oh sure. This is unrelated to NAFTA. There have been trade complaints back and forth ever since NAFTA was started. The Bombardier thing is very specific. It says the Boeing Company brought an action which we're now processing. Their actions said that the Quebec and the Canadian government illegally subsidize the development of that aircraft. So what came out today was our preliminary determination that that was the case. Now there are a couple more procedural steps so it will be some months before a final determination is made. But this with or without NAFTA this kind of action would have been brought.
AF: There are several changes that the administration is taking in NAFTA. One of them is stricter rules of origin. I'm wondering what concessions the U.S. is willing to make to get there. Would you for example or would the administration for example be willing to back off on arbitration panels.
Wilbur Ross: Well those are whole complicated issues. The day to day, the negotiations as you know are being handled by the U.S. trade rep. and I think it'd be very tricky for me to comment on bids that haven't been announced while everything is still being negotiated. Because you don't have a deal and anything till you have a deal on everything.
AF: Let me follow up very quickly on TPP 11 because Prime Minister Shinzo Abe in Japan has made it very clear that they are leading this deal in the hopes that the U.S. will eventually come back to the table. You pointed out that you weren't against TPP 11 multi trade deal per se, it was more about the conditions. Under what conditions would the U.S. be willing to come back to the table on that?
Wilbur Ross: Well again we felt that we were giving up much more than we were getting in. And it's much more complicated than we can deal with this morning. It's thousands of page agreement but that's fundamentally the issue that we had with the TPP before. But regardless of who had won the election TPP was dead. There was no political will power either in the Democratic side or the Republican side to go ahead with TPP. So it's a little silly to call that an act by the Trump administration. We administered the coup de gras but it was going to happen in any event.
BL: Mr. Secretary is there a, you know, the administration is going on what, 10 month old now.
AF: End of September.
BL: Yeah 10 months. You know when you signed on for the job, you were coming from private industry. You were a very happy, very successful person on your own. You didn't need this.
Wilbur Ross: Well I'm still very happy.
BL: OK. I'm glad to know that, I'm really glad, I'm so happy to know that, but because you know we've seen a lot of people come and go it's been a revolving door in many cases you know with a lot of people that were there at the start, gone. But I mean when you signed up for the job did you expect to be here almost a year into the job? And may I add to that. Is there some sort of a, I think everybody in this part of the world wants to know, Trump is in the news every day and if it's not one thing, it's the other. You know he is fighting the NFL for kneeling you know or for sitting during the anthem while he's trying to take on North Korea. Is there some sort of end game, is there some sort of method to the, I could use for lack of a better word, chaos.
Wilbur Ross: Well first of all, I don't think there is chaos. Any time you have a new administration particularly a shift from one party that had been in the administration for eight years to another one. You're bound to have a lot of new faces come in. And with hundreds of people with high testosterone coming into the White House the idea that there would be a little pulling and tugging surely is not a strange idea. So that's normal to administrations. What's a little unusual here is it's so public. And the reason it's so public is, the media are intensely focused on Washington now more than I think ever and frankly a lot of the media folks still can't get over the fact that President Trump in fact is the president, is going to be the president, I hope for eight years, not just four.
AF: Well you've also got a president who is tweeting on a daily basis. That's partly why some of these thoughts are so public. I mean. I wonder you know, you came in this in January, you're nine months into the job have things moved along a little slower than you expected and how frustrating is it on a daily basis. Yes the media can be focused on it but the reality is the president is sending out mixed messages. How frustrating is it to see those distractions. Because in the end it's derailing from the core goal here and the legislative agenda.
Wilbur Ross: Well I don't think it's derailing from the core goal. One disappointment has been Congress's inability to come to conclusions on health care. And we hope that's not a warning sign that they'll have equal problems with other pieces of legislation. The administration's been moving ahead. We've brought 48 percent more trade cases this year than we did last year.