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

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WHEN: Today, Thursday, May 24, 2018

WHERE: CNBC's "Squawk Box"

The following is the unofficial transcript of a CNBC interview with U.S. Commerce Secretary Wilbur Ross on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Thursday, May 24th. Following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2018/05/24/wilbur-ross-connecting-the-dots-on-auto-imports-and-national-security.html?play=1.

References must be sourced to CNBC.

JOE KERNEN: JOINING US NOW COMMERCE SECRETARY WILBUR ROSS. SECRETARY ROSS, IT'S GOOD TO SEE YOU. ALREADY SOME OF OUR ALLIES ARE ALREADY CARPING ABOUT THE NATIONAL SECURITY ANGLE IN THIS, SAYING IT'S A CONVENIENT USE THAT'S BEEN DONE BEFORE BY THE TRUMP ADMINISTRATION IN SITUATIONS WHERE IT REALLY DOESN'T APPLY. DOES IT APPLY HERE?

SECRETARY WILBUR ROSS: WELL, IT'S THE EARLY STAGES OF THE INVESTIGATION, IT WAS JUST LAUNCHED YESTERDAY, SO OBVIOUSLY WE DON'T HAVE ANY CONCLUSIONS YET. BUT IT IS THE CASE THAT MANY OF THE SAME PUNDITS WHO CRITICIZED THE STEEL AND ALLUMINUM ARE NOW COMING FORTH AND CRITICIZING THIS ONE. SO I DON'T FIND THAT VERY SURPRISING. BUT THERE WILL BE PLENTY OF TIME FOR THE VIEWS TO BE EXPRESSED: WE'LL HAVE PUBLIC HEARINGS, PUBLIC COMMENTARY, JUST AS WE DID WITH STEEL AND ALLUMINUM. AND AS I THINK ARE YOU AWARE, STEEL AND ALLUMINUM HAVE WORKED OUT VERY, VERY WELL. THERE HAVE BEEN SOMETHING LIKE 20 FACILITIES, EITHER REOPENING OR EXPANDING IN STEEL AND ALLUMINUM SINCE WE PUT THOSE TARIFFS IN. SO THAT WAS A VERY GOOD ACTIVITY FOR US AND WE ARE LOOKING FORWARD TO RESEARCHING WHETHER CARS SHOULD BE HANDLED IN A SIMILAR FASHION.

KERNEN: HOW DOES IT APPLY TO NATIONAL SECURITY? I GUESS I CAN UNDERSTAND STEEL AND ALLUMINUM IN THE DEFENCE INDUSTRY. HOW DO YOU CONNECT THE DOTS FOR NATIONAL SECURITY WITH THE AUTO INDUSTRY AND AUTO PARTS INDUSTRY?

ROSS: WELL REMEMBER, UNDER SECTION 232 OF THE ACT TRADE EXPANSION ACT OF 1962, NATIONAL SECURITY IS BROADLY DEFINED TO INCLUDE THE ECONOMY, TO INCLUDE THE IMPACT ON EMPLOYMENT, TO INCLUDE A VERY BIG VARIETY OF THINGS THAT ONE WOULD NOT NORMALLY ASSOCIATE DIRECTLY WITH MILITARY SECURITY.

KERNEN: ALL RIGHT.

ROSS: BUT IT IS ALSO THE CASE, ECONOMIC SECURITY IS MILITARY SECURITY AND WITHOUT ECONOMIC SECURITY, YOU CAN'T HAVE MILITARY SECURITY.

KERNEN: SO YOU CAN'T JUST SAY, IT'S QUID PRO QUO? YOU CANT JUST SAY, "LOOK, YOUR TARIFFS ARE X AND, YOU KNOW, IT'S NOT FAIR, OUR TARIFFS, THEREFORE, ARE GOING TO START BEING COMMENSURATE WITH THE WAY YOU TREAT US." THAT'S NOT REALLY WHAT'S GOING ON HERE?

ROSS: NO, IT'S NOT. THIS IS SPECIFICALLY JUST LIKE THE STEEL AND ALLUMINUM ONES, LOOKING INTO THE NATIONAL IMPLICATIONS AND WHETHER OR NOT THE ABUSIVE TRADE TACTICS IN CARS DO HAVE THE SUFFICIENTLY ADVERSE THREATENING EFFECT ON NATIONAL SECURITY TO JUSTIFY DOING SOMETHING. WANT TO GIVE YOU A COUPLE DATA POINTS THAT ARE SORT OF CIRCUMSTANTIAL EVIDENCE THAT WE ARE LOOKING AT. MARKET SHARE OF IMPORTED CARS HAS GONE FROM 30% TO 48%. THERE ARE OVER 8 MILLION CARS IMPORTED EACH YEAR INTO THE COUNTRY. PART OF THE REASON FOR THE BIG IMPORTS COMING IN AS OPPOSED TO OUR EXPORTS GOING OUT IS WE ONLY HAVE A 2.5% TARIFF ON AUTOS AND AUTO PARTS. EUROPE 10%. CHINA HAD BEEN 25% NOW PARTLY BECAUSE IN OTHER DISCUSSIONS WE'RE HAVING WITH THEM, THEY'VE DROPPED THAT TO 15. MALAYSIA IS WAY UP IN THE DOUBLE DIGITS. INDIA IS WAY UP IN THE DOUBLE DIGITS. WHAT ALL THAT MEANS IS THAT THE DOMESTIC MANUFACTURERS IN THOSE COUNTRIES HAVE A VERY PROTECTED MARKETPLACE. THEY GENERALLY HAVE 70 TO 80% MARKET SHARES. WE BARELY HAVE A 50% SHARE BECAUSE OUR TARIFFS ARE SO LOW, IT'S VERY EASY FOR PEOPLE TO GET OF A 2.5% TARIFF. ALSO THERE'S A LOT OF SUBSIDIZED STEEL AND ALLUMINUM IN THE FOREIGN CARS AND THAT'S NOT VERY FAIR COMPETITION. SO IT'S THE WHOLE SEQUENCE OF THINGS THAT WE'RE LOOKING AT. BUT OBVIOUSLY, AT THE BEGINNING OF AN INVESTIGATION, YOU DON'T HAVE CONCLUSION, YOU JUST HAVE AREAS YOU'D BE LOOKING INTO.

BECKY QUICK: SECRETARY ROSS, THAT MAKES SENSE WHEN YOU LAY IT OUT THAT WAY – THE IDEA OF A MUCH HIGHER TARIFFS ON OUR CARS THAN ON THE CARS THAT WERE ALLOWED HERE. BUT TO JOE'S POINT, WHY CAN'T YOU COME OUT AND SAY, "IT'S NOT FAIR, IT DOESN'T WORK THAT WAY." IS IT ABOUT THE WTO AND WHAT THEY WILL AND WON'T ALLOW IN?

ROSS: YES, SO THE WTO HAS SOME OF THE MORE COMPLICATED RULES OF ANY ORGANIZATION. A PAIR OF THEM THAT CREATES SOME OF THIS DIFFICULTY ARE CALLED THE MOST FAVORED NATION CLAUSE. THAT MEANS WE CAN'T CHARGE A HIGHER TARIFF TO ONE COUNTRY THAN WE CHARGE TO ALL OTHER COUNTRIES WITH WHOM WE LACK A FREE TRADE AGREEMENT. SO THAT'S ONE BOUNDARY. THE OTHER BOUNDARY IS THE SO-CALLED BOUND RATE. THAT'S THE HIGHEST RIGHT I RATE PERMITTED TO CHARGE, REGARDLESS OF WHETHER OR NOT WE APPLY THE MOST FAVORED NATION. IN OUR CASE, ESPECIALLY THE CASE OF AUTOS, IT'S ALSO THIS 2.5% LEVEL. SO WE HAVE NO FLEXIBILITY UNDER WTO RULES TO RAISE RATES AT ALL, EVEN THOUGH ALL THESE OTHER COUNTRIES HAVE MUCH HIGHER RATES. SO THAT'S ONE OF THE INHERENT UNFAIRNESSES TO WHICH PRIOR ADMINISTRATIONS IN THE UNITED STATES AGREED. IN THE SENSE I DON'T BLAME THE FOREIGN COUNTRIES, THEY'RE DOING WHAT IS BEST FOR THEM. THE STUPIDITY IS THAT WE'VE LET OURSELVES GET INTO THIS BOX OF EXTREMELY LOW RATES. WE GAVE IT AWAY UNILATERALLY AND NOW IT'S VERY DIFFICULT TO GET BACK TO A RECIPROCAL ARRANGEMENT. IN AN IDEAL WORLD, IT WOULD BE RECIPROCAL. THAT WAY IT WOULD BE FAIR, WHOEVER HAD THE COMPETITIVE NATURAL ADVANTAGE WOULD WIN. BUT WHEN YOU HAVE THESE ARTIFICIAL BARRIERS THAT ARE VERY, VERY HIGH, AND NOT JUST TARIFFS. THERE ARE ALSO SIGNIFICANT NON-TARIFF TRADE BARRIERS, STANDARDS, LICENSING, ALL KINDS OF OTHER GAINS THAT THE FOREIGN COMPANIES BENEFIT FROM BECAUSE THEIR GOVERNMENTS SUPPORT THEM.

QUICK: RIGHT.

ROSS: SO IT'S A LOT OF STUFF TO TALK ABOUT.

QUICK: YOU KNOW, WILBUR, WE'VE KNOWN YOU A LONG TIME. AND I HAVE TO SAY MY HEAD SPINS A BIT TRYING TO THINK ABOUT WHAT THE ADMINISTRATION THINKS FROM ONE DAY TO THE NEXT. EARLIER THIS WEEK WE HAD treasury SECRETARY MNUCHIN ON TALKING ABOUT THE TRADE WAR WITH CHINA BEING ON HOLD AND THERE'S BEEN A LOT WRITTEN ABOUT THE DIFFERENT CAMPS IN THE WHITE HOUSE THAT ARE EITHER IN FAVOR OF DIFFERENT WAYS OF HANDLING THESE TRADE ISSUES, BUT HERE WE ARE A COUPLE DAYS LATER TALKING TO YOU ABOUT ADDITIONAL THREATS THAT ARE GONNA BE THROWN DOWN ON THESE ISSUES. WHERE DO WE STAND WITH THIS? IS THERE ONE POLICY THAT'S COMING OUT OF THE WHITE HOUSE OR IS THIS SOMETHING THAT'S BEING COORDINATED, OR IS THIS SOMETHING THAT CHANGES BASED ON WHICH SIDE HAS THE UPPER HAND ON ANY GIVEN DAY?

ROSS: WELL, THERE'S ONLY ONE SIDE THAT HAS THE UPPER HAND, AND THAT'S CALLED PRESIDENT DONALD J. TRUMP. HE'S THE ONLY ONE ELECTED. THE REST OF US ARE APPOINTED PEOPLE. IT'S OUR TASK TO GIVE HIM OUR BEST OPINIONS. HE LIKES THE IDEA OF CONFLICTING OPINIONS, BECAUSE THAT WAY HE GETS TO HEAR EVERY SIDE OF EACH BIG TRADE ISSUE. AND BECAUSE TRADE IS SO IMPORTANT AND IT IS ALSO SO COMPLEX, IT'S REALLY VERY, VERY CONSTRUCTIVE THAT HE DOES GET TO HEAR ALL SIDES OF THE EQUATION.

ANDREW ROSS SORKIN: MR. SECRETARY, CAN WE TURN TO ZTE AND WHERE YOU PERSONALLY STAND ON THIS ISSUE. OBVIOUSLY, YOUR DEPARTMENT CAME DOWN WITH VERY HARSH PENALTIES. THE PRESIDENT TURNED AROUND AND SAID, "PLEASE RELOOK AT THEM." IT HAS SEEMED LIKE IT'S TURNED INTO A CHESS PIECE IN A NEGOTIATION WITH THE CHINESE AND YET WE HAVE BEEN TOLD THAT THE WHITE HOUSE DOESN'T WANT – OR DOESN'T WANT IT TO APPEAR TO LOOK LIKE A CHESS PIECE. WHAT IS IT?

ROSS: WELL, IT'S A TRADE ENFORCEMENT ACTION. THAT'S WHAT IT STARTED OUT AS BEING. YOU KNOW, BACK SOME TIME AGO, IT BECAME PRETTY CLEAR THAT ZTE, WHICH IS THE SECOND LARGEST CHINESE TELECOM EQUIPMENT COMPANY AND THE FOURTH LARGEST ONE IN THE WORLD, IT BECAME CLEAR THAT THEY WERE VIOLATING THE SANCTIONS. BOTH THE SANCTIONS ON IRAN AND THE SANCTIONS ON NORTH KOREA. SO WE'VE BROUGHT AN ACTION, GOT THE DEPARTMENT OF JUSTICE INVOLVED AND IN MARCH OF LAST YEAR, WE REACHED A SETTLEMENT, WHICH GOT COURT APPROVAL. AND THAT SETTLEMENT SAID, THEY WOULD PAY FINES TOTALING A BILLION $100 MILLION OF WHICH $300 MILLION WAS DELAYED SO THAT THAT WOULD BE DRAWN DOWN ONLY IF THEY MADE A FURTHER VIOLATION. WHAT HAPPENED SUBSEQUENTLY, IS THE COURT IN TEXAS, WHICH IS THE JURISDICTION WHERE THIS OCCURRED, APPOINTED AN EXAMINER. THE EXAMINER MADE HIS REPORT AND WE FIGURED OUT THAT ZTE MANAGEMENT HAS BEEN LYING TO US. SO IN ADDITION TO MANY, MANY INSTANCES OF VIOLATING SANCTIONS, THEY'VE LIED DURING THE INVESTIGATION, THEY'VE LIED DURING THE SETTLEMENT NEGOTIATION AND THEY LIED AGAIN AFTER THE JUDGMENT HAS BEEN ENTERED. THAT'S INEXCUSABLE BEHAVIOR. ITS NOT TOLERABLE BEHAVIOR. SO WE DECIDED TO SANCTION THEM. AND IN THE COURT APPROVED SETTLEMENT, THERE WERE TWO THINGS THAT WE COULD DO. ONE WAS TO SIMPLY TAKE THE EXTRA $300 MILLION. THE OTHER WAS TO PUT THEM IN A DENIAL ORDER, MEANING THAT THEY CAN NOT GET U.S. TECHNOLOGY THAT'S ON THE LIST. I CHOSE TO DO THE STRONGER OF THE TWO REMEDIES AND, FRANKLY, THE STAFF HAD RECOMMENDED DOING THE MILDER ONE – THE 300 MILLION, BUT I REALLY WANTED TO MAKE SURE WE WOULD CHANGE THE BEHAVIOR OF THIS COMPANY BECAUSE THEY HAD BEEN BAD ACTORS. SO THAT'S HOW WE GOT TO THE FIRST DECISION. NOW SINCE THE PRESIDENT REQUESTED WE TAKE A LOOK AT IT, WE ARE REEXAMINING, IS THERE ANOTHER WAY OF ACHIEVING THE SAME END RESULT? IS THERE ANOTHER WAY TO MAKE SURE THAT WE CAN CHANGE THE BEHAVIOR THAT WE'RE NOT GOING TO HAVE SANCTION VIOLATIONS, WE'RE NOT GOING TO HAVE PEOPLE LYING TO US. SO WE'RE DEVELOPING A MATRIX OF THINGS AND WHILE WE HAVEN'T COME QUITE TO A FINAL DECISION YET, WE THINK THERE MAY VERY WELL BE AN ALTERNATIVE THAT WILL BE QUITE PUNITIVE TO THEM, BUT REALLY MODIFIED BEHAVIOR AND THAT'S WHAT WE'RE AFTER.

KERNEN: HEY WILBUR, DO YOU THINK THAT THE CHINA TRADE TALKS SEEPED INTO THE NORTH KOREA MEETING JUNE 12th? DO YOU THINK THAT PRESIDENT XI, I DON'T KNOW, IS PLAYING SOME TYPE OF HAND THERE WHERE THINGS DID CHANGE AT THE LAST MEETING WITH KIM JONG-UN BASED ON ONLY THE FRICTION BETWEEN UNITED STATES AND CHINA IN THE TRADE TALKS? THAT DOESN'T -- IT SEEMS LIKE A BAD WAY TO CONDUCT NUCLEAR FOREIGN POLICY ABOUT NUCLEAR ISSUES.

ROSS: WELL, I GAVE UP TRYING TO PRETEND I WAS A PSYCHIATRIST YEARS AND YEARS AGO, SO I COULDN'T BEGIN LOOK INTO THE HEAD OF THE NORTH KOREAN LEADER OR PRESIDENT XI. WHAT I DO KNOW IS WE ARE GOING BACK OVER TO BEIJING NEXT WEEK AFTER THE OECD IN PARIS. WE'LL HAVE SOME TECHNICAL PEOPLE THERE AT FIRST. I'LL BE GOING THERE A LITTLE BIT LATER IN THE WEEK AND WE'LL SEE WHERE THOSE TALKS REALLY DO STAND. WE ARE HOPEFUL THAT SOMETHING CONSTRUCTIVE CAN BE DONE, BUT IF IT DOESN'T MEET THE PRESIDENT'S REQUIREMENTS, THEY WILL NOT GO FORWARD. AND THEY WON'T GO FORWARD IF WE DON'T HAVE REALLY GOOD PROTECTION OF INTELLECTUAL PROPERTY, REALLY GOOD PROTECTION AGAINST FORCED TECHNOLOGY TRANSFERS. ALL OF THE IMPORTANT LONGER-TERM ISSUES.

SORKIN: AND MR. SECRETARY, ONE FINAL QUESTION TO FOLLOW UP ON THE ZTE QUESTION. IF IN FACT, YOU WERE TO THROW OUT MANAGEMENT AND RECONSTITUTE THE BOARD OF THAT COMPANY, GIVEN THE FACT THAT IT IS A STATE-CONTROLLED COMPANY AND THE STEPS THAT THEY HAD TAKEN BEFORE BREAKING THE SANCTIONS OSTENSIBLY WERE APPROVED BY GOVERNMENT OFFICIALS OR AT LEAST THE GOVERNMENT OFFICIALS LOOKED THE OTHER WAY AND THE NATIONAL SECURITY CONCERNS THAT STILL EXIST AROUND THIS COMPANY, HOW CAN YOU GET COMFORTABLE WITH THAT TYPE OF SOLUTION?

ROSS: WELL, IF WE DO DECIDE TO GO FORWARD WITH AN ALTERNATIVE, WHAT IT LITERALLY WOULD INVOLVE WOULD BE INPLANTING PEOPLE OF OUR CHOOSING INTO THE COMPANY TO CONSTITUTE A COMPLIANCE UNIT AND THAT UNIT WOULD REPORT BACK TO THE DEPARTMENT OF COMMERCE AND WOULD REPORTS TO THE BOARD SHARE AFTER MANAGEMENT CHANGE.

SORKIN: SO WE'D BE INSTALLING COMPLIANCE OFFICERS, OUR OWN PEOPLE, INSIDE THAT COMPANY?

ROSS: IT'S ONE OF THE THINGS THAT WE'RE CONSIDERING BECAUSE THE WHOLE KEY IS ENFORCEMENT AND WE FOUND LAST TIME THAT THEY DIDN'T LIVE UP TO THEIR AGREEMENT SO –

SORKIN: -- SO DO YOU HAVE A SENSE THAT THE CHINESE WOULD BE AMENABLE HAVING AMERICANS LITERALLY LIVING INSIDE THE COMPANY IN A COMPLIANCE WAY, THE WAY WE MIGHT FOR A U.S. BASED COMPANY?

ROSS: WELL, IF WE CONCLUDE THAT'S THE PROPER ALTERNATIVE, WE WILL FIND OUT. REMEMBER, RIGHT NOW THE SANCTIONS THAT WE PUT IN ARE IN EFFECT. SO THEY DON'T EXACTLY HAVE A VERY STRONG NEGOTIATING POSITION BECAUSE THIS IS A VERY, VERY PAINFUL THING FOR THEM. THEY'RE NOT GETTING THE QUALCOMM MATERIAL THEY NEED. THEY'RE NOT GETTING THE OTHER MATERIAL THAT'S VERY HIGHLY TECHNICAL, AND WITHOUT WHICH THEY CANNOT OPERATE A LARGE PART OF THEIR BUSINESS. SO THEY'RE NOT EXACTLY IN A STRONG NEGOTIATING POSITION. AND SINCE IT IS AN ENFORCEMENT MATTER, IF WE'RE NOT QUITE SATISFIED THAT WE HAVE A VERY GOOD ALTERNATIVE, WE'RE SIMPLY NOT GOING TO DO IT AND WE WILL LEAVE IN PLACE THE SANCTIONS.

KERNIN: ALRIGHT, SECRETARY ROSS. THANK YOU. APPRECIATE IT.

ROSS: THANK YOU.

KERNEN: SECRETARY WILBUR ROSS, GREAT TO SEE YOU FROM WASHINGTON.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com