WHEN: Today, Wednesday, December 12, 2018
WHERE: CNBC's "Power Lunch"
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Commerce Secretary Wilbur Ross on CNBC's "Power Lunch" (M-F 1PM – 3PM) today, Wednesday, December 12th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2018/12/04/watch-cnbcs-full-interview-with-commerce-secretary-wilbur-ross.html.
All references must be sourced to CNBC.
TYLER MATHISEN: China trade tensions, the Huawei CFO drama, the fight to keep the government open – just a few of things on the Trump administration agenda this week. And also on the docket, financial leaders meeting at the Commerce Department today for a Space Investment Summit. Joining us exclusively from the White House is the Commerce Secretary Wilbur Ross. Our Morgan Brennan also with us to talk about the final frontiers in space. But Secretary Ross, welcome first of all. It's always great to see you, sir.
WILBUR ROSS: Thank you. Good to have me on.
TYLER MATHISEN: We're happy to have you here. The report we want to begin with from "The Wall Street Journal" that China plans to scale back its 'Made in China 2025' policy to give foreign companies greater access to its economy. There's that. There's the idea that they're going to buy more beans. There's the idea that they're going to reduce tariffs on U.S. made automobiles. These are all, I assume, encouraging steps in our trade negotiation with them. But do they go far enough? Do they miss critical points about intellectual property, market access, and technology transfer?
WILBUR ROSS: Well, the first thing I think they do is they prove that President Trump was right when he announced his summary of the talks of President Xi. You'll remember there was some controversy at that time, what President Trump then said about reducing the tariff on auto, and that will help a lot and, in fact, interestingly one of the big beneficiaries of that is BMW. They are the largest exporter of autos from the United States, period, and they export about 40% of their vehicles to China. So that's a very direct help to us and probably will be helpful in the talks we've been having with the German auto manufacturers. On the soybeans, same thing. The President had said there would be a relatively immediate resumption of soybean purchases. It now turns out that he's accurate. As for the 2025, we don't object to them trying to become more involved in high tech. We do object to using inappropriate methods like stealing secrets, like forced technology transfers, that sort of thing. We're perfectly happy to compete with them toe to toe as long as it's a level playing field.
TYLER MATHISEN: So what can you tell us about this, quote, scaling back of the 'Made in China 2025' initiative? What in practice do we -- do we know that they're willing to do or scale back?
WILBUR ROSS: Well, it's a very complicated thing. For one thing it encompasses about 11 different industries and they had originally announced it back around 2015 and then it was part of their ten year roadmap. And it essentially said they wanted to get 70 to 80% market share and a whole big list of very interesting new technologies. That provoked a very big response from the U.S. and from some other countries, so since then they've been playing down 2025. If you'll search the recent clips, you'll find they haven't been talking that much about it. That doesn't mean they've dropped it. They clearly are going to move up the technology value added spectrum. They have to because they're no longer the world's cheapest place to manufacture. A lot of other parts of Southeast Asia and even Africa that are much lower wage and so they have to move up technology.
KELLY EVANS: Mr. Secretary, what else can the U.S. do to make sure that China's not stealing intellectual property, that it's not stealing guest lists from Marriott and using them to track its own citizens or international citizens? What more can the U.S. companies do and the U.S. itself, in that regard, other than tariffs?
WILBUR ROSS: Well, what we need is enforcement mechanisms. And I think part of the error in the way China was admitted to the WTO is that the then administration admitted them on the theory that they would play by the western rules of the road. The error was they didn't put in place a real enforcement mechanism in case they didn't. So what you will see if we did get to a trade agreement with China is there will be verification procedures, there will be enforcement mechanisms because the paper itself is one thing but you really need detailed implementation and a means to correct. In many cases it will also take legislative change on the part of the Chinese government. And in other cases it will have to require the change in practices and the change in the court system. So we're talking about some fairly fundamental structural changes that over time will be needed to accomplish at least our end purposes.
KELLY EVANS: And given that they're unlikely to accept those changes, should we expect more announcements from the U.S. such as the travel advisory that reportedly may go out, saying, you know, perhaps it's not wise for U.S. citizens to travel to China. Are those all tools in the tool kit for effecting those changes?
WILBUR ROSS: Well, there are all kinds of tools in the tool kit. I'm not so sure what provoked the rumor about the travel advisory. It could be something as simple as the former Canadian embassy official that went missing yesterday in China. But we haven't made any announcement and as far as I know haven't made any decision about changing travel advisement.
TYLER MATHISEN: Should American business people who are in China feel safe?
WILBUR ROSS: I think so. Because after all, their employees are mostly Chinese employees. So if the Chinese did something detrimental to those businesses, they'd be hurting their own people. Most of them also have 50/50 joint venture partnerships with Chinese entities and therefore if the Chinese took some action against those entities, it would also hurt the Chinese partners. So I think it's a lot more complicated than that.
MORGAN BRENNAN: Secretary Ross, Morgan Brennan here. Great to speak with you. This morning you held a Space Investment Summit.
WILBUR ROSS: Oh, yes.
MORGAN BRENNAN: Big focus there was this idea of large scale infusion of capital and how you get larger institutions to invest in this emerging sector. I mean, as the old saying goes, space is hard, potentially great reward but also great risk. What is the role that government plays in essentially growing and boosting and fortifying space?
WILBUR ROSS: Right. Well, originally government was almost the sole funder of space. Remember next Friday is the 50th anniversary of the Apollo 8 Mission. So it's a long time ago in one sense but a very short time ago in another. In those days it was essentially government funded. Now space is a $400 billion industry, 80% of which is private sector. So it started to change a lot from government to private. The real good rule for government is to take the adventurous part, the far out scientific research, and propel that into a state where someone else can commercialize it. And that's what's starting to happen. You see this little pin I'm wearing is from the International Space Station. They were one of the exhibitors at our investment summit today. And there are fascinating things going on there. There's one company testing osteopathic pharmaceuticals on mice and they're being charged 70,000 a pop for doing it. There's another one that's using the centrifuge to test other material. There's all kinds of stuff going on, pushing the outer parameters of science in space that will lead to more finite things. What's really happening in the commercial side is quite a few things. First of all, you're getting to reusability of the parts of rockets. Think how few people would be able to afford a 747 ride if it could only take one trip and then you had to scrap it. Now you already have the launch mechanism, which was 77% of the total cost of the launch, reusable. They're working now on getting the payloads, getting the fairings, getting other parts, that's a big help. The other thing that's a big help, we're starting to get into repetitive manufacturing of the same unit. When it's science driven, each scientist wants a little curly-q here, a little curly-q there, so they're one off production. Now that we're getting to these large constellations on small satellites, you get into repetition. That drives down unit cost because once you have learning curve, you're amortizing your R&D over a larger universe, and it's changing the math of things considerably. And that's important because one of the next big frontiers will be space tourism. Richard Branson already announced that he's going to take a test run of his plane that has already had 600 people signed up.
KELLY EVANS: I think he should take Steph Curry. But that's another – another issue.
TYLER MATHISEN: Let me turn the conversation to a meeting that I believe you're going to go to shortly regarding empowerment or opportunity zones, which was one of the provisions in last year's tax law that has very favorable tax treatment for investments in certain neighborhoods or regions. I'd like you to explain that because it has got a lot of investors very, very enthusiastic. Quick description of what this event is and how important do you think these tax provisions involving empowerment or opportunity zones will be?
WILBUR ROSS: OK, well, I don't want to front run the president's announcement, but I can tell you, I addressed a real estate group in Florida last weekend. Half the questions there were about these zones. There are already some 7,000 communities that have been designated for this factor. That's a lot of communities. And they're all, needless to say, communities that are somewhat depressed, often with all sorts of people unemployed and they're communities that really need help. So I think directionally it's a wonderful next step and it's a great way to bring up the very bottom income people in this country. You'll have more details about it at around 2:30 this afternoon.
KELLY EVANS: Mr. Secretary, before we let you go, just one more question going back to this extraordinary hack of Marriott by the Chinese. So, what is your message to U.S. companies? Forget even the ones operating in China. What should companies here do knowing that China is targeting this information, even after they struck a deal with the Obama administration promising they wouldn't do things like that. What are U.S. companies supposed to do about this?
WILBUR ROSS: Well, a couple of things. Many companies have been scrimping on the cyber security budget. They haven't been as protective of their own resources as they should have been. So the first thing they should be doing is trying to make sure that they've done more to protect themselves than they have been doing before. Second, in terms of the agreement that President Obama had, agreements aren't really useful, unless you have an enforcement mechanism and unless you have some sort of a penalty that adheres to a wrongdoing.
KELLY EVANS: Right.
WILBUR ROSS: Otherwise, it's just a scrap of paper.
TYLER MATHISEN: Secretary Ross, thank you for your time today. Always good to see you.
WILBUR ROSS: Oh, thank you. It's good to be on again.
TYLER MATHISEN: Wilbur Ross, Secretary of Commerce.
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