WHEN: Today, Tuesday, March 12, 2019
WHERE: CNBC's "Squawk Alley" – Live from inside the Pentagon
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Secretary of the Army Mark Esper and CNBC's Morgan Brennan on CNBC's "Squawk Alley" (M-F 11AM – 12PM) today, Tuesday, March 12th. Video will be available on CNBC.com later today.
All references must be sourced to CNBC.
MORGAN BRENNAN: Welcome back to "Squawk Alley." I'm Morgan Brennan live from inside the Pentagon on what is a busy day for the Department of Defense as it unveils details around the fiscal year 2020 budget request, $718 billion. That's what the administration is asking for. And I'm actually sitting inside the office of the Secretary of the Army. Secretary Mark Esper of the U.S. Army is joining us exclusively. Thanks for sitting down.
MARK ESPER: Thank you, Morgan. Thank you for inviting me.
MORGAN BRENNAN: So, big day. President Trump is really proposing across the board cuts in terms of the budget for most of the Federal Government. Big notable exception: the Department of Defense. We're drawing down troops, we're looking to draw down troops in key conflict zones right now. What do taxpayers need to know about the increase in the budget?
MARK ESPER: This is a big day for the Army, because we will be presenting to Congress a very bold budget that really reflects the shift for the Army into the national defense strategy that calls us to be prepared for high intensity conflict against countries like Russia and China. And at the same time, it also underscores this important parcel, this renaissance that the Army is in with regard to how we man, organize, train, and equip the force. So it is a very big budget for us.
MORGAN BRENNAN: In terms of that Army renaissance, what are the budget numbers? Can you share those with us?
MARK ESPER: Well, we'll have a top line request around $182 billion. And that will allow us to continue to grow the force. That will allow us to begin the shift of over $30 billion over five years to really modernize the force, to move away from the legacy of the last three or four decades into the future in terms of building semi-autonomous and autonomous vehicles, robotics, incorporating artificial intelligence, all those things we know that we need to fight and win on future battle fields.
MORGAN BRENNAN: I want to dig into all that technology a bit more, but first, some of the experts that I have spoken to said as we do draw down troops in places like Afghanistan and Syria that it could become more challenging for the Army to request more funding. What would you say to that?
MARK ESPER: Well, it allows us actually to prepare, to be more ready. Because we can spend more time at home station training our forces to be prepared to fight the big fights, whether it's Russia, China, or someone else, so that's been our focus, is how do we prepare the forces, how do we retrain, how do we equip them, how do we reorganize our formations? I mean, one of the things we're doing right now is rewriting the doctrine for future warfare. And all of that is going to play out as we implement the Army vision that the Army Chief of Staff and I wrote last summer.
MORGAN BRENNAN: What do you see as the biggest threat facing the U.S. right now?
MARK ESPER: I think the biggest immediate challenge is North Korea. And then as we look in the out years, between 2025 and 2035, Russia. But the biggest challenge is clearly China, in the years 2035 and beyond. I mean, the size of the country, its economy, and everything, they're -- it is a big strategic competitor for the entire Department of Defense and country.
MORGAN BRENNAN: It's interesting to hear you talk about China. Obviously, these trade talks between the U.S. and China continue. If the administration actually does strike a trade deal how would that impact the strategy that is being put in place by you in terms of the Army and the Defense Department more broadly?
MARK ESPER: I'm not sure it impacts the strategy at all really. Clearly, we need a strong economy to build a strong military. That comes first and foremost, but we will remain focused on preparing forces for high intensity conflict wherever it may be.
MORGAN BRENNAN: I want to shift gears for a moment. Because, unfortunately, the news of the day is focused on that deadly crash of a Boeing aircraft and it seems by the moment right now, we have more countries looking to ground those flights and the world is focused on that right now. I realize it is a commercial aircraft. I realize there are more details yet to come. Boeing is a big contractor for the U.S. Army. How closely are you tracking this, and depending how all of this plays out, is it the type of thing that could cause you to reevaluate your relationship?
MARK ESPER: We closely track the systems Boeing builds for us and they're some very capable systems. So that's been my focus. It is something that I look at every month. I look at the metrics for all major combat systems and our platforms, which Boeing builds many and they're successful platforms. We have challenges here and there of course, but I focus on programs that the Army is running.
MORGAN BRENNAN: Now, in terms of some of the reforms you're putting in place, this bigger strategy and pivot for the U.S. Army, this renaissance you're talking about, more technology, I would imagine more outreach, and more work with Silicon Valley and technology companies. How is that going?
MARK ESPER: It is going well. I try to get out and meet with CEOs every week if I can to talk about where the Army is going, to assure them with regard to what our six modernization priorities are and the fact they won't change. Because business needs that predictability so they can invest and they can help us move into the future. So everything -- every time I talk to a CEO, we also get good feedback on what we can do differently and better. Clearly acquisition reform is very important. So we're doing everything we can to get rid of unnecessary processes, to get rid of regulation and really partner with industry to really achieve the technological advances we need to retain overmatch in the future.
MORGAN BRENNAN: Have you met any resistance, in terms of the technology community? Because certainly we have been hearing about more I guess, employee push back, whether it's at Microsoft or Google, in terms of partnering with the military?
MARK ESPER: No, I haven't actually. In fact, what the Army did last summer is we set up Army Futures Command. It's the biggest organizational change in the Army in 45 years. And we set this up in Austin, Texas, a technological hub that's growing, it's very vibrant. And what we've done is open up our doors and said to young entrepreneurs and innovators of any size and scale: 'Come on in, the army is open for business. We want to partner with you.' And frankly, we've heard nothing but excitement and optimism and energy with regard to the Army's outreach.
MORGAN BRENNAN: How do you ensure new technologies, like AI for example, are used responsibly?
MARK ESPER: Well, we have to think about that, particularly with AI in terms you how we would employ it. I mean, my vision is, as we've talked to folks, there will always be the soldier in the loop with these systems. But clearly AI will allow – will enable the soldier to act and think much more quickly. And if you can do that on the battlefield, because whoever gets to AI first, I believe will have dominance for many years afterwards. So, we have to get there first, and have to be conscious of the ethics of warfare, too. So we maintain that person in the loop.
MORGAN BRENNAN: So, in light of that and in light of this budget and details around this request that are being unveiled today, what does the Army of the future look like and how will those future battles be fought?
MARK ESPER: I think the Army looks much more robotic. It looks -- it has much more semi autonomy, and full autonomy building into the system right now. I mean, we're experimenting now with semi-autonomous vehicles. Leader follower transport systems. So, you'll see a lot of that. And I think you'll see technology that will guarantee soldiers much greater survivability and lethality on the battlefield.
MORGAN BRENNAN: Well, Secretary Esper, thank you for joining us today.
MARK ESPER: Thank you, Morgan.
MORGAN BRENNAN: As the Army unveils the details around this $182 billion budget request, within the broader Defense Department request, certainly a big day, and we appreciate you sitting down exclusively with us.
MARK ESPER: Well, thank you very much, too.
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