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CNBC Transcript: Steven Mnuchin, U.S. Treasury Secretary


Below is the transcript of a CNBC Exclusive interview with Steven Mnuchin, U.S. Treasury Secretary. The interview was first broadcast on CNBC's Squawk Box Asia on 10 June 2019.

All references must be sourced to a "CNBC Interview'.

Interviewed by CNBC's Nancy Hungerford

Nancy: Secretary. Thank you for taking the time to speak to CNBC here in Fukuoka. It does seem as though there is almost a collective sigh of relief in the halls here when the news over Mexico did break and the confirmation from President Trump that he will not be going ahead with tariffs on Mexico was perceived as good news here at a time when many were worried that protectionism is already taking a toll on global growth. And then there's some evidence now that perhaps the U.S. economy is slowing more than expected as well. If you consider the jobs number we had on Friday it was a big mess. Does that concern you?

Mnuchin: Well first of all it's great to be here with you. It's been a long week. I was excited. I started the week with the President in the U.K., France and Ireland. We've had a very productive two-and-a-half days here in Japan. First of all, let me just say we are very excited about the Mexico agreement and we very much appreciate the government working with us on immigration. These are very important issues and they've made significant commitments and people are very pleased to hear about that here. In regards to U.S. growth, I think U.S. growth is still really the bright spot of the world and that's really the story that I'm hearing today as it relates to the employment numbers. I wouldn't focus on any one number no there's plenty of volatility in these numbers. We still see the growth in the U.S. as really quite strong and we are somewhat concerned about what we see as a slowdown in Europe, China and other areas of the world.

Nancy: And relatively speaking it does seem stronger in the U.S. that's for sure. But some data on the manufacturing side, retail numbers, industrial production numbers, have disappointed. And when you look at what's happening with the bond markets too it seems as though the markets are anticipating a stronger slowdown even a recession. Is that something you worry about?

Mnuchin: I don't see any signs of a recession. I would say that the bond markets are predicting without me making any comments on interest rates. The bond markets are predicting a lowering of interest rates. We are in an environment where global interest rates are very low around the world. So I think that's what you're seeing in the U.S. bond markets. But no, we see no signs of a recession. We see another strong quarter in the United States.

Nancy: As you point out it does seem as though President Trump will get that Fed cut he's been looking for maybe cuts plural coming from the Federal Reserve now at least that's what the markets are telling us. Do you think the economy warrants it?

Mnuchin: Well as Secretary of the Treasury I'm going to respect the fed independence since the chairman and I meet weekly so as I've said in the past I'm not going to comment on U.S. interest rates.

Nancy: Well one thing that the fed is watching is what happens with these China-U.S. negotiations which you are very much a key part of. And it does seem as though President Trump thinks that if he gets some help from the Federal Reserve that would help with the trade fight economically speaking. But do you worry that China perhaps sees a more accommodative fed as a sign of weakness?

Mnuchin: Absolutely not. And this isn't about a trade fight. What this is about really we've been talking to China for the last two years from the first meeting between the two presidents at Mar-a-lago about rebalancing the trading relationships the U.S. has been and is the most open largest economy in the world, the most open economy in the world for investment and trade, and the message that I've been delivering here at the G-20 is we want free and fair reciprocal trade but it's got to work in both directions. So we had made a lot of progress with China on a really great deal that would be very good opening their middle class and very good for our businesses and our workers. And we'll look forward to the two presidents meeting later in the month back in Japan.

Nancy: And I understand that you are asking China to come back to the terms of negotiations from where you left off. But how do we get there? What exactly went wrong?

Mnuchin: Well I'm not going to speculate on what went wrong. Since Buenos Aires, under the leadership of both presidents, we made enormous progress. I think we had a deal was almost 90 percent done. China wanted to go backwards on certain things. We've stopped negotiating and I just had a very candid discussion with Governor Yi. Governor Yi has been part of the negotiating team. And again, we made some preparations in advance of a meeting for President Trump and President Xi. If China wants to move forward with the deal we're prepared to move forward on the terms we've done. If China doesn't want to move forward then President Trump is perfectly happy to move forward with tariffs to rebalance the relationship.

Nancy: Did you get an indication from the PBOC governor that China does want to move forward?

Mnuchin: We had a private conversation and it was very candid and constructive conversation about the meeting for the two presidents. But I'm not going to go into the details.

Nancy: And will there be any meetings before the meeting between the two presidents are you perhaps about to divert your plane to Beijing after this?

Mnuchin: No I don't expect that to be the case. First of all, it's just in a few weeks. I'm actually going to go back to D.C. for a short period of time then I go to the Middle East for our Bahrain economic conference and straight from there back to Japan.

Nancy: Can you give us a better idea though what you talked about with the PBOC governor Yi Gang on the currencies in particular. Are you worried that China is going to weaponize their currency at least to use it to their advantage in this fight?

Mnuchin: No I don't think that's the case but I do think their currency has been under pressure as a result of what's going on in their economy and the risk to them of these trade issues. There's no question that as we put on tariffs people will move their manufacturing outside of China into other areas and that's going to have a very negative impact on their economy and I think you'll see that reflected in the currency.

Nancy: So you think it is a natural weakening of the currency rather than a deliberate manipulation?

Mnuchin: I do think it's a natural weakening of it.

Nancy: And when we talk about the meeting coming up with President Xi and President Trump that will be in Osaka in Japan. What needs to happen here to avoid additional tariffs being put on the 300 billion dollars worth of Chinese goods coming into the United States because that really seems to be the source of anxiety not just here in Fukuoka but among businesses and investors in the United States. Is it good enough to have a constructive talk? A good environment between these two leaders or do we need a deal signed?

Mnuchin: I think just like last time we're gonna need to see action and President Trump is going to need to make sure he's clear that we're moving in the right direction to a deal. So, in the case of Buenos Aires we came out of that. We had direction from the two presidents. He put the increases on hold. You know the President will make a decision after the meeting.

Nancy: Is your expectation we could see that once again put on hold if we can't get a deal?

Mnuchin: I believe if China is willing to move forward on the terms that we were discussing, we'll have an agreement. If they're not, we will proceed with tariffs.

Nancy: How difficult are the concerns around tech specifically Huawei making progress at this stage? President Trump has suggested that Huawei could be part of a trade deal. But I wonder if China sees it differently. Do you get the impression that China wants to see some concessions made from the U.S. on their stance of Huawei specifically the move to blacklist the company before they move forward on trade discussions?

Mnuchin: I think as we've said all along the Huawei discussions are really national security discussions. They're separate from trade. Both we and China have acknowledged that in our discussions. Now of course President Trump when he has the meeting, to the extent he gets certain comfort on Huawei or other issues obviously we can talk about national security issues but these are separate issues they're not being linked to trade.

Nancy: The President has said they could be linked.

Mnuchin: Well I think what the President is saying is if we move forward on trade that perhaps he'll be willing to do certain things on Huawei if he gets comfort from China on that and certain guarantees but these are national security issues that we want to make sure are resolved one way or another.

Nancy: And given that these lines are being blurred so frequently now between trade and national security how difficult does that make your job?

Mnuchin: Well I'm involved in the national security issues as well since I sit on the security council. I think you know we manage all the sanctions and treasury so I'm actively involved in these discussions.

Nancy: Do you get pushback from Secretary of State, from the Defense department not to give in on a deal too easily because the security concerns are so extreme at this time?

Mnuchin: I think we have an excellent relationship with Secretary Pompeo and with the other agencies. We consult with each other regularly. And this is a unified team under President Trump's direction.

Nancy: Do you think the government will look to sanction Hikvision which is the surveillance camera company?

Mnuchin: I obviously am not going to comment on any specific sanctions that we may or may not do in the future.

Nancy: There's also been that issue of blurred lines between national security with Mexico too, which was really a border security issue. But I've spoken to a few finance ministers here who are worried about that because it does seem as though there is no end in sight to tariffs being used as a tool and that could be used again for national security reasons or even border security with Mexico. Is that your understanding?

Mnuchin: Well I think it's very important that we have all these tools that we use them and President Trump has really done a great job in using these tools. The immigration issue was a very serious issue. We couldn't be more pleased that Mexico came to the table and negotiate an agreement. And because of that we don't need to put tariffs on them.

Nancy: And if they aren't able to fulfill their commitments though is the tariff threat still there?

Mnuchin: Absolutely. You know I have every reason to believe that they will meet their commitments. So I think that will be the case. But if for whatever reason they don't. The president reserves the right to put on tariffs.

Nancy: And just going back to the situation in China, when we talk about non tariff barriers too. A lot of U.S. companies around 50 percent I believe, in a recent AmCham survey talked about their concern they've already seen non tariff barriers to trade. We've also seen the situation around Fedex which is also tied to Huawei. Are you starting to see more areas of concern among non-tariff barriers and have you spoken to your Chinese counterparts about this?

Mnuchin: Well I'm not going to comment on the specifics of the Fedex situation but what I would say is in negotiating our agreement, one of the big parts of the agreement has always been about non-tariff barriers is about forced technology transfer. These are very important issues to us and critical to any agreement. So these are issues we've made a lot of progress and any agreement we have will need to be certain that that's included.

Nancy: Is that part of what broke down then? Was it enforcement of those issues, which can be very difficult to enforce and make sure people are complying with?

Mnuchin: Given we're in the midst of a negotiation still I'm not going to comment on the specifics.

Nancy: I would like to also get your thoughts on what is happening in the way of talking to about digital taxation and there's a conversation here where many parties are trying to push for digital taxation and others feel that perhaps it will unfairly put U.S. tech companies at a disadvantage. Is that something you are worried about and really resisting in terms of these talks?

Mnuchin: We've had very productive discussions on tax issues both on the bilateral conversations as well as in our group sessions. We've had a couple of sessions on taxation. I've made very clear in these meetings that we do not support the proposed U.K. and France tax positions that we think they are discriminatory against our companies. Having said that, I am sympathetic to the issue. As you have changing business models you have to look at the tax impacts. So we are looking at the tax issue more broadly and looking for a broad solution that would be supported by the OECD. And I think it's very important that we have an international solution that doesn't just target U.S. companies. And that's something we're making a lot of progress on. I think we've made a lot of progress this week and I think moving towards the G7 this summer. Our goal is to try to have a resolution to that.

Nancy: And when it comes to the U.K. if they go it alone on their own digital taxation plan without your consensus could this stand in the way of a post-Brexit U.S.-U.K. trade deal because I'm sure that was part of the conversation you just had on your visit to London.

Mnuchin: Well the U.K. and France have both made it clear that to the extent we have an international solution that they won't go forward with their own taxes. So we're proceeding on that basis that we're gonna get a solution over the next six months.

Nancy: Finally, I just wanna ask you about an issue back in Washington D.C. that does seem as though the democrats really aren't giving up on the pressure to try and have President Trump release his taxes. They've expressed frustration from your citing your refusal to do so. Do you think if this legal battle heats up that ultimately President Trump is prepared to use executive privilege to prevent those taxes from being released?

Mnuchin: Well, let me be clear. We are doing what we think is proper under the law. We have received guidance from the justice department on this. The real issue here is, this is not just an issue about a president and congress. This is an issue about part of congress trying to weaponize the IRS. This is an extremely dangerous precedent. And my job is to protect the IRS and protect the American public that the IRS doesn't get weaponized.

Nancy: And then when you hear lawyers say "oh well the IRS does need to hand them over" I mean it does seem as though there's a legal tit-for-tat here. How does it end?

Mnuchin: Well there are three branches of government and it's important that there is a division. So my expectation is this will ultimately go to the courts and the courts will decide.

Nancy: I do want to conclude it looking ahead to G-20 Osaka just once again. If you had to put a number on it, could you give us a probability that you think President Trump and President Xi will be able to come to an agreement that is strong enough to avoid the next round of tariffs?

Mnuchin: Well, I can't speculate on that. What I would say is we look forward to that meeting. They had a very productive discussion in Buenos Aires. That's what led to these round of negotiations. I know they have a very close relationship and if there's a desire on china's part to reach a real agreement with us, we will negotiate in good faith.

Nancy: President Xi said the other day, he referred to President Trump as his friend, is that good new as you see it?

Mnuchin: Well, I think that they are friendly. They developed a very close relationship and that's important to the relationship between the two countries.

Nancy: Secretary Mnuchin it's been an absolute pleasure speaking to you. Thank you for your time on CNBC.

Mnuchin: Thank you.


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