WHEN: Today, Thursday, July 18, 2019
WHERE: CNBC's "Squawk Box"
The following is the unofficial transcript of a FIRST ON CNBC interview with Treasury Secretary Steven Mnuchin on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Thursday, July 18th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/07/18/treasury-secretary-steven-mnuchin-on-the-debt-limit-and-trade.html.
All references must be sourced to CNBC.
BECKY QUICK: Our news maker of the morning joining us right now Treasury Signature Steven Mnuchin. Mr. Secretary, thank you very much for being with us today.
STEVEN MNUCHIN: Thank you, it's great to be here with you.
BECKY QUICK: Well, it's great to see you. Let's ask a pressing question that the markets are really thinking about right now. When will the Treasury run out of cash if the debt ceiling isn't raised?
STEVEN MNUCHIN: So, as I've described, we run a variety of scenarios, given the size and scale of the U.S. cash flows. In one of the three scenarios, which is the most conservative scenario that we run, we would have an issue the beginning of September. I've discussed that with the leadership of both the House and the Senate. And that's why I've encouraged them to raise the debt ceiling before they leave.
BECKY QUICK: Raising the debt ceiling before they leave. Nancy Pelosi said yesterday that there needs to be a deal reached before they leave for the summer recess. There are people who are telling Ylan Mui in Washington that that is happy talk – that that's not going to happen. What do you think?
STEVEN MNUCHIN: Well, I have been having daily conversations with the Speaker. I spoke to her and Chuck Schumer yesterday. I have a call scheduled with her later today again. I have been having daily conversations with our internal team, myself, Mick, Russ. We met with the President and the Vice President before I left to make sure we have their input. We had conversations yesterday with both Mitch McConnell and Kevin McCarthy. So, this is very much a team effort. The good news is we've reached an agreement between the administration, the House and the Senate on top line numbers for both year one and year two. We're now discussing offsets, as well as certain structural issues. And we've agreed as a part of that deal, there would be a long-term two-year debt ceiling increase. So, I think all of our first choice is to try to reach an overall agreement and we are working hard to do that. But if for whatever reason we don't get there in time I am encouraging a debt ceiling increase.
BECKY QUICK: What's the biggest ceiling now? Is it the 150 billion dollars in offsets that you just mentioned? Is that what might derail things?
STEVEN MNUCHIN: Well, I didn't mention the 150 billion number. You did. I'm not going to comment on any specific numbers. But as I said, the good news is, we spent a lot of time working on the top line. We're now working on offsets. We've agreed that there will be offsets. So now we are just trying to figure out whether we can get to both the number agreed to on time, and the specifics, and the structure. And we're all working hard to do that.
BECKY QUICK: The markets haven't reacted in great force to any of this yet. I think the basic assumption is it will get settled. Is there a time frame that would make you start to worry?
STEVEN MNUCHIN: I don't think the markets should be concerned. I think that everybody is in agreement that we won't do anything that puts the U.S. government at risk in terms of our issue of defaulting. And I think that nobody wants a shutdown in any scenario. So, I don't think the markets should be concerned. And we're working hard. We'll get there one way or another.
BECKY QUICK: Mr. Secretary, the front page of the "Wall Street Journal" today says there has been a road block that's been hit in the trade negotiations between the United States and China and it's because of Hauwei. They say no face-to-face meeting versus taken place. Can you describe where things stand right now and what your assessment of the situation is?
STEVEN MNUCHIN: Well, my first comment is don't believe everything you read in the press. My second comment is Ambassador Lighthizer and I have a called schedule later today with our counterparts. This will be the second conversation we've had. There has been discussion at the staff level. I think we're working under the direction of President Trump and President Xi from the meeting in Osaka. And we'll see what we get. Assuming that we continue to make progress, I would expect Ambassador Lighthizer and I to travel over there to have and in-person meeting. But as I said, we have another call scheduled for today. And we'll see where we get on that call.
BECKY QUICK: In terms of what not to believe, though, what should we not believe? Are you referring to the "Wall Street Journal" article from last week that said that you had been pushing people to go ahead, pushing businesses to go ahead and agree to sell things to Hauwei?
STEVEN MNUCHIN: Well, we have been very clear and we've got on the record saying that absolutely wasn't the case. As I've said, I speak to lots of CEOs daily. I speak to lots of people about trade in general. I've sat in on certain conversations with Secretary Ross as in a combination with industry and others. But these decisions are firmly within the Commerce Department. And as the Commerce Department has made clear, they're considering exemptions that don't impact national security. But no, in no way have I ever been encouraging companies to do one thing or another on this. And, you know, I wouldn't say that that's the sticking point in the trade negotiations. So, you know, there are a lot of complicated issues. I think as I've said before, we have made a lot of progress. We're trying to get back on the path to a lot of progress. And Ambassador and I are working closely on that plan.
ANDREW ROSS SORKIN: Mr. Secretary, you know, over the past several months ahead of that last meeting with President Xi and President Trump, Secretary of State Pompeo had traveled the world and talked to many of our allies and encouraged them or rather I should say discouraged them from doing business with Hauwei, calling them a security threat to their own countries and ours. To the extent that we get back into some form of business with Hauwei, what do you tell our allies?
STEVEN MNUCHIN: I think we have been clear that from a whole of government approach that we have concerns about Hauwei being in certain infrastructure. And I think we have been consistent with that that's a different issue than whether every single product is that's being sold to them creates national security issues or not. So, I see these as two independent issues. We have been consistent on both paths.
JOE KERNEN: Mr. Secretary, the other day in the discussion about Libra and crypto currencies and bitcoin, I think you were echoing some of the President's comments on using the term thin air in terms of not Libra but on I guess all of them or bitcoin specifically. That the value is based on thin air. AndI know you are a part is guy, Goldman and a very successful businessman. I'm just wondering whether you've looked at the blockchain technology, the distributed ledger and decentralization that is the underpinning of bitcoin in which had advocates say doesn't view this with some inherent value. Do you, yourself, believe there is based on thin air and has no inherent value? Or were you just more or less on board with what the President was saying?
STEVEN MNUCHIN: So, a couple of things on this front. First of all, let me be clear. We very much support financial innovation and anything that lowers payment processing costs, especially across border is something that's very important. And we discussed that a lot at the G7. The President has raised concerns about crypto currencies, bitcoins in general. I absolutely share those concerns. At Treasury we have been doing work at this over the last year. We have put together a working group. And there was a clear agreement today from all the G7 finance ministers and Central Bank governors that Libra, in particular, raises some very significant concerns and crypto currencies more broadly. And that before any of us let these go through, we are going to make sure that those concerns were satisfied. That there are money laundering issues, there's financial stability issues, there's consumer protection issues. These are complicated issues and it's all of our jobs to protect the financial system. Now on my comment about bitcoin in thin air, I was quoting the President and that's what I said. I share a lot of the President's concerns. Although, I think that the technology and I would separate blockchain from bitcoin. I think the technology has certain clear uses. I want to be careful that anybody who is using bitcoin, regardless of what the price is, is using it for proper purposes, and not illicit purposes. And there are billions of dollars of transactions going on in bitcoin and other crypto currencies for illicit purposes. At Treasury, we have FINCEN, we have responsibility for oversight of money service providers and banks under the Bank Secrecy Act. And we're going to enforce these very, very strong. So, whether it's a physical money service provider or an electronic, they're going to have the same regulations.
JOE KERNEN: We'd have a problem if we decided every time that cash, itself, or any other form of currency every time it's used for some nefarious activities if we weren't going to use it anymore. I'm not sure that -- maybe it's a little easier for technology for certain illicit activities. But that can't be the reason, you know, to say you are not going to use them. I wouldn't even use cash then. Because cash is laundered all the time and used for nefarious activities. That's all we've ever used for nefarious activities. We certainly had plenty of them.
STEVEN MNUCHIN: I don't think that's accurate at all, that cash is laundered all the time. We have the strongest AML system in the world. You know, we just came back from FATF where on a global basis, they've agreed to implement money laundering. I think as you know we use sanction tools. So, we combat bad actors in the U.S. dollar every day to protect the U.S. Financial system.
JOE KERNEN: But you'd agree, there has been a lot of--
STEVEN MNUCHIN: And all we're saying is –
JOE KERNEN: There have been a lot of nefarious activities historically, and it's never involved bitcoin. So, obviously, it's been pretty successfully done with cash. That's all I'm saying. Unless you think there is –
STEVEN MNUCHIN: I don't think it's been successfully done with cash. I'll push back on that. We're going to make sure bitcoin doesn't become the equivalent of Swiss-numbered bank accounts, which were obviously a real risk to the financial system.
ANDREW ROSS SOKRIN: One final question related to all that and I know we have some other quick questions. But, Mr. Secretary, I think a lot of investors today who are looking at crypto currency and now looking at this Libra situation, you talk about, you know, anti-money laundering issues, you know, your customer issues. To some degree, and Libra is very different than some of the other crypto currencies like bitcoin, but to the extent there will be regulation around a Libra-like coin or a Libra-like currency where you do have an organization that could be ultimately held accountable, bitcoin inherently, given the way it's structured—there is nobody to call, there is no organization. And so, I think the long-term question that investors to the extent people are looking at Libra and then saying to themselves 'Well, what is going to happen to bitcoin?', how do you square those two things and how do you look at them?
STEVEN MNUCHIN: I think there is completely similar issues. So, on the first issue, again, Libra has got a lot of work to do before we are comfortable. But if they follow the rules and regulations properly and it's regulated, including potential financial stability issues, that may or may not be something that we get comfortable with. As it relates to, and there is a difference because Libra is supposed to be a stable coin and I say supposed to. Individuals don't have direct claims on the currency, the underlying currency, that creates issues. As it relates to bitcoin, anybody in the U.S. that touches a bitcoin is responsible for money laundering and will be held accountable. So, if you are in the U.S. and you transact bitcoin, whoever you are transacting with is responsible for enforcing those regulations. And those are rules being adapted around the world.
BECKY QUICK: Does it concern you that Libra is the company is going to be based or the organization is going to be based in Switzerland? Do you think that's a coincidence?
STEVEN MNUCHIN: You know that per se doesn't necessarily concern me one way or another. You know again, what I would just say is, look, obviously, there are certain privacy concerns that Facebook has experienced in general. Those will have to be addressed. There are certain complexities around the technology in this distributed technology world we want to make sure that consumers are protected, that there is someone to stand behind transactions. There is cyber issues. There is regulatory issues. There is international currency issues. These are very complicated. But what the G7 is all for is lowering transaction costs. So, one of the things we talked about is it's all these Central Banks, the finance ministers, the international banks. We want to make sure that if people want to transact business between currencies, they can do that real-time, quickly and without big fees. So that's something that we're all trying to do, whether Libra is the solution or something else, we will make sure that that occurs.
ANDREW ROSS SORKIN: Mr. Secretary, it's not a transaction cost but in many ways, it is for U.S. companies. France putting a 3% tax on some of our U.S. digital companies. Where do you think all of that goes? Where do you think Macron was trying to do? And how do you think the G7 is going to ultimately respond?
STEVEN MNUCHIN: Well, we've had very good conversations over the last two days on what I call the international tax issue. There is no question, I have been very public that we have big issues with the France DST and what the potential UK DST. We think that, one, there shouldn't be a gross tax on our companies. If there are any taxes, they should be on profits, not on gross sales. Two, they should fit to international norms and, three, they should be discriminatory just attacking our digital companies. I think the good news is that both chance and the UK and the entire G7 want to find an international solution to tax issues. That's important for multinationals. So, the issues we're addressing are not just about digital, they're about transfer pricing issues, they're about creating more certainty for global multi-nationals. They are dealing with transfer issues. They're dealing with certain Nexus issues, which do become a little more complicated for digital companies. I think we've made a lot of progress this week. But we're going to try to move forward on this as quickly as we can.
BECKY QUICK: Mr. Secretary, just circling back very quickly to the China trade talks: you said that Hauwei is not the sticking point, that the Journal's headline this morning is wrong. If Hauwei is not the sticking point, what is?
STEVEN MNUCHIN: There are just a lot of complicated issues. I think you know we were very far along on the deal. We were disappointed that we went backwards on certain issues. I think we got direction from President Xi to President Trump to try to get back to the table and move forward. And that's what Ambassador Lighthizer and I are working on. That's our objective. We want to get a good deal. We will only enter into a deal if it's a good deal. But if we get a good deal, this is a great opportunity for U.S. companies, for U.S. workers. There is a huge growing market in China of middle income people. And we want to be able to compete fairly. This has been a one-way street, as the President has said. China can invest here, China can sell into the U.S. our companies are limited. That's why we have a giant trade deficit. And that's what we are trying to deal with.
BECKY QUICK: The deal that we had a few months ago, is that back on the table?
STEVEN MNUCHIN: I'm not going to comment on the specifics when we're in the midst of a negotiation.
BECKY QUICK: Secretary Mnuchin, we want to thank you for your time today. It's always good to see you. And we do appreciate you taking the time to talk with us.
STEVEN MNUCHIN: Thank you very much. Great to be with you.
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