0:00 spk_0
Mr. Secretary, thank you for having us inside the Treasury. We appreciate it.
0:03 spk_1
Thanks, Brian. Glad to have you here.
0:05 spk_0
Yeah, no, this is
0:06 spk_1
especially on April 15th.
0:07 spk_0
Yes, tax day, of course, and of course, Mr. Secretary, we do sit here on tax day. Consumer confidence has been under pressure. Uh, everybody loves to look at eggs, one of their favorite barometers. They’re at record highs according to the CPI, the tenure that has climbed to about 4.5% has backed up a bit. And Mr. Secretary, I just had.The CEO of Constellation Brands, they make Corona beer, telling me consumers are pulling back. Level set for us. What’s the state of the economy through your eyes right now?
0:35 spk_1
Well, uh, Brian, let’s, let’s back up a little. Egg prices, I, I believe, are, are down 50%, 60, 70% off the highs. Uh, so, uh, that we, we inherited an egg inflation.When President Trump came into office, uh, I think egg prices were up 200 something% under the previous administration and just through, uh, culling fewer uh henhouses and, uh, some imports we were able to alleviate that so check uh and.Uh, consumer confidence, we’re, we’re seeing uh some concern in the survey data, but we haven’t seen anything in the hard data. So very very solid job market last week of 228,000 versus an expectation of about 150,000 and um we have lots of CEOs come in.Especially from financial institutions since we’re here at Treasury and they’re they’re seeing a solid credit card spending growth they think the consumer is in good shape, corporates in good shape so uh in in my prior life in the investment business, uh, what we were not good at, uh, and I, I think it’s very hard to be very good at is predicting the macroeconomic numbers.What we did was form a mosaic. We called it the micro, so a bunch of micro data points, uh, drives the overall economy and from right now I see nothing alarming from the microdata points. What
2:17 spk_0
do you say, you mentioned in your prior life, of course you were a hedge fund manager, long career. We have Jamie Dimon out there saying a recession is likely. Just yesterday, Goldman Sachs CEO David Salman said the prospect of a recession has increased. You know these leaders well.What do you say to these folks that are worried about a recession? Uh,
2:35 spk_1
look, I, I think that the, the, the, the news cycle, uh, for whatever reason is focused on tariff policy and that the Trump economic policy that I, I’m part of the team that’s in charge of implementing it is really a three legged stool so tariffs are getting the, the majority of.now, but we were having very good luck or very, very good progress. It’s not luck because it’s been a lot of hard work on the tax bill. So the tax bill is moving through the Senate, moving through the House. I think we’re gonna have some permanence for the 2017 tax cuts and Jobs Act, uh, probably by Fourth of July, and I think that will give people.certainty and then the the third leg is deregulation. So the, the tariffs came in quickly, taxes by midsummer, and then we think the deregulation which could be substantial savings for households will kick in 3rd, 4th quarters.
3:40 spk_0
Why do you think then the likes of Jamie Dimon and David Salman, why would they be concerned?
3:45 spk_1
Uh, well, that, that’s their job is to be, is to be concerned, but again, I, I think that there is all this chatter on tariffs and what, what we’re worried about, and I come from Wall Street. I think Wall Street can continue to do great, but we’re focused on Main Street and uh my my cousin who lives in.In Coastal Georgia called me and said, you know, congratulations, the gas here is $1.98 it’s below $2 for the first time. So, you know, I, I think that we better look at it kind of on a holistic basis, everything that’s going on, there’s something called FCI or Financial conditions index, and that’s a combination of what’s the stock market doing.What are interest rates doing? What’s energy doing? What’s the currency doing? and financial conditions they are still in a very good spot.
4:42 spk_0
Some experts I’ve talked to, Mr. Secretary, they do. They acknowledge that gas prices have come down, but they in the same breath say that is because the economy is slowed. Where do you stand on that?
4:51 spk_1
Well, look, everybody wants to have it both ways that.Two weeks ago there were all these stories and you know as as you know Brian that this year I, I’ve tried not to talk about the stock market because you know the stock market is really a long term proposition and it, it’s, it’s more fun.That when it goes up in the short term, uh, less when it goes down, but that people should be in it for the long term and over the long term it is the the best uh asset for retail investors, but what I’ve been focusing focused on is lowering energy prices and lowering.Uh, the, the 10 year yield. So two weeks ago, 10 year yield hit 390 and said, oh, Secretary Bessin’s getting what he wanted, but for the wrong reason.Then it popped up last week to 450 and oh it’s the end of the dollar, it’s the end of the US as a reserve currency, and in my mind it was just a bunch of overleveraged speculators who were getting stopped
6:00 spk_0
out. So no foreign countries dumping treasuries. Uh,
6:04 spk_1
we actually saw the opposite last week. Uh, we had 3 big.And the 10 and 30 year auctions which are when foreign buyers tend to come in, which is where they can buy in size, uh, that’s uh we we actually saw very good foreign accumulation of 1010 years and 30 year bonds.
6:26 spk_0
Of course, as you know, Mr. Secretary, China is the second largest holder of treasuries and.Some would say they could retaliate by selling treasuries given how or what how things are going on the trade front. Does that keep you up at night, the fact that the Chinese could sell treasuries and impact negatively our economy?
6:46 spk_1
Icould burn down my house if I had an argue with my spouse, but it’s not gonna do me very much good. So that, you know, if they started selling treasuries, uh, they would, uh, you know.They’d have an effect on the price, uh, but more importantly, more importantly, uh, they accumulate dollars and what are they gonna do with the dollar? So if they sell treasuries, then they would have to buy RMB and it would strengthen their currency and they’ve been doing just the opposite. They’ve had a weak RMB or you want one.The policy, so it really serves no purpose for them to weaponize Treasury.
7:29 spk_0
If you saw them trying to weaponize treasuries, how does the Treasury Secretary respond?
7:35 spk_1
Look, we, we have a big tool kit. We, we do buybacks. Uh, the, the Federal Reserve, I, I think if Treasury’s hit a certain level or if the Federal Reserve believed that a foreignUh, I won’t call them an adversary, but a foreign rival, uh, we’re weaponizing the US government bond market or attempting to destabilize it for political gain. I, I am sure that we would do something in conjunction with each other, but we, we, we just haven’t seen that.
8:08 spk_0
You mentioned uh tariffs were less than 90 days out from the tariff pause ending, Mr. Secretary.How many deals do you envision being done um by the time that pause would lift? Yeah,
8:19 spk_1
well, Brian, uh, let’s set aside China. Uh, there are 15 large trading partners. We set aside China. There are 14, and we’re in rapid motion and setting up a process for the 14 largest trading partners, uh.Most of whom have very large deficits, so, uh, in 90 days are we going to have a complete do a formal legal document done and dusted? Not likely, but I think if we follow the process we could have substantial.Clarity on those 14 away from China in terms of agreements in principle and then once we reach a level that we’ve agreed on and they’ve agreed to lower their tariffs, lower their non-tariff barriers, currency manipulation and subsidies of industry and labor, then I think we can move forward.
9:21 spk_0
What tariffs still be in place though as part of any agreement?
9:24 spk_1
Uh, depend on what they have on offer. I’m telling everyone, bring your A game, and also, uh, they should all know for the big countries, President Trump wants to be involved.
9:37 spk_0
What, what does a first mover get?
9:39 spk_1
Uh, well, traditionally, first mover gets the best deal, so, uh, I’d encourage everyone to uh come fast and come with a great deal.
9:51 spk_0
Have youtalked to your counterpart in China?
9:53 spk_1
Uh, we, we did an introductory call a couple of months ago. Uh, we haven’t spoken since. I’m not sure who from, uh, PRC will be. Next week is a big week in Washington. It’s the International Monetary Fund, World Bank Week, so I, I know, uh, that.UhPeople’s Republic will send uh one someone from finance, probably the PBOC, People’s Bank of China governor, so they, they will be here, uh, I may bump into them, we don’t have anything scheduled.
10:32 spk_0
How muchis the president willing to go beyond 145% tariffs on China, or is that the ceiling?
10:39 spk_1
Uh, look, I, I, I think no one thinks that these are sustainable over the, the long run, uh, but with, with President Trump, I’m, I’m not gonna give away his negotiating strategy on a widely viewed, uh.Network like Yahoo. So I think as President Trump, he gets maximum strategy because he keeps everything on the table all the time.
11:05 spk_0
WhatI imagine can help, Mr. Secretary, is that on this trip to Vietnam, China President Xi Jinping said terrorists are unilateral bullying. I mean, I can’t imagine that helps this process at all.
11:17 spk_1
Uh, look, the, also, I, I think the, the Chinese trade minister said the tariffs were a joke, and I don’t know, maybe Chinese have a different sense of humor.That I do, but I I don’t think there’s anything funny about it, but I also don’t think there’s anything funny about the intellectual property theft that they’ve done that the blockage that we’ve had on reciprocal trade with them, the the tariffs that they put on, the subsidies that they do uh for labor, for industry, so I don’t see anything funny about it.
11:52 spk_0
What’s the best end game scenario?For the relationship with the US and China in terms of
11:58 spk_1
tariffs? Well, Brian, for, for your viewers and the, I, I used to teach economic history, so you just give me a moment or two, there are a lot of big trade and currency deals in the 1980s.Uh, President Reagan did Japan auto deals. Uh then there was something called the Plaza cord, the Louva accord, and what was important and different about those was in the 80s, our economic rivals were our military allies, so most of the Europeans and the Japanese and that there was the Soviet Union.And then China, but China really wasn’t a force back then was very different this time, and we are in uncharted waters here is for the first time, our largest economic rival is also a military rival. So we are going to have to deal with this in a different way. Now I, I think that the Chinese.I think they would acknowledge, but they’ve been reluctant to do it, and every macroeconomist who follows China who I know believes that the Chinese need to do a big rebalancing. They are the most unbalanced, imbalanced economy in the history of the modern world, and they favor production and manufacturing over consumer.And uh relative to their share of world population relative to their share of GDP they export more than any other country ever has so uh the the first contour of a deal would be for them to take steps to increase consumption, help households and stop the subsidy to the manufacturing sector.And so, you know, a, a.A good deal would look like they rebalanced toward more consumption, less state subsidized manufacturing in the US, uh, we have a bit less consumption and we bring back a manufacturing base and that could work very well together in in a symmetric way, but we haven’t seen any interest on their side to do that.
14:20 spk_0
Sounds like a lotneeds to be done, Mr. Secretary, to reach a deal with China.
14:24 spk_1
Uh, look, it’s, these are two big economies. I think the good news at the end of the day is that President Trump, Chairman Xi have a lot of respect for each other. They’ve been in contact before and they’ve done deals together.
14:42 spk_0
The market has gotten excited because certain electronics uh will be excluded.Um, from tariffs, that exclusion, did that come about after a conversation with Apple CEO Tim Cook?
14:55 spk_1
Uh, I, I, I wasn’t in on the exclusion.
15:00 spk_0
Now Apple has said, you know, specifically, Tim, that it’s hard to make products in the US.Uh, I think I believe it was a 2015 interview in part because the skills aren’t here to make these iPhones and make them profitably. New report out of Woodbush Securities, Mr. Secretary, suggests if an iPhone is built in the US, it costs $3500. Would that be acceptable to the administration? Look,
15:22 spk_1
I, I, I, I haven’t seen any of that, and I, I know Apple’s been moving quite a bit of their supply chain.In India, and I, I, I also think, look, it, it’s.Uh, you, you, you don’t need a PhD in mechanical engineering to assemble an iPhone, so I, I’m not sure uh why Tim Cook says that the, the skills aren’t here.
15:49 spk_0
Would, but the prices to make it would still cost more, and they would have to, and Apple would have to trade, it’s they they can’t open up a factory overnight.
15:57 spk_1
Of course, of course not, of course not. So, you know, over time, uh, they’ll move their supply chains and they, they’ve been moving out of China for a long time that we, we’ve seen a lot of manufacturing move to Vietnam, moved to India.
16:14 spk_0
How important was it to get news that Nvidia is going to spend $500 billion here to make AIsupercomputers?
16:20 spk_1
Nvidia, I believe has 98%.Uh, 98%, which is incredible, the of the upper end chip market and uh I, I think that for Nvidia to bring this home uh is very important and um one of the greatest security concerns.ForGlobal economy is the number of chips made on the island of Taiwan, that to have one of the most important components made in one place, the is not great risk management, but you, you could say that about anything, like you, you wouldn’t want anything.You wouldn’t want to source just one thing from one place, especially when the whole world runs on it. I mean, imagine that if uhAbu Dhabi were the only place in the world that pumped oil.But that it’s the equivalent of that.
17:27 spk_0
I talked to a lot of CEOs, Mr. Secretary, especially over the past two months, and they, these are their words not mine, and they have told me.Their businesses have started to fall into chaos. They can’t plan for the next 5 to 10 years. Uh, they are now considering cutting back on marketing and how many people they’re hiring. What’s your message to these very large CEOs? They hold the economic purse strings in many respects that are having difficulty understanding what the administration is doing.
17:53 spk_1
Well, I, as again, as I said, I think we’re gonna have a lot more clarity on tariffs, and I, I assume that the reason.Uh, you’re asking me the question because they have that view on tariffs, but we’re gonna have a lot more clarity on the way forward over the next 90 days, and then they’ll also have clarity on tax and excuse me, on deregulation.I remember in 2017 I, I heard a lot of, a lot of the same things because uh the tax deal wasn’t done until right before Christmas in 2017 and it was the same thing we can’t plan, we can’t do this, we need clarity so uh we’re gonna have.Clarity on tax, we’re going to have clarity on deregulation, and I think over the next 90 days it won’t be finished, but we will have much more clarity on tariff policy.
18:47 spk_0
You’re also working very hard on taxes and President Trump’s economic agenda as it pertains to the tax plan.How will the tax plan help someone making less than $100,000 a year? Well,
18:58 spk_1
I, I think it, it depends on what they do, but, or their age, but if you think about uh no tax on tips, no tax on social security, no tax.So over time, we’re going to go back to uh deductibility of auto loans uh if it’s an American car, which when I bought my first car in the 80s, you were able to deduct auto loans, so people could take advantage of that. I think we will also see uh the the surety of uh.This staying in place because what really fueled a lot of the economic growth during President Trump’s first term was the full expensing of equipment by corporates uh we’re planning on full expensing of new factories also so that’s how we want to bring back manufacturing we will.You can write off the cost of your factory and the cost of your equipment in one year and during President Trump’s first term because of these economic incentives and private sector hiring as opposed to what we saw from the previous administration that we saw the real wage growth and it was very substantial. It was higher for hourly workers and supervisory workers. We saw the bottom 50% of households uh.The net worth increase faster than the top 10%. So, you know, I think we could expect that again.
20:33 spk_0
Are you OK withletting tax breaks on the wealthy expire?
20:37 spk_1
I, I think that we’re, we’re looking at, at everything, so, um.We’re looking at a range of revenue raisers and I’m not going to get out ahead of the president, which always a bad idea, and we’ll we’ll see where the president comes down onthat.
20:54 spk_0
Lastly, Mr. Secretary, I know financial literacy is, is near and dear to your heart, and I think a lot of Americans have a lot of stuff coming at them, whether it’s stock prices, stock price volatility movements in the bond market. How can they go about becoming better investors?
21:10 spk_1
Well, I, I, I think, uh.The the more you read, the more you are informed, but I think the most important thing, what, what I’ve noticed is that there, there’s a whole range of financial advisors now and who are willing to educate you very, very reputable from some of the biggest firms, but I think the most important thing that households can do in terms of financial literacy is understand your goals and understand the products that you’re invested in.And kind of do a gut check and rate your personal risk tolerance and obviously uh a young person should have higher risk tolerance and a longer horizon. If you’re getting closer to retirement, then your risk tolerance should be lower, uh, and, but again, too, that there, there are no get rich.Quick schemes. If someone
22:07 spk_0
was studying your career, I mean, how could they replicate what you did? I mean, you broke the Bank of England, Mr.Secretary. Well,
22:12 spk_1
I, I also, uh, a lot of its timing that I, I, uh, as a college freshman in 1980, Ronald Reagan was elected. The Capitol got treated very well for the the next four decades. So we, we’ve had this incredible.But again, to the extent I had a strength in my business, it was always risk management, always thinking what amount of risk am I willing to take, what amount of risk are my investors willing to take and you always want to be on your front foot. You always want to understand everything you’re doing. You want to think about one big component of financial literacy is.The house household debt level, uh, what amount are you able to save for a rainy day fund, uh, and, um, but again it all comes back to what are your goals, what amount of liquidity do you want, what are your personal circumstances,
23:12 spk_0
Mr. Secretary, thank you for having us here inside Treasury. We really appreciate the time and good luck on your work. It’s very important. Good. Thank you. Thank you so much.
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