Dr Robin Niblett CMG
Ladies and gentlemen, welcome to Chatham House. I am Robin Niblett, Director of the Institute. A very warm welcome, and especially warm welcome to the US Secretary of Treasury, Steven Mnuchin, delighted you’ll be with us today, Secretary. Also, Joel Hellman, Dean of the Georgetown School of Foreign Service at Georgetown University, and to the many alumni of the school, who I know are with us here today, as well as our Chatham House members and guests, and those joining us on our livestream. This is a special day, and not just ‘cause we’re open on a Saturday, which is unusual, we’re trying to work out what works and what doesn’t, and forgive the building, we’re in mid-refurb, and being a historic building, that takes time. But it’s especially important for us to be getting together today because both the Georgetown School of Foreign Service and Chatham House are marking their centenaries.
Georgetown started in 1919, having been founded in 1919 the School of Foreign Service, and Chatham House founded in the summer of 1920. We were both established in the wake of the First World War in that period when governments around the world, but in particular the US and UK governments were trying to think of ways to build a more stable international system, structures for peace. And in a way, we are at midpoint of the School of Foreign Services centenary, we’re right at the beginning of Chatham House’s. And we thought it’d be a perfect way to mark this shared bond between our two institutions, both founded through the idea of dialogue, and that special dialogue that was established around the Versailles Peace Treaty negotiations. And the School of Foreign Services head up a series of lectures, the Lloyd George Lectures, named after David Lloyd George, who was Prime Minister at the time of our founding, and who worked very closely with President Woodrow Wilson, to think through the new structure and dialogue, new forms of international co-operation, to make sure it would be a safe world. And those were Americans and Brits, who very much led the way at that time of global thinking and leadership. And for that particular reason, I’m delighted that Robert Lloyd George, the great grandson, I’m going to say, we were checking earlier, great-great grandson or great grandson, good, I’m glad I got that right, is with us today. Because being able to have a dialogue at the beginning of our centenary year of Americans and British is important, and for that reason, having Secretary Mnuchin in particular, kick off from a Chatham House perspective at the beginning of our centenary year, and obviously, for this part of the series of Lloyd George Lectures is absolutely perfect.
I think you all know Secretary Mnuchin was appointed as the 77th Secretary of the Treasury in February 2017, plays a central role in the administration’s economic policy, obviously domestically, but as we also know, internationally. And I think you’ve just joined us from the World Economic Forum’s annual meeting in Davos, which is where the international part, you’ve certainly been in the news through that element. And a member of the National Security Council, as well as the Cabinet, following a very successful career in investment banking and finance.
A quick word on the format. This is going to be a conversation between Dean Hellman, and Secretary Mnuchin, about 30 minutes or so, 15 minutes for – to get some Q&A and some questions from you, alumni and members of Chatham House. All on the record, to remind you, I think, as you will probably tell by the size of this room. And I’m going to ask you to please stay in your seats at the end because we will have some closing remarks by Jim O’Neill, the Chairman of Chatham House, after the conversation. And after Jim has left with Secretary Mnuchin and Joel Hellman, we will then all be having a reception together, so we can get into the reception, please stay in your seats at the end until the Secretary has at least left the room.
I’m now going to welcome everyone up, but I do want to introduce Joel as well, ‘cause Joel’s become a great partner of Chatham House in this last few months, as we’ve been planning this meeting with the Secretary’s office. Took up the position of Dean of Georgetown School of Foreign Service five years ago, 15 years before that at the World Bank, including as the Chief Institutional Economist, and a very distinguished career at Harvard, Columbia and other academic institutions before that. So Joel, I’m going to let you run the conversation, Jim will have some remarks afterwards, but welcome both of you to Chatham House [applause].
Dean Joel Hellman
Thank you, Robin, for that introduction, and congratulations to Chatham House on its centenary. We’re thrilled to be here and to share in part of that celebration, and thank you, Secretary Mnuchin, for agreeing to come and join us and have a conversation. As Robin mentioned, because we are thinking in long shifts, big terms, 100 years of both of our institutions. And we started at a period in 1919, after the devastation of World War I, when the leaders of the world were gathering together to really rethink the fundamental principles of how the global order should be restructured to preserve peace and build prosperity.
I want to start perhaps at that large level and then we get to some more specific current issues. But to ask you what you see, at your vantage point now, here, in 2020, the two or three really major trends that you think are reshaping the world order, to some extent, as they were thinking in 1919 about the trends shaping the world order then?
Steven T. Mnuchin
Well, first of all, thank you for having me here and congratulations to both of you on your significant anniversaries. I think there are some very significant issues, but I also think there are some basic issues that are going to impact the world and I think, thinking over a 100 years is sometimes awfully hard, so I’ll try for a more ten to 20 years. And the reason why I say thinking for a 100 years is, the world has changed so much in ways that we couldn’t have predicted, and as a general matter, I would say technology advances much quicker than we think about. So, a lot of the things that we may think are problems today, I think technology will advance those issues, so I would say that the first thing I would say is technology. I think it has been very transformational, over the 100 years, in every single aspect of our economy, our world order. I think some specific issues ,as it relates to technology, obviously it creates issues and certain industries have been created that don’t exist, it transforms other energy, so I think education and making sure as it impacts jobs that people have the necessary skills. I would also say privacy issues are something, as we are more and more connected, both privacy and encryption and cyber issues are very important, since, you know, I think, you know, we’re going to be, whether it’s a 5G world or other things. I mean, we’re going to be in the world where almost everything is connected, so I would say technology is an important issue.
The second thing I would say is, having access to stable global energy markets. You know, I think if you look at the 70s, the world was very dependent upon oil out of the Middle East, it had significant geopolitical issues. I think, if you look at today and particularly the advance over the last ten or 20 years, you have the United States now being energy independent, and an exporter of energy, that’s not something we would have anticipated 25 years ago. You have an abundance of natural gas around the world. I think natural gas, particularly, is very efficient and it is more environmentally friendly than perhaps other carbon, but the abundance of energy creates great economic opportunities. I would also just comment, although there’s an abundance of energy, there’s a significant number of people in the world that don’t have access to electricity. So, as much as the environmental issues, I think we also have to get more people, who have advantage of these things.
And then the last thing I would just comment on, economic growth, in job creation, has been very important, continues to be very important. I think that the next generation wants to feel that they have the same or better opportunities, and it is important for both, on an individual country basis and on a global basis that we are creating economic growth, because that’s what creates jobs and that’s what creates opportunities. And whether you look at certain areas of China, which is – although it’s the second largest economy in the world, it has a huge issue, and a billion and 350 million people, it still has a huge need for job creation and whether it’s China, India or other parts of the world. And I think in the United States, one of the things we’ve been very focused on, even though we have now the lowest unemployment rates in the world, economic growth and making sure that we can create economic opportunities is our priority.
Dean Joel Hellman
You mentioned China in the midst of this, and China is going to be an important player in all three of the trends that you mention: on the technology side, on the privacy and security issues that are associated with that, on the energy side, as an energy consumer and a producer. And certainly in growth and job creation, given their role as a creditor and globally, and as a major and increasingly, growing economy. How do you see your immediate tasks in your growing relationship with China post the trade deal, first phase of the trade deal, to deal with the fact that China is going to be a major player in all of these long-term shifts?
Steven T. Mnuchin
Well, I think, as you know, I’ve spent an awful lot of time, over the last three years, on the China economic relationship. We couldn’t be more pleased that we were able to sign a phase – what we call a phase one trade agreement. I think it is enormously significant, both to the US and also globally, is the two largest economies this is, one a very important economic relationship. But, two, more importantly, I think opening up China to the US and Europe and others, competing on a fair basis is very important. China has a large growing middleclass, over 300 million people, that is a great opportunity for you as European and other countries and workers. And our focus has always been on, from day one, the President’s objective has been and this was the first time we had our summit at Mar-a-Lago with President Trump and President Xi.
The President was very clear that he wanted balanced trade and the reason he – we had – we didn’t have balanced trade, our market had been very open to them for investments and trade, their market had been very closed. So, our focus for phase one is fair and reciprocal trade. We have very significant commitments in technology for the first time, around forced technology transfer issues, patent protection, agriculture, structural issues, financial services, currency protection. And for the first time, an enforcement provision and a trade agreement, so I think that that will be a major factor, helping economic growth this year and going forward.
Dean Joel Hellman
Now, you talked about some of the opportunities and on the challenges on the China relationship side, one of the issues that you raised and talking of the big picture is on the technology front and what that means for privacy and sort of security. In the negotiations in phase one and what you might think of as a potential phase two, how are you trying to deal with the potential risks associated with how technology is essentially sort of changing the global order and what that might mean for China, a very different political system with very different interests, using technology in a way that we are uncomfortable with? And how do you see that playing out in your China negotiations?
Steven T. Mnuchin
Sure. Well, let me first say again, you know, technology has had an enormous impact in the last 100 years and has changed the world in ways we never fully could have anticipated. So, although I think it’s initially going forward, I want to put this into perspective, we’ve been dealing with these issues in the post-war environment. And I think like any other relationship, there can be areas where we co-operate and there can be areas where we compete and there can be areas where we agree and there can be areas where we don’t agree. So, I think that’s managing a relationship, and as you’ve said, it’s a different political system, we like our political systems, they have their political system, but it’s important, as the two largest economies, to be able to work together.
Dean Joel Hellman
Now, you’re talking about the – how we work together, you’ve had phase one in Davos, you’ve talked a lot about the successes of phase one and the USMCA. I wonder, you know, having now achieved those milestones, what have you learned from that first phase of engagement on trade, on both of those trade deals, any kind of lessons that you’ve taken from that, as you think about the next stages of your trade negotiations with them and with others?
Steven T. Mnuchin
Well, you know, I would comment on any negotiation, you know, there are issues that you just have to be prepared for. And I think one of the things we did was, we reached out to a lot of people, both business and other areas to make sure that we had the proper input. Some of these issues, as it relates to, in China, you know, the US has been dealing with for the last ten years. I think you know, not everybody loves the President’s tariffs, but there’s no question, the tariffs are a very important factor in changing behaviour, because quite frankly, whether it was China or other trade relationships, that were advantageous to the other party, people just don’t like to change. So, I think that the President was very clear from day one that he wanted to have open and fair and reciprocal trade, and that was really the basis of our negotiations.
Dean Joel Hellman
Now, you mentioned here and I also heard in Davos, talking about the role the tariffs played and the threat of tariffs in pushing the negotiations forward, getting to the table, getting concessions in some very, very difficult areas. I wonder how you think about the second and third order effects of the use of tariffs, the first order effects are getting the deal and getting some positive movement on the deal. Are there other effects though, in terms of the longer-term relationship that you have with China or your other trading partners, of using tariffs in that way to sort of get the short-term deal, how does it impact the long-term relationship as you might see it?
Steven T. Mnuchin
Well, look, I think that again, when you look at economic issues or other issues, I think part of the time is Politicians look too much to the short-term and perhaps that’s a little bit of because our system has elections. But I think one of the things that the President was very clear on was he campaigned on certain issues, he was prepared to deliver those issues, and he was prepared to deliver them because these are in the long-term best interests of the United States. And I think there are certain short-term economic issues, but the President was very clear in direction of these are long-term issues, these have been not dealt with over years, and he was prepared to deal with them.
Dean Joel Hellman
Now, when you think about trade and your oversight of America’s role in a trading system overall, we know that there’s been efforts on bilateral trade deals, and the President made that very clear that that’s a priority of his to correct some of these bilateral deals that he didn’t think were in the interest of the United States, and he’s made some progress in that area. I wonder if you might give us a sense of what you think the bigger vision on trade is beyond the bilateral deals, a trade – what is the kind of trade regime that you think this administration envisions going forward, that sits on top of the bilateral deals, the role of the WTO? And how you see that evolving or some other way in which these bilateral deals will sort of essentially add up to a broader trading regime for globally.
Steven T. Mnuchin
Well, you know, again, I think the reason why the President has instructed us to focus on bilateral deals is just because these agreements are hard enough to negotiate bilaterally, that trying to get everybody to the table at the same time, and this is true in any negotiation, you tended to go to the lowest common denominator to get an agreement. But let me just say that if you look at, you know, USMCA, which is our largest trading block, so that was with Mexico and Canada. You look at China, you look at now we’re going to be negotiating a free trade agreement with the UK, you look at, we’re very focused now on trade negotiations with the EU, those agreements are the majority of our trade. I would also just comment, we’ve added on Japan and Korea, I don’t want to leave them out. So, you know, I think our – the President’s view is, if we can get these major trade agreements done, we can then always roll up the other ten or 20% of trade in two similar types of agreements. So, it’s really as much of a strategy issue of how to get it done than a philosophical issue.
Dean Joel Hellman
And from your vantage point is there a role for the World Trade Organization to play in this trading regime and how are you thinking about that going forward? As many of the audience members may know, I mean, the United States has been blocking some appointments with the WTO appellant body, that might impact the WTO’s ability to play that, you know, oversight role on the appellant side. What’s the strategy and thinking about the role of the WTO and where do you see that going?
Steven T. Mnuchin
Well, let me just comment on, you know, there’s been a lot of important global institutions that have been setup post-war. The WTO is one of them, I know the World Bank, where you have a lot of history, and the IMF, I think are also very, very important institutions. So, let me just comment, I think there is absolutely a role for these global institutions. Having said that, in the case of the WTO, you know, some of these institutions, when they operate on a consensus basis, are very difficult to change. And you may have seen in Davos, we had a bilat with the Head of the WTO and then he participated in the President’s press conference, and he was pitching to the President, “We need WTO reform.” So, I think there is absolutely a role, but I think, you know, we have to look at a bunch of these institutions and we should continuously look at how we can bring them into the new modern economy and have them perform appropriately for everybody.
Dean Joel Hellman
And what are the kind of key areas you’d like to see change in the current sort of structure, either it’s in the WTO or the other international and global institutions, are there kinds of key areas that you’re trying to push in the next stage of engagement with those institutions? If you think about what a new WTO would look like or maybe a new other global institutional structure, what are you trying to get in the next stage?
Steven T. Mnuchin
Well, I don’t necessarily see the role for a new institutional structure. But I do think, you know, on the WTO specifically, it’s – there are very specific things, so I don’t want to bore the whole group here. But I think the answer is, you know, it needs to – the rules and regulations need to be modernised to have them work.
Dean Joel Hellman
Okay. Well, you did mention the US-UK trade relationship, obviously this is going to be an important issue here. Brexit, of course, only days away, I mean, what’s on your immediate agenda for discussion with the Chancellor here, in terms of where you see the US-UK trade relationship going?
Steven T. Mnuchin
Well, I had the opportunity to see the Chancellor in Davos and I also had breakfast with him this morning at Number 11, so I was pleased to see him, as long as I was here. And, you know, the UK is our most important relationship, it’s a very strategic relationship. I give this government a lot of credit for, they campaigned on, on getting this done, they’re getting it done. And, you know, we have said that our goal, their goal is different, we’re going to try to get both of these trade agreements done this year. And I think from the US standpoint, we are prepared to dedicate a lot of resources, I think the UK and US have very similar economies, with a big focus on services, and I think this will be a very important relationship. And this is going back to the President during the campaign, he said, “If post-Brexit,” they said, you know, “They’ll be at the top of the list, in terms of negotiating.”
Dean Joel Hellman
Is the timing of an agreement with the United States versus an agreement with Europe an important issue for you or it was on the top of the agenda for the President, is the timing of this trade relationship something important? And do you have a sense of what that timing might be, given the fact that obviously, there’s also going to be the relationship and renegotiation relationship with Europe?
Steven T. Mnuchin
I think the timing is important and, you know, we’re focused on trying to get this done this year because we think it’s important to both of us. And, you know, there’ll be certain issues that perhaps they need to resolve with the EU before they finalise our agreement. But I think a lot of the issues can be dealt with simultaneously and again, we look for forward to continuing a great trade relationship and, if anything, I think there will be significantly more trade between the US and the UK.
Dean Joel Hellman
I’d like to ask you about a couple of the potential sort of stumbling blocks and get a sense of how you’re thinking about them, and some of these came up in your conversations in Davos, as well. I know one of the issues that has been a potential issue that you’re going to have to confront is on the digital tax, how do you see that relationship both with the UK and with Europe going, given the concerns that you have already expressed on that tax?
Steven T. Mnuchin
Sure. So let me just say, there’s a disproportionate amount of interest in this topic. But, you know, and even people talk about the Digital Service Tax, there’s actually a process going on at the OECD to deal with international tax issues. And I think as you know, international tax issues are very, very important because we have companies that have global operations, we have different taxing authorities. For both the US and other companies to be able to succeed, you have to have international tax agreements that work together, so that you have understanding as to both tax certainty and tax allocation. And one of the things we hear, from all of our large companies, is that there are more and more global tax issues, where different countries are trying to fight for revenue allocation. So, I just want to put this in perspective, this is one of the complex global tax issues that we’re talking about.
In the OECD process there’s what we refer to as Pillar One and Pillar Two. Pillar Two, I think there’s pretty much a consensus on for a global minimum tax. This is something we instituted in the US as part of tax reform, we call it the GILTI tax. And the idea is that there shouldn’t be a chase to the bottom on taxes and, you know, there shouldn’t be tax havens that don’t charge any tax or charge minimal tax. So, I think that, in terms of revenues, is a much, much more important issue to all of us, and that, I think, we’re pretty close. On what we call Pillar One, there are complicated issues. The US feels very strongly that any tax that is designed specifically on digital companies, is a discriminatory tax and is not appropriate and has violations to our tax treaties and other issues. So, we’re working through that and I think we have a good outcome of trying to give some room now in 2020, to continue these discussions.
Dean Joel Hellman
Okay. I mean, another issue that’s came – that’s come up is on the issue of 5G and 5G technology, again, kind of raising a technology issue, and the role of Huawei in providing services on 5G. Again, how do you see that playing out as the US-UK trade, and the negotiations and discussions go on?
Steven T. Mnuchin
Well, we’re having discussions with the UK, we’re having conversations with many of our allies. If you look at the role of technology, it is critical that we have infrastructure that’s protected, and we have important relationships. I mean, I think what’s clear is for the role of government, for the role of national security issues, for the role of defence, we want to make sure our infrastructures are protected. And I think on a broader basis, as I said earlier, as more and more things are connected to the network and to the Grid, these national security issues go beyond the traditional aspects and go into various different aspects. So I think the real issue for us is making sure that the networks and infrastructure are properly protected.
Dean Joel Hellman
I also want to ask you, you know, I think yet another potential, you know, issue that will obviously be part of the agenda and discussion is, the UK’s position on opening up economic relations, keeping relationships open with Iran, and the JCPOA, again, how do you see that playing out in the discussions?
Steven T. Mnuchin
Well, I’m glad you asked me that question, and this is one of the comments that I made in Davos, you know, there are important issues going on around the world. I think one of the most important issues that is going to affect the next ten/20/30/50 years is making sure that we have a stable Middle East. And the President has been very clear that we can never have a world where Iran has a nuclear weapon, and that we share common objectives with all of our allies, I think we have an absolute agreement on that. I think the issue of the JCPOA, the President was very clear, the problem with the agreement is that it gave them a lot of money and we didn’t get the protections in return. As a matter of fact, at the end of the agreement, it was going to enable Iran to have nuclear weapons, and the agreement also didn’t address ballistic missiles, which is – I’m sure you’ve recently seen, can be quite problematic. So, this is a very important issue for us, for the UK, for our European allies and for everyone around the world. So, the issue of sanctions and how we apply, we may have had a different view on the effectiveness of the JCPOA, but I think there’s no issue between us and all of our allies that Iran can’t have nuclear weapons. And I think particularly given the recent events, people understand our position and we are unified, and I think you know that the UK and the Europeans have activated the mechanism, now that Iran is in violation of the JCPOA. We expect that that’s going to go through a process and the UN sanctions will snap back in, and we have a common view, but security issues in the Middle East are critical to all of us.
Dean Joel Hellman
And these issues, any of these issues of taxation, the privacy and security issues associated with 5G, these issues they’re associated, are these like red line issues in the negotiations that are – that essentially, if we do not reach a positive agreement that works for the President, obviously in his interest, that this is going to make it very difficult to find a way forward on the US-UK relationship. How do you kind of see these issues playing themselves out in the negotiations, as we go forward?
Steven T. Mnuchin
I’m quite optimistic. I think that the Prime Minister and the President have a very good relationship. I think again, there can be areas where we agree a 100% on, there could be areas where we have issues on. I think that the trade agreement is an area where, again, we’re both highly motivated and yeah, I would just say on the Iran issue, I think we have a common view now of where we are. And again, I think the President has been very clear, all we want is an agreement that makes clear they never have nuclear weapons and addresses regional security issues, such as ballistic missiles and terrorist activities.
Dean Joel Hellman
Now, how do you see the US-Europe relationship evolving on trade in particular, as you move ahead simultaneously on negotiations? And again, from your vantage point, the timing on the Europe side, and we talked a little bit about from Britain’s standpoint, from the US side, handling both of these sort of simultaneously, how do you see those two things evolving and how affecting each other, if they do affect each other?
Steven T. Mnuchin
Well, I think as you know, the President has a broad economic agenda, trade has been one of the three pillars during the campaign. We developed the economic policy of tax cuts, regulatory relief and trade. There’s no question, you know, just coming back from Davos, there’s no question that the US economy is the bright spot of the world. The economic growth that we have is a result of the President’s economic agenda, and we’ll continue this economic agenda. So, you know, we’ve got a lot to do and we’ll focus on all of it at once, so the President has made clear, now that we’ve got China done, the UK and Europe are our priority. But I would just also comment, Ambassador Lighthizer is in the midst of negotiating some changes to the agreement with India, so we’ve got a lot of these agreements going on at the same time.
Dean Joel Hellman
And what do you think, for on the European side at least, what are going to be the key sticking points in that discussion? What are the kinds of things that you’re hoping to kind of move forward in, in terms of the – some of the difficult issues that you may be facing in the discussions with Europe?
Steven T. Mnuchin
We’ve a 150 billion trade balance with the EU, on goods. We do have a trade surplus on services, but we are focused on narrowing that trade gap. And again, when we talk about the EU, one of the challenges is, some of these issues are really only a couple of countries. But I think as you know, because of the EU, we can’t negotiate these things on a bilateral basis. So one of the challenges of dealing with the EU is, even within the EU they have different views.
Dean Joel Hellman
So how optimistic are you, given those differences?
Steven T. Mnuchin
Highly optimistic.
Dean Joel Hellman
What’s the cause of your optimism?
Steven T. Mnuchin
I think we’ve shown a great success of getting things done and ploughing through these issues.
Dean Joel Hellman
Well, before we’re going to go to questions, in just a few minutes, I want you to talk a little bit about – I know that you’ve still got some time before the elections, but I wonder if thinking beyond the elections, if there is a sort of second term and you decide to sort of stay in the administration in the second term, what do you see as the sort of unfinished agenda, beyond the elections, that you, as Treasury Secretary, would be focusing, what are the key points of business that you think a second term will be focused on?
Steven T. Mnuchin
Well, just, I would say I do expect there will be a second term and I’ve already publicly said that I would stay on with the President. I think infrastructure is a big priority for the President. This is one of the areas we talked about during the campaign. We’ve got a lot of things done on a bipartisan basis, this is one of the areas that we have not been able to focus on, and that will be a big focus of the second term.
Dean Joel Hellman
Infrastructure, what do you think are the key threats that perhaps you see the global growth going forward that might also kind of motivate your thinking about what the next term is, as opposed to the immediate threats? You were talking something about the long-term issues of growth, what do you see as the key threats to continued global growth that you want to be working on?
Steven T. Mnuchin
Well, again, I think when you talk about global growth and people have these global growth statistics, I mean, it’s really, you know, what are we going to do to have continued growth? And I think the President’s economic policies will continue through 2020 and 2021. I think if you look at, you know, we’ve had very good increase in wages, we’ve had very low inflation. Our GDP numbers have been slightly lower than they should be, somewhat as a result of the issues with Boeing, which is our largest exporter and the fact that we had the GM strike. But I think what’s good for us is not only US growth, but growth in other areas of the world because that creates expanding markets for all of us. And I think in the case of Europe, there have been certain policy issues, you know, I would suggest that Europe develops some more pro-growth economic policies. This just can’t be monetary and, you know, I would comment of, you know, the world of negative interest rates, we haven’t seen negative interest rates like this in this size and scale. And, look, I think it’s hard to have healthy banks with negative interest rates, and I think it’s hard to have healthy economies without healthy banks.
Dean Joel Hellman
And what are you thinking about the policy towards the dollar, I mean, as you think about kind of the future, you talked about monetary policy, as Treasury Secretary and again, thinking about the long-term perspective, you know, what’s your approach to thinking about the dollar?
Steven T. Mnuchin
Well, let me just say, one of the things I’ve clearly learned as Treasury Secretary, I’m very careful about my comments on the dollar, because two years ago, in Davos, I sneezed and I said something that I thought was completely calm, and all of a sudden the markets went crazy. So, let me be clear, I support a stable dollar, but I’m not going to make more comments on that. But what I will make a comment on is, the dollar is the reserve currency of the world, with that creates certain advantages, and with that comes certain responsibilities. So one of the things I do spend a lot of my time on, I probably spend half my time on national security, because we manage the government’s sanctions programmes. And the sanctions programmes are very effective because the dollar is the reserve currency and one of the things we balance is, you know, our European friends and allies may not always like what we’re doing on sanctions. But I do seriously think about, we have a responsibility to use sanctions for important national security issues, but we need to think about the long-term impact on the global currency.
Dean Joel Hellman
Okay. Well, I want to ask you just a final question before I open it up and you just came back from Davos, and it’s often kind of termed as the ‘playground of the global elite’, you were talking about two institutions here that were forged in 1919/1920. When the thinking at the time really was about how to imagine a new multilateralism and a new way of global engagement in the aftermath of the war. Since then, a 100 years’ later, the term ‘globalism’ has taken a connotation. I wonder how you kind of define globalism and globalist and what you see as the kind of the issue. Is there a problem with globalist thinking and how should we be thinking about multilateralism outside that context?
Steven T. Mnuchin
Well, let me just say, because I came back from Davis and people think of Davos as this globalist entity. In preparation for today, I didn’t do a lot of prep, but the one thing I did do is, I looked up the definition of ‘globalism’, because – and what it says is, ‘the operational planning of economic and foreign policy on a global basis’, that’s globalism, operation or planning on a global basis. And I think the President’s right, and what the President has said many times, the President’s said he represents the American public and his job is to do what’s good for America, and my job, as Treasury Secretary, is to focus on what’s good for America.
Now, having said that, that doesn’t mean that things that we do aren’t good for other people, so, you know, I’m going to take a shot at saying, I think this globalism brand, okay, I think that perhaps historically, in the last ten or 20 years, perhaps countries weren’t thinking enough about their own issues, as they were thinking about these issues. And one of the things that the President has been very focused on is, you know, for the past ten years, wages in the US, for the middleclass, didn’t go up. Our first objective was creating economic growth and creating economic opportunities. But I think the answer is that we can have both, because I think we can do things that are good for us, which are good for global growth. So, you know, I think we’ve got to – I do think we have to redefine some of these brands. Another issue, you know, people talk about capitalism. I think, as you know, we have an election where we have certain people who like capitalism and certain people like socialism. I think some of these issues we need to perhaps redefine. I think kind of economic freedom versus economic controls and planning, and I think one of the things we’ve seen in the US is, when you let private business, and you let the economy follow through with certain proper incentives, you get the right outcome.
Dean Joel Hellman
Well, I mean, one of the things that’s on our minds because of our centennial celebrations is, when you think about America in 1919 or 1920, it had come – become the world’s largest creditor nation after the war, before the war, was the world’s largest debtor nation. A lot of the story of 1919 and 1920 was America’s role in the world, not only as a strong military power and a strong economic power, but as an important player in multilateral engagement, as a convenor of multilateral engagement. And how we – however we define the role globalism and the term ‘globalism’, this notion of America’s role in sort of essentially contributing to a multilateral sort of framework of co-operation beyond America’s bilateral engagements, is still something that I haven’t heard a lot from you or from the administration about how you think about America’s role in that multilateral framework. So just as a last thought, where do you see America as a convenor of multilateralism or is this is not just part of the agenda as you see it?
Steven T. Mnuchin
No, I think it’s very important and, you know, let me just give you an example of NATO, where the President has been very clear and I think he’s shown great leadership, where we have invested a lot of money in the last three years in our military. The President has said there was a commitment of 2% to NATO, why are countries not honouring that commitment? So, I think that there’s very much a role for many of these institutions, but everybody has to be committed. And then the last thing I will just say is, you know, you’re commenting a 100 years ago, let’s not forget, there was this little thing called World War II, okay? I’m actually – I’m quite honoured, I’m going tomorrow to Poland. I’m representing the President in leading a delegation to Auschwitz for the 75th anniversary of when Auschwitz was freed. Let’s not forget that 75 years ago we saw great challenges to the world order and I think whether it’s anti-Semitism or other issues, these issues are still very relevant today, so I think we all have a lot of work to do.
Dean Joel Hellman
Well, look, I’m going to open it up to questions. If you could please raise your hands and keep it in the form of a question, please, I’d appreciate it. I’m going to start with the gentleman in the second row, second in. Yes, you, yeah.
Jonathan Paris
Yeah, hi. Jonathan Paris, a London based Middle East Expert. My claim to fame, Dean Hellman, is that I started at the Council on Foreign Relations at the same year that Charlie Kupchan started, 25 years ago. On sanctions, most people have been rather impressed with your ability to use economic sanctions to pressure Iran. It was much more effective than during the Obama era and even during the Clinton era, when there were similar sanctions. How do you explain it, and particularly internally, how do you handle the deep bench, when you lose somebody like Sigal, who was managing the sanctions process and yet, you’re able to continue to enact, just this week I think you put sanctions on a Dubai, Shanghai and Hong Kong company? What’s the magic, what’s the secret to success in the Treasury Department, in this new kind of economic coercion?
Steven T. Mnuchin
Well, thank you, and first, I’ll make comment, for those of you who don’t know, Sigal was my Under Secretary for this area, terrorist financing and intelligence, and she did a terrific job and has been a terrific part of our team. When I came into the government there are certain things that I had a lot of experience in. I had experience in domestic and international finance. As I’ve said, there’s certain things I didn’t have a lot of experience in, national security and sanctions were not an area of my expertise. When I got there, we have a terrific team at Treasury of people who have been there for very long periods of time, and I immersed myself in studying these issues. I kind of refer to it as I got a PhD in my first 120 days. So, you know, I think when I’ve said, as Treasury Secretary, I spend 50% of my time on national security, people are normally surprised when they hear that. And I’m probably the first Treasury Secretary that’s done that, I think, historically it’s probably been ten or 20% of the job, and the reason, and I understood this very quickly, as did the President, the President wanted to have an integrated national security approach. So, I meet regularly and we look at the National Security Team, Secretary of State Pompeo, myself, as for the Intelligence community, Robert O’Brien, we have an integrated approach.
And the economic side of it is as important as the military side of it, and I think the President has been very clear that he preferred not to use the military approach, in many of these cases. He wanted to, you know, take back military assets, but let me just say, you know, for people who question our strategy, the sanctions have been very important, again, this is not about the Iranian people. We’ve literally cut off tens and tens of billions of dollars that would have gone to expand terrorist activities, and we hope that Iran realises they should come back into the world order. There is a great economic future for the people of Iran, if they’re willing to behave responsibly in the world and again, when you talk about world order and global issues, nuclear issues are a global issue.
Dean Joel Hellman
Yes, this lady in front.
Isabel Hilton
Thank you very much. My name’s Isabel Hilton, I’m a Member at Chatham House. You’ve referenced the USMCA several times, Article 32:10 of USMCA attracted some attention, when the deal was signed, that’s the one that says, “If any party enters into a free trade agreement with a non-market economy country, then the other parties are at liberty to terminate the agreement with six months’ notice.” And the administration indicated very strongly that it would seek to replicate this article in any future trade agreement, is that still the administration’s position? And what does that mean for discussions with the United Kingdom, which also seeks to have a strong trading relationship with China, a notable non-market country?
Steven T. Mnuchin
Well, first, let me just comment, I’m very impressed, you’ve obviously read the agreement and I’m glad you’ve picked up an important aspect, it’s one of the many important aspects. But again, you know, USMCA really brought, we think, the trading relationship into the modern era, that’s one of the issues. There’s a lot of ‘em. I’m not going to comment on the specific event it relates to, but, yes, we’ve broadly said we’d like to use that as a model, and there’s plenty of other things in that agreement we’d like to use as a model, but thank you for acknowledging the importance of that.
Dean Joel Hellman
There’s a question at the back, the lady in the back.
Rebecca Martin
Yes, hi. Hi. Thank you, Secretary, for your comments this morning. I’m Rebecca Martin, a graduate of the German European Studies Programme here at SFS and I’m happy that you can be here to celebrate our centennial. Today, there’s been a lot of emphasis on economic growth and stability is driving forces of the US economic agenda. How do we balance this with rising environmental concerns and recognising that we have severe natural disasters, both at home and the United States, and I’m thinking of the California forest fires recently and currently, in Australia and the Commonwealth and most of the continent or large portions of the continent being on fire? So how do we balance that as also a form of a security threat and recognising that as the ultimate threat to our economic stability? Thank you.
Steven T. Mnuchin
Great, thank you. So, let me just say, as Treasury Secretary, I do cover kind of, very diverse areas in the government and it – one of the things I like a lot about the job is, it spans a lot of areas. But let me just say, I am not an environmental expert, so I want to be clear, I’m going to make some comments on this. But some of you may have noticed, I made a comment at a press conference in Davos, which was intended to be said somewhat in jest, okay, and I commented in the press conference this was a joke, but seems to have caught a lot of attention. So, let me just make two comments. What I’ve said in Davos, and this I absolutely believe, and there was a lot of focus in Davos on environmental issues. And I think that’s fine, okay, but the comment that I made in Davos is, there are a lot of important issues that will focus – that impact the world and the economy and I just hope that we balance these other issues and we talk about these other issues as much as we talk about the environment.
So, whether, as I said, it’s issues with Iran in the Middle East or it’s issues, obviously a major issue that we’re focusing on right now is global health issues, you know, we appreciate how China is handling this. I think we’re hopeful that this will be contained, so, I only say there’s lots of issues. Now, as it relates to the environmental issues, and the President’s been very clear, you know, the President very much supports clean air and clean water and we’ve done a great job in the US, through technology, on these issues around energy and what we’re doing with our carbon footprint. I think these are issues that do impact other countries. I’ve commented obviously in the case of China and India, very important environmental issues. Now, your comments in particular about, you know, forest fires and things like that, let me just say, I’m not an expert, so I clearly can’t comment on that. I can tell you only, in the case of California where I did go see these after, I went with the President to see the devastation. There are some very specific issues that I know we could be doing in California, to prevent the spread of forest fires. I can’t comment on Australia, but it’s obviously been a big issue there, so, I’ll leave it at that.
Dr Robin Niblett CMG
I hate to hog the floor as part of Chatham House, but there was one issue I was concerned wouldn’t get covered. As you said, the United States economy has a global impact, US debt is now 22 trillion, it’s risen 10% during the period of the Trump administration, roughly.
Steven T. Mnuchin
22.
Dr Robin Niblett CMG
Okay, 22. Yeah, 22, obviously that could have structural impacts, in terms of the capacity for a second Trump administration to undertake the kind of investment, you’ve talked about it could have impact on the value of the dollar. Could you just say something about where that sits, just square within your daily work as Treasury Secretary, please?
Steven T. Mnuchin
Sure. I’m glad you asked that question. So, first of all, when the President came into office, we obviously have a lot of debt, a huge component of that was the cost of the wars in the Middle East. I think, as we look at our debt and our deficits, you have to look at them relative to GDP, and what I’ve said and I believe this is that it’s very manageable relative to our GDP on both these issues. But what we have to look at over time is the rate of growth of government spending relative to the rate of growth of our revenues, and I would just make two comments on this. When we did the tax cuts and we did a trillion and half of tax cuts, that’s over a ten year period, we’ve said that they will pay for themselves, and we continue to believe that, we’re two years in, back ended, but we are tracking right on our numbers. But the other issue is, when the President came into office, he wanted to increase military spending, we needed bipartisan support. Originally, the President proposed cuts in non-military to pay for that. We were forced to increase non-military spending. So, I think the answer is, that we need to look at the rate of growth, and if we’re careful on doing this and the economy grows faster, the answer is, we will be shrinking the deficits and we’ll pay down the debt over time, but I think this is an issue for us. I will just comment that again, going back to economic issues in Europe, there are countries that have opportunities to expand fiscal on top of monetary. Monetary cannot be the only economic tool.
Dean Joel Hellman
And a question there, the gentleman with the glasses in the middle.
David Pollock
Thank you. So, I’m David Pollock of Consilium Capital and an individual Member and a supporter of Chatham House. You referred, in your opening remarks, to the need for stable global energy markets, and I believe you were quoted at Davos also referring to ‘the need for reasonably priced energy over the next ten to 20 years’. So how much weight do you put on the importance of clean energy for the environment, compared with natural gas? As you know, the falling costs and increasing efficiency of renewable energy plus battery storage means that new natural gas plants in the US may not go ahead because they won’t be competitive. And in a few years, it’s projected that renewable energy, with storage, will be cheaper to operate than operating gas plants.
Steven T. Mnuchin
So, I would just say these are issues that need to have balance. You know, I know Germany just came out with a plan for, you know, 2050 and my comments are, technology will change a lot over the next 20 or 30 years, so – and markets change a lot. As you’ve said, renewables may be more competitive ten years from now; battery storage is something that technology is advancing considerably. So, one of the issues of, you know, there’s obviously time periods where the Grid uses a lot of electricity, there’s time periods where it doesn’t. If, over the next ten or 20 years, we have great advances in battery storage, that unto itself will be tremendous impact on energy management. So, I would just comment, it is important, from a global standpoint, having energy that is fairly or reasonably priced is very important for economic activity and technology, I believe will make that more important. So again, there are issues all around the world on this, there are also issues, as I said in the beginning, there’s a lot of people who don’t have electricity. I hope we can advance that, but I think we can balance a lot of these issues.
Dean Joel Hellman
Yeah, a gentleman here on the end.
Andrew Payne
Hi, so, Andrew Payne, Research Fellow at Oxford and also a Council Member here at Chatham House. Thanks for your discussion here today. I’d like to return to Iran very quickly ‘cause I think that the previous question, with respect, was a little bit too nice. So you mentioned that the…
Steven T. Mnuchin
I liked it a lot, so now…
Andrew Payne
I bet you did.
Steven T. Mnuchin
…don’t get nervous about your question with that intro.
Andrew Payne
So you stated that the goals in the Middle East were stability and the prevention of Iran getting nuclear weapons. So far, the US strategy, and whether it’s sanctions, air strikes or on again, off again withdrawals, has seen precisely the opposite effect, increased Iranian influence, pressure for the US to withdraw from Iraq, Iran resuming Iranian enrichment and handing influence to Russian and Syria. So I would suggest that there’s zero evidence that maximum pressure is working. Secretary Pompeo yesterday seemed to basically give an answer about blind faith that it’s going to be working. So I’m interested in your view on, what credible evidence is there behind this strategy working and what specific indicators of success are you looking at?
Steven T. Mnuchin
Well, let me say, and you won’t be surprised for me to comment, but I disagree with you completely, okay? And I did like the other question better. But, you know, these are complicated issues, so let me be clear, you know, kind of there are complicated issues. Syria’s a complicated issue, Iraq is complicated, Lebanon is complicated. A lot of these issues existed before the President came into office, a lot of these issues still exist, so – and there are different issues in all of these areas. I would say, I think there’s much more commonality now more than ever in the Middle East on the view from lots of countries, from Israel to Saudi to UAE to Qatar to others on the issue of Iran, okay? And I think that regional stability is very important to all the countries there and everyone around the world, and there’s no question that Iran has been the major exporter of terrorist activities. And there’s no question in our mind that if Iran had more money, they would be spreading more activity. So again, at the end of the day, this isn’t a function, you know, this is a function of we want to get to a result and we have complete agreement with all of our allies on this. We want to get to a result where Iran commits it will never have nuclear weapons, it is not a threat to the region, in terms of ballistic missiles and terrorism, and I think there’s a great outcome for the Iranian people. So, you know, we’ll see.
Dean Joel Hellman
And one final question, the lady with the red – the pink scarf.
Valerie Dupont
Hello. Valerie Dupont with [inaudible – 59:15]. Regarding the UK-US trade negotiations, the govern – the UK Government is said to be close to giving its agreement to Huawei, at least party – partly, would that be a major upset and what about if the UK also enforces the same digital tax?
Steven T. Mnuchin
You know, let me just say, we’re in active discussions with the UK Government and others about Huawei. Again, Huawei, it’s a complicated issue, what parts of their networks it goes into. I don’t want to go through the details, but there are ongoing discussions on that and as it relates to the DST, and I’ve publicly said this already. It obviously came up at my breakfast with the Chancellor this morning, we believe that the DST is a discriminatory tax. We don’t think it’s appropriate. Having said that, we are working at the OECD to see if we can deal with all these international tax issues.
Dean Joel Hellman
Well, thank you, secretary Mnuchin, that’s all the time we have for discussion and questions. I want to now to turn it over to the Chairman of Chatham House, Jim O’Neill, for some final words and I think I’m going to escort you back to the chairs, but thank you very much. Thank you [applause].
Lord O’Neill
Let me say as our two guests here are leaving, my own thanks to them both for actually, candidly, a very refreshing and constructively challenging view on some of the issues in the world. I also, before I offer some more reflections and a couple of my own observations, of what the sound of Mr Secretary Mnuchin’s comments have been for the rest of the world, I want to thank him myself for coming here. It’s quite odd, given our own past, it’s the first time the Secretary and I have seen each other in a long time, and some of you will know, we were once fellow partners of a certain establishment, and so, it’s a great pleasure for me. Let me also you also congratulate you, Joel, on your own 100 year anniversary, but your leadership role in putting this together, and helping us, at Chatham House, have this event for kickstarting what is a very exciting year for us. So thank you very much for that, and kind of wow for us as a way to start it. I must also thank Leslie Vinjamuri, wherever she is here, for her own active role in making sure this happens, so well done to you, Leslie, who runs our Americas Programme.
I had made some notes beforehand, naïvely and arrogantly thinking that I know what you would say and therefore, I could tell them that, but I’ve had to sort of throw them away and adjust them. I did think I would start by saying there were two burning issues of the moment and one of them – or both of them actually, seemingly always, that I didn’t think you would touch on, one of which was the dollar, but you did, and I’ll come back to that in a second. The other, of course, was the ongoing demise of Manchester United and the resurrection of the active dislike of the current ownership, but maybe that’s for another occasion.
On the dollar, I have to say, I think I heard you say, Mr Secretary, about referring to your comment of Davos two years ago about a stable dollar. And I want to just offer two observations, given my – again, my own long-term past. I do think you have discovered a rather nifty and nimble position, when I think of myself all those wasted years, trying to figure out what various US Treasury Secretaries, going all the way back to Lloyd Benson, thought about what it meant when they said something about the dollar stance, which is usually one of a strong dollar. And when I Googled this morning, I saw there was only really two references to your view – your comments on the dollar and so you’ve – hopefully, with me not now adding an additional challenge, you’ve seemingly taken the heat out of the persistent attention on the Treasury Secretary of that. But I – the second one, I suspect by saying stable that might mean for the rest of the world, don’t assume that the dollar’s always going to be going up, but that’s my own subjective interpretation. And moving on and putting my own context of it too, I think, as I – certainly not that I was at Davos, but I interpreted it this way, I think on the state of the world there was a view that the world economy had stabilised, certainly from all the indicators I’ve spent so much of my life following and as I am a human being, still do. It looks pretty clear to me that in November and December the world did stabilise, with most of the places that have been showing the greatest weakness, China included, showing evidence of some modest bottoming out.
However, the third thing to say in that regard, and not for the first time I must add with Davos, within a short space of time, events, my friend, take over. And with the very troubling coronavirus outbreak in China, it seems to me, even for the dominant theme of climate change, that is not the thing that’s going to focus the mind of policymakers, particularly obviously, as it relates to health. But I would suggest crucially, because of the consequences of movement and travel, also for this fragile stability that may appear in the Chinese economy and a number of others that are so crucially tied into the Chinese influence on the world economy these days. And I suspect this is hopefully going to be a major focus of attention of Chinese policymakers and a number of others that may be in a position to help them.
The fourth – I’ve got only two more comments, you’ll be pleased to know, then we shall break for a reception. The fourth thing I would say, and linked to my opening comments, I think you do present, Mr Secretary, a refreshing challenge to what I would call is the status quo thinking of much of the past 25/30 years, of much of international consensus. And now, if I also put on my so-called Northern Powerhouse hat, I was particularly pleased to hear you say of the importance of the context of many of our international bodies. I am thinking more about the consequences of some of the things that happen in international agreements for people in their own economies, and I hope you passed that over to your counterpart at breakfast this morning, ‘cause as a number of people here know, this government seems to be at least giving the message that it wants to take the Northern Powerhouse more seriously. And it is really important that they do, but linking it to what you’ve said, I think the thing that I have learnt, over the past now getting on for four years, since we had our own peculiar set of self-presented challenges with the Brexit votes, it is perhaps the case that far too many countries have often pursued trade as an end goal in itself, and not in the context of the overall domestic economic and social economic policies.
And whilst that means there are huge challenges to the status quo of the likes of the WTO, and I’m touching on what you said about taxation, perhaps also to the likes of the OECD. It is incumbent on the people that are charged with running those organisations, in order for them to be more effective, I think it’s deemed that they have to understand more some of these domestic issues that have come to the table, so much in so many places. For individual parts of the world, China, the EU and ourselves, before I turn lastly to the EU, it also obviously represents a challenge to those thinkers, and here, let me say, it’s an exciting challenge to all of us at Chatham House. And various people, in our different research teams, to think of a more productive way of how these countries can rise to this new set of how to think about engaging with this approach from the US. Which I find my own mind thinking more and more may give the impetus to greater structural changes in their own economies, which, in itself, it were to happen, will have a macroeconomic influence presumably of giving more of their own stimulus to the world. And I strongly share what Mr Secretary suggested about Europe itself finally discovering some other forms of domestic economic growth, rather than just relying on monetary policy, in my view, a highly welcome comment and it is about time something happened.
Let me finish specifically with respect to the UK, and I thank Joel there for asking all the burning issues that indeed relate to the – many of the challenges of the UK-US bilateral trading discussions, and also, to you, Mr Secretary for the candidness in which you replied to them. As also shown by our own very latest evidence, just yesterday our own Purchasing Managers Indices or the so-called flutter on the UK, showed a notable bounce in December, which is – sorry, for January, which is clearly a response to the strength of the election victory and maybe some aspects of, at least, the formality of now leaving the EU is with us. And that’s a sign of some kind of perhaps stabilisation coming from elsewhere in the world too.
In parallel with that, somebody sent me yesterday, in fact, David Giampoloa, my friend here, sent me a copy of the latest Edelman survey of domestic opinions, both socially and economically. And the not so good side is that there’s a lot of pessimism out there in the country, but flipping it to the other side, there has been a notable improvement, in a number of areas, both with individual perceptions about their own sense of where the future is going. And it’s very important, in my opinion, that the government certainly carries the focus on that, in what guides it into its own self-interest in its trade negotiations with either the US, or for that matter, anybody else.
And so, thank you again for everybody’s role in this, it’s been an absolute pleasure to come into the centre of town on a rare Saturday visit. And I’d now like to all – ask you all to share again your sense of appreciation for our guests, and then stay here, I’m just being reminded, while the few of us go up to the reception. And if you can get anywhere near Mr Secretary through his colleagues, please try and feel free. Thank you very much [applause].
