Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm joined by the US Treasury Secretary Scott Bessett this
Speaker 2: morning on the heels of this agreement. The President announced
Speaker 2: last night last week, you joined me, John and Lisa,
Speaker 2: and you said you were going to Japan for the
Speaker 2: World Expo, wasn't really going to be focused on trade.
Speaker 2: You came back. The President had a seventy five minute
Speaker 2: meeting as well last night with the trade negotiator. You
Speaker 2: were in the room, and he got this deal with
Speaker 2: you alongside him over the finish line.
Speaker 1: Even though the.
Speaker 2: Reporting at of Washington that actually the discussions with Japan
Speaker 2: were quite difficult. What changed in the last twenty four hours.
Speaker 1: Look, Anne, Marie.
Speaker 3: We had some discussions about the overall US Japan relationship,
Speaker 3: which was one of the strongest in the world when
Speaker 3: I was in Tokyo and Osaka, and then we got back.
Speaker 3: There were elections on Sunday. LDP did slightly better than
Speaker 3: expected that they don't have a majority. Japanese government was
Speaker 3: ready to deal, and as president, only President Trump could do.
Speaker 3: He brought the Japanese trade delegation into the Oval and
Speaker 3: had a very fulsome negotiation with them and I tell
Speaker 3: you they're tough negotiators for President Trump's tougher.
Speaker 2: Well, there is a photo circulating on Twitter from Dan
Speaker 2: Scavino and you actually see a sharpie x out of
Speaker 2: some what looks like preliminary deals for even more concessions
Speaker 2: with Japan. I want to ask you about this fifteen
Speaker 2: percent tariff free? Is that the new floor now for
Speaker 2: trading partners when you're going into these negotiations.
Speaker 3: Well, I think it's very important to note that fifteen
Speaker 3: percent for Japan for reciprocal tariffs for autos, that is
Speaker 3: a different kind of deal. But because the Japanese proposed
Speaker 3: a very innovative solution, We've been working with them for months,
Speaker 3: the trade team, myself, Ambassador Greer, Secretary Lutnik, and they
Speaker 3: came to us with the idea of a Japan US
Speaker 3: partnership where they are going to provide equity, credit guarantees
Speaker 3: and funding for major projects.
Speaker 1: In the US.
Speaker 3: So they got the fifteen percent rate because they were
Speaker 3: willing to provide this innovative financing.
Speaker 1: Mechanism.
Speaker 2: There's a lot of Japanese FDI into the United States already.
Speaker 2: Is this new capital?
Speaker 1: Oh no, this is all new capital.
Speaker 3: This is all new capital, and it is going to
Speaker 3: be targeted at the strategic industries. The President Trump and
Speaker 3: this administration belief that we have to de risk on
Speaker 3: During COVID, we saw our vulnerabilities, whether it was in
Speaker 3: medicine semiconductors. So we are going all in over the
Speaker 3: next few years to de risk our supply chains and
Speaker 3: this deal, thanks to President Trump, is going to be
Speaker 3: part of that.
Speaker 2: When it comes to the fifteen percent rate on autos,
Speaker 2: this means that Toyota is basically paying a cheaper rate
Speaker 2: than say GM if they have inputs from other countries.
Speaker 2: Still they're still at the twenty five percent auto rate.
Speaker 2: Do you see the auto rate leveling out to something
Speaker 2: lower than twenty five percent.
Speaker 1: We'll have to see.
Speaker 3: And again those are just GM components.
Speaker 1: There's also the.
Speaker 3: USNCA, the portion of any autos assembled in the US,
Speaker 3: and then of course GM and especially Ford. I think
Speaker 3: Ford has the largest US production. You're building in the US,
Speaker 3: there are no tariffs, so when.
Speaker 2: It comes to what's next, we know the EU negotiators
Speaker 2: are in town. This fifteen percent rate feels like potentially
Speaker 2: a floor. Could anyone get below fifteen percent? Is the
Speaker 2: European Union still trying for ten percent minimum baseline tariff.
Speaker 3: Well, again, the fifteen percent is a result of this
Speaker 3: very innovative package that the Japanese came with and your
Speaker 3: present Trump being able to push them to do even
Speaker 3: more so.
Speaker 2: Has Russels come up with anything innovative?
Speaker 3: Not yet, But again, talks are going better than they
Speaker 3: had been. I think that we are making good progress
Speaker 3: with the EU, but as I've said before, Emory and
Speaker 3: the EU has a collective action problem twenty seven countries.
Speaker 3: Great thing about dealing with the Japanese. I've been going
Speaker 3: to Japan since nineteen ninety I think this weekend was
Speaker 3: my fifty second trip. And the Japanese government moves of
Speaker 3: one entity. They're highly organized across all level of government.
Speaker 2: So you say that talks are going better, We just
Speaker 2: have a story hitting the terminal this morning from our
Speaker 2: colleagues in Europe that the European Union is readying one
Speaker 2: hundred billion dollars euros. If there is no deal in place,
Speaker 2: they will impose thirty percent tariffs on those one hundred
Speaker 2: billion euros worth of goods. Do you think we're going
Speaker 2: to get to that place?
Speaker 3: I think it's a negotiating tactic, and it's what I
Speaker 3: would do if I were in their place. But Amery,
Speaker 3: Remember we are the deficit nation. They're the surplus nations,
Speaker 3: so any kind of a escalation in trade problems will
Speaker 3: always hit them worse.
Speaker 2: I want to also talk about what's going on with China.
Speaker 2: You're going to Stockholm Monday Tuesday to meet with your
Speaker 2: Chinese counterparts. Are we going to continuously see the discussions
Speaker 2: revolve around where Earth's and export controls or they're going
Speaker 2: to be other items on the table.
Speaker 3: I think we're in a very good place with China
Speaker 3: now and we can start moving on to bigger discussions.
Speaker 3: As I've said many times, there is the potential for
Speaker 3: a big, beautiful rebalancing between the US and China. President
Speaker 3: Trump is committed to bringing back precision manufacturing to the US,
Speaker 3: and as we become more of a manufacturing economy, China
Speaker 3: is highly imbalanced. They account for thirty percent of all
Speaker 3: the manufacturing output in the world. That's not sustainable. We
Speaker 3: believe they should become more of a consumption economy. If
Speaker 3: they are willing to go down that route, then we
Speaker 3: could actually do it together. And then there are lots
Speaker 3: of other things we can talk about whether it's them
Speaker 3: buying sanctioned Russian or Iranian oil, you know a number
Speaker 3: of security things.
Speaker 2: And so the purchasing agreement from Trump's first administration, he
Speaker 2: had a deal with China on the Phase one purchasing
Speaker 2: agreement on agriculture.
Speaker 3: Well, again, that's another way that we could bring this
Speaker 3: imbalance relationship into balance. So we will be talking about
Speaker 3: purchasing agreements, especially ag and to refresh everyone's memory, we
Speaker 3: had the purchase agreements. Chinese lived up to the purchase
Speaker 3: agreements during President Trump's final year in office, and then
Speaker 3: the Biden administration didn't enforce those purchase agreements.
Speaker 1: So we're going to let bygones be bygones. We're going
Speaker 1: to look forward.
Speaker 3: And I think we can come up with some very
Speaker 3: interesting purchasing agreements. As you know, President Trump is committed
Speaker 3: to the American farmers.
Speaker 2: Well, looking forward, you told me John and Lisa last week,
Speaker 2: the market doesn't need to worry about August twelfth, that's
Speaker 2: the deadline for this current dayton between Washington and Beijing.
Speaker 2: What's the new deadline going to be?
Speaker 3: Well, again, I think that we could roll it forward,
Speaker 3: maybe in a ninety day increment and I think the
Speaker 3: good news here is that we are back on track
Speaker 3: with the Chinese negotiations. On April second, President Trump told countries,
Speaker 3: here's your reciprocal rate. But that was the ceiling if
Speaker 3: you do not escalate. If you don't escalate, this is
Speaker 3: the max. The Chinese chose to escalate. But now we
Speaker 3: both sides have de escalated, and I think we can
Speaker 3: get into a very good cadence of regular meetings with them.
Speaker 3: And look, we're the two largest economies.
Speaker 1: In the world.
Speaker 3: We do not want to decouple with the Chinese. We
Speaker 3: just need to de risk part of our supply chain.
Speaker 2: Does regular incremental meetings include a meeting between President Trump
Speaker 2: and Shijipang this fall.
Speaker 3: I do know that a party chair she has invited
Speaker 3: President Trump to visit China. I don't know. I don't
Speaker 3: have dates on that. I don't know if the President's accepted.
Speaker 3: I know they have a fantastic relationship on a personal level,
Speaker 3: which I think forms the basis of everything between the
Speaker 3: US and China.
Speaker 2: Local reports in China, we're talking about the two meeting
Speaker 2: on the sidelines of the APEX summit in South Korea
Speaker 2: this fall. At the end of October early November, or
Speaker 2: maybe President Trump going to China first. Could we see
Speaker 2: a meeting that soon? You think a meeting within this
Speaker 2: year can happen.
Speaker 3: Again, I'm not privy to the President's travel schedule beyond September,
Speaker 3: so we'll see.
Speaker 2: Nothing before a meeting with Chighing paid before September, nothing
Speaker 2: before Labor Day. So in the last week I do
Speaker 2: want to go through something that's going on with China.
Speaker 2: They've imposed exit bands on a Wells Fargo banker, a
Speaker 2: commerce department employee, and according to Microsoft, they hacked into
Speaker 2: their software. Will you address these actions at the talks
Speaker 2: in Stockholm.
Speaker 3: We're going to address a whole host of things, and
Speaker 3: you know, obviously things like that will be on the
Speaker 3: agenda with my Chinese counterpart.
Speaker 2: You had said to me last week that the Nvidia
Speaker 2: H twenty chip was potentially a chip in negotiations, a
Speaker 2: mosaic part of the deal. Do you think China's doing
Speaker 2: this for leverage at the trade table?
Speaker 3: Absolutely not, absolutely not, because again, the H twenty, while
Speaker 3: it is an advanced chip, is not one of the
Speaker 3: most advanced chip. I think if we were think about
Speaker 3: the Nvidia stack, the HP would be something fourth fifth
Speaker 3: down the stack, and my understanding is that Huawei can
Speaker 3: produce something with similar applicacy.
Speaker 2: So China's malicious behavior, even just in the past week,
Speaker 2: even targeting a commerce department employee. Do you think they're
Speaker 2: doing this to have leverage with the United States?
Speaker 3: Well, I can tell you in Stockholm it's not going
Speaker 3: to give them any leverage with me. And it's a big,
Speaker 3: sprawling bureaucracy. And sometimes I think we may see the
Speaker 3: arrests may have been in a province, the central government
Speaker 3: may not be aware of it. So I would highly
Speaker 3: doubt that something at that level that they have wanted
Speaker 3: to engage with the US. We are engaging with them,
Speaker 3: and I think both sides want to move forward in
Speaker 3: a productive way.
Speaker 2: But you'll raise these issues. Yes, So now that the
Speaker 2: administration is getting trade deals across the finish line Japan, Indonesia, Philippines,
Speaker 2: yesterday you said the European Union potentially in sight. Do
Speaker 2: you think the Federal Reserve is gonna have enough clarity
Speaker 2: by September to cut interest rates?
Speaker 1: Uh?
Speaker 3: Again, I I'm not really sure what the Federal Reserve
Speaker 3: is looking at because, Uh, thus far we have not
Speaker 3: seen or we've seen very little, if any uh price
Speaker 3: pressures from the tariffs, and if we were to see those, uh,
Speaker 3: they wouldn't be inflationary, be a one time price adjustment.
Speaker 3: So I again, I I think that their analysis of
Speaker 3: tariffs is a bit off. Well.
Speaker 2: Governor Waller made this exact case to us on surveillance
Speaker 2: on Friday, and it sounds like he might dissent at
Speaker 2: this meeting. He also said the President hasn't called him yet.
Speaker 2: He's one of these names that are circulating around. Could
Speaker 2: he replace FED chair J?
Speaker 1: Powell?
Speaker 2: Is he a name you're looking at? Have you reached
Speaker 2: out to him?
Speaker 3: I think there are a lot of strong candidates, including
Speaker 3: several who are on the main board and perhaps regional
Speaker 3: bank presidents.
Speaker 2: So are there other names outside of Kevin Hassett, Kevin Walsh,
Speaker 2: Christopher Waller and you yourself has been circulating There's.
Speaker 3: A long list, and like I said, there's some great candidates.
Speaker 2: And have you reached out to everyone on both those lists.
Speaker 3: I'm not going to talk about the process, but we
Speaker 3: are getting the process underway. Obviously it's going to be
Speaker 3: President Trump's decision and we're not in a rush.
Speaker 2: So, oh, you're not in a rush. But the President
Speaker 2: continuously says he wants to get rid of the FED
Speaker 2: chair J.
Speaker 1: Powell.
Speaker 2: Mahmade Larian yesterday said he should resign.
Speaker 1: Do you think J.
Speaker 2: Powell should step down to protect the institution?
Speaker 1: The couple of things.
Speaker 3: One, the President said he is not going to Firechair Palell.
Speaker 3: I was somewhat surprised that Muhammad al Area came out
Speaker 3: and said that.
Speaker 1: And what I've come.
Speaker 3: Out and said is that I believe that it would
Speaker 3: do Chair Pale a favor, and he would be doing
Speaker 3: the institution of favor if he did an internal review
Speaker 3: separate monetary policy from everything else. And this is something
Speaker 3: that Larry Summers and I agree on, is this mission
Speaker 3: creep from the FED is endangering their independence of monetary policy.
Speaker 3: So all these other things that they're engaging in could
Speaker 3: threaten monetary policy. So it is a big, sprawling institution.
Speaker 3: The central budget for the Board is up four x
Speaker 3: since two thousand and four, and every institution needs to
Speaker 3: examine themselves.
Speaker 1: But you want the.
Speaker 2: Man that you guys don't think is doing a good
Speaker 2: job to run that review.
Speaker 1: What's that you want?
Speaker 2: The man Powell, which you and a president don't think
Speaker 2: is doing a very good job to run the review
Speaker 2: of the institution.
Speaker 3: Well, I think that it could be a committee, it
Speaker 3: could be a group. They could invite outside experts. In
Speaker 3: the Bank of England after the twenty twenty two a
Speaker 3: great hike shock went back and did a very good
Speaker 3: examination of what went wrong with monetary policy. That brought
Speaker 3: in outside experts. So, you know, I think an internal
Speaker 3: review would be a good start, and if the internal
Speaker 3: review didn't look like it was serious, then maybe they
Speaker 3: could be an external review.
Speaker 2: Have you communicated this directly with J Powell? Do you
Speaker 2: guys continuously have your once a week breakfast lunches either
Speaker 2: at the FED or the Treasury.
Speaker 3: I gave a speech on Monday night on bank deregulation,
Speaker 3: bank regulation, the future of regulation, which is, you know,
Speaker 3: aside from monetary pol see, I think the most important
Speaker 3: thing for the economy.
Speaker 1: The FED is one of three regulators.
Speaker 3: There's the FED, the Office and Control of the Currency
Speaker 3: which sits under Treasury.
Speaker 1: And the FDIC.
Speaker 3: And I believe that all three of those should have
Speaker 3: important voices. And I believe that the regulation has been
Speaker 3: much too stringent since the Great Financial Crisis.
Speaker 1: We are seeing this big.
Speaker 3: Build up outside the regulated financial system. I think I
Speaker 3: saw something two days ago. The private credit is up
Speaker 3: ten x. Not saying it's a financial stability problem, but
Speaker 3: I am saying that there's a regulatory arbitrage going on.
Speaker 3: But that was a long way of saying I saw
Speaker 3: a chair Palel at that speech.
Speaker 2: And your launches in breakfast continue always, so you have
Speaker 2: a good relationship.
Speaker 3: With him at the moment, we have continuing communication.
Speaker 2: Last time you were on, you also talked about the
Speaker 2: potential next FED chair. You said his or her nomination
Speaker 2: is Governor Bowman also in the running.
Speaker 1: Again I'm not going to name names, but.
Speaker 3: There are good candidates. As I said on the board
Speaker 3: that there's several female regional bank presidents, and then there
Speaker 3: are some fantastic women outside the FED.
Speaker 2: There's also Governor Kugler's chair that is open in January.
Speaker 2: Have you started that process.
Speaker 1: It's a simultaneous process.
Speaker 3: The Coogler chair is a fourteen year seat, so we'll
Speaker 3: be looking at that also. And again I think we
Speaker 3: have some very good candidates.
Speaker 2: Given you just saw J Powell. Has he yet to
Speaker 2: tell you whether or not he is going to leave
Speaker 2: the board his governor seat by twenty before twenty twenty eight.
Speaker 1: He hasn't yet.
Speaker 3: My belief is that he will, and I think that
Speaker 3: it would be very good for the institution for him
Speaker 3: to do it, and I think it'd be very good
Speaker 3: for him personally.
Speaker 1: To do it.
Speaker 2: The President once said that he goes out and ryle's
Speaker 2: financial markets, and then he sends you, his Treasury secretary
Speaker 2: out to calm things. Things are pretty calm today, but
Speaker 2: when it comes to the FED chair, I know you
Speaker 2: love college basketball, and you talk about the President being
Speaker 2: Bobby Knight, and I know you love Dean Smith. Are
Speaker 2: you guys playing this good cop bad cop when it
Speaker 2: comes to talking about the FED talking about Jay Powell?
Speaker 1: Not at all?
Speaker 3: And Marie, the reason I think that I'm to the
Speaker 3: extent I'm able to calm the markets, and that doesn't
Speaker 3: always happen. I was in the investment business for thirty
Speaker 3: five forty years, But I think more importantly than that,
Speaker 3: I understand what President Trump is doing, and a lot
Speaker 3: of times he's won two three steps ahead of the market.
Speaker 3: And as you know better than anyone, the market wants
Speaker 3: instant explanation, they want clarity, they want.
Speaker 1: Immediate gratification.
Speaker 3: So I think that I am able to As a
Speaker 3: former practitioner, I think about when President Trump tells me
Speaker 3: what his goals are, I think about, what is the
Speaker 3: best way for me to give good framing to market
Speaker 3: participants for them to understand what he's doing. Because he
Speaker 3: always has a plan, it's not always obvious, So you.
Speaker 2: Are communicating almost a strategic ambiguity that he likes to
Speaker 2: operate from.
Speaker 3: Well, and I'm also trying to explain that there is
Speaker 3: a plan because look, these letters went out, everyone was,
Speaker 3: oh my gosh, these are high rates. And I think
Speaker 3: the president created maximum negotiating leverage and the market actually
Speaker 3: took it pretty well, took it pretty well.
Speaker 2: Just to finish on that final point, then, do you
Speaker 2: think he's more in boldened to go for higher rates
Speaker 2: with trading partners now given the market is not pushing back.
Speaker 3: Well, I think he's created a lot of leverage because
Speaker 3: he's created an ab situation. He is able to go
Speaker 3: to the trading partners and say, look, I am happy
Speaker 3: to take in this tariff income if you don't want
Speaker 3: to negotiate.
Speaker 1: This is a high rate.
Speaker 3: But the US is taking a massive amounts of tariff income.
Speaker 3: We had the first June budget surplus since twenty fifteen
Speaker 3: last month. We reported it this month, and so we
Speaker 3: are taking in substantial income. So President Trump is creating
Speaker 3: this leverage by saying, if you don't want to negotiate
Speaker 3: with me, I've sent you a letter with a high rate.
Speaker 3: You have at the high rate, or come and negotiate
Speaker 3: in better.
Speaker 1: Fashion, because I'll tell you.
Speaker 3: What was fascinating for me, and this was President Trump
Speaker 3: at his best, at his best was the Indonesians came
Speaker 3: with what I thought was a very good offer out
Speaker 3: of the Blox. President Trump kept pushing them. He raised
Speaker 3: the reciprocal rate when he sent them the letter, and
Speaker 3: five iterations later, the Indonesian trade deal was greatly improved,
Speaker 3: turned into a great deal for both sides.
Speaker 2: Secretary Scott Besson, thank you so much for your time
Speaker 2: this morning.