Michael Faulkender Talks China Tariffs, DOGE, Tax Cuts
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Bloomberg Audio Studios. Podcasts, radio, news. And here's exactly what China had to say about the decision to cap tariffs on the United States. Given that American goods are no longer marketable in China under the current tariff rates, if the U.S. further raises tariffs on Chinese exports, China will disregard such measures. And as Tyler was saying,

China then called Trump administration's actions, quote, a joke. For more, we are joined by Deputy Treasury Secretary Michael Falkender at the White House. First, Mr. Deputy Secretary, I'm looking for the administration's reaction to China because President Trump said he is waiting for China's call, but would he pick up the phone to call Beijing?

Great to be with you this morning. That's right. We are looking for China to pull back on its tariff retaliation and to come to the table and discuss with us how they're going to address these decades-long, not only tariffs but non-tariff barriers as

Secretary Mnuchin and Ambassador Lighthizer in the first Trump administration focused on in negotiating with China. There are longstanding issues with intellectual property theft, with illegal subsidies, with forced technology transfers. And the president came into office campaigning on the fact that we were finally going to address these. Instead of coming to the table and negotiating with us on those things, China has chosen to retaliate. We welcome the Chinese to get in touch with us and start discussing how we can

address some of these long-standing inequities in our relationship.

Well, let's talk a little bit more about that. We were having a great conversation with Hayman Capital's Kyle Bass yesterday. He made the point that it's not clear what the off-ramp is here when it comes to the relationship with China. And that was before even we saw the latest retaliation from Beijing. So I want to hear specifics here. When it comes to concessions, what exactly does the Trump administration want? I mean, we talked about a few of them just now, but bring fentanyl into the conversation, for example.

Absolutely. I mean, you saw when the president came into office, one of the very first things he did was extend tariffs in order to address the fentanyl crisis. Because as you said, we have somewhere between 70,000 and 100,000 Americans die from the fentanyl whose precursors are coming from China. So yes, in addition to addressing these longstanding issues on intellectual property theft, we want them to take every step necessary to halt the precursors that are coming into Mexico and Canada that end up

becoming the fentanyl that's illegal crossing into our country. We are looking for them to address, as I said, the longstanding price quotas, the capital controls that are keeping American products and American financial services from coming into China. We are looking for them to fulfill the terms of their phase one China trade agreement. So we are looking for active steps by the Chinese to live up to their existing obligations and in order to bring some, again, equality back

to this relationship. As the pandemic demonstrated and as current conditions are showing, the Chinese need to address some of their practices that are putting the United States industrial base and the United States economy in a position that the president recognizes is not sustainable. And so we are looking for them to work with us in order to create an environment whereby we can address these vulnerabilities, where they can

come to the table and equitably address these long-standing issues that have given them an unfair advantage and that have done detrimental harm to America's manufacturing base, America's small towns and communities, and

this president is committed to making sure that we do something about these issues and so as he's knowledge there are going to be some transition issues associated with it but the most important thing we can do is see the chinese acknowledge and address these long-standing inequities and actively do something about it michael i want to talk about uh... you know i've long dreamt dreamt of a united states in which we have no income tax but we get so much revenue from personal income taxes two point two trillion dollars we get about

$450 billion from corporate taxes, and we're only looking at it 10%, maybe 300 to 400 billion from tariffs. What kind of tariff revenue do you expect we can start building annually, and how much or to what extent can that replace taxes on citizens?

Yeah, thanks for bringing up the tax issue. As you saw yesterday, we had the House of Representatives pass the budget resolution. We are very much looking to coordinate the tariff revenue that we generate as an offset for purposes of realizing deficit reductions. But will it be enough?

When you look at the cost of the extension of the Tax Cuts and Jobs Act, as well as the economic growth that's going to be realized from the implementation of the President's policies, that's more than offset by the projections and tariff revenues that are going to come in such that we can simultaneously extend tax reform, deregulate the economy, get the growth that we anticipate, bring American jobs back onshore, and bring our deficits down, and get to that 3% deficit to GDP target that the Secretary has been talking about.

And so the full implementation of this is what's underway since day one. And when you look at the major success that we had with the House yesterday, the full implementation of the president's plan is well underway. Deputy Secretary, I'm wondering if you can give us an update because Secretary Besant has said that the Treasury's borrowing authority could run out in June or July. What is an update on the X date timing given the tax receipts that are coming in and how

likely is it that we could see a situation where we hit that sooner say May? Right so as you just recognized the update is coming from the fact that tax day is next next week and so once we hit April 15th and once those

automatic payments and checks that come in are processed. We will see how much the tax revenue came in. So far, what we're seeing, we released the monthly Treasury statement earlier this week. We're seeing that grocery seats are coming in higher than last year. So that seems to suggest that we may have a robust tax filing season in terms of revenues that come in. Until we get those final numbers, we're not really in a position to update the X-Day. But what we're looking for is for Congress to understand that

Getting the reconciliation process started with yesterday's vote in the House is important because we don't want to get anywhere close to the X date. And so what we want to do is start work immediately on getting the reconciliation package done that includes a debt ceiling increase so that we get nowhere near a potential X date. And Deputy Secretary, on the topic of taxes, Bloomberg News reported last week, I believe, that Republicans are debating

considering hiking the tax rate to 40% for millionaires. And I'm just wondering how seriously the administration is considering something like that. What we're most importantly looking to do is make sure that tax reform, that the Tax Huts and Jobs Act from 17 gets extended. We are discussing a number of potential offsets with members of Congress. But I don't want to get into the specifics of any negotiation on any one particular parameter.

All right. I just want to finally ask about Doge and get a ballpark figure from you there as well. How much do you expect Doge is going to be able to cut annually? You know, if you can't give a 2025 number, what do you think it'll look like in 2026? Because that obviously can also help to offset any tax cuts.

That's right. So in addition to some of the things that we're looking to negotiate with Congress in terms of mandatory spending reductions, a lot of the efficiencies that Doge is identifying are going to help us submit a budget to Congress that's going to have reductions in discretionary spending. Because as we modernize our systems, as we look for efficiencies in the way that we deploy systems,

the federal bureaucracy. As we reduce the scope and scale of government's intervention into the private economy, we are going to bring down the cost of government. Just in the Treasury Department alone, we are looking at billions of dollars in efficiency realizations. And so Doge is going to keep working for another couple of months, and we're going to add those up. I would not at all be surprised if it's on the order of

$50 billion a year that we can realize in cost reductions. And so once you project that over the entire- - 50 billion. I thought we were looking at like 500 billion a year in cuts from Doge. I mean, the original- - I mean, so I'm just talking about on the discretionary side. In addition to that,

Another one of their big ideas or one of their big agenda items is to look at all the waste and fraud that GAO has identified. They identified that there's $200 to $300 billion a year in improper payments. So if we find ways to utilize systems to reduce improper payments, there's potentially hundreds of billions there. But on the reductions in spending on the discretionary side, we are in...

The $50 billion, it should be reached without any problem. I have not seen updates outside of Treasury in terms of how much larger we could get once you go beyond. Secretary, one other question I have before I let you go here, because even beyond what you might see in terms of money coming in and out the door for the U.S. government, you are seeing the bond market react. You're still seeing it react fairly significantly with the 10-year yield at about 4.5% as we speak, the 30-year at about 4.9%, yield still higher. How

concerned is the Treasury Department that borrowing costs at the longer end of the curve are rising this drastically? Right. So we did a 10-year auction and a 30-year auction earlier this week. Both of them had very strong subscriptions to it. We saw international investors come in and continue to participate in that bond auction. And so we are seeing that markets continue to function well. We are seeing that there continues to be strong demand for Treasury securities. And so far, we are

monitoring the situation, but liquidity seems to be just fine in the bond market. And so as we as we generate realization of some of the negotiations that are going on, we anticipate that that's going to continue to bolster demand for dollars and dollar denominated securities and reduce some of the volatility that's currently in capital markets.

Deputy Secretary, we really appreciate your time this morning. That is Deputy Treasury Secretary Michael Falkender. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals.

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