QUESTION:  All right, welcome back to Squawk Box.  Let’s get right to our big Squawk newsmaker this morning.  Welcome, Secretary of State Mike Pompeo.  Mr. Secretary, it’s great to see you.

SECRETARY POMPEO:  It’s great to see you as well.

QUESTION:  In Hong Kong, it’s been very peaceful, thank God.  What is the endgame if it stays peaceful but if there’s a third of the population in the streets doing – it’s not a third, but it’s a big number.  It’s over a million, and it’s not that – there’s not that —

SECRETARY POMPEO:  It’s seven and a half million people in Hong Kong, so yeah, significant.

QUESTION:  Total 1.7 million, and as we’ve said, these things have a way of not going away unless something’s done or they get some type of concession or something bad happens.  How – what’s the endgame?

SECRETARY POMPEO:  Look, the endgame is that the Chinese will uphold the commitment that they made, right?  They made a promise, which was one country, two systems, that they would allow Hong Kong to continue to operate.  We talk a lot about the protests.  They’re desiring this freedom and liberty, but we should remember too there is important businesses there, a lot of American interests.  And the impact on Hong Kong, if this isn’t resolved in a way that is peaceful and in accordance with those agreements, I think will be significant.  And so we’re hopeful that this will be resolved in a – the President has used the word “humane” way, a way that reflects the right of these people to protest, and we hope that the Chinese will honor their commitment to Hong Kong, one that they made a handful of years back.

QUESTION:  How do you think President Xi uses that calculus in his negotiations on trade with President Trump?

SECRETARY POMPEO:  The President talked about this a little bit on Sunday.  If it ends in a way that there was violence, the President said something like Tiananmen Square, that it would make it more difficult.  I think that’s true.  I hope that’s not a factor.  I hope that the trade negotiations move forward, and I hope that Hong Kong is resolved in a peaceful way.  Those would be the best outcomes for both China and the United States.

QUESTION:  I just wonder if President Xi says, “You know what?  The last thing I need right now is this trade thing when I’ve got, really, the possibility of some type of Arab Spring event in” – I don’t know whether it gets to that, and we’re talking about a lot more people, and it’s not Hong Kong, it’s mainland China.  But that’s what every – I think that’s what we’re all wondering.

SECRETARY POMPEO:  But Joe, remember too the trade deal is very important to President Xi as well.  This is an economy that has grown at a rate of 6, 7 percent, whatever number you believe.  The impact of the re-imposition of tariffs on China will have an enormous impact on the Chinese population.

QUESTION:  It could be related.  And if the economy slows, it’s harder to keep everyone under the autocratic system, and the yearning for freedom becomes even more front and center if the economy is —

SECRETARY POMPEO:  As President Trump has said, we hope we can get to a good resolution of these trade agreements and we can get the fair and reciprocal trade without tariff barriers, without them stealing our intellectual property, without the forced technology transfer, where American companies can invest on the same terms in China that Chinese companies can invest in America.  Those are the simple things President Trump’s asking for.  I hope that President Xi will see his way clear to do that.

QUESTION:  One of the main pieces of that puzzle, though, is Huawei.  And there’s been some mixed messages on Huawei recently.

SECRETARY POMPEO:  No mixed messages.

QUESTION:  The President has said he doesn’t want —


QUESTION:  The President has said he doesn’t want to do business with Huawei at all if he can avoid it, and yet Wilbur Ross has come out and said that there are these licenses which will be granted or should be granted.  Meanwhile, you had the CEO of Huawei come out and say look, if you tell Google that they can’t provide Android to us, we’re going to build our own, and that means there’s going to be a new operating system effectively in the wild, and perhaps the West isn’t going to like that.

SECRETARY POMPEO:  President Trump’s been unambiguous.  I don’t think there’s a mixed message at all.  The threat of having Chinese telecom systems inside of American networks or inside of networks around the world presents an enormous risk, a national security risk.  Our mission set is to find a way to reduce that risk, to take that risk down as much as we possibly can.

I will concede the world was late to the game.  We let Huawei and Chinese telecoms get a big jumpstart on us for a decade or a decade and a half.  It’s not political; it was across both political parties.  President Trump has now said that’s a risk that we can’t take to American national security, to protect the American people’s privacy.  You don’t want the Chinese Communist Party inside of your network, and so we’re driving towards achieving that outcome.

QUESTION:  But why did the Commerce Department just yesterday say that they’re going to extend these waivers for the next 90 days?  That’s network safety.

SECRETARY POMPEO:  So there are elements – there are elements that don’t have anything to do with national security.  There are components that make sense that don’t pose that threat, and we’re trying to find the right spot where the national security risks are addressed, but we compete fairly and allow our companies to trade.

QUESTION:  I thought this was for rural networks here in the United States.

SECRETARY POMPEO:  It is.  We’re working our way through to figure out how to deliver given the 10-to-15-year head start that they had.  You can’t get there all at once, but we’re driving towards the right outcome.

QUESTION:  But the other component of this is the Defense Department has effectively said look, the manifestation of these Huawei networks around the world in China, in Africa, in other places where effectively Huawei is not only licensing – they’re providing loans so that their technology gets there, that that unto itself represents a national security risk.

SECRETARY POMPEO:  That’s correct.  Not only has the Department of Defense said it.  So has the State Department.

QUESTION:  But if that’s true, then wouldn’t you want to shut them down entirely?  So that’s where I think the – when I said that —


QUESTION:  — we said there’s a mixed message or confusion, I think that’s where this waiver issue becomes complicated.

SECRETARY POMPEO:  Right.  So we’ve not been entirely successful around the world.  There were installed systems; there’s installed bases.  There’s enormous cost in some of these transitions.  The same is true in places inside the United States as well.  You can’t rip and tear it all out at once, and so our effort is to put together a pathway where these risks connected to these – and it’s not just Huawei; the focus is often Huawei; it’s broader than that – the risk from Chinese Communist Party-connected telecom companies isn’t present in the United States or the trusted networks in which the United States participates all around the world.

QUESTION:  And you —

QUESTION:  But you’re talking decades or longer before we can fix that?

SECRETARY POMPEO:  No, I don’t think it’ll be that long, but I – but it is true if we ignore it and let it go away, we’ll never get it back.

QUESTION:  And you don’t see President Xi saying, “Look, if you’re going to put us in this position with Huawei, we can’t even talk to you on these other issues”?

SECRETARY POMPEO:  That’s not been our experience, and it’s not what’s happening today.

QUESTION:  So you think that President Xi’s effectively given up on Huawei, to some degree?

SECRETARY POMPEO:  No, I think he’s prepared to engage in a complex set of trade negotiations that our team, Secretary Mnuchin, and Ambassador Lighthizer are engaged in.  So no, he hasn’t walked away; he hasn’t said, “I won’t talk if you do these things.”  He has said we need to sit down and have a conversation about the trade relationship not only between the United States and China, but China’s place in the World Trade Organization, all of the broader trade issues that exist as well.

QUESTION:  The other intersection of State and Commerce and Treasury is Iran, I think, because of oil prices and we’ve – the R-word’s being thrown around now.  The last thing we need is an oil shock or something right now, but Iran – you probably wake up in the morning and they hand you those papers and you’re like “I don’t know if I want to really look at that today, but I’m ready for something from Iran every – once a week.”  They’re stirring things up, are they not?  When does it affect oil prices, do you think?

SECRETARY POMPEO:  So I’m at a UN Security Council meeting.  It’s why I came to New York today, talking about this threat from Iran.  I remember back, Joe, when we withdrew from the JCPOA, when the President made that decision, the right decision.  Folks said crude oil would go to a hundred bucks a barrel, 110; you can go read some of the major financial institutions writing this down.  When I woke up this morning, Brent Crude, 58 bucks; WTI, a little less than that, 55, 56.  We have managed to take almost 2.7 million barrels [i] of crude oil off of the markets by denying Iran the wealth to create their terror campaign around the world and we have managed to keep the oil markets fully supplied.  I’m confident we can continue to do that.

QUESTION:  Do you see the possibility of dealing with the Taliban in a good-faith way in Afghanistan?

SECRETARY POMPEO:  So my team’s been out negotiating with the Afghan Government and with the Taliban over the last six, seven months now.  Our desire is to create conditions on the ground where we can achieve what President Trump laid out, which is to reduce what is 30, 35 billion dollars a year in taxpayer money and the loss of American lives that I see out at Dover or I see injuries at Walter Reed.  That’s the mission set.  The conversations are going well, but in the end, it will be about what’s delivered on the ground, whether that’s from the Afghan Government, other Afghans that aren’t inside the Afghan Government, the Taliban.  The truth will be in the reality, what really happens on the ground.  If we can reduce violence, we’ll create a space where we can withdraw not only American support, but NATO forces that are there as well.

QUESTION:  I think we need – we’ve been – we’ll globe hop.  I think the most important thing I think in terms of our viewers is probably tariffs and China, obviously.  And we still don’t know whether a big deal is possible before the election.  And what we’re hearing, that the way that this is resolved near-term is with some half-measures that kicks the can down the road and maybe get some ag buys and some agreements that aren’t codified into Chinese law, but that – some assurances that we’re not going to steal anything anymore, but those haven’t worked in the past.

Can we expect anything better before November of 2020, when Xi knows there’s an election here and he knows he doesn’t have one?  Although he probably has one every day, really.

SECRETARY POMPEO:  Joe, I’ve not heard the President talk about these half-measures that you speak of.  He has been very focused on achieving a set of priorities that he laid out for the team.

QUESTION:  Is that possible before the election?

SECRETARY POMPEO:  It’s up to President Xi, and the two of them have developed a good relationship.  I hope the teams get back together in the next week or 10 days, at least by phone and then perhaps in person shortly after that.  I don’t know the outcome.

In the end, the Chinese Government has to make a fundamental decision about whether they want to compete in the world on fair and reciprocal terms or whether they want to continue to abuse the international trading system in the way that they have.  President Trump’s made that very clear that those are essentially the two choices for China.

QUESTION:  What do you expect the reception to be at the UN today?  I mean, how do you kind of look at the room and figure out where all these sides line up?

SECRETARY POMPEO:  Yeah.  So different folks have different views all across the world.  We have many Europeans that are with us.  We have the E3, who have a different approach to Iran than we’ve taken.  They’ve stayed inside the JCPOA.  We’ll have folks from all across the world, other regions as well.  We’ll have the Gulf states, who are fully on board with our efforts.  So there’ll be a wide range of views.  But consistent amongst all of them is the deep understanding that the greatest threat to stability in the Middle East is the Islamic Republic of Iran.  However they think about the JCPOA, there won’t be a voice in the room – unless the Iranians show up themselves – who doesn’t agree with that.

QUESTION:  And you’re going to think I’m crazy, but I’m going to ask you about Bitcoin in terms of terrorism.

SECRETARY POMPEO:  Yes.  (Laughter.)

QUESTION:  Okay.  G7 is this week as well, and both Japan and France both have working groups trying to figure out Libra and what would need to be done with Libra.  So everyone’s thinking about how to deal with this.  Now I’m hearing great fears that terrorists are already being funded – or some of their operations – with crypto.  Have you seen this?  It’s happening —


QUESTION:  I’ve seen some of the reports.

QUESTION:  Yeah.  We’ve seen Secretary Mnuchin come on and express great angst about any type of virtual currency and the type of nefarious activities that could come from that.  In fact he said – I said, well we’ve had some nefarious activities with dollars too, and he goes – well, I don’t know of any – it was kind of funny; it became kind of a viral moment, where – because every nefarious activity prior to this has been – all the money laundering’s been done with cash, so far.

SECRETARY POMPEO:  Some real currency.  That’s exactly —

QUESTION:  Yeah, that’s what happened. (Laughter.)

QUESTION:  So just a warning, though, that you might —

QUESTION:  So where are you on what kind of world we’d have if things were much harder – if things were not anonymous but much harder to trace?  Do you think that that’s the world we’re going to have in five years?

SECRETARY POMPEO:  I hope not.  It would decrease the security for the world if that’s the direction we travel.  I’m going to try not to create a viral moment or meme this morning.

QUESTION:  In this case.

SECRETARY POMPEO:  Yes, exactly.  I’m going to try.  Look, the risk with anonymous transactions is one that we all know well.  We know this from 9/11 and terror activity that took place in the 15 years preceding that, where we didn’t have good tracking; we didn’t have the capacity to understand money flows and who was moving money.  It has helped keep the entire world secure and to fight terrorism and other nefarious activity, criminal activity as well, by having access to this information.  We need to preserve a financial system, a global financial system, that protects that.

QUESTION:  Secretary, just very quickly, you rattled off crude oil prices today.  So clearly you watch that market pretty closely.  Do you watch all markets?  How much does that play into your role and how much does the volatility we’ve seen recently have an impact on what you’re doing?

SECRETARY POMPEO:  Yeah, it’s a great question.  I watch all the markets very closely.  Our equity markets, the global equity markets, our bond markets as well, borrowing capacity in countries around the world – my job is quintessentially economic to create a situation where the American economy can prosper.  We protect American national security in the context of a growing U.S. economy.

QUESTION:  Let me ask you – of course, sort of popping around of different topics, but it relates to – he had mentioned Libra earlier; that got me thinking about Facebook.  Facebook and Twitter just yesterday – there were reports that they effectively shut down some accounts, Chinese accounts that may have been spreading misinformation related to Hong Kong and whatnot.  What do you think the roles of Facebook and Twitter and social media should be?  The President has expressed all sorts of concerns about those companies.  We now have antitrust regulators looking at those companies at the same time.   And yet there’s national security issues or even issues that you’re contending with —


QUESTION:  — that they’re in the midst of.

SECRETARY POMPEO:  Look, I can’t do justice to that question in 15, 20 seconds, other than to say I saw those reports too.  They are very consistent with our understanding of Chinese efforts around the world.   I remember when the Russia thing was all in the news, and I reminded people that it’s not just Russia.  There’s this same kind of activity taking place out of China, out of North Korea, out of Iran.  I think it is an international challenge.  These are international businesses, grown here in America.  We need to get the policy right from a security perspective.  I’m happy to talk about it at greater length sometime, but it’s important.

QUESTION:  Right.  Do we, the U.S., use those services for propaganda —


QUESTION:  — in other countries?

SECRETARY POMPEO:  We do not.  We do not spread false information intentionally anywhere in the world.  It is against U.S. law and we don’t do it.

QUESTION:  Are you – how long are you going to be Secretary of State?  Do you have – what’s your future – you’re so – you’re a young man.  What about Kansas senate?

SECRETARY POMPEO:  I’m very focused on this job, Joe.  I’m going to be the Secretary of State as long as President Trump continues to want me to be his Secretary of State.

QUESTION:  What if he said that we need you in Kansas as a senator?

SECRETARY POMPEO:  He and I’d have a serious conversation.  But I must say —

QUESTION:  You never say never to —

SECRETARY POMPEO:  I’m so focused on what I’m doing.  I hear all the chatter; I see it.  I think the only one not talking about my Kansas senate run is me.

QUESTION:  All right.  You can serve with Beto and Hickenlooper maybe in case they don’t make it all the way this time.  I don’t know what the —

SECRETARY POMPEO:  This is what I hear.  I follow U.S. domestic politics less than I follow international financial markets by a significant amount.  (Laughter.)

QUESTION:  All right.  This – so how do you regulate these things like Libra or a Bitcoin?  What do you do?  It’s – Bitcoin’s going to be tough to regulate.  It’s already out of the bag, isn’t it?

SECRETARY POMPEO:  My sense is this:  We should use the same framework that we use to regulate all other electronic financial transactions today.  That’s essentially what these are.  These are monies moving through markets, or in some case disintermediated transactions.


SECRETARY POMPEO:  But we should regulate them in the same way.  The same set of requirements that apply to things flowing through SWIFT or flowing though our financial institutions ought to apply to those transactions as well.   I concede it will be difficult to do, but the theory, the regulatory theory, that we ought to apply is that one.

QUESTION:  Okay.  We didn’t talk much about cybersecurity.  That scares me to death too.

SECRETARY POMPEO:  Every morning.

QUESTION:  That too?

SECRETARY POMPEO:  Every morning there’s real risk that —

QUESTION:  How thick is the brief —

QUESTION:  Yeah, what was in the brief this morning?

QUESTION:  Yeah.  Can you talk —

SECRETARY POMPEO:  (Laughter.)  It was —

QUESTION:  Tell us something nobody else knows.

SECRETARY POMPEO:  It was a crowded briefing this morning.

QUESTION:  Whisper it to us.

SECRETARY POMPEO:  It takes me, depending on the time I have, an hour, hour and a half to get through it with any level of detail or depth.

QUESTION:  Do you need a cocktail after you see what’s going on around the world, or that’s TMI?

QUESTION:  At 6:30 a.m.?

QUESTION:  Yeah.  (Laughter.)

SECRETARY POMPEO:  Diet Coke is my addiction, yes.

QUESTION:  Caffeine free.  You don’t need to be more – anyways, Mr. Secretary, great to have you on.

SECRETARY POMPEO:  Thank you all very much.

QUESTION:  Appreciate it.

QUESTION:  Thanks.

QUESTION:  Thank you.

[1] 2.7 million barrels per day

U.S. Department of State

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