Two Treasury Secretaries: Hank Paulson & Tim Geithner 8/6/25

0:03Our economy is amazingly resilient, amazingly resilient. Hank Paulson and Tim Geithner. We're in economies very hard to break. Names forever linked in the financial crisis of 2008 and 2009. The two served as consecutive Treasury secretaries. Paulson for George W. Bush and Geithner for Barack Obama. And today, as co-chairs of the Aspen Institute's nonprofit program, they're hosting leaders in Colorado to tackle America's biggest economic issues, like President Trump's tariffs. Tariffs are a bad tax. They're like a corrosive tax on American manufacturers. they're aggressive in their impact. Paulson on the distortion among American businesses.

0:43I think the thing that I dislike the most is that they're uneven, right? And so they're uneven, they punish some, they benefit others. I'm talking about within the U.S. economy. Geithner says it may not be enough to break the economy, but it is enough to shock things. That strength of treasuries and the dollar in some ways reflects a level of basic confidence in American policy competence, a basic confidence that ultimately the U.S. political system will do the sensible things to preserve the value of foreign investment in the United States. And there is a bit more of a shadow over those things than there's been in some time.

1:21I'm CNBC producer Katie Kramer. Squawk Pod reports from the Aspen Economic Strategy Group Forum with Tim Geithner and Hank Paulson begins right now.

1:39This week, President Donald Trump dialed into our Squawk Box TV broadcast and spoke for more than 40 minutes about America's economy, the Federal Reserve, the July jobs report he railed against, and the trade deals he's been negotiating and renegotiating for months. On pharmaceuticals, we'll be putting an initially small tariff on pharmaceuticals, but in one year, one and a half years maximum, it's going to go to 150 percent, and then it's going to go to 250 percent, because we want pharmaceuticals made in our country. We do very, very little business with India because their tariffs are so high.

2:18So India has not been a good trading partner because they do a lot of business with us, but we don't do business with them. So we settled on 25 percent, but I think I'm going to raise that very substantially over the next 24 hours because they're buying Russian oil, they're fueling the war machine. And if they're going to do that, then I'm not going to be happy. The president spoke about his choice to fire the commissioner of the Bureau of Labor Statistics after he was frustrated by the most recent jobs report her agency released. It showed the U.S. added just 73 ,000 jobs last month. He also weighed in on who may be his pick to succeed Chair Jay Powell at the Fed.

2:56You can hear that entire conversation with the president on your podcast feed if you scroll to Tuesday's episode.

3:06Following our live discussion with the president, in fact, right after, Andrew Ross Sorkin sat down with two men who, between them, led the U.S. Treasury from 2006 to 2013. They spoke outside in beautiful Aspen, Colorado. We are in Aspen, Colorado this morning with two former Treasury secretaries who are the co-chairs of the Aspen Economic Group. Good morning to you. Hank Paulson is here. Tim Geithner is here. We just spoke to the president. Lots of questions about where our economy is today. What's going on with the tariffs? How do you think about all this geopolitically treasuries and everything?

3:44Geopolitics, China. So I want to get to as much of this as we can. And I just want to start, though, with where you think the economy actually is and how much you think the tariffs thus far are either impacting things or not. And just what your reaction is, even to what the president was saying, given his real excitement about those tariffs and all of the money he says he's getting from all of these other countries. So I think the economy, Andrew, you've got to start by by saying our economy is amazingly resilient. amazingly resilient. It's been the bright spot in the world since 2020. So just think about what we've been through, the financial crisis, multi-year pandemic, shifting economic policies.

4:31And yet, you know, if you go back to 2020, we've grown at three times the rate of the rest of the of the G7. We've had output 40 % higher than Germany, Canada, and so on. And we have got the strongest private sector. So I start there. Then in terms of what's going on with the economy, chaos, et cetera, let me tell you, it's going to take a while to determine that. It looks like things have slowed down a lot, okay, in terms of manufacturing jobs and in terms of job creation, but there's so much going on, right? Look at everything that's going on right now. It is amazing. And it's going to take a while to work its way through the system.

5:17So we've got, as you said, we've got tariffs, we've got tax cuts, we've got the impact of AI. That's going to take a while for us to determine. Where do you land on tariffs? I mean, tariffs are a bad tax. They're like a corrosive tax on American manufacturers. they're aggressive in their impact. And we don't know where they're going to settle out yet. You still don't have, you know, where China's going to settle out, where India's going to settle out. You know what the relative changes are going to be. So you don't know yet what the broad impact on supply chain is going to be. But it's a shock.

5:53It's a hit that the U.S. economy can withstand. It'll be meaningful, but not enough to break this pretty strong economy. We're an economy that's very hard to break, and we've got a whole bunch of things happening in the American economy that are a source of strong investment demand, innovation, and things like that. And so it'll be hard, and Hank's right, it'll be hard to figure out, hard to see the ultimate effect until we see where they settle out. But, you know, it's like rust. It's corrosive, hard to reverse, and the effects accumulate. And you say accumulate and corrosive in what way? because they tax, they raise the costs of inputs to manufacturers, and they are a hit to real incomes of the average American.

6:35And, you know, they have that basic effect. You can't escape. And, you know, the long-term challenge for us, of course, is, yeah, they will raise revenue. You don't know how much revenue they're going to raise. And, you know, we're a country living on the future, borrowing from the future, huge, unsustainable long-term deficits. and that revenue is going to prove to be a very valuable thing in our political system as we get through this and hard for people to give that up. So, you know, most people would say it's a bad form of tax, even though they know taxes need to go up and it's going to be hard to get the political system to figure out a way to clean up and reform that legacy of tariffs because they're going to find that revenue is so attractive.

7:18Do you believe the market thinks the tariffs are really here or not? I mean, do you think it's baked into what the market actually thinks, Hank? Yeah. Who knows what the market thinks? But I will tell you, there's no real permanence to it, right? Because they could change tomorrow. The administration could change them. Our counterparty's good. So there's not a real permanence. The thing that I dislike the most about tariffs are I don't like to prop up inefficient industries, right? We saw that in the 70s when we had tariffs that protected our auto industry, and it really fell way behind. I don't like it when they prop up companies of the past and hold back companies of the future.

8:07But as Tim said, they raise a lot of revenue, right? And I think it's worth really studying the impact of that. Now, I think the thing that I dislike the most is that they're uneven, right? And so they're uneven. They punish some. They benefit other. I'm talking about within the U.S. economy. And so they create distortions which have an adverse impact. It can have an adverse impact. The president said that he has a great relationship with China. You know China very, very well. Where do you think these tariffs stand and the trade talks stand with China? Well, to me, I don't know where the tariffs stand in the trade talks of China.

8:51But what I do know is that the U.S.-China relationship is by far the most important bilateral relationship. And that is going to shape the geopolitical, the geoeconomic landscape for years to come. I know it's a very fraught relationship because, you know, we have conflicting security objectives, right? and they're a strategic economic competitor. So all of that is true. But in the U.S., politicians, and here I'm not talking about the administration, I'm just saying politicians generally come together because they want to be tough on China, but they generally make mistakes. They make the mistake of either overestimating China or underestimating China.

9:39And China's got some serious problems and some formidable weaknesses. So the key here is the world is going to be a very dangerous place and a much less prosperous place unless we can figure out how to manage those conflicts and how to work where we've got common interests. Now, to get to the administration, I do think the administration is very right in terms of working to, you know, to write some of the unfair trade practices in China, to open up some of the markets in China. They're very right to do that for sure. And to, you know, I think we need a hold back technologies and, you know, that are very important to our national security, to our economic security.

10:28But, you know, a trade war with China is not where we want to be. In terms of technology, though, I don't know if I was just going to ask, you know, we keep talking about NVIDIA all the time on our broadcast. And now, you know, this administration is allowing these H20 chips. Do you think that we should be allowing certain types? I do think we should. We should be very careful what we allow. And we shouldn't allow our very most important technologies, technologies that are critically important. But again, I want to get back to a trade war with China because I will tell you, China is so integrated into the U.S.

11:05economy and that a trade war with China is something where there are no winners, right? They're very patient. They're tough. And we'd only have - That patience means that they have more leverage over us than we have over them. I wouldn't say that. I wouldn't say that. I would say that they've got a high pain threshold. And I'll tell you, I think we're off to a good start in terms of what Descent has done in Stockholm. So I think we've got a long way to go. There could be bumps on the road. And I do think the president wants a stable relationship with China, right? And I tell you, there's one positive.

11:53I see we now have leaders of both countries that are powerful enough that they are able to do something that would be very big if they think it benefits their country, even if it's unpopular at home. Yeah, well, I mean, if you're going to do a positive thing, you'd say that, you know, it's like there's the story about generals in wars. No plan for war survives first contact with the enemy. You know, we're going through a period in the United States now where we are in a populist moment. You have a bunch of ideas about leverage and about trade and the world that are not surviving first contact with reality.

12:31and the administration you've watched, they're adjusting, they're recalibrating, and you're seeing signs of the classic American pragmatism or realism in these things. Of course, China's got some formidable challenges themselves. We've got some formidable advantages too, but where you're seeing, if you listen closely, you're seeing people have a bit more appreciation about where we have a level of dependence that's very valuable to both countries and where we need to reduce dependence for natural security reasons. Let me ask you a different question. It relates to treasuries. And I don't know who wants to speak to this one.

13:07But I remember back in 2008, it wasn't treasuries, it was just Fannie and Freddie. But you guys were worried that China was going to start dumping Fannie and Freddie shares at the time. And there's now a worry, given the relationship and shift in relationship, not just with China, but with other parts of the world, that maybe they're not going to buy our treasuries the way they used to. What do you think of that? I mean, I do think it's important that people recognize that the treasuries as the risk-free asset in the system are the foundational asset of the global financial system. And that strength of treasuries and the dollar in some ways reflects a level of basic confidence in American policy competence, in the stability of policy about property rights and rule of law, independence of the Fed, and a basic confidence that ultimately the U.S.

13:58political system will do the sensible things to preserve the value of foreign investment in the United States. And there is a bit more of a shadow over those things than there's been in some time, partly because we're starting from a pretty deep hole in the fiscal side, this administration inherited, and partly because people watch the American political system and are less confident than they used to be that we're going to have the capacity to get our arms around this and get things back to a better place. So these things that depend ultimately where 10-year treasuries trade, and they're trading at pretty modest levels at the moment, reflecting some level of ultimate confidence the U.S.

14:39will run the country in a sensible way. But, you know, it depends ultimately on whether the system is able to bring revenues and expenditures back into balance, bring those deficits down a bit. Right. And protect the things in terms of rule of law and Fed independence that make people confident. So how much does the Fed independence piece matter to you? How much does what happened on Friday with the head of the BLS matter to either of you? Well, I want to come back and say, because I really do think our fiscal trajectory is something that matters a lot to me. And I think when you look at treasuries, that's the thing that we need to be most concerned about.

15:21Right. We need to be most concerned that if we have a, and I'm not predicting at all, but, you know, I do know that our current trajectory is unsustainable. And so I don't know whether that means you hit the wall, you know, in six months or six years or whenever. But when it does, I would like to have a contingency plan, right, and be able to deal with it. Now, you talked about Fannie and Freddie. We had a contingency then, didn't we, Tim? Right? And we dealt with it. So that's how I focus on. What kind of contingency plan, Logue, could we have in this context? Well, you could have a contingency plan.

16:01You know, we're a rich country. There's a lot of things we could do. You know, we could lay out a value-added tax, right? A consumption tax. We could lay out, you know, a series of taxes, a plan to really bring things back in balance. So that's one thing we could do. We might get some good luck in terms of strong growth from productivity and make it easier. But it's going to be a hard thing to work through. But to your case, how important is Fed independence? You know, Fed independence is very important, OK? It's very important to confidence in our economy, right? And confidence in the dollar, right?

16:44And in treasuries. So in having good, reliable economic debt. What do international leaders who call you and say, what's going on here? What do they say to you? I mean, I think they're finding it hard to figure out where this set of uncertainty about fundamental aspects of U.S. policy, where it lands, where it settles out. And they're hoping, again, that there's a low ceiling on the bad stuff and that at level of pragmatism, ultimately, American pragmatism will prevail and they'll get back to a world that's more familiar with them and they can make choices on. But I think most of them are just trying to see where things stand out.

17:27And they live with the same uncertainty that all investors live in the United States with. That's what we're trying to do. So the next couple of days, we've put together some of the very best economic minds from both sides of the aisles, right? So we've got people that are running and have run some of the very strongest U.S. companies. We've got leaders who have worked with presidents going back from Reagan right up through Trump. And so we've got a lot to talk about because this group of people is thinking through the same uncertainties that foreign leaders are. I want to thank both of you for joining us this morning.

18:08I appreciate it.

18:20Thank you for listening to this special Squawk Pod reports from CNBC. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Squawk Pod is produced by me, Katie Kramer, and Cameron Costa. John Lazration is our editor. Have a great day.