Washington correspondents Rich Miller and Howard Gleckman sat down with Treasury Secretary Paul H. O'Neill on June 12 to discuss the economy, U.S. efforts to crack down on steel imports, and a dispute between the U.S. and other major nations over tax havens.
Q: How does the U.S. economy look?
A: I [am] optimistic that we're going to move up the growth curve through the third and fourth quarters of this year. If we're able to start moving, [the world] will follow.
Q: How concerned are you about the economic outlook overseas?
A: With Japan, I'm encouraged. I think the -0.2% real growth in the first quarter is not much of a surprise. More important, the prospects are for a change in policy. Prime Minister Junichiro Koizumi has indicated he's going to do things in a different way and fairly soon. Opening their economy to foreign ownership and world prices is something only they can do. We can be supportive. But this is really up to them.
Q: What about their bad loans?
A: Some quibble about the amount. But it's a hell of a big number. Once they start cleaning up [those] loans, the process will have its own momentum. It's like having an elephant in the room. It sounds like Koizumi not only recognizes the elephant but he's also going to get it out of the house.
A lot of the bad debts have already been marked [down] in the real world. So the dislocations [from formally writing them off] could be much smaller than people fear. The unemployment effects may not be too great.
The really important part is to make sure that, going forward, banks make viable loans to enterprises that can service capital flows on a world-competitive basis. Otherwise, they are going to have the same problem.
Q: What about Europe?
A: I'm not too surprised by the slowdown. It makes our own return to higher growth important for the whole world. It's quite important for Japan to play a much stronger growth role than they have in the past 10 years. It's also important for the Europeans to work at the top end of their potential. For the whole world to grow at 3% or 3.5%, or maybe a little bit better than that, you need to have all cylinders firing.
Q: The President has been criticized for taking the first steps toward protecting the U.S. steel industry from foreign competition. What's your response?
A: Look at what the President said. The critical piece was a directive to figure out a solution to the world's problem with steel. For most of the past 40 years, the industry has been in various stages of extremis. Today, [many] prices are 75% of the real cost of production. It's not just a U.S. problem.
I don't think we've got a magic solution. But the interventions that have taken place up to now have not worked very well. It's time for a new idea. My [goal] is a vibrant steel industry that has no subsidies and no protection anywhere in the world.
Q: Other industrialized nations want to curb tax havens. You're backing away from that initiative. Why?
A: We have two principles. We will do everything to collect every dollar owed under our tax laws by working in cooperation with other countries. And we will not interfere in other people's tax systems. We want all the information that's necessary to ensure that our tax laws are fully enforced. Period.