Asked at the news conference what sort of powers or backup plans he has if the debt ceiling isn’t raised, Mnuchin said with a smile, “Treasury secretary superpowers.” He didn’t respond to questions about whether this included plans to sell off U.S. assets, such as the gold reserve.
“We will be fine, okay, if they don’t do it beforehand,” Mnuchin said, “but I would emphasize that I think the sooner they do it, the less uncertainty there is in the market, and it is important to send a clear signal to the market that, again, this is not an issue.”
Mnuchin also for the first time gave an explanation for why Americans are paying between 2 and 3 percent less in tax revenue than forecast. “Receipts are coming in somewhat lower, and I think that’s an expectation that we are going to do tax reform,” he said. Estimates from analysts and budget experts have said Americans could be shifting their tax liability to delay paying taxes, hopeful that future lower tax rates could reduce the amount they have to pay.
The reduction in tax receipts, however, is creating a cash crunch for the U.S. government and more urgency for the Treasury Department as it comes up with plans to deal with the debt ceiling.
The U.S. government spends more money than it brings in through revenue, and it covers that balance — known as the deficit — by borrowing money through new debt. But it can issue debt only up to a limit, or ceiling, set by Congress. The debt limit was suspended until mid-March, but since that time Mnuchin has taken emergency steps to prolong falling behind on the nation's bills, suspending certain pension contributions and making other changes.
Mnuchin has not said when the government will run out of flexibility to continue making payments, but some analysts have said it could be as soon as early October. On Friday, Mnuchin would not offer any new estimates on that timetable.
If the U.S. debt ceiling isn’t raised, something that almost happened in 2011, financial markets could panic amid fears that the government is unable to pay all of its bills. White House Office of Management and Budget Director Mick Mulvaney has suggested that the government would prioritize interest payments on the national debt above other obligations, but that could still spook markets and cause uncertainty about which bills the United States might skip or delay.
The process could ultimately lead to a stock market crash and a spike in interest rates.
House Speaker Paul D. Ryan (R-Wis.) has said that Congress will raise the debt limit soon. But he has to deal with a splintered Republican caucus, and a number of his members have said they will demand spending cuts in exchange for their vote. Many Democrats have said they will oppose such cuts, leading to a standoff.
Mnuchin’s meeting came as Canada and other U.S. allies puzzle over the approach the Trump administration plans to take on trade, taxes and other issues. Canadian officials have launched an onslaught of diplomatic outreach to their U.S. counterparts since Donald Trump took office, seeking to impress on his top advisers how interconnected the two countries are and how damaging major changes would be to their trade and security relationship.
Morneau has made a particular effort to develop close ties with Mnuchin. Their meeting in Ottawa on Friday was their fifth since Mnuchin was sworn in several months ago.
The relationship is at a critical stage. The White House recently began a 90-day process that is required before it can renegotiate the North American Free Trade Agreement, which sets rules on trade among the United States, Canada and Mexico. President Trump had threatened to withdraw from NAFTA, but he was coaxed to stay in by advisers, business leaders and Canadian Prime Minister Justin Trudeau, among others.
On Friday, Canadian officials tried to stress how much trade flows between the two countries and how many U.S. jobs are dependent on Canadian imports and exports. At the news conference, Morneau stressed areas of agreement between the countries and said that Canada felt there were parts of NAFTA that could be changed to help both countries.
But some senior Canadian officials, speaking on the condition of anonymity to discuss their diplomatic strategy, said they wanted to impress upon the Trump administration that the long-standing economic relationship should not be taken for granted. And while Morneau said that Canadian officials would continue to try to improve ties with the Trump administration, he made clear that all policy changes in the United States are being monitored in Ottawa.
“We’re watching closely,” he said.
In a sign of how closely the White House is keeping tabs on relations with Ottawa, Trump dispatched his deputy national security adviser, Dina Powell, to the meetings with Mnuchin. Powell, a former Goldman Sachs executive, has emerged as one of the most influential White House advisers, with a portfolio that includes foreign and economic policy issues.
Mnuchin’s job at the Treasury Department is his first in the federal government, and Morneau has offered friendly support at international summits where Mnuchin has faced skeptical Europeans eager for more details of the Trump economic agenda. Morneau is often peppered with questions about his U.S. counterpart from other finance ministers.
Trump won the presidency amid promises of shattering certain international agreements and imposing an “America first” mantra across the U.S. government. He has said he wants to pursue major changes to trade policy — focusing on bilateral agreements that favor the United States instead of multilateral deals that he believes rip off American workers. On taxes, Trump has threatened to impose reciprocal tariffs or taxes against countries that ship goods into the United States, though he hasn’t provided any details of how that tax policy would work.
Canadians have expressed major concerns about such a tax arrangement, though they are waiting for specifics alongside everyone else.
Morneau spent most of the day Friday introducing Mnuchin to government and business leaders. When they walked to a roundtable at the nearby National Gallery of Canada, Mnuchin’s fiancee, actress Louise Linton, held his arm, and Powell followed closed behind, with her phone pressed to her ear.
Waiting for them at the meeting was a host of business leaders who were there to hear more about Trump’s economic agenda and to make their case about why disrupting the U.S.-Canada trade relationship could be a mistake.
“Uncertainty creates anxiety, and the president has described [NAFTA] as the worst agreement ever, so that’s a tough start,” said John Manley, a former deputy prime minister who is now the chief executive of the Business Council of Canada, a trade group. “We’re all hoping we can be constructive.”
Denis Berthiaume, chief operating officer of the Desjardins Group, a financial services company, said that initial trade spats between Trump and Canada over softwood lumber and dairy prices could be seen as harmless or the beginning of something more ominous. “At this stage it’s normal back-and-forth,” he said, standing beside the lunch table as Mnuchin entered. “Depending on where it goes from here, we may be concerned.”
It was clear during the multiple meetings, though, that U.S. and Canadian officials were making an effort to understand each side's predicament.
During one meeting, Morneau tried to walk the U.S. officials through Canada's governing process. “Over the next few days, we need to pass our budget bill, which is kind of important,” the finance minister said as the press was being escorted from the room.
“We know,” Powell told him. “We know the feeling.”