Larry A. Kudlow On The Fed’s Independence And Rate Cuts

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CNBC Transcript: CNBC’s Kelly Evans Speaks with National Economic Council Director Larry A. Kudlow at CNBC’s Capital Exchange Event Today

WHEN: Today, Tuesday, July 9th

WHERE: CNBC’s Capital Exchange event in Washington D.C.

The following is the unofficial transcript of CNBC’s Kelly Evans’ interview with Larry A. Kudlow, Director, National Economic Council, today at CNBC’s Capital Exchange event in Washington D.C. The following is a link to video from the interview on

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National Economic Council's Larry A. Kudlow on a rate cut and the Fed's independence

All references must be sourced to CNBC’s "Capital Exchange."

TYLER MATHISEN: What can I say about our first kickoff speaker, Larry A. Kudlow? He is a friend, he is a magnificent former colleague who has graduated from CNBC to higher callings in the administration now. Apart from the rigor of his work and the vigor of his presentation, one of the things you should know about Larry is one of the things that I have always admired most about him. There are lots of economists who function in the political realm, in the political world. But what sets Larry apart is that Larry begins with the work and the homework and the analysis that leads him to the conclusion that he arrives at, unlike some in the political realm who begin with the conclusion and then do the work that justifies the conclusion that they have already been. Larry is an open-minded economist whose basic tenet is that free enterprise is the surest path to prosperity. Ladies and gentlemen, Larry A. Kudlow; and to interview him, my colleague, Kelly Evans, of CNBC. Larry, welcome.

KELLY EVANS: Thank you, Tyler. Good morning, everybody. Thank you so much, Tyler. And, Larry, welcome.

LARRY A. KUDLOW: On behalf of my new hip replacement and myself, cane-free, it's a great pleasure.

KELLY EVANS: Congratulations.

LARRY A. KUDLOW: Thank you. Still kicking.

KELLY EVANS: Stronger than ever.

LARRY A. KUDLOW: Even brought some notes with me. I have to fulfill Tyler's mandate.

KELLY EVANS: How many days has it been in the White House now? How long, Larry?

LARRY A. KUDLOW: I think I'm here almost a year and a half.


LARRY A. KUDLOW: Yeah, time flies when you're having fun. And I will say it's the most wonderful job I've ever had. It's a great honor, it's a great blessing, and it's -- we get involved in everything. National Economic Council is a heck of an operation, it's probably a bigger job than I realized when I first took it, but I'm very proud of the policies. We'll talk about that in a few moments. But yeah, a year and a half, and it's quite remarkable. I guess, you know, in terms of the old CNBC duties and so forth, one of the things for me that's been an eye-opener is so much international work. National Economic Council, NEC, has a section which we share with the NSC, John Bolton, who is a very old and dear friend going back to Reagan days, so I've been heavily involved in national security and especially trade.


LARRY A. KUDLOW: Trade has been the big one.

KELLY EVANS: Before we get into all that, the very first thing I want to ask you, Larry, is after the strong jobs report on Friday --


KELLY EVANS: -- great jobs report, much, much, much stronger than expected. How can the Federal Reserve still cut interest rates at the end of the month, which the market seems to expect and which the President is still calling for?

LARRY A. KUDLOW: Well, look, I think, you know -- you know, Tyler knows, and others, one of my credos down through the years and decades is that rapid growth, low unemployment, solid job creation does not cause inflation. Does not cause inflation. And the so-called Phillips curve has been dead for a very long time. So, in terms of what you're asking, it's fair enough; but I would say you should be looking at the price indicators, not the job indicators.

KELLY EVANS: And we'll get that this week again.

LARRY A. KUDLOW: Yeah. I mean, you've got your reported PCE deflator; and we're going to get, I guess, a CPI number this week, if that's right. In the market, I think watching price signals is a better approach to the Fed. Now, look, I'm -- this is an analytic. I'm not here to bash the Fed, and I respect their independence. And Jay Powell is a friend, we have lunch every month. Richard Clarida is an old friend, so forth and so on. They'll do what they're going to do, I will just put that aside for a minute. I'm just saying analytically, so I look at things like the inverted yield curve, which I find somewhat troubling and I think is a signal to the Fed; if anything, it's a deflationary signal. I think just something like the five-year breakevens -- there is a lot of jargon here, but I think this audience understands that jargon. The five-year breakevens and the TIPS market are running at like 1 1/2 percent, which is the CPI breakeven. PCE deflator, that would probably be about one and a quarter percent or less; as you know, their target is 2 percent. And, actually, you know, when you -- good prices are by and large deflating. Commodity indexes have been sloping lower for quite some time. So, I'm just saying on that basis, watching price signals, not jobs, there is room for them to, as I've said, take back the December hike.

KELLY EVANS: Sure, but what about those people who say they only have, what is the number, 8 cuts to give? Why give one now? The stock market is at all-time highs. Unemployment is at all-time lows. It doesn't seem like it's really that urgent right now.

LARRY A. KUDLOW: Well, look, again, I would say they ought to stay with their price targeting, they ought to throw away their Phillips curve, they ought to give long vacations to senior board staff who run those Phillips curve models.

KELLY EVANS: But what you're saying -- go ahead. Yeah.

LARRY A. KUDLOW: I also think with respect to the world economy -- and perhaps we'll touch on that later -- and these very low interest rates in the marketplace, not just the target rate, I don't have a problem with an insurance policy, and I think that's something to consider. I also think, Kelly, we've had very good wage gains overall, whatever, 3.1 percent last 12 months, I think. But when you dig into that, things like non-supervisor workers, manufacturing is actually higher than that. I was at a beautiful dinner last night hosted by my friend, Steven Mnuchin in the Treasury Department. In the old cash room, you had about 100-people plus, including POTUS, in honor of the Sultan of Brunei. Anyway, my point is there were a lot of CEOs there who were talking about how strong wages are. But the workforce is earning it because productivity rates got back to about 2 1/2 percent yearly. So, all of that is fine, so you can take out an insurance policy. But again, the price signal suggests, as they have all year going back to last autumn, that that last policy move in December was unnecessary; and I think they could take it back, call it insurance, call it price level watching. But I don't -- it's funny. Try as I might, for so many years and in so many ways, in so many shows, in so many interviews, and so many commentaries, price level stability and a steady dollar is what the Feds should aim for, in my view. Again, this is an analytic.

KELLY EVANS: Right. But you're in –

LARRY A. KUDLOW: I'm not here to proselytize the Fed. Not -- not employment. I mean, I knew -- it's great. When the job numbers bunched up, as you said, and beat all the expectations, which made the President very happy when we gave them the news, made me very happy. I love people working. More people working is joyous. July 4thweekend, it was a fabulous number. Pursuit of life, liberty and the pursuit of happiness is being fulfilled in America. And by the way, life, liberty and the pursuit of happiness is not inflationary, should not be crushed by central banks, so I just discard all that stuff.

KELLY EVANS: So if Fed Chair Powell -- and you alluded to this, but your point of view on this is very different from kind of the Fed orthodoxy that a lot of the academics and a lot of the economists out there have –

LARRY A. KUDLOW: But, you know, Kelly –

KELLY EVANS: So is the President going to say that he wants somebody as Fed chair, perhaps with your support on this issue, who sees the world and understands the world that way and not Powell? So, what kind of discussions have there been about saying, you know what, Powell gets put into a different position, someone else gets elevated, the jockeying, Larry, in public is pretty clear the way the other members of the Fed are out there with their points of view or their dissent -- they are clearly messaging to the President, you know. "Hey, if you're looking for someone else to do this job, I'll do it."

LARRY A. KUDLOW: Well, that's an interesting last point you make there. I've been leading the surge, the selection for the two open seats on the board, and I think you're quite right, there is no shortage of candidates. You're absolutely quite right. One outstanding candidate who is quite interested, but he's already running a Federal Reserve Bank and he wondered if he could be a governor and continue to be the president of a reserve bank.

KELLY EVANS: Are you talking about the Bank of England or the European Central Bank?

LARRY A. KUDLOW: I'll never say, but it was… I had to exercise some executive guidance and say I didn't think that was really going to happen.

KELLY EVANS: Could someone like Mario Draghi be our Fed chair? Is there any reason why not?

LARRY A. KUDLOW: You have to be a citizen?

KELLY EVANS: I'm asking you.

LARRY A. KUDLOW: That's a delicate point nowadays.

LARRY A. KUDLOW: He would -- is ECB -- where is it, in Frankfurt, Brussels? I don't know.

KELLY EVANS: Frankfurt.

LARRY A. KUDLOW: Frankfurt.

KELLY EVANS: You've got Mark Carney, he's apparently -- he might be elevated to the IMF, leaving the Bank of England. But I don't know if the President feels as warmly about his tenure as about Draghi's.

LARRY A. KUDLOW: We could probably -- I'm not sure where you're going, but we could probably give them green cards. I don't know if that would work. That was a joke. Just kidding. I don't know Mr. Draghi. I do know Mr. Carney. My statement doesn't necessarily mean overseas. But I would simply say that, to your other point, I think the Fed, and I think the new management at the Fed in the last year or so is not so far from the view that I'm expressing. I think that Chairman Jay Powell and Vice Chair Richard Clarida have in their public speeches expressed a lot of skepticism about the models to which you're referring, a lot of skepticism. Now, I know some of those messages are mixed, and you've probably got lots of brilliant debt watchers out here. But if you read carefully and listen carefully -- I guess JOB in front of Congress this week, and you'll hear some more -- but they're having a lot of questions about some of these, you know, what should the unemployment be; what should P-Star be; what should R-Star be; what is the right neutral rate? So, I'm not so sure that the view I've expressed on price signals or the views the President has expressed is necessarily so far from where the Fed is. I'm not so sure.

KELLY EVANS: So Jay Powell's job is safe?

LARRY A. KUDLOW: Yes, I believe it is. I will say that there is no effort to remove him. I will say that unequivocally at the present time. Yes, he's safe.

KELLY EVANS: And when Art Laffer has been saying that monetary policy should be accountable to people the same way that any other kind of policy is, especially through the executive branch, when he says that maybe the Fed shouldn't be independent because then it can't be accountable to voters, is he right?

LARRY A. KUDLOW: You know, I haven't talked to Art. I read some reports about his recent interviews. He just won the Medal of Freedom, Presidential Medal of Freedom, which is fabulous, great. He's such a distinguished person. It's no surprise, not breaking news, but he's a very dear friend of mine, and he's a mentor. I haven't really had a chance. I better call him today and find out what exactly he's telling all of us on this point. Let me say I personally believe the Fed should be independent. But that word "independent," I mean, it doesn't mean they operate from another planet. And as Arthur said, the Fed reports to Congress, and that's in the Constitution. And the Fed is appointed or the Governors are appointed by the President. So, I think in a day-to-day sense, certainly, they are independent. But that doesn't mean that they shouldn't listen to advice from their elders, if you will. I think that's what Art's saying. I'm not 100 percent sure. I'll leave him to clarify that.

KELLY EVANS: He just says: Why shouldn't monetary policy, this very powerful tool to control the economy, not be subjected to democracy just like every other instrument of government? It should be controlled by the President, by the legislative and executive branches, but it's not.

LARRY A. KUDLOW: I think that's an interesting point of view. I think that's a good point of view. It is a democracy. As I said, the President appoints the Governors and they report to Congress. Congress has, if you want to get Constitutional, Congress has the authority to set the value of money. You don't hear much talk about that nowadays. Throughout American history, whole presidential elections have been fought over the value of money and tying it to gold or silver or some such. So, Art would be right. I'm not sure operationally what that means. Let me just say in an operational sense, in a traditional sense, I support Fed independence, but I also believe in a democracy that the President has the right to make his views known, as do members of Congress and other interested parties; and that contrary to some reports or some reporters or some analysis, there's nothing wrong with that. There's no holy writ that ever said you can't have a different point of view than the Fed. So, you see where I'm going on that?


LARRY A. KUDLOW: And to be very clear, there are no plans presently to change Mr. Powell's job or any of that sort of thing. I read occasionally that in the papers. And the President's said that, too, by the way. No plans to change his position, positions, career.

KELLY EVANS: Presently or --

LARRY A. KUDLOW: That is correct.

KELLY EVANS: -- in general. Your "King Dollar," Larry, we've talked a lot about this.


KELLY EVANS: One of the things that is most interesting to me is, what happens when -- that's your belief. The President believes in, I would call it, "peasant dollar."

LARRY A. KUDLOW: Weak dollar.



KELLY EVANS: What's not a king. A weaker dollar, one that right now he thinks is too strong relative to other countries, and that seems like kind of a fundamental disagreement in terms of viewpoints. What is that conversation or dialogue like, if there is one, about the dollar?

LARRY A. KUDLOW: Well, I don't have any disagreements with the President. And he is the President, so he calls the policy shots. I'm an advisor. Look, his particular concern in the currency world is the issue of currency manipulation by other countries. And I think he's made that pretty clear, that there seems to be different valuations for some non-dollar currencies that might be at loggerheads at least with some theoretical models, and I guess in particular he talked about Europe a week or two ago, when Mr. Draghi made his latest pronouncements. And the President was concerned that either there's a misalignment or direct manipulation. Now that's a fine line, and we could spend a hundred hours on that, and the Treasury Department issues reports on that, as you well know. But I think POTUS has a very important point here. I think a lot of countries have, by design, pursued policies which might, at least in theory, give them some advantage in world trading. I think that's wrong. Remember, the predicate for "King Dollar" -- and by the way, the dollar has been -- I mean, the dollar is steady and reliable, which is just how I want it. I'm not saying higher or lower. I just want it to be steady and reliable and dependable. We have the strongest economy in the world, bar none. Money is flowing to the United States for portfolio and direct investment, and that is a function of low tax rates, deregulation, energy opening, trade reform, and a steady, reliable dollar. So that's important. It's helping us enormously. Having said that, if you look at the G7 or the G20 communiques, they always call for stable currencies, and I think that's correct, and currency coordination. My former boss, going back a million years, when I started at the New York Fed, my God, in the early '70s, Paul Volcker has made numerous speeches, even recently, and his book, who calls for international currency stability and coordination. I don't think there's enough of that.

KELLY EVANS: Does the President think the dollar is too high?

LARRY A. KUDLOW: So let me just say that -- including this question. It's not a question of the dollar too high. It's a question of are these other currencies too low by design, deliberately so? And are they doing so for unfair trading advantages? That is an issue. That is an issue. I don't think it's so much a dollar issue; I think it becomes a yuan issue, a renminbi issue, a euro issue, et cetera, et cetera, a yen issue. That's what POTUS is concerned about. It's not that the dollar is too high so much as it is a question that these other currencies are being managed in a way that makes them undervalued and the suspicion is that they are doing that deliberately. And that is wrong, and I think the President is exactly right about that. And, you know, you could talk to Steven Mnuchin, my dear friend, distinguished Treasury Secretary, who has worked very hard at this with, as I say, the G20 communique. Incidentally, there's a point, and I hope we get to it, the USMCA deal, which I think is the best trade deal every put together and it should be passed immediately and it would have enormous pro-growth consequences.

KELLY EVANS: The clock is ticking.

LARRY A. KUDLOW: Well, let's talk about that in a second. But in that deal is a currency stability paragraph. That's very important, so that the loonie and the peso would not be deliberately manipulated. So, we'd like to see that on a global basis. So, to wrap it up, the point here is not bringing the dollar down, but having a world currency view which is stable and to stop -- I mean, in the old days, we called it beggar thy neighbor. Right? And that's not good. So are they manipulating their currencies lower deliberately, which is unfair -- it is an unfair trading practice, and we don't like that. So, I hope that point comes through.


LARRY A. KUDLOW: "King Dollar" is not the enemy. We need much better -- much more stability and much less manipulation.

KELLY EVANS: Since you raised the Mexico trade agreement, if Congress doesn't pass that -- and again, like I said, the clock is ticking. This is the moment, this is the time, and you're just not hearing a lot about that passage lately. Would the President use Mexican tariffs as a way to put pressure either on our own Congress to pass it or as a response if that deal -- which as you've said, a fabulous deal, you know, everyone involved seems to be for it. But if it doesn't pass, are those Mexican tariffs coming back?

LARRY A. KUDLOW: Well, if it does pass, it's going to have a booming effect. And there's tremendous bipartisan support for it. It was a deal, by the way, that was designed as a bipartisan deal. My friend Ambassador Bob Lighthizer, another old Reagan guy. It's a brilliant deal, if you take a look at it. Let's just spend a second on this because I know everyone wants to obsess about --

KELLY EVANS: The details.

LARRY A. KUDLOW: But it really is -- well, these are the things that an NEC director does. But there's old economy and new economy stuff in that deal. It's fascinating. There's currency stuff in that deal. So, we are improving our standing with respect to what you might call the old economy; farming, manufacturing. Tremendous advantages, improvements for the United States and its workforce. There's new economy stuff that never gets discussed or properly discussed. For example, intellectual property theft issues or, to put it on the more positive way, patent protections, which we've never had. And then openings, market openings for digital services, financial services, biologic services is tremendous stuff.

KELLY EVANS: But it doesn't matter if it doesn't get passed.

LARRY A. KUDLOW: Well, now, it does matter because, first of all, it may well get passed. In other words, I'm going to -- I think Speaker Pelosi has been very accommodative on this. I mean, Bob Lighthizer works very closely with her. I see her periodically. She's been terrific. She's opened up -- I mean, she had Lighthizer speak to her whole conference, and then she appointed some leaders in different areas of the deal, and they're meeting with Bob and his team. I think there's a lot of support for it. I remain optimistic that she will provide a vote. It will happen sometime this summer, hopefully. It could stretch on to the autumn, but I think it will be sooner than that. It's up to her, not me. Lighthizer has said that we will submit the formal legislation when she gives a green light on the vote. So, the two of them are working rather well together, and I think the outcome is going to be extremely positive. I just wanted to sneak in -- I know you're worried about economic growth -- the International Trade Commission, the ITC, which is an independent body, priced out a tremendous growth increase. Kevin Hassett at CEA and myself looked at those numbers, and we added a little bit for IP patent protection. But the deal is, there's a range of outcomes, but the midpoint's about half a point of additional GDP, real GDP, per year. Half a point.

KELLY EVANS: For the U.S.?

LARRY A. KUDLOW: For the USA, summing to something about 180,000 or higher jobs per year; and probably, Kelly, about $100 billion in new direct investment, not portfolio investment, for various sectors, you know, CAPEX, call it. That's terrific stuff. Canada will benefit enormously. We just had Prime Minister Trudeau here for a bilat. I was in that gang at lunch, and he's very bullish on the thing. And the Mexicans are very bullish.

KELLY EVANS: Maybe it will pass. All right. So --

LARRY A. KUDLOW: I wanted one more little thing. Because President Trump gave what I thought was an excellent rundown of our environmental policies yesterday. Although I can't find a newspaper that's reporting it accurately, but I've learned to live with that. That's okay. Some things in life I cannot control. But the environmental protections in that deal, for all three countries, are terrific. And the labor protections, particularly with respect to Mexico, whose legislature -- whose Parliament is passing them. So, this is just win, win, win, win, win across the board. Make a, I think, terrific difference.

KELLY EVANS: So then how would you describe the situation with China right now?

LARRY A. KUDLOW: Well, look --

KELLY EVANS: Where are we on those trade talks? What really happened at the meeting between the President and Xi Jinping? Why did we roll back the ban sort of on Huawei? Although depending on what report you read, no, we are still -- no, you can't do business with them; yes, you can. But what did we get in exchange for lightening that burden?

LARRY A. KUDLOW: Well, I think the most important thing, the headline, was that talks, negotiations will resume after a couple months of hiatus. That's the big thing. Kudlow view: It's always better to talk than not talk. In addition to that, President Trump, who I might add, parenthetically -- he just said this yesterday in one of our meetings -- he believes Xi wants to deal and he wants to deal. Okay? And he's said that before, and I just want to reiterate that. Because I think there's some misunderstandings here, and it's tricky business, I understand.

KELLY EVANS: What do you think is the misunderstanding?

LARRY A. KUDLOW: On his mood, on Xi's mood. Every little -- it's like Fed watching now. Every little paragraph comes under great scrutiny, every blog in China suddenly becomes policy, even though it's not. So, the President, in a good-faith showing, has indicated that we will cease any new tariffs, any new tariffs. Important point. Now, President Xi is expected -- or we hope, in return for our accommodations, to move immediately, quickly, while the talks are going on, on the agriculture front. It's good faith, but it would be real transactions.

KELLY EVANS: You mean big purchases of U.S. soybeans and that nature?

LARRY A. KUDLOW: That's correct. Soybeans, wheat, energy possibly. And that's very, very important. And also in good faith President Trump has indicated that with respect to Huawei, for example, we will allow private sector transactions, suppliers to Huawei, except under any conditions relating to national security. Now let me try to clarify that. I think you're asking that; is that right?

KELLY EVANS: I don't know. I mean, does that mean that basically Huawei can be installed on world Telecom systems but not necessarily the Pentagon?

LARRY A. KUDLOW: No. Not necessarily the Pentagon is a no, for sure. Huawei remains on the Entity List. Okay? On the other hand, Huawei -- there'll be no U.S. government purchases of Huawei parts, components, or systems. That's not going to change. But with respect to the private markets, I call it general merchandise, we've opened the door, relaxed a bit the licensing requirements from the Commerce Department, where there are no national security influences or consequences. So, for example, what does that mean? Some of the chip companies would be permitted to sell on a limited basis to Huawei. These are things, Kelly, that are available, their products are available. You could buy them in South Korea, Taiwan, Vietnam. We don't hold any great cache. That's the sort of thing that will be opened up, which was closed, all right? So that's important and, I guess, does provide some relief to Huawei, which is in trouble now because of American decisions. But not just the United States. Many other countries now. With respect to 5G, no. No transactions with respect to 5G. But again, generally available. We are opening that up for a limited time period, the Commerce Department will be revisiting its licensing. Secretary Ross will have more to say about that.

KELLY EVANS: And that sounds like it's a good-faith effort on our part, if you're saying that China is claiming they're going to make these agricultural purchases and whatnot. But I remember Secretary Mnuchin saying --

LARRY A. KUDLOW: Haven't seen them yet, by the way.

KELLY EVANS: Absolutely.

LARRY A. KUDLOW: To be honest. But, yes, that was part of the conversation.

KELLY EVANS: Yeah, so waiting on that. Also, Secretary Mnuchin's comment that the last 10 percent is the hardest part, from earlier this year, still rings in my ears.


KELLY EVANS: Seems like that's still the impasse we're at. Enforcement is still a big issue. Intellectual property. How do you change China's behavior? So, it's great the trade talks have restarted. But should we basically expect this to be the status quo, with the current tariffs in place, maybe no real major new deal now for who knows how long, and that this is the business climate for the foreseeable future?

LARRY A. KUDLOW: So, you know, you're right on a lot of counts. Good questions. I think -- I like Mnuchin's 10 percent. He was kind of giving his own take because a week or two before I had said it's like being on the 7-yard line at a football game, and as a long-suffering New York Giants fan, they could be on the 7 and they never get the ball into the end zone.

KELLY EVANS: Hasn't been that bad.

LARRY A. KUDLOW: Now, hope springs eternal, I get that. You could draft new quarterbacks and you can have new negotiations. So, you know, I tend to be an optimist about life. But what Secretary said was right, and you're right, also. When you get down to the last 10 percent, 7-yard line, it's tough. So, let me just quickly… The talks broke down last May, as you know, and there was a lot of rollback of what we thought were commitments from the China team. In particular, we were not satisfied with the IP theft or, slash, protection provisions; nor were we satisfied with the lack of remedies on transfer of technology or cyber interference or tariff and nontariff barriers, or enforcement. So-called structural issues plus the commodity issues. We thought we had commitments, and those commitments were removed. I won't go detail by detail, Kelly, but I will say this. We -- our team, time and again, has asked for a change in Chinese laws, and resistance mounted on that point from the other side. They seem to believe that the State Security Council or the Politburo can promulgate regulations and that would be sufficient, and we don't agree. Now, you can have a philosophical debate on what is the rule of law in China, but I don't want to go there this morning. I just want to say they do have courts, and they do have laws, and we would prefer that they be bolstered. And we were told at one point that they would be bolstered, but it hasn't happened, and there was a clear pullback in the cables that we received in early May. On the enforcement stuff, ditto. Same thing. Again, without going into details, we thought we had agreement on certain issues and monitoring, and that turned out not to be the case. One last point. I'm saying this because this is important stuff. I want to be as clear as I can. China responses from various power centers, including this past weekend, they want what they describe as fair and equitable agreement. Okay. I understand that, but we have a very unbalanced trading relationship with them. Consequently, in our view, we would like to see remedies and correctives on a number of fronts, including some of which we've talked about. And that, by its nature, is not going to be balanced. All right? Because for the last 20-some-odd years or more, frankly, in our view, China has engaged in persistent unfair and frequently WTO illegal trading practices. They are not reciprocal, they are not open, and they do not conform with the norms of world trading. We want that changed, as part of an agreement. And so therefore, the issue of balance and equity is sufficiently ambiguous to be something of a deterrent or a barrier, if you will, which could be overcome incidentally in negotiations, could be overcome.

KELLY EVANS: If they really feel the need.

LARRY A. KUDLOW: But it is not -- look, we're Sony. It's not impossible. POTUS is a very effective negotiator, and so is Lighthizer. Nothing is impossible. And where there's a will, there's a way. I'm just saying at this juncture, those are the kinds of things that slowed the talks down or temporarily halted the talks. But, but, but, but, I want to take a more optimistic view in the future, saying that the two leaders have agreed to resume talks. That's a big deal, a very dig deal.

KELLY EVANS: Okay. I want to seek one more and we will open it up to this great group here to ask you their questions. But the sort of main theme here that I want to make sure that we end on is, you have the President's re-election coming up with all this hanging in the balance. You have a stock market that is at all-time highs now. You have some policies that, who knows how they will affect growth over the next 12 to 18 months. The President's approval ratings just hit an all-time high for him but are still structurally lower than they kind of should be for how well things are looking. So, what do you think gets this President reelected? How much in the economy has to go right between now and then, and how much of a factor should we expect that to be in these trade talks and so many other things that are going on?

LARRY A. KUDLOW: Wow. Well, I -- you know, I believe he will be reelected. This is not a shocking declaration from an assistant to the President.

KELLY EVANS: By the way, Strategas says its Trump re-election basket is not pricing that in right now, interestingly enough.

LARRY A. KUDLOW: Yeah, well, they're good folks, but... They're very good folks, but... You know, polls -- I don't even look at a poll that's not a likely voter model. I don't even bother. The likely voter models show him in a very strong position, particularly on the economy where his numbers range upwards of 60 percent. The economy is in great shape, as you noted. The policies are not going to change. All right? We're operating an incentive model of growth with low tax rates, sweeping deregulation, opening up of the energy markets and trade reform. Those are pro-growth policies.


LARRY A. KUDLOW: Tariffs are part of the trade reform, a very important part of the trade reform. But USMCA is right there in front of us, and I am pretty optimistic that's going to get through. China will take longer. By the way, there is no time limit on China. There is no speed. We want a good deal, a high-quality deal; I will make that as clear as I can, but...


LARRY A. KUDLOW: We're also engaged, by the way, in very constructive talks with the EU and Japan. Very important.

KELLY EVANS: You could just sign the TPP?


KELLY EVANS: The Trans-Pacific Partnership.

LARRY A. KUDLOW: We didn't sign that.

KELLY EVANS: But you could, you know.

LARRY A. KUDLOW: No, we've rejected that. We've rejected that. The President prefers bilats.

KELLY EVANS: Understood.

LARRY A. KUDLOW: I actually do think it's right. And who knows, there might even be a deal with Britain, if they can liberate themselves.

KELLY EVANS: Let me bring in the audience.

LARRY A. KUDLOW: But I want to say the economy is a huge -- economic growth is a huge issue. It's the strongest economy in decades, it's the strongest economy in the world. Very proud of that. In another iteration in my life, I helped formulate some of those policies, and they're going to stay in place. They are absolutely going to stay in place. The incentive model is working, so that's a big plus. Look, the other thing, Kelly, is -- I know this is more economic than financial group, which is great, but there are other issues here that are -- I think the President will emphasize, particularly the -- our southern border issues, the whole immigration issues. President has laid down very strong markers with which I entirely agree. That needs fixing and may take a while. We'll see. We have immigration reform, we have border reforms, we have humanitarian issues, economic issues down there. It's a big mess right now, but we're working on it. And we're working on it, I might add, cooperatively with Mexico. That's a very important point. Mexico, by the way, just -- they put 6,000 troops down at their southern border, but they just put 16,000 troops down at our border with Mexico. That's fabulous stuff. The Obrador government has been very cooperative. I think that's a huge plus. There are lots of other issues on healthcare, on the environment, on world trade. So, you know, there's, you know, plethora. The economic growth and prosperity is going to be central, though. That's my view. It's going to be central, and I think, frankly, we're in pretty good shape on that.

KELLY EVANS: Question? Because I will keep going, if not. Yeah, right here. You were first, sir. One second. The microphone is coming. Say your name, if you could, and speak clearly.

AUDIENCE MEMBER: Peter Weber. The deficit, how are you going to deal with it? It's unsustainable.

LARRY A. KUDLOW: Well, Peter, right now the latest numbers are current deficit is about 2 1/2 percent of GDP. It's a very modest number. And, actually, I could -- we could talk about the CBO and so forth, but I'll spare you my views on that. But when the CBO put out its long-term numbers, whatever it is, 50 years -- I just read economist John Taylor's wonderful blog -- actually, they're lower. It's fascinating. Nobody pointed that out.

KELLY EVANS: Because of growth or –

LARRY A. KUDLOW: Yes, yes. Even the CBO acknowledges that over the next 50 years -- now, I'd love to be around for that analysis; I may not be -- but the deficit is coming down in the long run. And I will say, Peter, as I have, there are basically only two ways to lower budget deficits. One is economic growth, which is worth the 3 1/2 trillion per point of GDP; that's why I'm harping on USMCA, not small potatoes, and limited government. And we are pursuing both. I don't see this as a huge problem right now at all. Quite manageable. And revenue analysis -- and I know we have other questions, and I don't want to spend too much time, but revenue analysis is coming in very well with respect to our earliest projections of the impact of the tax cuts on the economy and the budget. I mean, actually, I would argue strongly that the corporate tax cut has already been paid for, and that roughly two-thirds of the overall tax cut has been paid for. 2018 was year 1. 2019 is year 2. Give me another year or two, and I think you're going to see tremendous improvement. But right now, 2 1/2 percent of GDP, that's the CBO number. It ain't much.

KELLY EVANS: One more question, right here in front. She was second.

AUDIENCE MEMBER: Hi, I'm Jennifer Winslow. Is there a source that we can access that perhaps quantifies –

LARRY A. KUDLOW: Is there a what, Jennifer?

AUDIENCE MEMBER: Is there a source that we can access that would quantify the cost of the way things are with China, in other words, you know, incremental GDP that's lost or dollars we don't get, or dollars we lose because of IT theft? It's something that quantifies that this isn't just, you know, a trade war, as the media wants to call it, but really this has to be done because it's costing us. Is there anything that quantifies?

LARRY A. KUDLOW: You know, the CEA has put out a lot of memos on this. I think some of them are posted on -- I'm not sure. You know, that's a great -- it's a great ask you're making. You know, some but not all. It's very complicated. You know, this stuff came up about a month ago or something, when I was doing one of the Sunday shows, and I just kind of repeat our best-guess view, and that is that any "consumer impact," quote-unquote, will be very low. I called it de minimis. That's what our numbers show internally. But you have a broader question, I think you're kind of hinting at, and that is the issue of sort of the overall economic burden. And I think that burden is increasingly falling more heavily on China. There was a great piece in the journal, an op-ed piece by a fellow that runs a smallish business, who said that as soon as the tariffs were announced he immediately -- he did a lot of business with China -- he immediately called his Chinese suppliers and insisted on price cuts; and they gave it to him. So, he didn't have to pass along any higher prices to consumers. A lot of that is going on. I notice import prices are really falling rapidly, which suggests lots of that is going on. So economic burden doesn't fall on us; it really falls more on them. There is a lot of production movement going on. Supply chains are moving out of China, and the journal has been reporting on that. You know, the elasticity is, we don't have to buy stuff from China. We can buy from Bangladesh or Vietnam, other places, Mexico, for that matter. So the overall economic burden I think is not falling on us, it's falling on China. And consumer impacts are going to be very low. You know, let me talk to Tom Philipson, our new CEA chair, and also my international guys, and see -- we probably should put out more for the public. Those would be our views. Other places have different views. But we would be happy to work on that.

KELLY EVANS: Thanks for the question. Thanks, everybody, for being here. And, Larry, most of all, thank you for your time this morning. Really appreciate it.

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