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Larry Alan Kudlow: Trump’s Ukraine call isn’t an impeachable offense

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CNBC Transcript: National Economic Council Director Larry Alan Kudlow Speaks with CNBC’s “Squawk Box” and CNBC’s “Squawk on the Street” Today

WHEN: Today, Thursday, October 17, 2019

WHERE: CNBC’s “Squawk Box” and CNBC’s “Squawk on the Street

The following is the unofficial transcript of a CNBC interview with National Economic Council Director Larry Alan Kudlow on CNBC’s “Squawk Box” (M-F 6AM – 9AM) and CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, October 17th. The following is a link to video of the interview on CNBC.com:

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Larry Alan Kudlow: Trump's Ukraine call isn't an impeachable offense

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JOE KERNEN: Welcome back to "Squawk Box.” Joining us now, Larry Alan Kudlow, White House National Economic Council Director. Been a while, Mr. Kudlow. It is great to have you on this morning. Let’s start with, like, a philosophical question, Larry. You’ve been there a while. I don’t know if you were ever what I would refer to as a globalist. But at this point, do we have a domestic economy that can continue to outperform? And we have for years, admittedly, but it seems more important and more true now than maybe in the past, that we really need to look at what’s happening specifically in our country, more than being bogged down by a global slowdown. Is it more true now than before, do you think?

LARRY ALAN KUDLOW: I think you’re asking me: is the domestic economy strong enough to withhold the global downturn, Joe, if that’s correct?


LARRY ALAN KUDLOW: Well, the answer is yes. And I’ll back that up in a minute. But, I’m not a purist on this. You know, international trade is very substantial. So, we’ve had some headwinds, particularly in the past year. The economy is a little softer in the second and third quarters. And a lot of that comes out of Europe. By the way, a lot of the European slowdown is centered in Germany. We can’t send, we can’t export our manufacturing goods, because Germany is doing so badly. So, that’s an issue. Brexit, a smaller issue, Joe. Major China slow down, I’m sure we’ll get to that in a minute. Latin America is slow. On the other hand, on the other hand, I will defend what’s going on in the domestic economy. Because despite a very severe Fed tightening last year, maybe we’re coming out of that now, nonetheless, lower taxes and deregulation and opening up energy. We’re still plugging along. You know, there is a statistic -- my pal Steve Moore in Journal: in two-an-a-half years, the Trump economy, people are getting about $5,000. $5,000. This is median income, Joe. Ordinary folks. 60, $65,000 a year. Married filing jointly. $5,000 from better labor conditions, huge jobs in income and another $2500 on tax cuts. That’s a huge gain. The prior administrations both Democrat and Republican have nothing compared to that. So, that has been driving the economy. As I said, there is some softness right now. But, no, I think the domestic economy is in very good shape. I think the worst of the Fed tightening, by the way, is coming to an end. And I’m kind of optimistic, the yearend quarter should be pretty good. 2020 should be pretty good. So, we’re not immune, Joe. We are not immune. I think we are still the driver. We are the international driver.

JOE KERNEN: Okay. Our friend Steve Liesman, and he -- you know, he has different ways of gauging things and maybe through some tea leaves thinks it’s possible the Fed could be thinking about a pause in the rate cuts. You’re saying they are finally doing the right thing and I would assume you mean they will continue cutting. Do you think there is a possibility the Fed could be considering a pause because of seeing strength? And would that be a negative, in your view, for the economy and the markets?

LARRY ALAN KUDLOW: Well, you know, I look at the money market indicators and I look at the yield curve indicators. So, here’s the good news, the yield curve, let’s see, 10s versus bills, 10s versus twos, has now finally moved back into a normal position. So, it’s right side, long rates are now above short rates. Not by a lot, but by some. That’s a good sign. I think money market futures, Fed fund futures, correct me if I’m wrong, they’re all predicting another 25 basis points at the Fed meeting. A reduction at the Fed meeting.

BECKY QUICK: That’s correct.

LARRY ALAN KUDLOW: I concur with that. I think that’s wise. Jim Bullard of the St. Louis Fed I think who won the 50 at the last meeting, I’m sure he will be pushing for 25. Maybe 50 again this time. And they’re moving in the right direction. Their balance sheet is starting to expand a little bit. I don’t want to get into a lot of Fed bashing. They do the best they can. Their models are highly flawed. The deep state, board staff, of course, has not been helpful. Oops, did I say that? But the fact is the Fed is moving us in the right direction. So, yeah, we are going to see some lower rates. And by the way, that’s a global phenomenon, Joe. Lower rates all across the world, maybe saving the rest of the world from a recession. If you look at the timing, it’s sort of interesting. So, we took some hits in 2019, the economy was softer. A lot of that goes back to severe Fed tightening. And some other issues. I get that.

JOE KERNEN: Hey, Larry –

LARRY ALAN KUDLOW: Now it looks like the housing sector is leading us back up. That’s a pretty good median indicator.

JOE KERNEN: You see in a trial where one side will bring up something that the prosecution wants them to bring up. You brought up deep state. How do you view this whole Ukraine impeachment push? Larry, is that a deep state move? Or is there something that the average Americans will be worried about in terms of the phone call and what’s going on with impeachment?

LARRY ALAN KUDLOW: Well, I don’t think the average American is in the deep state. So, that’s the really good news out there in America. Look, I don’t want to spend a lot of time on this impeachment business. But I’ll just say this, Joe. I read the transcript of that phone call between Ukraine President Zelensky and the U.S. President Trump. I’ve read it I don’t know, 15 times. I first saw it at the U.N. I don’t see anything remotely that would constitute some kind of impeachable offense. Look, it was a, you know, it was a congratulatory call. Corruption came up. Zelensky, who we met at the U.N., we had a great bilateral with him, is a very bright young man. He said corruption is a big issue. I think President Trump was saying why don’t you help clean up the last, you know, the 2016, 2015, 2014. I don’t think the President was aiming at 2020. And I just, I want to make this point. For three years or so, President Trump has said, Europe must help the United States with respect to NATO and other related military assistance. And so, what the President was doing and it’s clear in that transcript, is he’s saying, I want to go back to protect taxpayers and then let’s see if we can get your assistance going, which ultimately is what happened. It was completely transparent. We released the transcript. We released the highly flawed hearsay impeachment complaint. We released that transparently. There was no extent –

ANDREW ROSS SORKIN: Larry, then explain – then explain the role of Rudy Giuliani and his two associates now who have been indicted.

LARRY ALAN KUDLOW: I don’t want to explain that. I guess that’s Andrew asking that question, my friend, Andrew, from the Upper West Side. It’s good to see you, my friend. I don’t want to explain it. I’m not acquainted with all these machinations. It’s out of my lane and probably above my pay grade.

ANDREW ROSS SORKIN: Larry, let me ask you a different question, though.

LARRY ALAN KUDLOW: All I’m saying is -- hang on. All I’m saying is when we released the transcript, we were transparent. We released the whistleblower complaint, which was really third and fourth-hand hearsay, we were transparent. There was never any quid pro quo. The president ever linked the two. His concerns about assistance was why doesn’t Europe pay its fair share of cost share burden? And President Zelensky, again, we spent a lot of time with him at the U.N., he’s a very bright fella. He said there was never any pressure.

ANDREW ROSS SORKIN: Larry, I’m trying to be polite by letting you provide a fulsome answer. But there are obviously people that have a different view than you do on this issue.

LARRY ALAN KUDLOW: I understand that. I’m just giving you my point of view. I don’t see anything remotely close to an impeachable offense.

ANDREW ROSS SORKIN: And you are not troubled by any of it, just so we’re clear?


ANDREW ROSS SORKIN: There is nothing about what the President has either done or his associates in relations to the Ukraine that you are troubled by in any way whatsoever.

LARRY ALAN KUDLOW: There is nothing the President has done with respect to that phone call and related matters. The associates, you can go to the second and third and fourth and fifth rings of Saturn, Andrew, and I’m not acquainted with it. I don’t follow it. It’s out of my lane. I only deal with the economy.

ANDREW ROSS SORKIN: Okay. Let me ask you a separate question, because I think a lot of people -- since you do know the President, though, so very well. There were a lot of people that saw that letter that the President wrote on White House stationary yesterday to President Erdogan of Turkey and couldn’t believe their eyes. They couldn’t believe what was being said. Is that -- was that normal to you?

LARRY ALAN KUDLOW: I’m not sure what specifically you are referring to.

ANDREW ROSS SORKIN: There was a letter in which the President, I will have to go get the letter, wrote to Erdogan in which he effectively –

JOE KERNEN: It was a colloquial type letter he said make a deal or else. Or else. It was in very plain-spoken language.


ANDREW ROSS SORKIN: I think you know the letter I’m referring to.

LARRY ALAN KUDLOW: Yes, I’m aware of the letter. That’s Mike Pompeo’s turf, it’s not my turf. I believe, in conversations with the President, he is trying to warn Turkey not to cause trouble in Syria and with respect to the Syrian Kurds and other parties. And I think--

ANDREW ROSS SORKIN: I appreciate that. But the threats and the language and the type of approach, I mean, people looked at that letter initially and thought it was a fake letter.

JOE KERNEN: Well, not everyone.

ANDREW ROSS SORKIN: I think a lot of folks.

JOE KERNEN: Now, you are speaking for –

ANDREW ROSS SORKIN: I will speak for what I imagine--

JOE KERNEN: If there were a trial there would be on objection and it would probably be sustained.

LARRY ALAN KUDLOW: There would be an objection. Thank you, Joe. Look, Secretary Mnuchin made it very clear over the weekend, we will use sanctions and we may use more sanctions to keep Turkey in line. Can we just get, look, here’s a point, fellas, I know we don’t have all day. We’re seeing a lot of the headwinds that held down the economy this year may wind up opening the door to next year. One of them is the China deal. You all haven’t mentioned that. We also a U.S.--

JOE KERNEN: We’ve got to toss this to your old partner, Larry. I apologize. We’ve got to go to Cramer. It’s 9:00 -- and his friends, Carl and David. We got to go. Thank you, Larry. We appreciate it. Sorry to cut you off, but it’s straight up at 9:00. We’ve got to go. Make sure you join us tomorrow. “Squawk on the Street.”


CARL QUINTANILLA: How about talking to Larry Alan Kudlow, National Economic Council Director who was on "Squawk" a few moments ago and got cut off a little bit. Larry, thanks for joining us again.

LARRY ALAN KUDLOW: My great pleasure. Thank you -- my great pleasure, Jimmy, appreciate it, fellas.

CARL QUINTANILLA: Larry, one thing you guys didn’t get to with the "Squawk" crew was China and specifically AG. Can you talk about that 40-to-50 number and the degree to which this is actually going to happen?

LARRY ALAN KUDLOW: Well, that was something that was agreed upon. I think it’s a real number. It’s not, by the way, just going to be AG purchases, although that’s going to be a huge boost to our farm sector. There are also going to be various market access openings with respect to agriculture products and agriculture standards that the Chinese seem to be loosening up on. It will be great pleasure. So that’s a huge piece of it – it’s not the only piece, but between the market openings, they’re lowering non-tariff barriers on agriculture. By the way, they started buying. You know, I believe I was on CNBC when I said maybe ten days ago that people shouldn’t be so pessimistic about the China talks and that some good things could happen. And I think this whole Phase 1 is a good thing that’s happening and for the skeptics out there, I appreciate that and I respect that. But I’m telling you, there is a lot of momentum and there is agreement on both sides.

JIM CRAMER: Larry, Jim, great having you back. Thank you for coming back.

LARRY ALAN KUDLOW: My pleasure, Jimmy. You know, can I read, Jim? I just want to read this. It came out, I believe yesterday morning, this is from the Chinese Foreign Ministry. Okay. So that’s the top of the heap. It’s like our State Department. Here’s what they said—and I say this to the doubters—here’s what the Foreign Ministry said: the two sides are unanimous in the issue of reaching an economic and trade agreement. There is no difference. This economic and trade agreement will be of great significance to the United States and the rest of the world global economies and world peace. In other words, the two sides are unanimous in the issue of making an economic and trade deal. Now, that’s from the Foreign Ministry, a very important part of the Chinese government infrastructure. We’ve never had a statement like that, Jimmy, from them, never. So, I think all the Phase 1 subjects I hope we get into. This is for real. For real.

JIM CRAMER: Well, look, I await it and I sure hope it happens, because they let the United States down after Argentina. Let’s go back to strong versus weak economy. Larry, I’ve got to tell you, the manufacturing economy needs help. It needs a rate cut and it needs a rate cut now, maybe two rate cuts. But the consumer, the numbers yesterday—from retail, from commerce—indicated weakness. I have a good read on the consumer both from the banks and retailers that says it’s strong. What do you say to the people who say, listen, we’re a consumer-led economy, why do we need these rate cuts?

LARRY ALAN KUDLOW: Well, look at, you know I’m getting anecdotal evidence. One of the lovely part of my jobs I get to meet a lot of CEOs on a constant basis—industry, pharmaceuticals, drugs, bankers—they have a bird’s eye view. One of the things I’ve heard from the big bankers, loans are booming, Jimmy, particularly middle market loans. I’ve heard that several times so that’s a terrific thing. I know the retail sales number was sloppy, but if you smooth it out on the three-month change, it’s growing about 5% at an annual rate. That’s a good number. On manufacturing, no question the GM strike has hurt us. The Boeing problem has hurt us. The absence of demand from Europe has really hurt us a lot. But I will say this, pardon the numbers, but the third quarter is actually coming in positive. Manufacturing in Q3 looks like it will be up 3.1% at an annual rate. In Q2, it was a negative number. And business equipment, which is important for investment and capital spending, Q3 2.1, Q2 is minus 5. I think, Jimmy, if you look at that, you look at the housing improvement, you look at the strong retailers and, look, let’s not forget, you got a 3.5% unemployment rate, 50-year low, with revisions last month payrolls 180. That’s a huge number. And households, and I want to emphasize households, which pick up smaller business. The last four months or the last five months, the household survey from which unemployment comes, that thing has been growing 400,000 per month. So.

JIM CRAMER: But Larry –

LARRY ALAN KUDLOW: America is working and America is getting paid. I think we are in an improving situation.

JIM CRAMER: I know, but I listen, if I were Jay Powell, Fed chief, I would say that there is no reason to cut. Yet you and I both know that if we’re going to remain competitive, particularly with the dollar the way it is, then there must be a cut. How do you rationalize a cut given all that great news you just said?

LARRY ALAN KUDLOW: Look, the great news may be more of a forecast. I don’t know the actual numbers. I think still in the third quarter, you know, it’s going to be a softer quarter than we hope. The money markets are predicting another rate cut. Jim Bullard of the St. Louis Fed who was a thought leader, he’s really been kind of a leading indicator of the Fed. He wanted 50 basis points cut last month. He got 25. I think he’s pushing for 25, maybe even 50 the end of this month. So, Jimmy, I’m just saying the markets are telling me, at least, you and I used to do this a lot in the good old days, the markets are predicting another Fed rate cut and I agree with that. I think it would be entirely appropriate. One last point on the Fed before we get too far into the weeds. The yield curve is now finally beginning to normalize. A month ago, every media outlet, including media outlets that never heard of the yield curve before were all predicting recession, because the curve went negative. And short rates were above long rates. That’s changed now, as you know. Now the ten year is above the 2s and above the three-month bill, that’s a good sign. My reckoning is monetary policy will go at least for one more 25-point ease – and as you put it, I think it’s worthwhile. I think it’s a good thing.

CARL QUINTANILLA: Hey, Larry, really quick. Just a couple things from me. This remarkable meeting last night between the Speaker and the President in the cabinet room, does that bury any hopes of USMCA?

LARRY ALAN KUDLOW: Well, you know, Carl, Ii don’t think so. Now, I was not at that meeting. I have been at many other meetings. Some are good. Some are not so good. Look, what I’m hearing -- Speaker Pelosi has her disagreements with the administration. No question about that. I understand. Having said that, Speaker Pelosi has been accommodative and accessible and helpful regarding USMCA which is a big boone for farmers, manufactures, high-tech, finance and services, currency stability. It would increase American economic growth by half a percent of GDP and a couple of hundred thousand jobs over time. So I think Speaker—on that subject, even while she disagrees on others—I think she has been helpful. My friend, trade ambassador Bob Lighthizer, is working the Hill, Democratic side, senior key Democrats are heavily engaged with Ambassador Lighthizer, talking about key issues and so many people in the Democratic and Republican party understand that USMCA, which is a template for future trade deals, would be a legacy, a great legacy for the United States, a great legacy for Republicans and Democrats and workers and manufacturers and auto makers and content. This is such a big thing, I still believe it will pass. We may have disagreements on some matters. But I think USMCA has a lot of momentum. I think it will pass and I think it will pass before Thanksgiving. That’s my own personal view.

JIM CRAMER: Larry, you know you are making a lot of news. A lot of people feel that the spat between Speaker Pelosi and President Trump is irredeemable. But you are obviously saying that’s not the case. You’re also saying that we should stay tuned for some buys? Maybe even they open up a J.P. Morgan or Citi to open business in China. Larry, these would be two incredibly bullish things. Just want to be sure that’s what we heard, that’s what you are saying, because they’re both very newsworthy.

LARRY ALAN KUDLOW: Number one, let me repeat, the Trump administration, the President may have his disagreements with Speaker Pelosi, this is not unusual. But I still believe on USMCA, that’s a separate track, and I will just tell you, high-level conversations with senior Democratic Committee Chairs and Sub-Chairs are talking to Ambassador Lighthizer, who has conducted -- Mr. Lighthizer has put together a brilliant non-partisan trade deal that helps manufacturing and farmers. It also helps the new economy with IP protection. It also includes currency stability. This is a template. This is an American legacy. Second point, second point, Jimmy, you were asking me about China.

JIM CRAMER: Yes, I wanted something new. Maybe something hot like an AG buy, but also say, letting J.P. Morgan in, letting Citi in. They won’t let us compete, Larry. They won’t let us compete.

LARRY ALAN KUDLOW: You are correct. Now, here’s a very important point. We have made great progress and this is a key part of Phase 1. This goes back to last Spring. Treasury Secretary Mnuchin had successfully negotiated financial industry openings in China. So that the ownership, the ownership of any joint venture will switch to an American majority. You follow me? Instead of 49%. Alright. So, if an insurance company or a bank or a securities firm gets a license from the Chinese government and enters into a joint venture or something like that, instead of 49%, that number will go to 51, 53 and 100% ownership in a couple of years. Vice Premier Liu He has been talking about this for many months. Not only is that provision still on the table, Jimmy, it’s gaining favor. That whole chapter on financial services. The currency transparency and stability. That chapter has gained great credibility. The protection of international property rights. That chapter has gained great credibility. This will go on. Phase 1 may not be all together finished. Alright. You may go to Phase 2 on some areas. But on things like conflict resolution, it’s deals getting dealt with at the highest levels of the U.S. and China. The highest levels. And there is a desire and a willingness, I read this foreign ministry statement. I urge you all to get ahold of it, and look at it yourselves and you will see. Now, I cannot predict the future here. All I’m saying is, take Phase 1 seriously. I said on this network a week or ten days ago that we might be surprised at what came out of these talks last week. We are surprised at what came. Both sides have the desire to do business. It’s got to be the right deal. It’s got to be right for America. President Trump says that all the time. It’s got to be enforceable. There has to be ways to deal with disagreement and the resolutions. But nonetheless, this is front and center. It’s going back to China. We are going to paper, clip the papers in the documents and the translation together. Maybe it will be signed in APEC in Chile by the middle of next month. Maybe not. But the momentum, the issues, they’re all on the table. Both sides have agreed. In other words, Jimmy Cramer, we have come in, we have come further than we ever have before. So, the president lifted one of the tariffs. We will see about other tariffs being lifted. That might be a part of the deal. I don’t want to make a prediction. But both sides see this as beneficial for each country. And that is enormous progress. As I said a while back, the mood music has improved. Now the actual negotiation has improved. These are tough guys. This is tough negotiations. The President will always defend America. No question about that. He will always defend our economy. But people shouldn’t overthink this. This is real and it’s going to be negotiated.

CARL QUINTANILLA: Larry – understood. While -- before we let you go, Larry -- while we have been talking, industrial production for negative year on year, first in three years. Some of that may be GM but you did say in May that the American economy, you said we were killing it with the economy. Are you still saying that today?

LARRY ALAN KUDLOW: Well, look, we’ve had some softness in the Spring and Summer quarters. Again, the aftermath of severe monetary tightening. The slump in Europe. The strikes at GM. The -- I’m not going to call it a strike, but the problems in Boeing. That stuff cuts into manufacturing. But if you look, Carl, I don’t want to go through the numbers again. The third quarter as a whole, if we smooth these things out, manufacturing will be a positive in the third quarter. It was negative in the second quarter. Business equipment, positive in the third quarter. It was negative in the second quarter. I like the low interest rates. I like the zero inflation. I also like low taxes, consumer incomes are booming right now and so are jobs. So, I will say, I’m looking for a big improvement in Q4. And I’m looking for a continued, continued economic boom in 2020.

JIM CRAMER: Larry, let me ask you. Yesterday, Marc Benioff was on. You know him, from Salesforce. He was talking about capitalism being dead. The other night there was a Democratic, let’s say a referendum, by candidates which said that capitalism is dead but they need to have something else to replace it. One wants government to replace it, we know what that is with the Democrats. The other wants business to replace it. Is capitalism dead, Larry?

LARRY ALAN KUDLOW: Capitalism is not dead. Free enterprise is not dead. Economic opportunity and freedom is not dead. Look, in another interview, which I would love to do with you fellas, we can talk about some of these policies coming -- coming out of the Democratic side. I don’t want to do politics, but I love to do policy. I would just say this. The President said this at the U.N. He will never permit the United States to become a socialist country. He will never permit the government takeover of healthcare. He will never permit a rollback of energy and fossil fuels, which has not only created jobs, it has made America so strong on the international arena. We will never have the kind of government that actually encourages people not to work and pays them not to work. There is no way Americans are going to vote for plans that would be a government takeover of the economy with a price tag of $100 trillion or more, which would be paid for by enormous increases of middle class taxes. That’s the only way you can do that. This is not the American way. We are free enterprise. We are not socialists. We are going to protect a tremendous durable economic prosperity cycle with low taxes and deregulation and energy and getting trade barriers down. Socialism is in Venezuela. Socialism is in China. Socialism is in a lot of places around the country. Jimmy Cramer, you and I started as partners on TV, I don’t know, 20 years ago, we didn’t talk socialism then. We ain’t talking socialism now. America loves freedom. And a government-dominated repressive economy is not freedom. And by the way, why? Why? Creating 3.5% unemployment rate with median incomes 65,000, it’s up about 6 or 7,000 in two years. Why would we want to destroy a pretty darn good prosperity cycle? Why would anybody in their right mind want to do that? No. Socialism -- X. Check the boxes.


LARRY ALAN KUDLOW: Check the box for free enterprise, Jimmy Cramer.

JIM CRAMER: You get it, Larry.

LARRY ALAN KUDLOW: Check the free enterprise box. And you know, wealth creation in the stock market benefits, what, 100 million people. I could go on and on maybe we’ll have our own show.

JIM CRAMER: Yes, you can. Like the old days.

CARL QUINTANILLA: We can’t wrap you any more, Larry, like we did in the old days, but, we can thank you. Larry Alan Kudlow, outside the White House.

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