tv WSJ at Large With Gerry Baker FOX Business September 1, 2019 5:30am-6:01am EDT
for sunday morning futures, 0 a.m. on fox news. plus, start smart every weekday, tune in on fox business from 6-9 for mornings -- eastern, for mornings with maria. i'll see you next week. thanks for watching. ♪ ♪ gerry: hello and welcome to "wall street journal at large." labor day weekend, of course, traditionally marks the end of summer. you probably didn't need to be reminded of that. but it's fair to say it's been quite a summer this year in financial markets. the dow jones central average hit a new high in late july after the federal reserve cut interest rates for the first time in more than a decade. but since then it's been pretty rough going. stocks have fallen almost 5% from that peak, and interest rates in the market, the market interest rates that we have have dropped dramatically. that's bad news for savers.
president trump, of course, has been pressing the fed with ever greater urgency to cut rates much more aggressively, but for now at least it seems the central bank is planning to take its own sweet time with only gentle rate cuts likely in the fall. the u.s. economy, meanwhile, continues to perform well. with unemployment near a 50-year low and wages rising. but there's a lot of uncertainty out there. the biggest source concerns the global economy. now, when he's not picking on jay powell, the fed chair, the president's been going after china, raising tariffs on that country's exports to the u.s. beijing, of course, has retaliated. this weekend a new round of higher u.s. tariffs is due to go into effect, although this week president trump did say that the two sides were till talking, raising some hopes in financial markets that perhaps tariff increases by both sides might be averted. now, this trade battle continues to keep businesses on edge, but the president says it's essential to get china to change its unfair ways in the way it
goes about doing business. some economists are worrying that the turbulence and the uncertainty could trigger a global recession. on top of that, there are fears about the larger strategic relationship between the u.s. and china. the world's two most dominant economies and, of course, geopolitical powers. so this week we'll be taking a deeper look at the u.s./china relationship. could all these tariff wars signal real economic pain to come for china and for the u.s., or might there now be a deal to be had where we can avoid those pains? and can president trump and xi jinping of china reach some kind of larger day tent, or are -- detaint, or are we headed for a new cold war between the two superpowers? joining me now is former secretary of defense under president obama and former senator chuck hagel. >> thank you, gerry. gerry: the president is getting
criticized over the trade war, over tariffs, but he says china was allowed to get away with cheating in the global system. we accommodated its ways for too long under president obama, under who you served, also president bush and president clinton. he has a point, doesn't he? didn't we let china get away with a bit too much? >> i think he does have a point, and it's an important point. but then you take it to next step, what do you do about it and how do you respond. that becomes a rather tricky process, and i don't think, in my opinion, the approach that president trump has taken is the correct approach when we confront china one-on-one, the two world's greatest economic powers, without first having the support of allies and alliances. and using all the structures and
the benefits and advantages we have that china doesn't have. so that's where i have a problem. not that it hasn't been an issue and that he has been, president trump, the first to start to address it. but how we're doing it. because it could lead to catastrophe for the world economy. you've got security issues and all facets of our relationship are connected to this. gerry: how do you think the trade war's going so farsome do you think we're winning the trade war? if is chinaing with hurt more than -- being hurt more than the u.s., or is it a draw? >> well, i don't think that's the way you should look at it. i disagree with the president when he said they're -- trade wars are easy to win. i don't know what history books he's referring to, but that's never the case. there are severe consequences in a trade war for everyone. if we start to approach this on who's winning, the u.s. or china, that's the wrong
approach. that's a dangerous approach. because it continues to divide you in a very dangerous way where no matter what i'm going to win, and they're going to lose. zero sum game. that's not the way it works. not a global, liberal, free trade economy. that's not the way it works. it work on common interests. gerry: if tariffs are not the way to go, tariffs, punishing the chinese in that way, not the way to go, you said you do agree china needs to change its ways, how do we get a country like china which doesn't play by the rules to change their ways? >> well, you use all the levers of power and consequence that you have. first, let's look at the international organization that was created after world war ii, general agreement on tariffs and trade. general agreement on tariffs and trade which is now the wto. they've been totally dismissed in this process. first of all, we should start there, using our alliances, our relationships. in asia, in the pacific.
one of the big mistakes i think president trump made that put us partly in this problem is when he pulled out of the trans-pacific partnership, the tpp. that was a huge advantage for the united states with those asian-pacific powers. then tariffs are a part of it. i mean, yes, you can use tariffs, but not just using tariffs only to threaten and then that drives the chinese into a response where they're going to respond and here we go. gerry: let me just quickly show you the president's been talking this week, he was addressing some remarks made by senator toomey of pennsylvania. i think we can pull up the remarks. senator toomey criticized the president in pennsylvania. here, we have the remarks. there's no question the trade uncertainty's contributing to the slowdown by the economy. we're in a very good place, the danger is where are we going to be a year from now if concerns about trade continue to be -- and let's just hear what the president said in response to that while talking on fox, fox
news radio. >> what does pat toomey want me to do, does he want me to say let me put my hands up, china, continue to rip us off. when pat toomey says, oh, i don't like that, that only means one thing, that means raise your hands and get used to paying $500 a bill to china plus -- billion dollars a year to china plus, plus, plus. gerry: is he right, the president, are we just putting our hands up if we don't take them on with tariffs? >> no, of course not. you have more than just one alternative in how you deal with this issue. i mean, let's look at the facts here. the united states still is the most dominant power in the world. by any measure and any means. and you be smart. you take it on not win or lose, but you take it on like i mentioned here just a minute ago, using the advantages and the levers of power that you do have. and and you do it the smart way. now, there are things that need to be corrected, structural
problems in china. their economy, their government. but we've got a fundamental issue here that's probably bigger than any of the issues that we can't do anything about, and that's china is a communist, authoritarian government. now, they don't cohabitate very well with the liberal free trade world. something's going to happen. so when you have that basic communist authoritarian government controlling everything, that's a structural problem beyond our ability to negotiate. gerry: we're going to take a quick break, and when we come back, i want to broaden the topic and conversation to get a sense of just how big secretary hagel thinks that china is, how big a threat it poses to u.s. national security. don't go away. ♪ ♪
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♪ ♪ gerry: i'm back with former secretary of defense chuck hagel. secretary hagel, thank you very much again for joining us. are we facing a new cold war with china? >> i think we very well could be. you know, our conversation that we had on trade a few minutes ago, that is one dimension of a relationship with another great power. china is a great power, it will continue to be a great power. we don't want to get into a cold war with china or russia because it drains resources, it is very unsafe for a hair-trigger world that is going to put two billion more people on the face of the earth by 2045. so china has to be dealt with smartly. yes, they -- i think they could well be a threat. they are developing substantially their military
capabilities, their blue water capabilities -- gerry: [inaudible] sorry to interrupt you, but how to we meet that threat, deal with that chinese threat? >> well, we deal with it first by keeping our forces and our defense capabilities strong, strong as strong as we can possibly keep them. that's number one. number two, alliances. the relationships with japan, south korea are absolutely essential. relationships all over asia and pacific. we have the base in guam. but also those other countries that are not aligned with us militarily are really critically important to keep the independence of the waterways everywhere. it's all of those things together. and the commercial relationships we have with countries is important too, because we give them options. not just china, but they have options with us. gerry: should we warn the
chinese, hands off taiwan? that's been a big issue for them historically, and we've been supportive of taiwan. should we continue to do that? >> well, i think we have. i think obama was clear on that, clinton, bush, trump has been clear on that. that's one good example of staying strong and committed to our a allies and to our relationships, and it's all of those factors and those advantages that we have right now that we need to monopolize. gerry: we're just running out of time but one very topical issue is hong kong. china -- hong kong is in uproar at the moment, challenging chinese authority there. china's promised to keep the system separate from mainland china, at least for another 20 years or so. if china were to attack, try to impose its rule over hong kong, what should the united states do? >> well, if there is an attack on hong kong by the chinese
military -- gerry: a tiananmen square type event. >> yeah. that's serious, and i know the deferent options that a president and his team have to go through on what we would do, how we would respond to that. gerry: very quickly are, what should it be? sanctions? >> yeah. there'd have to be more -- i don't think there's going to be a military response to that. but sanctions, i mean, all kinds of economic and diplomatic differences which just make this bigger issue of trade and confrontation and win or lose, makes it bigger and deeper and wider and more dangerous for the world. gerry: secretary, i'm going to have to stop you there. wish we had more time. coming up next, how is the trade war with china hitting the american consumer, and what could it mean for the u.s. economy in the longer run? we'll be right back. ♪ ♪
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♪ ♪ gerry: joining me now from washington, d.c. is jared bernstein, senior fellow at the center for budget and policy priorities and former economic adviser to vice president joe biden. thanks for joining us. >> my pleasure. gerry: let's talk about the economic impacts of this trade war. so far we've seen it in the markets particularly, market every time -- especially every time the rhetoric gets ramped up, react, doesn't like it. has there been actually much direct impact on the american economy from this trade war so far? because the economy seems to be in pretty good shape. >> there hasn't been a ton, but there's been some. is so our manufacturing sector has actually been contracting if
you look at real output in manufacturing, that's been going down for about six or seven months. so that's one indicator. but beyond that, you've seen some impact on consumer prices, but it's very marginal, and there's all these other moving parts that are holding inflation way down. i think the broad estimate is at this point the trade war's costing u.s. consumers something around $500 a year which isn't nothing, but if it escalates, it'll be a lot more. gerry: president trump says, of course, it's china that's paying the tariffs. you point out, of course, the consumer pays, but who is getting hurt more here? is it china? and is it going to force them to change track or, actually, is this rebounding and hurting americans worse? >> well, there's a lot in there. let me unpack some of it. first of all, or even president trump himself doesn't believe explicitly that china is fully paying the cost of these tariffs because you'll recall that he recently suspended the implementation of the tariffs so
that u.s. consumers wouldn't be whacked too hard around the holiday time. so it's widely understood that tariffs are paid by the company that imports those goods. they then try to push those costs forward to consumers. now, you asked some other questions in there, what were they? gerry: who's being hurt more, the chinese finish. >> right. gerry: chinese businesses are being hurt, presumably, because their goods are more expensive and suffering competitive disadvantage. >> right. i think the key there is your basic premise is correct. the key this is that we import over four times more from china than they import from us. so it's this old thing, you know, if you owe the bank $100, they own you. if you owe the bank $10 million, you own them. because china is so much more dependent on our consumers than we are on theirs, we kind of have more degrees of freedom to ding them in this front. so no question, this is hurting
the chinese economy. gerry: and there is some evidence that american businesses are thinking again about their activities in china, if they're going to be subjected to tariffs, then maybe they should be elsewhere around the world? >> right, and it's not just in china. here's where i think you really see an important impact that's been small but could be growing. if you look at the u.s. accounts, our national accounts, in the second quarter of the year business investment was actually down. it was down about half a percent. that's not a huge number, but we're in the midst of -- we're still in the midst of a strong recovery, and the cost of investments, the capital costs -- interest rates are very low, investment is cheap. and yet our businesses are actually contracting on that front. i am certain that has to do with the problems caused by the trade war of the type you just articulated. so, for example, businesses have to find new supply chains depending on how long this goes. and that's a tricky business. gerry: let me just ask you about
the politics of this quickly because, unfortunately, we're running out of time. one thing the democrats disagree with president trump on a lot of things. i think we've seen that in the last two and a half years, almost everything. one thing they seem to be supportive of is his taking on china. should they be taking that line or do you feel they basically agree democrats -- you worked for vice president biden -- agree the president's doing the right thing here? >> no, they don't. if you look at some of the proposals coming out from the candidates on trade, talking about ending trump's tariffs day one. so i think they agree that we need a china strategy and that both democrats and republicans have failed in that regard in the past, but trump's got a wrong one, and they have alternatives. gerry: thank you very much, indeed. enjoy your labor day weekend. well, up next, we'll be looking overseas and asking was there really a coup in the united kingdom this week? my thoughts on the developments over there. we'll be right back.
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democracy has died when bos johnson, the new -- boris johnson, announced a plan to get the queen to prorogue parliament. that means roughly to bring to an end the parliamentary session, start a new one. so what's happened? is he getting rid of the elected parliament? not quite. this is something that the government does just about every year x there's a short gap usually until a new session starts, in this case, in mid october. now, it's true that the gap this year is a little longer than usual, and it's also true that the prime minister is using this very standard constitutional procedure to limit the amount of time members of parliament have to try to keep blocking the u.k. from leaving the european unii don't-- union. the reaction from opponents, much of the media and luminaries of british society was, of course, as you would expect, absolutely hysterical. a best selling author tweeted: when i hear the name boris johnson, some reason rope p and nearest lamp post come to mind as well. you might want to remember that
when you hear it's only right-wingers who incite violence. but the truth is that the real democratic outrage is this: rich people voted three years ago to take their country out of the european union. an organization that most brits have diseased infringes too much on their national sovereignty. and yet here we are three years later, the u.k. is still a member. time after time, members of parliament -- those of whom oppose leaving the cure peen union -- the european union -- >> have extended the departure debt. those who lost the democratic vote are now trying to stop the will of the voters from being implemented. that's dangerous stuff. that's it for us this week. be sure to follow me on twitter, facebook and instagram, and i'll be back next week with more in-depth interviews on "the wall street journal at large." thank you very much for joining us. have have a great labor day weekend. ♪
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