I'm thrilled to announce that in the second quarter of this year the United
States economy grew at the amazing rate of 4.1% if economic growth continues at
this pace the United States economy will double in size more than ten years
faster than it would have under either President Bush or President Obama
welcome to the journal editorial report I'm Paul Gigot that was President Trump
taking a victory lap Friday on news that the US economy grew at a robust rate of
4.1% in the second quarter the fastest pace in almost four years here with a
look at what's behind that acceleration is Kevin Hassett
who's chair of the White House Council of Economic Advisers Kevin great to see
you thanks for coming in thanks Paul so 4.1% some people had predicted the
economists particular 4.4 but as you look at the details of the report what
do you like in it well I think that it goes back to a piece I wrote for the
journal a while back that the corporate tax cuts were going to create a capital
spending boom and that capital spending boom was gonna take growth we predicted
last fall this year up to 3.1 percent well if you look at the average over the
first half of the year we've got a capital spending boom and the average
growth is 3.1 percent you know it's not often that economists can nail it that
tightly and it's actually really true that the models are working exactly as
we thought okay but the capital spending in the first quarter was more robust
than it was in the second quarter and here's a big so do you have an
explanation for that sure well one of the things that
happened recall is that for equipment spending you were allowed to expense it
all the way retroactively back to October and so in the fourth quarter of
last year you could deduct a machine at 35 percent so you get a bigger tax
deduction and then at the start of this year then the value of that deduction
went down to 21 percent so we expected to see a spike in the fourth quarter and
then maybe even a negative number in the first quarter and it's in fact what we
got was the spike in the fourth quarter but then continued strong growth and
over the first half of the year so so capital spending by the way is one of
those things that when it pushes growth that it means that the growth
will be sustained because now we've got all these new factories and new machines
here in the US and you know over the next years they're going to produce more
output and so if you have a capital spending boom then you can expect that
to be sustained growth if it were a consumption boom then it might stop
tomorrow well here's another surprise in there this GDP of 4.1% came without any
increase from residential housing yeah we've actually down it's one of it one
of the bad pieces of news in it and and the other thing how do you explain that
though how do you explain that that housing problem it's something we're
studying very carefully and thinking about policy measures to address but I
can say that there are three factors one is that there's an increase in lumber
prices and part of that is driven by some insects and Canadian lumber second
is that home builders are saying that they're having a hard time finding
workers to build the homes and the third is that the hottest real estate markets
have really weird zoning regulations that make it hard to find a vacant
property and build a home sounds to me like one of the things you need to do is
have some guest workers from overseas a little more immigration they would
you'll be willing to support that cuz you know you get more people more
workers you get more GDP more prosperity we want something that brings prosperity
for all Americans and we want to increase GDP on a per capita basis and I
think they're you know basically as the president has emphasizing skilled
immigration is probably the right way to go all right you know as well as I do
the big critique here from our friends on the left is that this is a sugar high
this isn't sustainable this is a one-time hit what's the case for this
being sustainable you made you mention capital investment right but what else
Oh another thing is that you know the president has emphasized opening up
areas for oil exploration and there was a big increase in drilling and mining
activity in the second quarter consistent with that and really the
biggest story going forward to the second half of the year is that a lot of
times if the economy is really booming then inventories will be drawn down
because people are buying more stuff than the producers are making and if you
see an inventory drawdown then that's really positive for the quarters ahead
because the producers will want to build back up their inventories well inventory
subtracted a whole percentage point from GDP growth in the second quarter and we
expect that you'll see that percentage come back in the second half and again
last year in the fall we said that we'd see three point one percent growth this
year the first half is three point one and we're carrying into the second half
this inventory story which could mean that could even go higher okay now the
other big economic policy issue is is trade and I you know we're beginning to
see in earnings calls from CEOs and anecdotal reporting that we get you know
is they're saying look it's creating some uncertainty for me and I'm gonna
hold off investing in that plant or my costs are going up so I have to worry
here about how I manage that how big a headwind is trade policy going forward
well first you know perhaps even somewhat surprisingly to many in the
second quarter trade was a big positive in fact net exports skyrocketed and I
think that that's a sign that maybe one of the effects of the stress that you
mentioned is that people are restoring activity now in anticipation of you know
potential future future uncertainty but make no mistake about it the president
has guaranteed the American people that he would get them better trade deals
he's assured me over and over his objective is to move towards fully
reciprocal deals even zero-zero deals where everybody removes their tariffs of
non-tariff barriers and I would have to say that the people who are hoping for
that outcome must be really really happy about the meeting we had this week with
EU because it's clear that we move the ball way for it in the direction of
freer and fairer trade this week briefly Kevin are we gonna get a NAFTA deal
before the fall here that the this Congress Republican Congress can vote on
you know I'm not a negotiator but I view the things that I'm hearing from the
people that are involved in that especially ambassador Light Heiser is
that they're making tremendous progress my guess is you know that we will see
something by the fall but again I'm not the person who's authorized to come in
on those things but it is absolutely amazing you know the progress that
they're taking the reports that I'm hearing all right Kevin Hassett thanks
for being here thank you all it's great to be back when we come back the United
States and the European Union declare a tariff truce as the two sides continue
to negotiate a larger trade deal so is the protectionist threat over or are
there hurdles ahead
we agree today first of all to work together towards zero tariffs zero
non-tariff barriers and zero subsidies on non auto industrial goods we will
also work to reduce barriers and increase trade and services chemicals
pharmaceuticals medical products as well as soybeans this will open markets for
farmers and workers increase investment and lead to greater prosperity in both
the United States and the European Union that will also make trade fairer and
more reciprocal that was President Trump calling a tariff truce with the European
Union Trump and EU Commission President jean-claude Juncker announcing an
agreement Wednesday under which the US would back away from a threat to impose
25% tariffs on imported cars and rethink duties already placed on imported steel
and aluminum in return the you agreed to make unspecified purchases of US
soybeans and liquefied natural gas all this as the two sides work toward the
larger goal of zero tariffs barriers and subsidies let's bring in Wall Street
Journal assistant editorial page editor James Freeman and colonists Kim's Rasul
and Bill McGurn so James before we get to the trade issue I want to talk about
the GDP reports at 1% I was hoping for better expectations but what what do you
make of the as you examine the details of the report is is this is this
sustainable well first of all it is excellent so if the president wants to
call it huge fantastic beautiful he's entitled to and I think all Americans
should celebrate this is really the economy hitting a higher gear and
whether it's sustainable I think there are some interesting elements in there
and that is very strong business investment which suggests higher
productivity in the future higher growth in the future there's also this elements
within it in terms of final sales that suggests this isn't a one-hit wonder for
left-wing economists out there saying it's a sugar high
I think they're gonna be disappointed again well they were telling us that it
was secular stagnation bill that was Harry summers economist Larry Summers
view that said we can't grow much faster so we have to spend a trillion dollars
spend a trillion dollars on infrastructure right because tax reform
and deregulation that wouldn't do it and yet the policies are tax reform and
deregulation are we seeing the payoff i I think certainly we are look it's a
measure of how expectations have risen that I'm disappointed it's 4.1% you know
if you told me two years ago that I'd be disappointed that remember we were kind
of told by so many people that the new normal was 2% or under 2% I think from
2000 to 2015 the economy grew of 1.7% here which is miserable we have certain
liberal commentators in our paper which we publish the heineken blame me for
that who said I do you can't grow faster than 2% right and here we are and I
think we can grow faster than this you know Trump did predict that 4% yeah i
think i think i think you with the right policies i think they have to go a
little farther but you know Trump predicted this in the campaign was
laughed at saying we're gonna hit 3% 4% and maybe 5% Kim let's move to trade
let's talk about the truce here with the European Union what do you make of this
is this and why do you think Trump moved in this direction because you know
everything we heard internally for from from our sources for a long time was he
was dead set on really whacking German cars what changed well you know Paul
actually since we were talking about GDP he said something very interesting in
his press conference about those GDP numbers he said you know look the
economy's done fabulous but wait till we get these trade deals in place and then
it'll be even better which was notable because it is an
acknowledgement by Trump that trade matters to the economy and that if you
but and that the reverse would matter too so he's being told that these trade
fights that are going on are hurting all the good work Republicans have done in
terms of deregulation in taxes and I think that that was what was driving
this also it matter that Yonkers seemed willing to go to a
place that Trump is now pushing zero tariffs and barriers in the short term
it at least has avoided in a major conflict and those tariffs the longer
term that could be a much harder thing to pull off
so you think him that there was a political part of this and that
Republicans presumably in the Senate and the house were telling the president
looked these tariffs and the retaliation from them are really having an impact in
our districts and you need to ease up on this and kind of reset where you are in
the negotiations at least with the EU and I assume NAFTA behind the scenes may
be going the same direction yeah absolutely because by the way when you
impose tariffs as the president has been doing with China and elsewhere those
effects are felt immediately in these people's districts and States and he's
been getting a lot of pushback from the AG sector from different parts of the
manufacturing sector and even from his own economic King saying look we cannot
keep going down this road all right James what do you make of the the trade
agenda going forward and as you look at the GDP numbers did you see any impact
of trade the trade policies in the numbers yeah you saw a nice contribution
from exports so I think that's a nice reminder for everybody the president
included that this is a part of the growth strategy here it should be but
some of that was probably when people think was let's get out ahead of the of
the tariff science sell the soybeans early we may not get that bounce back in
the second or third quarter yeah I'm sure that was part of it but I would
also say that was probably balanced somewhat by the fear of trade fights
discouraging some investment we mentioned now although the capital
investment was terrific outstanding it wasn't quite as good as the first
quarter and I think some of that was maybe people being a little afraid to
pull the trigger on a new factory not knowing how this trade stuff was going
to be resolved but going forward I it is just really striking the way the tone of
these trade discussions has changed starting with a g7 meeting where the
president at the end says how about zero tariffs now it comes up again he's
obviously got the Germans excited about it
now mr. Yonker let's hope that is the discussion how do we low
instead of raised bill briefly is at the Kudlow effect Larry Kyle I don't know
look it's a big deal that we've stepped back you know in this Trump reminds me
of the old met relief pitcher tug mcgraw he'd come in with one on no outs in the
ninth inning and then he had load up the bases and then hit strike next out but
it was terrifying up until the end and so this is this is a good thing that
he's walked a and also I mean I don't agree with the strategy of protectionist
threats to achieve a free-market goal but he isn't looking for protection as
me is looking for zero tariffs since a lower
we hope so all right still ahead the Trump administration putting those
proposed auto tariffs on hold as the US and EU continue negotiations senator
Lamar Alexander on what that news means for the auto industry in Tennessee and
across the country when we come back
in tariffs remain in place and the investigation on autos will continue is
just we won't impose any auto tariffs as long as the negotiations are progressing
properly that was Commerce Secretary Wilbur Ross
this week saying he'd continue his section 232 investigation into the
national security threat posed by importing cars trucks and auto parts but
that auto tariffs against the European Union would be put on hold as talks
between the US and the EU continue this is good news for Tennessee senator Lamar
Alexander who introduced a bipartisan bill this week to delay the proposed 25%
penalty and he joins us now senator welcome so usual you cheered the this
truce this week between the United States and the EU why well zero tariffs
is exactly the right policy that's what we did with the North American Free
Trade Agreement we implemented nearly zero tariffs over 15 years and and now
that we've got a policy of where we're going zero tariffs it's time to get rid
of the steel and aluminum tariffs which are driving up the costs of cars and
hurting the 136,000 Tennesseans who work in the automotive industry all right but
you heard the secretary Wilbur Ross say this week that he's still going to go
ahead with these 232 investigations which basically are designed to show
what to ask to answer the question do cars that are imported pose a national
security threat now do you think that BMWs or Nissan's
imported in the United States are at all plausibly a national security threat no
they're not of course they're not that and it's wrong for the president to use
that pretext but you know the bread-and-butter part of this is is this
I mean Tennessee has become in many ways of number one auto state we've got 929
auto parts suppliers 50% of the cars we make here are steel 10% are aluminum so
when the price of steel goes up 40% as it has since January think of what that
does to our economy in Tennessee into the jobs
in Tennessee so we're shooting ourselves in the foot with the tariffs and it's
time to do what the president said this week zero tariffs is the right goal and
the sooner the better well are you hearing from the companies
in Tennessee that in fact their costs are going up where their supply chains
are being disrupted because of the steel and aluminum tariffs of course I am and
and you saw this week that Ford in General Motors and General Motors as a
big plant in Tennessee they announced that they had they were each lost 300
million dollars this year they have to tell that to their stockholders and they
attributed most of that to the tariffs so you know you can't you can't be in a
zero tariffs world which is where the president wants to go and raise the
price of steel forty percent and still make cars and trucks in Tennessee that
are competitive to sell in the United States or export around the world which
we do a lot how many of the cars do you know off the top of your head that are
made in Tennessee and you got a Nissan plant there and they get a Volkswagen
plant Chattanooga and a GM plant Springhill doo-doo-doo how many of those
cars are exported outside the United States well I don't know the exact
number but billions of dollars of cars are exported and billions of parts are
exported the real employment in our state is with the 900-plus
auto parts suppliers and the way you make automobiles you a Nissan Rogue will
go back and forth with its parts to Canada to Mexico and then back to Smyrna
Tennessee before it's finally built that's permits it to be built in a
competitive way at a low cost and sold successfully here and then exported
around the world okay your colleague from Tennessee bob Corker has introduced
a bill with a couple of other colleagues to try to take back some of the
president's authority to use to 232 on that national security definition to
impose tariffs he hasn't been able to get a vote on that be with some of your
colleagues in the Senate why not
well getting a vote on anything's hard in the Senate I'm a co-sponsor Senator
corkers bill but I think the the visits we've had with the president Senator
corkers bill my bill all all the activity that we've had in the Senate to
say that tariffs are shooting ourselves in the foot really shooting ourselves in
both feet we have a trade problem but the way you solve a trade problem is not
to shoot yourself in the foot you find some other way to deal with it so now
that the president has said let's go to zero tariffs which is the same thing
Japan and Europe are doing with each other over a long term right exactly the
same thing we did with the north american free trade agreement let's head
in that direction I think we've had our impact and that suspect will get a vote
as time goes on okay now the president also saying trying to renegotiate NAFTA
what's your advice to the President on NAFTA do you are you saying let's close
this renegotiation as soon as possible so we can have a vote this Congress yes
let's get it let's get it done before September NAFTA has been good for
Tennessee I mean we've doubled the amount of cars
and auto jobs we've had in Tennessee and it's been good for the United States in
my opinion the president disagrees with that fact is we're making about as many
cars in the United States today about 12 million as we did when NAFTA was signed
in 1944 the only difference is we've had about three and a half million jobs
shift not overseas but from the Midwest to Tennessee and other states in the
southeast because of right-to-work laws and because it's more competitive so
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