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QUEST MEANS BUSINESS

President Trump Announces U.S.-Mexico Trade Agreement; Trump Orders U.S. Flags to Fly at Half-Mast to Honor McCain; German Government Condemns Anti-Immigrant Protests; Trump on China Trade: Not the Right Time to Talk; European Markets Lifted By U.S.-Mexico Trade Announcement; Air France Unions Press Pay Demands, Stop Short of Strike Call; Warren Buffett's Berkshire Hathaway in Talks to Buy Stake in Paytm. Aired 4-5p ET

Aired August 27, 2018 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


PAULA NEWTON, CORRESPONDENT, CNN: If this was only on Friday, this would be a breakout moment and how? The S&P closes at an all-time high as the

closing bell rings on Wall Street. It's Monday, August 27th.

Tonight, a rewrite, a rebranding for a revolution? Donald Trump makes a massive deal with Mexico. Yes, that's not possible in case you're

wondering. Stock markets are rolling to record highs. I'll be talking to Anthony Scaramucci about that feel-good factor on Wall Street and Warren

Buffett makes a bet on India for the very first time. We'll tell you why. I'm Paula Newton, and this is "Quest Means Business."

Okay, I know I say buckle up often, but no, really, today I mean it. US stocks have rallied after President Trump promised to terminate - we'll

talk about that later - the NAFTA trade deal and enter a new trade deal which leaves Canada out in the cold - it's cold there already.

The 16-year agreement with Mexico will be sent to Congress for approval. That is key here. In it, there are clauses about auto manufacturing and

higher labor standards. The President says the new agreement won't be known as NAFTA anymore, and it's not even certain if Canada will even be

part of it.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I like to call this deal the United States/Mexico Trade Agreement. I think it's an elegant name. I

think NAFTA has a lot of bad connotations for the United States, because it was a rip-off. It was a deal that was a horrible deal for our country. And

I think it has got a lot of bad connotations to a lot of people, and so we will probably - you and I will agree to the name.

We will see whether or not we decide to put up Canada or just do a separate deal with Canada, if they want to make the deal. The simplest deal is more

or less already made. It would be very easy to do and execute.

(END VIDEO CLIP)

NEWTON: Okay, CNN's Espanol's Gabriela Frias is at CNN Center and Jeremy Diamond is at the White House. Jeremy, first to you. That was quite a

scene in the Oval Office. He brought up Pena Nieto, the current Mexican President live on the phone to talk about this deal. I want to understand

from you what did White House officials say about the details, and whether or not NAFTA, as we know it, is actually dead.

JEREMY DIAMOND, WHITE HOUSE REPORTER, CNN: Yes, well, it was a made for TV moment in a way that only President Trump can execute it and this that same

vein, it was also very much not truthful in a lot of regards. The President is saying, talking about the US-Mexico Trade Agreement. There is

no US-Mexico Trade Agreement as far as a free trade deal is concerned between the United States and Mexico and the President's own US Trade

Representative in his office said as much today when they put in multiple press releases that this agreement today was a preliminary agreement in

principle between the United States and Mexico, as the two countries work with Canada towards renegotiating NAFTA.

The official made clear today that the President does want to rename NAFTA, call it something else, but it is very clear as well that the united states

and US officials, including Robert Lighthizer, the Trade Representative; Jared Kushner, the President's son-in-law, are still pursuing a

renegotiated NAFTA deal.

In fact, it began, these renegotiations with Canada, today is what they said, and they are still working towards that trilateral format. So as

much as the President made it sound today like a US-Mexico Free Trade deal is replacing NAFTA, that's really not the case.

But, there is a but here, and that is that US officials also indicated that they are willing to do that, it's not happening right now, but said that

they are being to do a bilateral deal with Mexico. The sticking point there however, there is no indication that Mexico is going to do a

bilateral trade agreement.

So far, they and Canadian officials have been quite clear that they want to maintain this trilateral format that exists under NAFTA, keeping this deal

between US, Canada and Mexico, not bilateral deals between the United States and these two key trading partners.

NEWTON: Yes, and in the meantime, manufacturers in all three countries await the fallout from here. I mean, Gabriela Frias, I know that you've

been speaking to Mexican officials. What do they say about the point, the finer points of this deal and about Canada eventually being included in it?

GABRIELA FRIAS, CORRESPONDENT, CNN ESPANOL: That was one of the highlights, Paula, hello, of Minister Videgaray, the Foreign Minister of

Mexico earlier today during a press conference and I am going to quote his words. He said, "It's fundamental, it's a priority that Canada be part of

the negotiation. Mexico will do what's necessary to keep this a trilateral agreement, but there are things ..." he said, " ... that we can control,

including," he said, " ... the relations between Canada and the US."

So, so if this negotiation does not go through between the US and Canada, of course, at least we, and he means Mexico, at least we know we have a

trade deal.

[16:05:05]

FRIAS: So for the Mexican government right now, the message is this is a good day for Mexico because we no long very the uncertainty of a NAFTA deal

dead, but at least we do have a trade deal with the United States. So that's how they are seeing it right now.

A number of points have been made today, including 75% of a car content must be coming from Mexico or the US, 40% to 45% of car production must be

made by workers earning $16.00 an hour by comparison, less than $8.00 an hour on average was what a worker made, Paula, on the assembly line in

2017, and this is according to the Center for Automotive Research.

Also, tariffs from agricultural products remain at zero. No sunset provision. They will deal would last 16 years with a revision in fixed

years, but the Canada topic is the big question mark here for analysts even though the government of Mexico is playing it right now as a very good day

and insisting that Canada must be in this agreement.

NEWTON: And again, they believe they will be. Chrystia Freeland, Canada's Foreign Affairs Minister heading to Washington very shortly to begin those

talks, again, tomorrow.

Jeremy, back to you, we saw a lot of unpredictable behavior from the President in just one day. I also want to let you know, perhaps you have

it already that the White House has not released a statement from the President and this is in relation to Senator McCain.

You can see that shot - live shot now of the White House, the flag actually flying again at half-mast in order to memorialize Senator John McCain -

this became a point of controversy today, when on multiple occasions, the President refused to really say anything about his passing and on top of

that, the flag had been raised earlier with little explanation.

We now have some type of statement from the President. Jeremy, I don't know if you have it. But go for it, Jeremy because I know that at this

point, it is a bit of a U-turn in terms of what he had said before.

DIAMOND: Yes, absolutely. And the President today was asked five separate times in person to comment on the late Senator John McCain and he refused

to do so each time, ignoring those shouted questions, but he has now put out a statement that the White House just released as a statement from the

President and it says, "Despite our differences on policy and politics, I respect Senator John McCain's service to our country and in his honor, have

signed a proclamation to fly the flag of the United States at half staff until the day of his interment."

And that is why we have seen the flag that is flying above the White House now going back to half-staff, just a few minutes ago really and the

President also says in the statement that he asked Vice President Mike Pence to address the ceremony honoring Senator McCain at the US capital on

Friday.

We know, of course from our previous reporting that the President - we know of course from previous reporting that the President was not invited to

attend the funeral services of the Senator.

NEWTON: Yes, and given the kind of relationship they had had, perhaps that's not surprising. Jeremy Diamond there at the White House. Our

thanks to Gabriela Frias in Atlanta, both of you for bringing us up to date on of course, that NAFTA story.

Now, it's unclear if we're actually dealing with a revised NAFTA or the end of NAFTA entirely. The Mexican President referred to NAFTA several times

during his speaker phone conservation with the media. President Trump seemed adamant though, it was over and warned Canada would lose out.

(BEGIN VIDEO CLIP)

TRUMP: We have an agreement where both with Canada and with Mexico. I will terminate the existing deal. When that happens, I can quite tell you,

it depends on what the timetable is with Congress, but I'll be terminating the existing deal, and going into this deal.

We'll start negotiating with Canada relatively soon. They want to start - they want to negotiate very badly, but one way or the other, we have a deal

with Canada. It will either be a tariff on cars or it will be a negotiated deal, and frankly a tariff on cars is a much easier way to go, but perhaps

the other would be much better for Canada

(END VIDEO CLIP)

NEWTON: Not much of a threat there. The former US Commerce Secretary Carlos Gutierrez joins me now in the C-suite. Thanks so much for being

here.

CARLOS GUTIERREZ, FORMER US COMMERCE SECRETARY: Pleasure, thank you.

NEWTON: Especially on this kind of a day. When you see it on its surface, what does this deal mean to you? Do you think it's a good deal for both

the US and Mexico? Whether or not Canada is involved at all.

GUTIERREZ: Well, there are two issues that have been the real big factor. One has been the sunset clause which means that every five years, NAFTA is

up for discussion. That's been changed to six years and if one of the three parties does not want to remain in NAFTA, then they can leave within

10 years or after 10 years.

So, that's part of the agreement. The part that I think is the most dangerous is the auto rules of origin because we just don't know the

impact; 75% content has to come from the US or Mexico.

NEWTON: That's the new rules.

[16:10:09]

GUTIERREZ: That's the new rule, it used to be 62%, but the key thing is that 40% to 45% of the content needs to come from areas in Mexico where

people make $16.00 an hour. I don't know where that is in Mexico. I don't know workers who make $16.00 an hour in Mexico. Now, let's say that that

does happen, even a car with $16.00 an hour labor coming from Mexico will still be less expensive than a US car or a car made in the US, so what

we'll have potentially is inflation.

We'll just have more expensive cars coming in from overseas. But they'll still come in. Now, that's a scenario and that could well happen. I think

that's the riskiest part is the rules of origin.

NEWTON: And it's important to get to that because this was a huge hang up in these negotiations. It's one of the reasons that the US sat down with

Mexico in isolation, because Donald Trump believes this will grow manufacturing jobs in the United States at the end of the day. Is there

any arguing with that? And look, even Wilbur Ross is on the record saying so it will cost Americans a little bit more, who cares?

GUTIERREZ: I think it's still something we have to see. It hasn't been proven, so we want to bring manufacturing jobs back. We put a 25% tariff

on steel, a 10% tariff on aluminum. Well that makes building a plant in the US more expensive. So how does that help bring manufacturing back?

So part of the problem here has been connecting the dots, and how does this whole thing add up so that we do get more jobs coming back, new plants

being built, and that's the part we haven't seen yet?

NEWTON: And if we get to what has become bare knuckle negotiations here, so we have a deal with Mexico in principle, as I was saying, Canadian

officials says that Chrystia Freeland will be there to negotiate starting tomorrow to bring Canada in. There seems to be a gun to her head though

because they are saying that they want this done in the next few weeks.

Do you see a trilateral deal is possible? And I know, and I'm sure you're going to tell met there are lots of issues you would like to bring and did

bring to Canada's attention when you were Commerce Secretary because it's not all snowballs and snowflakes over there.

GUTIERREZ: Soft with numbers.

NEWTON: Which is still a contention for you and they are dealing with tariffs from the United States on that right now. So what do you do to try

and get a deal in the next few weeks if you believe the Trump administration wants a deal?

GUTIERREZ: Look, I think Canada is in a real bind, and that's very unfortunate because Canada is a neighbor and great ally but they are being

jammed, and so the idea is, if you don't sign by Friday, you're out.

NEWTON: But isn't that a great negotiating strategy if you are the top administration?

GUTIERREZ: Well, that's what it is. That's what it is. It's a gun to their head. It's basically jamming them and now Canada needs to make a

decision. Do they get the deal they want from now until Friday, and if they don't, are they willing to walk away, is Prime Minister Trudeau

willing to walk away and say no? I think that is a big leadership decision that he has in front of him.

NEWTON: Indeed it is, and I can tell you he might get some political mileage out of it. The economy would suffer greatly. Carlos Gutierrez,

thank you so much.

GUTIERREZ: Thank you.

NEWTON: Appreciate it.

GUTIERREZ: Pleasure.

NEWTON: You're welcome back any time by the way as this whole thing rolls on. After the break, insight into the workings of the White House. Tell

me about it. We are talking trade deals with Anthony Scaramucci, and by that, I mean former White House communications chief. Yes, he did have the

job for less than two weeks.

And could Tesla return to happier times despite losing nearly a fifth of its stock market values? We'll hear from one of the Tesla bulls or do they

continue to lose confidence in Elon Musk?

[16:15:00]

NEWTON: President Trump's overtures to Mexico and of course that Fed meeting from last week that all drove the markets higher, with the Dow

closing above 26,000 for the first time since February 1st.

Now, US car stocks closed up, you guessed it, nearly 5% and keep in mind our conversation we had earlier with the former Commerce Secretary saying

this may not be a good thing. Investors thing otherwise.

Ford, GM, and Fiat-Chrysler stocks all made gains. On "Quest Express" I really was there to see how receptive the mood was for this trade deal.

(BEGIN VIDEO CLIP)

TIM ANDERSON, MANAGING DIRECTOR, TJM INVESTMENTS: This is very market friendly news, and they like it ...

NEWTON: Even if they pulled out of NAFTA? Even if you pulled out of NAFTA, it makes it bilateral in hindsight. That's not market friendly

there.

ANDERSON: Look, NAFTA was a deal that was done 25 years ago, and we're in a very different world than we were 25 years ago, so I don't think there's

anything wrong with going back and improving on what that deal was.

(BEGIN VIDEO CLIP)

NEWTON: Okay, and it wasn't just the Dow that was climbing. We are here apparently at the trading post, the "Quest Means Business" trading post,

I've got my trusty chalk in hand again. I can't believe this guys. Okay, so we're not in a record there yet, but 26,000 from February 1st. Get

this, people - 16 records today, and this one. Twenty seven, you asked me how high can it go? It can still go much higher. Traders telling me that

in fact, they're at an inflection point. This is a breakout point for the market.

Joining from South Hampton in New York is the former White House communications director, Anthony Scaramucci. Anthony, thank you so much

for joining me. Okay. I don't know where to start. Let's start with NAFTA and the market. You were on record saying that anytime the Trump

administration has this good of an economy to run on and talk about, that's all they should talk about. Why do you think the market is ignoring all

the political chaos? And look, they don't care that Canada is not in the trade deal, they don't care that China trade talks might be difficult

coming up in the next few weeks, they don't care about any of it. They're pretty happy with this economy.

ANTHONY SCARAMUCCI, FORMER WHITE HOUSE COMMUNICATIONS DIRECTOR: Well, and it's nice to be here, Paula, but they're also making the bet that the

President and his team are going to negotiate deals with Canada, with China, and the EU. And so, when a deal is set, and I may slightly disagree

with the Secretary on this, once the deal is set, the market gets calm, because now they know that there's a deal in place, and that deal will

probably be a five to ten, possibly 15-year deal before it gets restructured again.

And so what we both know, Paula is that the markets like certainty, as it relates to the President and some of the soap opera stuff that goes on

around the White House, I think that's also baked into the market. I think people view the President as being on the money as it relates to regulation

and economic policy, and I really do think that they believe his trade policy where he is trying to move the trade situation so that there are

less tariffs on US goods and services that are being exported from the United States.

So that combination is the reason why you're seeing records, the reason why the Atlanta Fed this week upped their estimate on the GDP print for next

quarter to 4.6% and it just speaks to the economic miracle that is America. With the right policies, Paula, we can grow, I think, normalized 3%, 3.25%,

which does really resolve a lot of our entitlement issues and other liabilities that we have outstanding.

[16:20:06]

SCARAMUCCI: So by and large, very favorable on that front. It was also very nice to see him put the flag at half-staff, as well.

NEWTON: Okay, and let's get to that because I gave you a softball question, but why did it take so long for him to do that with the flag? I

know it had been that way earlier in the weekend. It just seemed to take so much out of him to put out a respectful statement and say nice things

about an American hero who the fact remains has just passed away. What is it about the President? You know him, you've known him for many years.

What is it that he can't bring himself to do this?

SCARAMUCCI: Well, listen, I think he wears everything on his sleeve. One of the reasons why the American people like him is that he's not the

typical politician. He didn't get along with Senator McCain. I have an enormous amount of respect for the Senator and view him as a wartime hero.

But those swords clashed, and so the President is not really a politician. He's more of a business person.

And so his competitive juices are there, and his emotionalism is on his sleeve. I'm very glad that he did that. He's sitting as the Commander-in-

Chief of the United States, and it was important for him to recognize one of our highest profile veterans, and a veteran frankly that served the

country in the Senate for 32 years, and was in prison in Hanoi for five and a half years, so ...

NEWTON: But those are things we all know, Anthony. The President doesn't seem to know it, didn't seem to recognize it at all even to this family.

SCARAMUCCI: No, he recognizes it, he's just a very competitive person and gets his ire up at the things - the shots across the bow that Senator

McCain fired at him. I think he's also frustrated at the no vote on Obamacare.

NEWTON: So, he's holding a grudge.

SCARAMUCCI: He had promised his base and his constituency ...

NEWTON: The man has died and he's holding a grudge?

SCARAMUCCI: I think it's a little more than that. By the way, I don't think it's right, if you're asking me if I think it's right. No, I would

be advising the President to turn it down a notch. You're winning on so many different fronts. why do we need to be on CNN "Quest Means Business"

talking about this? Turn it down a notch, lower the flag, offer a branch out there. There's a very famous expression is that the anger is a poison

that you're drinking, hoping that the other person gets sick from it, and so just drop it. That would be my advice.

But yes, I'm not saying it's the right thing. You asked me to explain it, so I am explaining it based on what I know of the President's personality.

NEWTON: I want to move on to what was an absolutely momentous week last week. We had Paul Manafort being found guilty. We had Michael Cohen

pleading guilty, and then we heard that one of the President's most trusted financial confidantes had so-called flipped. What did you make of

all of that last week and how worried do you think the President is about all three situations?

SCARAMUCCI: Well, I don't think he's worried about the situations, but that was a very, very tough week. I think he does - I think he feels

insulated from a legal perspective. I think it's very bad facts and very bad optics, but I don't think the President is a target of any of those

investigations on what was going on, and so ...

NEWTON: But his family could be. Wouldn't that worry him?

SCARAMUCCI: ... it seems like ...

NEWTON: His family could be, wouldn't that worry him?

SCARAMUCCI: Of course it would, yes, 100%. And so yes, and I think that emotionally charges him and I think it frays him a little bit and I think

it's upsetting to him, and in some ways he feels a little bit of guilt that he entered the world of politics and now, he has become a target.

I just got back from Israel, spent a week there. One of the slogans there is if you're going to run for office, they build a jail cell for you in

Israel before you run for office, so that once you are in office, they can find a way to stick you in that jail cell. So, we're doing that now in our

country. We're weaponized against each other, accusations are slung at Secretary Clinton, they're slung at the President and his family, and so

it's a mean nastiness in Washington that by and large and the American people really don't like it.

NEWTON: But Anthony, you're trying to be magnanimous about this. That's not that way it works. I mean, we had one person plead guilty in court,

the other was found guilty. These were financial crimes. This is not about a political hack job.

SCARAMUCCI: Well, it actually is, I mean, with all due respect. But maybe that's why my magnanimity is probably the reason why I only lasted 11 days,

but on the topic, yes, it is, because just look at the facts.

Paul Manafort, all of his infractions and all of his illegalities were done prior to him meeting President Trump as his campaign manager. I think they

knew each other, but before he officially became campaign manager.

As it relates to Michael Cohen. The fact seemed a little garbled there about what Lanny Davis said that the President knew about the meeting.

They are now walking that back. The President has been told by Rod Rosenstein and others that he's not a target of the investigation as it

relates to Michael Cohen, and so, yes, I hear you. These people committed crimes. They admitted guilt to these crimes, but it doesn't appear at

least in the current configuration as we understand the facts right now, it doesn't appear like the President has done anything illegal.

[16:25:16]

SCARAMUCCI: Now, we could get to a situation a week from now as more facts unfold, again facts matter, and the truth is truth, Paula, so as the truth

unfolds, I may change my tune. But just looking at it objectively right now, I don't see any illegality on the President's part. And most people

feel that way.

NEWTON: Well, I'm not sure ...

SCARAMUCCI: Listen, you may not like what I'm saying, but I don't think the President has done anything wrong. He's printing 4% GDP growth, he's

renegotiating these trade deals, and he is making the country stronger and healthier economics.

NEWTON: But he should be - but his approval rating should be over 50%, and not where it is, if he didn't have all this political scandal surrounding

him.

SCARAMUCCI: That's true.

NEWTON: Before I let you go, Jeff Sessions, it looks like he will fire him.

SCARAMUCCI: Fifty-five percent, no question.

NEWTON: You're at 55%. You have said that it would be a bad decision? Do you still think it would be a bad decision. I have detected the turn with

leading Republican in Washington on the record, now kind of seeming that they would tolerate Jeff Sessions being fired after the midterms.

SCARAMUCCI: Well now that that seems to be the case, it's less of a bad decision. If he had fired him six months ago or back in July of last year

when I was the Coms Director, I would have strongly recommended against it, because there would have been a revolt up on Capitol Hill.

But if you're telling me that they're willing to accept somebody else in that position and they are going to confirm somebody else, that leaves the

President the option of firing Attorney General Sessions. But I still don't like the idea because I would rather have this case be disclosed, let

Robert Mueller, the special prosecutor put out his report. Let's see what's in the report and this way no one going into the 2020 election could

accuse the President of doing something political to his Attorney General at a time when his staff and possibly himself were under investigation.

So, I still would recommend not doing it, but it's going to have way more political air cover now, Paula, than he did six months ago.

NEWTON: Yes, and that is the bottom line there. I've got to go, but I am going to ask you, you haven't spoken to the President recently or you have?

SCARAMUCCI: No, last time I spoke to him was after the Juncker meeting, but just to give you a little customer feedback on the chalk, you've got to

be careful, school is about to start again. You may not want to use chalk. It scares people. Just giving you the heads up.

NEWTON: My numbers are listed over there, Anthony. We'll invite you in to do it next time. How about that? We've got to hold you to it, you're not

that far from me physically right now.

SCARAMUCCI: All right, that's a deal.

NEWTON: You can just come in to the studio. All right, got it. Thanks, Anthony. Appreciate it. Still ahead tonight, President Trump announces a

tentative US trade deal with Mexico, but he says when it comes to China and trade, not so fast. We'll discuss it with a China expert, Robert Lawrence

Kuhn.

(COMMERCIAL BREAK)

[16:30:00] PAULA NEWTON, HOST, QUEST MEANS BUSINESS: Hello, I'm Paula Newton, coming up in the next half hour of QUEST MEANS BUSINESS, Air France

workers are not going back down -- sorry, workers are not going back down - - back to work.

Now, a Canadian is running the company, apparently, we're supposed to blame Canada here. And Warren Buffett is betting big on India's tech industry.

Before that though, this is Cnn and on this network, the facts always come first.

U.S. President Donald Trump has announced a tentative new trade pact with Mexico which he says will replace NAFTA. Mexico's President Enrique Pena

Nieto said he also incorporate Canada in the deal, President Trump said that could happen if Canada negotiates fairly.

Meantime, Donald Trump has ordered flags in Washington to fly at half-mast to honor Senator John McCain who died on Saturday. And farewell statement

to Americans, John McCain urged his countrymen to reject quote, "tribal rivalries".

In his closing paragraph, he wrote, "Americans never quit, we never surrender, we never hide from history, we make history." Well, German

government has condemned riots in eastern Germany where immigrants were targeted by violent protesters. Police admit they were caught off guard by

the protest which were called after a man was killed in a street fight.

Police now say they are prepared for any future demonstrations. OK, so, President Trump says he's agreed to a new trade deal with Mexico, and he's

willing to negotiate more with Canada. But when asked about China and the current trade war with Beijing, he had a very different answer, take a

listen.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It was just not right time to talk right now, to be honest with China. It's been too one-sided for

too many years, for too many decades, and so it's not the right time to talk, but eventually, I'm sure that we'll be able to work out a deal with

China.

In the meantime, we're doing very well with China.

(END VIDEO CLIP)

NEWTON: So we want to do a deep dive on the future of U.S.-China trade relations -- we are with Robert Lawrence Kuhn, author of "How China's

Leaders Think", he's also been a long-term adviser to the Chinese government.

I thank you for joining us.

ROBERT LAWRENCE KUHN, AUTHOR: My pleasure.

NEWTON: What do you think they're thinking now?

KUHN: Well, first of all, we're in the realm of self-fulfilling prophecies on both sides where each side sees the action of the other side as

confirming the pre-disposed biases.

So for example, in the U.S., the biases that China is trying to take over the world or take the U.S. out of Asia, undermine the U.S., and the

narrative in China is that the U.S. is trying to thwart China's rise, contain China, surround China.

So we have two different narratives, obviously, the opposite of each other, but I really believe in both cases, so that's our situation and we have

political natures in both countries different, here with more public, China's more private public opinion still very important in China.

So we have a tough situation. Obviously for everybody's benefit by tariffs and trade war are terrible. It forces companies to make (INAUDIBLE), the

more decisions in industrial supply chains, et cetera. So we have to really try to analyze what's going on.

Everybody talks about the trade deficit, but people need to know that's really not the most important thing. First, they're very complicated,

you've said it here before, intermediary products, the display in your chips and your iPhone come from South Korea, Japan and then they're

recounted in the trade deficit when China may only get 7, 8, 10 percent of the -- just even of the costs.

So trade deficits with China, money from China is close $40 billion they spent on services. Students in the U.S. travel, et cetera, not counted.

So it's complicated. But there are what I think are five really critical issues that have to be addressed. China's markets are closed towards

intellectual property protection, industrial espionage which actually currently include cyber theft, forced technology transfer and joint

ventures and the Chinese government's --

[16:35:00] NEWTON: OK --

KUHN: Supporting new technology --

NEWTON: Everything you just listed is why the Trump administration is saying we're going to play hardball. And where I sit, I see it as a

situation now where each country believes they can outlast the other in a trade war. And anywhere you look at it, that spells trouble for the global

economy.

KUHN: Right, so absolutely right. So that's where we are, and we know the reason. So we have to look at what I think these five areas which can end

trade deficits as well and see what's happening. Let me just do it arbitrary.

An intellectual property protections, survey of American companies in China, more than 90 percent say it's improving. I've investigated what's

going on in the intellectual property. China is really making a big effort, not perfect, be a while before it gets to international standards.

But in Shanghai for example, they have now set up an intellectual property court focusing on that.

I met one of the judges who's trained to deal, they take it very serious and they're doing it and it's good for China. Not just good for the U.S.

or just succumbing to foreign pressure. They need to do that to encourage innovation which President Xi Jinping has made the number one priority of

his economic plan called a major concepts of development.

Number one out of five is innovation. You need intellect, so that's good progress is making that on industrialize espionage, 2015 was a serious

year. President Obama met with President Xi confidentially, that has been largely dealt with, still needs to be monitored.

Industrial -- a force transfer is also --

NEWTON: Right --

KUHN: In mind. But we have to look at the two areas that are serious problems, opening China's markets and the U.S. desire to stop China from

supporting its industries of the future. Those are the two big issues --

NEWTON: And --

KUHN: And I think they can be traded.

NEWTON: Can they because right now this whole thing looks like a blood sport if you ask me, and --

KUHN: You're right, right now, but at the end of the day, I think those will be traded because China needs to open its markets more. They're doing

some, all those financial services and more, but they need to do more.

NEWTON: And what specifically is this administration's -- how shall we say, competitive advantage in dealing with China across the table the way

you are with me.

KUHN: Look, I think that's a psychological question, I'm dealing with more rational economics and what makes sense. I don't know -- I think I can

predict the long future. If you -- you and I were sitting here five years or ten years from now, we look back, we can see this self-solving.

But to predict what's going to happen in the next few months, certainly before the mid-term elections, you know, I'm out of business.

NEWTON: Oh, that you are. Thank you very much for coming in and we will continue to check in on these negotiations, appreciate it. Now European

markets were lifted by news of that preliminary trade deal between the U.S. and Mexico.

Frankfurt rallied more than 1 percent, German Chancellor Angela Merkel discussed trade and Syria during a phone call with President Trump.

Meantime, the London FTSE was closed today for a bank holiday.

Now Air France unions aren't backing down in their pay battle with the airline. The unions have delayed any further announcements until Thursday.

And so the first task of the company's new CEO, Benjamin Smith is to sit down and find the deal. Melissa Bell is in Paris.

Melissa, this is very interesting here and I said, this story, Melissa, and Trump, I just find it interesting that they right off the bat are going to

give this man a hard time as if how dare you, you don't know anything about labor relations in France.

MELISSA BELL, CNN PARIS CORRESPONDENT: They don't know anything about labor relations, and you're right, specifically in France, and clearly, the

fact that this man is an Anglo-Saxon, a Canadian, as roughly said, that it is the first time for Air France's history that has appointed a foreign

CEO.

And yet, there are those who feel that given his track record in Canada with Canadian Airlines is that is exactly the kind of profile, the kind of

fit that they need for a company that's really been trying to be reformed for so long and resisting it.

So greatly, for the workers of course, this is just further fuel to the fire, and they really say that they intend to pile on the pressure for this

man, this Benjamin Smith who has now taken over. Partly of course because he comes from elsewhere, partly because of his pay-back hits.

And of course, principally, Paula, because they simply haven't managed to get resolution on the pay increase they've been asking for, for so long.

(BEGIN VIDEOTAPE)

BELL (voice-over): You might envy him his pay packet, but no one could envy him his task. Raising productivity at Air France and narrowing the

gap with Lenno(ph); European rivals. First though, Benjamin Smith will have to convince the tough crowd his own workforce.

In 2015, one executive lost his shirt to an angry mob after the company cut nearly 3,000 jobs. And workers are now threatening further strike after

they rejected the last proposed pay just in May, leading the last CEO Jean- Marc Janaillac to step down.

JEAN-MARC JANAILLAC, FORMER CHIEF EXECUTIVE OFFICER, AIR FRANCE (through translator): This conflict is unbearable, it weakens the company and

prevents it from moving forward on the projects it needs to lead. Air France is losing customers and the first gains that it obtained through its

efforts.

[16:40:00] The company's reputation is deteriorating.

BELL: Into the void left by Janaillac, steps a man deeply suspicious to the company's workforce on two counts. He's reportedly multi-million euro

pay deal and background as an Anglo-Saxon who's streamlined Air Canada.

UNIDENTIFIED FEMALE: If he doesn't listen to us, if he doesn't want to deal with us, it's going to be very hard for him to deal with the situation

in Air France. And I think he doesn't know the French way of thinking -- you know, we've got revolution inside us.

BELL: Which means there could be more trouble ahead for the airline's shareholders. Already, strikes have caused Air France 335 million euros

this year, which is why the pressure is on for Benjamin Smith to take on the unions.

UNIDENTIFIED MALE: Mr. Smith has fallen worse in the past two years, problem with the unions, with the Canadian unions and he succeeded. And

anyway, all companies has problem with their unions, even Royal Air, even easyJet, you know, all companies have problem with that.

The problem of Air France, it's two-year, it's two-year, you know, it's a repetition, it's the problem of Air France.

BELL: It's something the French government with his 14 percent stake in the company wants to put an end to with a show-down now looming in the

skies, for Emmanuel Macron's drive to change France.

(END VIDEOTAPE)

BELL: Paula, the French government, so many industry analysts look at Air France and say, look, BA streamlined itself in order to make itself

competitive 20 years ago, Lufthansa, its other main European rival did the same in the last few years, it is just Air France holding out, resisting

reform, clinging on to what the unions refer to as the French model and the French way.

And there are those who say that this particular nomination of Benjamin Smith with his track record at Air Canada could be just the thing to fix

it. But really, Paula, I mean, there's no doubt about this, we are looking at the mother of all battles, really, coming in the next few weeks as he

seems to push those reforms.

NEWTON: True, yes, and you have to think that as much experience as Mr. Smith has in this, and you bear the scars of a French union battles, I bear

the Canadian ones, you might have some leverage. But these deadlines will focus the mind and Air France, if there's any work stop at whatsoever, will

start to bleed money, Mr. Smith knows that all too well.

Is there any sign that he's willing to try a different tact?

BELL: Well, it's very difficult to see what progress he'll manage to make. His predecessor that you just heard about in that report lost his job, left

his job because of a vote against the pay deal that he had offered. So he tried to go some way towards those demands, that didn't work.

It's very difficult to see what other -- what else other than a hard-line could really work at this stage. And of course you mentioned those battles

in Canada, and you're quite right, Paula, the reason that Air Canada managed to be reformed in a more low-cost airlines created out of it was

that there was a conservative government in power at the time that forced - - saw those strikes down and hugely bitter battles and trade unions at one point accepted to sign away their right to strike when certain milestones

were met.

It's very difficult to see this, particular group of workers, Air France, the Air France workforce that has been striking for so long, that is

feeling so penetrant, and that also sends its blood. It feels that it has the power really to push the government back on this, and deal for Emmanuel

Macron is try to reform.

So it's going to be very interesting to see whether that hard-line attempt to push through reform can make any progress here, Paula.

NEWTON: Yes, definitely, very tough, and perhaps we -- you know, I put forward, that's why they picked him in the first place. They wanted him to

get those battle scars. Melissa Bell continues to follow the story for us, I really appreciate it.

Now, Warren Buffett has never put his money into an Indian company, that's right, never. That could be about to change, and we'll tell you which

company is apparently caught the eyes of the legendary investor.

[16:45:00] (COMMERCIAL BREAK)

NEWTON: OK, Warren Buffett could be on the brink of his first for a -- into India. It is significant. A source tells Cnn, the legendary investor

is lining up a $360 million investment into India's top mobile payment's firm Paytm. Such a deal would value the company at about $10 billion.

Ravi Agrawal interviewed the CEO of Paytm when he was in New Delhi for Cnn, he is now the Managing Editor of "Foreign Policy" and author of "India

Connected", the book comes out in September in India and the rest of the world in November.

First, Ravi, I am thrilled to have you back because I'm normally --

RAVI AGRAWAL, MANAGING EDITOR, FOREIGN POLICY: Yes --

NEWTON: Used to seeing you in India, so I'm glad you're coming back here to explain what the oracle of Omaha saw in this company and why he thought

it'd be the right deal for Berkshire Hathaway.

AGRAWAL: Sure, well, for one, I mean, the news that he sees this as a valuable investment is big news in India because they respect him a lot

there, and so his valuation and his take is -- it means a lot for Indians. What he likely saw is a company that is on an upward trajectory that has a

baked in growth market.

And that market is people A, who are already using Paytm which is 300 million Indians, but what he's also likely looking at is the number of

Indians who are yet to get on. And these are Indians who are still discovering smartphones and regular mobile phones and using that to begin

to bank for the first time.

It is now the case in India that more people are buying their movie tickets on platforms like Paytm, bank credit cards in cash. That is only going to

continue and he knows that.

NEWTON: And when you talk about the growth potential on an industry like that, I think a lot of people do not realize in India how these things were

going -- you say 300 million users, we're not talking about Instagram users here, we're talking about this is the way --

AGRAWAL: Yes --

NEWTON: They get life done in India. These --

AGRAWAL: Yes --

NEWTON: These absolutely important, the software is important, the new smartphones are important.

AGRAWAL: They're really important and it's very easy to use. So you could be someone who is not very literate, or uni-literate. You could be someone

living in a village with bad connectivity or a phone that is a very basic phone, Paytm and many of other apps like that, WhatsApp for example are

designed to work very well on those kinds of phones and with low data requirements.

And it allows Indians to leap frog in a sense where they don't have to travel 4 hours to get to the nearest bank, they don't have to learn how to

use a PC and a computer which by the way, they're never ever going to use. Instead, they have a phone with which they can transfer peer-to-peer or

they can go to a store and use it, someone can show them how to use it.

It's a very low barrier to entry, and that's what everyone seems to be counting on.

NEWTON: And in terms of your book, "India Connected", and these are the kinds of things that companies like Berkshire Hathaway are following. I

mean, some people have said that India has really lagged behind, that this really should have happened in India a long time ago.

From what you've learned, do you think we're finally at that point of momentum? That this is an inflection point, and everything that we hoped

for would happen in India, will happen in terms of its connectivity and how much it can develop its economy.

AGRAWAL: I think the connectivity is there, I think the devices are there. The big bet isn't really on technology because all of that exists, the big

bet is the bet that we've always been monitoring about.

[16:50:00] Will the Indian middle class stand up and deliver? Is it only 20 million strong or is it a 100 million strong or is it bigger than that? And

that's the challenge because India has all these consumers who are beginning to use the internet, they're discovering it on smartphones, the

question is are they really going to spend?

Are they going to buy subscriptions to Netflix? Are they going to make payments on these platforms all the time or just once in a while? Are they

going to consume more in general the way the Chinese did five or ten years ago? That's the big bet.

And we still -- the jury is out on that. I mean, growth rates in India are clearly, the trajectory is upwards. The question is how fast can the

middle class really expand?

NEWTON: And like you said, how big is it? What is that number anyway?

AGRAWAL: It's huge, whatever it is.

NEWTON: Yes, Warren Buffett really sees the potential. Ravi, I can't say how good it is to see you come back, we'll have you back in the Fall --

AGRAWAL: Good to be back --

NEWTON: As we continue to follow, as you said that incredible India economy, appreciate it. And we will be right back with more QUEST MEANS

BUSINESS in a moment.

(COMMERCIAL BREAK)

NEWTON: We're returning to our top story now. The preliminary trade deal between Mexico and the United States. Now, Mexico's economy secretary

joins me now live from Washington, we thank you for making it into our studio on what is a momentous day.

I know you're very happy with this deal. You're going to tell me that this is a great deal for Mexico, but you're at the bottom line to the Trump's

administration as they believe the new jobs, those new manufacturing jobs especially in automobiles will filter through to the United States, not

Mexico.

ILDEFONSO GUAJARDO VILLARREAL, SECRETARY OF ECONOMY, MEXICO: Paula, let me tell you that one of the biggest things we have achieved with this

agreement is certainty, and I can assure you if you look at the final results, is that there's not going to be a new formulae on how to share

growth.

But let me assure you that the Mexican success story is going to be maintained, and part of this agreement is new rules to increase integration

in North America. And the other element is Mexico in this agreement has a sure full protection against any other measures that have been considered

in this process.

So I just came out from a meeting with a business community in Mexico, and the automotive secretary of Mexico is very happy about this deal.

NEWTON: And why would they be happy about it, because at the end of the day, it's still seems like it's going to shift some manufacturing into the

United States and that they will have to pay their workers more.

[16:55:00] VILLARREAL: I think that we are misunderstanding the nature of trade. I think this is not for some(ph) game. Now, a new challenging

times vis-a-vis how trade is being defined. This agreement brings definitely an increased capacity in North America in which we are all going

to share.

Obviously, President Trump has to guarantee opportunities for the U.S. workers just as President Pena is guaranteeing exactly this same. But

remember, NAFTA is not only the successes story of the current industry, it's the agricultural sector, it's the aerospace industry, it's the textile

industry, it's the medical devices. And in all of those elements, it has been a great successful integration in North America --

NEWTON: OK, and to that end, I want to get to another contentious issue. The United States has insisted that there would be a sunset clause. Is it

your understanding that that is completely by the boards now, you will reveal the deal every six years, but no one can just pull out --

VILLARREAL: I mean, as a matter of fact, we are in this situation because the U.S. has the right or the country to pull out. So our problem is that

we let NAFTA go for 22 years without worrying how the countries were adapting to this agreement 22 years ago.

The good thing about the review process is that now we have the opportunity to every six hours get together, analyze and try to adapt to our successes

story for everybody involved. So we are not in a position as we were in the last couple of years.

So this will be a mechanism, we increase the certainty of NAFTA and also increase the timeless span of this agreement, and we avoid any sudden death

or any automatic expiration.

NEWTON: If Canada cannot come to an agreement on this deal, will you sign the bilateral deal with the United States only?

VILLARREAL: Let me -- let me put it this way. We are very enthusiastic that Canada will be joining tomorrow. We believe that an agreement is

better in a trilateral basis, that has been even part of the conversation of President Pena with President Trump.

But you have to -- you have to be very clear. We have understanding that this is extremely positive for Mexican productive sectors, and at the point

where we have to make a decision, we'll make a decision, but we want Canada to join.

NEWTON: You want Canada, but you will turf Canada if you need to, you will keep your deal --

VILLARREAL: How do you know -- how do you know -- you'll cross the bridge when you have to cross the bridge.

NEWTON: OK, I still read that as that you're willing to have a bilateral deal. I want to ask you as well though, in terms of everything that came

up, all the contentious issues, we had heard for so long about the wall and about immigration. In terms of your negotiations here, do you think a page

has been turned or do you still predict that Donald Trump will once again say that Mexico, their wall is going up and Mexico will pay for it.

VILLARREAL: Paula, I'm the trade minister and I do trade negotiations, I don't get involved in any other matter.

NEWTON: It seems like your president had no choice though, but to get involved in it. I know that the current president had to sign off on this

trade deal, and at this point in time, you're assuming that you can put the politics of immigration aside.

That Donald Trump --

VILLARREAL: No, I'm not assuming anything, Paula, what I'm saying is that Mexico has been very clear on those positions. And it is clear that

there's going to be a new government, Pena Nieto(ph) has engaged in a new dialogue with the U.S. and it will be the responsibility to define the

future.

NEWTON: OK, I can't thank you enough for being so candid with us and making it to our studios, appreciate it, as we continue to follow this

trade deal. As you head to negotiations now, trilateral ones, appreciate it.

VILLARREAL: Thank you.

NEWTON: Now, that is a very busy QUEST MEANS BUSINESS for today, I am Paula Newton, the news continues right here on CNN.

(COMMERCIAL BREAK)

END