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QUEST MEANS BUSINESS
The Former President, His Remains Is Due To Arrive In Washington Where The Body Has Been Flown From Texas; A Temporary Truce For The US and China; Oil Prices Are Surging, Cuts Are Coming, And OPEC Is Losing A Member; France's President Emmanuel Macron Is Considering All Options And That Includes Declaring A State Of Emergency. Aired: 3-3:25p ET
Aired December 3, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: An hour away from the closing bell on Wall Street. This last hour of trade. The market has been green
all day, but the best of the session was at the beginning of over 440 points. The market dwindle still showing strong gains toward the close.
The broader market, too, the S&P and the NASDAQ also up roundabout give or take 1%.
There are also very specific reasons as to why this market is doing so well, because this is what's been moving the market, the trade truce. The
war is on hold. It's not over yet, but there's more talking to take place. Oil prices are surging, cuts are coming, and OPEC is losing a member.
Plenty happening in the world of oil, and Paris is being hit by the worst riots in 50 years. President Macron is weighing a state of emergency.
We're live in the world's financial capital, New York City on Monday, it is December the 3rd. I'm Richard Quest. I mean business.
Good evening. We have a busy hour and it will be punctuated by the arrival in Washington of the casket carrying President George H.W. Bush. The
former President, his remains is due to arrive in Washington where the body has been flown from Texas, from Houston this morning, where it is about to
arrive at Joint Base Andrews in the next 20 minutes or so.
Thereafter it will be taken to the US Capitol where the 41st President of the United States will rest, state resting in peace until the funeral which
takes place later in the week. We'll have full coverage as soon as we see the plane carrying the President arriving at Joint Base.
Tonight, a temporary truce for the US and China. Donald Trump says he and Xi Jinping have agreed to hold their trade war while they work to negotiate
a permanent end to the tensions. It is the reason why the market is up so sharply today. But it's been nearly one year of tariffs, threats of more,
confusion overall. And its royal markets, tightened investments shaken businesses.
Now the two sides are pressing the pause button. The duration of the pause is 90 days according to the Americans, the Chinese haven't admitted that.
That should give time to hammer out some sort of deal.
Now, during the time of the pause, US tariffs stay at 10% on $200 billion worth of Chinese goods. The quid pro quo for this undertaking is that in
return, China will make substantial purchases of US goods. No specifics are giving and nothing is mentioned in the Chinese statements either about
the purchase of goods or, indeed about the 90 days. Donald Trump has tweeted that China will reduce and remove tariffs on American cars. That
tariff stands at 40%.
Again, the Chinese are not speaking about that. In fact, they've declined to admit that's what's going to happen. Also, the Qualcomm deal with NXP.
Now, China blocked it. The White House says that it could be back on, and that the President of China would likely accept it. The big problem there
of course is that Qualcomm has only played a break-up fee of $2 billion to NXP, so that's another matter, but on the strategic issue, no comment from
Now, if after 90 days there is no deal, well then the tariffs jump back from 10% to 25%, and we are very firmly back to where we began at the trade
war. Speaking on Monday at the White House, the Treasury Secretary, Steve Mnuchin praised the Chinese for their willingness to make real commitments
and promised this time they are not kicking the can down the road.
(BEGIN VIDEO CLIP)
STEVE MNUCHIN, US TREASURY SECRETARY: I think there is a specific understanding that we're going to now turn the agreement that the two
Presidents have into a real agreement over the 90 days. Obviously, some of the issues are going to need to be phased in. Some of the issues may need
more detailed work. But the idea is there will be a real agreement, and as I've said, this is the first time there was a commitment from China that
the agreement will include specific dates, specific targets, specific action items. This is not just going to be just kicking the can down the
(END VIDEO CLIP)
QUEST: Robert Lawrence Kuhn is a long-time adviser to Chinese leaders and the author of and knows "How Chinese Leaders Think." Please, then how will
they be interpreting the deal that was done yesterday, or sorry, on Friday?
ROBERT LAWRENCE KUHN, LONG TERM ADVISER TO CHINA'S LEADERS: Everybody is pleased that there is the pause, 90 days is very short, of course. We have
to look at short term, midterm and long term. Let's look at the background where China is today. This is the 40th year, the anniversary of China's
reform on opening up.
On December 18th, 1978, Deng Xiaoping made his famous speech which transformed China from ideologically driven, class struggle to economic
development. It's a big deal in China. There's a big celebration coming up.
President Xi has said that the first big goal for China is 2020, to have a moderately prosperous society, specifically to eliminate all extreme
poverty in China. That means they will have taken 800 million people out of poverty. So that's their overview.
And so they look at the status quo that they've had with America, something that's good for both sides. We have critical issues that we have to deal
with -- open markets, IP protection, forced technology transfer, cyber security, cyber theft -- it's a lot of issues on the table.
QUEST: The two sides are seeing Friday's deal in very different ways. The Chinese --
KUHN: That's diplomacy. We saw that in the spy plane collision, we saw that in the bombing of the Yugoslavian Embassy in 1999. Both sides had
different interpretations to their domestic markets.
QUEST: But they're not even admitting or at least acknowledging a 90 days, let alone all this business of we're going to buy more cars.
KUHN: Well, look, in China there is a debate among Chinese economists what's good for China. Many economists tell me privately, personally one
on one, like I am talking to you right now that China needs to open its markets, it needs to have IP protection. It shouldn't support state-owned
enterprises much, but they have internal debate. Those economists are pleased to see this pressure going on.
But China could not admit that publicly because that undermines the rejuvenation of China, the strength of the government, the national pride.
I mean, we have to understand both sides are speaking to their domestic audiences, but hopefully when they get together privately, they'll talk
QUEST: Do you believe that they can and/or will make the structural changes necessary to get to a long term deal. Because it seems as if
President Trump is not going to be satisfied long term with agreeing to buy a few extra bits of this or that of agriculture.
KUHN: Totally agree with that and I think that's right. We're going to have to see. I mean, it's easy to predict 10 years in the future, not but
not 10 days. So we'll see where we go, but I think, the people in China who I've talked to say they recognize this time is different and what they
are going to do is they are going to focus on the changes that they believe are good for China.
You actually saw that in some of the announcements today. We're going to do the kinds of things that help our domestic economy as well. That sounds
like it's a play for their own domestic audience to show they're not conceding, but in fact it is really the case.
QUEST: The President talked about, we're going to be - the US President, we're going to be selling large amounts of agriculture to the Chinese and
tariffs on automobiles down from 40% maybe to zero. This is mercantilist stuff, this isn't trade deal.
KUHN: Totally agree with that and those are superficial things. They make headlines. They're easy to understand, but they are not the substance of
what's happening here.
QUEST: Do you believe that there is a shift in perspective in this? This dinner shifted things?
KUHN: I believe there has been a shift. I wouldn't tell you the dinner did it, but over time, there is recognition that this time is different.
QUEST: Thank you, sir. Next time when it's different, you'll come back and tell us.
KUHN: Oh, absolutely.
QUEST: Good to see you, sir. Thank you. Any progress in the trade war has been welcomed by both sides and by investors. Up as much as 441
points, the Dow when it opened and the big game is where not surprisingly, the stocks with exposure to China. The Dow 30 shows - look at that, Nike,
no surprise there; Boeing, what a surprise; Apple, Caterpillar, DuPont and some of the financials that we've been following along with oil. Oil has
got a different story.
And look at the bottom. McDonalds, Coca-Cola, P&G, Walmart, the defensives have paid the price and now, Paul Donovan is the global chief economist for
UBS. He is in London to give us an economics view on this. Paul, the deal that was announced - not deal, the truce that was announced, what do you
want to see next?
PAUL DONOVAN, CHIEF GLOBAL ECONOMIST, UBS: What we want to see, of course is something longer term. I mean, 90 days is fine, let's see how it goes,
but what the financial markets have been fretting about for the last couple of months is this threat of another big tax burden ...
DONOVAN: ... being placed on US consumers. And delaying that tax increase is something which is good for the general US economy. It's good
for equities because of course, equities are far more exposed to trade than economies are and therefore, if we are avoiding trade taxes or delaying
trade taxes, you're going to get a reaction like you got today in the markets.
QUEST: If this continues though, this wait and see, because as you may have heard me just discussing with a previous guest, Mr. Kuhn, there needs
to be structural change. Men like you, economists like you don't want to just see some cyclical stuff or some heat of the moment stuff.
DONOVAN: No, that's perfectly true. But I think that the chances of a deal coming together have improved and actually, the 90-day thing from the
US side, whether or not the Chinese agree with it is a benefit. Because one of the things that has happened is the 10% tax that you're paying every
time you go down Fifth Avenue, that hasn't really hit yet.
Because a lot of the goods in stores today were imported into America before that 10% tax. Now we go through another 90 days, you're going to
start to see that tax hitting the consumer in America more and more and the political costs of this trade taxation policy, I think becomes more visible
and that I think increases the chance of both sides acknowledging that all of this dispute is actually doing domestic harm and with that, I think that
improves the chances of a more substantial deal coming through.
QUEST: Paul, we're remembering today, as his body is brought back to Washington, President H.W. Bush who, in economic terms, will be remembered,
of course, for the pledge "Read my lips, no new taxes." That pledge got him elected. And when he broke it in 1990 with the Budget Resolution Act,
the Omnibus Act, it probably cost him reelection. Was it the right thing to do with rising deficits to break that pledge, do you think?
DONOVAN: I think the legacy of the Reagan era was a very rapid growth in debt. And of course, the twin deficit problem. We have to remember that
in those days, foreign exchange markets were even less sophisticated than they are today if that's possible to imagine, and so the dollar was
vulnerable, financial markets were a lot more volatile, and so I think that there was a need to demonstrate, in one way or another, a commitment to a
firmer fiscal policy, a more coherent fiscal policy.
Did it have to be through tax increases? Well, that was political decision given the political realities of the Congress that President Bush was
working with. But I think there had to be a commitment toward better fiscal management than previously than had been taking place in the
previous eight or ten years.
QUEST: It's worth remembering this because that act brought in the pay as you go taxation model, whereby you could only spend more if you taxed more,
device more cuts from somewhere else. We are going to see similar - well, we are seeing similar deficits arise, maybe not at such a high percentage
of GDP as a result of the Trump tax cuts. Do you expect those budget deficits to get even larger?
DONOVAN: Well, almost inevitably, taking the status quo, the budget deficit will grow. We are at a situation of full employment. We are at a
situation where the US economy has been growing above trend growth. Now, the US economy is now slowing down to trend growth and whilst - as long as
economists rule out run things, a recession is relatively unlikely. A further slowdown is certainly possible and with that, you lower tax
revenues. That's fairly inevitable.
And so, the risk is of course the tax revenue is going to go down at some point in the future and it's very unusual to have a deficit of this scale
at this stage of the economic cycle. So, frankly, quite unusual to have deficit finance tax cuts at this stage of the economic cycle. Tax cuts are
one thing, deficit finance tax cuts are another.
So yes, I think the deficit is likely to grow at some point over the course of the next three or four years.
QUEST: Thank you, sir. Nice to see you. Thank you very much for joining us. Thank you.
DONOVAN: Thanks very much, indeed.
QUEST: Now, the oil markets were undergoing some radical shifts tonight. Brent and WTI are both higher and that's on hopes of production cuts after
Russia and Saudi Arabia agreed to extend their cooperation into 2019.
QUEST: And one of OPEC's oldest members, Qatar announced, it is quitting the cartel just days before the next meeting.
CNN's John Defterios sent us this dispatch on the significance of both developments.
(BEGIN VIDEO TAPE)
JOHN DEFTERIOS, EMERGING MARKETS EDITOR, CNN: Richard, some overdue clarity finally hitting the oil market as the architects of the OPEC non-
OPEC agreement to cut crude production say they plan to stay the course.
On the sidelines of the G-20 Summit in Argentina, the two largest oil exporters, Saudi Arabia and Russia, said they will announce a cut in output
later this week during the OPEC's meeting in Vienna. The scale of the cuts needs to be defined, but senior OPEC sources tell CNN Business, we are
looking at a level of a million barrels a day or slightly higher.
That cut would counter the eight-country exemptions given to Iran by the US under the snapback sanctions, a robust rise of American production. OPEC
kingpin Saudi Arabia was under intense pressure by US President Donald Trump to keep production at record levels and prices lower, but there's
widespread concern in the industry that lower oil prices will undermine future production and investment.
As OPEC gathers for the decision, it will be clear that it will be losing one long-serving player in 2019, that being Qatar. The Gulf State has been
a member for nearly six decades, Qatar's oil production is small, but it's a huge player in natural gas supplying about a third of daily global
demand, and with an economic embargo led by OPEC heavy weight, Saudi Arabia still in place, it may find that its energies are better spent elsewhere.
(END VIDEO TAPE)
QUEST: John Defterios in London. When we come back, former President George H.W. Bush is about to be welcomed back to Washington for the final
time. We're going to leave you with a moment of silence from the floor of the New York Stock Exchange. It happened this morning.
France's President Emmanuel Macron is considering all options and that includes declaring a state of emergency. He's struggling to contain some
of the worst riots since 1968. Its violent protests over the fuel tax that's turned Paris into a battle zone for the third weekend in a row.
The options seemed to be narrowing, two of the protest leaders have pulled out of planned meetings with the Prime Ministers. CNN's Melissa Bell is in
QUEST: Melissa, at the outset, let me apologize if I interrupt you if we stay - if we see the pictures of Special Air Mission 41 arriving back in
Washington. But while we await these pictures, let's talk about Paris. Were the demonstrations worse, however you wish to define that in this last
MELISSA BELL, PARIS CORRESPONDENT, CNN: They were more violent, they were more widespread, more widely spread across a wider periphery here in Paris
and they lasted for longer. There were also, Richard, a record number of people taken in for questioning. Many, of course, thereafter arrested, a
historic number going back decades for a single day.
So yes, by any measure, these were more violence and worse than anything we've seen before, and this really is the problem for Emmanuel Macron
because now that this has lasted three weeks, now that it's gotten this bad, now that the demands of the demonstrators have grown, as broad as they
have been. This is about much more than the fuel tax.
QUEST: Let me pause you there. Let me pause you there, forgive me, forgive me, but we are now seeing the 747 about to come in to land. The
747 carrying the body and the casket of George H.W. Bush. We join our colleagues from CNN in Washington.