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Biden, Chinese President Xi Speaks as Tensions Grow Over Taiwan; Sen. Joe Manchin (D-WV), Sen. Chuck Schumer (D-NY) Make a Deal on Health and Energy Bill; U.S. GDP Drops for Second Quarter in a Row, Deepening Recession Fears. Aired 10-10:30a ET

Aired July 28, 2022 - 10:00   ET

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

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BIANNA GOLODYGRA, CNN ANCHOR: Good morning, everyone. I'm Bianna Golodryga in for Poppy.

JIM SCIUTTO, CNN ANCHOR: And I'm Jim Sciutto.

A busy morning, we are following several major headlines. President Biden holding a highly anticipated call with Chinese President Xi Jinping, that started just in the last hour in the midst of growing tensions. It is their first conversation since March this year. It comes as the relationship between China and the U.S. have deteriorated to its lowest point in decades. We're going to have much more on that phone call in just a moment.

GOLODRYGA: Plus, the U.S. and Russia debating a prisoner swap. Secretary of State Antony Blinken speaking today with his Russian counterpart, Sergey Lavrov, as the two countries discuss trading arms dealer Viktor Bout for detained WNBA Star Brittney Griner and U.S. Marine Veteran Paul Whelan.

And a breakthrough on Capitol Hill, Senate Majority Leader chuck Schumer and Senator Joe Manchin striking a deal on an energy and health care bill after more than a year of negotiations. So, will it face furious GOP opposition?

SCIUTTO: There's a lot in this bill, including tax changes. We're going to follow it very closely.

We do begin though with major developments on the U.S. economy. The gross domestic product fell 0.9 percent in the second quarter, this follows a 1.6 percent drop in the first part of this year, blamed in part on the omicron surge, all of this adding to fears the U.S. could be in a recession.

So, joining me to talk about all this, White House National Economic Council Director Brian Deese. Good morning, Brian, thanks for taking the time this morning.

BRIAN DEESE, DIRECTOR, WHITE HOUSE NATIONAL ECONOMIC COUNCIL: Happy to be here.

SCIUTTO: So, we have figure out now, two consecutive quarters of negative growth. Every period since 1948 of two straight negative quarters of GDP has coincided with a recession. Why would this time be different?

DEESE: Well, I think we got to start with an assessment of where the economy is right now. In every prior recession in the United States, we have lost jobs. And over the course of this year so far, we have gained 2.7 million jobs. The unemployment rate today in the United States is 3.6 percent. There's only been a couple of months in the last decades that unemployment has been as low.

We have a strong labor market. We have resilient consumers who are continuing to spend, businesses that are continuing to invest. So, we are in a transition. There's no doubt the economy is slowing and that is what most expected when coming off of an extremely strong and fast recovery last year.

But all of the indications that we see right now is for an economy that's showing extraordinary resilience in the face of global challenges. And the most important thing we can do right now, to the point you made, is to move on historic legislation that would lower costs and encourage greater business investment over the long-term.

SCIUTTO: Okay. I want to get to that though, but it seems that companies themselves are preparing for a downturn. Walmart lowered its profit outlook for quarter two. They said that they're seeing less discretionary spending by consumers. GMA said they're going to cut spending in preparation for what they describe as moderate economic downturn. That portends to further slowing, does it not?

DEESE: Well, I'd make two points. The first is, with respect to where we are economically right now, if you look almost any outside analyst, JPMorgan, Morgan Stanley, Bank of America, Citigroup, JPMorgan, they have all in the last couple of weeks said that nothing in the data right now is consistent with the economy being in recession.

On the consumer side, we're absolutely seeing a transition and this is a transition that many called for and many anticipated in two respects, one, shifting from spending on goods to services. People are getting out more, they're traveling more. That's why you're seeing hospitality, leisure, airlines with a lot of activity. And, second, people are shifting to focus on more discounted products. Every individual company is going to have to deal with that. Some companies that may be more opportunity or more risk for them.

Overall, what we're seeing is a resilient consumer in part because Household balance sheets have stayed strong during this period.

SCIUTTO: As you know, the Fed raised interest rates again, three quarters of a percentage point. The Fed itself admits that it was too slow to act here to head off inflation. I wonder, are you concerned now that the Fed -- and I know you don't like to dip into Fed affairs, but are you concerned, because you watch this very closely from the White House, that the Fed might overreact here and push the economy into a recession?

DEESE: Well, there's a reason why we don't comment on that kind of specific question, which is, institutionally, the best thing that we can do is actually give the Fed independence. That's something the prior precedence have not done, and it's important for our institutions and confidence in the U.S. economy.

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So, I will leave the question of the tactics of monetary policy to the Fed.

What I will say is, as we move through this transition, the single most important thing that we can be doing, that Congress can be doing, is moving on legislation that provides some relief to consumers and also reduces price pressures in our economy. And the Inflation Reduction Act that Senator Schumer and Senator Manchin outlined yesterday is probably the best way we could do that, along with the chips bill, which passed the Senate yesterday. And we're hoping we may have historic progress on that today in the House.

So, there's real action that we can take.

SCIUTTO: I want to talk about the budget reconciliation deal, no one we talked to in Washington thought this thing had a chance and now Manchin is on board with some major provisions in here, as you know well. Do you have the Democratic votes though? Do you know where Sinema or even a Bernie Sanders stands on this? Are you confident this gets passed in the Senate?

DEESE: What I can tell you is the president is very committed, they're doing everything we can do to get to this to his desk and without delay, and the reason why is it's going to make historic and important changes, lower the cost for prescription drugs both for families and consumers and seniors but also for Medicare and the federal budget, lower the cost of energy across time by providing tax credits, technology-neutral, so that we have more supply of energy and increased energy security here at home and also address the issue of tax fairness.

This bill would establish a minimum tax, 15 percent, that says all companies should be paying something, should be paying 15 percent. That is a sensible, base-broadening tax reform that will also help to address some of the unfairness in our current tax code where companies that offshore production or offshore jobs do so because they can get a tax advantage and they can move their production overseas and they can get benefits for that.

SCIUTTO: Let me ask you finally. The Washington Post is reporting that Larry Summers was key to convincing Joe Manchin that this package is not inflationary. Summers, of course, was one of the first to say, hey, inflation is coming before many others did. Explain to folks at home why spending all these billions is not inflationary.

DEESE: Well, first, the principal impact of this package is to reduce costs, lower costs in prescription drugs for seniors and people with chronic conditions, lower cost for health care and health care premiums for 13 million Americans and lower energy bills and utility bills. That's number one.

Number two, it would reduce the federal deficit. And by reducing the deficit, we will reduce price pressure in a way that's complementary to what the Fed is trying to do on monetary policy. And I think that that's why you've seen even just over the past 18 hours since this has been announced. You've seen economists and analysts from across the political spectrum, some who have agreed with us, some who haven't say this is a constructive step, it would be good for the economy, it would help move in the direction of lowering price pressures and provide consumers and families some direct relief.

SCIUTTO: Brian Deese, we appreciate you taking the time to join us this morning.

DEESE: Happy to be here.

SCIUTTO: This morning, the president holding a critical call with Chinese President Xi Jinping.

GOLODRYGA: Now, it's the first call in months amid rising tensions between the two nations.

CNN White House Correspondent Arlette Saenz is outside the White House this morning. Arlette, so this conversation has been going on a little over 90 minutes now. Any word about what's come out of it?

ARLETTE SAENZ, CNN WHITE HOUSE CORRESPONDENT: Well, Bianna, we're still waiting to hear from the White House on whether this call between President Biden and Chinese President Xi Jinping has wrapped, but it started a little after 8:30 this morning, marking the fifth time that the two leaders have spoken since President Biden. It's the first time the two have spoken since President Biden took office last year.

Now, this comes as U.S. officials say the president has tried to keep this open dialogue with one of America's greatest competitors, and that is China. But they've also acknowledged that there are real points of tension that were likely to arise on this call. That includes Taiwan, China's posturing in the South China Sea, as well as Russia's war in Ukraine and that competition occurring between the U.S. and China.

Now, while this call had been scheduled and the planning had been worked on for several weeks, it's taking place against the backdrop of that possibly visit by House Speaker Nancy Pelosi to Taiwan, a trip that has drawn -- a possible trip that has drawn a strong rebuke from China.

Now, last week, President Biden revealed that the U.S. military did not think it was a good idea for Pelosi to travel to Taiwan at this time. And administration officials have been working to try to convince her of the possible risks. We know that Defense Secretary Lloyd Austin spoke with Pelosi recently about the security assessment in the region, though he didn't get into the exact details of what they discussed. And China promised a forceful response if she were to travel. This is all something that is expected to come up on this call between the president and Xi in a very, very precarious moment.

GOLODRYGA: And we are waiting for the readout of that call. Arlette Saenz, thank you.

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And I'm joined by Evan Osnos. He is a staff writer for The New Yorker and the author of Joe Biden, the Life, the Run and What Matters Now. Evan, great to have you on.

So, this is the fifth phone conversation between President Biden and President Xi. They actually haven't met in person. President Xi hasn't left China since President Biden has been in office, but President Biden has long touted their relationship going back to when he was vice president and they had several meetings back then at the time.

I'm just curious given that relationship, do you think it benefits in any way to help sort of lower the tension now and stabilize at least the relationship given at the low levels it is right now?

EVAN OSNOS, CNN CONTRIBUTOR: Well, Bianna, as you say, they do go back a long way. I think Biden sometimes likes to point out. He says, we've known each other a long time, it doesn't mean that we're friends. What he means is that they do have a basis for communication. Because all the way back, actually more than a decade, Biden visited China when he was vice president, Xi Jinping back then was China's vice president. They spent a lot of time on the road together. So, they know how to talk to each other. They can kind of cut through some of the static, some of the get to know you.

They've been on the phone now, as you heard, for more than an hour, and that makes sense. There's a lot for them to talk about, a lot of things on the table. And when you have this kind of background, you can get right into it.

But it is worth pointing out here that the backdrop to this entire conversation is what analysts call strategic mistrust. As you know, it means that neither side fundamentally trusts the other's intention here. The United States is very weary of what China is seeking to do, China is weary in what the United States wants to do. And so they have to, in a sense, get right into the issues on a call like this.

GOLODRYGA: Specifically when related to the issue of Taiwan and this upcoming visit now, a potential visit by House Speaker Nancy Pelosi, I'm just curious to get your perspective on how President Biden will likely approach this issue. On the one hand, he doesn't want to incentivize the Chinese by saying that your blustering rhetoric has stopped this trip from happening, but at the same time we know President Biden has publicly said that he would prefer she not travel now either. So, how should he handle that?

OSNOS: Well, one of the things that President Biden often does when he's dealing with foreign leaders, and especially with the Chinese, I know this going back several years, is that he will often say to them, look, what you see from the outside may not be exactly how it operates internally.

To give a specific example in a moment, when the Chinese say to the American political system, in effect, look, we are threatening you saying there will be repercussions if Nancy Pelosi comes to China, that may seem as if it's going to make it harder for Nancy Pelosi to go. In fact, as Joe Biden is likely to be telling Xi Jinping right now, that narrows the options, it makes harder for Nancy Pelosi to change course if, in fact, she wanted to, because now it looks like it's a climb down against Chinese pressure.

One of the things he often likes to point is, internally, we have a lot of dynamics, not just because Nancy Pelosi and Joe Biden are Democrats, it doesn't mean that she has to do everything he says. He's been publicly clear about the fact that he thinks the military would prefer she didn't go. That doesn't mean, however, that he can snap his fingers and make it happen. He's trying to make Xi Jinping understand that and, in effect, give Xi Jinping the political ammunition he needs internally to say, I did what I could, let's not overreact and turn this into a larger issue than it needs to be. So, it's about politics on both sides.

GOLODRYGA: And it's about the economy as well. And we continue note that China's economy is slowing, many factors at play there. President Xi's approach to economics and policy internally but also the zero COVID policy and just word that China's growth estimates for the year are going to be lower than initially forecast.

I'm curious, is there any deliverable on the part that President Biden could perhaps offer in terms of the questions of those $370 billion in trade tariffs that are still in place from the Trump administration. Is that an area where they could see eye-to-eye in lifting those?

OSNOS: It an opportunity to negotiation, certainly, Bianna. I mean, look, you have -- it's easy to forget these days, we have more than $370 billion of tariffs on American goods here. That is a point that both sides would like to see ultimately change.

I think the Chinese side expected the Biden administration to change it when they came into office. That too was a misreading on China's part. The Biden administration has said, look, we are in no hurry to make a change unless we get something in return, whether we get greater opportunities for American exports into China.

But the Chinese leadership is under some pressure right now. The economy, as you said, has slowed to a standstill in the most recent quarter. They're facing a drop-off in the working age population in the years to come. That creates the environment for a negotiation for, say, let's figure out how this is going to change. But I don't expect, Bianna, that it would happen overnight. I think if you're going to see tariffs come off, it would be piecemeal.

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There are some American -- prominent voices who are saying, let's hold on to these as long as they can, labor groups, some American domestic companies say we benefited from this. So, in many ways, it's an opportunity for the two sides to find some area of shared interest in a moment when they don't have a lot and they're pointed at a collision course in other ways.

GOLODRYGA: Evan Osnos, thank you so much. We appreciate your time.

OSNOS: You're welcome.

SCIUTTO: Still to come, after more than a year of negotiations, Senate Democrats have reached a major deal on climate, tax, energy, Medicare legislation. Delaware Senator Tom Carper joins us next to talk about the road ahead.

GOLODRYGA: And the Kremlin saying no agreement yet on the Biden administration's proposed prisoner swap involving Americans Brittney Griner and Paul Whelan and a convicted Russian arms dealer nicknamed the Merchant of Death. Why Russia could be holding out.

And later --

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UNIDENTIFIED FEMALE: The water is up to their doors. If they get out, it's waist deep.

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GOLODRYGA: Families left trapped as catastrophic flooding hits Kentucky.

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SCIUTTO: In a remarkable, frankly, unexpected reversal, Democratic Senator Joe Manchin has reached a deal with Senate Majority Leader Chuck Schumer on a broad budget bill, including provisions for energy, health care, climate provisions, this after a year of negotiations. The major piece of legislation would pay down the national debt, cut health care costs, fight climate change, battle inflation, also raise or at least set a minimum tax for corporations.

This morning, I spoke to Democratic Senator Tom Carper of Delaware, who has been involved in the environmental aspects of this for some time about what the deal is all about.

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SCIUTTO: Senator Carper, thanks so much for joining us.

I wonder, just until a few days ago, this deal was considered dead in the water. How did it come together at this late hour?

SEN. TOM CARPER (D-DE): It's a testimony to never giving up. I didn't give up. My staff on the Environment Public Works Committee never gave up. We continue to negotiate with Senator Manchin not just on methane emissions reductions but on other aspects of it. We worked with our caucus. We worked with Senator Schumer, and to his credit and that of his staff, and really it to Joe Manchin, to find the middle, find a way to not only address climate change in real and meaningful ways but to do so in ways that create a lot of jobs and economic opportunity. It's paid for, it's deficit neutral, and it's going to be helping us on inflation. It's actually helpful in combating inflation. So, it's an amazing development, just thrilled to have been a part of it.

SCIUTTO: So, Senator Manchin's support, of course, key here. It is not clear yet whether Kyrsten Sinema or even Bernie Sanders are on board. Are you confident that Democrats have the votes, all the votes necessary to get this through?

CARPER: Yes. Defeat is not an option here. We've got to prevail and this is common sense, it's all good stuff, again, deficit neutral, works on inflation, puts people to work, covers folks for health care, brings down prescription prices. Who would not be for that?

SCIUTTO: The Washington Post is reporting that Larry Summers was key here in speaking to Manchin to convince him that this package is not inflationary. Can you explain to folks at home how spending these many hundreds of millions of dollars will not be inflationary given the record-breaking inflation that we have right now?

CARPER: Well, actually, in this case, the -- it's only the earlier spending a year or two ago was not paid for, it's deficit spending. This is actually paid for. This is fully offset in ways that I think make a lot of sense.

God bless Larry Summers, on the best economists we've got in the country and maybe in the world. And I want to thank him personally for reaching out to Senator Manchin and just to give him a little bit of economics 101, inflation 101. I think it was enormously helpful.

SCIUTTO: You mentioned methane emissions, and that is a key part of this package here, controlling those from the oil and gas industry. I wonder, does this meet U.S. climate commitments made by President Biden in Scotland last year?

CARPER: If you put the entire package together, which includes tax credits with respect to promoting clean hydrogen, green hydrogen, tax credits would promote advanced nuclear tax credits that are actually designed to fight climate change, you put it all together, it's a comprehensive package. So, not just one thing, it's all those different things.

And the other thing, the Federal Reserve until recently has been AWOL, absent without leave with respect to inflation. They're all into it now. And so what you have is you got a great infrastructure package which is now being implemented all across the country. You've got this legislation which is designed to go after climate change but in ways that actually complements job creation, and we've got the Federal Reserve weighing in on monetary policy. Put all that together, it's a great package.

SCIUTTO: Republicans are now threatening to torpedo the chips bill, which had reached bipartisan agreement here. I wonder, do you believe they'll follow through on that? And how should Democrats respond? Should they risk this reconciliation bill to save the chips package?

CARPER: I don't think we have to do one or the other. The Republicans are smart. They were good to come and work with us on the chips legislation. And I think at the end of the day, they'll basically do the right thing. And there're a lot of good people on that side of the aisle as well. We'll be working with them closely, just as we did on our side with Senator Manchin and his team.

SCIUTTO: You've seen, I believe, this morning new economic statistics are out showing that the U.S. economy did shrink during the second quarter by just under 1 percent, that by traditional definitions would mean two consecutive quarters of negative growth, which means recession in minds of some, although I know that other economists will look at a number of indicators.

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I just wonder, you speak to voters in your state all the time, is the U.S. in recession?

CARPER: Yes, I am going to speak to a lot of them tonight. I'm going to the state fair and we're going to have a lot of good news to share with them. If you look at job creation numbers, we get those every month from the Department of Labor, each of the last three, four, five months, we've seen something like 300,000, 400,000, 500,000 jobs created a month. And I think on that front, we're doing just fine.

And the infrastructure bill, which is still being implemented and the legislation that we're hopefully going to pass here in the next several, there's plenty of stimulus to keep the economy moving. The difference here though is it's paid for. We're not just adding it to the deficit, fully offset in ways that I think make a lot of sense. SCIUTTO: Senator Tom Carper, thanks so much for taking the time this

morning.

CARPER: Thanks so much. See you at the state fair.

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GOLODRYGA: Yes, state fair sounds fun.

Well, another big name golfer joins the ranks of LIV Golf, as the controversial Saudi-backed league looks to expand tournaments and potential winnings. What some current LIV players are saying, that's up next.

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