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WHEN: Today, Tuesday, November 13, 2018
WHERE: CNBC's "Squawk on the Street "
The following is the unofficial transcript of a CNBC interview with National Economic Council Director Larry Kudlow and CNBC's David Faber on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Tuesday, November 13th. The following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2018/11/13/watch-cnbcs-full-interview-with-white-house-advisor-larry-kudlow.html.
All references must be sourced to CNBC.
DAVID FABER: Stocks are near session lows, extending that selloff from yesterday. President Trump yesterday, as well, blaming the sharp downturn on the, quote, "Prospect of presidential harassment," by the incoming democratically controlled house of representatives. Joining us now, National Economic Council Director Larry Kudlow. Larry, always good to see you, though I have to admit, I miss not having you to my right here on set.
LARRY KUDLOW: Thank you.
FABER: Where I can at least try to reach out and touch you. Stop you, sometimes, from talking.
KUDLOW: I appreciate it very much.
FABER: Larry, you know, trade -- it continues to be one of the big issues and certainly one we discuss with you. This morning I'm looking at a Strategas piece out, says "Is the Kudlow trade framework crumbling?" Maybe you've seen it.
KUDLOW: I saw that.
FABER: Give me your take.
KUDLOW: I saw the headline from my pal, Dan Clifton. I didn't actually read the piece. Let me just guess. I'll lay out a framework for you, and you can go where every you want to go. First of all, we are again talking with China and I think that's very, very, very positive. The President initiated a phone call with President Xi. We now know that we will in fact discuss trade at the G20 meeting in Argentina. We didn't know that before but as a certainty, but there will be many things, security matters and so forth on that list, but trade is going to be one of them. Right now, we're having communications at all levels of U.S. and Chinese government. I spoke to Secretary Mnuchin this morning about that, as part of our preparation for the G20. So without even thinking about a prediction on the outcome, we are talking to them again. You know me. I think it's better to talk than not talk, so, that's a plus. We're in very good negotiations with the European Union. We're in very good negotiations with Japan. We did get the U.S./Mexican/Canadian – the NCA. So I think, you know, we're moving ahead on trade discussions and we had a very good deal in North America, so I think it's a pretty good story, to tell you the truth.
FABER: Yeah. You know, Larry, the piece that I reference, we referenced at the top, it actually is trying to paint a more positive prospect for an agreement. But it's saying that because it's starting to -- they're starting to say they see signs, Dan Clifton, of slowness coming in the economy as a result of the dispute. Investment slowdown in the third quarter, they say, is a major red flag that tariffs are starting to impact CAPEX. Are you seeing that and are you concerned about it?
KUDLOW: No. Not really. I mean, I agree that the capex numbers were a little soft in Q3. They had been very strong in the prior quarters. And actually, David, there may be some glitches in those numbers. Kevin Hasset, my colleague at CEA, the durable biz reports really look better than we saw in the GDP, we may get a revision upward, maybe next quarter. I think that's still a strong area. Look, the tariffs that we impose on china, because of their recalcitrant -- they won't seem to respond positively to our asks. Maybe that's going to change in the next month, I don't know. Those tariffs haven't really hit yet. They're not in place. I think some of these companies are worried. I understand that. Nonetheless we're doing what we must do with respect to China. In my judgment, I piece deal in transfer of technology, forced transfer ownership, high tariffs on a number of commodities, cyber hacking. We can't let that happen. So I think the president is doing the right thing. But –
FABER: Right, But –
KUDLOW: But, but, but my point to Dan Clifton who I have spoken to this morning is we are resuming talks with china. It will be part of the G20. And I have to believe that's a good thing. And we are talking to the EU and Japan, and we did get the USMCA done. So that's not bad.
FABER: No. Larry, I think, Peter Navarro had some things to say recently in terms of when you term Wall Street bankers and the like, trying to get their influence felt by the white house. I think we have it. I would love for you to listen to his comments and respond to them, if you can.
PETER NAVARRO: If there is a deal, if and when there is a deal, it will be on President Donald J. Trump's terms, not Wall Street terms. But if Wall Street is involved and continues to insinuate itself into these negotiations, there will be a stench, a stench around any deal that's consummated, because it will have the imprimatur of Goldman Sachs and Wall Street. So I would urge these unpaid foreign agents to stand down on this issue.
FABER: Would you similarly urge Wall Street to stand down, Larry?
KUDLOW: I would not. Look, Peter Navarro is a friend of mine, truly. We've known each other for 20 years, but he was not speaking for the president, nor was he speaking for the administration. His remarks were way off base. They were not authorized by anybody. I actually think he did the president a great disservice. Look, the president can talk to whomever he can talk to. He talks to people on Wall Street, yes. He talks to union leaders. I've been in some of those meetings. Yes. He talks to other outside advisers. He has every right to do so. And the president has said, and I've reflected this on your network and elsewhere, that if there is a deal to be had with China, it's a deal that has to be in American interests along the asks that I just mentioned on technology and so forth. That's got to happen. So I think Peter very badly misspoke. He was freelancing and he's not representing the president or the administration.
Morgan Brennan: Larry, this is Morgan Brennan. I need to get your thoughts on the dollar, because it's really bucked expectations. We saw at the beginning of the year, strengthening pretty notably this year. On the one hand strong dollar tied with strong economy, on the other hand you're trying to increase U.S. exports and strike some of these trade deals, encourage U.S. companies to create more jobs at home. It's a headwind. How is the strong dollar being, I guess, discussed and is it being involved in shaping policy right now?
KUDLOW: Well, look, the dollar, currency matters are the purview of the treasury department I Will only comment lightly that the dollar today, which is King Dollar, we have the best economy in the world. Investment is flowing here. I regard that as a good thing. I know it goes up and down. Basically if you go back and run a chart 18 or 20 years, actually, the dollar is sort of right at the midpoint of that long chart. Up, down, up, down. In fact, in recent years, the dollar has been pretty steady, in my judgment. It is on an upswing right now. By the way, one of the benefits of a steady dollar, steady, is a lower inflation rate. And one of the issues I've not heard enough discussion is disinflation. In the last nine months, the PCE – deflator, which the fed watches, has actually fallen from about 2.7 to 1.4%. That's a terrific thing. That's supply side tax cuts. We're increasing the potential of the economy to grow. When you create more, prices can come down. There was an inflation scare a little while ago. It's going away. I think this is a big plus. Inflation is the cruelest tax of all and I think it's going to give a lot of relief. And it's like a tax cut for the economy. So I like that. And the rest of the dollar story, I'll leave to Mr. Mnuchin. Right now, King dollar, we're attracting money all over the world. We're the hottest economy. We're crushing it right now. China is in a slump. The EU is slumping. So, they're coming to where the returns are best and the most hospitable environment.
MICHAEL SANTOLI: Larry, with the democratic control of the house right now, obviously, a lot of the talk is stalled about feasible tax cut 2.0, things like that. What is the economic agenda on a going forward basis that's actually practically possible?
KUDLOW: Well, look, the president has said that he is more than willing to discuss, negotiate, talk to Ms. Pelosi, if she becomes the speaker and so forth. He is willing to reach across the aisle. On the other hand, if they're more belligerent, he will fight back. He was clear about that in the press conference last week regarding our policy goals, we will be looking at additional tax reform, 2.0 if you will. There are other things we are noodling inside the administration, we're working with the house and the senate. The senate by the way is a very powerful body, so they're not going to let our tax cuts and deregulation and energy reform be overturned. And if they were, the president would veto it. So I don't want to get ahead of the story. We're going to have a tough budget, as you know, 5% reduction for the domestic nonentitlements. I think that's healthy for the economy. We're looking at infrastructure in many different ways. You know, the President, former construction man, real estate man. Infrastructure, I – particularly, we are working on at the National Economic Council, the NEC, I'd like to do energy infrastructure. I'd like to do pipelines. I'd like to do anything that will help LNG, terminals, shipping. We'd like to revise the U.S. shipping industry which has been dormant many years. We would like to export oil, Nat Gas, LNG, to Europe and to Asia. Those are very important issues—
FABER: Which we do.
KUDLOW: -- they want LNG. They want it badly.
KUDLOW: And we're going to do whatever we can to accommodate.
FABER: Larry, final question here. I want you to indulge me, I want you to take us back a year or so when you and I would typically be talking before you'd be coming on, and you'd say "What's going on this morning?" And I would say to you this morning if we were having that conversation, "Well, the market is worried Powell's going to keep tighten to at least neutral. People are worried we are going to 25% on these tariffs on China. Earnings were pretty good, but guidance wasn't quite as good. And people seem to be more scared in the market right now." Your response would be, if we were having that conversation, what?
KUDLOW: I would say corrections come and go. I mean, it's been a long bull market. We are way ahead of where we were in late 2016 after the president's election. The market has done very well. We've had these corrections. We had one last winter as you know. We're going through one now. I believe at least at close of business yesterday, the overall correction was 7%. I don't like that. I don't want anybody to ever lose money in their 401(k), but historically, as you know, that's a rather mild correction. So I think the economy is very healthy. I mean I think profits are strong. We had a tremendous NFIB Small Business Confidence number today, you had a good consumer sentiment number, profits continue to rise. The ISMs are very strong. I mean, I think this is a very healthy economy. The story here in my view, everybody said we couldn't get 3% plus growth, we're getting get 3% plus growth. And the tax cuts and deregulation, the energy, the trade reforms, pardon me, I think it is all paying off. And I think this is the best economy in years. So I remain optimistic, David.
FABER: Alright. I know you do. And you always are. Larry, we appreciate your always joining as well. Thank you.
KUDLOW: Appreciate it.
FABER: Larry Kudlow.
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