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Quest Means Business
Daimler Will Audit Its Supply Chain To Ensure Child Labor Is Not Used, Data Firm Behind The Facebook Privacy Scandal Is Now Set To Close, Investors Are Loving Apple's $100 Billion Stock Buyback Plan, Europe Markets Closed Out The Session, Mostly Higher; Iranian Diplomat: If the U.S. Leaves Deal, there's No Deal Left; Trump's Lead Lawyer Ty Cobb Leaves Position; U.S. Military Plane Crashes in Georgia Suburbs; Southwest Airlines Investigates Cracked Window on its Plane; U2 Plan Augmented Reality Experience for New Tour. Aired: 4-5p ET
Aired May 02, 2018 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] PAULA NEWTON, CNN HOST: Why did you do with a bid of a dime there. You can't turn your back on this market one second. I was just
there, everything was fine. It's Wednesday, May 2nd.
Daimler will audit its supply chain to ensure child labor is not used following the CNN investigation in the cobalt mining.
We are waiting on Tesla earnings after the disastrous months from the electric automaker. And, in his own words, "New York Times" Paul Krugman
weighs on Trump, trade and taxes.
I'm Paula Newton, in for Richard Quest, live from the world's financial capital, New York City, this is "Quest Means Business."
Okay, tonight, just hours after CNN exposed child labor in cobalt mines, the industries that feed off those minerals are rolling out some action.
Daimler, one of the world's largest car companies has announced a major audit of its own supply chains and pledged to definitively prove there is
no child labor in the supply chain. Something that's explicitly forbidden for years.
All of this comes after CNN found the cobalt which powers electric car batteries was too often being gathered by children.
(START VIDEO CLIP)
NIMA ELBAGIR, CNN SENIOR INTERNATIONAL CORRESPONDENT: We arrive at the Musonoi river mine where the cobalt ore is washed to grind it down.
Although we've been given permission to film here, as soon as they see us, officials begin to scare the children away. Not all of them though are
fast enough. Some work on.
One young boy staggers under his load. His friends sees the camera and he drops his sack. They've clearly been warned.
A mining ministry official spots this boy carrying cobalt has been captured by our cameras. His response is brutal.
Later, we ask him why he struck the child. He refused to answer.
We have now witnessed for ourselves that children are working here, that they are involved with the production of cobalt and we've seen the products
of that child labor loaded on to a variety of different vehicles.
(END VIDEO CLIP)
NEWTON: Now, in light of those images, Daimler has today unveiled a new system to audit its supply chain. It says it will work with 1,500
suppliers worldwide to stop any violations. The head of supplier quality at Mercedes which is owned by Daimler said, "We actively create
transparency in that supply chain right down to the mine, if necessary."
Our Nima Elbagir joins me now from London. Nima, I know that you feel the way I do when you see those images, as many times as you see them, you saw
them with your own eyes when you see the companies' response, and I know you've been speaking with the companies for weeks. What do you think? Is
it sincere and do you think it will actually tip over into true change in this industry?
ELBAGIR: Well, it's hard to take it 100% openheartedly in terms of the companies' sincerity given that this information regarding the opacity and
the potential of contamination in the supply chain was something that the companies have been aware of for years now.
And it literally was only when we started looking through the financial filings, looking through their SEC filings that we saw that companies like
Tesla and Mercedes Benz and Fiat Chrysler had acknowledged this through the Federal government and yet, we're not making it public to the consumer.
But saying that, this is of course - it is a huge move on the Daimler- Benz's part because they know how difficult it is and that's part of the reason why there has been so little supply chain transparency in the past,
and they say, if they have to, they will take it to the mine. From what we see, Paula, that is something that they will probably really have to try
and do because at every single instance in which that supply chain begins to diverge, there is potential for the contamination.
NEWTON: Yes, and you know as well as I do that those who were involved in this very lucrative trade will continue to try and have that child labor on
site, so it is very complicated, much more complicated than it would seem.
What do you think is their best defense to make sure that those children do not end up doing this for - you know, most people want to feel good about
driving electric cars, that's why a lot of people are switching. When you see that video, you're thinking to yourself, "Did we get wrong this entire
time?
ELBAGIR: Well, they have suggested that there will be regular audits undertaken by experts because other companies have said, Tesla for
instance, that they rely on certificates and audits, but what we saw was that the same entities from the Congolese government, they were involved
with slapping that child with hiding the presence of child labor were the same entities that were signing off on the certificate and audit.
[16:05:16] It's going to take money and it's also going to take a great deal of investment of manpower and time. They need to have people sitting
down there at that mine, making sure that there is no child labor in that supply chain because if not, it's very hard to see how else they can do it
without a constant presence.
NEWTON: Yes, and think about how difficult it will be even with that constant presence in those kinds of environments. Nima, we know that you
will continue to stay on top of this story, so we will look for your updates. Really appreciate it.
Now, CNN as Nima was just saying has asked several car companies to explain how they stop child labor from being used to mine their cobalt. Now, BMW
says it makes every effort to ensure standards are high, but admitted to CNN that of course, it could do more.
Volkswagen announced new rules for its suppliers in December and says it will stop dealing with them if they are broken.
Renault also says it could reconsider some of its relationships after its own supply chain audits.
GM meantime says, it has a zero tolerance policy on child labor and is helping train their suppliers in high risk regions. It's very key, their
high risk regions.
Tesla meantime, it carries out audits "to the best of our ability." It didn't respond though when asked to confirm its cobalt was 100% free from
child labor and has admitted in the past that it's hard to know for sure.
Joining me now, Justin Dillon is the founder and CEO of Made In A Free World, the group that help advice companies and how they manage their
supply chains. Okay, so we're talking about how you advice them through this.
As you saw from Nima's report, I mean, this is happening, obviously quite frequently if we could uncover it that way with our own cameras. What do
you say to companies that maybe in terms of words are carrying out what they need to do, but when it gets to the deeds carried out on the ground,
it's been so much more difficult.
JUSTIN DILLON, CEO, MADE IN A FREE WORLD: Absolutely. I think that we need to be able to see transparency as a process, not as a destination.
It's like art, it's never finished. So, the ability to say with any kind of certainty that your supply chain is 100% slave free or child labor free,
that's very difficult to do.
So, I empathize with the legal positioning around that. At the same time, part of what we're seeing around supply chains is we're starting to see
more of a proactive response than a reactive. Five years ago, most companies had no idea what was happening beyond their tier one suppliers or
if they did, they weren't being very active on it.
Now, we're starting to see companies be a bit more proactive like we're seeing in your report.
NEWTON: Justin, now, we've been here before with so many different industries. I mean, several years ago, I was in Pakistan and even I
wondered, it had to do with the making of soccer balls, and you know, there would be posters up saying, "We're free of child labor," and yet, I
wondered that if you looked behind a curtain, what would you find?
What really is going to take this to the next level? Remember, we are dealing with companies that have a lot of money in the bank and at this
point in time, you wonder if you're even pricing cobalt properly? And that's where perhaps it has to start.
DILLON: Perhaps, though I think that we have a lot more tools on our table that we're not using. Part of what we do with our software platform called
Freedom is that we help companies analyze their spend data. So, you think of it as like, what are you buying? Where are you buying it from? Getting
a strong mapping and understanding that information that you can pull in and make yourself vulnerable and make your supply chain vulnerable to new
information.
A lot of companies aren't seeing it, and they just don't have the tools to be able to go after it. Fortunately, through machine learning and big
data, we can start to understand where these risks might be and then using those oversight dollars with efficiency.
I think the understanding that you can fix all the problems everywhere in the world is - obviously, that's not attainable, but every company has a
particular level of procurement power that they can use to kind of create more pressure with their supplier relationships.
I heard in your reporting, you talked - some of the companies are saying that they are working with their suppliers. That's exactly it. Your
values as a company needs to go into your supplier network and if you don't have a transparency tool to be able to make sure beyond just vendor
agreements that your suppliers are not only agreeing with you, but acting on that, that's how you start to create a network that eventually finds its
way around these horrifying and horrible stories and I've been in those mines.
I've been in the micro mines in India. It's heartbreaking and then you see these things coming out of the ground that you know that we end up using -
to use in our electronics and our cars and you go, "Gosh, there's got to be a way to connect the dots."
Transparency at the very top is very important.
NEWTON: Yes, and it will be interesting to see how we get there because we've been there before as you point out with other industries. Thanks so
much. This is a story we will continue to follow. Appreciate it.
DILLON: Thanks, Paula.
NEWTON: Now, mean time the data firm behind the Facebook privacy scandal is now set to close. The statement from Cambridge Analytica says,
"Bankruptcy proceedings will soon begin." The company says media coverage of the scandal has driven away customers and made it impossible to continue
operations.
[16:10:16]
CNN's Brian Stelter is tracking all of the developments, perhaps not a surprise in and of itself, and yet, I look at the word bankruptcy and I
think to myself, "That really doesn't seem to really cut it either."
BRIAN STELTER, CNN CORRESPONDENT: Yes, Cambridge Analytica here in the United States told its staffers today to leave, that it was shutting down,
and its affiliate in Britain, SCL Group, also today saying it is shutting down.
So, this company says it has lost its clients, its customers and can no longer stay in business. There is some reason to be skeptical of this
however, because some of the folks behind Cambridge Analytica recently set up another company, it's called Emerdata. It's unclear exactly what that
company is going to be doing and if it is affected by today's decisions.
But I think a lot of people are going to be watching to see I what was Cambridge Analytica pops up somewhere else with a new name, maybe a way to
try to clear out the damage that's been by this scandal and start over.
NEWTON: Yes, and let's be clear. This has nothing to do at this point with accountability or justice, and yet, Brian, and I know you've been
tracking this closely, what has changed when we talk about Cambridge Analytica or other firms about how they will be able and how much freedom
they will have to do their business going forward?
STELTER: This story has been a huge wake up call for the last six weeks. You know, when the "New York Times" and "The Guardian" first published
investigations in the Cambridge Analytica and Facebook and how Facebook data was improperly used essentially abused by Cambridge Analytica, the
company has essentially denied the thrust of those claims as it was doing everything legally and ethically, but a giant spotlight is now on this
industry of data manipulation with an intent to influence and sometimes, manipulate voters.
So, what we have seen in our investigations in the UK and to some degree in the US, I recently spoke with the whistleblower, Christopher Wylie, he's
the one that spoke to "The Guardian" and the "New York Times" and kind of got this ball rolling, he has been interviewed by a number of lawmakers,
both in the UK and the US and by at least, he is planning to speak with Canadian officials, officials from the US FBI and DOJ. He has a long list
of authorities that he is speaking with.
I think that's a sign that this is being taken seriously by lawmakers, now whether regulation and laws are actually put into effect is another
question, but it does seem authorities are taking this seriously.
NEWTON: And yet, I worry that you know, we're going to figure out what this was all about and then, they're still one step ahead of us, some I am
trying to...
(CROSSTALK)
STELTER: It's kind of like, "Whac-A-Mole," right? You'll whack one mole at the carnival and then, others pop right up.
NEWTON: Yes, absolutely. Brian, thanks again. Appreciate the update. Now, it was a difficult quarter for Tesla. That's to say the least.
Production problems with the Model 3 and here is the company burning through cash at a fast rate. We're about to find out just how difficult it
was. Quarterly results are just minutes away.
Investors are loving Apple's $100 billion stock buyback plan. Apple shares closed up 4% Wednesday making the best performers in the Dow 30. Not too
tough to be the best performer today. Apple's strong earnings report helped boost shares of its suppliers as well.
[16:15:16] Clare Sebastian is following all the developments. Listen, I am on the record of saying share buyback is actually quite unimaginative and
you have to actually look at the company and think you have no better ideas at this point, and yet, analysts weren't expecting much and they blew those
expectations out of the water.
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, that is the key here. The expectations were really low. Someone actually called it full panic manic
mode for Wall Street ahead of this earnings report. The suppliers are saying, they were seeing slowing demands in some of the parts, and people
really did think that it was the iPhone that was going to hurt in this quarter, and it didn't.
The iPhone X was the best performer of all the iPhones. iPhone sales, while it didn't knock it out of the park completely was still up 3% on the
quarter, but the really interesting part of this earnings report, the one that really caught my eye is that, you know, this doesn't allay the fears
that smart phones sales are reaching saturation point in developed markets and that you know, the time that people wait before upgrading their phones
is lengthening, and Apple has become more than just an iPhone company, and it is.
Services were up 31% and that's things like Apple Music, like iCloud, this has consistent revenue and this is something they can do to diversify away
from the iPhone as that demand saturates.
NEWTON: I broke my promise, I had to get into that iCloud the other day. I just clicked on the money, and it's like, "Aha," you can see how people
are making the connection. Having said that, I want to get back to the fact that it did have the share buyback and a lot of analysts have been
saying, look, Apple is a solid company, it's going to remain a solid company for many different reasons.
And yet, where do they go next in terms of the fact that people are keeping their iPhones longer. They do not have any content strategies really to
speak of. Yes, everyone seems to be happy at this point, but still, we're talking about growth for the next three to five years out, and yet, is
services where it's all going to all come from?
SEBASTIAN: I think subscription is a big deal nowadays. You see that, this is what is powering Amazon, you know, things like Prime and AWS. This
is why Netflix is so strong and of course, in the wake of Facebook, with the controversy around the data driven business model, people are looking
to subscription as a sustainable way to stay in business. Obviously, people are not worried about whether or not Apple is going to stay in
business, so I think that is something they are looking at.
They did talk about investing more in content, and it's not clear exactly which area they are targeting there, but I think that is a big part of it.
But the $100 billion share buyback was a pretty stunning number for Wall Street and I think that's going to keep investors interested even whatever
happens with the iPhone in the next couple of quarters.
NEWTON: Yes, it's the moron's guide to investing, it's like the first rule in finance. It's what you learn immediately. You do not do this. I have
no idea why they are cheering it, but okay, so we get back to what they could possibly do in investment.
I am interested to how they look at things geopolitically. We had China and Japan that were actually pretty good when you look at sales in those
two countries. Tim Cook saying, "Look, I don't think there is going to be a trade war here. I am not worried." And yet, is Apple getting to the
point where geopolitical trade issues could really start to hurt in the short term, if not the long term?
SEBASTIAN: I think they're watching pretty closely what's happening in these trade talks. Mr. Trump's allegation is in China at the moment. You
only have to look at the back of your iPhone, Paula, and it says, "Designed in California, Made in China." Every single iPhone is assembled in China.
So, I think this is something that is critical for them if these tariffs do come in and if there's more tit for tat and they don't manage to reach a
deal, then you know, potentially, the iPhone and other Apple - and Apple suppliers could get embroiled in this.
NEWTON: Yes, and if you're China and you want to hit back hard, what better way to do it than with the Apple iPhone. Clare, thanks so much.
Appreciate that. Remember, I know that you will be listening to Paul Krugman who is up shortly. He will be talking about this share buyback. I
wonder if he agrees with me on a whole Apple thing. We'll see.
Over to Europe now, markets closed out the session, mostly higher. Good corporate results were lifting trader spirits. Apple earnings of course,
in particular, helped to boost sentiment across that tech sector.
In the meantime, the European Commission President wants a bigger budget, yes, for a smaller EU, but if the reaction from his colleagues is anything
to go by, he might not get the unanimous support he needs to pass it.
Jean Claude Juncker, call him audacious says, "More money is needed to keep the EU on track after Brexit." That sparked an anger reaction from those
who would need to pay up. The Dutch Prime Minister, Mark Rutte called the budget increase, yes, unacceptable. He could have gone a little further
than that.
The Austrian Chancellor said the same and warned a tough negotiations ahead, and just to prove you can't keep everyone happy, France is looking
for more money. Yes, France is looking for more money in some places.
The EU is hoping to cut some farming subsidies that would be about time. The French Agriculture Minister says that would be absolutely unthinkable.
Ryan Heath is the political editor at POLITICO in Brussels. Yet, that mouthful I just through pretty much sums up the EU budget. We all knew it
was going to go this way. Is there anything different? Is there anything imaginative because right now, with or without Britain, I see the same old
battles.
RYAN HEATH, POLITICAL EDITOR, POLITICO: It is right, the most unimaginable Thanksgiving dinner imaginable, Paula. What is the issue in this budget is
they are doubling the amount of research money, money going to long-term strategic research and innovation projects, and don't be shocked, they are
involving venture capital firms. They are developing funds of funds.
[16:20:16]
They are really pushing it on when it comes to the research and development and innovation. But they are going to have a very big uphill battle doing
the math. We've already outlined the people who are opposed to it, that's just day one.
This is going to be a two-year process. Stalin didn't even have seven-year budgets, but that's what the EU is attempting here. A seven-year budget
that's going to take two years to negotiate, so it's really a long way from this spot.
NEWTON: They are clearly realistic about their ambitions there. Having said that, when we talk about who the leaders will be in the EU, you've got
27 nations and a lot of different things going on politically in each one. When you talk about this is a Europe for growth, what can they actually -
you know, really, attached to this budget that is going to give them the growth, because we've just had very tepid, very unimpressive growth numbers
out of Europe.
HEATH: Indeed, so what they are really talking about as a theme across all of the budget lines this seven-year period is conditionality, so that is if
you don't make higher standards than before, you won't get the money.
If you're not living up to drivers of competitiveness and stability like a proper rule of law system, we are going to withhold the money from you and
they are going to invest quite a bit into structural reform support. They are not waiting for countries like Greece to end up in a bailout situation,
but to really pull those structure reforms when even if its tepid growth, there is some economic sunshine out there.
So, it's a great plan, it's a great theory. It's going to be a long way from practice, but the EU is modernizing more than they have in the past.
NEWTON: Ryan, thanks so much. The heavy lifting today on that EU budget and trying to parse it all. We will continue to follow the negotiations
for the next two years apparently. Ryan, thanks so much. Appreciate it.
Now, we have some news just in to CNN, you know, we told you this would happen. Tesla has come out with those results for the first quarter and
yes, they are ahead of expectations. Once again, another company lowering expectations and see what happens.
The company still suffered a loss though, but less than forecast. Shares are down slightly after hours, just to put all of this in context,
Mashable's tech editor, Pete Pachal is here. Okay, Pete, I know you haven't had a heck of a lot of time to digest all of this. The
expectations are pretty low. We keep using the terms "burning through cash."
PETE PACHAL, TECH EDITOR, MASHABLE: Yes, yes.
NEWTON: Listen, you can't put too fine a point on this. He really has to turn around what is going on with the auto component of his business.
PACHAL: Yes, I mean, they beat expectations but it's - what's going on with Tesla is it's still losing a tremendous amount of money. A lot of the
company is about promise and things that are either real forecasting or just Elon Musk's like vision and high and mighty you know, purposely
aspirational promises on things.
And one of those, the big one is the Model 3 production, and they - we know they are not - it's not meeting what they want it to be. They wanted to
get it up to I think, 2,500 cars a week by the end of this quarter. We already know they weren't going to meet that, but Elon himself has stepped
in to take over the day to day of the production.
NEWTON: Sleeping on the factory floor, could that actually be true?
PACHAL: Apparently, sleeping on the factory floor. He has his gift. I've got to say, Elon is great and I think everyone is going to be listening to
him on the call for that kind of guidance on where they are going to be in Q2, are they going to get to 5,000 a week?
But he has this gift to not just sort of skate where the puck is going, but to get everyone to look where the puck is going because the puck he is
handling right now, he's not handling it that great and he's not going that fast.
So, it's really all about the future for this company and it continues to be.
NEWTON: You had to use that hockey analogy given Mr. Musk's connections to Canada, but very good there. Well done. Well done.
So, in terms of him actually turning the company around though, I mean, I am a little bit skeptical about some of these exuberance that people show
for Elon Musk's ideas. I know that they are there, but in terms of - this is not a new company anymore. We are dealing with a company that by now
should have a clear plan forward.
Do you see any more of that especially with him capitulating on the fact that, look, all right, the automation in our plant wasn't working quite the
way I thought it would and so, we're retooling that.
Do you think he's doing a lot more retooling throughout his entire...
PACHAL: Oh, I think he's retooling constantly. But the thing is, I am reluctant to bet against this because I hear everything you are saying.
You're absolutely right. As a journalist, I look at it very skeptically. What have they done besides build a couple of nice cars for the rich and
you know, the Model 3 is not quite that, but I mean, that's still mostly promise.
But here is - they have this vision for the future, which integrates solar and different kinds of business plans that involve, you know, battery
technology and whatnot that are very long bets, and there is a real movement that believes in him that will just hand him cash and hand him
faith for a long period of time.
I don't think that has entirely expired. I do think the reports this week of them burning, I think it's like $6,500.00 a minute, we're starting to
see punctures in that armor. I think there is going to be a little more attention over the next few months to what are you doing now as opposed to
what are you going to do five years from now?
[16:25:16] But I don't think he is done cashing checks on his vision.
NEWTON: Yes, and you have to give him credit. He went into a mature industry and tried to transform it, and you know, it is a tough call and he
does have a lot of vision for it.
In terms of how much patience the investors should have with the stock, you know, he says that he doesn't need to - he's okay, that's he's okay in
terms of cash flow for the next few months. What are you looking for on the call to really - to believe that? That he doesn't need to go look
for...
PACHAL: You know, mostly about the Model 3 as I said, but also, just the - with the semi and the Model Y and these other things like he's going to
really try to get people focused on stuff Tesla is doing next as opposed to what it is doing now with the Model 3. So, that's all going to be there.
With the Model Y, again, I think you know, he's showing not just "We have stuff, but we've learned from this stuff, we already did." Because the
Model Y is going to be this thing where it is a much less ambitious vehicle than say the Model X, which had these eagle doors, I forget what they
called them, the falcon doors and the windshield that goes way back.
Musk actually said, we had some hubris there. That's why they were so behind on it for so long, it was a very hard car to make and if they can
sort of articulate, okay, yes, we're still ambitious, but we've learned our lessons, then I think people will probably give him a little more, I don't
know, a little more credit to deliver on some of those promise.
NEWTON: All part of the maturing process. Pete, thank you so much and I am glad that you said you know, you don't bet against this guy because
there are so many companies that we have seen in the history that you don't bet against the man or the woman leading them because they find a way to
get it done.
PACHAL: I would qualify that. They are probably one giant boondoggle away from failure at all times, it's just that boondoggle hasn't quite happened.
It's been either a very slow boondoggle or it hasn't happened.
NEWTON: Sounds good. Pete, we'll have you back. This is a story that just continues and in the meantime, he is just sleeping apparently on the
factory floor.
Coming up, the stakes could hardly be higher as China and the US begin talks to China regarding the trade war. I will be discussing that with
Nobel Prize winning economist, Paul Krugman and that's right after the break.
Hello, I am Paula Newton. Coming up on the next "Quest Means Business," Paul Krugman will be here in the sea suite as the debate rages about Donald
Trump's tax cuts and if you're the kind of person who watches concerts through your phone, YouTube, that's YouTube wants you to see their new
tour.
But an exclusive interview with Bono and the Edge. First, these are the top news headlines we're following this hour.
As decision day looms on the Iran nuclear deal, the Iranian Ambassador to Britain said Europe is making a mistake by trying to alter the agreement to
appease the US President.
[16:30:16] In an exclusive interview with Christiane Amanpour, he issued this ominous warning.
(BEGIN VIDEO CLIP)
HAMID BAEIDINEJAD, IRANIAN AMBASSADOR TO THE UNITED KINGDOM: Then the United States is out of the deal, it means that there's no deal left. The
consequence will be that Iran would in fact would be ready to go back to the previous situation.
CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: So that means enriching uranium at a vast speed and capacity.
BAEIDINEJAD: It could be enriching uranium, it could be redefining our cooperation with the agency and some other activities that are under
consideration.
(END VIDEO CLIP)
NEWTON: White House lawyer Ty Cobb is leaving his position, while the administration says he's been discussing his retirement for weeks. A
source tells Cnn Cobb has been crashing recently with Mr. Trump over his combative stance toward special counsel Robert Mueller.
And now the White House confirms that a lawyer who represented Bill Clinton during his impeachment process will now join Mr. Trump's legal team. A
large U.S. military plane has crashed in the U.S. state of Georgia, five people were on board, and the National Guard says the crash was deadly.
Sources tell Cnn there appear to be no survivors. The plane crashed into a suburban area near Savannah, local police say it's an absolute miracle no
cars were hit.
Southwest Airline meantime is investigating another incident on board one of its planes -- I mean, look at that picture. This time, it was a cracked
window forced an aircraft to make an unscheduled landing. The flight from Chicago to Newark, New Jersey, was diverted to Cleveland, it comes three
weeks after a blown engine killed a passenger.
China is preparing for a round of high stakes trade deliberations with Washington. A U.S. delegation led by Treasury Secretary Steven Mnuchin
will meet with President Xi Jinping's top economic adviser on Thursday.
Joining me now, Nobel Prize-winning economist and columnist for the "New York Times" Paul Krugman, we are delighted to have you here, nice to meet
you by the way.
PAUL KRUGMAN, ECONOMIST: Hi there --
NEWTON: Paul, good to have you. I love this because I can start with one of your stellar quote on all this. On international trade, you wrote in
March, that Trump world is heading for a kind of zombie civil war.
So this trip to Beijing, what, it's like the First Battle of Bull Run at Gettysburg, I mean, what is it? What are you expecting from them there?
KRUGMAN: You know, I think I said, I submit to being really baffled. I mean, if there's any coherence philosophy behind Trump trade policy other
than we're America, we should be getting the better end and somehow foreigners taking advantage of us, I can't find it.
But God knows, I mean, the range of possibilities range from -- will get something which we can clean or Trump will get something which is
completely non-substantive that he can call a victory to at least start to fall on trade war that ends up, you know, being a kind of great replay of
the early 1930s.
NEWTON: And yet, they are going there, it is trade diplomacy in the way it's supposed to work. Do you think that they will be able to convince
China that look, it hasn't been that fair going forward. And let's face the facts, some people have said these trade deals in fact did have a lot
of rough edges.
And what's wrong with trying to smooth some of them up?
KRUGMAN: The trouble is that almost -- I mean, there are some valid complains about China now, some of the important stuff. But they mostly --
NEWTON: Especially when it comes to intellectual property.
KRUGMAN: Mostly involves intellectual property, but that is not what the Trump people are talking about. They're talking about the bilateral trade
deficit which is in fact -- first of all, half of it is collusion. It's not really China, you know, China is the place that assembles stuff from
Japan and Korea.
So it isn't really what it appears to be. And secondly is not really a problem. So the Trump people are talking tough about something that isn't
-- not about the actual sins that China is committing, but about the sins they aren't committing.
And it seems to be demanding something that Chinese can't deliver, which is a drastic reduction in that bilateral imbalance.
NEWTON: And yet, you know, President Trump was elected on this platform, and you know what people are saying about you, you're a left-leaning
liberal elite, you were in the firing line --
KRUGMAN: Yes --
NEWTON: They say you just do not understand what's going on in middle class America, and middle class America is saying China is taking our jobs
and it's about time someone stood up for our jobs.
KRUGMAN: Yes, you know, left -- liberal left-leaning free trader? I don't know, anyway, the -- but this is -- look, there was a real issue. There
wasn't genuine China shock, the rapid growth of Chinese exports to the U.S., this plays a lot of --
NEWTON: Which no one cushioned at all for anybody.
KRUGMAN: That's right.
NEWTON: Although, you know, if you were going to look for things to cushion it, it would be things like guaranteed healthcare, food stamps, all
the things that Trump is trying to cut.
[16:35:00] But in any case, the point is that, that's basically -- that's in the rearview mirror now.
Right now, if Trump gets his way -- if we have a trade war, I don't know if that's what Trump really wants or not, but we have a trade war, that's just
the China shock all over again. It's like the old joke about the motorist who runs over a pedestrian, says, I'm sorry, let me fix that.
So backs up and he runs over the pedestrian again, right? We have a -- we have an industrial structure that's built around integrated world economy
now, start to break it up and it could be hugely disruptive --
NEWTON: But you know, people are going to say, there you go again. Because people, if you are in Illinois, if you're in Michigan --
KRUGMAN: Right --
NEWTON: You're saying to yourself, there's got to be something done about this because we see the countries like China -- not just China, but the
countries like China taking our jobs and with international trade that did it to us.
KRUGMAN: Except as -- you know, that's mostly not true. There's a little bit of truth to it --
NEWTON: OK, but let's deal with that little bit of truth. Again, can we at least admit that people -- politicians did not foresee those bumps, they
didn't smoothen those rough edges for their own economies.
KRUGMAN: Yes, that's right, but the question is -- we can try to revisit the history, but I think this is unproductive. You know, what do countries
that have managed to avoid declining wages, lots of, you know, suffering as a result of globalization, what have they done?
If they have not close themselves off -- you know, look at Denmark, we -- Denmark's raises not like this, but they're just as opened to the world
economy as we are, they have the same technological shocks we do, they have nothing like the kinds of poverty we have.
Everybody has healthcare, so it's a question of domestic policies, and if people are you know -- I understand that a lot of people feel upset and
they want somebody who will promise to bring back the manufacturing jobs we had 30 years ago.
But you know, that's not going to happen, nobody can do that. Now the arithmetic says you just can't do that.
NEWTON: And automation says you can't do that as well. Donald Trump's economic team, you're on record of saying that Larry Kudlow; the economic
adviser is wrong about everything.
KRUGMAN: Yes, I mean, all of us make mistakes. So I've made some, Trump certainly likes to point out the one big mistake I made in the heat of
election night, but Kudlow has as somebody said, he turns wrongness, spectacular flamboyant wrongness into a kind of performance art, right?
And above all, he keeps on insisting tax cuts will bring joy and miracles, happiness, rainbows, you know, of course, and the tax hikes will bring
disaster. And nothing, not the Clinton boom, not the Bush -- the economic catastrophe at the end of the Bush years, not that there are any cancers,
every course seems to change his lines.
So and of course, in terms of his philosophy, everything that he wants is more money for rich people and less for the working class. So it is the
exact opposite of the populism that Trump claims to represent.
NEWTON: And there's a dichotomy there, and there's in fact a hypocrisy there and yet, and yet everything that I hear from you is stuff that we
will hear again from the Democrats to no avail. It doesn't seem to be any kind of a message that resonates.
KRUGMAN: If you look at the special elections, I mean, you know, special elections so far, but a huge Democratic swing. Now, there haven't been
about trade policy, it's interesting as far as I can make that, not the elections has been about trade.
None of them has been about tax cuts, Republicans barely talk to me about tax cuts. They've been largely about healthcare where Democrats have been
saying, hey, Republicans are trying to take away your healthcare, and that has been resonating, you know.
They have been taking Trump -- you know, plus 15, Trump districts and winning them, they've been taking Trump plus 20 districts and getting
close. So I don't know what resonating means.
NEWTON: No, resonating means that trade is still seen as a dirty word, it's through a lot of parts of America.
KRUGMAN: Yes, you know, I actually had my doubts about how much people really care about it. I mean, people want Trump to bring back the jobs,
and there's still some people they've been -- they want them to bring that coal jobs, whatever.
But the idea is, this is a really big multi-fading factor. I mean, for what it's worth, the political scientists who've hashed over the election
have now concluded that we're going to have basically racial animosity as a much bigger story than economic anxiety.
And yes, people get upset and either with changed hurts and we do not do enough to hurt -- to help the people who are hurt by change, whether it's
technology or trade. But you know, the kinds of people who want to provide more cushioning from economic misfortune tend to be, you know, Democrats,
not Republicans.
NEWTON: And yet, and yet, you're still having a hard time committing people -- I mean, mid-term election aside, I even hear people in the
Democratic Party saying now that we don't have a candidate that's speaking to these issues forcefully enough, at least, not since Bernie Sanders.
You know, if you take the entire trade argument and I agree that perhaps trade isn't an issue until it starts to become a problem. And if you're a
farmer in the United States right now, you might be thinking it's a problem.
[16:40:00] We had Commerce Secretary Wilbur Ross say let's now yield, there might be some damage to the economy, but we have to do this, so we have to
take on this battle on trade.
KRUGMAN: Well, the farmers is an interesting case, because this is -- that's exactly the same thing I was talking about, we're trying to reverse
the liberalization of trade. Trying to, you know, roll back the clock on all the trade changes.
It's actually going to hurt as many people, it's going to be just a disruptive or if not, more so than the big increase in trade to start with.
So if you ask, you know, who is going to be hit hard if we get into a trade war with China, it's going to be farmers.
The Republicans might lose Congress over sorghum, you know, it's -- so yes, I mean, nobody has a perfect answer here, but -- and I think part of the
problem for this is that no serious candidate can actually promise the kinds of things that a lot of people want to hear.
If people want to hear that we can -- that I can have the kind of well- paying manufacturing job in steel that my father had -- well, nobody can promise that unless they're just -- you know, ignorant or lying which for
some is not a problem.
NEWTON: And we will continue this conversation in just a moment. Coming up, Apple gives the shareholders a big pay day, thanks in part, yes, to the
Trump tax cut. After the break, we'll ask Mr. Krugman whether that money could have been better spent elsewhere.
I think I already know the answer to that.
(COMMERCIAL BREAK)
NEWTON: Apple's shares buyback bonanza, the big hit with investors, of course it would be, the stock rocketed to the top of the Dow 30 Wednesday,
the Trump tax cuts helped to pay for the $100 billion buyback.
Some critics say that money should be going towards jobs or investment rather than corporate shareholders. Mr. Krugman, what do you think? I
mean, this is a massive buyback, again, investors obviously like it, and yet to give Apple some credit here, they are bringing the money back and
some of it will go into investing in American jobs.
KRUGMAN: Actually, it's not clear that any of it will go into investing in American jobs. I mean, I don't blame Apple, Apple is doing, you know,
they're maximizing profits, they're maximizing their goals.
What Apple is saying is yes, we've got a big tax cut bonanza, that doesn't really give us any particular reason to invest more, which is what's
happening across the board.
You know, the whole theory, the theory of the case behind this tax cut was that everyone was going to lead to a huge surge of corporate investment,
real investment, actually, plant and equipment that was going to eventually push up wages.
I'm sure that, you know, that --
NEWTON: And it still could, it really --
KRUGMAN: It still could, but we should be seeing not the big rise in wages, that was always supposed to be the long run, however long, that's
supposed to be. But we should be seeing an investment boom or at least some indications of a planned increased investment right now, and we're
just not seeing that.
I mean, so there's enough -- there's enough data already under -- you know, under the bridge for us to say that this is not playing out according to
the story. This doesn't look at all like the story. This looks like the tax cut is a nothing-burger as far as this investment is concerned.
[16:45:00] NEWTON: Yes, and you wrote a column recently about this, just saying how is that tax cut working out for you. And the point that you
make is that it's not really top of mine for Canadian worker, for probably the American worker.
You're not seeing them talk about, you know, the increase in their paychecks and jumping for joy or it really affecting their spending. I
mean, set that, why do you think it has and had such political promise?
KRUGMAN: Oh, I don't think it ever did have a lot of political promise. I mean, I mean, it have to deal with a couple of Republican Congress people
who actually said my donors are telling me, pass this tax cut, you won't get any money from me.
So you know, obviously, the corporate interest that got a big tax cut liked it. But it was not -- there was never any strong popular demand. And
polling always shows that the public really doesn't want tax cuts, certainly, doesn't want tax cuts for corporations.
And the belief that this was going to lead to a big increase in wages was a belief held in the teeth of most independent analysis, most historical
evidence. You just couldn't -- you know, this was -- what's happening, that was pretty much exactly what you could have predicted was going to
happen.
Except estimate, even I'm surprised it had little effect we're seeing on corporate spending.
NEWTON: I mean, you actually thought there would be some type of a bump.
KRUGMAN: I thought there'd be some bump, I thought it will be a small bump, and I thought it will be something and you really can't see --
NEWTON: OK --
KRUGMAN: That at all.
NEWTON: And having said that, there is still time. And I have to put you -- I mean, what do we want here? Do we want Europe, it had -- struggling
with tepid growth for years now. Some people would say a low tax regime is the way to go, will in the long run stimulate growth.
KRUGMAN: Actually, Europe, one of the items of this tax cut was that our corporate tax rate, the headline tax rate was higher than Europe's. So
this was -- you know, Europe has gotten where it is, first of all, with relatively low corporate tax rates. And then actually --
NEWTON: But that doesn't bear out as you know, from the way they actually -- and companies have to end up doing their books at the end of the day.
KRUGMAN: Well --
NEWTON: There was a massive tax regime --
KRUGMAN: The whole shifting, the leprechaun --
NEWTON: Yes --
KRUGMAN: Economics rolled up, somehow popped up in Ireland. But the -- you know, the European story -- first of all, the European performers, once
you adjust for demography, it's not actually that bad.
I mean, they've actually done a whole lot better when you bear in mind that they have much lower fertility raise and so on. GDP per work in each
person hasn't done that badly compared with the U.S., but any case, that's a hell of a broad argument to make, right?
The question is, was there ever any good reason to think that we're going to get big economic benefits from what is now looking like a $2 trillion
tax cut, mostly aimed at corporations. And the answer is, there was never any good reason and initial evidence is even worse than the pessimist
expected.
NEWTON: And which brings us to the hangover of those tax cuts. So if we start talking about very large deficits, obviously the broaden debt as
well, and talk about -- or is the Fed's hands going to be tied going forward especially as some people predict will be headed into the low end
of this business cycle by 2019-2020.
KRUGMAN: Well, I'm not -- I have to say that I am not -- it's not a good thing, I mean, this is $2 trillion that will weigh on people's minds, will
weigh on legislative initiatives, this is $2 trillion that could have been spent a lot better in other ways.
I don't see a debt crisis in the United States. The country is, you know, politically -- I think we're politically stable country. Though God knows
what --
NEWTON: Now you're making Trump's argument for him.
KRUGMAN: No, I'm just saying that I don't see a crisis --
NEWTON: You sound far too --
(CROSSTALK)
KRUGMAN: Forward --
NEWTON: About --
KRUGMAN: Well, yes, you know, I look -- I lived at Japan with you know, debt at 200 percent of GDP and it can still borrow at extremely low
interest rates. And I say, it's really hard for a country like the United States, again, with debt crisis, but this was not a smart thing to do.
And think of all the other things we've could have done instead of giving a big tax -- you know, instead of basically paying for share buybacks by
Apple.
NEWTON: And that is at the heart of the issue here, when you talk about other things that could be done, why do you think infrastructure wasn't
done and do you think it still can be done?
KRUGMAN: Well, infrastructure, to do infrastructure, I mean, it's simple. The idea is simple, it's just, you know, have the federal government borrow
some money -- would have been better to do it when we were more depressed, but still, have the federal government borrow some money and actually build
stuff, I mean, repair stuff.
The trouble is, first of all, you have to be willing to accept the idea of increased government spending, even on anything and a lot of Republicans
are not. And so the Trump team, you know, tries to come up with public- private partnerships ways to avoid, actually having to stop beyond the books.
And secondly, to actually do that, you have to have some competent people to decide where and how the money is spent. So does this sound like a
prescription of a Trump team to you. I mean, if you were going to assemble a group of people, who you would not want in charge of a major
infrastructure built, you couldn't do better than people you've actually got in and around the White House.
So infrastructure is an easy idea, I can easily imagine even some previous Republican administration is doing it. You know, Eisenhower interested in
the highway system, but not these people. And so they keep on talking infrastructure, but it never actually happens.
[16:50:00] NEWTON: The president has a lot of swagger these days when it does come to the economy. He feels as if it's his touchstone and he knows
what he's doing there. Going forward, do you think there will -- how do you think there will be more of an audience for the kinds of ideas you're
putting forward.
Because as I said, there's an anti-elitist bent right now, and as much as you don't want to accept that label, people will say, Mr. Krugman is an
elitist and he did not see the writing on the wall for so many years despite the brilliant economic models put forward.
KRUGMAN: I think this is not -- look, trade is an issue where a lot of us, I think and I'd admit, failed to see that it was as disruptive as it turned
out to be. I was never one of the real globalization rules guys, but I was --
NEWTON: OK --
KRUGMAN: Too sanguine about it. And the -- as for the rest of them, look, the things that matter a lot to people's lives are things the government
can do is health care, social safety net, retirement security. Those are things on which you know, this is -- those are all actually democratic
issues.
And in terms of -- now, I have to admit, I think the Democrats are going to have a hard time finding a candidate for president who is going to say, I
am going to bring back 10 million manufacturing jobs. That's because any candidate who says that would be lying.
And the Democrats are probably not going to choose somebody who is going to be that bold face about saying things that are clearly not true. Otherwise
look, there's always going to be some people who imagine that tough talk swagger is going to bring, you know, is going to -- is the solution to our
problems, but they aren't.
And I think there's probably a lot -- although I know about politics, but I simply think there's a lot of voters who in the end will actually face up
to that reality.
NEWTON: For someone who says he doesn't know a lot about politics, you're certainly not shy about getting involved. Thank you very much --
KRUGMAN: Thank you --
NEWTON: We appreciate your time, you have to promise that it'll come back which should be very -- sorry, that he missed you.
KRUGMAN: OK.
NEWTON: We have that.
KRUGMAN: One of them eventually, say that Trump announces his infrastructure plan.
NEWTON: Oh, OK, that's not fair, but next time we can talk about investment --
KRUGMAN: OK --
NEWTON: Hope that's all good, thank you again, and we will be right back with more of QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
NEWTON: U2's latest tour begins in just a few hours in around Oklahoma. And while some bands don't want fans to watch their concerts through their
phones, U2 is actually asking fans to use those smartphones.
They want you to watch an augmented reality version of the band during the gig itself. Our Laurie Segall got an exclusive sit-down with Bono and The
Edge.
(BEGIN VIDEO CLIP)
LAURIE SEGALL, CNN SENIOR TECHNOLOGY CORRESPONDENT: Can you explain to me the thinking behind using augmented reality to kick off the show?
PAUL DAVID HEWSON, MUSICIAN: Total immersion is our gig. And I guess AR just helps --
DAVID HOWELL EVANS, GUITARIST: It's used to really amplify the song so that it gets across in a more clear, direct potent way. So it's -- if it
doesn't serve the song, we would not consider it.
[16:55:00] HEWSON: You will see that this kind of image we have of consciousness was like this big iceberg, and then it starts to melt and we
had to compact that experience because of battery life. And then we want to do some intimacies, we wanted this very raw, naked version of the
singer.
I mean, we tend to use my story in U2 because I'm a singer. It could be anybody's story in general.
(MUSIC)
SEGALL: I don't know what it's like to be you guys on stage and looking out at a thousand gazillion screams, right? But I am sure that's
complicated because you want people to be present for you, but now --
EVANS: Don't mind the phones, is when they held up the laptop and say, you know --
SEGALL: And all that --
EVANS: Just a little over the top --
HEWSON: Just over to you. You remember are just -- it's very unsound thing to think that people should be interested in your most private
thoughts. To a bunch of mega-maniacs of course, and we want people's complete attention.
And we get really cross if, you know, somebody goes to the bathroom during one of our self -- so you know, I think just to try and have fun with this
potential for distraction and make the phone part of the actual experience of being on the show.
That was -- that's part of the appeal of using AR.
(END VIDEO CLIP)
NEWTON: And that's QUEST MEANS BUSINESS, I'm Paula Newton and I will see you right back here again tomorrow.
(COMMERCIAL BREAK)
END
