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Quest Means Business
Tehran Says It Wasn't Involved In The Attacks On Two Tankers; Tech Stocks Are Among The Worst Performers Of The Day; Google CEO Warns Of The Risks Of Over Regulation. Aired: 3-4p ET
Aired June 14, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:00] PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Let's call it a holding pattern. We are in the final hour of trading on Wall Street and
yes, they are looking for direction.
The Dow has been struggling all day, it just picked up a little bit just in the last few minutes. Energy and tech shares in particular though under
pressure. Those are the markets. These are the reasons why.
Blame game: Tehran says it wasn't involved in the attacks on two tankers. Washington says though it has the pictures to prove it. Unintended
consequences. Google CEO warns of the risks of over regulation. Sundar Pichai is speaking exclusively to CNN. And Chewy delivers. Okay, I'll
stop all the puns. A treat for Wall Street. Yes, the company's founder will tell me how he'll avoid the fate of pets.com. Remember them?
Live from the world's financial capital, New York City. It's Friday, June 14th. I'm Paula Newton in for Richard Quest. And this is QUEST MEANS
BUSINESS.
Okay, good evening, we continue to have developments on our top story. President Trump has firmly laid blame for the twin tanker explosions at the
door of Iran despite fierce denials from the top brass in Tehran.
Now the U.S. military has released video which it says -- you can see it there -- shows an Iranian patrol boat removing an unexploded mine from one
of the vessels hulls. This is what the evidence are pointing to.
But get this, the Japanese company that owns it says it doesn't believe it was attacked by a mine or a torpedo. A U.S. official now told CNN that
small Iranian boats are preventing tugboats from actually towing away one of the tankers. That same officials says an Iranian boat tried to block
the USS Bainbridge from getting to the scene.
And in just the last hour, the U.K. has said it is almost certain the Iranian military attacked those tankers. Fred Pleitgen is in Tehran, Sam
Kiley now at the Port of Khor Fakkan for us, where one of the sabotaged ships has now docked.
And Fred, we will get to you in a moment. But Sam, I want to turn to you in terms of where we're getting the evidence for this. What has transpired
in the last few hours to get any clarity, if possible on what happened and who is responsible?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, it remains a very confused picture, Paula, but principally because we have this grainy
videos, as you say, coming from the United States, which shows an Iranian vessel removing something from the hull of the Kokuka Courageous.
Now, that is not proof that they put that something there in the first place. That would be proof positive that they put perhaps an explosive
device on the hull of this ship at the same time, we've got sources in British intelligence, as you say, saying that they believe that the
Iranians may well have been behind it.
But whether that belief is based on American evidence, or their own British, evidence we don't yet know. Now, the Iranians are absolutely
adamant that they had nothing to do with it, and indeed, that they rescued 23 crew members of one of the ships, both ships are still out in the Gulf
of Oman. And there are reports that one at least is being harassed, or at least those involved in the salvage of it. And this is the Altair are
being harassed by Iranian gunboats in international waters.
But again, we've only got the Pentagon's word on this. We have no separate evidence and cynicism about what Americans say, in regard to the sorts of
issues that could be a cause of war, of course, set off alarm bells around the world, when one recalls the gigantic lies told by the British and the
Americans in the run up to the Iraq invasion of 2003.
Notwithstanding that level of cynicism, there is a strong belief here in the Gulf, in Saudi Arabia, and in the UAE, and of course, in Israel further
afield that the Iranians are using this sort of asymmetric tactic to signal just how dangerous they could be, if they chose to try to close that Strait
of Hormuz, only 12 and a bit miles wide, a third of the world's oil goes through it.
And you can just see -- I don't know if you can see on the camera, but just on the horizon here, only about half a mile to a mile offshore where I'm
standing, the horizon is absolutely choked effectively with tankers trying to come and go through the Straits of Hormuz, it's an extremely busy
waterway and one really, one of the main arteries through which the economic blood of the whole planet pumps.
So from the perspective of the Americans who do believe the Iranians are behind this, this is a sign that they can pinch that artery -- Paula.
[15:05:20] NEWTON: And pinch, they are apparently, Sam, as we can see from that map, that is quite a choke point. And yet, Fred, you have been on the
front lines of this, getting information from the Iranian government saying, look, these are strong, strong denials.
And yet what's that work there in Iran in terms of those denials, and yet, they have said quite, you know, aggressively in the last few months that
they will change their behavior because of the Iranian deal that was cancelled by the United States.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, you're absolutely right, Paula, and the Iranians really are very much denying that
they were behind any of this. The interesting thing that we're seeing, especially from Iranian state media, which we've been watching very closely
as well, they haven't really shown that video that we've just seen of that Iranian boat coming up to the tanker.
So certainly, that's not something that the Iranians have commented on, and certainly not something that is being really publicly widely shown here on
media outlets.
Nevertheless, the Iranians are saying in the form of Iran's Foreign Minister Javad Zarif, saying, look, there's not even circumstantial
evidence, he says that Iran was behind this. And it's interesting, if you see the semi-official farce news agency, it came out not too long ago, with
report saying, and this is a quote, again, "The American narrative is false," citing what we had at the beginning of our show, the owner or the
operator of that tanker that was seen in that video, saying that the crew of that tanker does not believe that it was attacked by a mine or that it
was hit, or that the explosion was caused by mine, but rather that projectiles were fired at the ship.
They are also apparently saying that one of the reasons why the crew seems to believe that is because all of the hits seemed to be above the
waterline. Now, how much they really got to know of when this was taking place, how much situational awareness they would have had at that moment,
we don't know.
But that's certainly one of the things that the Iranians are talking about here. At the same time, you're also correct. They are ripping into the
U.S. They're saying, look, the U.S. is the side that's essentially inflaming tensions here in the Persian Gulf area, but also between the U.S.
and Iran, and in general here, in this region.
Iran's Foreign Minister coming out and saying that the U.S. is trying to prevent de-escalation in this area. Of course, one of the reasons why the
Iranians are saying that is because this attack took place as Iran's Supreme Leader was meeting the Prime Minister of Japan to try and talk
about de-escalation, possibly also about an offer from President Trump to try and jumpstart at least talks or some sort of negotiations once again.
And the Iranians are saying, look at that point in time, there simply is absolutely no reason why Iran then would have attacked a tanker in those
very narrow international waters, as Sam was just talking about.
NEWTON: Yes, Fred and yet, as you've pointed out to us many times before, there are factions within Iran themselves that are sometimes at odds, we'll
see if we get more information in the hours in the days to come about exactly what happened there. Our thanks to both Sam and Fred, appreciate
it.
Now to try and get more perspective of this. I'm joined from Washington by Ambassador Barbara Leaf. She is a former U.S. Ambassador to the UAE. Now,
you are saying of course, Ambassador, that this is not headed for war, and yet what kind of collateral damage could we see here, especially of the
economic kind?
BARBARA LEAF, FORMER U.S. AMBASSADOR TO THE UAE: So what I would say is this specific event, like the event off -- the set of events off of
Fujairah, don't themselves rush us into to war. And both the Iranian leadership and President Trump have reiterated repeatedly over the past
month that they do not desire to go to war. That said, there's a clear escalatory pattern at work now.
And of course, two countries that have had -- what I would term, an oftentimes violent non-relationship for over 40 years can nonetheless find
themselves at war and some would argue we have been in a kind of shadow war, a twilight war, in David Crist's words for 40-some years.
NEWTON: Does this, partially though, you know, we've had in the last hour or so, we've had the U.K. -- Britain come out and say that they believe
with almost near certainty that Iran was also involved in this.
I mean, everyone who has been following this, Britain was one of the country's trying to get the United States and Iran to stay in that deal.
Does this carry more weight? And does it give more weight to what you call really a dangerous escalation that could be going on here?
LEAF: Look, this is a dangerous escalation. And I will say quite forthrightly, I haven't seen the evidence or the intelligence et cetera,
but my first thought when I heard of the reports yesterday, as on May 12th, was who is the likely suspect? It's indisputably Iran.
I mean, Iran has a history of targeting commercial shipping, commercial cruise, even. They have the capabilities to pull off a highly complex,
sophisticated attacks like these, and they have the motivation and this is like the Fujiwara attacks. It has all the hallmarks of a state actor and
who has the motivation? It is Iran and they do have the capabilities.
[15:10:17] NEWTON: Where do we go from here now? You know, it's interesting when you look at the regional players here, and especially if
you're talking about the UAE, which we have a lot of experience in Saudi Arabia, what do you think they do now, if they start to see this
escalation, because as we've pointed out, there is a lot at stake?
LEAF: Well, it's not just these two countries that have a lot at stake. And I would note that both of the tankers had had recently departed from
Saudi Arabia and a petrochemical refinery in UAE. So again, you have that connection that you have back in May.
All that said, this is really becoming a global problem, because of course, any disruption in the oil supply the spike in prices, et cetera that has an
immediate bearing on global energy, global economies. So nobody is left undamaged in the end, if this persists.
NEWTON: And quickly, you do believe though that Iran is sending a message here one way or the other?
LEAF: Iran is sending multiple messages in multiple directions. First and foremost, to the administration, testing the proposition that the U.S. has
any ability to stop this sort of thing and directing itself to two of the closest partners of the U.S., Saudi Arabia, UAE, to remind them that they
too, are vulnerable, and they too will share in the pain that Iran is feeling from the so-called maximum pressure campaign.
NEWTON: Yes, and it will be interesting to see the U.S. -- the next moves from the U.S. both diplomatically and if there is any kind of reaction
militarily, Barbara Leaf, thank you so much, really appreciate your perspective.
LEAF: Thank you.
NEWTON: And as the Ambassador was just saying, you know, we talk about oil prices, they had spiked a little bit, but now those oil prices are climbing
a little bit after having really a bad day amid concerns over potential supply disruption.
That's one issue here after those tanker attacks, but they remain on track for a weekly loss, why? Weighed down by continued concerns over that trade
dispute between the U.S. and China and we will have much more on that in just a little bit.
On Wall Street, the Dow has finally made it into positive territory when I had turned my back. There you go. They had spent most of the day in the
red. Tech stocks are among the worst performers. Of course, they're being hit by an unexpectedly downbeat outlook from the chip maker, Broadcom.
Broadcom posted bleak results Thursday and issued -- and this is what's interesting here -- they issued a warning about a slowdown in demand. That
warning caused Broadcom shares to plummet. You can see it down there dragging down the entire sector.
It's actually picked up a little bit, they're now down five percent. They had been down almost about eight percent. Those gloomy earnings are on
that U.S.-China trade war. And of course, that Huawei export ban.
Matt Egan has been tracking all of this, what I was so interested in this was that it seemed to be the canary in the coal mine. They were, you know,
dead factual about it. This is what it's going to cost us. And this is how we think it's going to spread.
MATT EGAN, CNN BUSINESS LEAD WRITER: They did not mince any words here. And if you're looking for evidence of how the trade war is actually
impacting business, just look at the chip makers.
Broadcom was pretty clear. They said that there's two major factors here. One is the trade war. And that is related to Huawei and the export ban on
Huawei. And two is this global slowdown. And so they had some pretty negative things to say. They downgraded their outlook for the rest of the
year by $2 billion dollars. To give you some context around that, that's twice as much as Bank of America had anticipated.
And they really called out that export ban on Huawei because Broadcom got about a billion dollars, almost a billion in sales last year, just from
Huawei directly. And so that is a big deal for this company.
NEWTON: A big deal. And yet, it wasn't just Huawei, right? That's what I was so intrigued about. They are actually looking this totality. I mean,
when we start to think about things like recessions or the true impacts of trade wars, we are really starting to see it with this company and the
whole sector.
EGAN: Right. That's right, because as I said, it's only a billion dollars from Huawei, but actually, they cut the outlook by $2 billion. And they
acknowledged that and so what they said was they have this broad base, slowdown in demand, and that's got to be concerning.
Now, we've seen investors knock down the shares of the rival companies, NVIDIA and Qualcomm down; Apple, which gets chips from Broadcom is down as
well. And this is another piece of evidence for those people who are worried about an economic slowdown or even a recession. And there was
other numbers out this morning that were disappointing, too.
China had industrial output at the slowest pace in 17 years, and you have the bond market that is still flashing all these concerns. I certainly
don't envy the Federal Reserve, which of course is meeting next week and it's going to decide just how much of a rate cut signal do they want to
send.
NEWTON: And how much to listen to the President's Twitter feed which we will also get to in just a few minutes. Matt, thanks so much. It is an
important sector to look at. As I said, they usually get is the first indication of what's going on there.
When we come back CNN's exclusive interview. You don't want to miss this with Google CEO, Sundar Pichai. What he thinks of growing calls to break
up big tech; and Amazon hitting back at 2020 hopeful, Joe Biden after the former VP takes direct aim at the taxes paid by Amazon.
(COMMERCIAL BREAK)
[15:15:57] NEWTON: A real news making interview we have for you here. The Chief Executive of Google says he is not surprised his company is facing
antitrust scrutiny. But he says he is concerned about his words here -- unintended consequences of tech regulation.
Sundar Pichai is speaking out for the first time since news broke of a potential probe into Google by the U.S. Justice Department. He sat down
for an exclusive interview with CNN's Poppy Harlow.
(BEGIN VIDEOTAPE)
POPPY HARLOW, CNN ANCHOR: There's reporting that the D.O.J. is laying the foundation for a possible antitrust investigation into Google. What's your
reaction to that?
SUNDAR PICHAI, CEO, GOOGLE: No, we have always felt as a large company, we have gone through similar, you know, scrutiny in other countries, including
in the U.S. before.
You know, I think it's perfectly fine that, you know, as companies get to big scale, there is scrutiny. Scale does offer many benefits. It's
important to understand that. As a company, we now invest sometimes thinking five to ten years ahead without massively worrying about short
term profits.
And if you -- if you think about how technology leadership directly contributes to leadership in a global economic scale, big companies are
what -- who are investing in tech colleges like AI the most.
So there are many benefits, taking a long term view, you know, driving long term development, which big companies can do. But I think it's important
to make sure that we are also able to create a healthy competitive ecosystem in which other companies are able to emerge.
And you know -- and that's the important question, you know, and I think scrutiny is right. And, you know, we will participate constructively in
these discussions.
HARLOW: Did you expect it to come, Sundar? Or were you surprised by this news?
PICHAI: Maybe the specific timing of it. But you know, we had always expected, you know, we have gone through similar situations in Europe. And
so it's not a surprise to us.
HARLOW: Congress, the House Judiciary Committee has also launched this top to bottom antitrust investigation into you and your competitors, the whole
tech industry, all the big tech. And I'm interested, if that has changed any action you take within Google?
[15:20:05] HARLOW: Meaning has it changed what you and the Board are talking about? Has it made you rethink potential acquisitions for anything
that may look anti-competitive?
PICHAI: You know, for Google, the scrutiny has been there for a while now. So we've always taken that into account. There have been times when we've
looked at some acquisitions and said, "Look, this is not, you know, something that may be possible." And so we've always taken that into
consideration.
HARLOW: Because of this concern.
PICHAI: Yes, potentially, you know, making sure there's not too much concentration in a sector or so on. So-- but I think for some of the other
companies, maybe the scrutiny is newer, but for us, you know, we've had this for a while.
HARLOW: You're used to it.
PICHAI: Yes.
HARLOW: As you may have heard, some 2020 contenders and lawmakers think you guys and all your competitors are way too big. Senator Elizabeth
Warren, a Democratic 2020 contender has even put a billboard in San Francisco talking about breaking up big tech. And she says that Google and
its competitors are in her words, they have too much power. She says, you hurt small business and stifle innovation. Is she right?
PICHAI: I mean, you have to look at the actual facts. And we, first of all, as a company, we do many things. Some areas, we are upstarts. We are
challenging other established companies. And so if you look across the breadth of what we do, you know, you look at every area. You look at
whether there's other competition and the users have choices.
And above all, are we doing well, because we are executing well as a company or you know, and doing the right things and doing well or not. And
so, you know, the details end up mattering.
And you know, so, I also think it's important that when we look at it globally, our tech companies are going to contribute to our economic growth
in an important way. And we compete against other countries, other companies. And so I think it's important to keep that in mind as well.
HARLOW: It sounds like you think she's wrong.
PICHAI: I think there needs to be healthy debate, you know. Any campaign has, you know moments around that. But what matters to me is the healthy,
thoughtful conversations around it.
HARLOW: Your argument about other countries and America's competitiveness is similar to an argument Mark Zuckerberg has made basically, we're going
to do it or China is going do it. Is that essentially what you're saying? Don't stifle this growth in America or it will go elsewhere.
PICHAI: You know, it could you know, when being in Silicon Valley, for example, I always think, I mean, you can't take for granted that you will
always be successful. I think you have to own it. You know, now there are many countries around the world, which aspire to be the next Silicon
Valley, and they are supporting their companies, too.
So we have to balance both. This doesn't mean you don't scrutinize large companies, but you have to balance it with the fact that you want big
successful companies as well.
HARLOW: Well, to that point, I mean, I know that you view Google as more than an American company, you view it as a global company. So are you
essentially saying, look, look at us, you've even asked for regulation for rules of the road, but if we are too squeezed or broken apart, we won't
hesitate to build more elsewhere.
PICHAI: It's basically -- I worry that if you regulate for the sake of regulating it, it has a lot of unintended consequences. If you take a
technology like artificial intelligence, you know, it will have implications for our national security.
PICHAI: And you know and how we offer you know, other important areas of society.
(END VIDEOTAPE)
NEWTON: So unintended consequences, our tech expert, Shelly Palmer is here with us, I am really glad you're here to help us parse this interview.
Look, we all know what's at stake here. And it's whether or not the government -- governments, I should say, not just in the United States are
going to have a larger say, I'm going to preface all of this by saying you have told us for years that if you look at a company like Google, your
point is that they are one of the most data rich, that means able to make money and control our lives, all of that data in the world.
In that context, what do you think of that conversation you just heard, especially when we look at the political debate right now?
SHELLY PALMER, CEO, THE PALMER GROUP: I think political debate is taking the easy populist scare everybody get everyone riled up approach. And I
think that when you're explaining, you're losing, and we are going to be explaining the whole time because tech is not a sound bite.
There's no soundbite answer to that what you should do with Google or Facebook or Amazon. If you really -- I don't want you to feel bad for
Google right now.
NEWTON: Don't worry, I won't.
PALMER: But with the Cannes Lions Festival starts tomorrow, and YouTube Beach has been turned into Google Beach and their entire Marketing Cloud
team is there. And they are fighting for their marketing existence in a way that they never had to before.
Because when you go to buy a product right now, you are as likely to start your search on Amazon as you are to search for it in Google. This is not
good for Google. So they need to answer that because a very high percentage of advertising dollars that used to exclusively go to Google and
Facebook. Now they have a new competitor called Amazon.
So you're not going to care about that as a consumer, you're going to go -- they're all big tech, they should all you know be regulated. But as a
turns out, there's a lot of healthy competition.
NEWTON: So your point is the market is working because they're in this American ecosystem, which in the long term works. Okay? Now, big tech
regulation is obviously becoming a major talking point. I don't have to tell you in 2020 campaign, even with all of those candidates, and for the
first time, it is actually a topic and this month democratic debates.
[15:25:19] NEWTON: Amazon is hitting back after Joe Biden criticized how much the company pays in taxes. I want you to have a look at this tweet
with us -- in a tweet, as we said, Amazon says it has paid every penny that it owes. In fact, it says right there, Shelly, $2.6 billion.
You know, their argument is a good argument. It says, look, if you want to change the tax laws, you go to Congress, and you do it.
PALMER: By the way, there are a lot of things in tech where everyone in tech would say, if you want a different law, change the law, that's what
Congress is supposed to do.
NEWTON: Because he is acting -- Joe Biden is acting like somehow they're skirting the law there.
PALMER: No, look, I think everybody, like I said, has their own agenda here. The politicians are trying to get elected. And this is the time
they're trying to get elected. It's unfortunate because right at this moment, we're seeing one of the biggest technological transitions we've
ever seen. And big tech is part of it. But new tech is part of it.
Sundar mentioned artificial intelligence in passing. And he said, it's going to have dramatic implications in national security and dramatic
implications in economic growth.
Well, who are the big AI players? They are Facebook, Google, Amazon, Netflix, -- our biggest tech companies are our biggest AI players. Why?
They have the most amount of data. They are data rich to use my words that you gave me back, right? They are data rich, and so they need to do
something with the data and human beings can't deal with large data sets.
So yes, if you want to be a world leader in data, you're going to have to be as good as Alibaba and Tencent, or you're not going to be.
NEWTON: And this is where we get back to your point where it can't be done in a sound bite. Apparently, it can't be done in a billboard, either. I
mean, look, Elizabeth Warren to name one on the Democratic field has a plan for everything. And one of her plans is this billboard.
You know, it's become a pinata. Break up big tech. It's a good slogan. Why is that dangerous, though? And I challenge you, Shelly, because for
some of us, we think we cannot be too enamored with these companies. Precisely the reason that you said, competition does work, let the startups
try and take on some of the big guys.
PALMER: Break up big tech would be great with specifics. And it's really easy to take something giant and put a giant target -- a big target on its
back and go ahead and hit that target.
I remember just metaphorically being in Uber during the financial crisis or car service, and the guy was saying the big banks have to be broken up.
And he was going through the whole thing about breaking up big banks. I said, "How'd you buy this car?" And he said, "Well, I took a loan." I
said, "Where do you think that money came from?"
Like the whole capital structure was lost. He just wanted to break up big banks, because that was his thing. This is that. This is take a giant
shot for no reason.
If you break up Google, exactly how are you going to break it up? Will you separate search from let's say something else inside of Google? If you
break up Facebook, how do you break it up? When you take the Messenger Services apart? Versus the Facebook itself? Like what would you do to
break it up?
NEWTON: We have to go now, but I have to put you on the spot on this. Do you think something has to be done? Or do you think just leave it?
PALMER: I think you need to regulate because there are things that are regulatable. I'm all in favor of it, as are by the way, every single CEO
in the tech business.
The question is how? Because if you over regulate, you're going to make -- just study Standard Oil, the breakup of Standard Oil. That's what's going
to happen if you don't be careful with breaking up big tech.
NEWTON: You had to bring that up. I had to study that in school. You just had to bring that up. Nightmares continue. Listen, you brought up a
good point about the AI. We're going to get to that in future segments on this show. It is really important as a disruptor and the Google interview
proves it. Appreciate that.
Still ahead, hundreds of America's biggest brands have a warning for President Trump, find out what's in a joint letter to the White House.
That's next.
(COMMERCIAL BREAK)
[15:30:00] NEWTON: Hello, I'm Paula Newton, there's more of QUEST MEANS BUSINESS in a moment when President Trump says he's waited long enough for
the Fed to cut rates. And sit, stay, trade. Shares of Chewy.com soar in their market debut, before that though, these are the headlines at this
hour.
A U.S. official has told CNN that Iranian boats are preventing tugs from moving one of the tankers hit by an explosion in the Gulf of Oman. Now,
the U.K. says it is now almost certain a branch of the Iranian military was responsible for the twin attacks on Thursday. Iran denies any
responsibility.
Kenyan police have arrested a member of parliament for allegedly hitting a female colleague. Fatuma Gedi shared this video on social media describing
how a fellow MP confronted her over a budget and struck her several times in the mouth and jaw. All female lawmakers walked out of parliament in
protest as they learned of the alleged attack.
Women in Switzerland are on strike for 24 hours to try and draw attention to gender inequality and the gender pay gap. Demonstrations are taking
place all over the country despite Switzerland's Gender Equality Act that passed way back in 1995.
Swiss women say they still face systemic discriminate. It's day eight, yes, of the women's football World Cup. In group D, Japan got a key win
over Scotland, meantime, Italy are advancing to the last 16 after beating Jamaica 5-0. Now, England and Argentina, that will be a good one, facing
off, the score right now stands at 0-0.
OK, more than 600 companies have written to the White House, warning increased tariffs on China will lead to job losses and higher prices for
shoppers. Now, in a joint letter, the brand which include obviously some really big names here, Wal-Mart, Target and Gap say quote, "an escalated
trade war is not in the country's best interest and both sides will lose.
We are counting on you -- they mean the president, to force a positive resolution." Now, public hearings on the proposed tariffs will begin
Monday. And all of this comes as China is aiming to try and drum up trade outside of the United States. President Xi has just met the Russian and
Indian leaders at the Shanghai Corporation Organization Summit, it's a key forum for central Asian, economic and security issues.
Robert Lawrence Kuhn is a long-time adviser to Chinese leaders and the author of "How China's Leaders Think", and we have you here again to get
some insight. You have just returned from China. When we take a step here and look at the escalation in the trade war recently, what do you think is
at stake now and what do you think will get China to move to a place of compromise?
ROBERT LAWRENCE KUHN, AUTHOR & LONG-TERM ADVISER TO CHINA'S LEADERS: The double irony here is that everything the U.S. asked for is in China's best
interest. Intellectual property rights protection, opening up of markets, reduction of subsidies on enterprises, et cetera. Second irony is that the
U.S. and China trade negotiators have pretty much reached agreement on most of the substance.
[15:35:00] On the intellectual property rights, China passed a law that now reduces the requirements of forced technology transfer and joint
ventures. The problem has been on the -- on the enforcement and the public perception of what it means. What the U.S. is assisting and what China
wants to do privately.
So we have this double frustration because tariffs are terrible for everyone, it reduces the economic efficiency. And by President Trump
recently saying he's going to put 25 percent tariffs on $300 billion more if Xi Jinping doesn't show up, really puts China in a very awkward place.
A lesser leader than President Xi would have had to reject that just because he would lose so much in his own perception. Fortunately,
President Xi is strong enough that hopefully he'll be able to overcome that and meet the President Trump.
NEWTON: And all this is incredibly complicated, as all of this has been going on, Robert, as you know, we had those protests in Hong Kong. Now,
Beijing has been in the center of that story this week, those protests as were saying, China has summoned the U.S. envoy over quote, these -- its
quote, "irresponsible remarks" made about that controversial Extradition Bill with Beijing saying it will not accept, and it says the United States
is meddling in Hong Kong affairs. Listen, you just said it that it takes someone of the strength of Xi to kind of get through this.
And yet, when you look at the Hong Kong protests, and you look at so many people including Secretary of State Pompeo said quite concretely, we stand
on the side of democracy.
KUHN: Sure.
NEWTON: How does this all get resolved when you've got so much at stake on the state?
KUHN: Let's understand why Hong Kong is so important to Beijing. First of all, economically, it is -- it has been the window to the world, but that
has changed with the growth of Shanghai and Shenzhen and other areas. But now Hong Kong is the lynch pin of what's called the Greater Base Strategy,
which is an integration of Hong Kong and Macau with the major cities in Guangdong Province.
Together, they have about 12 percent of the Chinese GDP, about $1.5 trillion, if that were a country alone, it would be in the top 15 in the
world.
NEWTON: The number is staggering --
KUHN: So, it's the -- it's the center of the -- China's economy and the idea of regional coordination, they're doing it in the Yangtze River around
Shanghai and north with Beijing, Tianjin and the new city of Shanghai. So, there are three areas, but this is the big one, you know, around the Bay
area -- the Greater Bay area.
So, Hong Kong is critical to make that happen in many different ways, technology, logistics, et cetera. There are two other reasons, one is that
this is a demonstration of the Chinese method of governance, and third, it's an expression of national pride. So that puts that at the highest
level of significance, especially at this time in the 70th anniversary of the People's Republic. So, those are the stakes.
NEWTON: And let's be clear, Robert, they believe that system of governance is superior. Closely --
KUHN: No question, and the great majority of the people think the same. That doesn't mean it's perfect, and there's a lot of people who complain
about no access to the internet and different thing, but bottom line, people's lives are better --
NEWTON: OK, but --
KUHN: Eight hundred million people have been lifted out of poverty --
NEWTON: OK, but --
KUHN: People see that.
NEWTON: We're not talking about -- perfect though, we're talking about repressive, which is a completely different issue. But we had an
interesting issue come up, the global chief economist of UBS has been put on leave over a phrase and it was incisive(ph), in a phrase used and he
said that, he apologized. He was discussing consumer prices in China and Paul Donovan had attributed higher price to quote, "sick pigs" which was
interpreted by some as a slur. Now, he as I said apologized. Take a listen.
(BEGIN VIDEO CLIP)
PAUL DONOVAN, GLOBAL CHIEF ECONOMIST, UBS WEALTH MANAGEMENT: I apologize for anyone who took any offense from my remarks which were clearly not
intended to offend. I got it wrong, I made a mistake and I wittingly used hugely, culturally, insensitive language.
(END VIDEO CLIP)
NEWTON: And yet, this is even from the group -- from groups of financiers and securing these people in Hong Kong. They're saying we don't want any
part of UBS anymore. They are taking a stand, and yet not taking a stand on what's going on in Hong Kong with the extradition treaty. Can you
explain that to me?
KUHN: You know, this goes well beyond China culture. This is a human tendency. We all have a sense -- it's based on an evolutionary process of
in-group and out-group. And we're always more willing to accept physical abnormalities or problems if -- in order to elevate our pride. That is
just the case.
And this is a -- this is perceived as an attack on Chinese pride. We see that everywhere in all human societies. And so, that is the most sensitive
thing. That gets people's emotions the highest. And that's what they're reacting to. They're reacting to the simple, cultural in and out group
situation. I wouldn't read more into it than that.
NEWTON: Having said that, I've got to go, but quickly, you just returned from China, hopeful about the tariff talks or not?
KUHN: You know, I look for hope in strange things. China published --
(LAUGHTER)
[15:40:00] China published an aggressive -- an attack against the U.S. after the U.S. attacked China for back-tracking, and China went after. I
look upon that and -- positively, because now China is setting an equal thing. it's not that the U.S. has been attacking them and they're -- now,
the attack is equal.
So there are an equal position. They had a phrase in that document which was important. They basically said that China has said publicly and
strongly that it will abide by anything that they agree to --
NEWTON: Right --
KUHN: Including intellectual property protection, and therefore the kind of restrictions that the U.S. was wanting to do in terms of laws would be
exceedingly an offense to their dignity. And so, if the U.S. would trust China -- it's a bad word, I know -- but you can always go back. But China
is going on record to say --
NEWTON: Right --
KUHN: They will -- they will agree.
NEWTON: OK, Robert, thank you so much again --
KUHN: Good to see you.
NEWTON: Up next, President Trump tears into the Fed yet again, and the chairman he picked, Jerome Powell. He says he's waited long enough for a
rate cut. We'll explain when we come back.
(COMMERCIAL BREAK)
NEWTON: President Trump is not about to stop bashing the Federal Reserve. Did we think it was going to be any other way? And he'll continue to
pressure the U.S. Central Bank to cut rates, a point he made incredibly clear to "ABC's" George Stephanopoulos. Take a listen.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: He was my pick and I disagree with him entirely, I'm not happy with what he's done, I'm not
happy with the fact that they've done quantitative tightening. If we --
GEORGE STEPHANOPOULOS, TELEVISION JOURNALIST: Even concerned you're putting him in a --
TRUMP: Let me explain, yes, I do, but I'm going to do it anyway because I've waited long enough.
(END VIDEO CLIP)
NEWTON: Just so unorthodox. The president may have that wish granted very soon. Investors put the probability of an interest rate cut by the end --
I want to remind everyone, it wasn't that long ago we were talking about interest rate rise. OK, you got that 90 percent according to the CME
groups Fed watch tool.
Clare, I am absolutely taken aback by the fact that he continues. And to me, it almost seems like he's getting his way because as if the Fed is
listening somehow.
CLARE SEBASTIAN, CNN REPORTER: Well, I mean, the Fed wouldn't want you to think that because the minute the market thinks that they're bowing to the
president's pressure, that's when they lose credibility. But the bottom line is, they are starting to signal that this could be in play, not just
July, but possibly even June, that's about a 25 percent probability the market thinks there will be a rate cut in June. So, this could be
happening as soon as next week.
There's a lot of data out there, not just the jobs report that was weak last week, there's manufacturing, there's construction. There are signs of
slowing and that's what they're reacting to.
[15:45:00] But this would be an interest rate cut like you see in a downturn. This is what they call an insurance, this is something to shore
up confidence, something to try and avert a faster downturn. So, that's what we're possibly looking at here. But it's still not a good sign, it's
still not a sign that President Trump's economy is doing what he calls necessities which is growing at the fastest rate, you know, we've seen in
years.
This is a sign of something that's a fit in the economy.
NEWTON: Well, when you look at kind of the factors that they're bringing into it, you know, we had Matt Egan here talking about Broadcom and the
chip sector --
SEBASTIAN: Right --
NEWTON: Is that trade war, you think starting to slide? Do you see those indicators starting to slide in the economy, and that's why Powell wants
this insurance.
SEBASTIAN: The trade war is a conundrum because there's direct impact which haven't seen to its full effect yet, because so far the 25 percent
tariff right there only comes into effect this weekend. The 10 percent was broadly manageable if we get another set of tariffs and the remaining --
NEWTON: He says he might do --
SEBASTIAN: Kinds impose $300 million, then that really will start to see macro impact. But it's not just direct, it's also confidence, like we
could talk ourselves into a recession through fears over the trade wars, through businesses not being able to invest in things, not being able to
expand, holding back on plans even when it comes to hiring. But we talk a lot about how businesses can't deal with this uncertainty, I think the same
applies to the Fed. How are they supposed to know what to do when any minute, the trade war could escalate or the trade war could be rolled back?
NEWTON: Yes, you make such a good point, that is such a good point. If you're sitting there and you're Chairman Powell, that is what you're
weighing --
SEBASTIAN: Right --
NEWTON: As well, because you're dealing with a completely different set of economic principles coming out of the White House.
SEBASTIAN: Great.
NEWTON: Clare, thanks so much, we'll continue talking about it. The economy will be a huge talking point as Clare and I will know for the 2020
campaign trail, but so will, of course, abortion. Top executives from more than 180 companies have a message for lawmakers restricting abortion is in
their words bad for business.
Executives from H&M, Tinder, Slack and Yelp among many others recently took out a full page ad in the "New York Times", saying that it's time for
companies to stand up for reproductive healthcare. Now, Richard spoke about the issue with corporate social responsibility expert Susan
McPherson; founder and CEO of McPherson Strategies.
Now, she welcomes the move, but says more needs to be done.
(BEGIN VIDEO CLIP)
SUSAN MCPHERSON, FOUNDER & CEO, MCPHERSON STRATEGIES: Well, this -- I look at this as the last kind of straw for corporations. We've seen companies
step up to fight for proper gun use. We've seen them fight for LGBTQ equality. We've seen them galvanize around climate change issues, but we
had yet to see them step up for women's access to reproductive healthcare.
So, this was the natural next step that we saw companies take.
RICHARD QUEST, CNN: Right, but this is in many ways different.
MCPHERSON: Yes.
QUEST: From the others.
MCPHERSON: Yes.
QUEST: Because you can be for LGBTQ, transgender bathrooms, all those other issues --
MCPHERSON: Yes --
QUEST: Many in the population don't feel strongly one way or the other.
MCPHERSON: Yes.
QUEST: But there's a large number of men and women who are pro-life who are not in favor of termination. And they may resent companies doing it.
MCPHERSON: Well, they may resent companies, but it's a much smaller number than you'd think. Seven in ten, actually support Roe v. Wade as it stands
right now. But more importantly, companies believe in equality for their employees and equal access to jobs. And if something that's going to
prevent a woman from going to work, that puts them at a difficult situation.
QUEST: But this is a highly --
MCPHERSON: Oh, absolutely --
QUEST: Controversial issue --
MCPHERSON: Yes --
QUEST: That is dividing a large number of people. And I wonder whether -- what is -- what is the responsibility of a company in this situation? They
don't like to get involved --
MCPHERSON: Yes --
QUEST: In high controversy.
MCPHERSON: No, I couldn't agree more. And as somebody who's worked with companies for 30-plus years, I know that. However, when you have
individuals in these states that would miss work for a week, it causes problems with productivity. And so companies are looking at it through the
lens of economics and through productivity. And quite frankly, this causes challenges in the day-to-day operations of companies.
QUEST: Do you think that -- it's fine to sign a letter --
MCPHERSON: Yes --
QUEST: But ultimately, what we saw with transgender bathrooms in Carolinas --
MCPHERSON: Yes --
QUEST: Was, you had to threaten to leave. You had --
MCPHERSON: Yes --
QUEST: To withdraw jobs.
MCPHERSON: Yes.
QUEST: We know Bob Iger of Disney has said, look, we will remove movie- making or some of it from Georgia. What do you hope will happen?
MCPHERSON: Well, I hope -- well, what we hope -- excuse me, what I hope will happen is that this will open up companies to the importance that this
plays in the economics of the business. And yes, the stronger the companies can be, what is going to change the leaders' minds in those
states, then let them do it.
(END VIDEO CLIP)
[15:50:00] NEWTON: OK, Chewy starts trading on Wall Street, it's the third IPO this week, we'll tell you how the latest unicorn plans to deliver
goods.
(COMMERCIAL BREAK)
NEWTON: OK, I can't promise this will be a pun-free zone, but Chewy.com is delivering --
(DOOR BELL)
(DOG BARKING)
Something new. The company has everything, yes, orthopedic dog beds, ferret leashes, cat clothes -- no one needs cat clothes, I'm just saying --
even a protective mask for your horse. Now, they're offering investment returns as well. Shares are way up on the first day of trading, I mean,
way up.
Investors have had big helpings of the market this week with three IPOs, not just one. Now, Chewy, OK, Chewy, up some 60 percent since Friday
morning. Just this morning. Fiverr debuted Thursday, it climbed 90 percent on the first day and crowd strike started trading on Monday, it
rallied more than 70 percent.
Ryan Cohen is the founder of Chewy. Ryan, look, I am telling you, I would have never been a person to invest in your start-up ever. You look at
pets.com, you look at -- they went out of business and you look at what Amazon is doing, why are you doing well in the market? What's happening
here?
RYAN COHEN, FOUNDER, CHEWY: Yes, well, I think the world has changed a lot from, you know, the days of Pets.com until today. And so, you know, the
market back then was underpenetrated, people weren't shopping online. Today e-commerce is a way of life. People are scared just to put their
credit card information online.
Then also, you have the humanization of pets and people have, you know, moved up market. And so ASP is in the margin structure has moved up. And
then you just have the shipping density where shipping as a percentage of revenue is a lot less today than it was in the past.
And so, we've really built the business where this is a category that focus is incredibly important, and so, you know, we do all that fly wheel of fast
shipping, price, being competitive, that's all -- you know, basically table stakes in e-commerce. But then when it comes to being the category
experts, right? You want to know what's the best weight loss foods. Great and free foods, you call us and we know the product better than anyone
else, we're the best in the business.
NEWTON: You know, when you started this, so come on, you had to have the skeptics lined up around the door and not so many investors thinking --
Ryan, you've got to be kidding me, this isn't going to work.
COHEN: We didn't have any investors, I mean, I went to Silicon Valley, it took me over two years to finance the business, over a 100 investors
passed, lots of "Nos", you know, at the demise of Pets.com, going head-to- head against them is on and vertically integrated e-commerce.
[15:55:00] But we kept on scaling the business, so we just heads down, blocking, tackling, focusing on amazing execution. And I think everyone
underestimated how well we would execute and how big of a business we can build.
NEWTON: You're still going up against Amazon.com.
COHEN: Yes.
(LAUGHTER)
NEWTON: That is a confident man, people, yes. So, what -- because you know they're looking at you and thinking, no, they're not taking any piece
of our pet business.
COHEN: Yes, I mean, the vision for the company was really to replicate the experience I had in a neighborhood pet store, but do it online and do it at
scale. And so, you know, the handwritten holiday cards from the beginning, the pet portraits, the flowers, doing all these things to really delight
our customers and show our customers we're bringing a face to e-commerce.
And within a category like pet where pets -- where customers are so fanatical, all of those small things just create this loyalty, and once
customers shop at Chewy, they continue shopping at Chewy and they tell all their friends and family about this incredible experience.
NEWTON: But they're very low barriers to entry and you know people will fickle about where to shop. If you just look at how many times people
change their pets food, it's dizzying.
COHEN: Yes --
NEWTON: Do you worry at this point in time that, you know, yes, the market looks like this year. What makes you think the market will be there next
year?
COHEN: I mean, it's really -- it's just a game of scale within e-commerce. And so, you need enough revenues to get your fixed cost, you need enough
velocity with your suppliers. You need enough fulfillment centers --
NEWTON: And you think you're there?
COHEN: I mean, Chewy has seven fulfillment centers, 11 million active customers, the 3.5 billion in revenue in 2018, so if you wanted to
replicate that model, sure, with enough capital, it's possible, but it would require significantly more capital than we had invested into the
business.
NEWTON: OK, there are some crazy things you can buy at Chewy.com for people who are with me with pets and spend way too much money.
(LAUGHTER)
But we will continue to really track your development and also the IPO markets which has been --
COHEN: Yes --
NEWTON: Extraordinary this week, appreciate it, Ryan.
COHEN: Thank you, thank you for having me.
NEWTON: Just few more minutes left on that trade on Wall Street, we will have those final numbers for you right after this.
(COMMERCIAL BREAK)
NEWTON: Well, it's not as flat as a pancake, but pretty close, that's what we're dealing with on the Dow. It is trying to cling on to any gain it
could eke out here, but no, it's just flat. The key thing here though is that we're up half a percent for the week. Tech and energy shares though
are down for the day.
And that is it for me and the markets as you see, we will end on a down day there. This is QUEST MEANS BUSINESS, I am Paula Newton in New York. The
news continues right here on CNN.
(BELL RINGING)
[16:00:00]
END
