114. Why Trump Won’t Take On Putin

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1:50Welcome to The Rest is Politics US. I'm Katty. In Washington, I'm so glad I'm not in New York for UN week. I feel bad for you, Anthony, having to sit through UN traffic. It is the worst week to be in New York always, every year. I'm in New York, Katty, but my escalator works. You know, when I get on the escalator, it goes right up to the top. You see that? Who pulled the plug on that escalator? That's what I want to know. But look, can I just say, Melania handled it perfectly. What do you do when an escalator breaks down? You just carry on walking, which is exactly what she did, right? Well, he was huffing and puffing.

2:24You just see him huffing and puffing at the end of it. He was like, and then he had a complaint to the UN people, at least I'm in halfway decent shape. But I texted one of the Middle East ambassadors I'm very close friends with. And I said, the rumor has it that you unplugged the escalator. He wrote back, he says, well, the rumor has it that you shut off the teleprompter. I mean, the poor guy, They were definitely doing a number on him. To quote Trump and the way he talks in Queens language, they were definitely doing a number on him. And they were mocking him through machinery, gattie gattie.

2:57But anyway, he gave the ridiculous, embarrassing speech. Now he's putting the wall of shame together. America's finest moment, the shining city on the hill, came to New York. That was fun. We're going to talk about Ukraine and that UN barn burner of a speech in just a second. I want to talk about shallow things for a second. Just because you know I'm a shallow human being, okay? I love shallow. He's got a glitter up the entire White House, this beautiful columned walkway back into the residence. He's putting pictures up. The Rose Garden is now a patio. He turned the Rose Garden into a patio. It's his quote unquote club.

3:35But now he's got pictures of everybody. And then the Joe Biden picture is the auto pen. All right. So now he's a ball buster. I give him credit for the ball busting. but it so cheapens the institution of the presidency. He's literally made a mockery of all of these things that we once held sacred, Kat. And by the way, that's going to make it harder to govern on a going forward basis because no one's taking anybody seriously anymore and no one's giving anybody the level of respect that we used to give people. Okay. So I'm off my shallowness. But one part of me was like, I was laughing. It's a little hilarious that he's that big of a ball buster, Joe Biden with the auto pen.

4:19But the other part of me is, dude, you really have screwed us up. You really hurt the place. Actually, there is a segue there, a very nice television segue, which is that you texted me last night to say you wanted to talk about the economy because you feel that the American economy is going, I'm not going to say the word you used, but it's going, what was it? I don't even know that word. That must be another Queen's thing. You said it's going to the what? You texted me to say, let's talk about the economy. Memory doesn't go back that far. The reason I'm looking it up, I'm ready to say something that's probably inappropriate, so I got to look up what I said to you.

4:53Okay, you said it's going to the shitters. Yes, that's what I said. It's hitting the shitter. Yeah, I don't really sound like, anyway, I think what you meant is the shit's hitting the fan, but that's kind of what you meant. No, it's hitting the shitter, meaning that they're going into getting flushed. The economy's about to get flushed. Anyway, I want to hear your take on that. And I had a couple of interesting conversations, actually, both before and after you sent me that text about the U.S. economy. And I think it all sort of ties together. There's the short term economy. There's the issue of inflation and tariffs.

5:25There's the issue of employment. There's, of course, the markets. There's AI boom happening. And then kind of at the under level, and this is what you were just talking about, is the direction of the country in terms of rule of law, fiscal responsibility, protections of free speech, what we've called Oval Office capitalism. And what does that do to undermine America long term? You know, we're even going to talk about kind of the erosion of alliances and allies feelings towards America more generally. And what does that do long term to the prospects for America's strength as a global leader? And there's two slightly separate things, but I think you've just tied them beautifully, as you always do together.

6:13But tell me why you texted me to say we need to talk about the economy because you're feeling bad about it. Because I want to give people a heads up because I've been doing this for 37 years and I'm looking at the data. So when you're sitting on a Wall Street trading desk and you have an economic dashboard before you, you can see the data weakening. You can see the unemployment data weakening. You can see the growth weakening, and you can see the capital allocation uncertainty that's going on for businesses large and small because they're trying to figure out what to do. I'm eating these tariffs right now, and so I can't hire that incremental employee.

6:51I'm eating the tariffs, so I can't build that plant or put that factory somewhere because I'm trying to hold the cost out. I was with the CEO of a luxury organization. I want to give up the name because it'll probably hurt them, but they said to me, I can't raise the prices. I said, well, why can't you raise the prices? He said, well, once I raise the prices, if the tariffs come off, I can't reduce the prices on this luxury item. So I've got to, and I understand the elasticity of the price points, meaning if I price it too high, Caddy, you're not going to buy it from me. And if I price it high and then I lower it, then it looks like I cheapened the luxury good.

7:29So suddenly you mean that kind of super expensive handbag that was costing$1 ,000 is now costing$700. And me being a kind of shallow consumer is going to say, hold on a second, are they using less good leather or is it now not as cool as it was? It hasn't got the cachet. Right. So therefore I'm holding the lid on prices because of the tariffs. But the flip side is now I can't do strategic things that I was thinking about doing for my company. And this is pervading everywhere. And there's something else that's happened. Apropos to your last few statements, the system is totally broken and we lived in denial about the breakage of the system.

8:11But one thing Donald Trump has done for all of us, he's woken us all up and said, wow, this thing is really broken. They're going to shut the government down. Okay. The Democrats have no cards. Trump canceled the meeting, which is evidence that they have no cards, the budget meeting. And the Democrats are going to huff and puff and shut the government down. Then they're eventually going to get blamed for shutting the government down. So they're going to reopen the government. Markets are weakening on that. Unemployment is going to get a little bit shakier. All of this stuff is happening at the same time.

8:43And Trump wants the Fed to cut rates, but he's also looking at these numbers and saying, there's still a lot of systemic inflation in the mix. So I can't overly cut rates. Here's the last bomb I'm going to drop, and then you can react to it is I believe that the Supreme Court is going to rule against Trump on these tariffs. That is not in the marketplace right now. Everyone's thinking, oh, the Supreme Court is just a light switch for Trump. Everything he does something, they'll turn the lights on for him in the room. But I don't think so. Because if you look at the law and you look at the actual constitution, the law that Donald Trump is using to flex on these tariffs doesn't have any meat to it.

9:25It has no decipherable substance to give him the purview, to give him the authority to do this. That's why he lost at the district court. He lost at the appellate court. I believe he's going to lose. This means this is a trillion dollars. Every company will then petition the US government for the taxes, the tariffs that were paid, and they'll ask for the money back. This sentiment is starting to now filter into the market. And people are saying, whoa, he inherited a great economy. He inherited a growing economy, burgeoning employment, lots more interconnectivity into the global system post-COVID.

10:06And he has shocked and awed us into which will likely be a soft recession. I don't think it's going to be a steep recession, Caddy, but we're going to go down a notch unnecessarily as a result of all this stupid decision-making. Can I just put an alternative point of view? Because I had assumed that that was what was happening. And then I spoke to an economist just this morning before we were recording who said something interesting to me. He said, look, that is one scenario. They have been surprised. Economists who study America have been surprised by the degree to which companies have been willing to squeeze their profit margins in order not to pass the cost of tariffs onto consumers.

10:44The tariffs are actually less bad than we thought they were going to be in April. If you look at Canada or Mexico, for example, a whole host of goods that are imported into the United States are exempt from the tariffs. So will the tariff shoe drop? At some point, possibly. The expectation is, but it may not be as bad. And it's mitigated by the fact that these companies have had reforms to their tax codes, which are longer term. And so they've been able to offset some of the kind of tariff pain with these benefits from the tax reform. So actually, companies are in a pretty good position. And one economist also pointed out to me that you've just had this huge boom in productivity.

11:25Now, how much of that is driven by AI growth? How much of that is driven by job market churn, which has increased productivity because people are moving into jobs in which they're more productive? and how much that then rescues Trump, because we don't know how long term that is. We don't know what the ultimate impact on jobs is going to be of that AI expansion. But it's certainly happening around the country. And Trump is fueling it because he's handing out favors to companies that he likes and that have an association with him. So I heard less short-term pessimism from economists around the US economy than I had thought that I was going to hear.

12:07And set against that, you know, the fact that the US economy is less trade-based than other economies, Western democracies. So maybe actually the tariffs are going to have less of an impact on inflation in the country. And I just wanted to put that to you and whether that also rang bells to you. Yeah. So, I mean, listen, I'm accepting everything that you're saying, which is why I think there'll be a soft recession. I don't see a super hard landing. We could still pull out of it. You know, the productivity gains should help. But here's the thing. If he left the Biden policies in place and he didn't disrupt the economic system with these tariffs and he didn't cause all of this refactoring of decision making, we would be doing a lot better as a global society.

12:55The U.S. economy would be doing a lot better and we would be printing better job numbers. And ironically, Biden was getting something that we didn't get in a while. We were getting better job numbers and wage growth, Caddy, without a lot of inflation. And so that's the big thing. That's sort of the mama bear strategy. You want wage growth without a lot of inflation. You want productivity gains. And you want to move lower and middle income disposable income up. Tariffs do not do that. Tariffs are regressive. Inflation is regressive. They hurt the lower and middle income people. So I'm just pointing out we're heading for another fulcrum because the court said they're taking the case early.

13:42They're going to hear the case in November. They expect to decide the case by the end of the year. You could be in a situation, and Trump will go crazy on this, but you could be in a situation where the court says, look, it's just not in the Constitution. I'm sorry. You got to go back to the Congress. Yeah. There'll be people around Trump who might see this as a convenient off-ramp, actually. there may be people in the economics team who would not be totally displeased if the court ruled against the tariffs. But, Cady, it's about due process, and it's about predictability in a system. So right now, if I'm a capital allocator putting money into the United States, I'm like, okay, can't trust the system anymore.

14:22James Comey - The former FBI director who could be indicted, yeah. Yeah. So there's no evidence to indict him. So Trump has sent out a tweet to Pam Bondi. I want you to go after my adversaries. They have responded and they've said, listen, the attorney general in New York, there's no evidence to indict her on mortgage fraud. I don't care. I want you to go after her. James Comey, there's no evidence to indict him. Well, I want you to indict him. So now we're hearing that James Comey is going to be indicted. So what's happening in the system is what authoritarians do. You have predictable laws, you have predictable system.

15:04And so even if there's tribalism in America, even if we're mudslinging each other in America, a capital allocator or CEO will say, okay, America's a little nuts, but you know what about America? I can trust the court system. I can trust the Department of Justice to not be arbitrary or capricious. I can trust them to do the right thing. But now Trump owns, and also Trump is getting free legal advice and he's getting free legal process from the nation's largest law firm known as the Department of Justice. You see what's happening? And this is now starting to weigh on people, Cady. They're looking at this saying, hey, F this.

15:48And look, one international economist said to me this week, is America still a safe haven or is it starting to become a Latin America style emerging economy that is based almost entirely on politics and feudalism and patronage and not on policy? And do things like the undermining of the rule of law that you've just pointed out that we've seen a lot of over the last week and that has constitutional lawyers very concerned about long term protections, legal protections for people. Does that start to make America less attractive as a safe haven for international investors? I mean, you can run through it all, right?

16:30The undermining of the rule of law, the undermining of free speech provisions, the patronage system of handing out favors to certain companies, picking favorites, as you've called it, picking winners amongst certain companies, the amount of corruption that there is in the Trump family around how much money they've made. All of this is what Bob Rubin once said to me. You don't have to worry about Hungary. You just have to worry about this becoming Latin America. And somebody who knows Venezuela well said to me, it doesn't explode immediately. It's a chipping away of the system that undermines the favorable environment for businesses.

17:10But I think you have to weigh that right against the short companies, very short term in their thinking, the short term tech boom that America is going through, where America is still, I don't know where it is compared to China in terms of the AI boom at the moment, because they seem to be kind of neck and neck at the moment. But there is a huge tech boom happening in America at the moment. And that is like sugar to investors. And they're seeing that and the economy is seeing the growth from that. And that's very hard for investors to turn away from. even if they see the long term, you know, the fiscal problems that America is going through.

17:44Neither Democrats nor Republicans are remotely interested in shoring up America's fiscal health at the moment. We haven't seen that, you know, since Clinton, really. So I think there's two things happening in the economy at the same time. One is a kind of long term systemic failure of America, which I have long argued makes the country weaker. But you've also got this kind of short term sugar high of AI and all that AI has bringing to it, to the economy in terms of manufacturing boom and AI boom. And by the way, we haven't even mentioned the H-1B visas and the kind of madness of how policy is made without any sort of process.

18:23I mean, which is an indication of what you're talking about, by the way. That would also be a terrible decision by the United States to go in that direction. Well, and it's picking favorites. Yeah. But let me just step back again, because I think it's very important. You come to the country, they make the country very decentralized. They're worried about cronyism and feudalism. They're worried about monarchical control, particularly George Washington. They offer him to be king. He says, no, we want this decentralized system. So what are the founders - Trump would have said yes, right? Of course.

18:58Of course. He would have said yes forever. More gold. So the founders have said, hey, we're not good at this. We have a tendency, we have a proclivity towards feudalism and tribalism. Look at the rest of the world. It always devolves into some level of cronyism around the leader. Let's try an experiment where we put up process and procedure to prevent cronyism, to prevent a lack of meritocracy. And let's see if we can experiment where they've got this huge flat system. So guys like Anthony Scaramucci can start out with no money and let's see what they can do in a system of aspiration. But now we've got a dude that's creeped into the system that wants to break the system.

19:44And he's got willing dudes that wrote Project 2025 that have said, hey, this is how you could break this system. And so he's trying to break the system. And so you're sitting there and I'm going to answer your question because you asked a really good question. Is the system now broken? Should we now not trust America? And the question is, who's the next leader after Donald Trump? Because let me tell you something. He's put a playbook together. If I'm the Vance family head, or I'm the Newsom family head, I could say, whoa, I could get the presidency, make$5 billion for myself, flex on everybody.

20:20You'd be a dummy not to... Well, even if you didn't make the$5 billion, dollars, even if you weren't personally corrupt, you'd be a dummy to think, okay, well, I'm going to come in and I'm going to devolve all of that power back from the White House to Congress and the other branches of government, right? I mean, do you see somebody coming into the White House and saying, okay, let's get back to the status quo ante? No, worse, better than that. You would need somebody to come into the White House and say, okay, we're going back to the Federalist papers, and we're going to revise the Federalist Papers, which are 240 years old.

20:52We're going to revise them, Katty Kay, and we are going to create a better structure to prevent this. With real checks and balances. Correct. And we're going to further decentralize. Yeah, that's not going to happen. And oh, by the way, the Justice Department, which has now become the Trump family law firm, we've got to figure out a way to get that out of the executive branch now because it's no longer impartial. And so that's not going to happen. So that's going to weaken the flow of capital into America at a time when we don't want that. Okay. So we're weakening the flow of capital into America, but we are boosting the flow of capital into Argentina.

21:31Who is the happiest man on the planet this week? Javier Millet of Argentina, because Scott Besant, who is Wall Street buddies with Argentina's finance minister. And the Trump administration have just decided that they cannot let Argentina fail because they cannot have an anti-woke, anti-leftist, pro-populist, pro-MAGA government in Latin America fail. And so Scott Besseter said, America will do what it takes, including investing tens of billions of dollars into Argentina to make it happen, even though Brazil, which is a much bigger economy, three times the economy of Argentina, and much more systemically important to America.

22:14They have imposed 50 % tariffs and said to Brazil, you go and cozy up to China effectively, because we're no longer your friend anymore. I thought that was stunning. And amidst all the other news, of course, because there's always so much crazy news happening in Washington that almost got overlooked. But I thought it was a real indication of what we've just been talking about, right? I mean, the economic policy is not based on sound policy at the moment, or you can't trust it to be based on sound policy. Well, I mean, that's the feudalism. That's the feudalism that you're describing. But I was in Rio de Janeiro last week, and I was asked in a small breakout - As one is.

22:52Anthony, were you dancing on the beach, I hope? No, unfortunately, no. I mean, I didn't even get to the beach. I was in an air-conditioned conference room. But I was asked to do a breakout session with a group of Argentinian executives. The first question they asked me was, what will the US do related to this$26 billion bullet that we're facing here in Argentina? And I said to them, the US is going to step in because Malay is part of the access of populism. And so Donald Trump, they'll call him and say, what do you want us to do? And they help the guy out. Well, how much is it? 20 billion? Okay, that's a rounding era.

23:28Go help the guy out. I want to send a message to people that if you're Bolsonaro, I want to help you. If you're Lula, I want to hurt you. If you're Malay, I want to help you. If you're Orban, I want to help you. If you're Nigel Farage, I want to help you. If you're Keir Stormer, you can kiss my ass at 10 Downing Street. You can have the king wash my backside at Windsor Castle, and I'm still going to shit on your country in my UN speech, because that's me. That's how I operate. The more you kiss my ass, the more I'm laughing inside at you. And what I'm going to do is do my very best to humiliate you.

24:09So I've been saying that on this program for a year. This is why I love Carney, because Carney's like, hey, sorry, man, I'm just not doing that. And by the way, I got a lot of natural resources in this country, and I've got a willing group of citizens. And last time I checked, Caddy, one of my favorite places in the world, Disneyland, attendance is way down at Disney World in Orlando. But it's way down, Caddy, because the Canadians are flipping the bird to Florida. Okay. 22 % drop in tourism. And I went on a cruise ship. I got my driver. It's been my driver for five years. I come off the plane and put a mic luggage in there.

24:50I said, how's everything going? Terribly. I said, well, what do you mean terribly? He said, well, no, there's no one coming here anymore. So Trump has done a masterful job of alienating the people that we would like to be our friends, and he wants to support the people that he thinks are in the philosophical camp of him. And this is another great frustration for the American people. Yeah, even if it doesn't make economic sense to do so. And when Scott Besson says that Argentina is systemically critical to the United States, it just isn't true. I think we export almost nothing to Argentina. We're like one eighth of all of their imports or something.

25:30So it's just not the case. Remember that Brazil is more important to America than Argentina. It's a much more important economy. And he's prepared to use economic tools for political retribution. It's not the best way to run an economy. Anyway, clearly we needed to get that off our chest this week. So we're going to take a quick break and then come back and talk about that amazing speech at the United Nations and Ukraine and whether or anything has actually changed, because I'm kind of sceptical.