- Good afternoon, everybody.

I brought some heavy hitters in here with me today.

- [Hoover] A heavy hitter on the left being introduced to the White House press corp is Kevin Hassett, the newly appointed Director of the White House National Economic Council.

His job is to advise the president on economic policy.

- The President has told us to prioritize fighting inflation, and he had to do that because, as you know, President Biden let inflation get completely out of control.

- Hassett also served in the first Trump administration as chairman of the White House Council of Economic Advisers.

I interviewed him in September, before the election, when he was being considered for a bigger role in a possible second Trump administration.

When you talk to Trump next, what will you tell him?

- I'll answer his questions.

(laughs) You know, he's a very inquisitive person who loves to talk about the economy.

He might say, you know, how are things going?

Are we in a recession?

That's the kind of conversation I would have with him.

- Are we in a recession?

- I think it's close.

I think it's close.

- [Hoover] A PhD known for his traditional free-market approach, Hassett is now working for a president who favors tariffs and other trade protections.

Just this week, President Trump announced an additional 10% tariff on China.

So I wanted to take another look at that September interview.

First, here is a sampling of what Hassett has said on trade and tariffs since joining the Trump administration.

- President Trump has spoken about replacing income tax with tariff revenue, especially with all this waste, fraud, and abuse that we're seeing cut.

Is that a possibility?

- Absolutely.

We expect that the tariff revenue is actually gonna make it much easier for Republicans to pass a bill, and that was the President's plan all along.

President Trump has made it clear that an important part of an America first golden age is steel production.

And when we put the steel tariffs in, last time, steel capacity went way up.

President Trump was absolutely 100% clear that this is not a trade war.

This is a drug war.

There are perhaps 100,000 people last year that died of fentanyl and the fentanyl is coming in across the Mexican and Canadian borders.

We're saying we're really, really serious about going after fentanyl, and President Trump means it.

- So what did economist Kevin Hassett say to me back in September?

Here is that interview.

- [Announcer] "Firing Line with Margaret Hoover" is made possible in part by Robert Granieri, Vanessa and Henry Cornell, The Fairweather Foundation, Peter and Mary Kalikow, Cliff and Laurel Asness, The Meadowlark Foundation, and by the following.

Corporate funding is provided by Stephens Inc. - Kevin Hassett, welcome to "Firing Line."

- Oh, it's great to be here.

- You're an economist and fellow at the Hoover Institution, where I serve on the board of Overseers.

And you were the senior advisor to the president and chairman of the Council of Economic Advisers, one of the top economic positions from the Donald Trump White House.

Now, let's talk about President Trump's economic policies.

You're close with President Trump.

You served with him in the White House.

Should he win a second term, Trump is proposing blanket tariffs, 10 or even 20% of all imports and up to 60% on Chinese goods.

Vice President Harris says this is essentially a national sales tax.

If Trump wins and puts tariffs like that in place, what would the effect be on the average American consumer?

- First of all, just remember that President Trump proposes a lot of things.

You know, big supply side tax cuts, reduced government spending, deregulation, tariffs.

If you look at one in isolation, then you're not necessarily getting an accurate picture.

But with tariffs, that policy was specifically mostly targeted on China.

And people say, "Well, who did it hurt?"

I think it clearly hurt China.

What happens is that imagine if there's a company, a Chinese company, that has 100% of its sales in the U.S. and they only have 1% of the market in the US, say.

Then if we put a tariff on them, that company goes out of business.

But it doesn't really affect anyone here because we could just buy it from the other people that we're already buying it from.

And so what happened in the first term is that the tariffs were designed to maximize the odds that the incidents would be on the Chinese.

And they were very effective at doing that because the tariff rate went up to 14% and inflation stayed in the ones.

And so how we analyze tariffs, what happens, depends on what's the second best place to buy.

How much more expensive or less expensive is it?

Why do the Chinese have that market, and so on.

And so I just reject the idea that it's gonna be anything like a sales tax.

It's not anything like a sales tax.

Tell me, though, Kevin, I think the, you said when we slap these tariffs on, China ends up paying and suffering the brunt of the effect of the tariff.

But, the argument, of course, that the Harris campaign makes is actually those costs are passed on to consumers, American consumers.

And so they end up paying more, which is why they're calling it a sales tax.

- Right.

No, but the point would be, let's go back to my example.

Suppose there's a product that we only buy from the Chinese.

We don't buy it from anybody else.

We can't make it ourselves.

We only get it from the Chinese.

Then if we put a tariff on it, then they'll pass it through in terms of a higher price to us.

And if there's a product that we can buy from other people and we put a tariff on the Chinese, then they won't.

And so her analysis is assuming that we don't have any opportunity to buy stuff from somebody else or from ourselves.

- In your book, you write that several members of Trump's braintrust, including Wilbur Ross, Steve Bannon, Peter Navarro and Stephen Miller, wanted Trump to be quote, "slapping tariffs like a supermarket clerk firing off price labels."

(Kevin laughs) I mean, are there tariffs that are unacceptable to you as a economist, a free market economist?

They're not all created equal, as we both know.

So, you know, make the case for why these tariffs are your good tariffs, not bad tariffs.

- Right.

Well, when we started to really dig into trade policy at the beginning of the Trump administration, we just started studying, you know, what the Chinese were doing with their trade policy, and it was really pretty chilling.

It was like they were preparing for war.

So, for example, they have pretty much three times the steel capacity that they need.

And, you know, steel is really important if there's a war 'cause just about everything that you use in war has got steel in it.

And they're, you know, dumping steel into the U.S., trying to put our steel companies out of business.

And, you know, maybe it's good to get cheap steel this year, but if you suddenly have a military situation and you don't have any steel in your country, it's a real problem.

And so President Trump decided for national security reasons, to protect the U.S. steel industry.

Another example of a vulnerability is that most of the antibiotics that we consume in the U.S. come from China.

And so if they were to, you know, threaten Taiwan and then say, "Well, you know, let me have Taiwan or I'm not gonna give you any antibiotics," well, jeez, that's a very difficult situation for us to be in.

And so I think that the way I think about it as an economist is that, you know, there's this old economist, Pigou, who said that when you tax something, you get less of it, so we should tax pollution.

And so he advocated pollution taxes.

They're called Pigouvian taxes.

And so I think that tariffs on some things can be thought of as like a tax on pollution, that there's this external harm to us of being vulnerable to, you know, a potential bad actor if we allow them to capture our market in something.

And that's something that, you know, I think the tariff policies can address.

I also remind that our trading partners all charge pretty high tariffs on our stuff.

And that's something that I think disadvantages American workers for sure.

And so one of the things that President Trump advocated in first term and still advocates, he advocated it just at the convention, is that we pass a reciprocal trade act, which basically makes it so that the tariff for the U.S. is the same as the tariff that the country charges our guys when they try to sell into that country.

And if you think about that in a sort of game theoretic sense as an academic, it could be then what that does is it makes everybody else lower their tariffs to our level.

So exactly where that equilibrium comes out is uncertain.

But I think reciprocity is something that I think most Americans agree with.

Like, shouldn't we charge the same tariff they charge us?

- So, Kevin, tell me, are you for the blanket tariffs on imports that Trump is promising?

- You know, he hasn't said what the rate is and he's speculated on some rates.

And I would have to analyze what the rate is, but it certainly could be higher than I would like.

But it's one of the things I really like about President Trump and I appreciate is that he always wanted everybody in the Oval Office or the Roosevelt Room that, you know, had an opinion about the policy and he wanted to hear what their honest opinion was.

So if he gave me a specific policy to model, I'd model it.

And if the rates were low and close to where our trading partners are, then that's one thing.

I don't think that there would be much of an inflationary effect, and I think that it would onshore production and jobs.

- I think he did say between 10 to 20% on all imports and 60% for imports from China.

How would you feel about that without having your models at your fingertips?

- Yeah, 10% is a place where I could see the benefits would be pretty significant for onshoring and eliminating, you know, the external effects of, like, supply chain disruptions and so on, so- - But not 20%?

- Yeah, I think what 20% is, then it started, it would be perhaps more disruptive.

But, again, like, what President Trump would do, just like he did last time is that when we're starting to have these policy discussions, that we'll all get the models humming and then we'll look at his options and then he'll pick the right number.

- As you know, William F. Buckley Jr., host of the original "Firing Line" between 1966 and 1999, but- - Great guy.

- In 1989, Buckley hosted a "Firing Line" debate on the merits of capitalism and socialism.

And during the debate, former Reagan U.N.

Ambassador Jeane Kirkpatrick argued against protectionism.

Take a look at this clip.

- Oh, gee!

- The Reagan administration believed, that consumers' well-being should take priority, and the consumers' well-being is served by permitting as free trade as possible, which will guarantee lower prices, better goods at lower prices.

And they were not, therefore, as concerned with reciprocity, strict reciprocity, as you are because they did not believe that it delivers the goods at the highest quality, lowest price to the consumer.

- Help me reflect, Kevin.

You know, Ronald Reagan did use targeted tariffs against Japan.

- Sure.

- George W. Bush used tariffs on steel.

Trump is proposing something much broader.

How do you reflect on the Republican Party's shift on trade?

- First, I have to say that Jeane was a friend and colleague of mine at the American Enterprise Institute, and I used to hang out in her office all the time, and it was really wonderful to see that clip of Jeane.

You know, Jeane's discussion right there is a discussion that is 100% admissible in a world where all of our trading partners, you know, have our own best interests at heart.

They're not ramping up their militaries, getting ready to invade other people, stealing the intellectual property from the U.S., And so if you think back to a world where there were never any countries that had malice towards others, then absolutely the Adam Smith free trade answer is the optimal answer in economic models.

But if you look at what happened when China entered the WTO, China came in and basically created distressed communities by shutting down factories throughout the U.S. because the Chinese were outcompeting those factories.

And those communities are on the ropes to this day.

If you look at the book that Angus Deaton and his wife Anne Case wrote about deaths of despair, those deaths of despair came about because of this wave of misery that was spread by plant closures all around America.

And, you know, Donald Trump's message to these people is that there's help coming.

You know, we're gonna try to revive those communities.

And Bill Clinton once said that, you know, we need to have free trade, but we need to, like, make sure that the people who are harmed by it, that we help them out, and we give them like a program so that they're gonna be okay.

Well, such a program never happened and is really hard to imagine.

And we're in a country right now where there are whole pockets of the country where the mill closed and the town hasn't really revived and people are doing fentanyl there.

And it's a serious, serious problem, and Americans are crying out for somebody to do something about it.

And I think that President Trump's view is that a trade policy like the one he advocates is a reasonable approach to try to revive those communities.

- Let me ask you about the national debt.

In 2016, President Trump promised to eradicate the national debt in eight years.

Four years later, we'd seen a 40% increase and much of that increase also happened before the pandemic.

There was spending from Republicans in Congress that has frankly, jaded conservative Republicans, fiscally conservative Republicans, about the prospects for a new Trump administration's ability to deliver on new promises to lower the debt.

- Hmm.

- What's gonna be different in a second Trump administration vis a vis spending?

- Well, I think, first of all, one of the things you have to remember is that what happened in the economic history of like the last few years is that there was this bipartisan agreement during the COVID emergency to have those stimulus bills, and that jacked up government spending because of the emergency.

There was spending before but it went way up under COVID and you wouldn't deny that.

And so it went way up under COVID.

And then what happened was that it became basically the new baseline, and the new baseline that Democrats basically stepped up from their spent up from there.

And that's where things really started to spin out of control with inflation and the national debt.

- But, Kevin, you and I both know that before the pandemic, the spending that was coming out of Congress with congressional Republicans when they had the House and the Senate at the beginning of the Trump administration was not disciplined.

And it did leave many fiscal conservatives with a bitter taste in their mouth.

How will we know that it's going to be different this time?

- Right.

Well, there's so much to cut and it has to happen, the national debt is so high.

There absolutely is gonna be a lot of budget talk next year, regardless of who's in the White House.

There's gonna be a debt limit hit in the spring that'll have to be lifted.

I think that spending is gonna go down a lot next year and it'll definitely go down a lot if President Trump's there because of all the wasteful stuff that was added on since the 2019 outlook.

- The post-pandemic U.S. recovery has been stronger and faster than other G7 countries, and we did avoid a recession.

To what do you attribute that lack of a recession and that stronger recovery?

- Yeah, you know, I really attribute it to strong leadership of people of both parties in 2020.

Again, I was in the White House helping to manage the response to the COVID lockdowns.

And one of the things that we did is we went up and we met with Senator Wyden and the Democrats and we said, look, this is a very uncertain time economically.

We don't really know, like, how long are things gonna be shut down, which things are gonna be shut down for longer and less long and so on.

And so let's do a sequence of things, that those things will buy us a little bit of time, like a month or two, and then we'll talk again in a couple of months and see what we need to do next.

And so in the end, what happened was over the course of the year, again, with every Democrat and every Republican voting for these bills, they passed a bunch of bills that were sized almost exactly for the harm that was being done by the lockdowns.

And so, again, it's a miracle, really, if you think about it, that after a -32% quarter, the year was about flat.

And that was because the stimulus was right-sized.

And then again, the problem was that the first quarter ended up being 6% growth.

There weren't any lockdowns.

And then they continued another stimulus bill, and that's where the inflation really started off.

- Your name has been floated as a potential Federal Reserve chair in a second Trump administration.

Look, the Fed, as you just mentioned, is widely expected to cut interest rates next week.

- Mm-hmm.

- You have said that you don't believe that a cut before the election is justified.

- I changed my mind on that actually, Margaret.

- Okay.

- Like I did in July, I believed that.

But then there's been a whole bunch of bad data coming out and I think that a prudent Fed would start to risk manage by cutting rates now.

And it's unfortunate that it's before an election because of the appearance of partisanship.

But if you're a data-driven Fed, then the idea that you would move didn't seem very plausible in July, but then the data started to surprise on the downside and that's, you know, roiled markets and so on.

But yeah, for sure, I think the Fed is going to cut rates and- - And you think that that would be appropriate?

- And I think that now it's appropriate.

- When you talk about the Fed with the former president, I know that he has lamented, you have said that he has lamented the appearance of partisanship and politicization of the Fed.

If you were in a position in the Federal Reserve, given your closeness with President Trump, how do Federal Reserve employees, governors, best serve the idea and frankly, the execution of the independence of the Fed?

- Yeah, I think that the academic literature is 100% clear that independent central banks produce better results for countries.

And I don't think that there's really any economist that thinks that having the Fed coordinate with fiscal policy in order to make room for it is a recipe for anything other than inflation.

And so an independent Fed is something that's widely acknowledged in the literature as being super important.

I think that President Trump's frustration talking to him back to the day when he was in the Oval, was that he thought that the policies of the Fed weren't necessarily politically independent, that they were actually taking an opposition position.

But I think that he always had the impression that there was a risk that the Fed was being pretty partisan.

And honestly, you know, I think that that's a risk that has come and gone over time in the history of the Fed, that there have been times when it's actually been very coordinated with the White House or with Congress and then times when it hasn't.

The thing that I would criticize the most about the Fed, you know, basically last few chairs is just that my old friend Alan Greenspan was really careful to constantly remind Congress of the importance of fiscal responsibility and warn them about, you know, the actions he might have to take if they weren't fiscally responsible.

And I think that the sort of connection between fiscal policy and monetary policy is something that a Fed chair should comment on regularly, and I don't think that they've done an adequate job of that lately.

- Let me ask you, in the debate this week, former President Trump called Vice President Harris a Marxist.

- She's a Marxist.

Everybody knows she's a Marxist.

Her father's a Marxist professor in Economics and he taught her well.

- When you look at her economic agenda, do you see Marxism at its core?

- You know, I wrote a book called, "The Drift: Stopping America's Slide to Socialism."

And I think that, you know, we are, as a society, very, very rapidly closing in on being a mostly socialist society, and that's why I wrote the book.

And so, you know, Marx, you know, did write "Das Kapital."

He was a socialist.

Like when you're, you know, forgiving student debt, having the government set prices, you know, basically these are all things that are consistent with the socialist playbook.

And so I don't know if she would wanna call herself a Marxist, but I know that there are a lot of Democrats who warmly embrace the idea of socialism and don't consider it an insult for someone to say, "Hey, that's a socialist idea."

And, you know, if you like, we could dig into the academics of what is a socialist idea?

But it's basically when the government controls things and private citizens don't.

When the government sets prices, then that's socialism.

- I mean, are there gradations here, Kevin?

I mean, do you really think that that is her goal and her end?

Or do you just think it is more of a European economic sort of democratic socialism?

- Look, if the government... (laughs) I have to say that, if the government set the price of food and the government, you know, she's for single payer health care, so the government controls the health care system.

You know, the government says, like, heavily regulates even automobiles, so it says what kind you can have and what kind you can't have.

Then, you know, the difference between that and the kind of socialism that we've seen in the past is pretty darn small.

It's pretty darn small.

So yeah, I would say that it's absolutely an objective to have the government have a lot more say over every decision that we make because folks on the left tend to think that the government knows better than individuals.

- We've talked a lot about economics.

I do wanna say, last week, former Vice President Dick Cheney and his daughter, former Representative Liz Cheney, endorsed Kamala Harris for president, not President Trump.

And there are many conservatives like them who agree with you on many of the economic issues that we have just discussed.

But former President Trump's behavior on January 6th and the role he played in the first violent transition of power is a deal breaker for them.

I wonder how do you, as somebody who served President Trump at the White House and while you were not there on January 6th- - No, I wasn't.

- You still are in frequent touch with him.

How do you think about that question?

- Well, I just think that President Trump, as you saw in the debate, disputes the characterization of what he was doing on that day.

And, you know, I've been friends with Dick and Lynne Cheney and their family for a long, long time.

You know, before Dick was vice president, he was on the board of the American Enterprise Institute where I worked, and Lynne was literally in the office next to me, and so I have a great deal of fondness for them.

I know that Dick is a person who speaks his mind.

I disagree with him on that matter.

- You disagree with him that Donald Trump's return to the White House will be a threat to democracy?

- Yeah, it wouldn't be a threat to democracy.

And if you go back and look at his record, there was a very strong economy.

There was peace around the world and, you know, our enemies were on the ropes.

Iranian oil production was down to like about 50,000 barrels from 2 billion and they didn't have the money to support terrorism.

If you go back and look at the success- - There is a record.

- of Trumps' regime, you've got it, no, I'm just saying you've got to say like, so why is it gonna be so different this time?

- I think the question really for me that I have for you is really about January 6th and the behavior that day.

I know you say he disputes that characterization.

But do you dispute Vice President Mike Pence's characterization?

I mean, Mike Pence has refused to endorse former President Trump and, frankly, might have met his maker that day, given how the crowd and the riot unfolded at the Capitol.

- Margaret, I'm an economist.

I'm not a January 6th expert, and I can just say that, you know, Donald Trump has characterized what he thinks happened that day.

There's like a whole other side of that thing, but that's just not my area, I'm sorry- - Okay.

When you talk to Trump next, what will you tell him?

- I'll answer his questions.

(laughs) You know, he's a very inquisitive person who loves to talk about the economy.

He might say, you know, how are things going?

Are we in a recession?

That's the kind of conversation I would have with him.

- Are we in a recession?

- I think it's close.

I think it's close.

But the latest jobs numbers were bad, but they weren't as bad as I feared they might be, and so we're close.

The history of the unemployment rate is it's a really early indicator of recession.

And when it goes up a percent or so, as it has over the last year, then it tends to signal a recession.

And so, yeah, I think that the risks are pretty high right now.

- Kevin Hassett, thank you for joining me on "Firing Line" and for your economic analysis of both candidates' economic platforms.

- Yeah, thank you, Margaret.

It's really been a great pleasure to talk with you.

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