FOX NEWS SUNDAY

Manafort on Trump's fight to rally GOP, defeat Democrats; Gov. McCrory on showdown over NC's transgender bathroom law

This is a rush transcript from "Fox News Sunday," May 8, 2016. This copy may not be in its final form and may be updated.

CHRIS WALLACE, FOX NEWS ANCHOR:  I'm Chris Wallace.

With exactly six months to Election Day, Donald Trump will be the Republican nominee.  But can he unite the party?  

(BEGIN VIDEOTAPE)

DONALD TRUMP, R-PRESIDENTIAL CANDIDATE:  We want to bring unity to the Republican Party.  We have to bring unity.  

REP. PAUL RYAN, R-WIS., SPEAKER OF THE HOUSE:  Saying we're unified doesn't in and of itself unify us.  

TRUMP:  I didn't get Paul Ryan.  I don't know what happened.  

The only important thing is the unification of the people.  

WALLACE:  We'll talk with senior adviser Paul Manafort about Trump's fight to rally the party and defeat the Democrats in November.  

Then, a showdown between the feds and North Carolina over the legality of its transgender bathroom law.  

GOV. PAT MCCRORY, R-NORTH CAROLINA:  This conclusion by the Department of Justice impacts every state, every university and almost every employer in the United States of America.  

WALLACE:  We'll ask North Carolina Governor Pat McCrory whether he'll defy tomorrow's deadline.  It's a "Fox News Sunday" exclusive.  

Plus, a Navy SEAL is killed in a firefight with ISIS in Iraq.  We'll ask our Sunday panel about the U.S. military's deepening role there.  

And our power player of the week: the dish on the designer who has dressed both leading ladies and their tables.  

Why would somebody spend $400 for a plate?  

UNIDENTIFIED FEMALE:  Because they love it.  

WALLACE:  All right now on "Fox News Sunday."

(END VIDEOTAPE)

WALLACE:  Hello again and happy Mother's Day from Fox News in Washington.  

Well, Donald Trump had barrel put away the competition this week and become the almost certain Republican nominee when a new fight broke out within the GOP.  Some top Republicans said they won't vote for Trump and House Speaker Paul Ryan held off on endorsing him.  

Joining me now is Donald Trump's senior adviser Paul Manafort.  

Paul, let's start with Paul Ryan's comments this week that he's not ready, as he put it, to endorse Trump, and that it's basically on your candidate to unify the party.  Here is Paul Ryan.  

(BEGIN VIDEO CLIP)

RYAN:  I think there's work that needs to be done in order to unify the party.  I think our nominee, our presumptive nominee needs to do that.  I want to be a part of helping him do that.  But right now, no, I think that, you know, there's some work to do here.  

(END VIDEO CLIP)

WALLACE:  How seriously does Trump take this split within the party and how far is he willing to go when he meets with Paul Ryan later this week to try to repair the split?  

PAUL MANAFORT, TRUMP STRATEGIST:  I think you need to put things into context here.  A week ago you had Republican leaders in Washington, so many, saying that there was going to be a contested convention.  And last Tuesday night in Indiana, a state Trump was supposed to lose, he had an overwhelming victory and the race ended.  It ended much sooner than anybody expected except maybe the people supporting Donald Trump who knew he was on to something.  

So, Washington was in a little bit of an uncertain phase and still s but it's a healing process.  It's a healing process that will happen over time and frankly the media's expectations that the day after the Indiana primary and everybody got out of the race everything was going to come together in one moment, it was unrealistic.  

Trump understands this.  What's important to him is that he unifies the party, that he unifies the voters and then he unifies the Republican Party.  

Remember, he ran as an outsider, he ran as somebody who was representing the people's interests who were frustrated with the gridlock in Washington.  He wasn't a candidate of the leaders.  And so, to expect everything to come together the day after the primary process ended, it was a bit unrealistic.  But frankly, I'm very pleased to say that it's happening even faster than we thought.  

I mean, many of the candidate who ran against him and there were 16, are now moving behind him, endorsing his candidacy expressing support for it.  Party leadership in the Congress as well as members of Congress is coming together.  The governors are coming together.  

WALLACE:  Paul --

MANAFORT:  So, I mean, the process is happening faster than we thought.  

WALLACE:  Paul, does evening that it's important that the party be unified going forward?  

MANAFORT:  Well, he thinks it's important that the country be unified and that his appeal be presented in such a way that his message is clear.  But, of course, he is the head of the Republican Party, he wants the party to get behind him and support him.  

There has never been a candidate -- a nominee for president of the United States who had every Republican supporting him and everybody accepting every single position of a presidential candidate.  Ronald Reagan had the same issues when he was trying to put the party together in 1980.  

So it's a process.  It will be fine.  We've got plenty of time now.  There will be no contested convention.  We have plenty of time to put the party together.

And I think you're going to see a successful, united party in Cleveland, and they'll be ready to take on Hillary Clinton.  

WALLACE:  But, Paul, there are real differences between Trump and Ryan.  Ryan is said to be offended by some of the things that your candidate has said about women and Muslims and Hispanics.  There are substantive differences on issues like trade and entitlement reform.  

How far is Trump willing to go to sign on to the agenda of Paul Ryan?  

MANAFORT:  Well, let's make something very clear.  Donald Trump just won a Republican primary.  He won it overwhelmingly.  

The largest turnouts in the history of Republican voters in all of the primaries and he is the historic leader now of getting votes as a Republican nominee.  So, it's his agenda that has just been cemented as what the American people or at least Republicans and independents who voted for him want.  

There will be a process.  There will be meetings of minds.  There's a lot that unites the leadership in the Congress as well as Donald Trump.

But the important thing to remember is the national titular head of the party is the nominee of the Republican Party.  He just won that overwhelmingly, faster than anybody in Washington thought and running as an outsider against Washington.  

So, his agenda is the people's agenda.  He made it very clear.  His vision was clear.  He articulated it very well.  There is no doubts to where he stands.  

WALLACE:  All right.  I want to turn to another subject.  

Trump had said that he was not going to go after Hillary Clinton and her personal life unless she went after him.  That in effect as he likes to say, he would counter punch.  But then yesterday out in Washington state, he went off on Clinton about the way she treated the women that Bill Clinton had had an affair with.  Let's put it up.  

(BEGIN VIDEO CLIP)

TRUMP:  She's married to a man who was the worst abuser of women in the history of politics.  Hillary was an enabler and she treated these women horribly.  Just remember this.  And some of those women were destroyed not by him, but by the way that Hillary Clinton treated them after everything went down.  

(END VIDEO CLIP)

WALLACE:  First of all, what specifically did Hillary Clinton do to those women?  

MANAFORT:  Look, this is a clear case.  Donald Trump has made it very clear he is not going to allow hypocrisy on the women's issue.  He is not going to let Hillary make the case that he is against women and she is this defender of women's rights.  

I mean, his business empire is he has put many women in leadership positions, gender, race --

(CROSSTALK)

WALLACE:  Respectfully, I asked you, what did -- what did Hillary Clinton do to those women?  He says she destroyed their lives.  How?  

MANAFORT:  I will let him speak to it.  The point is that, you know, the history is clear, she's an enabler in the past, I will let him speak to those issues.  

But the point is he made it very clear he was not going to let hypocrisy exist on a women's issue.  He is not anti-women.  He is very pro women.  He has proven it in his business life and proven it more so than her because he has proven it with actions not words.  

And so, for her to go after him on being anti-women, he's going to go back and talk about some of the things that she did that are less than consistent as far as being pro-women.  

WALLACE:  Trump also this week got into a nasty Twitter war with Democratic Senator Elizabeth Warren.  Now, to be fair, she started it.  Here's one of her tweets, "Donald Trump has built his campaign on racism, sexism and xenophobia."  But Trump fired back, "I hope corrupt Hillary Clinton chooses goofy Elizabeth Warren as her running mate.  I will defeat them both."

I guess the question is, Paul, if you're trying to win over women and you do have a problem with women, according to the polls do you really want to take on a fight with two of them, Clinton and Warren?  

MANAFORT:  He has taken on a fight with two politicians who are using political terms and being hypocrites about it.  That's what he's taken a fight on.

As far as women's issues are concerned, that's exactly the point he is making.  He is not going to allow Hillary Clinton or Elizabeth Warren to hide behind their sex to make cases that are hypocritical.  

WALLACE:  And how is Elizabeth Warren being hypocritical?  She wasn't involved in the Clinton affairs.  

MANAFORT:  The statements that she was making there were totally out of bounds and he gave it back to her.  If she can't take it, that's her problem.  

WALLACE:  During the primaries, Trump made a big deal out of the fact that he was self-funding his campaign and also he said that other candidates, almost all of the other candidates who did take money from big donors he said were puppets.  Here he is.  

(BEGIN VIDEO CLIP)

TRUMP:  One of the things we're doing and one of the things I'm doing is I'm self-funding my campaign, so I can't be bought.  

(END VIDEO CLIP)

WALLACE:  But now, he announced this week that he won't be completely self-funding, that he is going to be raising some money, so does that mean that he can be bought?  

MANAFORT:  We're talking now about the general election.  He made the case very clear that he wanted to be the nominee of the Republican Party with no question as to whose interests he was defending.  He was defending the people's interests and they rallied behind that message and he self-funded his campaigns to the tune of millions of dollars.  

Now, we are entering into the general election where he is the head of the party and will be electing not just the president, but will be electing senators, congressmen, governors, local council people.  It's a united effort.  

And the Democrats have said they're going to be spending hundreds of millions of dollars to try and spread lies about Donald Trump and the Republican Party. Trump has said to compete against them he will support the party and the party's efforts to raise money.  He won't allow the distorted process which he doesn't agree with, but to be used against other Republicans as well as him.  

WALLACE:  But just to make it clear, because he named his own not Republican but Trump finance chair, a fellow named Steve Mnuchin, some of that money that's going to be raised, that's going to go to Trump, not to the party, correct?  

MANAFORT:  It's going to be the presidential campaign of Trump being the head of the ticket of the party.  That is correct.

I mean, the point is that Donald Trump is committed to not letting Hillary Clinton be elected president, not letting Nancy Pelosi become speaker of the House, and to not letting Harry Reid and liberal Democrats be in control of the Senate that will allow them to appoint maybe four justices to the Supreme Court and to continue with trade policies that are destroying jobs in America.  

So, he is not going to -- he said as head of the party, he has a responsibility now, not just to himself but to the party, to make sure that these disastrous policies of the Democrats never get a chance to be --

WALLACE:  But just to be clear, because he's still going to be taking money from big donors, so in that sense forget whether -- I mean, he didn't say I'm not going to be bought in the primaries but I will be bought in the general election.  Why is it that he won't be bought if he's taking that money?  

MANAFORT:  The one you need to look at being pout is look at Hillary Clinton who has been taking money all along, who is giving secret speeches at Goldman Sachs and other places, that's who you need to talk about being bought.  

Donald Trump has proven in the primary process he put his money where his mouth is.  He was elected or nominated to be the Republican nominee by the people based on a self-funded campaign.  And his interests now are united only with the Republican Party against the liberal agenda of the Democratic Party.  

WALLACE:  A pro-Clinton super PAC is already running web videos that are contrasting Trump's campaign promises with his actual business practices.  Here is a clip.  

(BEGIN VIDEO CLIP, PRO-CLINTON SUPER PAC)

DONALD TRUMP, R-PRESIDENTIAL CANDIDATE:  Washington is broken.  

The truth is I'm doing damn well in life, but if you're going to achieve anything you have to take action.  

Until now, you could only enjoy steaks of this quality in one of my resort --

That's going to change quickly.  We'll cut taxes for the middle class, negotiate new trade deals.  

We're going to teach you business.  We're going to teach you life.

(END VIDEO CLIP)

WALLACE:  Now, that group, Priorities USA, has reserved $90 million in TV time between now and the general election to run a series of ads, not web videos, but ads on television and it's pretty clear, I think you would agree, Paul, that they're going to go after Trump the same way that the Democrats and Obama went after Mitt Romney in 2012, which is to say he got rich while exploiting the little guy.  

And the question I have is, when they go after Trump's bankruptcies and Trump University, how is Trump going to handle that?  

MANAFORT:  Look, Donald Trump's businesses employ hundreds of thousands of people that you call the little people.  

WALLACE:  I called them the little guy.  I mean --

MANAFORT:  The little guy.  

I mean, the point is, you know, he's got a record of creating jobs for people, of helping people rise up in business and this campaign will talk about those things.  Yes, the Democrats will try to distort his record.  We know that.  That's precisely the reason why the Republicans have got to come together, be well-funded to deal with the hypocrisy, to deal with the lies, and to deal with the distortions.

WALLACE:  Paul, thank you.  Thanks for taking the time today.  We very much appreciate it.  

MANAFORT:  Thank you.  

WALLACE:  Up next, we'll bring in our Sunday group to discuss Trump's big meeting with Paul Ryan this week.  

Plus, what would you like to ask the panel about the challenge Trump faces in unifying the GOP?  Just go to Facebook or at Twitter @FoxNewsSunday and we may use your question on the air.   

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

RYAN:  I'm just not ready to do that at this point.  I'm not there right now.  And I hope to, though, and I want to, but I think what is required is that we unify this party.  

(END VIDEO CLIP)

WALLACE:  House Speaker Paul Ryan delivering a highly unusual rebuke of this party's presumed nominee.  

And it's time now for our Sunday group.  Fox News senior political analyst, Brit Hume, Julie Pace, who covers the White House and the campaign for The Associated Press, Kimberley Strassel from The Wall Street Journal, and Charles Lane of The Washington Post.  

Well, Brit, how serious is this split between Trump and Ryan?  I have to say I found it interesting today that Paul Manafort was making it clear who is the head of the party and it isn't Paul Ryan in his mind. And what do you expect from their big meeting on Thursday?  

BRIT HUME, FOX NEWS SENIOR POLITICAL ANALYST:  Well, you know, I think that this is an excellent example of how divided this party is and is likely to remain.  After all, remember what Trump said, he said, "I don't support Paul Ryan's agenda."  

Paul Ryan's agenda is essentially the current conservative agenda.  It is reform conservatism.  He is a true blue conservative.  Donald Trump ran as something else and he ran to gather the support of people who are alienated and deeply disappointed in the Republican leadership in Washington.  

Now comes the moment, does he need to pull these people who are part of the party establishment, if you will, find him?  He, I think, believes he doesn't have to.  If they want to get on board with him, great, but he doesn't seem to be willing to adjust his way at looking at things, his agenda, his issue positions, his sense of what the Constitution requires to accommodate them and to bring them forward.  

WALLACE:  And do you think that he can run as a free agent basically aside and apart from the Republican Party establishment?  

HUME:  I think he thinks he can.  

WALLACE:  But do you think he can?  

HUME:  Well, I think that if you look at his numbers, he needs every vote he can get.  I mean, after all, Mitt Romney got, what, 93 percent of the Republican vote.  With Trump so deeply underwater with women, hopelessly underwater with Hispanics, African-Americans and others, I think, you know, he's got to figure out how to make it all add up to give him some kind of a majority.

And if he begins basically by turning off a lot of, you know, mainstream Republicans, I don't see how he gets there.  Now, maybe -- you know, maybe he can -- maybe he can find in this country so many alienated blue collar Democrats that will come to his cause that he can win, but I doubt it.  

WALLACE:  Meanwhile, President Obama piled on this week making his first comments about Trump since he became the presumptive Republican nominee and he challenged Republican voters.  Here he is.  

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  We are in serious times and this is a really serious job.  This is not entertainment.  It is not a reality show.  This is a contest for the presidency of the United States.  

(END VIDEO CLIP)

WALLACE:  Julie, how big a role does President Obama plan to play in this campaign?  And he seems to take particular delight and he has actually for a few years now in going after -- well, I guess since the birther issue in going after Donald Trump.  

JULIE PACE, THE ASSOCIATED PRESS:  I think if the president has his way, he will play a very large role in this campaign.  And right now, the Clinton campaign would like to see him play a large role, they think that he is still an effective messenger for Democrats, for young voters, for African-Americans who Clinton would need in a general election.

But I think what's interesting with both Obama and Clinton in the last week or so is you hear them making these specific appeals to Republican voters.  Clinton talked about thoughtful Republicans.  And they think that with Trump at the top of the Republican ticket, that they could appeal to people who may not believe in policy positions that Clinton has, but at least would feel comfortable that she wouldn't necessarily drive the country into a ditch and may be able to come around and vote for her for at least one term.  

WALLACE:  Do you think it's personal with Obama?  

PACE:  I do.  I really do.  You have to remember when Trump was leading the birther movement in Obama's first term what a shot at the president's credibility that was and I think that he is surprised and his staff is surprised that Trump has gone from being this show man on the side of the political arena to actually now the presumptive nominee.  And if he were to be succeeded by Donald Trump as president, what would that say about Obama and his stewardship of the country as well?  

WALLACE:  We asked you for questions for the panel and we got a bunch like these from Craig Coldren on Facebook who writes, "No wonder the GOP is dying.  Party members would rather let a Democrat win than vote for a non-perfect candidate.  No wonder we the people are uprising."

Kim, how do you answer Craig and, you know, there is this interesting question because we're talking about all the negatives, but the fact is that Trump ran as the anti-establishment candidate, now he is getting hammered by the Bushes and by Romney and Lindsey Graham, they say they can't support Trump.  In a sense, doesn't that certify him as the outsider?  

KIMBERLEY STRASSEL, THE WALL STREET JOURNAL:  Look, when we talk about a non-perfect candidate I keep hearing everyone talk about Trump's agenda.  Paul Manafort was on saying his agenda and he articulate it had so well.  

What part of that agenda are we talking about?  When we put out his tax plan or when he disavowed it this week and said he wasn't a big fan of his own tax plan?  When he said we cannot raise the minimum wage and then turned around this week and said, well, yes, we probably can do it after all.

I mean, this is why Paul Ryan cannot support Donald Trump at the moment because Paul Ryan is a conviction politician who believes in certain ideals.  Those voters out there who have an understanding of the Republican Party as something that has certain principles will not be able to rally behind this person.  And, yes, some of them Obama is on to something, there will be a number who look and say, I would rather have somebody who had a consistent viewpoint, maybe not one I agree with than one who I don't know what he is going to say from one day to the next.  

WALLACE:  Well, so, having said that -- do you really think they are going to go to this meeting, the nominee of the party, the chairman of the Republican National Committee and the speaker of the House, they're going to sit down and come out and basically say, "No, no deal"?

STRASSEL:  No, I think that they probably they will come out.  I don't think that there will be a deal.

But, look, what Paul Ryan essentially did here is he sort of said this is a little bit of a test.  You've got to go out and prove that you can get the people who are the foundation of our party, because nothing is set in stone really.  I mean, in the reality it is that we keep talking about him as the presumptive nominee in a race where everything has been up for grabs, anything could happen, there are a lot of delegates out there who still do not support Donald Trump.  Who knows what could happen?  

WALLACE:  I want to pivot this conversation a bit with you, Chuck.  

I want to take a look.  It was a fascinating story this week in The Wall Street Journal at the electoral map which shows just the enormous advantage that Democrats begin with.  All the states that you see there in blue, particularly on the East Coast and the West Coast have voted Democratic for the last six elections in a row.  They represent 242 electoral votes, just 28 shy of a majority.  All the states in red have voted Republican for those same six straight elections, that's 102 electoral votes or 168 shy of a majority.  

Chuck, the only way -- the only way that Trump can possibly win is to flip some of those blue states that have voted six times in a row like Michigan, like Pennsylvania, like Wisconsin.  

CHARLES LANE, THE WASHINGTON POST:  There's sort of two theories about that.  Trump's theory is, look, I'm talking about immigration, I'm talking about trade, those are issues that resonate in the Rust Belt, which are the areas you just described.  And so, I can bring people who used to vote Democratic over to the Republican side.  That's the Trump theory of the case.  

The case that I think is a little bit more correct is that that might work if he didn't have all the other negatives going against him because he is going to push -- or at least right now, he is pushing women away, he is pushing -- even in those heavily white states, there are a number of Hispanics, those are all pushed away.  

In other words, the question that I think that it all revolves around is does he bring in more than he pushes away.  Right now it looks like he's pushing away more than he's bringing in.  And those relative, handful of red states that you showed there is really all he can count on.  

WALLACE:  Let me argue a different theory of the case, Brit, in the time we have left, which would be -- there is a huge disgust with Washington and the establishment.  We see it not only on the Republican side.  We also see it on the Democratic side with Bernie Sanders.  

Hillary Clinton represents that, she'd been around for, what, a quarter of a century, and that there may be just a sense of, you know, we'll try it and if he's no good we'll fire him in four years.  

HUME:  Well, certainly, Trump's great advantage is that the Democratic nominee is weak, discredited, old in the sense of people having known her for a long time.  You know, he has terrible negatives, hers are not as bad as his, but they're pretty bad.  

So, her weakness is a tremendous asset to him and gives him at least a chance to appeal to voters who might be peeled away to go to him.  But remember this about him, Chris, this is above all this Trump mania, is a cult of personality and the people who support him -- basically what they believe in is whatever he says and if he changes his mind, they'll believe that, too.  

I just don't know how many people are willing to get on that train.  You know, people with convictions, people who are conservative and all that.  You know, when your negatives are as bad as his with as many groups as he has the bad negatives, the first thing you shouldn't do is alienate the conservatives in the Republican Party.  It is, after all, still to this day a conservative party.  

WALLACE:  All right.  We have to take a break here but we will see you all a little later, panel.  

Up next, we will sit down with North Carolina Governor Pat McCrory who is facing a federal deadline tomorrow to suspend a state law limiting bathroom access to transgender people.  Plus, what do you think, should the federal government cut off funds to North Carolina over a law it says violate civil rights?

Let me know on Facebook or Twitter @FoxNewsSunday and use the hashtag #fns.  

(COMMERCIAL BREAK)

WALLACE:  Coming up, another American has been lost in the war on terror.  

(BEGIN VIDEO CLIP)

ASHTON CARTER, U.S. SECRETARY OF DEFENSE:  These risks will continue.  And we greatly regret his loss.  

(END VIDEO CLIP)

WALLACE:  We'll ask our Sunday panel about our deepening role fighting ISIS, coming up on "Fox News Sunday."

(COMMERCIAL BREAK)

CHRIS WALLACE, FOX ANCHOR: The state of North Carolina faces a deadline tomorrow to stop enforcement of its new law that people must use bathrooms of the gender on their birth certificates. The Justice Department says that law violates the federal Civil Rights Act and is threatening to cut off billions of dollars in federal funds if the state refuses to comply.

Joining me now is North Carolina Governor Pat McCrory.

And, governor, welcome to FOX NEWS SUNDAY.

GOV. PAT MCCRORY (R-NC): Thanks for having me, Chris. I appreciate it.

WALLACE:  All right, well, let's start with this deadline that you face tomorrow to suspend implementation of the so-called bathroom law or to face the potential loss of billions of dollars in state funding. Governor, what are you going to do?

MCCRORY: Well, first of all, the bathroom laws (INAUDIBLE) only applies to government buildings or schools and our universities and highway rest stops. It doesn't apply to anyone in the private sector. In fact, our ruling says that the government shouldn't make bathroom laws for anyone in the private sector.

WALLACE:  Understood.

MCCRORY: That's up to the private sector.

What I've asked for, I asked for Friday, was an extension. They gave the ninth largest state in the United States, the civil rights division of the Justice Department, three working days to respond to a pretty complex letter and to a pretty big threat. Well, we don't think three working days is enough to respond to such a threat from a -

WALLACE:  Did they respond to your request for an extension?

MCCRORY: Yes, they said, no, unless we will give you a one week extension if the governor admits publicly that the ruling that their language regarding bathrooms does, in fact, discriminate. Well, I'm not going to publicly announce that something discriminates which is agreeing with their letter because we're really talking about a letter in which they're trying to define gender identity. And there is no clear identification or definition of gender identity. It's -

WALLACE:  Well, all right, but let me - let -

MCCRORY: It's the federal government being a - a bully. It's making law. It's - and by their interpretation. And -

WALLACE:  So you asked for an extension of a week.

MCCRORY: Right.

WALLACE:  They said no.

MCCRORY: Right.

WALLACE:  I've got a copy of the letter, too, and they say you've got to make a decision on whether or not you're going to step away from House Bill 2, this law.

MCCRORY: Right. Right.

WALLACE:  By the close of business tomorrow. So what are you going to do?

MCCRORY: Well, first of all, I don't have the authority to change the law as governor of the United States. That's passed by the North - or as governor of North Carolina. That is made by the North Carolina legislature. So they've already made one unrealistic expectation. And, second, they've also sent a letter to our universities and our university by state law has to go to the board of governors, which cannot meet until Tuesday. So this unrealistic deadline by the federal government is quite amazing to the ninth largest state, but I'll make a decision within the next 24 hours on how to respond to them. I - I believe I have until 5:00 tomorrow.

WALLACE:  And how are you going to decide?

MCCRORY: I'm discussing all of our legal options, all of our political options, because, frankly, there are two ways the federal government can determine this. One is, is a bathroom policy determined by the Congress and signed by the president, or a dictate from a regulatory agency in the United States federal government. And that's the way it is right now.

WALLACE:  Is - is it - it is possible - I'm trying - I'm trying - obviously, I'm doing my job.

MCCRORY: Sure. Sure.

WALLACE:  I'm trying to pin you down. Is the - are you willing to rule out at this point that you will disavow, and however you phrase it, in effect say, I'm walking away from this law?

MCCRORY: I'm looking at all my options. And one thing the nation has to realize, this is no longer just a North Carolina issue. This order, this letter by the Justice Department, is saying that every company in the United States of America that has over 15 employees are going to have to abide by the federal government's regulation on bathrooms. So now the federal government is going to tell almost every private sector company in the United States who can and who cannot come into their bathrooms, their restrooms, their shower facilities for their employees, and they're also telling every university in the United States of America. This is not just North Carolina. They are now telling every university that accepts federal funding that boys who may think they're a girl can go into a girls' locker room or restroom or shower facility.

WALLACE:  You -

MCCRORY: And that begins, I assume, tomorrow.

WALLACE:  Governor, you call this a case of Washington overreach and I want to explore that with you.

MCCRORY: Yes.

WALLACE:  Would it be overreach for the Justice Department to send you a letter like this to say, you cannot have bathrooms in the state capital one for white and one for black?

MCCRORY: I don't think there's any correlation between the two and I think it's misleading.

WALLACE:  But would you agree that that is within the federal government's purview?

MCCRORY: Absolutely, but we can definitely define the race of people. It's very hard to define transgender or gender - gender identity or -

WALLACE:  But - but - but the point is - the reason I ask is -

MCCRORY: Why?

WALLACE:  That the Justice Department says that just like whites and blacks that transgender people are a protected class.

MCCRORY: Right.

WALLACE:  And that has a legal -

MCCRORY: Right.

WALLACE:  That meaning, a protected class under the 1964 Civil Rights Law.

MCCRORY: That's what they say, but that's not what the federal law says. The federal law uses the term "sex" and Congress does not define "sex" as including gender identity or other terms that the Justice Department has currently used. So right now the Justice Department is making law for the federal government as opposed to enforcing law.

WALLACE:  It sounds like basically you're going to challenge this in court?

MCCRORY: We're looking at all our options right now, but we also want to get feedback from the business community throughout the nation that's going to be impacted by this and all universities throughout the nation that are impacted by this.

WALLACE:  OK.

MCCRORY: But we're literally talking about billions of dollars now, if it is challenged, I assume there's no way - I'm not going to risk any money for the state of North Carolina. And now even the DOT, the national - the DOT -

WALLACE:  Department of Transportation.

MCCRORY: Department of Transportation here in Washington is doing press releases saying they're examining whether they can take away North Carolina's money for roads and other transportation needs over a bathroom issue.

WALLACE:  But let me - let - I'm going to get to the money in a - in a second. But how many cases - how many cases have you had in North Carolina in the last year where people have been convicted of using transgender protections to commit crimes in bathrooms?

MCCRORY: This wasn't a problem. That's the point I'm making. This is the Democratic Party and the left wing of the Democratic Party -

WALLACE:  But have - have there been any cases of this?

MCCRORY: Not that I'm aware of.

WALLACE:  Have there been any cases in the last five years?

MCCRORY: Let - why did the Democratic Party in Houston, Texas, and - and -

WALLACE:  But - but I guess the question is - forgive me, if I may, sir.

MCCRORY: No.

WALLACE:  Why not just then let it go if there's - if there's not a case of transgender people going in and molesting little girls -

MCCRORY: Because there's - I haven't - I haven't used that at all. This is an issue of expectation -

WALLACE:  Well, you did say a - a boy who thinks he's a girl going into a girls' bathroom.

MCCRORY: And that's where there's an expectation of privacy. When you go into a restroom or your wife goes into a restroom, you assume the only other people going into that restroom or shower facility is going to be a person of the same gender. That's been an expectation of privacy that all of us have had for years.

WALLACE:  But if there's no problem, then why pass the law in the first place?

MCCRORY: Well, there can be a problem because the - the liberal Democrats are the ones pushing for bathroom laws and now President Obama and one of my successors as mayor of Charlotte wants government to have bathroom rules. I'm not interested in that. We did not start this on the right. Who started it was the - the political left in Houston, Texas, then Charlotte, North Carolina, and now, frankly, in Washington, D.C.

WALLACE:  Let's talk about the issue of money because North Carolina's attorney general, Roy Cooper, who coincidentally is running against you for governor in your re-election fight in this year -

MCCRORY: Yes. Yes. Right.

WALLACE:  Says you made a big mistake signing this law. Here he is.

(BEGIN VIDEO CLIP)

ROY COOPER, D-NORTH CAROLINA ATTORNEY GENERAL: Not only is this new law a national embarrassment, it will set North Carolina's economy back if we don't repeal it.

(END VIDEO CLIP)

WALLACE:  Now, you're campaigning against Cooper for re-election in large part on what you call the Carolina comeback -

MCCRORY: That's right.

WALLACE:  Which is the fact that there has been dramatic economic growth in Carolina for - over the last few years. But let's - let's take a look at the fallout from this law. PayPal canceled a 400 job operations center. This is since the law was passed and you signed it in March. Deutsche Bank shelved plans for facilities that would have employed 250 people. One study found the law has cost North Carolina $77 million and 750 jobs.

Governor, you say you're not going to risk money. This is - all this has happened just since March.

MCCRORY: Well, let me first say, North Carolina's had the greatest economic recovery in the United States of America, more than any other state.

WALLACE:  But this isn't good.

MCCRORY: But since I've been governor - let me finish the sentence, Chris.

WALLACE:  OK.

MCCRORY: And then, second, I need to say PayPal, for example, is kind of selective hypocrisy and selective outrage. This is the same PayPal company that did business in Sudan, did business in Iran, did business in Saudi Arabia and they're lecturing North Carolina because the majority of North Carolinians, I believe, think a man who's a man ought to use the restroom that is on the door. And same thing applies to women. And this is especially true in our schools, in our junior highs, in our high schools. This is a basic change of norms that we've used for decades throughout the United States of America and the Obama administration is now trying to change that norm. Again, not just in North Carolina, but they're ordering this to every company in the United States of America starting tomorrow, I assume, or Tuesday, and also making this an order for every university in the United States of America.

WALLACE:  Governor McCrory, thank you. Thanks for flying here today and talking with us.

MCCRORY: Thank you very much.

WALLACE:  And, of course, we will be looking forward to finding out what you decide and what you say by the close of business tomorrow.

MCCRORY: Thank you very much.

WALLACE:  The - the federal deadline. Thank you, sir.

MCCRORY: Thank you. Thank you very much. Thank you.

WALLACE:  Good to talk with you.

MCCRORY: Thank you.

WALLACE:  Coming up, a Navy SEAL was killed in Iraq this week after getting caught in a firefight with ISIS. Is the U.S. war on terror becoming more of a combat mission? We'll bring back our Sunday group.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ASH CARTER, DEFENSE SECRETARY: These people are in - in combat, senator, and I think that we need to say that clearly.

(END VIDEO CLIP)

WALLACE:  Defense Secretary Ash Carter telling a congressional committee about the increased U.S. military role in the fight against ISIS.

And we're back now with the panel.

Well, we got bad news this week, Navy SEAL Charles Keating IV was killed in northern Iraq. He's the third U.S. service member to die since the campaign against ISIS began.

Brit, the White House continues to say this is not a combat mission. Isn't that getting to be harder and harder to maintain?

BRIT HUME, FOX NEWS SENIOR POLITICAL ANALYST: Yes, it is, Chris, but I - I don't think we should be believing here that what we really have is some kind of a covert, serious, major combat undertaking. The president is clearly doing this in very, very small steps and I don't think he intends to go beyond that. And, you know, the - you're always reminded of the slippery slope that we've encountered in other - in other conflicts where you start with a few and the next thing you know it's a few more and pretty soon it's many and pretty soon you're in a full-fledged combat role. I don't sense that that will come here. It is getting a little bit silly for the White House to say that this is not combat and you've got the secretary of defense saying something else. I mean that's, you know, just absurd. But I don't - I don't think we should believe that we're - that President Obama's going to be waging any major wars here.

WALLACE:  But it is more than just these few tragic deaths, Julie. President Obama recently announced that he's sending 250 more special ops forces. I think there were already 50 on the ground. Now 100 - 250 more special ops forces to Syria, our military advisors are working more closely with Iraqi troops and closer to the front lines on battlefield decisions. We've got A-10s and F-16s dropping bombs on ISIS positions. Forget the critics who may think they're either doing too much or too little. Do they - at the White House do they worry about the slippery slope and mission creep and that we're slowly getting sucked back into a greater involvement?

JULIE PACE, THE ASSOCIATED PRESS: Yes, I think they are mindful of it, but it - it gets to Brit's point, they are mindful of it in the sense that they do not want to get into a position and have our military posture be like it was under the Bush administration in the Middle East. So that is always the thing that they look at as the barrier.

I think what you've seen happen, though, is they - they sometimes take smaller steps to avoid the - the - the idea that they are on a slippery slope and that they are building toward some kind of larger combat role. And you do have to ask, 100 people, 200 people how much difference does that make? Should they be going larger and do they not go larger because they do want to avoid the idea of being on a slippery slope?

WALLACE:  I mean they are in kind of a mess of their own making, aren't they, Kim, in the sense that if you send these troops in such small numbers into Iraq and Syria, than the - some people are going to say, you know, it's a Band-Aid. And on the other hand if they send more the people are saying, well, you know, they're not doing enough.

KIMBERLEY STRASSEL, THE WALL STREET JOURNAL: Look, you go back to June 2014, the president said he was going to send 275 uniformed personnel. We're now up to more than 4,100 in Iraq. And, by the way, people in Congress say that the number is actually quite higher because of the way they do temporary troop rotations and that the White House is hiding the real numbers that are over there.

We are at a war. The president doesn't want to admit it because he doesn't want to have to come out and - he promised the American people that this was not something he was going to do. So, instead, he's sliding along hoping to get to the end of the term because he wants his legacy to be able to say, I pulled us out. In the meantime, his vow to dismantle ISIS, he has not committed the enforcements that you need there to make that happen and now the conflict is spreading to Syria, Afghanistan, everywhere you look.

WALLACE:  Kim, I want to turn to a revealing profile in today's New York Times Sunday magazine. It's about Ben Rhodes, who is not a household name, but he's one of President Obama's top foreign policy advisors. Rhodes says the White House spun a false narrative to sell the Iran nuclear deal claiming that they were - had worked with moderates when Rouhani took over when, in fact, they had been dealing for two years before that with the hardliners, even including Ahmadinejad and the supreme leader. How big a deal that you've got the president's deputy national security adviser basically saying, we misled the American people on how this all came down?

STRASSEL: Big deal because that is in essence what they are saying, that the president had the objective from the minute he walked into office of cutting a deal with Iran so that he could further disengage from the region and then use the excuse of this election in which everyone understood that there were not moderates necessarily elected. This was not some major change in the regime there. But they spun that to the public as an excuse to then pull the pin on this. Revealing, although not necessarily surprising for anybody who has actually watched this administration, because their foreign policy does tend to be mostly spin.

WALLACE:  And - and does it make a difference? In other words, if you - does it make the Iran nuclear deal more objectionable to know that they began negotiating it with -

STRASSEL: It was objectionable from the start.

WALLACE:  I was going to ask.

STRASSEL: Yes. And now we just know that, in fact, what drove that deal were not in fact a series of imperatives about how we were, in fact, trying to change the behavior of the Iranians, but simply getting a deal, which is not one that's in the long-term benefit of the United States or any of the members of the region.

WALLACE:  And Rhodes also brags in this piece - it's worth looking at, it's online - about how the - the White House was able to get the media to tell its narrative. This is what Rhodes said. This is a quote from him in the article. "The average reporter we talked to is 27 years old and their only reporting experience consists of being around political campaigns. That's a sea change. They," those 27-year-old reporters I'm glad to say, I know you'll be surprised, I'm not one of them, "they literally know nothing."

Chuck, what do you make of that?

STRASSEL: The know nothings.

CHARLES LANE, THE WASHINGTON POST: Well, you know, it's - it's not new that a White House would spin reporters and try to mold them to its narrative. It's - it's a little new that they would be so brazen about it. And it's really new that they would brag and express such contempt for the media that they deal with.

I must say, you know, that description he offers of the people he was dealing with could almost have fit Ben Rhodes himself when he arrived at the White House. He was a little older than 27, but he had no particular foreign policy experience and had come up through campaigns.

You know, there used to be a norm -

WALLACE:  And prided himself on being a novelist, a story teller.

LANE: A storyteller and somebody who had - was unburdened, really, by political - or rather foreign -

STRASSEL: And don't we know it.

LANE: Foreign policy experience because another thing he says in this piece is that there's something in Washington he calls "the blob," which is, you know, sort of all the talking heads and foreign policy establishment people. And, I must say, I think there's something to that. It was kind of a refreshing dose of irreverence by Ben Rhodes there. The people had made a lot of mistakes in Iraq and I can understand that. But, you know, nevertheless, there were some very seasoned people out there. Some of them like Leon Panetta and Bob Gates, who helped this president, or at least tried to, and probably don't deserve to be thought of as part of a blob.

WALLACE:  Julie, you - have - have you, since this article come out - came out, have you talked to people at the White House?

PACE: Yes. I mean, you know, it's interesting because this White House really prides themselves on being kind of the smartest kid in the room. That's kind of their approach to so many things. They - they take that approach in dealing with the media, in dealing with Capitol Hill, in dealing with think tanks. I think that what you saw in this article is a little bit of how the sausage is made, which is always kind of an ugly thing to - to look at. But I think that they look at this article and I think that they will probably take the criticism of it, which is plenty in coming from people that are even friendly to them, as just another example of how Washington doesn't get what the Obama administration is trying to do. They - they really have this attitude, frankly, that they are the only smart ones in town and the only ones who kind of understand the goals here.

WALLACE:  So, wait, wait, wait, because I thought you were going to tell me that they're in a cold furor -

PACE: No, no, no.

WALLACE:  About what Ben Rhodes said.

PACE: No. They are - they are - I think that - I think that they are, if anything, being pretty defensive of what he said. Maybe they don't necessarily like the way he said some of it, but I don't necessarily think that they disagree with the larger message of - of the piece and what he was saying.

HUME:  It is a different world in which we live when a White House staffer, promoted in this piece as someone who is largely anonymous, who has actually been anything but anonymous -- I think he's one of the most widely quoted figures in Washington - allows a profile like this to come out and build him up and which I think the White House probably approves of and - and agrees with most of what he said, especially about the media. And I think it's, you know - they didn't realize that the criticism was coming and, Julie, you've said that, that - and here it is and I think they were a little surprised by it because I think this is their little star, this young whipper snapper, smart though he may be, Ben Rhodes comes out and - and -

WALLACE:  There you got, that - a 27-year-old doesn't talk about whipper snappers.

HUME: Yes, I'm sort of the opposite of -

WALLACE:  Yes. We - but we all are.

HUME: I'm 72, right? So I - but I think this is something different. And it's a reflection of the president himself. In fact, Rhodes is said to be in a constant state of mind meld with the president and he says in the article that he doesn't know where the president ends and he begins or vice versa.

LANE: Like a blob.

HUME: Quite - these are quite - yes, a blob, yes. These are quite extravagant claims this young man makes for himself here. Maybe they're true, but what's remarkable about it is that the White House is on board it seems to me with all of it.

WALLACE:  I commend the article to you. Thank you, panel. See you next Sunday.

Up next, our "Power Player of the Week." The designer of hand painted fine china that's used at the White House and Buckingham Palace.

(COMMERCIAL BREAK)

WALLACE:  There are certain designers whose names signify quality and elegance, whether in dresses or buildings or other objects we live with. Here is our "Power Player of the Week."

(BEGIN VIDEO CLIP)

ANNA WEATHERLEY, DESIGNER: I decided that I will do something which is not practical, not sensible.

WALLACE (voice-over): That is the unique business philosophy of Anna Weatherley, a world famous designer of fine china, whose signature are butterflies and flowers and even bugs that are all painted by hand.

WEATHERLEY: I left the mass market to the mass market. I just want to be very different from any other designer or manufacturer.

WALLACE:  If you're curious who eats off Anna Weatherley plates, there are 75 place settings in the White House.

LAURA BUSH, FORMER FIRST LADY: It's taken from the magnolias, the big trees that you can see both from the Blue Room and the Yellow Oval Room.

WALLACE:  And there was a special commission to create 250 plates.

WALLACE (on camera): This was a dinner for the prince of whales at Buckingham Palace. How did that make you feel?

WEATHERLEY: It's an absolute fairytale.

WALLACE (voice-over): Anna showed us what a table of her creations looks like, a wondrous garden of plants and flowers and butterflies.

WEATHERLEY: It's a happy table. And I cannot cook, so, therefore, if I set the table, I can put the canned soup in one of those plates and people will think it's a gourmet food.

WALLACE:  Born in Hungary, Anna started out designing dresses in the '70s that were just as beautiful and impractical.

WEATHERLEY: Look how pretty that is.

WALLACE:  Silk chiffon and hand painted.

WEATHERLEY: You must flint and never (INAUDIBLE) when you have that dinner - this on. Never pay for dinner.

WALLACE:  In 1990, she opened a small china studio in Budapest with 20 artists who each specialize.

WEATHERLEY: Butterflies or bugs. And these are the women's work. And the big flowers are painted by the guys.

WALLACE:  She's just as meticulous when it comes to leaves, which must have little holes or ragged edges where the bugs have lunch.

WALLACE (on camera): So you would be unhappy if this was a perfect leaf?

WEATHERLEY: Boring. So it's very - it's very boring, just a plain old green leaf.

WALLACE (voice-over): This precision takes time. A place setting of six pieces can take her studio three days.

WALLACE (on camera): How many does a single Anna Weatherley plate cost?

WEATHERLEY: Just one single plate is between $200 to $400.

WALLACE:  Why would somebody spend $400 for a plate?

WEATHERLEY: Because they love it. If you would like to buy a piece of art and put it on your table that's the only time you buy it, otherwise don't buy it. It's not a plate, it's a hand-painted object.

WALLACE (voice-over): Anna's work is based on 17th and 18th century botanical art. She says the 19th century is too modern. She has created her own world and she couldn't be happier.

WEATHERLEY: I don't live in the 20th century. I - I cannot drive. I don't do anything high tech. And I just live in my world of beautiful, impractical, non - not sensible.

(END VIDEOTAPE)

WALLACE:  And this spring Anna had another project, she designed the official Easter egg for the White House Historical Association.

And that's it for today. For all you moms, especially mine, have a wonderful Mother's Day and we'll see you next "Fox News Sunday."

(COMMERCIAL BREAK)

END

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