JOURNAL EDITORIAL REPORT

'Journal Editorial Report's' people to watch and predictions for 2017

This is a rush transcript from "Journal Editorial Report," December 31, 2016. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Welcome to the "Journal Editorial Report" as we look ahead to 2017.

And after the most unconventional presidential campaign in modern history, the country and the world await the arrival of President Donald Trump. So, from his policy priorities to his communication strategy, just what should we expect? After the billionaire businessman takes the oath of office on January 20.

Let's ask Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board members, Joe Rago and Mary Kissel; and assistant editorial page editor, James Freeman.

So, Dan, let's go to you first.

What have we learned about Donald Trump in this transition period, from Election Day to right now, about how he's going to govern as president?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, I think we've learned a couple of things, Paul. Let's talk first about the transition, the appointment of the cabinet secretaries. This was a process that they had to pull together pretty quickly, and it's, by and large, been very well executed. Obviously, Trump has been delegating some of the choices, some of the vetting to other people, making the final decisions. That process has gone pretty smoothly. Simultaneously, he has, indeed, continued to send out tweets, using Twitter to comment on events and some fairly big events, like the U.N. resolution that was passed about Israel this past week. He has gotten in the middle of that. He has got in the middle of our relations with Russia.

GIGOT: What does that tell us, though, Dan? What does that tell us about how he's going to govern. Is it reassuring or does it tell you anything about his style? Take communications first. What about, the way he's picked the cabinet? You said it's been pretty orderly. Yet when they talk to people he's interviewed, he's really focused on certain -- almost an interpersonal relationship. You either make it work with him or not. If it doesn't mesh, you're out of there and real fast.

HENNINGER: Yeah. Well, that's his negotiating style. I think that's kind of -- he feels that he can establish a relationship with people and they can do business with him. If that is the case, I would expect Donald Trump to be on the phone all day long talking with congressional leaders of both parties trying to see what they want, where they can strike an agreement. So, I think he's going to be a very deeply involved president, much more than any we have seen previously. He's going to use that Twitter account as a signaling mechanism. There's not going to be any White House sources say. It's going to be Donald Trump says.

GIGOT: Oh, I disagree with you on that, Dan. I think there will be a lot of White House sources saying, because there's going to be a lot of disagreement in this White House.

In fact, he's said up a White House with what I would describe as competing power centers. You're going to have chief of staff, Reince Priebus, as one, Steve Bannon, the "Breitbart" guys as other. You have Jared Kushner, the son-in-law, another. You're going to have Mike Pence, the vice president, another. Gary Cohn, another. It could be, at worst, a Tower of Babble, real fighting. Could be, at its best, a nice fertile mix that leads to good decisions.

JAMES FREEMAN, ASSITANT EDITORIAL PAGE EDITOR: Yeah. When you think Donald Trump, you don't think message discipline.

(LAUGHTER)

That's not the first thing. But I've got to say, to stand up for his cabinet choices here, maybe this is all gut instinct, but if it is, he's got tremendous instincts. You look at Andy Puzder at Labor, Betsy DeVos at Education, Ben Carson, a reformer at HUD, Tom Price at HHS. A lot of picks here that are --

GIGOT: You feel as good about Peter Navarro at the new office of trade?

(CROSSTALK)

FREEMAN: Well, not all --

(CROSSTALK)

FREEMAN: Trade is the big risk here. But what he's -- I think surprised in a good way a lot of conservatives who resisted his candidacy for so long because his history was not as a conservative. I think -- I think the cabinet picks have been strong.

GIGOT: Mary?

MARY KISSEL, EDITORIAL BOARD MEMBER: Well, I agree with James. You know, I think the media also often misses the fact that real Donald Trump and his Twitter account cannot run every part of government. He's appointing people who have a great amount of experience, especially with Puzder, as James points out, who can do a lot of good on their own. There's a lot of regulatory mess out there that people like Andy Puzder are going to tackle, and tackle very well.

But I'm also watching the Twitter account because I see no reason that he's going to stop doing that.

GIGOT: Well, it's an improvisational quality to his leadership, Joe, and it leads to unpredictability and you never know what's going to happen. I think Trump likes that. He likes keeping people on edge, even people who are on his own White House staff or in the cabinet. I wouldn't be a bit surprised, for example, to see him to use Twitter to discipline somebody in the cabinet he thinks is off the reservation.

JOE RAGO, EDITORIAL BOARD MEMBER: No, I wouldn't be surprised as all. I think we should expect an administration that's as ad hoc as his campaign.

But the key point is this cabinet is not going to be kicking in one direction, like the Rockettes, but Trump likes to be on stop of a structure like that, where he's the decider. I think he's going to get a lot of different views, and it will come down to his personal decision.

GIGOT: I want to play a clip from Sean Spicer, the new White House press secretary, incoming, that he gave to a local news outlet.

(BEGIN VIDEO CLIP)

SEAN SPICER, CHIEF STRATEGIST, RNC & INCOMING WHITE HOUSE PRESS SECRETARY: He has this direct pipeline to the American people where he can talk back and forth to almost 17 million people on Twitter. He can put his thoughts out and hear what they're thinking in a way that no one has ever been able to do before. But you're right, I mean, he does communicate in a much bigger way than ever has been done before, and I think that's just really an exciting part of the job.

(END VIDEO CLIP)

GIGOT: Dan, an exciting part of the job, Twitter, or a dangerous part of the job? I mean -- do you think he's going to tweet as president, first of all?

HENNINGER: Oh, I think, absolutely, he's going to tweet as president. I think he's going to send signals through Twitter.

The question is whether he's going to be able to move the process. I mean, the campaign is not the same as Washington politics. Washington politics is very complicated. There are a lot of competing power bases. There are the congressional leadership. There's the congressional chairmen, subcommittee chairmen. There are private interests, there are the lobbies in Washington. There are the bureaucracies that have significant senior managers. This is all very hard to push. I think he'll use the Twitter account to lean on them but he'll have to do much more politicking than he's ever done in his life to make any progress with those power bases in Washington.

FREEMAN: We've got to give him some credit for the Twitter. A lot of us in the media spent several election cycles talking about all the candidates that didn't get social media, didn't know how to use technology. Here's someone who figured out how to use it and to spend a lot less than other people winning a presidential campaign. So, I think he does understand president is a different job now. The tone is going to change a little. He's not going to swing at every pitch, respond to every former Miss Universe contestant in the White House. But --

(LAUGHTER)

GIGOT: I'm not sure that's right, actually. I think he will.

FREEMAN: I'm saying he's not going to swing at all of them. But it is a tool and he knows how to use it.

KISSEL: It's called "Real Donald Trump" for a reason. He's authentic. It's a counter weight to the mainstream media narrative.

GIGOT: All right, thank you.

When we come back, the outgoing administration takes a parting shot at Israel and slaps some last-ditch sanctions on Russia. What do these final acts say about the President Obama foreign policy legacy and the world he leaves behind? We'll ask General Jack Keane, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JOHN KERRY, SECRETARY OF STATE: No American administration has done more for Israel's security than Barack Obama's. We reject the criticism that this vote abandons Israel. On the contrary, it is not this resolution that is isolating Israel, it is the permanent policy of settlement construction that risks making peace impossible.

(END VIDEO CLIP)

GIGOT: Secretary of State John Kerry Wednesday defending the administration's controversial decision last week to abstain from a U.N. Security Council vote condemning Israeli settlements. Kerry's remarks considered a parting shot at Israeli Prime Minister Benjamin Netanyahu, whose relationship with President Obama has deteriorated over the last eight years as the two have clashed over differences on settlement building and the Iran nuclear deal.

Retired four-star General Jack Keane is the chair of the Institute for the Study of War and a FOX News military analyst.

General, good to see you again. Thanks for coming.

JACK KEANE, FOX NEWS MILITARY ANALYST: Glad to be here, Paul.

GIGOT: OK. Let's talk first about the Russian sanctions this week that President Obama put on Russia for the hacking. Do you have any doubt that Russian intelligence was behind those hacks on Democratic National Committee?

KEANE: Oh, absolutely none. No doubt whatsoever that Russian intelligence was involved and no doubt whatsoever that Vladimir Putin authorized those attacks, much as he has done, Paul, in many of the elections in Eastern Europe. And the sources from MI-5 in England indicate that he was involved in the Brexit vote. This is a pattern of behavior. And it's all done to undermine democracies and weaken the transatlantic alliance the United States has with Europe.

GIGOT: The Obama administration has now put on sanctions. Are they enough, you think, to both punish those actions and serve as a deterrent going forward?

KEANE: No, absolutely not. And let's just think of this. Putin annexed Crimea, and the United States and the E.U. imposed some sanctions on him. After those sanctions were imposed, he began to attack into eastern Ukraine. He's still doing that, occupying part of eastern Ukraine. He's made a military incursion into Syria at the direct expense of the U.S. national interest in the Middle East. Sanctions have relatively had no impact on Putin, nor will these sanctions either.

GIGOT: OK. What about the U.N. resolution, not vetoing that U.N. resolution? You combine that with the sanctions and that action on the U.N., can you recall a transition, a presidential transition where an outgoing administration was taking such an active policy role that, in a way, complicates -- that certainly complicates things for the next administration?

KEANE: Well, it certainly does. And I think -- it's disappointing I think to watch this behavior of an American president. This is his smallness involved in this. American presidents should have a global view and stature, and get beyond personality. This is about his personality differences with Netanyahu. And to indicate that -- to let that run into a major policy decision here where we're punishing the only democracy in the Middle East, our number-one ally in the Middle East, and within 30 days of departing his administration, this is the outcome. It's absolutely embarrassing to watch that kind of behavior by an American president.

GIGOT: Let's step back a little bit and look across the whole Obama foreign policy legacy, eight years. Is the world order more stable than it was when he came in? Is the world safer than it was when he came in or the opposite?

KEANE: Oh, it's absolutely opposite. I would ask our audience to just think in their own minds, where is a place in the world that's been improved in the last eight years? I cannot find a place.

(CROSSTALK)

GIGOT: How about Burma? How about Burma?

(LAUGHTER)

KEANE: I don't give you Burma.

GIGOT: OK.

(LAUGHTER)

KEANE: The point of the matter is, is that the global security challenges, Paul, I mean, they're on a scale we haven't seen since the end of World War II and the Soviet Union. We've got three powers, Russia, China, Iran, all seeking regional domination and having some success. Russia and China completely disagree with the international order that was established after World War II and they're trying to take it apart right before our eyes. We've got North Korea, a rogue state, to be sure, trying to build a ballistic nuclear capability and threatening its use. Radical Islam, it has grown into a global jihad. And you've got ISIS, who's in 35 countries. And al Qaeda, despite killing Osama bin Laden, is a thriving revitalized organization.

GIGOT: OK --

(CROSSTALK)

KEANE: And the last thing is cyber --

(CROSSTALK)

GIGOT: Go ahead.

KEANE: Cyber espionage is exploding on the part of Russia, China and the Iranians. They have a significant technical capability and they're taking advantage of it. And its impact in our intellectual property -- we know they tried to impact our elections. And we have done nothing until just recently to try to push back on that. We'll see if the covert actions are strong enough to push back on Russia.

GIGOT: That's a very scary scenario you laid out with an awful lot of threats. So, what -- as you look at President Obama's behavior, what is it that allowed these threats to emerge? What is it about his policies that - - I mean, it's sort of what's the big flaw that in your view that allowed this to happen?

KEANE: Yeah, that's a great question. I think he has a totally different world view of the United States' role as it pertains to global security. It's different than every Democratic and Republican president since we've had -- since World War II. He doesn't believe that the United States should be the global leader in the world to help obtain security, stability, and also economic prosperity. He's willing to disengage from the world as a result of it, in a way that no other American president that I have seen.

And, you know, Paul, he gets paralyzed by the fear of adverse consequences. So, he sees the adverse consequence and he works that through in his mind and says that's unsatisfactory. But what he doesn't see is what is the result of doing nothing. When you do nothing, bad things happen and that's what's been exploding in the Middle East.

GIGOT: Well, I think that you're right about that's his ideological framework, I really agree with that, but also, I think he was reacting and overreacting in the opposite direction against what he perceived as the excesses of intervention of George W. Bush. So, he looked at what happened in Iraq, for example, he looked at what happened in - Hamas, and with pushing democracy and he said, I'm going to do the opposite because if we withdraw from the Middle East at least substantially, then fewer bad things will happen. Do you agree with that?

KEANE: Yes, I do agree with it. You know, one of the banners I would put up in front of any American president and new administration is do not overreact to your predecessors' policies. I watched the Bush administration overreact to the Clinton administration, who believed they did too much nation building, sustaining other countries, and that's why we never put the commitment on Afghanistan and Iraq that should have been in there under their policy leadership. So, yes, I totally agree with that. Usually, as a result of it, you get an overreaction to the previous administration's policies, and that, in itself, is flawed.

GIGOT: All right. We're going to hold over General Keane here.

So, when we come back, from the growing ISIS threat to the potential for a Russian reset, General Keane will take us through the global challenges facing Donald Trump and the new administration in the months ahead.

(COMMERCIAL BREAK)

GIGOT: Some big challenges facing President Donald Trump and his foreign policy team when he takes office January 20th, including the crisis in Syria, the continuing threat from Islamic terrorism, and Russia and Iran's growing influence in the Middle East.

Continuing now with retired four-star Army General Jack Keane. He's the chair of the Institute for the Study of War and a Fox News military analyst.

So, General, it's usually -- it's often said that there's more continuity than change in American foreign policy when presidents change. Do you think that will be the same thing with -- the same with Trump after Obama?

KEANE: No, I think we're going to see a fundamental change. I think President Trump, come January 20th, will revert to a more traditional role of strong American leadership, use multi-lateral relationships in the world to help achieve stability and security. He's not looking for conflict. But what he will do is he will demonstrate, I think fairly similar to what Ronald Reagan did, by rebuilding the military, and also committing a sense of resolve that there are times when I'd be willing to use it. He will be -- I think be able to achieve once again the kind of credible deterrence that this country has enjoyed in the past, and what has truly evaporated and eroded under the Obama administration.

GIGOT: All right. Let's go through some of the hot spots and countries that you mentioned, emerging threats that you mentioned in the previous block and see where you think Trump and Obama might differ.

Let's start with the Islamic State in the Middle East. A lot of people believe there may be some similarity in the strategy Trump pursues against the Islamic State than Obama has pursued, bombing from afar, relatively minimal commitment of U.S. troops. Do you think he'll be different than that?

KEANE: Yeah, I think it will be because the problem we have is not so much with Iraq. The attack has been stalled there. They're trying to reignite it again. And I think in time the Iraqis, assisted by the Americans, will succeed and so the issue is really Syria --

(CROSSTALK)

KEANE: -- which is the ISIS, yeah, safe haven. So, what's needed there, we don't have an effective ground force. I believe President Trump will ask the military, give me some options to defeat ISIS in Syria. They will bring forth ground options that will include some U.S. forces, an Arab coalition, maybe some NATO participation, other kinds of ground options. And I believe President Trump will select likely one of those options combined with air power to get rid of this force, which is around 20,000 now, lightly armed force. They have no air power, they have no artillery, it would not take all that long to do. We just have not been able to commit to put that force together. I think he will probably make that commitment.

GIGOT: Do you think General Mattis, the incoming secretary of defense, will support that kind of a strategy?

KEANE: Oh, absolutely. I know Jim Mattis very well. I don't want to presume all the policy decisions that he's going to be facing and recommending, but certainly I know for a fact that he's as frustrated as I have been watching this unfold over these number of years and the killing that ISIS has been able to do worldwide, largely because that organization still has a headquarters, still has resources and still has an ideology.

GIGOT: OK. Let's talk about Iran because that's a place where Donald Trump really did disagree with Barack Obama on the nuclear deal. But he faces a fundamental question. Does he pull out of that deal when he gets in power or not, and then how does he manage it? Do you think there will be a difference on Iran?

KEANE: I think the real issue with Iran has always been the strategic issue for the region. Iran wants to dominate and control the Middle East. And they use proxy fighters and proxy terrorist organizations to do that. They have enjoyed some measure of success in doing that, in Lebanon, obviously, Hamas in Gaza, Syria, Iraq and now Yemen. That is what they're truly about. Having a nuclear weapon was all about the preservation of the regime. Their strategic goal has not changed.

What the administration has got to do and put on the table is, with our allies in the region, who to a person believe that Iran is the strategic threat in the region, is push back on the Iranians' adventurism in the region using our allies as part of an unofficial alliance or actually a form of an Arab NATO. Once we start to put that on the table and then hold them accountable, which would mean sanctions and other issues that we can get involved in, I believe the Iranians will pull out of the deal themselves at some point.

GIGOT: We've got one more with Russia, which, in many ways, may be the most complicated. President Obama put on the sanctions. Vladimir Putin said in response, well, we're going to hold off retaliating until we see how the Trump administration responds. That puts President Trump in a box when he takes office, I think, to some extent because if he pulls those sanctions off, it means that he'll be accused by some people of rewarding the people who helped him get elected.

How do you see him navigating the Russian relationship? He clearly wants a better relationship with Russia than we've had.

KEANE: Listen, he'll be able to get a better relationship with Vladimir Putin very easily. And the reason is that Putin clearly is driven by anti- American policy, his desire to be on the world stage and his desire to be a world power. All of those things are motivating him and playing to his domestic audience. President Trump will easily have a better relationship than what Putin had with Obama.

Listen, Putin fooled President Bush and he intimidated President Obama. He's not going to do either one of those, I believe, with President Trump. So, the personal relationship will be considerably better.

Now, what President Trump cannot account for is that while that personal relationship may be better, we are at opposing national interests.

GIGOT: Yeah, yeah.

KEANE: And that is the problem we have.

GIGOT: Yeah, and Donald --

(CROSSTALK)

KEANE: And that is the issue.

GIGOT: And Vladimir Putin has never been able to keep his word. Never kept his word with these other presidents. So, I think that's a potential danger for Donald Trump, too.

KEANE: No. And he's got to understand that and recognize that Putin is not a friend, he's somebody to work with, and that those interests are not in the interests of the United States and we must push back on Russia's national interests.

GIGOT: Thank you, General Keane, for being here. Fascinating.

Still ahead, an optimistic end of 2016, with stocks soaring and consumer confidence high. Is the Trump economic bump real and will it continue in the new year?

GIGOT: Is the Trump market bump real? The U.S. economy is certainly closing out the year on a positive note, with the conference board announcing this week that its Consumer Confidence Index rose in December to its highest level since 2001. The president-elect was quick to take credit for the good news, tweeting, "The U.S. Consumer Confidence Index for December surged nearly four points, the highest level in more than 15 years. Thanks Donald!"

(LAUGHTER)

We're back with Dan Henninger, Joe Rago, Mary Kissel and James Freeman.

James, we're reading some of our friends on the left saying Donald Trump is inheriting one of the greatest economies that any new president has never inherited. Are you buying that?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Well, I would say it has great potential when you move from the Obama agenda to the Trump agenda.

(CROSSTALK)

GIGOT: What about the state of the economy now? How strong is it?

FREEMAN: It's been bumping along given great burdens placed on it by Washington, but what you've seen since the election is that rise in not just consumer confidence but business confidence. You see the small businesses in the NFIB survey looking to grow again, looking to hire again. And I think we'll see an end to what's been really an investment recession in terms of companies not willing to invest in expanding new plant and equipment, new products.

(CROSSTALK)

FREEMAN: And I think that's what the Trump agenda promises.

GIGOT: Just to put a number on the last year, third quarter over third quarter, 1.7 percent growth in GDP. Faster for the third quarter alone, but for the previous year, not so great.

MARY KISSEL, EDITORIAL BOARD MEMBER: I think the answer you are looking for, Paul, is this was the worst recovery in the modern era.

(CROSSTAKL)

GIGOT: Did you hear that James?

(CROSSTALK)

That's what I was looking for. She got it. She broke the code.

(LAUGHTER)

KISSEL: Terrible, terrible wage growth, lousy wage growth. This president has never broken three percent annual growth, which is really a remarkable statistic when you think about it. You have millions of Americans who aren't participating in the labor force.

So, yes, James, there is a lot of potential out there.

FREEMAN: I'm not arguing with that.

(LAUGHTER)

(CROSSTALK)

FREEMAN: I'm saying the bump is what's to come. That's why stocks have gone up.

GIGOT: Joe, it does look like the consumer confidence, you've seen the dollar very strong, suggesting stronger investment in the United States, confidence in the United States. You're seeing bond yields go up, which suggests a future growth. So, all of that is suggesting maybe the animal spirits of the economy are coming back.

JOE RAGO, EDITORIAL BOARD MEMBER: I was just going to say this is the revival of animal spirits. It's -- people are looking forward to a different policy mix. If you can get a tighter labor market and all this money that's parked in cash or overseas into productive investments in the United States, you could really see a much more of a turn-around than what we've seen over the last seven years.

GIGOT: So with all this bullishness, Dan, give us the contrary argument, because I want to point out that while the -- since the election, markets have been buoyant. The last two or three weeks, the stock market has actually plateaued. I'm wondering could it be there's some concern about some of the economic advisers that Trump is nominating, particularly some of his trade advisers. Peter Navarro, the economist, in particular, at a new trade office inside the White House that hasn't been part of other presidents' economic team.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Let's pick up on that point about trade. The word about for trade, putting up tariffs and so forth, is protectionism. And what does that mean? It means you are protecting existing companies. And if there's a problem in the U.S. economy right now, it's that there is very little new business creation. That is the sector of the economy where new jobs are created. Instead, we have these incumbent firms, many of them very good ones, Google, Facebook, but you've seen, in the last few years, a tremendous amount of consolidation in telecommunications or in health insurance. Companies are combining. They're not expanding. You have no new companies, for instance. The number of new companies coming into the economy is below 10 percent, an historic low. Its contribution to employment is about 2 percent, also a historic low.

What is needed, as Joe was suggesting, is the liberation of capital to pour into the economy so that new businesses can form. Whether that would be offset by a protectionist policy is a very good question. You run the risk of running in place if you go that direction.

GIGOT: James, you studied the IPO, initial public offering, history, and it's just been slow. It's been historically very bad these last years, particularly this last year.

FREEMAN: Yeah, 2016, a terrible year for new companies coming to the public markets. We think of some of these tech sort of giants like Uber as signifying the strength of the tech economy, but the truth is in terms of the overall number of businesses being created, we're really behind where we used to be. The Labor Department put out a report early this year, not just tech companies but all kinds of businesses open less than a year are creating far fewer jobs than they created 20 years ago, when we had a smaller population and smaller economy. So, I think that piece, getting small businesses created, getting people optimistic enough, the animal spirits to take the leap, that's what's been missing and that's what you hope the trade agenda doesn't screw up. That's what the tax and regulatory agenda can unleash.

GIGOT: He really has to produce three percent, four percent growth, do he not? Get out of that 2 percent Obama trough to be able to pay off his voters in those industrial Midwest states who elected him?

RAGO: There's no way he's going to raise wages without faster growth unless we can get beyond 1percent to 2 percent to 3 or 4. The risk for Trump is that we're now six years into an expansion, one of the longest recoveries without a recession in U.S. history. Just not a lot of space to respond to some kind of big shock to the economy, either monetary or fiscal.

GIGOT: All right, thank you, all. Fascinating.

When we come back, Republican leaders in Congress look ahead to a new administration and map out an ambitious agenda. So, will President Donald Trump sign on to their plans or does he have some of his own? How are the taxes going?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL, R-KY., SENATE MAJORITY LEADER: When we come back January 3rd, we'll be moving to the Obamacare replacement resolution. The Obamacare repeal resolution will be the first item up in the New Year.

(END VIDEO CLIP)

GIGOT: The 115th Congress set to convene for the first time on Tuesday. Republican leaders in the House and Senate are mapping out an ambitious agenda with tax reform, regulatory relief and, as you just heard, the repeal of Obamacare topping the list. So, will President Donald Trump sign on to the Republican plans or does he have some of his own ideas of how to proceed?

Joe, so Paul Ryan's plan in the election the year before was I'm going to map out an agenda, get all the Republicans in the House to sign onto it, and that means we're going to take off on day one. Is that now what's going to happen?

RAGO: I think we're going to find out obviously.

(LAUGHTER)

(CROSSTALK)

GIGOT: Is that, do you think, going to be given a try?

RAGO: What Paul Ryan has done is he built a remarkable consensus within the Republican conference around six areas of policy, whether it's tax reform, energy, health care. The House has been awfully dysfunctional for the last four years with a lot of different factions. Now you've got a big majority for some of these ideas. And as far as we know, Donald Trump has said I'm on board with this, certainly on taxes, certainly on health care.

GIGOT: Do you see any potential differences, Mary, potentially emerging between the Trump agenda and the House or Senate Republican agenda? And not just policy details, but priority lists?

KISSEL: Well, I think, for Donald Trump, trade, as we talked about in the previous segment, is a big issue. He wants to punish companies that go abroad. That could bring him into conflict with the House. There's questions about the timing of Obamacare repeal and replace and the form that that's going to look like.

(CROSSTALK)

GIGOT: But I think those are both right, but will Trump want to do something more on immigration restrictions, for example, put up that wall as one of his first acts as opposed to the Republicans on the Hill who want tax reform, Obamacare replacement.

KISSEL: I think it depends on what the wall actually is. Trump has shown some flexibility on immigration. Just look at his comments on, for instance, the Dreamers where he seemed to indicate that he was ready to strike a compromise there. So, I actually think Trump might show more flexibility and willingness to compromise with Democrats than we might give him credit for.

GIGOT: And yet a lot of his supporters, Dan, are going to want to see something happen on immigration. It looked to me pretty early, I think. And Trump and Steve Bannon in the White House and some of those populists are going to be inclined, Jeff Sessions, to try to push something maybe faster than Republicans on the Hill may want.

HENNINGER: You know, Paul, there's only so much a president can really do in the first 100 or 150 days. There's a big agenda here. You're talking about immigration. Let's not call it reform, but a wall. A tax bill. Financial deregulation. Repealing and replacing Obamacare. Look, Congress' job is to grind through the details of that policy. The president's job is to provide leadership and leverage where necessary. He can either make Congress a partner or it can become the Bermuda Triangle for his presidency if he tries to push too much into it.

GIGOT: Right.

I agree with Dan on that. I think the nightmare scenario here is that Trump gets into war with the Republican Congress and not only will he be attacked by Democrats but he'll have differences with Republicans and then he gets very little done.

FREEMAN: Yeah, and I think it goes both ways, though. Mary talked about how Trump has shown flexibility on immigration. I think the Republicans in Congress also have to have some understanding that the things he made central to his candidacy, he has to deliver on in some fashion.

Now, there are parts of our border that have fences. Can we build them a little higher? Sure. I think you probably have to give him something he can say, look, we have a wall. That doesn't mean you go where he's going or you think he might go on trade. It doesn't mean you restrict how many people can come into the U.S. But I think you probably have got to give him a wall.

GIGOT: This issue of bandwidth that Dan raised is important. You can only do so many things. I only think they have a year to get the most important priorities done, Joe. What would you put at the very top of the Republican/Trump list?

RAGO: I think health care, tax reform and then --

(CROSSTALK)

GIGOT: And by health care, you mean not just repealing ObamaCare but also replacing it.

RAGO: Right. What you have to understand is that the fastest diminishing commodity in Washington is a president's political capital. It's going to be going down every day that he's in office. I think if they don't show some big movement by this summer, the inertia of Washington is going to take over and they're not going to deliver on this remarkable reform opportunity that they have got.

GIGOT: Mary, I would argue what you're going to see is early victories with the confirmation of a Supreme Court nominee and a lot of regulatory repeal, and those will be early victories they can rack up.

KISSEL: Yeah, I think you're right. That's something that he can offer, too, to Republicans in Congress, especially that Supreme Court nomination absolutely immediately.

But also, Paul, also there's a big deal to be done on tax reform, not just with Republicans but getting Democrats on board, too. Think of the opportunity here for something like a business tax reform that you package with a jobs bill and get some Democrats on board with some infrastructure spending. So, Donald Trump could have some big victories early on if he wants them.

GIGOT: Thank you, all.

Much more to come as we look ahead to the New Year. Up next, our panelists pick their person to watch in 2017.

(COMMERCIAL BREAK)

GIGOT: So who will be the news makers in the New Year?

We're back with our panelists' picks for the person to watch in 2017.

Dan, start us off.

HENNINGER: Well, Donald Trump has promised to defeat Islamic State, so my person to watch is the new secretary of defense, former Marine General Jim Mattis. Jim Mattis was the former commander of the Marines in Anbar Province in 2004, and then was the head of the Central Command, which covers the Middle East, Pakistan and Afghanistan. He knows the area cold, from the level of boots on the ground, up to 30,000 feet, Paul. After eight years with the Obama policy in the Middle East, strategy is going to be complex and even perilous. So, I say watch Jim Mattis for the way forward.

GIGOT: Two points in particular, he disagrees with the historic positions of Donald Trump on Russia. Jim Mattis much more skeptical of Vladimir Putin. And also on the budget. He'll want to expand the military and Nick Mulvany, the budget director, Dan, he is a skeptic of military spending, thinks there's a lot of weight.

HENNINGER: I think Jim Mattis and Donald Trump will have many interesting conversations.

GIGOT: Joe?

RAGO: Paul, my person to watch is Chuck Schumer, New York Democrat and incoming Senate minority leader. A lot of Democrats are calling themselves the Resistance. They're going to oppose Donald Trump and all his works on everything.

(LAUGHTER)

Chuck Schumer is not, by nature or temperament, the Resistance. He's a transactional deal maker. And I'm wondering if he's going to make some kind of compromise with the Trump administration, whether it's on infrastructure, immigration, or tax reform.

GIGOT: But could he end up being run by Elizabeth Warren and Bernie Sanders, instead of him running the Senate?

RAGO: He sure could, but he's also got 10 members who are up for re- election in 2018 in states Donald Trump carried. They're going to have an incentive not to look like obstructionists.

GIGOT: OK, Mary?

KISSEL: I'm watching China's leader, Xi Jinping, who I think is going to test Donald Trump early and vigorously, far more than just seizing some underwater drone. I think he's going to test him for largely domestic reasons. He declared himself core leader, he's consolidated his power. That means he has to assert his power over the party elites.

He also has to demonstrate to the Chinese people, who are suffering, not just from a sluggish economy, but from corruption. He's going to have to give them something else to think about. I think that's an area, and person we need to watch very closely.

GIGOT: Do you think it's going to be a military test?

KISSEL: Yes. I don't know why not.

GIGOT: OK.

James?

FREEMAN: My guy is Harold Hamm of Continental Resources. This is one of the people behind America's fracking revolution that's given was so much oil and gas here in the United States. He's now got, finally, a non- hostile government coming in, in Washington. He's also got a world where the OPEC countries are saying they're going the cut the production of oil. They normally cheat on these agreements. But let's say they take production. So, we might see a U.S. energy firms really start to dominate the world market.

GIGOT: What does that do to oil prices? Do you think that they're going down because of that production or -- and which does that do to Saudi Arabia?

FREEMAN: This is the big question is, do Harold Hamm and the other frackers in the U.S. look at this as a chance to grab market share or is it an opportunity for them to boost their profits and kind of join the cartel, unofficially, that OPEC has had? To me, that's the person to watch and that's the big question because the impact for U.S. consumers and the economy is huge.

GIGOT: All right.

My person to watch is the former Goldman Sachs executive, Gary Cohn, the incoming National Economic Council director in the White House. It's the most important economic job in the administration. Maybe even, in this case, more important than treasury secretary. But we know very little about what he thinks. We don't know where he stands on taxes, for example. Is he a Keynesian who likes spending for growth, protectionist? How he exerts himself in this administration is going to be crucial going forward.

FREEMAN: It's kind of the question of how much harm can he do if he's not onboard with tax reform? Because you've got the president who wants it, the Congress wants it. If it doesn't happen, we'll know who to blame.

GIGOT: He'll be onboard for tax reform. The question is what kind? How low does the rate go? Does he care about tax rates being low? We know Donald Trump is not ideological.

FREEMAN: Right.

GIGOT: We have to take one more break. When we come back our panel's predictions, fearless predictions, for 2017.

(COMMERCIAL BREASK)

GIGOT: Time now for our panel's predictions for 2017.

Dan, start us off.

HENNINGER: Well, Paul, my prediction is that under the presidency of Donald Trump the Republican Party is going to see a revision and even an upgrade of its relationship with the country's minorities, especially black Americans. You have Betsy DeVos taking over at the Education Department, a proponent of creating competition to failing public schools in the form of charter, scholarship programs for minority students. In Housing and Urban Development, you have Ben Carson. Ben Carson isn't going to be just about building houses. I think Bernie Sanders is going to talk about the structure of urban and inner city life. In both areas, I think you're going to see them working in conjunction with Donald Trump, addressing black Americans directly and trying to create more opportunity for them.

GIGOT: Yeah. Fascinating opportunity, Dan. I hope Trump leads on that because it really could be a big opening.

Joe?

RAGO: Paul, my prediction for 2017 is it's going to be the year artificial intelligence goes mainstream. This refers to when a machine learns to do a task it wasn't programmed to do, like translate a language, drive a car, for example. And it really has a huge potential to increase worker productivity, raise wages, lead to advances in science and technology.

But it's also going to cause a lot of dislocations. Millions of people drive trucks or taxis for a living. AI can write a basic legal document, can even report the news. So, I'm wondering if this is happening faster than politics and society is prepared.

(LAUGHTER)

GIGOT: The crucial question for you at this table is, how fast are they becoming editorial writers?

(LAUGHTER)

Can they learn free markets and free people, Joe?

RAGO: Well, we'll have a few more years after 2017.

(LAUGHTER)

FREEMAN: If they take the lawyers along was, maybe that's a good trade, right?

(CROSSTALK)

KISSEL: -- rise of the machines.

GIGOT: All right. But they'll always be a need for editors, however.

(LAUGHTER)

KISSEL: I'm going the go way out on a limb here and predict that Marine le Pen, the leader of France's far-right National Front, will win the French presidency, continuing the trend of populist political surprises that we saw, starting with Brexit, and the Five Star movement and the rise of that in Italy, and others. Stranger things have happened. The Cubs won the World Series. So, that's what I'm going to predict.

GIGOT: I'm going to disagree with you on that, Mary. I'm going to say that Francois Fion (ph) is going to win. He's going to be -- he's the center right candidate but he's moved enough to the right on immigration and nationalism to co-op le Pen's support. But here's the key that's really hopeful for France for the first time in five or six decades -

KISSEL: That there is a Francois Fion (ph) there.

GIGOT: Yes. Is economic reform. He is pushing the most aggressive economic reform agenda that I've seen in France --

(CROSSTALK)

KISSEL: But, Paul, if there's, god forbid, another major terror attack in France, I think Fion (ph) might not be seen as strong enough. And that's where I think le Pen might triumph.

GIGOT: James?

FREEMAN: I think a word is going to come back into our economic discussion in 2017 and that word is "inflation." I don't think it's going to be a raging inflation but I think this is going to be a factor again. As we have seen the economy reviving, I think it will. All of this money that's been created by the Federal Reserve the last eight years or so, I think that starts to have an impact. Banks are going to feel, under Trump, a little more free to lend, a little regulatory restraint there. So, I think the next step, probably to watch for some inflation.

GIGOT: Interesting.

My prediction is that Donald Trump, President Trump, will cut a deal with Vladimir Putin. He will, in return for getting Putin help against jihad and Islamic State, he will cut a deal in which he gives sanctions relief to Putin, ignores what's been happening in Ukraine, and lets him have his way in Syria, and say, all right, as long as you don't touch NATO, we can work together. The problem with that is, Putin never keeps his word. I think Trump wants to do that deal.

FREEMAN: I've got to think that Trump has some understanding, especially with Tillerson onboard, that this is a guy you've got to watch carefully.

GIGOT: Tillerson likes Putin.

FREEMAN: Tillerson has done business with Putin.

KISSEL: We don't know that.

FREEMAN: Sort of like in "The Godfather," he did business with him but never liked him.

(LAUGHTER)

GIGOT: Fair enough. We might be wrong on whether he likes him. We don't know that. But he has done business with him.

All right, it's going to be fascinating to watch.

Thank you all.

Remember, if you have your own prediction for 2017, be sure to tweet it to us, @jeronfnc.

That's it for this week's show. Thanks to my panel. And thanks to all of you for watching. I'm Paul Gigot. Happy New Year. We hope to see you right here next week.

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