Trump escalates trade war tensions with tariff threat

This is a rush transcript from "Journal Editorial Report," June 23, 2018. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT DONALD TRUMP: We confront a lot of different problems. This is one that has gone on for many decades. So we're keeping families together and this will solve that problem. At the same time, we are keeping a very powerful border. And it continues to be a zero-tolerance. We have zero tolerance for people that enter our country illegally.

(END VIDEO CLIP)

PAUL GIGOT, HOST: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

That was President Trump Wednesday signing an executive order ending the separation of families accused of crossing the border illegally in a retreat from a policy that had generated opposition from both sides of the political spectrum. The House left town this weekend without moving on immigration legislation, delaying a vote on a compromise measure until next week after failing to pass conservative bill on Thursday. President Trump tweeting Friday that the GOP should stop wasting its time on immigration until after the November election saying, quote, "We can pass great legislation after the red wave."

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger, columnist, Bill McGurn, and columnist and Manhattan Institute senior fellow, Jason Riley.

So, Jason, I guess with a policy retreat the administration is explicitly acknowledging it was a mistake what they did, at least a political mistake. What lesson do you take away from it?

JASON RILEY, COLUMNIST & SENIOR FELLOW, MANHATTAN INSTITUTE: Paul, it reminded me of the travel ban fiasco early on in the administration. Regardless of the merits, it seems they had no real plan for a rollout. The execution was a mess. They looked like the right hand didn't know what the left hand was doing. And similarly here, they were not prepared for the blowback they were going to get on both the left and the right. And they weren't prepared for those images that people were going to see.

Trump also had a problem in that he misled people. He said he couldn't do anything about this. He said Congress had to act. Then he did a 180 on that and actually turned around and did it. Incompetence on some level I think is the message.

GIGOT: Let me give you an argument I hear from the White House, which is the argument is really from the restrictionist, in that if you catch and release parents who come here with children, but you don't -- people who come here individually, you will get more parents who bring their children here. It's an incentive to come here. How do you solve that problem?

RILEY: That's a legitimate problem. That will probably be solved by the reduction of violence in the countries that people are fleeing ultimately. But the problem here is you can't get to that debate with these images of the children.

GIGOT: Right.

RILEY: That's going to suck up all of the oxygen in the debate. But the restrictionists do have a point here that the system is being gamed. This is an orchestrated event. Activists are rounding these people, sending them north, telling them what to say when they get to the border, and they are not all fleeing persecution. So there is a point there. People are gaming the system. So we have to figure out a way to do something about it but in a humane way. Clearly, people don't think this is the humane way to do it.

GIGOT: Right.

Bill, I guess the answer to that would be detain with the parents with their children and then you make a determination on whether to bring them back.

BILL MCGURN, COLUMNIST: Right. I think we could find -- I don't think the solutions are that hard to find. The problem is we have two clumps of people, some Republicans would want to keep the status quo rather than have anything they regard as amnesty, and there's another group in the Democratic Party, I think we have seen it since 2008, they would rather have the issue, the status quo because they get the charge Republicans with being racist. I have to say if I were looking at the politics of it, I think it benefits more the Democrats because they want to run on it. And that's why I actually think, at this point, without the president having gone on national TV to explain the problem, lay out what he wants and what a deal would be, I think -- I don't see Charles Schumer getting him out of his jam.

GIGOT: Dan, I think that when you see somebody like Ted Cruz, who is running for reelection in Texas, the Senator, coming out, rushing out, to try to say, look, here is my plan for doing something to keep families together, you really realize that this is -- this is a big potential vulnerability. I know the Cruz people, they are worried that this issue could really maybe even cost Cruz reelection unless it's solved.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, Paul, I think we are now seeing why both Paul Ryan and Mitch McConnell and the Senate did not want to bring this subject up in this term to Congress because it is intractable, it is impossible to make forward movement on it, and it is just become negative event. What happened down there in Texas -- let's leave aside the substance, the solutions and all that -- as a political event, it was entirely negative. And it's now back to the White House and Congress to do something. Republicans, at this point, own it because they're the ones attached to it. And the Congress is finding it impossible to move a piece of legislation forward. They've moved their vote into next week. The president wants them to move it until next January. And you've got the -- the reality is you have at-risk Republican seats out there that are very close. And the question is, is this going to put negative pressure on those 20 vulnerable seats.

GIGOT: Jason, the architect of this, politically, in the White House, Stephen Miller, an aide to President Trump, and had role in travel ban. I think he believes, and a lot of people in the White House believe it, that this is an advantage as an issue for Republicans and that's why he's looking for these enforcement pressures, the enforcement actions that can galvanize the debate between now and November. Dan suggests it's not a good idea for Republicans. What do you think?

RILEY: Well, it plays well to the base to a point. I don't think the base is comfortable with looking at kids in cages. But to some extent, Trump continues to talk about this because it works for him and enables him to paint Democrats as weak on border security.

(CROSSTALK)

RILEY: And he thinks this helps him get elected.

GIGOT: Does it work for Mike Kauffman in Colorado, in Denver, who came out and said Trump should fire Stephen Miller?

RILEY: But to go back to what Dan said, though, the other reality is that Trump needs to get behind this bill. He needs to give these Republicans some cover. And there are elements in this bill that he likes, it does something for DREAMers, it reduces legal immigration, something I don't think we should be doing, but that's what it does, and it gives him money for a border wall. He needs to come out and say, this is not amnesty and be for this and vote for this bill.

GIGOT: Bill, briefly, I don't think it's going to happen.

MCGURN: I don't think it's going to happen either. I sort of agree that that would be ideal. I think the president will have to go to the nation and explain the plan and explain what he's willing to trade off. In a way, he's Nixon in China. He's in a position to do it.

(CROSSTALK)

MCGURN: But he's not going to do it this term. What they are hoping now is it goes away in a month.

GIGOT: It's not going to, I will tell you that.

When we come back, a big decision of the Supreme Court as the justices get set to wrap up a blockbuster term. Why Thursday's ruling could change the way you shop.

(COMMERCIAL BREAK)

GIGOT: In one of the most-closely watched cases of the term, the Supreme Court ruled Thursday that states can charge out-of-state retailers sales tax even if they do not have a physical store or warehouse in the state, overturning decades of legal precedent, and clearing a way for more of your Internet purchases to be taxed.

We are back with Dan Henninger, Jason Riley, and Wall Street Journal editorial board member, Allysia Finley.

So, Allysia, what did the Supreme Court do in this Wayfair case?

ALLYSIA FINLEY, EDITORIAL BOARD MEMBER: It overturned two precedents, 1967, 1992, and limiting states from collecting sales tax from remote retailers, those outside of their borders.

GIGOT: OK, why did they feel the need to do this? Because, look, Amazon has been collecting tax. Most retailers already --

FINLEY: Right, 19 out of the 20 biggest online retailers collect tax.

GIGOT: What's the problem they were trying to solve?

FINLEY: Well -- exactly. They are going to create more problems than solving them.

GIGOT: By why was -- what's the reasoning for them to --

(CROSSTALK)

FINLEY: The policy -- the policy -- I think Anthony Kennedy was arguably trying to clean up after the Quill decision. The argument

GIGOT: He made mistakes.

FINLEY: He made mistakes and, he claims, and so did Clarence Thomas --

GIGOT: OK.

FINLEY: -- who also joined the 1992 Quill. And he basically says those decisions were anarchisms in the Internet age and now it's completely arbitrary, this physical presence standard is completely arbitrary.

GIGOT: And it was a 5-4 ruling. Justice Roberts wrote a dissent saying, yes, I agree, we made a mistake back then, but this was --

FINLEY: Congress can fix this.

GIGOT: And it was a longtime precedent. Why should we disrupt this? Let Congress fix it. And that was his logic?

FINLEY: Yes.

GIGOT: OK.

What are the consequences, Jason?

RILEY: Well, states won new taxing powers. That's what the court has given them. And that should worry all of us, considering how irresponsible states are with their current taxing powers.

(LAUGHTER)

(CROSSTALK)

RILEY: New Jersey, Illinois, New Jersey, you anymore it. But the court said the states can create a new revenue stream, and that will come at the expense primarily of smaller online retailers, Paul. The Walmarts and Amazons, these compliance costs aren't going to hurt them that much but the mom-and-pop shops, they will feel the burden of this. And ultimately, of course, consumers.

GIGOT: Is there any recourse here at all, Allysia? Any recourse for small business, say, suddenly, gets hit with barrage -- there's 10,000 taxing jurisdictions that do sales taxes. Is that going to hit a lot of small mom-and-pop shops?

FINLEY: Of course. Their only hope is they will have to sue the states in their own local courts. And judges, on a case-by-case basis, will have to look and say, well, consider the Wayfair decision and see if this is an undue burden on interstate commerce or if the company doesn't have a substantial nexus, this is going to be difficult for companies or businesses to prove, though.

RILEY: The other thing that the court did was it sort of let Congress off the hook here. And Congress had avoided fixing the problem, so to speak, because they knew it was going to result in higher prices for consumers and they didn't want to have to eat that or explain that to voters. The court left Congress off the hook. Now, I think it's Congress' job to make sure the states don't abuse this and put some parameters in place.

GIGOT: Dan, good luck with that. I mean, I see a lot of states that a lot of members of Congress, Senators, congressmen, who represent high-taxing states, are saying, oh, well, sorry, I don't have as much enthusiasm to solve this problem now that the Supreme Court has made open season of tax.

HENNINGER: Yes, and the best thing about it is you're taxing people, customers who don't live in your state or your jurisdiction and your taxing companies who don't have any representation inside of your state. I mean, what could be better than to tax people who can't politically complain. And the question is, where does it stop. I mean, now that you will be able to tax Internet transactions, there are politicians out there looking at such ideas such as taxing your e-mail transmissions, taxing financial transactions. The sky is the limit in the Internet age.

GIGOT: Just wait till people try to tax their Netflix, the Millennials. That --

(CROSSTALK)

FINLEY: They are already trying to do that.

GIGOT: Might get the Millennials upset.

There was another case, Dan, we'll mention briefly. Lucia vs. the Securities and Exchange Commission. At least from my point of view, a better decision in that they declared that the administrative law judges who are appointed judges, not Article III judges, judges confirmed by the Senate, but hired by the executive branch, have to be appointed by the president or one of his senior deputy department heads.

HENNINGER: Yes, exactly. I mean, this was -- this was a victory against the administrative state. These judges are often appointed by managers inside agencies like the SEC, but those judges have huge financial authority over private citizens who come before them in cases brought by agencies like the SEC. There was no real political accountability there. And if you're going to be brought before a judge, that judge ought to be accountable politically to someone. And this judgment will help a lot with that.

GIGOT: And, Jason, the last case, Carpenter, cell phone wiretaps now, I mean, cell phone. The Supreme Court said, 5-4, that law enforcement people are going to have to get a warrant to be able to get certain cell phone records.

RILEY Yes, and it's going to tie the hands of law enforcement a little bit. And Kennedy, in his dissent, said as much. Said, you know, we are in a digital age here and the bad guys will be able to use that to advantage and we shouldn't be tying the hands of the police when it comes to trying to capture them.

GIGOT: There's going to be all kinds of litigation coming out of this and it's going to be a real big mess.

When we come back, the Trump administration further stoking trade tensions with China this weekend, spooking the stock market along the way. What the escalating trade war could mean for American workers and consumers, next.

(COMMERCIAL BREAK)

GIGOT: The White House escalating trade tensions with China this week and spooking the stock market along the way. The president saying his administration is prepared to impose tariffs on another $200 billion in Chinese goods and potentially $200 billion more after Beijing retaliated for last week's initial announcement targeting $50 billion in imports. The president also threatening Friday a 20 percent on cars coming into the U.S. from the European Union.

John Murphy is the senior vice president for international policy at the U.S. Chamber of Commerce.

Mr. Murphy, good to see you again. Thanks for coming in.

I see three trade fronts here. There's the president against the E.U. now with his first steel and aluminum tariffs and now threatening cars, and you have the NAFTA renegotiations, and then China. Do you see any sense that the administration is having second thoughts about this agenda?

JOHN MURPHY, SENIOR VICE PRESIDENT FOR INTERNATINOAL POLICY, U.S. CHAMBER OF COMMERCE: Well, perhaps not yet, but I think the next couple of weeks will take these theoretical concerns and make them real. There's a wave of retaliatory tariffs from other countries that's about to hit $75 billion worth of U.S. exports. This is retaliation in the steel and aluminum tariffs. It's coming from Canada, Mexico, Europe and China, and many other countries around the world. And the pain that it is going to inflict it's going to be noticeable at a new level. And this wave is going to crest in the first week of July, so a little fireworks for Independence Day.

GIGOT: OK, well, who is going to be hit here by these retaliatory tariffs? Who are the other countries targeting?

MURPHY: Well, it's not coastal elites. It's the heartland of our country that's going take the brunt of this. It's industrial states like Michigan, Wisconsin. Its agriculture states like Iowa, Missouri. If you go through the list, you'll see it's quite fascinating. These foreign governments, they understand a lot about our politics and about our upcoming election. And states such as Missouri, Tennessee, where there are likely to be close Senate races, those are states that are being targeted in a particular way. So Kentucky bourbon, that's a gift for Mitch McConnell.

GIGOT: Mitch McConnell, yes.

MURPHY: Harley-Davidson motorcycles for Speaker Ryan. There's a lot of little presents for all kinds of American politicians in there.

GIGOT: This impact on the election, potential impact is interesting, because my sense is that the White House thinks that this trade agenda is actually a big asset for them going into the election. They think this is looking tough on other countries, and they are saying they are cheaters and so on. But what you're saying is these other countries are pretty shrewd and they are targeting districts and states that could potentially -- where the cost will be high for the Republican Party.

MURPHY: I think the retaliation's impact on the United States is likely to be more painful for us than our tariffs are for the other countries. If we are hitting steel exporters in Canada or Europe with these tariffs, that only affects steel exporters there. The retaliation is targeted and hits a whole host of different agricultural and manufactured goods.

GIGOT: One question I hear from the White House is, and it's a response to criticism, is, look, if this was really going to hurt us economically, why isn't the stock going down very much? Why aren't we seeing it in new unemployment or economic data?

MURPHY: Well, I think that we've been hearing these threats for the better part of the year now. And it seems that on a number of fronts we have seen a pullback in the end. For instance, with the negotiations with Korea regarding the Korea-U.S. free-trade agreement.

GIGOT: Right.

MURPHY: In the end, it was worked out. However, we do seem to be locked for this to happen here. I suppose many people are looking to see the first shots actually fired here and that's what we are likely to see in the next few weeks.

GIGOT: Do you think that -- the president says, look, don't worry. He goes up to Capitol Hill, tells Republicans, don't worry, it's all going to work out. This is me, the negotiator, I'm hitting them hard. Once these other countries see the pain they will buckle and we'll get a better deal. Do you see any sign that these other countries are buckling? Obviously, the South Korea thing worked out. But, so far, it looks like -- I mean, the E.U. retaliated on Thursday.

MURPHY: Yes, I think that what we are seeing is quite the opposite of what the administration has hoped for. We are seeing other countries really consolidate and strengthen their position. Look at Canada, Prime Minister Trudeau and the retaliation against the United States for steel and aluminum tariffs. Not only is his party and parliament behind him but the opposition conservatives have come out strongly and are standing shoulder to shoulder with him. That's happening in other countries as well. There's a rallying around the flag. So this is a negotiation that's not like real estate negotiations. These are sovereign countries with their own domestic politics and they are loaded up to confront what the U.S. is doing.

GIGOT: What I hear you saying is that we don't really know where this is going. And that maybe the president will stop and maybe he's bluffing. But let's say he's serious, these other countries don't -- let's say these other countries don't pull back themselves, we could be off to the races here and we don't know who blinks first.

MURPHY: I do think that there's serious grounds for concern. Autos is a particular interest. The U.S. auto sector is our largest manufacturing sector. It's our largest exporting sector. And moving forward with tariffs as has been proposed in that area is something that some banks are estimating could cause a dip in GDP of a couple of percentage points, if you think of all of the retaliation that could come from that. So all of the momentum that the economy has right now, thanks to tax reform and regulatory reform, it would be put at risk if those plans move forward.

GIGOT: John Murphy, thanks for being here again. Appreciate it.

MURPHY: Thank you.

GIGOT: Still ahead, escape from ObamaCare. The Trump administration rolls out a new rule on health plans for small businesses. Could it prove to be a popular alternative to ObamaCare coverage?

(COMMERCIAL BREAK)

GIGOT: The Trump administration taking the final step this week in a plan that could prove to be popular and a cheaper alternative to ObamaCare coverage. The administration Tuesday released its final rule governing association health plans, which allow small businesses and the self- employed to band together to buy health insurance based on their industry or location. The rule stems from an executive order that President Trump signed in October in providing alternatives to the Affordable Care Act.

We are back with Dan Henninger, Allysia Finley and Wall Street Journal editorial page writer, Kate Bachelder Odell.

So, Kate, explain what the Labor Department did this week.

KATE BACHEDLER ODELL, EDITORIAL PAGE WRITER: Right, Paul. There's been a lot of misconceptions about this. A lot of claims that this is allowing employers to offer junk insurance. But all this is, Paul, is expanding the nexus of who is allowed to band together and offer health insurance. The reason to do this is to enjoy economies of scales the same way large corporations do and diversify risk and lower your administrative costs. This essentially would allow anybody within the same industry anywhere or across industries in a local area to enjoy these economies of scale.

GIGOT: The goal is to have bigger risk pools, a lot like Walmart when it offers health employees across state lines. It's a huge risk pool. And it does so under certain federal law, known as ARISA (ph), not to get in details, but this would allow groups of smaller companies to do the same.

ODELL: That's right. A lot -- there's a lot of interest. We see the Franchise Association endorse the rule. The NFIB, National Federation of Independent Businesses was at the rollout. We have seen a lot of enthusiasm. And I think the reason for that, Paul, is because we are in a particularly tight labor market and companies are trying to compete for talent, and health insurance and benefits are a great way to do that. And they want to offer the generous coverage that their big competitors do.

GIGOT: What about this argument about junk insurance. They're saying that somehow this is going to be lousy insurance and it's not going to cover what you really need. Is there any truth to that?

ODELL: I mean, no. Some plans may decide to tailor benefits so that they're exempt from these federal essential health benefits mandate. But that doesn't mean they will decline to offer coverage like maternity because, for the reasons I have been describing, a lot of people who work for companies want to have that so companies want to provide it to retain the talent. Now necessarily -- it's not necessarily bad if plans are tailored to what these beneficiaries might want. The idea that everybody has to have the same product when some people may want higher deductible coverage that's less expensive.

GIGOT: OK.

Allysia, how optimistic are you? I know you've been writing about it the ARISA (ph) statute for a long time. Do you think this rule will be expansive enough to allow more of these plans?

ALLYSIA FINELY, EDITORIAL BOARD MEMBER: I do. But a lot of it will depend if it's upheld by the court. New York and California authorities have indicated their intent to sue.

GIGOT: Why would they do that?

FINLEY: Well, they can actually already basically outlaw the plan in their states. I think one they wanting to after Trump as a political issue. Two, I think they may be a little worried that it could cannibalize their individual, their exchange market, by some people would leave the exchanges. I think that's overestimated. I think a lot of people are actually on Medicaid or don't have insurance and would be --

(CROSSTALK)

GIGOT: Who will go.

FINLEY: Yes. Exactly.

GIGOT: But if you have more and cheaper alternatives for people, they turn out to be better alternatives, why not let people make the choice?

FINLEY: That's a good question. Democrats are opposed to any kind of choice or competition to health care.

GIGOT: OK, what's the downside, Dan, as you see it? Any?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: No. I really don't see any downside. I mean, it's basically, ultimately, there's economic. But I think there's, ultimately, a political choice. Look, it's group health insurance. Group health insurance existed before ObamaCare. Small businesses had it.

GIGOT: Sure.

HENNINGER: The whole idea is the size of the insurance pool, and this idea would make them bigger. For instance, all Uber drivers can form their own insurance pool. All Burger Kings across the country could form their own insurance pool. It would simply make it easier for them to do that. The Democrats do not want discreet insurance pools. They want just one, OK, the entire country in a national health care system. The question is, which one is going to provide better health care? And the argument here is that you get discreet groups tailored to people's specific needs and they'll provide medical care in a more efficient way than the national government.

GIGOT: Kate, how does this play into the election campaign, or is this going to be settled way well after the midterms?

ODELL: Right, I think it gives Republicans something to talk about on the campaign trail, which they don't really have on health care beyond repealing the individual mandate and tax reform, which the GOP is getting a lot of mileage on. And they could use something else to talk about. But I do think that we don't see the lawsuits or anything play out for a few more months past the election.

GIGOT: All right, still ahead, another high-level summit may be in the works as national security adviser, John Bolton, heads to Moscow next week. So is the meet-up between President Trump and Russian President Vladimir Putin a good idea? We will ask General Jack Keane, next.

(COMMERCIAL BREAK)

GIGOT: National Security Adviser John Bolton is heading to Moscow next week to discuss a potential meeting between President Trump and Russian President Vladimir Putin. The two sides reportedly looking at July meeting, possibly in a third-party country like Austria. That meeting, of course, would come on the heels of President Trump's historic summit earlier this month with North Korean leader, Kim Jong Un.

Retired Four-Star General Jack Keane is a Fox News senior strategic analyst.

General, welcome.

GEN. JACK KEANE, FOX NEWS SEIOR STRATEGIC ANALYST: Glad to be here.

GIGOT: Good to see you.

Meeting between Trump and Putin, good idea?

KEANE: Oh, yes, I think so. Putin has wanted this meeting ever since President Trump became president of the United States. And to be frank about it, I think the president has been itching for a meeting for a long time also. World events, I think, prevented that from happening. Certainly Putin's malign and aggressive behavior was the reason for not happening. But I think he's very cognizant of the fact that the two previous presidents of the United States were somewhat manipulated by Putin. And I think the president kind of prides himself on being able to deal with people, particularly world leaders, and I think he wants to have a go at it.

GIGOT: But what has Putin actually done to earn this kind of recognition? And I say that in the context of he hasn't apologized for meddling in elections, which whether or not you think it affected the results, and I don't think it did, but it certainly has hurt Donald Trump's presidency, there's no question about that. OK, so, you know, he's still mucking around in Syria, he's not still not done anything in Ukraine. What has Putin done for us?

KEANE: He hasn't done a thing. His aggressive and malign behavior is really a factor in the world. He's actually providing a back door to North Korea, providing some commodities.

GIGOT: That's right.

KEANE: As you mentioned, Ukraine, Syria, and killing a British citizen, to be sure.

All of that said, though, I do side with the national security team around the president who do believe, let's put the issues on the table and let's start dealing with them from one head of state to another. And I think -- I think it's meaningful in doing that. We can argue we shouldn't give him the kind of legitimacy of a world leader that he so desires when he's earned the status of international pariah.

GIGOT: Right.

KEANE: That's what he really is. But some of the issues are truly intractable issues, Syria, one, Ukraine the other. And if we can make some progress on some of that as a result of negotiating with him, I think it's worth the try.

(CROSSTALK)

KEANE: He'll want sanction removal.

GIGOT: That's what he wants. He wants Trump to trade sanctions and including lobbying Europe to get rid of its sanctions on many of his cronies, in particular, who have been squeezed, in return for these things. But that's taking the pressure off him.

KEANE: Yes. I don't believe we will relieve him of these sanctions, quite frankly. I think we should be actually tougher on him than the sanctions we already have imposed, given his behavior. I mean, the Syria thing in particular, he's enabling Assad, who is a war criminal, systematically committing genocide against their own people, and the Russians have their hands all over that, and he should be held accountable for it.

GIGOT: Let's talk about North Korea. What are you looking -- now, we're in a big of an interregnum since the summit. What are you looking for, for next steps?

KEANE: The next steps are really -- our national security team, I'm confident, has asked the North Koreans to identify and locate all of their nuclear capability. Obviously, that's the weapons, the storage facilities, the fuel sites, research centers, test sites, all of it, and do much the same when it comes to ballistic missiles. We know some of those locations, to be sure, but we don't know all of them. If they are forthcoming with the information, if they don't want to give it to us, then we don't have a deal.

GIGOT: Right.

KEANE: Might as well walk away. If they will come forward with the information, I think we will be able to verify some of the information in terms of accuracy. And if they are not accurate, that's another issue with them. But I think that's going to happen, Paul, in the next few weeks.

GIGOT: Do you think that the declaration, and the test will be, I guess, how complete is the declaration, because I remember, you know, Saddam Hussein hid some places from us.

KEANE: It's got to lead to the United States establishing with some other inspectors a kind of inspection regime, so to speak and a protocol around that to verify that disarmament is taking place. We would have to be there and visibly be on scene to be able to do that. We're not going to be able to depend on IAEA for anything like that because they have failed up in the past. And that's the second step.

GIGOT: The president made a gesture in canceling this coming August military exercise that the U.S. does with South Korea. I haven't seen, so far, North Korea make a comparable gesture militarily that would match that. What about them pulling back, agreeing to pull back some of their forces from the Demilitarized Zone that right now directly threatens Seoul?

KEANE: Yes. I think we have made the president's gesture, because it's a command post exercise coming in August largely without troops. We practice a war campaign at the headquarters level. And the national security team has said it's condition based. So if we get some of these negative answers before that exercise, they will reschedule it.

GIGOT: OK.

KEANE: The major exercise is coming in the spring, and that's still ongoing. All the normal day-in and day-out training, the South Koreans and the United States do, are all ongoing. South Korea and North Korea are negotiating. And one of the things they are negotiate is what you just put your finger on, and that is to end the Korean War and the Armistice, and then also pull back the deployed forces that are facing each other on the Demilitarized Zone. This would take time for all of this to happen.

GIGOT: Sure.

KEANE: But they are handling that. If that happens, that's a huge step obviously in the right direction.

GIGOT: All right. General, we will be watching. Thanks for being here.

KEANE: Good talking to you.

GIGOT: When we come back, Harvard University facing a federal lawsuit for discriminating against Asian-American students. Now new court filings are giving us a rare glimpse into just how that Ivy League school makes its admission decisions.

(COMMERCIAL BREAK)

GIGOT: A closely watched lawsuit accusing Harvard University of racial discrimination is making its way through the courts and offering a rare look at how the Ivy League school makes its undergraduate admissions decisions. The lawsuit, which was filed by a group called Students for Fair Admissions, accuses Harvard of violating federal civil rights law and intentionally discriminating against Asian-Americans by limiting their admissions numbers each year and holding them to a higher standard than students of other races.

We are back with Dan Henninger, Bill McGurn and Jason Riley.

Dan, what do you think about this case as you look at it from both sides?

HENNINGER: Well, I think this is a point that we have been heading towards for a long time and it's been speeding up lately, which is to say institutions like Harvard, Yale, many of these other private schools, they have now become basically about social justice and racial compensation. They make no bones about it. The diversity officers run the institutions like that. Professors write about this. This implies, in many cases, explicitly, disadvantages Asia applicants and white males because they are what is are known as "privileged." This is quite open, there's no question about it. They want to suppress Asian applicants and white males. Now the question is, is that constitutional. I have to tell you, Paul, part of me would think that a place like Harvard and Yale, if they want to turn themselves into reparations factory, they ought to be able to do it. But I understand that's unconstitutional.

GIGOT: Yes. It's called the Civil Rights Act of 1964, Jason.

(LAUGHTER)

Now the Supreme Court has interpreted that to say that the schools can use race as a plus factor, as one factor. They cannot use it as the dominant factor. But that gives a lot of running room for schools.

JASON RILEY, COLUMNIST & SENIOR FELLOW, MANHATTAN INSTITUTE: And they have taken advantage of that, Paul. In 1978, when that decision was made. And, yes, the schools, in all fairness, have not been given hard lines, real parameters on what they can do, and they've been given a lot of wiggle room.

But what's interesting to me about this case is, typically, when we talk about affirmative action in higher education, it's been about blacks, whites and Hispanics. This one is centered around Asians. This racial balancing that is being attempted at the schools is being done at the expense of Asian-Americans. We are almost punishing them for excelling academically. And I'm encouraged that so many in the Asian community are pushing back against this. They know it's a zero-sum game at these elite schools. There are only so many slots, and if you're going give advantages to one group, you have to disadvantage another group. And that's wrong.

GIGOT: Bill, we are at the discovery stage of this lawsuit.

BILL MCGURN, COLUMNIST: Right.

GIGOT: What's the evidence we have seen so far against --

MCGURN: Most of it is

GIGOT: -- discrimination against Asian-Americans?

MCGURN: Most of the evidence is numbers. There's a Duke study by an economist there that said an Asian-American male with a 25 percent chance of getting in, would have a 30 percent chance if he were white, 75 percent if he was Hispanic, and 95 percent if he were black.

(CROSSTALK)

GIGOT: This is what's consider comparable --

MCGURN: Comparable scores and so forth.

GIGOT: OK.

MCGURN: Look, we know California prohibited using race as criteria for its universities.

GIGOT: In referendum.

MCGURN: And places like Cal Tech have a 43 percent Asian-American component. so Harvard is around 20. It's been that way even though the population of Asian-Americans has -- has more than doubled. Look, Harvard's argument is our commitment to racial diversity means we have to discriminate against racial minorities.

GIGOT: Wait a minute. They don't admit that.

(CROSSTALK)

MCGURN: But that's what it is.

(CROSSTALK)

GIGOT: But in fact, what they say is, look, we want a wholistic look at our applicants.

MCGURN: Right.

GIGOT: We want to take them with all --

(CROSSTALK)

MCGURN: That's what's happening.

GIGOT: That's why they get away with saying race is not a dominant factor.

MCGURN: Yes. That's exactly what's going on in New York City at the top schools. Mayor de Blasio wants to introduce de facto racial quotas by expanding admissions from a test, which is merit based, and the Asian community --

GIGOT: For the best high schools?

MCGURN: For the top eight specialized high schools. And the Asian community is up in arms over this because they understand the softer the criteria, like an interview, the more advantages the already advantaged.

RILEY: And there's precedence for Asians. You mentioned California. After that referendum passed, and they no longer -- California colleges no longer took race into account, at elite schools, in the University of California system, Berkeley and UCLA, Asian enrollments spiked, even though they claimed they were not artificially keeping low Asian enrollment. Once they could no longer take race into account, Asian enrollment spiked. And when the government out there, when California tried more recently to roll back that proposition, it was Asian lawmakers and their Asian constituents who said, no, you are not going back to the old --

(CROSSTALK)

MCGURN: And largely Democrats.

GIGOT: And largely Democrats.

MCGURN: Which is interesting. In New York City, in New York, the Asian- Americans in city council, the state assembly and in Congress, all Democrats, have been fighting Mayor de Blasio on this -- this effort to make affirmative action part of the admission's process.

GIGOT: Dan, briefly, I assume this one, if it's not thrown out of court, the suit, probably is going all the way to the Supreme Court?

HENNINGER: Yes. And the big question, Paul, would be whether Anthony Kennedy would be sitting on the court when they decide this, because he's been the swing vote on many of the issues.

GIGOT: Yes, many. Certainly on racial balancing. He's been the swing vote.

We have to take one more break. When we come back, "Hits & Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits & Misses" of the week -- Jason?

RILEY: Paul, the Southern Poverty Law Center is a liberal activist group and they made a name for itself back in the 70's suing hate groups like the Ku Klux Klan. But more recently, they have been going after and smearing anyone who disagree with their politics, calling them bigots. It finally caught up with them. Recently, they smeared a man who was an anti-Muslim extremist, and he sued. And the Southern Poverty Law Center settled with $3.3 million and got a public apology. I think more people should follow his example.

GIGOT: All right.

Kate?

ODELL: Paul, a big miss this week for Senators Susan Collins and Richard Burr, who blocked a debate in Washington on a bill that would have clawed back $15 billion in federal spending. Now I know $15 billion, when we have trillions of dollars of entitlement problems, is not a lot, but it is more than Republicans had been able to accomplish yet. What's so disappointing is that so many Republicans we wanted to pass it and it was derailed at the 11th hour by two Senators.

GIGOT: OK.

Allysia?

FINLEY: This is a miss to New York Governor Andrew Cuomo who last year called marijuana a gateway drug. His health commissioner came out this week and said, basically endorsed legalizing, saying, look at the pros and look at the cons and the pros outweigh the cons. OK, he looked at the political pros and political cons and decided that because his opponent, primary opponent, Cynthia Nixon, decided to make an issue out of this in promoting legalizing pot.

GIGOT: All right.

Dan?

HENNINGER: Well, Paul, a hit to our friend and colleague, Charles Krauthammer, who was a man of surprises. When it came Charles' turn to speak on any subject, listeners felt a rare sense of anticipation at what they would hear. They couldn't guess what Charles Krauthammer would say about something. Charles combined his believes with facts, produced opinions which did that rare thing, he improved his admirers' understanding of a complicated world. The contribution of Charles Krauthammer is missed already.

GIGOT: Here, here, Dan. We really will miss his voice.

And remember, if you have your own hit or miss, be sure to tweet it to us, @JERonFNC.

That's it for this week's show. Thanks to my panel. Thanks to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.


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