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This is a rush transcript from "Special Report with Bret Baier," August 26, 2019. This copy may not be in its final form and may be updated.


UNIDENTIFIED FEMALE: Have you had any second thoughts on escalating the trade war with China?

PRESIDENT DONALD TRUMP: Yes, sure why not. Might as well. Might as well.

UNIDENTIFIED MALE: You have second thoughts about --

TRUMP: I have second thoughts about everything.

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: Actually, what he was intending to say is he always has second thoughts, and he actually had second thoughts about possibly a higher tariff response to China.

TRUMP: I've gotten two calls, and very, very good calls, very productive calls. They mean business, they want to be able to make a deal.

But I think they want to make a deal. I'm not sure they have a choice.


BRET BAIER, ANCHOR: Talking there about China and trade heading into the weekend. Obviously, a lot of volatility surrounding the tweets and the back-and- forth between tariffs on what's happening between the U.S. and China. The president tweeting before the news conference today, "Great respect for the fact that President Xi and his representative want "calm resolution." So impressed that they are willing to come out and state the facts so accurately. This is why he is a great leader and representing a great country. Talks are continuing!" something he reiterated, the president did, in that news conference at the G7.

So let's bring in our panel -- as you look at the Dow bounce back from a low after the weekend -- bring in our panel: Chris Stirewalt is politics editor here at Fox News; Leslie Marshall, Democrat strategist, and Lanhee Chen, fellow at Hoover Institution, we welcome you aboard. Thoughts on the president of this back-and-forth? He obviously is expressing some optimism.

LANHEE CHEN, HOOVER INSTITUTION: Yes, he's expressing optimism. The question really is, the Chinese, to date at least, their posture seems to be is that they want to wait out the president. And the president seems to be saying, well, look, in fact if we can get them to the table we might be able to come to some agreement. The challenge is who is going to stop waiting first, who's going to give up first, who's going to give up leverage first?

Now it looks like the Chinese are saying we want to come back to the table because in fact the Chinese economy has really been hurt I think by what the president has done.

BAIER: You don't hear that a lot. We don't hear a lot about the internal China feeling of their economy and what they're getting hit by.

CHEN: Their economy is weakening significantly, and you know it if you visit China, if you're on the streets there, you can see that there economy is hurting. The question is, how much is Xi willing to tolerate? The biggest threat to Xi is not external. It's internal. It's what happening within China. And the more unrest there is because of a bad economy, the worse off he is.

BAIER: Chris?

CHRIS STIREWALT, FOX NEWS POLITICAL EDITOR: He has an autocrat, essentially, at this point.

BAIER: Talking about President Xi.

STIREWALT: Yes, President Xi.

BAIER: I just wanted to make clear. I wanted to make clear.

STIREWALT: They have abolished term limits for him. They have a million Muslims in prison camps. I definitely agree with you, Lanhee, that his position is maybe a little more tenuous than we think, but he has the tools at hand to endure pain in a way that Americans are not going to tolerate. And Trump knows it. And I think what he's working his way up to a sort of what he did on the wall. You just say it's built, I did it. And people say when did that happen? You'll be like we were doing it the whole time. We won the trade work, its' over, and get out.

BAIER: Obviously, world leaders have a lot of concern. President Macron expressing some of that today at the news conference.


EMMANUEL MACRON, FRENCH PRESIDENT (through translator): The discussions between China and the U.S. have triggered uncertainty and trouble investors in markets, creating tensions. We saw it on various stock exchanges. The question is, what will be the outcome of these discussions?


BAIER: Leslie?

LESLIE MARSHALL, DEMOCRATIC STRATEGIST: We don't even know if there are going to be discussions. And I say that because the president one day is calling the leader of China an enemy. The next, he's a great leader. We had to go phone calls. Beijing is not confirming that. So is there really going to be a sit down? Like you said, China, definitely needs to sit down, but who is going to blink first?

BAIER: You did have the news conference the treasury secretary stand up and say I talked to them.

MARSHALL: Correct. It wasn't just the president, correct. But it does come down to who is going to blink first. I think the president sees what happens with the markets, but then again, we have -- despite the economy, our governments are so different. And China, in addition, has what's going on with Hong Kong on their plate as well.

BAIER: They did sign or agree to a preliminary deal with Japan. If the president and his administration can get a couple of these trade deals across the finish line, even if it's short of China, that makes an impact.

CHEN: I do think that makes a big impact. And remember there's a lot of skepticism about these trade deals going into it, whether he could get one with the U.K. with everything that's going on with Brexit, you have Japan. So for the president of able to land Japan, and presumably if he's able to make progress on with the U.K., that would be pretty significant.

China is still the big elephant in the room, though. He still needs that deal as far as the U.S. economy is concerned and the global economy. They U.S. and China are the two biggest players, no question about it.

BAIER: Meantime, France orchestrated the meeting with Iranians at the G7. Take a listen.


MACRON: At a given point in time, there will have to be meeting between the Americans and the Iranian presidents. And I would wish that in the coming weeks such a meeting will take place.

TRUMP: They have to be good players, you understand what that means, and they can't do what they were saying they were going to, do because if they do that they are going to be met with really very violent force. We have no choice.

President Macron told me every step that he was making yesterday. A lot of you said, oh, he came in and -- he told me long before he came in what was happening. I didn't think it was appropriate to meet yesterday, too soon.

MACRON: He was informed at each minute about the solution, the situation.


BAIER: So a lot of process there about who told who what.


BAIER: But the bottom line is that they are pushing for this meeting with Iran, and the president says, hey, he's open to it under conditions.

STIREWALT: Sure. And as we've seen with North Korea, as we have seen multiple instances, Trump is not -- he is not about telling -- he does not want to be the policeman to the world. He is against aggressive intervention. I'm sure he would like to engage in Iran in the kind of way that, by the way, I'm sure it makes John Bolton's mustache curl a little bit. But I think the president is very open to this kind of stuff, and he's demonstrated not just with Kim Jong-un, but around the globe, he'll do it.

BAIER: Leslie, there is a difference in when these world leaders stand next to the president and speak to the press, and the coverage of it prior to that, a big difference. Macron pretty much said that's not true, here's the deal, I told him all the way along.

MARSHALL: Right. I don't know when France has become an enemy. Quite frankly, they are a strong ally. And even though we are very different government, very different leaders with very different styles, there is a certain level of diplomacy and respect for the office of the presidency and whoever has held that offense historically because they are elected by the people.

When it comes to Iran, quite frankly, this is an area where I would like Trump to sit down. I don't like the fact that he has pooh-poohed Macron in the past and certainly President Obama in the past. He's even talked about some kind of short-term loans for Iran to try and help them out during this time. I think what we've seen, very similar with North Korea, is that just sanctions and just threats to work. Sometimes you have to sit down, you have to get into a room, and you say what do you want, this is what we want, how can we meet halfway?

BAIER: That's how he talks about his style of making deals. In both China and Iran, Lanhee, the U.S. is putting some serious pressure on both of those countries, and Iran is really feeling it.

CHEN: Iran is feeling in particular. If Iran were to come to a table, it would be under a very different set of terms than what was the previous negotiation, the previous administration. That I think is what the president has wanted. The question is, are they actually going to come to the table, are they actually going to have a legitimate conversation? Is this just playacting by the Iranians? There's no question they're feeling a tremendous amount of internal pressure. In a similar way China is feeling that internal pressure as well. Are they going to come to the table, is this going to be a genuine negotiation? Those are open questions.

BAIER: But is their pressure on Europe to get out of the Iran nuclear deal, the JCPOA?

CHEN: I think so. I think if this deal is going to be on the U.S.'s terms, they've got to come on the U.S.'s terms, not on the previous version of this in the JCPOA.

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