Unions brace for fallout from SCOTUS's Janus decision

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Unions brace for fallout from SCOTUS's Janus decision

Illinois Governor Rauner on why the Supreme Court's ruling is a big victory.

This is a rush transcript from "The Journal Editorial Report," July 7, 2018. This copy may not be in its final form and may be updated.

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

And all eyes are on President Trump this weekend as he makes a final decision on just who will replace Justice Anthony Kennedy on the United States Supreme Court. The president meeting with six candidates for the position this week and saying Thursday that he has narrowed his list to two or three ahead of a much-anticipated primetime announcement Monday night.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger, and columnists, Kim Strassel and Bill McGurn.

So, Kim, what do you make of the finalists on the list. You know their names, you know some of them personally?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, I think the thing people should be encouraged by is all of the people who were on the list that President Trump put out when he was still running for the presidency are incredibly accomplished jurists, very much in the mold of Antonin Scalia, much like Neil Gorsuch. Word is that it has come down to about two or three finalists, Brett Kavanaugh, who sits on D.C. circuit, Raymond Kethledge on Sixth Circuit, and Amy Coney Barrett on the Seventh Circuit Court of Appeals. All of them have their different qualifications and points in their order but it may come down a bit to the president and which way he goes in terms of his connection with them when he met with them.

GIGOT: Dan, Brett Kavanaugh has been on D.C. circuit for a decade now I think.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes.

GIGOT: Something like that, so he has the most experience. He's 53, Kethledge 51, Amy Barrett 46. They're all in the age group where they would be on court for a long time. But there's a rap against Kavanaugh that you hear some people on the right saying, you know, he was a Bushy. He was with the Bush administration and, therefore, that somehow is disqualifying for Supreme Court. What do you make of that?

HENNINGER: I would say at this point if they are kvetching about Brett Kavanaugh serving in the Bush administration, and that's the reason coming up, then conservatives are getting greedy about the quality of their nominees. Because these three people are excellent. We'll be lucky if we get any one of the three of them. And Brett Kavanaugh grew up in Washington, went to school at Yale, came back to Washington, when to work there. It should not be a mark against him. He was secretary to President Bush. He was the one who brought him papers and things like that.

GIGOT: Right. So --

HENNINGER: There's really no basis. He's made decisions on the whole range of constitutional law over 13 years, a lot of decisions. There are one or two exceptions. People sometimes think his decision on Obamacare led to Justice Roberts' decision with Obamacare, the mandate was attacked, that is held against him. But it's just, I think --

GIGOT: That's not true. That's not true. He associated himself with Judge Warren Silberman's opinion, which was not the basis for how they ultimately decided at the Supreme Court.

My view over this Bush thing, Bill, is it was eight years.

BILL MCGURN, COLUMNIST: Yes.

GIGOT: If you're a Republican who we wanted to play politics, wanted to have influence, who wanted to work in the government, what are you going to do?

MCGURN: Right.

GIGOT: What other administration are you going to go to?

MCGURN: Look at the other justices, the administration they served in. That was Bushy, too. And I'm pretty conservative. I worked very closely with Brett Kavanaugh. He's very conservative. I think he's very sound. In fact, I think, although I like them all and I have a soft spot for Amy Barrett because she's a fellow Damer.

GIGOT: Notre Dame grad.

MCGURN: Notre Dame grad. But Brett Kavanaugh is a strong candidate. And very few people go to the Supreme Court with the breadth of decisions he's had. I think it's 12 years he's been on the bench.

GIGOT: Which is a long time, yes.

MCGURN: Right.

GIGOT: There's no question.

MCGURN: I think the truth is that people will be satisfied whichever one of these jurists are picked. It's a good -- we will not get Anthony Kennedy two. The question is, how close to Scalia or so are these people going to be.

GIGOT: One question, Kim, about Amy Barrett has come up. That is she belongs to a Christian group, volunteer group called People of Praise and that's been on the left criticized as somehow a weird religious cult. Tell us what's the real story?

STRASSEL: The real story is the exceptional level of religious ignorance by those calling this a cult. This is a spiritual forum of the type that millions of Christians belong to across the country. It's a group of people who want to take their spiritualism outside of their regular Sunday church. They belong to communities that help with community projects, help out each other. It's a very commonplace thing. Look, this is going to be emblematic. The left is going to find anything they can on any of these people as a way to try to bring them down because, as we've all noted, when it comes to jurisprudence, they are all topnotch. There's not much to criticize them in terms of flawed reasoning. So they'll go after questions of biography.

GIGOT: Kethledge is a less known than the others, Dan, because he has worked out of Washington, the Sixth Circuit. But he has written good opinions on property rights, on the Second Amendment, on religious liberty, so he has a strong constitutional background, too. It seems to me Kethledge and Kavanaugh are kind of the highest intellectually and have the most experience. Barrett is a little less experienced. And then someone like a Tom Hardiman, who also may be in the mix, someone interviewed the first time, he's somebody who has an appealing background. Trump likes him personally, but maybe not the same level of jurisprudential craft and talent.

HENNINGER: You know something, Paul, I think all of them have something in common that is worth noting. The big fear is someone will be put on the court and then they will become a Kennedy or a Souter. They'll go in the other direction.

GIGOT: Right.

HENNINGER: Look, all of these people were in their 20's. Souter and Kennedy were appointed 30 years ago. This is a generation. All of the judges are fully aware of the Souter and Kennedy stories. They're also acutely aware of what Antonin Scalia represented, the Originalism and the Textualism. This is a different generation of judges, and I think they understand and are not going to go there because there's not going to be that kind of activism on this court.

GIGOT: That's an excellent point.

Still ahead the left already set to mobilize against President Trump's Supreme Court nominee, no matter who it is. We will preview the political fight ahead and the Senators to watch when we come back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

SEN. KAMALA HARRIS, D-CALIF.: There's so much at stake and this is the fight that is born out of love of country and we're not going to let anyone take our flag.

SEN. COREY BOOKER, D-N.J.: Don't tell me that this battle is one that's already lost. I do not believe that.

SEN. ELIZABETH WARREN, D-MASS.: What's at stake? The future of America is at stake. Let me be clear to all of you, and let me be clear to America, we are down in this fight but we are not out.

(END VIDEO CLIPS)

GIGOT: That's just a sample of the Democratic rhetoric ahead of President Trump's announcement Monday of his pick to replace retiring Supreme Court Justice Anthony Kennedy. Grassroots groups on the left are planning to mobilize against the nominee immediately with protestors set to swam Senate offices, pressing lawmakers to oppose the pick as soon as it is announced.

Bill, is there any way that any of the names that Donald Trump has on this list will not spur that --

(CROSSTALK)

MCGURN: Exactly. I find that very heartening because it seems to me that they're verifying in a back-handed way the character and ability of the people who are on Donald Trump's list. The big problem is every Republican Senator has a veto over this pick. They need all Republican votes. I don't think they will get any Democratic votes unless they get the majority, have 50 votes themselves to get --

GIGOT: They have to show they have 50 and

(CROSSTALK)

GIGOT: -- then they might get some Democrats.

MCGURN: Right. And so I think, you know, Susan Collins and Lisa Murkowski have made noises on Roe v. Wade that would affect different candidates. That has to be the president's calculation in his pick. Is anyone going to be a problem in the Senate among Republicans? We know the Democrats will not really going -- you know, the bulk of them are not going to vote for anyone. And even the ones who voted, for example, for Amy Barrett the last time, Joe Connelly --

(CROSSTALK)

MCGURN: -- Tim Kaine, Joe Manchin, I don't - I think Tim Kaine has already made clear he will go the other way this time.

GIGOT: Kim, what's the Democratic strategy here? To win.

(CROSSTALK)

GIGOT: They only have, what, 49 votes?

STRASSEL: Well, look, they know it's an uphill fight. And this will be big test for Chuck Schumer, because it's his job now is to keep them united. If they can, and if you had a defection on the Republican side, if they were to lose a vote there. And there's a potential to derail a nominee and derail this Supreme Court strategy that the White House has which could be very devastating to Republicans were that to happen. That is his goal, keep his troops onboard, whoever the nominee is, tear them down, find something that makes them, renders them unacceptable, and then ride on that having mobilized their troops into the midterms.

GIGOT: Keep the pressure on.

I think the strategy, Dan, is just health care, create enough of a fuss, enough of fog around, of negativity that's to the say this person is unacceptable that you scare a couple of Republicans Senators to defeat the nomination.

HENNINGER: Well, exactly. This is going to be a multi-million-dollar scare and intimidation campaign directly at mainly two people, Lisa Murkowski, of Alaska, and Susan Collins, of Maine. From now until the vote on that nomination, they will be hit over and over and over, Roe v. Wade, women's right to abortion, and they'll try to intimidate them. I myself think they have about a 25 percent chance of moving Susan Collins. She has said she wants to know whether these justices are going to overturn Roe v. Wade. Beyond that point, if they say turn something back to the state, I don't think that'll be sufficient reason for her to vote against them.

GIGOT: I don't think any of them are going to say that because I don't think any of them should say that.

HENNINGER: Right.

GIGOT: We don't know.

(CROSSTALK)

MCGURN: I'm strong and I'm going to pay attention to it, but I'm not going to tell you how I'm going to rule on things. Look, I think Dan raises an interesting point. It's not just a Supreme Court vote that's at stake. For a lot of these guys, it's their election. Some of these Democrats are running in Trump states. Joe Donnelly is running in a very tight race in Indiana. Heidi Heitkamp the same. So if they satisfy their base by voting against whomever Donald Trump runs, they may pay a price. It may cost them their seat.

GIGOT: Dan, let's step back a little bit on this, just philosophically. Why are Democrats so engaged on this and think it's some kind of Armageddon moment?

HENNINGER: I think the main reason is that they understand there's not going to be another Anthony Kennedy swing vote. The betting is that if one of these people make it to the court, the swing vote will become Chief Justice Roberts, much more conservative individual than Anthony Kennedy. I think their big fear, beyond Roe v. Wade, is that the era of activist judging, arriving the conclusion and figuring out the reasoning later is coming to an end. Liberals, for about 50 years, have been using the court's lawsuits to achieve policy. They will find a big backstop there at the Supreme Court after one of the nominees is confirmed. That's the cause of the scare.

GIGOT: Kim, briefly, what do you make of Democrats running in Trump states? Do they have a lot of stake here or do you think they will basically toe the party line?

STRASSEL: No. Look, when we were talking about Susan Collins, but the pressure on them will be even more intense. Some of them are already on the record of having voted for these judges, in particular, Amy Coney Barrett, who was only confirmed last year. Manchin voted for her. Donnelley voted for her. Kaine voted for her. So they would have to explain that. Not that they couldn't flip, but this is a tough choice between their election prospects and how they handle their base.

GIGOT: Thank you, all.

When we come back, as the president mulls his Supreme Court pick, a look back at one of the biggest decisions in the last term and how the justices' ruling in Janus v. AFSCME is already affecting public unions. We will talk to a key player in that case, Illinois Governor Bruce Rauner, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. BRUCE RAUNER, R-ILL.: We just heard oral arguments for one of the most important cases in U.S. history, the case of freedom of speech for government employees, it's fundamental protection of political affiliation and free speech.

(END VIDEO CLIP)

GIGOT: That was Illinois Governor Bruce Rauner at the Supreme Court earlier this year following oral arguments in the case of Janus v. the American Federation of State, County and Municipal Employees. The justices waiting on rule on that landmark case until the final day of their term, handing Governor Rauner and Illinois state employee, Mark Janus, a big win, and public unions a big defeat in their efforts to collect fees from non- union workers.

Illinois Governor Bruce Rauner joins me now from Chicago.

Welcome, Governor. Great to have you here. Congratulations on the Janus victory.

But let me ask you, it's risky, given the power of public employee unions, for a governor like yourself to take on AFSCME. Why did you do it?

RAUNER: Well, it's one of the primary reasons I decided to run for governor. Government union power has been disrupting our state government and hurting our taxpayers for decades. The system had to change. And I fundamentally believe that the forced dues collection from state employees, who did not wish to join the union and did not support their political activity, it was unconstitutional. And that's why one of the first actions I took when I became governor in early 2015 was to issue an executive order to stop the collection of the dues. And I also proactively sued AFSCME to start the litigation process.

GIGOT: OK, now that you've won in court, what's the impact going to be in your state? What happens next?

RAUNER: Well, we have immediately stopped collecting the dues for 7,000 state employees who did not choose to join the union. So those dues are no longer collected. And the typical state employee is paying almost a thousand dollars, a little over $900 on average per year in dues. We also have set up a Web site to outline state employees' rights under the new ruling from the Supreme Court. We have communicated with all state employees by e-mail to let them know of rights and obligations. We also have issued answers to frequently asked questions. And we are being contacted by many state employees interested in learning more about what their rights are now that they have newly restored freedom of speech and freedom of political affiliation. And those state employees are making the decisions now whether to opt in or opt out of the dues, the dues paying and the union membership.

GIGOT: So as I have looked at the evidence in Wisconsin and Michigan, for example, which changed the obligations of state employees some time ago, about a third of government employees overall, roughly, decided to drop out and not pay the dues. Is that your estimate of what might happen in Illinois?

RAUNER: Well, Paul, it's hard to know for sure how things will evolve. We will see. We will know more in the coming few weeks. I will say this, Illinois is unusual because we've had such corruption in our state, so much self-dealing and conflict of interests between government union leaders and elected politicians. To give you one quick example, former governor, Rod Blagojevich, who is still in prison, who preceded me by several governors, he went to state employees and he said, if you join the union, I will give you 4 percent annual raises, if you won't join the union, I will never give you a raise as long as I'm governor. He basically extorted state employees to force them to join a union against their will. We will see which of those choose to come out.

Unfortunately, what's happened as a result, is I have managers in state government who are making less than their staff underneath them. And it's a broken system. We have to restore good government, good management into the system.

GIGOT: We are seeing in some places around the country, like New York, the state legislature is already moving to be able to compensate the union for whatever lost fees they get, paying through taxpayers, for example --

RAUNER: Yes.

GIGOT: -- for their ability to collectively bargain. I assume that's a no-go with you? You'd veto that in Illinois.

RAUNER: Absolutely. I would stand against anything like that. It shows you how broken the system is when politicians, what they are really interested in is the political support and the political advocacy for government unions. People spin me sometimes as anti-union. This is not being anti-union. It's about being anti-conflict of interest. When a government union leader can go to an elected official or a candidate for office and say, I'll give you millions for you campaign, I'll get state employees to work for your campaign, and then when you get to office, we will then negotiate a new contract. That's a conflict. If that happened in the private sector, somebody would go to jail.

(CROSSTALK)

BAUNER: I'm the first Illinois governor in history who has not taken dues from the unions because of that conflict.

GIGOT: How is this going to affect your ability to work in a second term, do you think, if you would happen to win?

RAUNER: I think this will enhance our ability to work in good faith with our state employees. What I have said to all of state employees is, I would like to pay you more money, but I don't want to do it based on seniority. I want to do it based upon merit and productivity. And let's do gain sharing. How about if I give ten cents of every dollar you save in your department. Let's stop this seniority system and let's stop protecting employees who aren't working hard. Let's get real rewards for those who really adding value for taxpayers. It'll be an exciting time for the state of Illinois.

GIGOT: I assume the weakened ability of Michael Madigan, the speaker, to run the show in Springfield.

RAUNER: Well, hopefully, that's right. Madigan has been in power since 1971. He joined the legislature. He's been speaker for 35 years. Very corrupt, very corrosive. And he has been siphoning his political domination from government union activity. And the Supreme Court was so right when they said all government union activity is political by nature, all of it, and now we have stopped that violation of forcing people to support it if they didn't agree with it.

GIGOT: All right, Governor Rauner, thank you so much for being here.

RAUNER: Thanks, Paul.

GIGOT: Still ahead, President Trump marks the sixth-month anniversary of the GOP tax cuts with a hint of more to come. What can we expect from phase two and when can we expect it? We will ask Ways and Means Committee Chair Kevin Brady, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT DONALD TRUMP: We are doing a phase two. We'll be doing it probably in October or maybe a little sooner than that, and it'll be more of a middle class. We did a lot for the middle class but this would be more aimed at the middle class. One of the things we're thinking about is bringing down the 21 percent down to 20. And then, for the most part, the rest of it would go right to the middle class.

(END VIDEO CLIP)

GIGOT: That was President Trump with FOX News's Maria Bartiromo last weekend marking the sixth-month anniversary of the $1.5 trillion tax cuts and reform passed by Republicans last year, hinting that a phase two of those cuts could be coming ahead of this fall's midterm elections.

Texas Congressman Kevin Brady is chairman of the tax writing Ways and Means Committee.

Welcome Mr. Chairman. Good to have you back.

So let's take --

REP. KEVIN BRADY, R-TEXAS: Paul, thanks for having me.

GIGOT: Let's deal with the economy before we get to phase two of the tax cuts. You had really a strong job's report on Friday but wages aren't going up all that much -- they aren't accelerating. Any inside as to why?

BRADY: Yes, I think part of this really, one of the focuses of our new tax code is stronger productivity coming from new investments. It's something that really drives wages for the long term, the right reasons. That takes some time. I was encouraged by the wage growth in first quarter. Didn't expect that to continue at quite that pace and it hasn't. But what I am seeing is, we are all seeing, are the business investments that are being made in technologies, equipment, software, all the things that drive competitiveness and stronger productivity. That, I think, in the long term drives those wages up and keeps them in a sustainable way, not an artificial way, a sustainable way. That will take some time. But the investment numbers in both the volume and how fast it's accelerated, including those coming back from overseas, I think will drive wages over time.

GIGOT: Let's talk about phase two of the tax cuts. You heard the president talk about a 20 percent rate, going to that. What can we expect to see in that phase two and is it something that you can pass before the election?

BRADY: You know, so the focus here is going to be on making sure those middle-class tax cuts and those small-business tax cuts are made permanent. That's the major feature of 2.0. But I always try to reminder our viewers, 2.0 is really about changing that culture in Washington where they wait 30 years in-between fixing the tax code. We fall behind our competitors around the world. Then we jump the code up with a bunch of special- interest provisions that don't ultimately work. What we are trying to do is establish every year a Congress that looks at our tax code and asks, how can we be more competitive as a country, more innovative, better. And so this first year, 2.0 is about the permanence for middle-class families and our small businesses. We think we can do more to help families save earlier and more throughout their lives. That's an area of tax reform that we had done some work on --

GIGOT: Right.

BRADY: -- the Senate had done some work on. We think it's time.

GIGOT: Can you pass that through the House -- do you plan to pass that through the House before the election or do you have to wait until next year?

BRADY: We do -- my understanding is Leader McCarthy wants to bring to the floor after we return from the August break. Right now, in July, we will spend the time just as we did with tax reform with our members of the House listening to them, laying out an outline of what 2.0 would look like, making sure we've got strong consensus as we head into August as well. And we are working closely with the president on all of this, of course.

GIGOT: You're willing to take that risk of making votes for this even if the Senate -- which is unpredictable obviously -- may not take it up?

BRADY: Yes, so I think part of, as we know, on tax reform, 1.0, movement creates movement. I think the House moving forward with the very pro- growth permanence of family-friendly 2.0 gives the Senate the chance to pick and choose sort of which of those elements they want to move and when. Clearly, 60 votes matter in the Senate. And so the leader, McConnell, and others, will have to assess, you know, what the strength of those different provisions of 2.0. Paul, I don't see one big bill. I see a package of three or four that can be broken apart to work both for the House and work for the Senate as well.

GIGOT: Interesting.

Let me ask you about trade because, of course, the tariffs against China are kicking in, kick in Friday. China responded in retaliation immediately. How worried are you that trade and these tariffs, which are really border taxes, are going to start to slow the economy's momentum?

BRADY: You know, I think -- I am worried. I think the economic momentum we have from the tax cuts and from our balanced regulation has really given us momentum we haven't had before. The tariffs' issues aren't showing yet, but I believe they will. Here in Texas, for example, our local manufacturers are energy industries, are starting to weigh holding their punches on investment in new projects. I know some of our local businesses are losing work to foreign competitors because of it. I know that's not what the president intends. And so I think the sooner that the White House can get that exclusion process working, because that has fail today date, to make sure fairly-traded products aren't caught up. I do think the exemptions on Europe, China and Mexico need to be restored because that's creating undue pressure in the U.S. I think the president needs to go straight up against China and rally the rest of the world towards those unfair trade practices. So I think some good, smart adjustments could really focus this trade strategy.

GIGOT: You're talking about exceptions to the rule here. But there's a lot of anecdotal evidence that people are starting to get hurt. What does the president say when you explain that to him?

BRADY: You know, the president is asking for patience. He believes that he can win this with China, that he can rebalance the trade agenda, feels like we're not -- we don't have a level playing field around the world and so he's challenging those older assumptions. He wants the time to be able to let this strategy work. I think there is, in Congress, strong support for challenging China's unfair trade practices, but there's growing frustration that the way the exemptions and exclusions are not working and actually -- and the retaliation is hurting our farmers and our manufacturers in a big way and that's where we are continuing to engage with the White House.

GIGOT: All right, Mr. Chairman, thanks very much for being here. Appreciate it.

Still ahead, a solid June job reports has U.S. employers continue to hire at a brisk pace, but could escalating trade tensions put a damper on future jobs and growth?

(COMMERCIAL BREAK)

GIGOT: U.S. employers keeping up a solid hiring pace in June with American businesses adding 213,000 jobs. The Labor Department said Friday that the unemployment rate rose to 4 percent from 3.8 as more people began looking for work and not all of them found it. Those Friday jobs numbers coming on the same day that the Trump administration began imposing tariffs on $34 billion worth of Chinese goods with Beijing retaliating with its own tariffs on American products, including soybeans and cars.

We are back with Dan Henninger, columnist, Mary Anastasia O'Grady, and assistant editorial page editor, James Freeman.

Mary, how strong is the U.S. economy right now?

MARY ANASTASIA O'GRADY, COLUMIST: I think we are in a sweet spot here. Not only the numbers that you mentioned, but wages are moving up, not as much as we would like to see them. They should be getting over 3 percent a year but they are at 2.7., which is good news. The other good thing about this report is that labor participation moved up a little bit. I think that's still a problem. And as long as you have low-wage labor participation, I'm afraid that maybe that's going to hold back growth. So that's probably one to have bigger problems.

GIGOT: Big number, 600,000 people newly entering the workforce, including a lot of people who were the long-time unemployed. Pretty interesting.

O'GRADY: Yes, that is interesting.

GIGOT: You're drawing them off the sidelines.

O'GRADY: Yes, absolutely. But we still have, again, labor participation, 62.9 percent, below 63 percent, and it's kind of been hanging below there really since the 2008 financial crisis.

GIGOT: James, let me ask you about trade because that's a huge issue here, the tariffs with China beginning, back and forth. How worried are you that this is going to affect the momentum that Mary is talking about in the economy?

JAMES FREEMAN, ASSITANT EDITORIAL PAGE EDITOR: Yes, it's a drag. I think to this point you say that the Trump tax cuts and deregulation are more powerful so far than the trade impact, but who knows. We may be at early stages of this. Right now, more are concerned -- you see the Fed reporting that it's discouraging some investment. But overall, it's a picture of basically optimistic U.S. businesses investing more and hiring more.

GIGOT: Why aren't wages, James, rising faster, do you think? Do you have any theories on that?

FREEMAN: It's really been a puzzle, as we have seen employers -- I look a lot at the NFIB, small business survey, and every month shows small businesses just dying for workers, trying to find them. So you wonder why wages have not been rising faster. I think this report with the 600,000 people you mentioned coming back into the labor force gives us part of the answer, that there's still with that low participation rate a group of people, and not just retired folks, but prime-age working people who have still not joined the labor market but are starting to come back into it. And that's very encouraging.

GIGOT: Mary, Donald Trump would watch this show and say, you know what, you guys don't get it, you don't understand, all this trade stuff. Short- term pain, maybe. Look, it'll be long-term gain. This is my negotiating strategy. I hit them hard. We have more leverage. We will win, just wait.

O'GRADY: Right, and how do you say that in Chinese?

(LAUGHTER)

Because that's the same thing the Chinese are responding, saying the same thing, and that's what makes people uncomfortable about the potential for this being ratcheted up, one side, then the other, then going back and forth. The sympathy that Donald Trump gets from most of the American public is China does not play by the World Trade Organization rules. And that's a legitimate complaint. But as Marty Feldstein, the economist, talked about in our paper last week, we can negotiate that, and we should negotiate that. But the idea, Donald Trump's big obsession that he's going to defeat the trade deficit, which by the way he's expanding the size of it, it's not as big as what he says, but that is a mistake because the U.S. is richer than China and it means that we are going to buy than they buy from us. There's going to be a trade deficit.

GIGOT: Dan, the other point I would make is, look, you will get a deal, well, when are we going to get a deal, OK? How about, you're fighting with the Mexicans and the Canadians on NAFTA. You're fighting with Europeans on cars and other things. And now you're fighting with the Chinese. How about actually we complete one of these?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, that's when you put the money on the table. But I think, you know, Trump is pretty adept at playing politics of these situations. And the "Wall Street Journal," for instance, had a map in the week on how the Chinese are very precisely targeting tariffs at counties that were carried by Donald Trump through the Midwest and the south, farmers and what not, and exempting the counties that voted for Hillary Clinton. It's very obvious what the Chinese are doing, make the Trump voters hurt. I think that could backfire. If Trump had the opportunity to say, the Chinese are punishing you and exempting Hillary's voters, why shouldn't we fight back against the Chinese, and I wouldn't doubt that some of his supporters, despite getting hurt, will continue to support him.

GIGOT: James, briefly, Scott Pruitt's resignation at the Environmental Protection Agency, how big a problem could that be for the president's deregulatory agenda?

FREEMAN: Well, potentially, it could be a good one because this is really a big part of what has given companies, especially in the manufacturing and the energy sectors, the confidence to move forward and to make investments. It has been very encouraging, whether you're talking about returning science, returning to cost-benefit analysis, moving away from kind of the environmental extremism that the agency has adopted, he's really been a part of deregulatory effort. And that's a big part of why you've see capital investment by U.S. companies rise in the Trump era.

GIGOT: All right, thank you.

When we come back, an emerging split inside the Democratic Party as leaders parse the win of Alexandria Ocasio-Cortez.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TOM PEREZ, CHAIRMAN, DEMOCRATIC NATIONAL COMMITTEE: I have three kids. Two of whom are daughters. One graduated college and one is in college. And they were both texting me about their excitement over Alexandria because she represents the future of our party.

(END VIDEO CLIP)

GIGOT: That was Democratic National Committee Chair Tom Perez this week calling Alexandria Ocasio-Cortez the future of the party. Ocasio-Cortez, who defeated long-time Congressman Joe Crowley in a New York primary, is running or a platform of Medicare for all, free tuition for college students, and abolishing ICE.

And despite the DNC chair's enthusiasm, House Democratic Leader Nancy Pelosi has downplayed the win, insisting it says nothing about the party outside of that district.

(BEGIN VIDEO CLIP)

HOUSE MINORITY LEADER NANCY PELOSI, D-CALIF.: They made a choice in one district. Let's not get carried away.

The fact that it's a very progressive district in New York. It went more progressive than -- Joe Crowley is a progressive, but more to the left than Joe Crowley is about that district.

(END VIDEO CLIP)

GIGOT: Joining me now, Democratic pollster and FOX News contributor, Doug Schoen.

Doug, good to see you.

DOUG SCHOEN, DEMOCRATIC POLLSTER & FOX NEWS CONTRIBUTOR: Thanks, Paul.

GIGOT: Who is right about the future of the Democratic Party, Nancy Pelosi or Tom Perez?

SCHOEN: I think they are both wrong, Paul. I think the future of the party is much more people like Doug Jones and Conor Lamb representing centrism. I really think that this an outlier and represents a small sliver of primary voters in a largely unrepresented district in the Bronx and Queens. I don't doubt Ocasio-Cortez's sincerity, but advocating Medicare for all, jobs for all, and elimination of ICE, without any way to pay anything, is absurd on its face and damaging to the party.

GIGOT: Yet, it's been embraced across what I would call the most -- much of the left-wing media. The New York Times extolling her as somebody in the new generation. And many others in Congress. I mean, Kristen Gillibrand, in New York, endorsing the abolish-ICE argument. Many others getting there as well. It seems to me that no matter what you say -- I mean, I take your point, but it seems to me that there's this energy, enthusiasm on the leftwing of the Democratic Party.

SCHOEN: To me, it's a different issue. I don't think the future lies on the left if the party is to win and be a majority party. It's absolutely the case, as you suggest, Paul, that very candidly the energy and enthusiasm is on the left. And that makes people like Elizabeth Warren and Bernie Sanders odds-on favorites as we approach the 2020 election.

GIGOT: How do you handle it if you're a Democratic candidate this year running for Senate or if the House? You have the base following this more progressive agenda, Medicare for all, for example, abolish ICE, and on the other hand, you have to appeal to more moderate voters. How do you navigate it this year?

SCHOEN: A couple of ways. First, there's the symbolic issues that a couple of candidates have taken, which is to say, I'm not voting for Nancy Pelosi, I'm not voting for Chuck Schumer, we need new leaders, which is a way, I'm saying with the past. That's number one. And number two, to indicate a willingness to compromise on issues like immigration. I mean, to me, the alternative to saying eliminate ICE is to say, we need a compromise on secure borders, potentially, a wall, and a pathway to citizenship for the DREAMers, and potentially more. That, to me, is the way to do it. And you have to be willing to compromise with the Republicans and, yes, President Trump, even if you don't like him.

GIGOT: And so what I hear you saying is that the abolish-ICE theme, which we are hearing more and more, is a political loser for the Democrats, is that an inference?

SCHOEN: Yes. And what I think could happen is precisely for the enthusiasm that you're describing, the left and the Democratic Socialists, they are not even Democrats of the type I am. They are Democratic Socialist who reject capitalism. That's going bleed over into some of the midwestern and southern districts where the Democrats have a chance. And if you're a local candidate, you have to say, that's not me, I'm running on my issues in my district for my constituency, and I'm going to tell the national party to stay the heck out.

GIGOT: You know, let's talk about immigration a little bit, because it's fascinating this year that issue is moving to the top of the debate.

SCHOEN: It is.

GIGOT: And it seems it's an interesting position because both parties think it's to their advantage. Trump and Republicans think they can talk about the failure of border security and make it a good issue for them. And the Democrats seem to think they can talk about DREAMers and the failures of the Republicans to do anything about their predicament. And both sides seem to have an advantage, think they have an advantage. Who do you think has it?

SCHOEN: I think the Republicans have an advantage and it's only because the most recent Quinnipiac poll shows for those voting on immigration, the Republicans have approximately a 17-point advantage in the generic vote. The calculus of both parties is get your base out. The Democrats want to get minorities out and the Republicans want to get their more middle-class whites out. But candidly, with a third of the Hispanics or more in the Quinnipiac poll voting Republican, I think the advantages, as I said before, is clearly with the GOP.

GIGOT: Thank you, Doug. Appreciate it. Thanks for coming in.

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.

Kim, start us off.

STRASSEL: Paul, a video went viral this week showing a thug walking into a San Antonio fast-food joint where he threw his drink in the face of a teenager and stole the 16-year-olds Make America Great hat, again hurling verbal abuse at him as he left. This is my miss to every single leader out there in the Democratic and progressive movement who have suggested it is OK to tyrannize people on the basis of their political beliefs. It is never acceptable. The fact that is now happening to kids ought to make all of them ashamed.

GIGOT: Mary?

O'GRADY: Paul, this is a miss for Therese Patricia Okoumou who climbed up to the base of the Statue of Liberty on July 4th. It's a miss because, first of all, she threatened the police who were sent up to bring her down. Secondly, she ruined the Fourth of July holiday for hundreds of people that were out on Liberty Island and had to be evacuated. Finally, she ruined the image of many people who support immigration.

GIGOT: All right, Mary.

James?

FREEMAN: Paul, this is another Fourth of July related story. This is a hit to the founding fathers. We have so many reasons to thank them this week, but we were reminded of another one. This was, along with our birthday, the 70th anniversary of socialized medicine in Britain. We've been saved from a system that denies individual choice, abuses patients, and degrades care. Let's hope it never comes to the U.S.

GIGOT: All right.

Dan?

HENNINGER: Why stop celebrating Fourth of July weekend?

(LAUGHTER)

I'm giving a hit to the right of Fourth of July fireworks displays themselves, started by the second U.S. president, John Adams, who thought we ought to do this every Fourth of July. I watched mine in New York City on the East River. A spectacular display with music and singing by the West Point Military Academy band and chorus. No politics at all, Paul. Just beautiful patriotism.

GIGOT: No politics? Oh, man. Thank you for that.

(LAUGHTER)

(CROSSTALK)

GIGOT: Terrific!

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

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