Hey everyone, I'm David Chalian, CNN's Washington Bureau Chief and Political Director, and welcome to the CNN Political Briefing.

We had a very good talk. And we've straightened out any complexity. It's very complex stuff. And we straighten it out.

That's President Trump answering a question in the Oval Office on Thursday about his highly anticipated phone call with Chinese President Xi Jinping. The call came amid rising tensions between the world's two largest economies. But Trump said after the call that talks are on track. Negotiations with China are key to Trump's tariff strategy, which has stayed in the spotlight week after week during his second term. We've seen the president alternate between imposing new, steep tariffs, and then, in many cases, backing off. So what's the current state of the president's trade war? What challenges has his strategy come up against? And what have markets learned from observing the tariff whiplash of the past several months? Phil Mattingly is an anchor and chief domestic correspondent here for us at CNN. He's been following the latest twists and turns of Trump's tariff policies, from court rulings, to China talks, to the new Wall Street slang term "TACO," and he joined me to help break it all down. Phil, thanks so much for joining us.

Thanks for having me.

'So a big moment today. I believe it's the first Xi-Trump phone call since Trump took the oath of office, or at least I think it's first we know about. Here you have the two world's largest economies that are clearly in the midst of a trade war to some extent, although I guess trying to find some ways through that trade war. What did we learn out of this phone call, and where does it leave the trade war?

It is the most important bilateral relationship in the entire world, and it's not even close. It is the two superpowers currently in competition. It's the world's two largest economies. And when it comes to the global economy, the global financial system, the entire backbone of the world's commerce, they are the two biggest players by far. The two biggest player by far, five weeks ago, basically had a de facto trade embargo on one another, which is...

Nothing was happening. Like, no goods were going back and forth.

'Nothing was coming in or out of either. And that is, I mean, we just, you almost couldn't describe it because there's no precedent for that actually happening. And the downstream effects of that over time would have been catastrophic, both for China and their economy, the US and US consumers over time, given the consumption levels here, but also the entire global economy, which was my long winding way into answering your question. Today's call was extraordinarily important. To your point, it was the first one since January 16th. And they de-escalated again, based on what Trump said in the Oval Office and what he put on Truth Social. And what I mean by that is, week and a half ago, two weeks ago, trade negotiators from both sides met in Geneva. It was the first substantive conversations the bilateral relationship had since the inauguration. It was extraordinarily Important because of what we were talking about, that de facto trade embargo. And they walked out of that and had far more dramatic of a positive spin on things, both sides, than I think anybody expected. Trump removed a significant amount of his tariffs, the Chinese promised to remove their tariffs and other elements of their retaliation. In the days that followed, the most critical and concerning and I think really problematic element of China's retaliation, export controls on rare earth minerals of which you and I clearly are the smartest people to be talking about these issues.

I mean I had no idea that I would spend so much time in these first six months of the Trump administration on rare earth minerals. But like it actually is the thing that, like, underpins the whole AI transformation of our world.

And even not even just the AI transformation, most of the technology you use right now. And we always talk about semiconductors, particularly after the pandemic. But the reason why Trump talks about it so much, the reason why every deal he's making with any country ever somehow, including Ukraine or anybody else, somehow involves a rare earth element or a minerals element is because of how he knows, he is very aware it is an existential threat to the United States of America if one country has a complete monopoly on their production, on their mining, on their actual production. China has a completely monopoly on rare earth magnets specifically, and they had slapped export controls on those in the wake of the de facto embargo. The US side was under the impression coming out of Geneva, where those talks happened, that those export controls would be pulled off, or at least licenses would be granted to any company, any entity that needed to use them. That didn't happen. And US officials raised it; it didn't happened. US officials raised it; it didn't happen. And Kevin Liptak, Kylie Atwood and I last week had been hearing murmurs about this. We knew something was up, and we ended up kind of breaking the story that the escalations we had seen from the United States side, related to student visas, related to US export controls, were actually in response to the fact that they thought China wasn't delivering on the deal. China had their own...

And then the president said as much.

'And then literally like six hours after we wrote it, the president said as much. Then his team started talking about it publicly. This call was important because that is a very legitimate near-term national security concern for the US, and, according to Trump, the rare earth issue was ironed out. We don't know exactly how or what China committed to, but that was his takeaway. And that in and of itself is enough for Trump to de-escalate his re-escalation.

So let's say right now, as you and I are talking on Thursday afternoon, we are in this place of a deescalated trade war to some degree. And I know we can't like rely everything on how the Dow Jones Industrial Average is doing in response, but my like layman's brain here would have been like, wow, I would imagine the markets are gonna go very positive, have a very positive reaction to the fact that this phone call took place, the fact that this, we're not in a new place of escalation. That's not the case right now. I mean, we'll see how it all shakes out, but wouldn't you think that this is something that Wall Street would be psyched about?

'Yes, and I don't think that they're not psyched about it. I think they were very ready for everything to go very deeply into the red, had things gone sideways. I also think, and this is based on not just observations but also conversations I have with market participants and business executives, they are now pricing this in. They were pricing in a continued de-escalation. They were pricing in a positive phone call for reasons I know we're gonna get into, but the reason why that is important, because the Overton window was shifted so much by just how dramatic what the president has done since January, really since February 1st with his fentanyl tariffs, but obviously since Liberation Day, where the US effective tariff rate right now on net is higher than it's been in 98 years. The scale of tariffs that are in place have no modern economic precedent for the United States of America or precedent for the largest economy in the entire world. And that's with the vast majority of the tariffs on pause. The Liberation Day tariffs need to be worked out and technically go into effect on July 8th. The China tariffs are paused. They are still hanging over, like a Sword of Damocles, the entire world. So all this stuff is still out there. There are currently 18 very significant bilateral trade negotiations going on under an extraordinarily compressed timetable. None, with the exception of the UK, which wasn't even one of the primary negotiations, have actually reached an outcome yet, which means that, at this point, 60-plus reciprocal tariff rates that are extraordinarily painful will go into effect in about a month.

Given what you just said of where the tariff rate is now and that we're sort of in an unprecedented play, or not unprecedented in American history, I guess, but in modern history, are we taking in a whole ton of money that Donald Trump likes to point to that we're not accounting for, and so the country is a lot richer for it? Are any of the goals, are we seeing any of the goals about domestic production increase or the like that he, the reasons he cites that he is a fan of these tariffs, are we seeing that at all?

'We are absolutely seeing a massive surge in revenues collected based on those tariffs. So that's real, right? Once that's in, those taxes, we've talked to small business owners, we see it on CNN on a regular basis. When I checked last with the numbers, which I guess was probably two or three days ago, so I'm sure it's gone up by then, the US had collected $66 billion in tariff revenues since the start of the year, which I believe was roughly four to five times larger than over the same period last year, and it's only going to keep going up. And this is important, of course, in the legislative debate that we're not going to dive into, but if you're worried about deficits and debts, or, more importantly, if you're the Trump administration, and you need to message that we have solutions outside of the $4 trillion we're adding with this massive tax cut, you can point to this, because if you can extrapolate $60-plus billion in this period of time, you're shooting probably towards $150, $200 billion per year based on what's in place right now. Also, that's real money. That's $2 trillion, $3 trillion over a 10-year budget window. That's important if you have deficit messaging concerns on some level.

Not just could you point to it, I mean, Scott Bessent points to it all the time as, like, the third leg of the stool of the program here.

'Exactly, and the much maligned CBO even confirmed it. Like, even those guys did, it's like, yeah, whatever. So, that's the revenue side. The revenue side was never the kind of overarching theory of the case behind them. And I think your questions are the right ones, which is, alright what has this actually done from a bringing domestic manufacturing back home? That was never going to be a snap of the fingers thing for obvious reasons: supply chains, how companies work, multinationals in particular, was always going to take seven, eight, 10 years if they were ever even going to consider it. And I think it's pretty obvious that most of them aren't. We have seen a little bit of a boost in auto manufacturing sector and hiring when you look at the jobs reports. Obviously, the Trump administration takes full credit for that. It's early, right? Like, it's still early. And I that's important to note because. When you look at the hard data, and you made this point at the start, it's not just stock market. Like you can actually go underneath the hood and look at the most important economic data, all backward looking for the country right now. And the country is in a very solid place: GDP, on jobs, on wages, on inflation. Across the board, it is a rock solid economy. That's hard data. Soft data, which is consumer surveys, business surveys, manufacturing surveys, everything is a little better than it was pre-China detente, but still really, really problematic and potentially catastrophic if things start to re-escalate or if all those tariffs come into place on July 9th.

We're gonna take a quick break right there. We're going to have a lot more with Phil Mattingly in just a moment. Stay with us.

'So, Phil, I do want to get to those negotiations. You said there are 18 unilateral negotiations happening simultaneously right now and under this tight deadline of July 9th. The administration sometimes talks about 90 deals in 90 days or something like that. How much do you separate in your mind, as we just discussed, the import of the China situation apart from these other deals? Like, the China thing so far outweighs, in my mind, the other stuff given the size of the economies and the exchange between the countries. But these so-called reciprocal tariffs obviously could have, as you just said, a potentially catastrophic effect as well on the economy.

I mean, look, if you like Nike shoes, you are pretty terrified right now. Well, you probably aren't terrified about it because you're not thinking about the actual supply chain. If you are a Nike executive, you're watching Vietnam every single day where you have moved almost all of your production over the course of the last several years, in large part because Vietnam incentivized that in order for US companies to move their production away from China because they were hearing from the US government saying, please move your production away from China.

Okay, we'll go here. Oh, by the way.

Oh, sorry, yeah, 45% tariffs immediately. We're just going to decimate your entire earnings for the next three years. They're watching that very closely, but it's not just that kind of on a micro basis on a macro level. This would have a significant effect on the economy, on global trade flows writ large on how pretty much every multinational company in the world, particularly on the manufacturing side, does business. Yes, China is the most important. China is be all end all. It is the gorilla in the room, and it's not even close. The reason why Liberation Day sparked an enormous steep descent in markets and sentiment and everything else was because everything else was bad, too. And everything else so bad in terms of the rates that they ended up with that markets couldn't even really get their heads around them. It would end a lot of the trade flows that currently exist in the global economy. So where are the negotiations right now? Well, first, to give credit to the White House team writ large, Peter Navarro said 90 deals in 90 days, the kind of most hawkish trade official around Trump. And he said it like two days after the pause. And you haven't heard that since, which I don't think is unintentional. But, in Peter's defense, every other economic adviser has for probably the last six weeks predicted there will be at least two deals by the end of this week. Or we're right on the brink of three deals; by next week they'll be done.

We've passed those days.

We are now, we should have like 30 deals by now based on those calculations. This is important to understand for two reasons. One, trade negotiations are really hard, right? Like, if you, you know, having covered trade deals in the past, they take years, like actual years. The reason why this is industries, this is political and domestic equities, these are hard things to actually figure out. There's a reason why they take so long. They're trying to do all that in 90 days with a bunch of different countries and poor USTR and Commerce, the US Trade Representative Office and the econ team, they're stretched really thin. And there actually is a bandwidth issue sometimes. So they've tried to set up a process where they have kind of a rotating group of countries every week that come through as part of that process. Right now, there's USTR officials that are in India where they thought they were close and then kind of fell back a little bit. Japan, South Korea, those are always kind of on the edge of being considered the most likely. Jamieson Greer is meeting with EU officials this week as well, the trade representative. I think the best way to answer this question right now is kind of what you were getting at in terms of how their thought process is, makes this more complicated. Trump gets final sign off on every single deal period, end of story. That's problematic. You don't know necessarily where he's going to be on any given day. Trump cares deeply about market access. Look at the UK deal. They're not going to buy US beef. They don't buy it. They don't need it, and they have different environmental standards than we do, and food safety standards, so there's just not really a market there. And Trump is very excited that he secured a significant amount of US beef that likely will never be purchased. But it won't be tariffed if it is. Same with ethanol. If you're an ethanol producer, you're like, oh, wow, we have a new market in the UK that's not buying US ethanol.

It's like a ghost market.

'It's like a, yeah, now, maybe it opens up now. Who knows? Also non-tariff barriers, which is kind of the phrase you hear constantly, which means this isn't a tariff for tariff thing. You take down your tariffs, and we'll be good. It's everything else as well. It's tax policy, it's regulatory policy. A lot of that stuff that, unilaterally, the governments that are negotiating here can't do on their own. Just like the Congress technically has a role in a lot of this stuff. And so it's hard. There's a mix of strategies to it. There's the kind of geopolitical strategy of we wanna make deals with Indo-Pacific allies and that way you help isolate China a little bit more. That is a thoughtful, strategic play that other administrations have utilized in some form or fashion that's not always carried out by everybody. So the reason why I'm like stream of consciousness right now is because sometimes that's how it feels when you talk to these officials.

I guess what I want to get your sense of in your conversations in the administration, is your belief that Donald Trump, by July 9th, wants deals or wants these tariffs to go into effect? Like, which outcome does he desire?

It is the contradiction of this entire process, what you just laid out, because they want things that run into each other. They want revenues, but they want deals. If you're gonna take the tariffs off, you're not gonna get the revenues that you thought you were going to get. They want to completely reorient global trade, but they want deals. They want to bring all manufacturing back to the United States, but if you open your markets to us, maybe we'll just make a deal. And so these things are in conflict on some level. But I think that's why it's been difficult for Wall Street to figure out, it's like talking to diplomatic officials who are involved or briefed on these conversations from any number of different foreign capitals is like, they've been pulling their hair out for three months.

And then you heard, obviously, and you saw the president's reaction to this when he was asked about this, about how folks on Wall Street have this term, "TACO," Trump Always Chickens Out. He obviously didn't take kindly to that and didn't seem well briefed on it. But is that also priced in and baked in? I mean, so do people look at July 9th as some real deadline here, or do they just say, no, that's the next time that Trump is gonna chicken out?

'Yeah, this was actually exactly what I was referring to in terms of your very good point, which was this was a good call with the largest trading partner here, should markets be soaring? And I said, no, I think it's priced in because of this, this idea, this acronym that has caught on. There's always kind of an acronym on Wall Street. Most of the time they start in jest, including this one. This was from an amazing Financial Times columnist who writes Unhedged, it's a newsletter. And on May 2nd, he was talking about Trump's willingness to kind of maximalist in his threats, quickly willing to back down if he feels like he's making progress, and he termed "TACO," Trump Always Chickens Out. It is a strategy of don't freak out when he drops the 50% tariff threat on the EU and gives them a week to do it, wait and hold if you're a trader, because he's eventually going to come back, and you don't want to get caught having sold everything. And it became a thing on Wall Street. Everybody I started talking to by the third week of May was utilizing it, was talking about it. Finance Twitter, finance podcasts – those are real things; they're actually quite funny – were constantly talking about it. And then the CNBC reporter raised it in the Oval Office, and Trump, Alayna Treene and I reported out that Trump actually, the reason why I got so mad, and you could see it, is he thought the reporter was calling him a chicken. And then he was subsequently really mad at his staff because the staff hadn't told him that this thing existed. And a very senior advisor I was talking to about all this, who I've known for a long time is in the econ space was trying to explain, and I tend to agree based on my understanding of things, there's nuance to it. And that seems crazy given how he operates, but it's a negotiating strategy. It's not that he's chickening out necessarily, but like when he threatened 50% EU tariffs in a week, he never was going to do 50% EU tariffs in a week. Now, the 10% baseline tariff that they put on all US imports, which, by the way, is dramatically higher than anything we've had in 80 years as a country, that was always real. That's part of kind of the broader reorientation of global trade. And so what's hard is identifying which is a threat, which is a negotiating strategy, and which is part of kind of his broader economic policy. I think you can kind of see it sometimes. I feel like I have a better sense of it just because I've covered it and talk about this stuff all the time. But from a market perspective, the risk here is that you just assume everything is TACO. It's not black and white. It's non-simplistic. Kevin Hassett once wrote in his book, like, people miss the forest for the trees here. Sometimes it's a leverage game. Sometimes it is a long-term play. Sometimes he doesn't know what it is at the time. He just wants to shake things up. And when those are kind of the operating theories, and they're all happening at once in the same guy's head, it is understandably difficult to kind of nail down with certainty what's coming next.

Is it fair to say we are still in the midst of this trade war and that how it ends is not really clear in sight?

I think we're in the eye of a hurricane.

Yeah.

'And I think that, to the extent there's complacency about what's ahead, it's at their own risk. And I think that's if you talk to smart business leaders who have good government relations teams who pay close attention, who talk to the White House, they will not like, no big firm, no big multinational is doing new investments, major new investments. You're not seeing a lot of mergers and acquisitions. Like nobody's deploying capital right now. And they won't until this is all over. Now, I talked to one banker the other day and said, you know, a lot of firms right now, they're saying we can't wait anymore. We're just gonna price in 10 to 15% somewhere in there. That's like the best kind of middle ground, but they don't know. So I think, you know buckle up again, with the possibility that like everything kind of deescalates and people just get used to a 10% tariff with sector-specific tariffs, which I think is probably the underpinning of the real economic strategy. But if you think that's all it's gonna be, and you're willing to put money on that, like God bless you, man.

Phil Mattingly, thanks so much for your time and your expertise. I really appreciate it.

You got it. Thanks man

That's it for this week's edition of the CNN Political Briefing. Remember, you can reach out to us with your questions about Trump's new administration. Our contact information is in the show notes. CNN Political Briefing is a production of CNN Audio. This episode was produced by Emily Williams. Dan Dzula is our technical director and Steve Lickteig is the executive producer of CNN Audio. Support from Alex Manasseri, Robert Mathers, Jon Dianora, Leni Steinhardt, Jamus Andrest, Nichole Pesaru, and Lisa Namerow. We'll be back with a new episode next Friday. Thanks so much for listening.