Trump Adviser Kudlow Says ‘Calmer Heads’ Can Prevail in China Trade Dispute

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WASHINGTON—President

Donald Trump’s

top economic adviser said Friday he is optimistic the U.S. can avoid a broader trade fight with China and said the White House was close to securing a renegotiation of the North American Free Trade Agreement with Canada and Mexico.

Lawrence Kudlow, the director of the White House National Economic Council, said Mr. Trump’s trade dispute with China is “high risk, high return,” in an interview. He acknowledged he wasn’t sure how the standoff would end, but said he believed “calmer heads would prevail.”

“I’m going to stay bullish on this,” he said. “I hope it works out. I believe it can work out.”

Mr. Kudlow is a former Wall Street economist and television commentator who has completed his second week in the job. He developed close ties with President Donald Trump during the 2016 presidential campaign, though the two don’t always see eye-to-eye. Mr. Kudlow has long been a free trade supporter, while Mr. Trump has vowed to crack down on trading partners that he says treat the U.S. unfairly.

Mr. Kudlow said he was disappointed the White House’s trade actions had been criticized by policy makers and business leaders in the U.S. and abroad because a more aggressive stance against China was long overdue. He accused Beijing of stealing U.S. technology and intellectual property and said those practices needed to stop.

“We cannot let them keep doing this. They’re stealing stuff over there, and they’re trying to steal stuff over here. It cannot go on,” he said.

China’s trade surplus with the U.S. reached $58.25 billion in the first quarter, up 19.4% compared with the same period a year ago, according to data released by China on Friday. The rising imbalance could add fuel to the trade dispute amid Trump administration criticism of Beijing for what it says are policies that hinder access to China’s market.

But Mr. Kudlow said he had turned optimistic in part because Chinese President

Xi Jinping

in a speech earlier this week promised greater access for foreign companies to China’s financial and manufacturing sectors.

Even though Mr. Xi has made similar conciliatory overtures in the past, Mr. Kudlow said, “he never said them in this context” of increasing trade tensions. The speech “was a very important event because they had been trashing us mercilessly,” he said.

“It kind of cleared the air, it looks like,” he added.

Mr. Kudlow also said he supported a currency policy that keeps the U.S. dollar stable. The dollar could be a trade weapon for the U.S., which could seek to weaken it to make exports less expensive. But Mr. Kudlow, long a supporter of a strong currency, wasn’t behind such a policy. “Keep the currency steady. Keep the dollar steady. It doesn’t have to go up 20% or down 20%,” he said.

International affairs are dominating the agenda early in his tenure.

Mr. Trump tasked Mr. Kudlow on Thursday with revisiting U.S. participation in the Trans-Pacific Partnership. In January 2017, Mr. Trump withdrew the U.S. from the 11-nation trade pact that Washington had forged over the prior two presidential administrations.

Mr. Kudlow said it was too soon to say how long that process would take and what might come out of it. “I just got the assignment yesterday. He hasn’t indicated yes, no, nothing. He just wants to take a look at it,” said Mr. Kudlow.

On renegotiation of Nafta, Mr. Kudlow said the administration is “making progress” and added, “hopefully, we’ll have some positive announcements in the near future.”

Mr. Kudlow said he wasn’t concerned about the so-called twin deficits the U.S. is running in trade and on the federal budget. Many economists argue the two are linked—as budget deficits rise, the U.S. becomes more dependent on foreign capital. Mr. Trump’s economic adviser didn’t see a link. “I’d be prepared to argue there’s not much of an impact,” he said. “The correlation between the two is very weak.”

The economic adviser also said he wasn’t worried recent changes to boost government spending and to cut taxes could lead the economy into a boom-bust cycle that wasn’t sustainable.

Some officials at the Federal Reserve, for example, have said they are watching to make sure that, with the unemployment rate falling to a historically low level, inflation pressures or financial imbalances don’t threaten the economic expansion.

Mr. Kudlow played down the risk that the economy might overheat. “Actually, that’d be a great problem to have…I don’t believe in overheating, but we’ve been underheating now for 20 years,” he said.

Mr. Kudlow worked as a top budget aide in the Reagan administration in between stints as a Wall Street economist in the 1980s and 1990s. He has been an economic commentator for the past two decades on various television and radio programs.

He said he was still adjusting to his new role in the government. “I’ve learned this is a larger job than I thought,” he said in an interview in his West Wing office Friday. “Almost all the jobs I’ve had down through the years I never really was prepared. I had to grow into them.”

Mr. Kudlow said he met earlier this month with Fed Chairman

Jerome Powell

but declined to elaborate on their discussion.

Mr. Kudlow said he has already been a part of several “healthy arguments” inside the White House and joked that he had outlasted

Anthony Scaramucci,

who was fired as White House communications director after just 10 days.

“You read this stuff about how he likes disagreement—it’s true,” Mr. Kudlow said of the president. “A lot of presidents don’t in either party.”

Mr. Kudlow said he has been struck by what he said was the president’s efficient decision-making process, saying Mr. Trump encouraged debates but then made quick verdicts.

“He’ll hear all the arguments, and it may take a little while, but then—boom—that’s it,” Mr. Kudlow said about Mr. Trump’s decision-making. “Once the decision is made, it’s made.”

Write to Nick Timiraos at nick.timiraos@wsj.com and Michael C. Bender at Mike.Bender@wsj.com



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