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Economic analyst Lawrence "Larry" Kudlow appears on CNBC at the New York Stock Exchange, (NYSE) in New York, U.S., March 7, 2018.
Reuters/Brendan McDermid
It’s too late.
SOUNDS FAMILIAR

Trump’s new economic adviser has a way to contain China—and it’s a plan Trump’s already abandoned

Zheping Huang
By Zheping Huang

Reporter

Donald Trump and his new economic adviser are already disagreeing over how to get tough on China.

The White House said this week that it has asked China to cut its trade surplus with the US by $100 billion, without specifying how. Multiple reports also said that Trump is preparing to place tariffs on at least $30 billion worth of annual Chinese imports, along with other punitive measures expected to be released as soon as next week.

But as much as Larry Kudlow, who replaces the recently departed Gary Cohn as head of the National Economic Council, likes to agree with his boss’s harsh stance, he has a different approach on trade with China. In his first public remarks after his nomination was announced yesterday (March 15), Kudlow, a 70-year-old television pundit, told CNBC that although he is not a fan of tariffs, he thinks “China has earned a tough response not only from the United States.” He went on to detail his plan:

A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they’re breaking the rules left and right… That’s the way I’d like to see. You call it a sort of a trade coalition of the willing.

Throughout his career as an economic commentator, Kudlow has been known for being in favor of tax cuts and free trade. Cohn resigned from his position last week after clashing with Trump over his plan to impose blanket tariffs on steel and aluminum imports from countries except US allies like Mexico and Canada.

Yet Kudlow’s “trade coalition of the willing” is exactly the plan that Trump had abolished at the start of his presidency. The Trans-Pacific Partnership, or TPP, was a US-led trade agreement that includes 12 countries around the Pacific Rim, who together account for about 40% of the world’s GDP, but excludes China. Just three days after his inauguration, Trump, who had argued that the TPP could harm American manufacturing, pulled the US out of the trade deal, just as he promised on the campaign trail.

The TPP requires members to commit to heightened standards in areas like labor law, environmental protection, and intellectual property (IP), in addition to lowering tariffs. Former US president Barack Obama framed the TPP, one of his signature foreign-policy initiatives, as an effort to set free-trade standards in Asia ahead of China. If China were to join the partnership, it would have to crack down on all the things Trump has complained about, from dumping to stealing American IP.

A revised version of the TPP was signed by 11 nations this month. Meanwhile, China continues to advocate for an alternative regional trade-pact, excluding the US, that wouldn’t require it to adjust its trade practices. 

It remains unclear to what extent Kudlow’s views will influence Trump, particularly as another trade adviser, Peter Navarro—seen by many China specialists as a protectionist extremist stuck in the 1980s—is now one of the strongest voices on trade in the White House. What’s almost certain is that Trump’s preferred way of reining in China on trade paves the way for a full-blown trade war that would eventually hurt American businesses.

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