Kudlow Says Nafta Deal Is Test of Trump Trade Cooperation

(Bloomberg) -- White House economic adviser Larry Kudlow said an agreement on a new North American Free Trade Agreement would demonstrate the U.S. can avoid a trade conflict with China.

President Donald Trump doesn’t want “a trade war, I don’t want a trade war, I don’t expect one. I think this is all going to get resolved, I really believe, over time,” Kudlow said at an event in Washington on Tuesday. “The first step here is Nafta. I think if we can get a deal on renewing Nafta and changing Nafta to our liking, that really would be a very good kind of foundation to move on.”

Nafta negotiators at the senior political level have been racing to wrap up a deal, with Canadian Prime Minister Justin Trudeau and Trump discussing the possibility of reaching a quick conclusion during a phone call on Monday, according to Trudeau’s office. House Speaker Paul Ryan increased the time pressure for negotiators last week by saying he’d need to be notified about a deal by May 17 to give the current Congress an opportunity to approve it.

Mexican Economy Minister Ildefonso Guajardo said on Tuesday said that he doesn’t think a pact will be secured this week, which may push talks into later this year. Campaigning is gathering pace before Mexico elects a new president on July 1, which could make the talks more politically complicated.

“The possibility that from here to Thursday we have the full negotiation is not easy, we do not believe that it will happen from here to Thursday," Guajardo told Televisa network.

China Trip

Speaking at an event hosted by Axios, Kudlow said he saw the odds of the U.S., Canada and Mexico agreeing on a new Nafta deal at a slim 51-49. “I don’t want to play anyone’s hand,” said Kudlow. “They are working very hard.”

The Nafta talks are competing in a long list of Trump administration priorities. The White House is increasingly preoccupied with its efforts to reach a peace deal with North Korea and avoid a trade war with China. Vice Premier Liu He -- who is President Xi Jinping’s top aide for economic matters -- will be in Washington this week for talks with the administration on ways to resolve the trade dispute between the two countries.

Kudlow, who was part of a delegation led by Treasury Secretary Steven Mnuchin that visited Beijing from May 3-4, said the world’s two-biggest economies can probably avoid a trade war and even move toward an agreement “very soon.” The question is whether that deal will be adequate for Trump to back down from his threat of taking a much harder line on China including through tariffs, he said.

ZTE Case

Kudlow said the U.S.’s re-examination of sanctions against ZTE Corp. isn’t intended to let the Chinese mobile phone-maker escape a penalty. He echoed Commerce Secretary Wilbur Ross from a day earlier describing the ZTE matter as an “enforcement issue” that’s separate from the wider conversation over trade.

“I think the issue here is how harsh the remedies, how harsh the enforcement,” said Kudlow. “The issue is to not simply to let them off, but perhaps to do so in a manner that they could conceivably go back into business.”

Trump at the weekend ordered the Commerce Department to re-examine U.S. penalties against ZTE for breaking sanctions law. The president’s policy reversal and concern with Chinese jobs drew criticism from members of Congress, including from his own party.

Kevin Brady, the Republican chairman of the House Ways and Means Committee that has oversight over trade issues, told reporters in Washington on Tuesday that he can’t predict if a Nafta agreement will come together in the next few days.

“I don’t know if they are close enough to close it out,” Brady said. “The final weeks of any trade agreement, there is just a lot of work.” He also cited May 17 as “pretty close” to the deadline to present a new Nafta deal that could clear the hurdles for approval by Congress this year.

To contact the reporters on this story: Toluse Olorunnipa in Washington at tolorunnipa@bloomberg.net, Jenny Leonard in Washington at jleonard67@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alex Wayne at awayne3@bloomberg.net, Sarah McGregor

©2018 Bloomberg L.P.