Kudlow Backs Strong Dollar, Tough China Stance as Trump Adviser
Trump may pursue a second phase of tax overhaul to make cuts permanent, says incoming White House economic adviser.
(Bloomberg) -- Incoming White House economic adviser Larry Kudlow signaled that President Donald Trump would support a strong dollar, pursue a second phase of his tax overhaul to make cuts permanent and take a tougher line on trade with China.
Minutes after his appointment was announced, Kudlow, an economist and CNBC contributor, was on the network outlining his views on a range of economic fronts, starting with the dollar. In a rare departure for someone about to take a senior government job, he even offered a trading recommendation: “I would buy King Dollar and I would sell gold.”
He backed off previous criticism of Trump’s tariff plans, instead praising Trump’s skill as a negotiator and warning of potential new tariffs on European cars. He cited a source -- who he hinted was Trump -- telling him that Canadian Prime Minister Justin Trudeau “has been on the phone with the president” making concessions on Nafta negotiations “hand over fist.”
While White House officials traditionally avoid commenting on monetary policy for fear of encroaching on the Federal Reserve’s independence, Kudlow waded right in, urging the central bank not to “overdo it” in raising interest rates: “Growth is not inflationary. Just let it rip, for heaven’s sake.”
‘Wee Bit Stronger’
Kudlow spoke at length on the U.S. currency, including its appropriate valuation, saying he would like to see it "a wee bit stronger than it is currently, but stability is the key.” He said the president shares his views.
“A great country needs a strong currency, he knows that,” said Kudlow, after being chosen to replace Gary Cohn as director of the White House National Economic Council. "I have no reason to believe that President Trump opposes a sound and stable dollar.”
Kudlow, 70, is expected to provide a familiarity and loyalty to Trump as the president removes moderating and dissenting voices from his administration. The president, who cited differences over Iran when he fired Secretary of State Rex Tillerson on Tuesday, has tired of a senior staff that often opposed causes he championed as a candidate.
A television host and former Bear Stearns & Co. chief economist, Kudlow, who grew up in New Jersey, is seen as temperamentally and politically similar to the president. He’s also seen within the White House as having credibility on both Wall Street and in Washington, where he served as an adviser to President Ronald Reagan.
Taxes Phase Two
He said the administration will pursue a “phase two” of Trump’s tax overhaul, seeking to make tax cuts for individuals permanent. Making the tax changes permanent would add $500 billion to the budget deficit, while tripling the amount of economic growth, according to a paper earlier this month from two Harvard economists.
The next phase, Kudlow said, should include a lower capital gains rate -- and a rate that’s indexed for inflation. The top rate for long-term capital gains was left untouched at 20 percent.
Kudlow said he is “on board” with the duties Trump has imposed on steel and aluminum imports. He said he was encouraged by the president’s move to grant temporary waivers to allies including Canada and Mexico.
Trudeau, in an interview with Bloomberg TV’s Michael McKee in Regina, Saskatchewan, on Wednesday said in response to Kudlow’s remarks that he had "been consistent in standing up for Canadian interests."
"We’re getting the exemption on steel and aluminum," Trudeau said. "We’re continuing to stand up for ourselves at the Nafta table, because we know that getting a good deal for Canada also means getting a good deal for the United States and Mexico. And I’m not flinching on that.”
Comeuppance Needed
Kudlow also indicated the administration was readying a larger round of tariffs against Chinese imports. China has earned a “tough response” for not playing by the rules of trade, he said. “China needs a comeuppance on trade, I believe that," he added.
The comments were a shift for him. Earlier this month, he wrote a column for CNBC describing the president’s tariffs as “a regressive tax on low-income families.”
“Trump should also examine the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending,” Kudlow wrote in the March 3 column, which also included praise for other parts of the president’s economic agenda.
Cohn announced his departure last week after Trump moved forward with the metals tariffs -- a plan Cohn had vociferously opposed.
The president continued to highlight trade issues Wednesday. "We cannot keep a blind eye to the rampant unfair trade practices against our Country!" Trump tweeted.
Kudlow’s economic forecasts on CNBC and in a regular column in the past decade have sometimes been off the mark. In December 2007, the month the National Bureau of Economic Research later dated the start of the worst recession since the 1930s, he was arguing there was no recession and that the “Bush boom continues.”
Kudlow contended there was no housing bubble before U.S. housing prices crashed. And he warned in 2010 that former Federal Reserve Chair Janet Yellen would usher in a new era of higher inflation, while instead price gains have fallen short of the central bank’s 2 percent forecasts.
His best prediction has been that the stock market would go up if Trump were elected, contrary to many economists including Paul Krugman who predicted a decline.
Kudlow also clashed with Trump on his personal conduct. In 2016, when a tape surfaced before the election featuring Trump boasting about grabbing women’s genitals, Kudlow said he was “furious” and threatened to vote for Mike Pence as a write-in candidate.
--With assistance from Steve Matthews and Alexis Leondis
To contact the reporters on this story: Justin Sink in Washington at jsink1@bloomberg.net, Jennifer Jacobs in Washington at jjacobs68@bloomberg.net, Toluse Olorunnipa in Washington at tolorunnipa@bloomberg.net.
To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Mike Dorning, Joshua Gallu
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