Trump picks Kudlow

US President Donald Trump has announced that he will be replacing former chief economic advisor Gary Cohn with Larry Kudlow. Kudlow is a prominent conservative economic commentator for CNBC. He has also served at the Reagan White House.

Background

President Trump is known to have a protectionist outlook on trade. On the campaign trail, he promised tariffs against countries such as China, whom he blamed for loss of jobs. He also criticized “bad” trade deals and “unfair trade practices” against America. He said that other countries were "dumping vast amounts of steel all over the United States, which essentially is killing our steelworkers and steel companies”.

Since taking office, the president has withdrawn from the Trans-Pacific Partnership, and initiated the renegotiation of the North Atlantic Free Trade Agreement. In recent months, experts have begun sounding the alarm about an impending trade war between the US and China, the two largest economies in the world.

The US is highly reliant on steel imports. American steel production has fallen from 112m tons to 86.5m tons since 2000. Employment provided by the industry has fallen from 135,000 jobs to 83,600 jobs. Gary David Cohn is an American investment banker who is currently the Director of the National Economic Council and is chief economic advisor to President Trump. He was formerly the president and chief operating officer of Goldman Sachs from 2006 to 2017. At one point he was considered as one of the most prominent members of the Trump administration.

In recent weeks, Trump announced his intention to impose tariffs of 25% on imported steel and 10% on imported aluminium “for a long period of time”. The President cited “national security” in order to circumvent WTO commitments. Media reports stated that this move was against the counsel of many of his advisors including Cohn. Trump was also criticized openly by congressional leaders in his own party. However, Trump has remained steadfast in his original commitment.

Shortly after the tariffs were announced, Gary Cohn announced his intention to resign. His resignation is the latest in a series of high profile departures in recent weeks at the Trump White House. In a prepared statement, Cohn said, "It has been an honor to serve my country and enact pro-growth economic policies to benefit the American people, in particular the passage of historic tax reform. I am grateful to the President for giving me this opportunity and wish him and the Administration great success in the future.”

Analysis

Lawrence Kudlow is primarily known as a television commentator and an economic analyst. He has also written for newspapers on economic issues and has previously served in the government. He is probably best known for his CNBC show The Kudlow Report. He is a political and fiscal conservative who believes in lesser taxation.

President Trump has announced his intention of appointing Larry Kudlow as the next chief economic advisor to the White House. "I've known him and interviewed him for over 20 years. I'm very comfortable with him and I can't wait to start," Kudlow told CNBC. 

"Larry Kudlow was offered, and accepted, the position of Assistant to the President for Economic Policy and Director of the National Economic Council," White House press secretary Sarah Sanders said. "We will work to have an orderly transition and will keep everyone posted on the timing of him officially assuming the role."

Kudlow has shared a friendly equation with the president in the past. He served as an informal advisor to Trump during the 2016 election campaign. He has also spoken favourably of the tax cuts introduced by the current administration. However, he has been highly critical of the tariffs introduced by Trump.

“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 a National Review column “Tariffs Are Taxes” penned with co-authors Stephen Moore and Arthur Laffer on 3 March.

The authors continued: “We aren’t persuaded by the Trump administration’s claim that we need to impose these tariffs for national-security reasons. Despite stiff competition from imports, many specialty steel producers are doing just fine, and are actually exporting steel to Mexico and Canada.”

Trump has noted that he is still keen on Kudlow getting the job despite disagreements on issues. "We don't agree on everything, but in this case I think that's good," Trump said. "I want to have different opinions. We agree on most. He now has come around to believing in tariffs as a negotiating point."

Assessment

Our assessment is that the role of the chief economic advisor is a critical function to the US economy. This is the person who advises the president on economic issues and works to implement policy goals. A free-markets conservative, Kudlow is unlikely to agree with Trump’s “America First” agenda. If he also is forced out of the administration within the year, then it could destabilize the US economy and the current administration.