By Charles Switzer
1:34am PDT, Apr 9, 2025
Kudlow Challenges Trade Deficit Logic on Air
During a Monday, April 7, segment on Fox Business, host
Larry Kudlow offered a pointed critique of the
Donald Trump administration's trade strategy while interviewing Treasury Secretary
Scott Bessent,
The Daily Beast reported.
Kudlow raised concerns about the administration's heavy reliance on trade deficits to justify its new "reciprocal tariffs" policy. Referring to a prior interview, he said, "I don't know if you heard
[Arthur] Laffer in the prior interview, but Art doesn't believe that the trade deficit should be a metric. I don't really either."
"Mr. Secretary, if you get the tax cuts — and I guess you're well on the way — you get your deregulation, these are all huge pro-growth items. The United States will grow faster than Japan. We will grow faster than almost anybody. Therefore, almost by definition, by growing faster than the rest of the world, we're always going to have a trade deficit," he continued.
Here are four key takeaways from their revealing exchange.
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Kudlow Pushes Back on Tariff Calculations
Larry Kudlow argued that using the trade deficit as a central figure in setting tariffs may not be wise, given how fast-growing economies often run deficits. "So I don't know why you'd want to use the trade deficit in a calculation for a reciprocal charge," he said.
He later pressed further, asking, "To apply this to the whole world on the basis of trade deficits, is that really the best, in your judgment? You've been around a long time, you've looked at these, you've done analysis. Is that really where we should be at?"
The second Donald Trump administration has reportedly used a formula centered around trade deficits to determine the size of new tariffs, dividing a country's deficit with the U.S. by its exports and then halving it. This method has drawn bipartisan criticism from economists and policy experts.
Bessent Defends the Administration's Economic Framework
In response, Scott Bessent defended the
logic behind the administration's policies, attributing trade deficits to multiple economic factors. "A trade deficit is the result of three things: The 'terms of trades,' the 'budget deficit' and the 'level of the dollar,'" he explained.
He emphasized that "we want a strong dollar," and claimed that bringing down the budget deficit could positively impact trade imbalances. He also pointed to "trade barriers" as a key issue.
"The real problem has been these barriers because what we are going to create in the U.S. through lower taxes, energy dominance and our deregulation, our rule of law is going to be we are the best place in the world to do business," Bessent said.
He concluded with optimism: "And we will continue to attract more and more industry here when these barriers come down. I am highly confident of that."
Trump Sends Mixed Signals on Tariff Permanence
While Scott Bessent described the
tariffs as a negotiation tactic aimed at removing trade obstacles, President Donald Trump suggested a less flexible approach during a press event the same day.
When asked about the administration's conflicting statements, Trump replied, "They could both be true." He elaborated, "There could be permanent tariffs and there could also be negotiations, because there are things that we need beyond tariffs."
Trump noted that "tariffs are very important," but emphasized that other tools are also in play when dealing with trade partners.
'We're Gonna Get Fair Deals'
Reaffirming his hardline approach, Donald Trump said the U.S. was prepared to walk away from unfavorable relationships altogether. "We're gonna get fair deals and good deals with every country, and if we don't, we're gonna have nothing to do with them and they're not gonna be allowed to participate in the United States."
His comments reflect an
ongoing tension within the administration between using tariffs as leverage and potentially making them permanent policy tools.
