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International relations

White House brings in another China hawk in Kudlow

Playing it cool, Beijing calls for resolution through dialogue

WASHINGTON/BEIJING -- U.S. President Donald Trump has chosen Larry Kudlow, a vocal critic of China's trade policies and intellectual property violations, as his top economic adviser, in yet another sign that the White House is pursuing a harder line on Beijing.

China, meanwhile, has refrained from hitting back and is focusing on avoiding any further escalation by calling for talks.

Gary Cohn announced his resignation as director of the National Economic Council on March 6 following Trump's decision to impose sweeping import tariffs on steel and aluminum. Trump named Kudlow as Cohn's successor in a statement on Twitter on Thursday. Kudlow is a media analyst and economist, who served as an associate director of the Office of Management and Budget under President Ronald Reagan in the 1980s.

Kudlow said in a televised interview on Wednesday with CNBC, where he worked as a commentator, that he had accepted the position.

"China needs a comeuppance on trade," he said, arguing that the country has not followed rules on intellectual property rights and corporate technologies. He also supported imposing retaliatory tariffs on Chinese products.

Known as a free trade advocate, Kudlow was originally opposed to the steel and aluminum tariffs. But he shifted his stance after Trump decided to exclude Canada and Mexico. On Wednesday, he praised Reagan's approach to trade, and voiced support for a tougher foreign policy on economic issues.

Kudlow said he had been in close contact with White House trade adviser Peter Navarro, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, all of whom he called friends.

Ross and Navarro were behind some of Trump's more aggressive campaign promises, such as imposing a 45% tariff on Chinese products. Navarro is known for his hostile stance on China and even directed his own documentary, "Death by China." He is now a rising force in the White House, and is taking the lead on the steel and aluminum tariffs as head of the Office of Trade and Manufacturing Policy.

Peter Navarro attends a 2012 screening of his documentary "Death by China" in New York City.   © Getty Images

Kudlow has joined a White House that is increasingly occupied by China hawks. Trump recently named CIA Director Mike Pompeo, who is known for his tough stance on China, to replace Rex Tillerson as secretary of state.

Even before Kudlow's appointment, the Trump administration had been ratcheting up the pressure on Beijing on trade. U.S. officials are said to have urged China to work toward reducing its trade surplus with the U.S., seizing an opportunity during a recent visit to the U.S. by Liu He, a top economic adviser to Chinese President Xi Jinping.

Trump is now considering imposing tariffs on $60 billion worth of Chinese products. But the measure could ultimately mean higher prices for American consumers and weigh down the American economy.

Investors are alarmed by the trade tension between the world's two largest economies. The Dow Jones Industrial Average fell for a third day on Wednesday, dropping 248 points. Boeing, which relies heavily on exports to China, sank more than 2% on concerns of retaliatory measures by China. Given that China is the biggest foreign holder of U.S. Treasurys, further friction could impact both the bond and currency markets as well.

Beijing is keeping a low profile for now, since a full-out trade war with the U.S. would be a heavy blow to its export-reliant economy.

"Looking back at the past 40 years, China and the U.S. have been able to properly and constructively manage trade frictions," Chinese Foreign Ministry spokesman Lu Kang told reporters Thursday. "Today, we still believe that China and the U.S. can resolve their differences through friendly consultations."

Chinese Commerce Minister Zhong Shan on Sunday said that the U.S. overestimates its trade deficit with China by about 20%. Last year, China reported a roughly $280 billion trade surplus with the U.S., while the U.S. declared a roughly $380 billion trade deficit with China. The comment was likely a response to Washington's calls for China to cut its trade deficit with the U.S. by $100 billion.

It is unclear why the two figures differ so dramatically. Zhong said that experts from both governments formed a joint working group to track and compare the two countries' figures, a comment seen as an attempt to imply that Washington also acknowledges the statistical discrepancies.

Zhong also said the U.S. deficit would fall by 35% if the country relaxed restrictions on high-tech exports to China, placing part of the blame for the trade friction on Washington.

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