Tensions between the world’s two largest economies have recently escalated following Trump’s decision last week to impose new tariffs of 10 percent on $300 billion of Chinese imports. The Chinese regime responded that it would retaliate.
Then, on Monday, Beijing let the yuan fall to below 7-per-U.S. dollar, prompting the U.S. Treasury Department to designate the country as a currency manipulator.
In a Wednesday interview with CNBC, Kudlow said that “things could change with respect to the tariffs.”
He added: “The president has said … if you make a good deal, or good progress on a deal, maybe he’ll be flexible on the tariffs. On the other hand, if there’s no progress on the deal. Then the tariffs might get worse. But he’s open to it, that’s really the key point.”
Kudlow said Trump was open to negotiations, which are next slated for September when a Chinese delegation will travel to Washington.
“He would like to make a deal. It has to be the right deal for the United States. We would much prefer a commercial transaction,” he said.
The advisor added that the economic burden of the tariffs is “falling almost 100 percent on China” due to the growing weakness of its economy.
“The American economy is in great shape. It’s booming, there is no inflation,” Kudlow said. “We’re in terrific shape. The Chinese, regrettably, are not.”
He added, “The Chinese economy is crumbling. It’s just not the powerhouse it was 20 years ago.”
Kudlow said that China’s economic indicators such as investment and retail sales have shown a “steady downdraft,” while “their GDP, which is probably inflated by several points, is coming in lower and lower.”
China posted GDP growth at 6.2 percent in the second-quarter, its slowest pace in 27 years. Meanwhile, Chinese stocks have also been falling, with the Shanghai composite index of stocks dropping more than 15 percent from its high in 2018. In contrast, the S&P 500 has risen almost 15 percent this year.
Companies are also moving their production out of China in order to avoid paying U.S. tariffs, Kudlow added. The United States currently has tariffs of 25 percent on $250 billion of Chinese goods.
“I think China is getting hurt significantly, much more than we are,” Kudlow said.
“The American economy is very strong. Theirs is not.”