Fox Business host Larry Kudlow pushed back Friday against the idea that trade deficits are inherently harmful.
During an appearance on “The Bottom Line,” Kudlow said that economic growth, not trade balances, should be the primary focus of U.S. policy. Kudlow said he spent years trying to convince President Donald Trump that the trade deficit is not a reliable indicator of economic weakness.
“No, I’ve never liked that logic. And I’ve tried for more or less 10 years to persuade President Trump that the trade deficit is, look, if America grows like it did under Reagan and like it did in Trump’s first term, if these tax cuts go through and deregulation goes through, we’re going to start growing again at 3% plus, OK?” Kudlow said when asked whether it made sense to continue using trade deficits to justify high tariffs.
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Kudlow said such growth would naturally expand the trade deficit, but he dismissed that as a concern.
“We’d be the fastest growing economy in the world by far, OK? But that means because of our size and the velocity of our growth that we’re going to be importing consumer goods. We’re going to be importing capital goods, business goods, as there’s no way around it. The deficit’s going to get larger,” Kudlow said.
Kudlow said foreign investors use those dollars to buy U.S. bonds or invest directly in the American economy by building factories, taking advantage of low tax rates and immediately expensing write-offs.
“The cash, the dollars that go out come back in. They recirculate in. You’ll have a capital surplus even while you have a trade deficit,” Kudlow said. “They’re financing our bonds, for example, or they’ll be using the cash to build factories and get a very low tax rate and then immediate expensing write-offs.”
While Kudlow said he failed in changing Trump’s mind, he also said he agreed with Trump pushing for market access and reciprocal trade.
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“I’ve always failed on that score. So, I agree with Trump about market opening, OK? And I think his reciprocity idea, his first rate, you know, I think at his heart and soul and core, he is a free trader. He wants to use reciprocity,” Kudlow said.
During his “Liberation Day” announcement in April, Trump unveiled plans to impose a 10% baseline tariff on most countries, with higher rates targeting those that maintain steep tariffs on American goods. However, he quickly issued a 90-day pause on the new tariffs, excluding those aimed at China, which he accused of retaliating against the United States.
On April 30, the Senate narrowly failed to pass the Trade Review Act of 2025 in a 49-49 vote, falling short of the majority needed to limit Trump’s tariff authority. The bipartisan bill, introduced by Republican Iowa Sen. Chuck Grassley and Democratic Washington Sen. Maria Cantwell, would have required congressional approval for new tariffs through a simple majority vote within 60 days of implementation.
Weeks later, a federal appeals court temporarily halted a lower court ruling that had blocked Trump’s tariff plan. The U.S. Court of International Trade had struck down both his proposed reciprocal tariffs and earlier duties on China, Mexico, and Canada, saying he improperly invoked emergency powers.
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First published by the Daily Caller News Foundation.
