Investors hope Trump’s new economy guru can tone down trade war talk
Investors are hoping Larry Kudlow, the CNBC commentator who is President Trump’s new top economic adviser, can emerge as a “moderating influence” and help the U.S. avoid a trade war.
Tariffs have emerged as a fresh risk to the 9-yearold bull market in stocks. The Dow Jones industrial average headed into Thursday’s trading session on a three-day losing streak amid trade worries but ended up snapping the multiday decline. Kudlow’s new role follows Trump’s move last week to slap tariffs on steel and aluminum imports into the U.S. and growing chatter that the president is set to impose similar taxes on an array of Chinese products entering America.
Kudlow — who backed Trump’s presidency and was an informal economic adviser during the campaign — is given high marks by investors for his free-trade views, his so-called “Street cred” with the financial community and the fact he’s a more moderate voice on trade than White House trade adviser Peter Navarro.
A disagreement over imposing steel tariffs caused Gary Cohn, who opposed them, to announce last week that he was vacating the post that Kudlow now steps into. Kudlow was also critical of Trump’s steel tariff plan, arguing that it would harm other American businesses that use the metal and also hurt consumers who would pay higher prices for goods.
If Trump continues his aggressive push toward his America First, protectionist policies, traders fear countries might retaliate by taxing U.S. imports to their markets, which could cause prices for goods around the globe to rise and hurt the economy.
“Kudlow’s appointment is fabulous for financial markets, since Larry is a known quantity and affable defender of Trump’s free-market capitalist agenda,” says Chuck Gabriel, president and political strategist at the financial firm Capital Alpha.
Still, Wall Street is not yet ready to conclude that the TV personality, who worked as an economist in President Ronald Reagan’s administration, can change Trump’s mind or policy views on trade.
“A happy result — Kudlow dissuading POTUS from protectionism — is hardly guaranteed,” Gabriel says.
Here’s why:
❚ Trump is Trump: The president makes his own
decisions, often on “gut instinct,” even after getting input from advisers who go against his views.
“The challenge for Kudlow ... is that the president is the ‘franchise player,’ and at the end of the day he calls nearly all the shots,” explains Tom Block, a Washington policy analyst for Fundstrat Global Advisors, a Wall Street research firm.
❚ Policy adviser or policy maker? Having the president’s ear and his respect is one thing. Getting him to agree with your policy prescriptions is quite another.
That’s why Wall Street will take a wait-and-see approach to find out how much influence Kudlow really has on policy.
“It remains to be seen whether Kudlow can step into the role of a virtual moderating influence in this administration,” says Mark Hamrick, senior economic analyst at Bankrate.com.
Investors should not rule out “occasional friction” and times when Kudlow, like other advisers and ones that have already departed the White House, may have to “defer” to Trump, Gabriel says.
Kudlow, in an interview Wednesday on CNBC, said once the president makes a final decision on economic policy, “my job is to execute the policy.”