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Larry Kudlow: Trump Knows NAFTA Withdrawal Would Doom Stocks

17 Jan

By Rob Williams, Newsmax

Larry Kudlow, the Reagan administration economist who also advised the Trump campaign, said President Donald Trump is reluctant to completely withdraw from the North American Free-Trade Agreement with Mexico and Canada because it would send the stock market into a tailspin.

“You’ll knock the stock market down. We’re too intertwined,” Kudlow said on business news channel CNBC. “There’s a potential blow up in the stock market if we leave NAFTA. We’re talking agriculture. We’re talking car parts. We’re talking trucking, transportation, energy.”

Trump pledged during his presidential campaign to get tough with countries like Mexico and China for luring away U.S. companies that sought cheaper labor, leaving shuttered factories and joblessness. The American middle class that had been the bedrock of the economy no longer included a majority of the adult population, according to a Pew Research Center study in 2015.

Trump also has been quick to tout how his policies of cutting taxes and regulation have boosted confidence and the stock market. He has sent tweets with each 1,000-point gain in the Dow Jones Industrial Average, the stock-market benchmark that includes big companies like Coca-Cola, Home Depot, McDonald’s and Walmart.

The Dow, which has gained 30 percent in the past 12 months, surged past the 26,000 mark this morning to set a record before reversing to close at 25,792.86.

Kudlow said he heard from sources in the White House that Trump is more likely to renegotiate the pact with Canada and Mexico, “as difficult as that’s going to be.” Trump has threatened to withdraw from NAFTA unless there are changes to make the deal better for the U.S.

The U.S. has to be cautious about being too aggressive with Mexico, especially as the country goes into elections this summer. Mexicans may end up electing a hard-left candidate to push back against Trump’s demands, such as for payment to build a border wall between the U.S. and Mexico.

Meanwhile, Kudlow sees other signs of significant improvement for the U.S. economy, especially in the area of business spending on factories and equipment.

Capital expenditures are “really important. Business equipment, whether you look at factory orders or whether you look at industrial production of business equipment,” Kudlow said. “They’ve really taken off in the past couple of quarters and have been responsible for most of the increase in GDP from around 2 percent to 3 percent.”

In addition, corporate profitability has improved, especially with a rebound in oil prices helping the energy industry.

“Profits have been increasing. We had a profits slump for almost two years, 2014 and 2015, but from the middle of 2016 up to now, profits have rebounded and have vastly outperformed what everybody was looking for,” Kudlow said. “What Mr. Trump has been doing with respect to lower business taxes and the rollback of regulations is to increase the outlook for profits, which increases the outlook for business strength, which the goes right down the line: employment, productivity, wages and so forth.”

He pointed to the “hundreds” of companies that have announced special bonuses and wage hikes since tax cuts took effect as a sign that Trump’s tax plan was putting money back into the pockets of U.S. workers.