National Economic Council Director Larry Kudlow warned that the U.S. might have to resort to auto tariffs on Canada if a trade deal can’t be reached.
Kudlow, the top economic adviser to the White House, told CNBC that said he hoped Canada would look at successful trade negotiations between Mexico and the U.S. for inspiration as its own round of talks kicks off this week.
Kudlow also praised Monday's pact with Mexico. “I think this is big victory. It's a big victory for growth and prosperity, a big victory for cooperation, a big victory for free and fair trade," said Kudlow.
"We hope Canada is watching carefully at how successful negotiations can go," said Kudlow, who served as the Trump campaign's senior economic adviser. "We really would like a deal with them," the veteran financial guru and former Ronald Reagan adviser said.
Kudlow spoke just hours after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.
Auto stocks soared and financial markets firmed on the expectation that Canada would sign on to the deal by the end of the week and ease the economic uncertainty caused by U.S. President Donald Trump’s repeated threats that he would ditch the 1994 accord.
The political stakes are high for all three countries. Trump and Republicans in the U.S. Congress up for reelection in November want to ensure farmers and other voters whose jobs depend on trade with Canada and Mexico that the deal is sealed.
"If we can't get a good strong fair deal with Canada...the U.S. might have to resort to auto tariffs," Kudlow said, citing a threat the president has previously made.
"Hopefully Canada will cooperate and move the ball in our direction," said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
Kudlow was optimistic that eventually trade tensions with China could also be resolved.
“I think you have problems with the Chinese economy. Whether you're looking short term or long term. We've seen a big slump in China investment, China retail sales, China industrial production. I think money has been flowing out of China, I think capital has been flowing out of China because of economic weakness, because their state capitalist model doesn't work," Kudlow said.
"The U.S. is the hottest economy in the world. Our entrepreneurs, our large and small businesses, our workforce and our unemployment rate, we're crushing it right now," Kudlow said.
"Money is flowing to the place where it's treated most hospitably if China would take a look at some of the things we've been asking, they might have a more satisfactory response."
Material from Bloomberg and Reuters were used in this report.
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