An escalating trade war could wipe out the benefits of the Republican tax law passed last fall, President Donald Trump's former top economic adviser said Thursday.
Gary Cohn, who served as Trump's director of the National Economic Council, said that retaliatory tariffs between countries could drive up inflation and prompt American consumers to take on more debt, possibly pushing the country into another economic downturn.
"If you end up with a tariff battle, you will end up with price inflation, and you could end up with consumer debt," Cohn, a former Goldman Sachs executive, said at a Washington Post event. "Those are all historic ingredients for an economic slowdown"
Asked if the trade battle could erase the gains to the American economy from the tax law, Cohn said: "Yes, it could."
Cohn announced his resignation from the White House in March amid disagreements with Trump on trade, as the president planned to pivot toward protectionist trade policy. The administration has since imposed steel and aluminum tariffs on some of America's top trading partners, including close allies Mexico, the European Union and Canada. These countries have vowed to retaliate with tariffs on U.S. imports, sparking fears of a broader trade war and leading to a dramatic confrontation between world leaders at the Group of 7 summit earlier this month.
Cohn reiterated his disagreement with the administration's current approach on Thursday, arguing that America should not worry about its trade deficit with foreign countries. Trump has cited the trade deficit as a driving rationale behind his decision to impose tariffs.
"I have always said the trade deficit doesn't matter," Cohn said. "In many respects, it's helpful for our economy."
Cohn also touted the GOP tax law, arguing that it would take time for the cuts to spur higher wages for American workers.
Wages have barely kept pace with inflation, despite strong economic growth and low unemployment. Cohn predicted the dramatic cut to corporate tax rate from 35 percent to 21 percent would translate into stronger business investment and, eventually, fatter paychecks for workers.