Here's what the National Economic Council director does — and what that means for Larry Kudlow

Key Points
  • The role of National Economic Council director was created during the Clinton administration.
  • Every administration since has seen more than one NEC director come and go, with the first usually being the most influential.
  • But with President Trump championing a pro-business message, Kudlow's new job may be as powerful and consequential as it has ever been.
Larry Kudlow is the new National Economic Council director. But what exactly does that title mean?

President Donald Trump's new top economic advisor could end up in the spotlight a lot more than most of his predecessors in the role.

Trump has appointed longtime CNBC contributor Larry Kudlow as the director of the National Economic Council. Kudlow replaces Gary Cohn, the former Goldman Sachs executive who resigned last week shortly after Trump announced a tariff plan on steel and aluminum imports.

Kudlow, who has spent more than two decades as a television pundit, served in President Ronald Reagan's administration in the 1980s. Kudlow has also already supported Trump's political ambitions extensively. He was early to endorse Trump's presidential campaign during the Republican primary in 2016 and served as an informal advisor.

Larry Kudlow
Scott Mlyn | CNBC

The role he now fills has held considerable sway in the White House since its creation during the Clinton administration. President Bill Clinton created the National Economic Council through executive order in 1993. It was designed to serve four principal functions:

  • Craft economic policy, for both domestic and international issues
  • Advise the president on economic matters
  • Ensure that all policy and programs are consistent with the president's economic goals
  • Oversee the implementation of the president's economic agenda
President Donald Trump shakes hands with Gary Cohn, Director of the National Economic Council, during a retreat with Republican lawmakers and members of his Cabinet at Camp David in Thurmont, Maryland, January 6, 2018.
Saul Loeb | AFP | Getty Images

The council boasts a handful of high-ranking Cabinet members, including the secretaries of state, commerce and labor. Kudlow's official title is actually "assistant to the president for economic policy" — though it's usually shortened to "director." According to an official description of the job, the NEC director "works in conjunction with these officials to coordinate and implement the President's economic policy objectives."

Every White House administration, from Clinton through Trump, has seen more than one NEC assistant come and go. Clinton and President Barack Obama both had three; President George W. Bush had four.

In that sense, Trump is keeping very much in line with executive precedent. But there's at least one way in which Kudlow could represent a major inflection point in the traditional role of the second NEC director: power.

A legacy of primacy

President Bill Clinton (L) talks about former Treasury Secretary Robert Rubin (R) at the unveiling ceremony of Rubin's official portrait in the halls of the Treasury Department 27 June, 2000.
Tim Sloan | AFP | Getty Images

In each of the three administrations that preceded Trump, the first-appointed NEC director played a major role in defining the president's economic agenda and laid the groundwork upon which policy was built.

Robert Rubin, the first-ever NEC director, steered Clinton toward confronting the burgeoning budget deficits that his administration inherited and was instrumental in shepherding the U.S. budget from deficit to surplus by the time Clinton left office, according to a 2016 profile in Fortune. Rubin became the secretary of the Treasury under Clinton after leaving the NEC in 1995.

The younger Bush's first NEC director, Larry Lindsey, is known as an architect of sweeping $1.35 trillion tax cuts signed into law in 2001. Lindsey's successor in 2002, Steve Friedman, followed the path set by Lindsey and oversaw another massive tax cut in 2003.

President-elect George W. Bush (R) and newly named White House economic advisor Larry Lindsey (L) share a laugh at an economic forum 03 January, 2001.
Stan Honda | AFP | Getty Images

Obama's first NEC director, former Treasury Secretary Larry Summers, played a pivotal role in the economic policy direction pursued by the administration. He challenged Fed Chair Paul Volcker's influence over the White House, cutting the central bank leader out of some policy meetings in the wake of the 2008 economic crisis. With Summers at its head, the NEC organized a web of policies intended to help lift the U.S. out of recession.

Rubin, Lindsey and Summers did not immediately respond to CNBC's request for comment.

Lawrence (Larry) Summers, Director of the National Economic Council, listens as President Elect Barack Obama announces his new economic team at a news conference in Chicago.
Ralf-Finn Hestoft | Corbis | Getty Images

In Trump's White House, Cohn struggled to contain the president's populist proclivities.

Cohn, a Wall Street darling and a proponent of free trade policies, was a huge driver of Trump's signature achievement, a large tax-cuts package the president signed in December. Yet Cohn struggled to stop or at least diminish the tariff proposal Trump put forward this month. Trump sought to enact tariffs of 25 percent on steel and 10 percent on aluminum — a broader tariff policy than other modern presidents, who have generally imposed much more narrowly targeted taxes on select products from individual nations.

Facing significant pushback from Republicans in Congress, Trump eventually qualified his tariffs with exemptions for Mexico and Canada, as well as an option for affected countries to negotiate better deals. But it was too late for Cohn, who resigned before Trump could issue an official proclamation on the tariffs.

Free trade vs. friendship

Kudlow, too, has been a consistent advocate for free trade, and criticized Trump's tariff decision days before he was tapped to join the administration. He also lamented Cohn's departure.

Yet, Kudlow has built up more good will with Trump than Cohn reportedly ever had. Both Trump and Kudlow are longtime media personalities and personal friends. While Kudlow dislikes tariffs, he has shifted to a more Trump-friendly middle ground in recent weeks, arguing that China's trade practices do indeed deserve an economic retaliation.

Trump tweet Larry Kudlow will be my Chief Economic Advisor as Director of the National Economic Council. Our Country will have many years of Great Economic & Financial Success, with low taxes, unparalleled innovation, fair trade and an ever expanding labor force leading the way! #MAGA

And Kudlow is a big booster of Trump's tax cuts.

All this suggests that the role of NEC director is set to become more about politics than merely policy, economist Stephen Roach said on CNBC's "Squawk on the Street" on Thursday.

"This is an important function in the White House, and it's being turned into a job of political advocacy driven by an ideology rather than by an appreciation of these powerful forces at work," Roach said.

Trump's business-friendly White House has also put economic performance at the center of its messaging. Trump regularly touts the stock market's relatively steady gains over the first year of his administration, and periodically tweets out positive economic data.

Trump tweet JOBS, JOBS, JOBS! #MAGA

The patterns of recent history would suggest that Kudlow's follow-up act will be less tumultuous than Cohn's. But in Trump's White House, Kudlow is shaping up to be as visible in government as he has been on television.