We don't have fair trade, we have rigged trade: Former Bush economic advisor Lindsey

Key Points
  • The tariff talk out of Washington is not an escalation of a trade war, Larry Lindsey says.
  • Instead, he says, it is about correcting lopsided policies.
Larry Lindsey: We don't have free trade, we have rigged trade

The tariff talk out of Washington is not an escalation of a trade war, it is about correcting lopsided policies, said Larry Lindsey, who served a top economic advisor to President George W. Bush.

President Donald Trump recently announced tariffs of 25 percent on steel and 10 percent on aluminum.

And on Tuesday, a source told CNBC the White House is considering a trade package including indefinite tariffs, investment restrictions and possible visa restrictions on Chinese travelers in response to China's alleged intellectual property theft.

"We don't have free trade. We have rigged trade," Lindsey said on CNBC's "Power Lunch" Thursday.

China, in particular, manipulates "all the rules," including "stealing our intellectual property here through corporate espionage," added Lindsey, who served as director of the National Economic Council under Bush.

"We have to have some balance here. I really don't think any reasonable person thinks China is playing fair."

Larry Kudlow, who was just appointed by Trump to replace Gary Cohn as director of the NEC, is a longtime advocate of free trade. While he initially criticized Trump's tariff decision, he told CNBC on Wednesday he softened his position when he saw that the White House offered Canada and Mexico exemptions, as well as other countries willing to negotiate more U.S.–friendly trade positions.

However, he said, China has earned a tough response.

"A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they're breaking the rules left and right," Kudlow said on "Closing Bell."

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The recent rhetoric coming from the Trump administration has some concerned about a possible trade war. However, Lindsey downplayed that risk.

"Trade wars can always happen. Some might maintain that China's now conducting a trade war against the United States already," said Lindsey, who worked with Kudlow during the Reagan administration when he was an economist and Kudlow was economic director for the Office of Management and Budget.

"I don't think this is an escalation of a war. I don't think it's going to get out of hand," he added, noting that the Chinese "have more to lose than we do."

— CNBC's Jeff Cox contributed to this report.