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Kudlow: Trump-Xi 'bromance' could lead to a China trade deal

  • Larry Kudlow, director of the National Economic Council, continues to believe the U.S. and China can avoid a trade war.
  • However, he said China has been acting like a "third-world nation" as it has continually violated World Trade Organization rules.
  • He expressed hope that the "bromance" between President Donald Trump and China's President Xi Jinping will help bridge the gap.
Larry Kudlow
Scott Mlyn | CNBC
Larry Kudlow

Chief White House economic advisor Larry Kudlow believes the U.S. and China can avoid a trade war despite a multitude of issues continuing to split the two nations.

As one of the administration's most ardent free trade supporters, Kudlow has been pushing for an agreement that can eschew heavy tariffs that the financial markets have been fearing.

However, he said China has a long way to go before a deal can be reached.

"China has got to reform its system," Kudlow, head of the National Economic Council, said Tuesday in an interview with Axios. "They've been breaking [World Trade Organization] rules for years on this stuff. They've been behaving like a third-world country."

One of the pillars for his hopes rests on the relationship between President Donald Trump and China's Xi Jinping.

"I think there's a little bit of a bromance between President Trump and president for life Xi," Kudlow said. "Where this leads I don't know. It might even lead to a trade deal, which would make me very happy."

Kudlow also addressed a related issue — the controversy over Chinese telecom company ZTE, which itself has run afoul of global regulations on multiple occasions. Trump tweeted over the weekend that he and Xi have been working on giving a break to ZTE from U.S. sanctions.

However, Kudlow said the ZTE situation is independent of the broader negotiations with China, calling it "principally an enforcement issue. It's divorced from the trade story."

He said there are "gradations" involved in the ZTE case in which the U.S. is trying to find a way to keep the company, which is a major employer, in business.