The United States is heading to a “massive trade war” because President Donald Trump “doesn’t know what he’s doing,” said former Reagan budget director David Stockman.
“We have an absurd policy — dangerous, stupid. The worst that I’ve seen since my whole career started in 1970 under [President Richard] Nixon, and he did some crazy things,” Stockman said Tuesday on CNBC’s “Closing Bell."
He believes it will get "out of hand" because the global trade system is so complex that "no one knows all the ins and outs."
“You can’t stop it once it gets started,” said Stockman, who was director of the Office of Management and Budget during President Ronald Reagan's administration.
Trade rhetoric has been escalating between the U.S. and the rest of the world, including key American allies.
The latest moves came last Friday, when the Trump administration’s tariffs on $34 billion worth of Chinese goods took effect. China then fired back with retaliatory tariffs on $34 billion worth of U.S. goods, including soybeans and pork.
Trump has repeatedly complained the U.S. has been “ripped off” by other countries for decades, citing trade deficits. China, for example, exports far more to the U.S. than the U.S. exports to China, resulting in Beijing’s trade surplus of $375.2 billion in 2017. Trump has demanded that China cut its trade deficit with the U.S. by $200 billion in two years.
However, Stockman said the big problem of trade imbalance is not a result of bad trade deals. Instead, it’s a monetary issue.
“It’s due to the kind of policy we’ve had from the Fed and the fact that we’ve inflated our costs, our prices and our wages much more rapidly than some of the competitors in the world,” he explained.
“A trade war is not going to solve it.”
Instead, if Trump wants to solve the issue, he needs to “call up the Fed and tell them, ‘Let interest rates find the right level,’ and we’ll begin to adjust this problem over time,” Stockman said.
He also takes issue with complaints about China’s policy that has American companies share intellectual property in order to conduct business.
“Don’t start a trade war and throw the soybean farmer under the bus because some big business lobby in Washington is whining about China’s terms of business,” he said.
The White House didn't immediately return a request for comment on Stockman's remarks.
— CNBC’s Natasha Turak contributed to this report.