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Conservative economist Greg Mankiw on China trade: US tweaks around the edges and Trump will 'exaggerate how magnificent it is'

Key Points
  • The best-case scenario for the U.S trade war with China is the Trump administration strikes a minor agreement similar to the one made with Canada and Mexico, former top White House advisor Greg Mankiw says.
  • In that situation, President Donald Trump will likely "exaggerate how magnificent" the deal is "and then we'll move on," he says.
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Greg Mankiw on the US-China trade tensions, trade deficit and corporate tax reform

The best-case scenario for the U.S trade war with China is the Trump administration strikes a minor agreement similar to the one made with Canada and Mexico, a former top White House advisor told CNBC on Wednesday.

In that situation, President Donald Trump will likely "exaggerate how magnificent" the deal is "and then we'll move on," said Greg Mankiw, former chairman of the Council of Economic Advisers under President George W. Bush.

"That's my hope," the Harvard economist added in a "Squawk Box " interview. "The worst-case scenario is things fall apart and we go into a global trade war."

Mankiw spoke before a Wall Street Journal report said China is working to increase access for U.S. companies as both countries try to resolve their trade dispute.

Wall Street has witnessed volatile swings in recent days in part on continued murkiness around trade with China. Stock futures Wednesday were indicating about a 300-point rise for the Dow Jones Industrial Average on renewed optimism around trade.

Trump said Tuesday that talks between Washington and Beijing were ongoing and confirmed he would only raise tariffs on Chinese imports if a comprehensive deal does not materialize.

The president and Chinese President Xi Jinping agreed to a trade cease-fire earlier this month, in which both sides put on hold for 90 days any new tariffs on each other's goods while talks to settle their disputes continue. That came a day after Trump joined the leaders of Canada and Mexico to sign a revised North American trade pact.

Mankiw, who served in Bush's administration from 2003 to 2005, said the Trump administration was right to go after China for its trade practices. However, he added that Trump shouldn't have targeted U.S. allies in the process.

The White House did not immediately respond to CNBC's request for comment.