Arthur Laffer says trade war would spell "disaster" for U.S. economy

The economist who laid the intellectual foundation for President Donald Trump's tax cuts warns a trade war sparked by U.S. tariffs would be "a disaster" that would undo the economic benefits of GOP tax cuts.

In an interview with Elaine Quijano on CBSN's "Red & Blue," Arthur Laffer, a former economic adviser to President Ronald Reagan and to Mr. Trump's campaign, said a trade war would be a "curse" on the U.S. and global economy.

"If it became a trade war, it would be a disaster -- it would offset the benefits of the tax cuts," Laffer said. "It would be very damaging to both the U.S. and the rest of the world. It really would be just a curse on all the economies in the world."

While Laffer does not believe a trade war is in the cards, the scenario remains "a legitimate risk," he said.

The Trump administration is set to impose additional tariffs Friday on $34 billion worth of Chinese imports, mostly electronics components. They come on top of those already in effect for steel and aluminum, washing machines and solar equipment.

China has vowed to immediately retaliate with its own round of $34 billion in tariffs on U.S. goods.

In June, the European Union enacted tariffs on $3.4 billion in U.S. products as a retaliatory measure against U.S. tariffs the bloc says break global trade rules.

The conservative-leaning Tax Foundation calculates the tariffs already enacted by the Trump administration will lead to 48,585 lost jobs. Add in tariffs on autos and auto parts that the president threatened last week, and the China tariffs slated to come Friday, and another 255,283 jobs may be lost.

If all tariffs announced so far by both the U.S. and other countries take effect, more than 314,000 jobs would be lost and wages would fall by 0.3 percent, the foundation estimates.

"News on the trade front has been concerning with the administration implementing or threatening to implement various protectionist measures," Gregory Daco, chief economist for Oxford economics, wrote in a recent note. While each is small, disruptions to the supply chain and increasingly uncertain business conditions could "spell trouble for the U.S. economy," he noted.

But Laffer cited Mr. Trump's experience running an international business and dealing with global supply chains as evidence of the president's expertise, adding he hopes the tariffs are just a "negotiation ploy." 

As Laffer joked: "he's imported two foreign wives. He understands free trade and I don't think he's going to go the path of really trying to make an insular place of protectionist America."

--CBS News' Jillian Harding and Rachel Layne contributed reporting