Larry Kudlow, Director of the National Economic Council. David A. Grogan | CNBC

President Donald Trump's chief economic advisor, Larry Kudlow, said Friday that he believes that China's economy is beginning to decline, pointing to U.S. tariffs as part of the pressure as the country's currency continues its sharp drop. "Some of the currency fall is money leaving China," Kudlow, director of the White House's National Economic Council, said in an interview with Bloomberg TV. "If money leaves China, and the currency could be a leading indicator, they're going to be in a heap of trouble." China on Friday released a proposal to add tariffs on $60 billion worth of U.S. goods, preparing to retaliate in the escalating trade war as the White House considers raising tariffs on $200 billion of Chinese goods. Kudlow said it looks "like the China economy is declining in growth" and, as a result, "the People's Bank of China is trying to pump it up by adding high-powered money and new credit and so forth."

Kudlow believes the fall in China's yuan is due to Beijing stopping its defense of the currency, saying he believes the Chinese "think it's going to offset the U.S. efforts to help get rid of their unfair trading." The yuan has declined steadily since the trade war began, with its price against the U.S. dollar near its lowest levels in the last 10 years.