Peter Navarro, Trump's Top Economic Adviser, Is Predictably on the Fringe

Who would ever guess that Trump’s top economic adviser, Peter Navarro, would be on the fringe of economic thinking?  Well, who besides most reasonable people, that is?   Navarro thinks the United States is the loser to the far more clever countries of China and Mexico in what he sees as a global trade war and the only way to balance the scales is the threat of the imposition of a  massive tariff on all Chinese exports, which he calculates at 43% and Trump in his speeches then rounds off to 45%, likely thinking a round number is easier to digest. Now it is not a given that Trump borrowed this figure directly from Navarro. He may have arrived at it independently, but it is very unlikely Trump spends much time pondering such complexities.  

According to an insightful article in The New Yorker  by Adam Davidson titled “Trump’s Muse On U.S. Trade With China”,  the silver-haired, stentorian voiced “Navarro provides a patina of legitimacy” to Trump’s economic policies with a PhD from Harvard.  The others on Trump’s economic team are business people who donated to the campaign and are likely looking for a payoff in the form of the large tax breaks Trump proposes for the wealthy.  

As Davidson argues, it is “common knowledge” that China is a currency manipulator, ignores intellectual property laws,  has shoddy worker safety laws and a lousy track record of environmental protection. Still most economists assume  that trade has been good for the American economy overall, if not for all Americans equally across the country. Certainly, manufacturing jobs have left and former places dependent on manufacturing jobs are in decline. On the other hand, cheap consumer goods from China have driven down the cost of goods from televisions to sweaters and the low prices have reduced inflation to practically nothing for years hiking borrowing and contributing to investment.

But much of Trump’s popularity has been due to his bellicose attacks on free trade in general and NAFTA and the Trans Pacific Partnership in particular.  As Trump sees most of the world, he sees trade in binary terms: there are “winners” and “losers.” It is well known that Trump can not countenance being thought of as a “loser.”  Trump’s thinking is undoubtedly shaped by Navarro given that years ago he praised a widely panned film by Navarro called “Death by China.” According to The New Yorker article,  one reviewer called the film “the documentary equivalent of a raving street-corner derelict.” 

Because China cheats and manipulates its currency, Navarro sees trade with the nationas a “zero sum game.”  This parlance in economic circles is used precisely to mean that “one party to a transaction can only gain if the other party loses.”  Therefore, the solution to the trade imbalance with China, according to Navarro and Trump, is the threat of the imposition of a massive tariff on imported goods. Then in the professor’s naive estimation, the Chinese will be so cowered by such a tariff they will respond by no longer artificially deflating their currency thus making their goods more expensive abroad, and consequently, exporting far fewer goods to the United States.  Thus, such cities as Youngstown, Toledo, and Detroit will  experience a renaissance given the creation of new factory jobs.  

Of course, as Davidson argues, “There’s no reason to think China would acquiesce to Trump’s threats; doing so would all but guarantee that China would face an unending series of similar threats from America and others.” Of course, what is more likely to happen is that China will retaliate by raising tariffs on imports from the United States, which would create a trade war similar to the one created by the Smoot-Hawley tariff enacted in 1930 that economists believe exacerbated the Great Depression.

Davidson continues: “It is hard to find a major American exporter who doesn’t see China as its most promising area of growth.  A trade war would shatter General Motors, all of Hollywood, the music industry, Boeing, and the entire state of Washington, which exports more goods to China than any other.” Since American popular culture sets the trends for much of the world, the music  and movie industries would be paralyzed.  For instance, the Arnold Schwarzenegger film "Terminator: Genisys" took in $350 million overseas, nearly four times what it earned in North American.

According to Davidson, Trump and and his intellectual mentor, Navarro, make a faulty, dated assumption that there is a vast pool of manufacturing jobs to be gained, when in reality few such jobs exist.  The manufacturing landscape in American has evolved from making labor intensive, low-cost commodity goods and now makes  “more expensive, complex products, like medical devices, automobiles, and airplanes.” The smaller, commodity components like “screws and circuit boards” that go into these sophisticated machines and devices are made abroad, while the skilled manufacturing is done in this country.  Given automation, machines and robots have replaced countless manufacturing jobs.  For example, according to the Daily Mail out of the United Kingdom: 

“Robots now perform roughly 10 percent of manufacturing tasks that can be done by machines, according to the Boston Consulting Group.  The management consulting firm projected that to rise to about 25 percent of such 'automatable' tasks by 2025.”

Also, publicly held corporations have a fiduciary duty to shareholders to maximize profits. If the U.S. imposes tariffs on Chinese-made goods, manufacturers may not necessarily relocate to Toledo, Ohio but to Malaysia or Vietnam or wherever other low wage markets exist. 

Factory jobs will pay higher wages in the future, but undoubtedly there will be fewer of them.  So Trump, Navarro and even Bernie Sanders are beating a dead horse, in effect. The manufacturing industry will never rebound to be as large a percentage share of the economy it once was regardless of the launching of  ill-advised, unproductive trade wars which only function to bring about a global recession. By saying explicitly that an increase in manufacturing jobs will make up for the trillions lost in government revenues due to his tax cuts for the wealthy, Trump is not only being intellectually dishonest, but such an idea has been mocked by the left and the right.  

In fact, Davidson, even with assistance, could not find a single economist who agreed with the “radical” views of Navarro. More significantly, Navarro is the only PhD economist Davidson could find who enthusiastically supports Trump.  As with so many of Trump’s half-formed, shallow ideas and tirades against supposed international culprits, this one would have crippling economic consequences and is based more on placing blame thereby raising the testosterone levels of his base, than any practical, discernible reality. 

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