On Monday, the head of the White House’s National Trade Council, Peter Navarro, laid out the objectives of his trade agenda in a speech before the National Association of Business Economists.
The thrust of Navarro’s speech was that the “liberal trading order” the world has known for 70 years has been unfair to the richest country in the world.
Bad deals have taken the most valuable jobs — manufacturing jobs — from American workers. They have boxed the US out of markets abroad. Countries like China are engaging a strategy of “conquest by purchase,” buying up US assets, especially.
Navarro didn’t just attack China. He picked on 15 other countries, many of which are US allies. Their offence, he explained, is contributing the US’s manufacturing trade deficit by exporting more goods to our country than we do to theirs. That, he claims, has been a drag on US GDP growth for decades.
But that’s not how GDP growth works.
Navarro’s speech was an elaboration on the column he published in the Wall Street Journal late Sunday night that left many in the economic community appalled. He vowed to go after so-called currency manipulators, could articulate no position on the strength of the US dollar, and said that understanding the US’s Export-Import Bank — which helps businesses across the country invest and expand here and abroad, but has also been attacked from the right — was “above my pay grade.”
He wants the US to bully countries like Germany into demolishing the Euro and tear up other long-standing trade deals. He dismissed the risk that these countries might retaliate against such a notion, or that automation means many manufacturing jobs will never return.
In short, Navarro just became the most dangerous man in global economics.
Get this man a time machine
“We’re trying to skate to where the puck’s going to be,” Navarro said during his speech, as he described the American economy that he’s aiming for.
The puck he was talking about, though, is actually located sometime in the 1970s. Navarro wants to bring “second and third tier” jobs in the global manufacturing supply chain back to the US in order to close our trade deficits with other countries.
These deficits, he believes, are the primary drag on the US economy. But trade deficits are all but irrelevant to GDP growth. As for the jobs he wants to bring back, some have gone to countries with lower wages, others have been lost to automation (a fact Navarro dismissed).
“The production of manufactured goods tends to have both a higher job multiplier and command higher wage levels,” he said. “It follows that if the US is to increase its rate of job creation and see its income levels rise and in the process rejuvenate the once vibrant manufacturing hubs of states like Ohio, Michigan, North Carolina, and Pennsylvania, we must focus on enhancing and expanding our industrial base through prudent tax, regulatory and energy policy.”
The biggest problem with that comment is that over here in 2017, the sector of the economy that promises the most growth (and overwhelmingly dominates the economy) is the services sector.
Now, wages in the services sector vary.
After all, “services” captures everything from retail employees and taxi drivers to investment bankers and nurses.
But instead of educating Americans for high paying services jobs, Navarro insisted the government’s focus should be to “reclaim all supply chain and manufacturing capabilities that would otherwise exist if the playing field were leveled.”
He pinned America’s manufacturing (and trade deficit woes) on 16 “problem” countries, including Japan, South Korea, and Germany.
“While the percentage of Americans working in manufacturing is 8% today, Germany by contrast which has some of the most advanced robotics in the world continues to employ 20% of its workforce in manufacturing.”
In 2014, the International Monetary Fund calculated that if the US manufacturing sector stood alone, it would be the eighth-largest economy in the world.
Germany’s entire economy comes in fourth. One economist and trade expert, Lee Branstetter from Carnegie Mellon, told us a few weeks back that Germany is the “greatest 19th-century economy in the world.”
“The best Germany can do is make carburetors,” he continued. “They make wheel bearings and fuel-injections systems. It’s really strange that the top economist in the administration wants us to be like them.”
If Navarro does want us to be like Germany, it’s definitely in a very Single White Female kind of way. He’s envious of its manufacturing sector, but he also considers the country a currency manipulator for being in the euro, which includes weaker economies that keep the value of the currency below where Navarro thinks it should be.
Germany “uses the argument” of being in the Eurozone to avoid trade deals with the US, which “may or may not be true,” he said. As such, Germany will be “one of the most difficult trade deficits we’re going to have to deal with.”
Yes, it will be difficult to get Germany to violate the terms of its agreement with the Eurozone. On that point Navarro is at once delusional and correct.
The notion of even trying to get Germany to violate its pacts with the EU has an incredibly chilling effect, because this is where it’s clear that Navarro has no respect for another country’s government or sovereignty. He does not see honesty or fairness in even the US’s closest allies’ dealings with us. With such a mindset, how can one even find a level playing field if it ever existed?
Navarro also displayed a penchant he shares with President Trump for spreading unverified claims that fit his worldview.
“Fact of the day, I can’t verify this but I’ve been told by several people this is true, China is buying one company a day in Germany,” he said.
Questions about the potential fallout of his policies were dismissed. He grazed over the idea America’s “tough negotiations and cracking down on cheating” could lead to retaliation from trading partners and higher prices for goods Americans use every day.
“To me this seems like an elitist out of touch argument because it assumes that the poorest segments in our society would rather have cheap products than a good job and a good paycheck,” he said.
Navarro’s responses made the crowd of economists sitting before him visibly unsettled. He tried to engage them a few times, but it was always awkward. At one point he enthusiastically asked those who believe corporate America needs a tax cut to raise their hands. Crickets.
Now thankfully, it is clear that Navarro’s ideas are radical even within Trump’s economic policy team.
Last week Commerce Secretary Wilbur Ross told CNBC that he does not consider Germany a currency manipulator. And in his speech Navarro was visibly upset that he would have to wait until April at least before Treasury Secretary Steve Mnuchin would determine whether or not to designate China a currency manipulator (I’ve explained why it’s not).
Navarro, for his part, would clearly prefer to start charging at his perceived enemies right away.
This is an opinion column. The thoughts expressed are those of the author.
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