By Kenneth Rapoza, CPA Industry Analyst
Peter Navarro spoke with the Hudson Institute's Michael Pillsbury and said economic nationalism is the only way to protect American manufacturing from China. He's also listed what he calls China's "Seven Deadly Sins".
White House Trade and Manufacturing Policy director Peter Navarro had a lot of choice words on Monday for those working, willingly or unwittingly, in favor of China. He called them all a bunch of “useful idiots”. But the main takeaway from an hour long Hudson Institute event led by Hudson’s director of the Center for Chinese Strategy, Michael Pillsbury, is that economic nationalism is the only way to fight a mercantilist China.
“This is a country run by a dictatorial Communist Party with a mercantilist economy owned, controlled and operated by the CCP for the purpose of plundering America and the rest of the world,” he said during his speech. He called China “an existential threat.”
Like us at CPA, Navarro sees China’s joining the World Trade Organization in 2001 as a pivotal turning point in our relationship with China.
Back then, some 15% of total US employment was in manufacturing, and it paid wages around 50% over the national average at the time. If you were making a widget somewhere in the US, you were probably making more than the local bus driver, school teacher, and office clerk. But after China entered the WTO, Navarro said the impact was “nothing short of blue collar carnage. We lost the expertise of machine tool making …and other skills critical for a manufacturing supply chain,” he said.
By 2016, manufacturing jobs fell to 8.5% of total employment. Real wages grew by only 3% combined over the entire 15 year period.
The main states torn apart were in the Midwest, or what our political class in Washington sometimes refer to as “flyover country”.
He listed states like Minnesota and Indiana that were “torn apart” due to the “corrosive acid of globalism” that happened because politicians shoehorned China into the WTO.
Navarro quoted President Bill Clinton at the time, who thought China’s entrance into the WTO would be a one-way street that would benefit American companies exporting everything to a developing nation of 1 billion people.
“Bill Clinton was right,” Navarro said. “He just got the direction wrong.”
Seven Deadly Sins
Hudson dubbed today’s sit down with Pillsbury as a conversation about China’s “seven deadly sins”. For Navarro, here they are in the order in which he listed them:
- Hacking. It’s how China steals private and government secrets;
- IP theft: China corporate espionage has sent things like nuclear reactor designs and computer codes to the competition back home;
- Joint venture tech transfers: This is where China lures foreign companies for the promise of greater market access, but with the caveat that it has to share its know-how with the local partner, a partner that can then create a separate company to put yours out of business…or steal your formulas.
- Product dumping: This is where China makes a widget for $10 and sells it to you for $5. It’s why the general argument against tariffs doesn’t work in China’s case because China is not a traditional market economy. They’re more concerned with dominating a market, and local job creation;
- State owned enterprise subsidies;
- Currency manipulation: although our Treasury Department says China is not manipulating its currency and lastly,
- Fentanyl: the synthetic opioid that kills thousands of Americans each year.
Navarro pulled no punches during his speech and in his Q&A session with Pillsbury.
He spoke of the old notion that by opening up and engaging with Beijing, China would embrace Western democratic ways. That hasn’t happened yet. Instead, we are “feeding the CCP with Western capital” which is helping China get stronger. It’s a strength they will use to replace industry in the US with an overreliance on China, keeping their labor markets strong and ours at the constant risk of being replaced by unfair trade with China. What industry will be next is anybody's guess. Solar? Electric vehicles?
“Economic nationalism has changed the China threat,” he said about what he thinks is a bipartisan consensus that won't go away after the election.
Pillsbury egged Navarro on to take the “religious faith of free trade” to task during his interview.
Navarro likened the comparison to a religious dogma. “I taught that model. I know how flawed it is,” he said. The Cambridge, Mass. born Harvard PhD also taught economics at the Paul Merage School of Business at the University of California, Irvine.
Pillsbury wondered where the majority of economists were on the issue today.
We know where the market stands on it. We know where magazines like The Economist stand on it, too. Pillsbury is wondering where the Nobel Prize Winning economists stand on this, and when will they come out in support for policies that tackle China's form of authoritarian, state controlled capitalism.
Navarro didn’t hold out hopes that the mood was shifting among the top tier economists.
“If there are 100 economists in the room, there are probably only three or four that are trade economists. The rest have an ideological affinity for free trade,” he said, adding that the US has the lowest tariffs in the world, the lowest tariff barriers in the world, and “we get our clocks cleaned. The bigger problem with China is that it is an issue far beyond trade.”
Recent surveys by Pew Research shows that popular opinion on China is deteriorating steadily. The trajectory of Americans seeing China as a threat is rising like a ski slope in Vermont.
Navarro said that manufacturing laborers in Duluth, to farmers in the cranberry bogs of Wisconsin, to the Philadelphia shipyards are doing better thanks to tariff protections. But they are still clawing back from a hole that unfair China trade has placed them in.
That it’s not a fair fight is one thing. That our side sometimes works in favor of, or in support of the other, is a problem. These are Navarro’s “useful idiots.” Think of it like Rocky’s coach also coaching Russian boxer Ivan Drago on how to defend against Rocky’s left hook. (See DC law firms working to get China tariff fees reimbursed, or in defense of entity list players, for instance.)
“Sun Tzu once noted long ago that to win 100 victories in 100 battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill,” Navarro said of the ancient Chinese general and battle field philosopher.
“This is the goal of the CCP, too: to take the riches of America without firing and shot and to do so not just through economic warfare and the seven deadly sins, but through information warfare and a cynical kind of lawfare that seeks to leverage international institutions to help them,” Navarro said.