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The ‘Madman’ Behind Trump’s Trade Theory

November 19, 2018

Editors note: the establishment tries even harder to tear down Peter Navarro even as he has proven right. The economics establishment is in disarray trying to reclaim legitimacy.

No one’s more careful about what they buy,” Peter Navarro told me recently. The director of the Office of Trade and Manufacturing Policy was explaining that he reads labels closely and avoids products made in China. “People need to be mindful of the high cost of low prices,” he said. In Navarro’s telling, those cheap flip-flops are supporting an authoritarian state, and that cut-rate washing machine might be mortgaging America’s future.

Such wariness of foreign goods is not just one man’s consumer preference—it’s United States policy. In the past year, the Trump administration has embarked on a trade war with sweeping geopolitical aims: The entire government now has a mandate, if a murky one, to make China play by the rules—and also to slow its rise. Trump has slapped tariffs on hundreds of billions of dollars’ worth of goods imported from the People’s Republic. And China is not the only front in the war. To aid American businesses and stop other countries from growing at America’s expense, the administration has renegotiated the North American Free Trade Agreement and initiated bilateral talks with the European Union, Japan, and other allies.

Navarro is among the most important generals in Trump’s trade war, and a seemingly improbable one. He is a business-school professor, a get-rich guru, a former Peace Corps member, a former Democrat, and a failed candidate for public office several times over. He holds no formal role in trade negotiations, and controls no levers of policy. He is not in the Cabinet.

Navarro’s influence stems instead from a combination of bold ideology and lock-jawed dogmatism. He and Trump share a series of out-of-the-mainstream convictions, among them that China has spent the past two decades ripping off the United States, that aggressive trade policies will bring manufacturing jobs back to the U.S., and that America’s trade deficit is bleeding the country dry and even undermining its national security.

A handful of Trump’s top officials share this perspective, among them Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, who is actually negotiating America’s trade deals. Many others—including Treasury Secretary Steven Mnuchin and Larry Kudlow of the National Economic Council—do not. They want China to stop stealing intellectual property and to open up its markets, sure. They do not see decoupling the Chinese and American economies as a good and necessary goal.

But in Navarro and Trump’s view of the world, the United States is not starting a trade war so much as it is belatedly joining one. “We’re a tributary state to China, right? We’re the Jamestown to their Great Britain,” the former White House strategist Steve Bannon, who remains close to Navarro, told me. “We’re finally engaged in the economic war that they’ve had against us for the last 25 years.”

In this conflict, Navarro’s role is to shepherd Trump’s more extreme ideas into reality, ensuring that the president’s convictions are not weakened as officials translate them from bully-pulpit shouts to negotiated legalese. He is the madman behind Trump’s “madman theory” approach to trade policy, there to make enemies and allies alike believe that the president can and will do anything to make America great again.

“The reality is, unless the president talks tough on trade and has possible concrete actions to back up that talk, these people won’t talk to us,” Navarro told me. “They had no incentive to talk to us, none, because they’re winning and we’re losing.”

Navarro grew up an East Coast latchkey kid. He went to Tufts University on a scholarship, spent three years in the Peace Corps in Thailand, then headed to Harvard to get a doctorate in economics, later decamping to Southern California to teach.

But his was never a sleepy professor’s life. In the late 1980s, Navarro became a crusader against what he saw as the ticky-tacky overdevelopment of San Diego, and ran for office—for mayor, city-council member, county supervisor, U.S. representative, and council member again.

He lost each time, but won a reputation for being “the cruelest and meanest son of a bitch that ever ran for office in San Diego.” That, at least, is how Navarro himself put it in his political memoir, San Diego Confidential—200 pages of name-calling, score-settling, dad jokes, and dirty jokes. His mayoral opponent broke down in tears at a prime-time debate while describing the viciousness of Navarro’s negative campaigning. (Crocodile tears, he says.) During the same campaign, he shoved a female political aide working for the rival candidate, a moment caught on camera. (She started it, he says.)

By the early aughts, Navarro’s political career was over, as was his marriage. Teaching at UC Irvine’s business school, he reinvented himself as a groovy, stock-picking wise man. He became a frequent television commentator, started a firm called Platinum Capital Management, and distributed a weekly newsletter called The Savvy Macrowave Investor. He wrote several books on grokking markets and getting rich, among them 2004’s If It’s Raining in Brazil, Buy Starbucks.

It wasn’t until the mid-aughts that Navarro developed an interest in China, inspired by the fact that his students who were studying for M.B.A.s at night started losing the jobs they held down during the day. In his mind, unfair competition from across the Pacific was one of the root causes. He did not speak Mandarin and had spent little time in China. But he nevertheless produced three hawkish books and one hawkish documentary, Death by China, which argue that Beijing cheated its way to global preeminence by selling the United States dangerous goods and ignoring global trade regulations. Among the claims in Death by China (narrated by Martin Sheen, available on Amazon): that the country has “stolen” American factories and jobs, that the Sino-American economic relationship makes the U.S. more likely to be hit by a nuclear strike, and that American companies are compromised because many of their executives are foreign.

Not all of Navarro’s views are quite so outré. Even his critics allow that he gets some important things right. China’s ascension to the World Trade Organization did jolt the Rust Belt far harder than elites in Washington predicted. Its tolerance of environmental degradation and lax labor standards do make its exports cheaper and therefore more competitive on the global market. To fuel its ascent, Beijing has broken trade rules, devalued its currency, and brutalized its own citizens.

But economists on both the left and the right say that Navarro’s fundamental views of trade are outdated, misguided, or just plain wrong. For instance, he has argued that reducing America’s trade deficit will lead to economic expansion. In some circumstances, a smaller trade deficit might go hand in hand with a stronger economy—if American businesses sold more airplanes and advanced computer systems to foreign buyers, say. But in other circumstances, a smaller trade deficit would go hand in hand with a more sclerotic economy—if, say, U.S. government policies encouraged investors to build cheap-junk factories here in the United States, diverting corporate resources from higher-value and higher-margin enterprises. As Greg Mankiw, a top economist for President George W. Bush, put it, Navarro’s understanding of trade economics would not make sense to “even a freshman at the end of ec 10.”

Moreover, economists argue that there is simply no way to bring back jobs from China; companies’ supply chains are far too complicated for that. For instance, all “made in America” cars have foreign parts—from Canada, China, Brazil, Mexico, South Korea. Parts and components cross international borders as many as eight times during production. “You can’t unscramble this globalization omelet,” says Jared Bernstein, formerly the chief economist to Vice President Joe Biden.

Foreign-policy wonks, for their part, worry that Trump might squander his leverage over Beijing in his effort to increase it. The bipartisan consensus in Washington, which dates back to Richard Nixon’s 1972 trip to China, is that it’s better to treat the country as a kind of frenemy than as a flat-out foe. Trade agreements and diplomatic engagement have allowed the U.S. to encourage Beijing to open its markets and liberalize its society.

Navarro’s revanchism has made him few friends among Washington’s economic experts, trade experts, and Asia experts. Yet it paved his way into the administration, where he has found a boss simpatico with even his most outlandish positions. The president and his trade adviser also share personality traits that may have helped Navarro ingratiate himself with his notoriously mercurial patron. “If Trump wasn’t the biggest asshole in Washington, Peter could be,” says Larry Remer, a San Diego political operative who worked on Navarro’s congressional campaign. He is indelicate, to put it mildly. His political memoir devotes a full chapter to chuckling about Al Gore’s love handles; elsewhere in the book, he posits that a “gay hairdresser” who put gobs of makeup on him may have cost him votes in one of his failed political runs. He tends to describe women by their looks and to have little patience for political correctness. The Washington Post columnist Robert Samuelson appears in Death by China, accompanied by his wife, Judith Herr. When Herr recounts her own efforts to avoid buying Chinese goods, the chyron below her reads, “Intelligent woman for the record.”

Trump surely also admires Navarro’s disdain for elite opinion and his hedgehoglike sense of conviction that China is the enemy. “Peter was saying things about China which people didn’t agree with,” Gordon Chang, a friend of Navarro’s and a longtime China critic himself, told me. “He didn’t mince words. He didn’t change his views to become popular.”

During the campaign, Navarro, along with Wilbur Ross, was a central architect of Trump’s trade policies, fleshing out his vision of China as a malign actor and coming up with plans to hem in the rising superpower. When Trump took office, he created the National Trade Council and named Navarro to lead it. There were rumors that it would end up on equal footing with the powerful National Economic Council or even the National Security Council. But as the saying goes, personnel is policy, and it was never just Ross and Navarro making decisions. Steven Mnuchin and Goldman Sachs’s Gary Cohn also joined the administration, which immediately got bogged down in vicious fights about trade policy.

For a while, the doves won. Cohn played defense against Navarro’s most aggressive moves, including three attempts to get Trump to withdraw from nafta. Chief of Staff John Kelly eventually sidelined Navarro: The National Trade Council was eliminated, and Navarro was put under Cohn’s watch.

Then the hawks got the upper hand. Though Navarro had been exiled from the inner sanctum, he earned a reputation among colleagues for skulking around the White House after hours, hoping to catch the president and bend his ear. (Navarro has disputed this characterization.) Nudged by Navarro, Trump realized that his views were being undermined by his own people. “My Peter,” as Trump sometimes calls Navarro, came back into favor. Cohn quit. Trump finally got his trade war.

Navarro is not working on nitty-gritty policy or handling negotiations. His team is tasked with “buy American” and “hire American” initiatives. His mission, he told me, “is to strengthen our manufacturing and defense industrial base, and to create good jobs for men and women to work in American manufacturing.” But that undersells his influence. His power derives from his willingness to go to the mat for his boss’s harshest ideas, much as Stephen Miller does on immigration policy. “There’s only a few people that, from a policy standpoint, understand the president as well as Peter does,” says David Bossie, who worked with Navarro on the campaign and transition. In the White House, colleagues describe him yelling, bullying trade traditionalists in meetings, and writing hang-tough memos.

The administration has argued that its tough negotiations—including its new nafta-type deal with Mexico and Canada—are bringing nations around the globe together to confront the Chinese menace. “All the actions that the administration has taken have resulted in people around the world coming to an agreement that China needs to be dealt with,” says Dan DiMicco, one of Trump’s trade advisers.

Are the Chinese intimidated? They’re certainly confused. American officials raise issues only to later drop them. They contradict one another. The ideological warfare within the White House, as well as the lack of experience on the international economic team, has left China and others unsure of U.S. policy, or even its goals. “If we’re not going to go back to the way things were, we have to have an idea of where we’re going,” says Derek Scissors of the American Enterprise Institute. “And, due to the disagreements within the administration, no one does.”

Navarro counters that the administration’s goals are clear: It is trying to reduce Chinese imports, strengthen American exports, and scare Beijing straight. It is not, he says, trying to execute a divorce between the two countries. “That’s a corrosive narrative not coming from any of the principals,” he said. “All we’re doing is defending this country from economic aggression by China and others.”

Perhaps. But American allies are alienated. Foreign countries talk about trying to wait out the Trump administration. As the tariffs come into effect, companies that rely on imported parts are initiating layoffs. Consumer prices are starting to rise, and there is mounting evidence that the trade war is slowing down the economy. Meanwhile, the trade deficit is growing, not shrinking.

“I fully expect over time, as we get all of our trade policies in place, that trend will strongly reverse,” Navarro assured me. “China keeps engaging in the worst forms of unfair trade practices. Same with Europe. We’re talking to them, but they’re still sticking it to us.” The war, it seems, has only just begun.


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  • Bruce Bishop
    It looks like Dave Hancock spilled his coffee on his keyboard. I do agree with him, however, that if you give up your pole, and forget how to fish, you will starve. That is Econ 101.
  • Bruce Bishop
    I agree with Navarro on almost everything — except that you an AVOID buying Chinese goods. Looking for manufactured products that are NOT made in China is like looking for a virgin in a whorehouse.

    I have argued for years that tariffs will not work. China’s cost advantage, across all cost factors — not just labor — is about ten to one. They can absorb a 40% tariff like it was nothing. They could double the price of everything they ship to us; or halve the price of everything they ship to us, and there isn’t a damned thing we could do about it.

    The only workable solution is to force a reduction in the trade deficit as proposed by Warren Buffet back in 2003. In a Fortune article, Buffet proposed that our government mandate “balanced trade” by reducing the deficit by 20% per year for five years. That would bring back millions of manufacturing jobs in an orderly fashion, and would allow time for the rebuilding our infrastructure. If you are interested, you can Google “Balanced Trade.” There is a link to Buffet’s article at the bottom of the page.

    The Chinese government supports its manufacturing, while our government does everything it can to tear down our manufacturing. China is on a fifty year plan to dominate the world, and they will probably succeed. We are on a two-year plan which runs from election to election. Our plan is for the incumbents to get themselves re-elected.
  • Dave Hancock
    Simplicity is > if you give up your pole and forget how to fish > you will starve.