What is the Trump trade doctrine? His economic adviser explains

Paul Solman
Business and Economics Correspondent
BY  
Republican U.S. presidential candidate Donald Trump holds a rally with supporters in Albuquerque, New Mexico, U.S. May 24, 2016. REUTERS/Jonathan Ernst TPX IMAGES OF THE DAY - RTSFS0J

Republican presidential candidate Donald Trump holds a rally with supporters in Albuquerque, New Mexico, U.S. May 24, 2016. Photo by REUTERS/Jonathan Ernst

Editor’s Note: On Donald Trump’s economic team, there’s just one economist with a Phd: Peter Navarro. For this week’s Making Sen$e report, economics correspondent Paul Solman spoke with Navarro at length about the trade deficit, China and the Trump trade doctrine. You can watch that segment on tonight’s PBS NewsHour. The following conversation has been edited for clarity and length.

— Kristen Doerer, Making Sen$e Editor


PAUL SOLMAN: So let’s start with China. What is China doing that’s so problematic?

PETER NAVARRO: What happens in China doesn’t stay in China. So let me give you the history here. The defining moment in American economic history is when Bill Clinton lobbied to get China into the World Trade Organization. It was the worst political and economic mistake in American history in the last 100 years.

It’s on a par with Herbert Hoover going into the Great Depression and tightening the money supply. It did not have as steep an effect as the Great Depression, but it’s had a more prolonged effect, because it’s been 15 years.

And let me give you the relevant stats — from 1947 to 2001, the American economy grew annually at a rate of 3.5 percent. After China got into the World Trade Organization, got access to our markets and flooded our markets with its illegally subsidized exports, we grew at a rate of 1.8 percent from 2002 to 2015. That’s almost cut in half.

PAUL SOLMAN: And you’re attributing that to letting China into the World Trade Organization.

“China went into the World Trade Organization and agreed to play by certain rules. Instead, it’s violated these rules.”

PETER NAVARRO: In my movie, “Death By China,” it shows Bill Clinton in 2000 promising that when China got into the World Trade Organization we would be making products here and selling them there, and life would be great. Just the opposite has happened. And here’s why this has been so devastating — China went into the World Trade Organization and agreed to play by certain rules. Instead, it’s violated these rules. For 15 years, it continues to illegally subsidize its exports; it steals intellectual property at a cost of about $300 billion a year to the American economy and engages in what’s called forced technology transfer. So if GE wants to produce on Chinese soil, it has to give them patents to the jet engines.

PAUL SOLMAN: But it is possible that the situation would be even worse if China weren’t in the WTO, right?

PETER NAVARRO: When China got into the WTO, that allowed it to sell into any other country within the WTO — not just the United States — at the lowest tariffs that country offered. And the other countries could sell into China at the lowest tariffs that China offered. The problem, right off the bat, was that China had much higher tariffs than everywhere else, so the U.S. and Europe in particular got the short end of that stick.

But the really big problem with China is that there are the unfair trade practices, like currency manipulation, illegal export subsidies and the theft of intellectual property, but then there’s also things that the WTO doesn’t cover that it should, which is the use of sweat shops and pollution havens.

If you’ve been to China, you know there are over 100 cities in China, and the pollution levels are just horrific – 60,000 people a year die in Chinese factories and facilities, because they don’t have any safety regulations. It’s a carnage; it’s Dickensian.

PAUL SOLMAN: But defenders of free trade and free trade agreements always say it would be worse if we didn’t have these agreements.

PETER NAVARRO: China is illegally subsidizing their exports, manipulating their currency, stealing all of our intellectual property, using sweat shops, using pollution havens. What happens under those rules is our businesses and workers are playing that game with two hands tied behind their back. And so when China entered the World Trade Organization, over the following 15 years, we’ve seen over 70,000 factories close; we’ve seen over 20 million Americans unable to find a good job at a decent wage; the huge labor supply from China that came in has led to an average median household income not just rising but going down a little bit; we’ve had flat wages for 15 years and the big thing is the fact that our growth rate was cut in half.

“60,000 people a year die in Chinese factories and facilities, because they don’t have any safety regulations… it’s Dickensian.”

PAUL SOLMAN: One of the answers your candidate, Donald Trump, provides is: We should have protective tariffs on Chinese goods.

PETER NAVARRO: Wrong word. Wrong word.

PAUL SOLMAN: What’s wrong?

PETER NAVARRO: Donald Trump is not a protectionist. If he imposes tariffs on China or any other country that cheats, all he wants to do is defend America against unfair trade practices.

PAUL SOLMAN: Well, defend — protect.

PETER NAVARRO: Very different. Protectionism is what happened leading into the Great Depression with things like the Smoot-Hawley Tariffs — the design was just to put these big walls up on your markets and then try to basically take unfair advantage with competitive devaluations in other markets.

PAUL SOLMAN: In other words, make your currency worth less so that you can sell exports more cheaply abroad.

PETER NAVARRO: Correct. And those competitive devaluations alone were a big contributor to the Great Depression, because it was just a downward slide. Defensive tariffs speak to this word called countervailing. Countervailing tariffs offset any advantage a country gains by cheating. But here’s the most important point; the end game is not tariffs — that’s not the end game. Tariffs and the threat of tariffs are a negotiating tool to require countries like China to stop their unfair trade practices — that’s the mission. And here’s the Trump trade doctrine — this is the most important thing I’m going to say to you today — America will trade with any country, so long as that deal meets these three criteria:

  • You increase the GDP growth rate
  • You decrease the trade deficit
  • And you strengthen the manufacturing base

PAUL SOLMAN: But there are other factors that go into the decline of the American growth rate, no?

“Donald Trump is not a protectionist. If he imposes tariffs on China or any other country that cheats, all he wants to do is defend America against unfair trade practices.”

PETER NAVARRO: The key here, in terms of the Trump economic plan, is to diagnose the problem correctly. What we’ve been doing for the last 15 years is misdiagnose the problem. The diagnosis has been this is a short-run, cyclical phenomenon that you can handle with Keynesian fiscal and monetary stimulus.

PAUL SOLMAN: But a lot of economists are now talking about secular stagnation – long-run decline in economic growth, and they’re not blaming it entirely or even to a significant extent on China.

PETER NAVARRO: And that’s also a misdiagnosis. The correct diagnosis is that this is a long-term structural problem, based on issues related to trade and tax policy and, to a certain extent, regulatory and energy policy. But if you look at, for example, Europe and the United States, both of these entities are facing slow growth rates, well below historic norms.

PAUL SOLMAN: Because of China?

PETER NAVARRO: Because they’re running trade deficits with the rest of the world. If you look at the U.S. trade deficit, it’s close to $800 billion trade in goods. Half of that is with China, so it’s a big part of the problem. And the problem with China, as opposed to, say, Canada, is that China cheats. For example, right now as we speak, China is dumping 100 million tons of steel below cost into global markets. What does that do to steel workers in Indiana? What does that do to steel workers in Ohio? It unfairly puts them out of business. That kind of behavior is totally contrary to WTO rules, but by the time you file a complaint three years later, everybody’s out of a job and the company’s closed.

Watch Making Sen$e’s latest segment with Trump economic adviser Peter Navarro.

PAUL SOLMAN: How do you lose money on your exports and yet amass more and more money, which is what China’s done?

PETER NAVARRO: In this period of time, where China’s growth rate is rapidly declining, they’re actually running down their reserves at an alarming rate, and part of that is the subsidization of their industries. Basically, the Communist Party maximizes job creation. In America, a capitalist state, our companies maximize profits and our government — I’m not sure what it does, but I know what it doesn’t do — it doesn’t protect American workers from this kind of dumping.

PAUL SOLMAN: But for decades, the charge has been that China has been subsidizing its exports. In fact, even in the steel industry, right?

PETER NAVARRO: Yes, absolutely. Steel and aluminum have been just getting killed. It’s a structural problem beginning in 2001, when China came into the WTO. For some years, it goes great for China, and the U.S. and Europe slowly decline in terms of their growth, lose their factories, lose their jobs. Everything’s kind of OK, and then we hit this wall in about 2008, 2009 where Europe and the U.S. are growing so slowly they can no longer support China in the manner in which it’s accustomed. Now, what happens there — China basically drives the economies of Brazil, Australia, Indonesia and Malaysia, all of these commodity countries.

PAUL SOLMAN: It’s buying the raw materials from them.

PETER NAVARRO: And this is the structural disequilibrium in the global economy. It’s all tied to the inability of exchange rates to work in the way they’re supposed to because exchange rates are fixed rather than floating, and the market can’t adjust. That’s the structural problem we’re dealing with.

PAUL SOLMAN: So when Trump talks about tariffs — 45 percent on Chinese goods — that’s a reasonable policy suggestion?

“As soon as one bad actor like China massively cheats, they win at the expense of us.”

PETER NAVARRO: That’s more than a reasonable policy suggestion, and remember that the goal is not to impose the tariff. The goal is to persuade China to stop cheating. But here’s what’s interesting — Trump intuitively understands what things should be. I did a study in 2008 where I estimated the impact of China’s unfair trade practices on their competitive advantage — the so-called China Price. You know what it came out to be? Forty-three percent. Forty-three percent — very close to what his intuition said we needed in order to equalize things.

PAUL SOLMAN: And how much do you imagine it might cost in the increase in the price of goods at, say, Walmart, if there were a 45 percent tariff on Chinese exports?

PETER NAVARRO: Any increase would be less than the paycheck that all these people would be getting, both in terms of actually having a job, plus wages rising again.

The way the textbook works is you have gains from trade that should be distributed across all the trading partners. As soon as one bad actor like China massively cheats, they win at the expense of us; they win at the expense of Europe and over time it threatens the entire integrity of the global financial system and the global trading system. That’s where we are in 2016 a few months out before this election. Donald Trump understands this. He’s been talking about it since 1980. He understands it. The people that are on the other side of this, including his opponent, have been part of every bad trade negotiation we’ve had since 1993.

SHARE VIA TEXT