Meet the Trump trade adviser whose tariff policy is about to be tested

Making Sen$e

Hari Sreenivasan: The president's decision comes after months of debate within the White House, the government and among many businesses about how to handle trade and tariffs.

One of the key figures in the White House who has made a case for these actions is the president's adviser Peter Navarro.

Economics correspondent Paul Solman has spent some time looking at the ideas and philosophy that drive Navarro.

He's back with an updated report for our weekly installment, Making Sense.

President Donald Trump: China. China. China. China. China. China. China. China. China all the time. China.

Paul Solman: China and unfair trade, key Trump themes for years. So this week's tariffs, as pushed by a favorite film of his, "Death By China," should come as no surprise.

Man: China has stolen thousands of our factories and millions of our jobs. Multinational corporation profits are soaring, and we now owe over $3 trillion to the world's largest communist nation.

Paul Solman: The filmmaker, Peter Navarro, was also quite clear when we met during the campaign.

Peter Navarro: We're going right down the toilet, and it's a made-in-China toilet.

Paul Solman: Navarro, an economist then at the University of California, Irvine, was the campaign's main trade adviser, is now the White House's right-hand man on trade.

So how'd you get interested in and worried about China?

Peter Navarro: I teach MBAs. And I noticed, starting a few years after China joined the World Trade Organization, that a lot of my students were no longer employed. They were still coming to get their MBA, but they'd lost their jobs.

And I started to ask questions why. And, at that point, all roads were leading to Beijing.

Paul Solman: Navarro has done plenty of technical work in economics, is a pioneer in online learning. But he began focusing on China just a few years ago.

Peter Navarro: 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.

Paul Solman: In the last 100 years?

Peter Navarro: In the last 100 years, yes. China went into the World Trade Organization and agreed to play by certain rules. Instead, they are illegally subsidizing their exports, manipulating their currency, stealing all of our intellectual property, using sweatshops, using pollution havens.

What happens is, our businesses and workers are playing that game with two hands tied behind their back.

Paul Solman: Navarro said you could even see the effects in Irvine, where Chinese students pay top dollar and flood the university, while their parents scoop up local real estate.

Peter Navarro: Generally all cash deals.

Paul Solman: So your argument is, unfair trade practices, they amass dollars, they bring the dollars back here, they buy up property, and they drive up real estate prices?

Peter Navarro: That's right. And they drive up rents for younger people. They will drive up home prices for first-time homebuyers. So it's not just that we're losing jobs and factories. We're giving away our homes, our businesses, our companies, our technologies.

Paul Solman: But, of course, we heard the same alarm about Japan in the 1980s, a false alarm. But China is different, says Navarro, so much bigger.

Paul Solman: We are going to enforce all trade violations against any country that cheats.

Paul Solman: The new tariffs, however, don't much affect China directly.

Canada is the largest exporter of steel and aluminum to the U.S., and though, for now, Canada and Mexico are exempted, tariffs would hit seven other bigger metal-exporters than China.

But Navarro has said that China simply built too many mills, driving down prices and killing U.S. firms.

Today, President Trump said the same.

Paul Solman:  Other countries have added production capacity that far exceeds demand and flooded the market with cheap metal that is subsidized by foreign governments, creating jobs for their country and taking away jobs from our country.

For example, it takes China about one month to produce as much steel as they produce in the United States in an entire year.

Paul Solman: The new tariffs are being widely attacked as protectionism, however. Over 100 free trade Republicans signed a letter opposing them. But when we talked to Peter Navarro 18 months ago, he insisted tariffs weren't anything of the kind.

Peter Navarro: Wrong word. Wrong word.

Paul Solman: What's wrong?

Peter Navarro: Donald Trump is not a protectionist. All he wants to do is defend America against unfair trade practices.

Paul Solman: Well, defend, protect.

Peter Navarro: Very different. Trade is good. 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.

Paul Solman: But what about retaliation? European Commission President Jean-Claude Juncker has announced his own tariff targets.

Jean-Claude Juncker: Harley-Davidson, on blue jeans, Levis, on bourbon. We can also do stupid. We also have to be this stupid.

Paul Solman: Which prompted this London front page on Tuesday.

In China, Foreign Minister Wang Yi warned,

Wang Yi: Choosing a trade war is a wrong move. The outcome will only be harmful. China would have to make a proper and necessary response.

Paul Solman: Such tough talk has left Peter Navarro unfazed. Here he is last week.

Peter Navarro: I don't believe any country in the world is going to retaliate, for the simple reason that we are the most lucrative and biggest market in the world.

Paul Solman: And the fact that tariffs will increase costs to U.S. firms and consumers, in this case those using aluminum and steel? Here's Navarro's response on "FOX News Sunday."

Peter Navarro: If you look at a 10 percent tariff on aluminum, a six-pack of beer or Coke, that's a cent-and-a-half. If you look at the other end of the spectrum, Boeing 777, it's one of the best airliners ever made, it's a $330 million aircraft. We are talking about an increase in cost at the worst of $25,000.

So, when you're talking about these massive costs or whatever as a fact, it's not. There are no downstream price effects on our industries that are significant.

Paul Solman: Added up, however, the overall costs would be in the billions, to which Navarro's answer back in 2016 still holds.

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 Trump trade doctrine is this. America will trade with any country, so long as that deal meets these three criterion: You increase the GDP growth rate, you decrease the trade deficit, and you strengthen the manufacturing base.

Paul Solman: But isn't technology responsible for the elimination of American factory jobs?

Peter Navarro: Certainly, technology has played a part, but the dramatic change from 5.5 decades of 3.5 percent rate of growth prior to China entering our markets with illegally subsidized goods and the 1.8 percent afterwards suggests strongly that China has played an enormous role in the decline and downfall of the American economy.

And I can show on a blackboard exactly why.

Paul Solman: Now, your typical economist would hardly agree. But, hey, says Navarro, your typical economist still believes in the old so-called Keynesian approach to reviving the economy.

Peter Navarro: All right, Paul, the growth of any nation is simply four things.

Paul Solman: More consumption, C, by consumers and more G, government spending. He and Trump, however, will supposedly flip the script, stimulating more I, investment, by business, via tax cuts for the wealthy and corporations, while boosting net exports through new trade deals.

That's exports minus imports.

Peter Navarro: That's right.

Paul Solman: And, of course, if that's a negative number, that is, you have more imports than exports.

Peter Navarro: This is the big kahuna. This is what Donald Trump understands. This is the trade deficit. We run a trade deficit of close to $800 billion a year. And so this directly subtracts from this. This is why we're stuck in low-growth mode.

Paul Solman: Actually, growth has picked up considerably since Navarro and I talked. Few economists think unbalanced trade was hampering it. And even fewer think the new tariffs will.

A typical critic is Josh Bolten, who runs the Business Roundtable.

Josh Bolten: This will cause huge damage across broad sectors of the economy.

You maybe will be able to give a little bit of help to the steel and aluminum industries. You're going to cause damage across any number of downstream industries and any number of industries that export to countries that are likely to retaliate.

Paul Solman: Well, I guess we will see. The Trump-Navarro policy of tax cuts to boost investment and tariffs to defend American producers will get a test run at last, for better or worse.

For the "PBS NewsHour," this economics correspondent Paul Solman.

Hari Sreenivasan: For the record, we have repeatedly requested interviews on trade with members of the Trump administration. Our requests have not yet been granted.

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