October 26, 2018

Peter Navarro

Peter Navarro, Assistant to the President for Trade and Manufacturing Policy, joins to discuss trade wars, tariffs, and the threat from China.

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One of the most influential men in the Trump White House is Peter Navarro.
Tariffs, trade wars, and the threat from China, this week on ‘Firing Line.’

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Until two years ago, he was best-known as a controversial economist, author, and filmmaker.
Then Peter Navarro joined the Trump administration on the very first day.
His official title is Assistant to the President, and he directs the newly created White House Office for Trade & Manufacturing Policy.
Now he is best-known as the strongest defender of President Trump’s escalating trade war with China and the U.S. tariffs that are changing relationships with both America’s allies and adversaries around the world.
Peter Navarro, welcome to ‘Firing Line.’

Nice to see you.

I’d like to begin by asking how you view China.
And I’m not talking about the administration’s broad industrial policy towards China.
I mean, how does Peter Navarro view China?

I see China as an economic threat to the welfare of working men and women in this country, particularly those who work with their hands in manufacturing.
And, you know, back in the day, in 2006, when I wrote ‘The Coming China Wars,’ I was a voice in the wilderness, but it’s conventional wisdom now.
And what emerges is a picture of, essentially, an authoritarian state, first of all, not a democracy.
More importantly, from an economic point of view, a non-market economy that uses all manner of unfair trade practices, basically to engage in what has emerged, I think accurately, as a description of a predatory behavior.
And we now have a president, in Donald J. Trump, who is willing to stand up and defend America from those kind of practices.
And it’s purely a defense.
It’s not an offense.
It’s a defense against that predation.

You helped articulate your view of China in a movie that you directed called ‘Death by China.’
And it was narrated by Martin Sheen.
And it really articulates an economic view of China’s ascendance.
And I want to show a clip of it.

Sure.
♪♪ All right.
That Chinese knife stabbing through the heart of the American map and the American economy is a really ominous view of China’s role on the world stage.

Yeah, and Martin Sheen, as he narrates, makes it also clear that problem really isn’t the hardworking people of China, the 1.4 billion people of China.
It’s the Chinese Communist Party government that basically engages in these predatory practices in the international environment.
And so you have — There’s these six strategies of economic aggression.
They protect their markets.
They attack global markets.
They go out and try to secure all the resources all around the world, whether it’s cobalt in the Congo or copper in Chile.
They dominate traditional manufacturing by any means necessary.
And then the last two have to do with the future, which is to acquire our technologies and our intellectual property and use that, basically, to capture the emerging industries of the future, things like artificial intelligence and robotics.

The view you espouse is a view of China’s escalation, economically, and now it has impacted American manufacturing and the American economy.
I mean, that’s the robust argument of the film, as I understand it.

First and foremost, Chinese Communist Party wants to preserve itself.
That’s like number 1, right?
Number 2 — it’s clear that China wants to dominate the South China Sea, the East China Sea and all the countries of Asia, economically.

And do you think it’s limited to economic hegemony or do you think there’s a military hegemony that they also seek?

Well, certainly, they’re building ships and planes and missiles and the like a lot faster than anybody in the world.
And, regrettably, a lot of that’s financed by the American consumer at Walmart.
I think what’s important here is that, from the American point of view, all we seek is peace and prosperity.
And in order to do that, we have to defend our markets and our economy against the kind of unfair trade practices that many countries engage in, China, of course, being the outlier, because what’s different between China and, say, Japan and Europe is that it’s a non-market economy.
It’s a state-directed economy.

Your primary concern, it seems to me, has been, in the last 15 years, a concern about the hollowing out of the American economy to China, specifically the manufacturing base.

Correct.

And I just wonder to what extent the national-security argument buttresses what are sort of economically protectionist policies.

Yeah, I love that you frame it that way, because one of the key principles of this administration and President Trump is economic security is national security.
Unless you have a strong manufacturing and defense industrial base, you can’t have the economic prosperity you need and you can’t have the national defense that you demand.

And does that mean returning manufacturing jobs to the United States in order to have strong national defense?

That absolutely means — And economic security is national security.
Strengthen the manufacturing and defense industrial base.
All the policies — Think about this.
All the policies the president is doing synergistically work to that goal.
When you put on steel and aluminum tariffs — think about this — what has that done?
That has brought in a flood of new investment both from homegrown investment, as well as foreign investment in the steel and aluminum sectors.
What does that do?
Increases productivity, and, therefore, wages go up.

What data do you have on the steel and aluminum tariffs already?
Because we have a basis for the steel and aluminum tariffs in 2002 and 2003.
And I’ve heard you say that, you know, there’s conflicting data about it.
But there does seem to be overwhelming data that they were ineffective, in terms of creating jobs in the United States.

Back in the Bush years?
Yeah, that didn’t work.
I’m not sure why it didn’t work.
He left them too soon.
It might have worked.

Well, it wasn’t working, which is why he took them away, ’cause we lost 200,000 jobs.

Let me tell you what’s happened here.
The day those steel and aluminum tariffs were announced, we had the C.E.O.s from U.S. Steel and Century Aluminum announcing expansions of capacity.
Century Aluminum was a $150 million expansion.
We’ve had a steady increase in investment.
We’re getting our steel and aluminum industries back.
Workers are coming in.
And it’s a beautiful thing.
And we need those industries.

It sounds like a national-security argument for protectionism.
And I’ll just tell you — Defense Secretary Mattis says that we have, right now, before any of those smelters started back, 30 times more capacity than was required for our national defense.

So, that’s an astute point, but here’s what I think is the best answer.
There’s a difference between needs for national defense, which are narrow, and national security, which are broad.
We need to have it, domestically, for our infrastructure.

We can get it from our allies.

Well, I’ll give you an example.
When — It was the first Gulf War.

Mm-hmm.

We had a number of our friends refuse to provide us shipping at a time that we needed it, which stalled our operations for a long time.
I think the idea is that we need to have this stuff domestically.

And let’s get back to China.
Here’s what I’d like you to explain to us, is how a tariff is — or how tariffs are going to contain an ascendant China, economically.

It’s a false premise.

Okay.

We’re not trying to contain China.

What are we trying to do?

We’re trying to defend the American economy from economic predation and aggression.

And is that the goal?

Not just from China, but from…
From our allies.

…from Germany, when it charges a tariff on autos four times higher than ours.

But do you think —
That’s unacceptable.

Do you think China and Germany, in that context, are equal offenders?

Well, the president has said that Europe engages in trade practices that are every bit as bad as China.
Now, that’s a separate argument from the geopolitics, right? —
I know, because you’re sitting here making a national-security argument against China.

But let me say, with Europe, if you look at our trade deficit with Europe, it’s $150 billion, right?
Just rough rule of thumb is $1 billion of trade deficit is 6,000 jobs you ship offshore, okay?
So it’s a big number.
And the only reason why we have that deficit is because of a whole range of unfair trade practices that Europe engages in.
That’s not fair.

Do you think the trade deficits — are they inherently different if it’s a trade deficit with China and a trade deficit with our ally?

I think that, from a pure economic point of view, they’re the same, ’cause it’s basically offshore jobs, factories, and wealth.
And wealth — don’t forget that.
‘Cause when we ship off half-a-trillion dollars a year in the form of a trade deficit — right? — that money doesn’t stay over there.
It comes back and buys up our assets.
It’s like this giant reverse mortgage in the sky.
And that’s got to stop.

You know this because you’re a PhD economist, that you, that you, amongst your peers, are an outlier in this view about trade deficits mattering and that most economists will say, ‘But as long as the United States currency remains the global reserve currency, trade deficits don’t matter for the United States.’

Trade deficits that are chronic and persistent, like the United States have, are extremely harmful, ’cause they basically transfer wealth abroad.
They basically transfer factories abroad.
They transfer jobs.

And they increase —
And they depress wages.

But they also increase our consumer power, consumer power of Americans.
And our economy is 3.8% unemployment right now.
So if trade deficit are so bad, why is our economy so strong?

So, if you look at when China joined the World Trade Organization, in 2001, we went on a period of time where our growth fell from an average of 3.5% a year, in the preceding 5 1/2 decades, to 2%, a loss of 1.5% GDP a year, which is tantamount to millions of jobs and trillions of dollars of revenue, okay?
What was the difference?
It was, like, the explosion of the deficit, these unfair trade practices.
Now, President Trump, using tax cuts, deregulation, unleashing the energy sector, and bringing about these trade deals, has boosted that growth rate up now above 3%. We’re healthy and strong and moving.
But in order to continue that, we’re gonna have to restructure our economy, balance our trade deficit, and make sure that we have a strong manufacturing and defense industrial base.

But I just want to point out, though, that in the times since China joined the World Trade Organization, the American economy has grown, and we’ve also, in that time, weathered a global financial crisis.
So even though we’ve lost jobs in specific sectors, certainly in manufacturing, that’s due to, many economists would say, many more factors than simply China taking our manufacturing base.

So, there’s not a lot of people who work with their hands who want to relive 2002 to 2016, okay?
Those were not good times, particularly in the manufacturing community.

When was the first time you visited China?

Just before ‘The Coming China Wars’ was published.

2004.

Yeah, around that time.
And I wanted to go there before the book came out.

What’s the end game with the Chinese tariffs?
Because if President Trump keeps his promises, the Chinese have to save face.
They can’t back down either.
How do you see this resolving itself.

Well, first of all, I’m keenly attentive to this issue of face.
You know, I was in the Peace Corps in Southeast Asia for three years.

Is there a downside to tariffs?

Tariffs, when they’re used —
I mean to these Chinese tariffs.
Is there a downside in the U.S.?
No. No.

But what’s been so surprising to many who watch the Chinese retaliations is how targeted, how sophisticated they have been at targeting parts of the country that supported Donald Trump, politically, parts of the country that support Republican leadership, politically, and that this is an indicator for some who study —
Call that election meddling.

Yeah.

You could call that election meddling.

Do you think the Chinese are meddling in our elections?

Well, if you look at — Well, you just said they were.

No, you said you call it election meddling.
I didn’t.

What you said was they were targeting our districts, politically, right?

That’s been widely reported.
I mean, they are going after —
Here’s what — All we’re trying to do is defend ourselves.
Everybody in America knows that China steals from us and they cheat us.
And so when our president acts to defend our people from that and the Chinese respond by trying to bully our farmers or somebody who makes bourbon in Kentucky, what does that tell you?
It tells you that these people are bullies and that we need to stand up for them.

It also tells me they may not back down, and that’s why I don’t understand what the end game is.
It sounds to me like you’re not clear on what the end game is, either.

Oh, I’m clear what the end game is.
The end game is — defend our country from all unfair trade practices.

‘Firing Line’ has a tradition, as you know, of being the place on television that was hosted by William F. Buckley.

Used to watch it as a kid.

Back when you were a kid, when you were a free-market economist, when you were far more free trade and aligned, I think, with the ideas of that pillar of the modern American Conservative movement that really revolved around free-market libertarianism.
And, so, I want to show you an original ‘Firing Line’ clip and get your response to it.
This is the argument for open markets.
This is the argument that it raises the standard of living for all of our people, that while there are certainly specific and highly targeted detriments to specific industries — Even take manufacturing.
Manufacturing now is a bigger and more robust industry in this country than it was in 1969, when that clip aired.
It’s just that it looks different.

So, about a week ago, I was on a TV show, and somebody said, ‘Well, you used to be a free trader.
What happened to you?’
And it was like, ‘Well, when was that?’
It’s like, ‘I wrote a book in 1984.’
And the guy says, ‘Well, what’s changed?’
Well, for example, NAFTA came along in 1994.
China entered the World Trade Organization in 2001.
And we ushered in this era of globalism, the hallmark of which is massive unfair trade practices that basically drain the lifeblood out of the U.S.
economy.

But the standard of living — American standard of living has increased since then.
Americans have more consumer power.
Americans live at a higher level.
And the manufacturing industry is more robust than it used to be.

Well, I would —
We just have fewer jobs in manufacturing here because of innovation.

I don’t know where to start on that, but, for example, you take the auto industry.
Employment is dramatically down on that, and the degree of foreign content in the cars we actually assemble here is high.
We used to be a vertically integrated auto industry, where what we made, we assembled here.
Now that’s not the case at all.

But that sounds like a nostalgic view of a manufacturing economy, when we have automation.
We have more productivity per worker.

No, I’m all for automation, because with automation, you get higher productivity and higher wages.
We need to advance with the times, but what we don’t need to do is allow countries like China, say, to dump massive amounts of product into our country, put our workers out of business, and have our factories in Ohio basically ship off their machinery to Shanghai, where the Chinese make what we used to.
So —
I don’t think there’s a way to retool our economy to meet the changing —
Well, we have to do that.
There’s no question about that.
And this administration is strongly committed to that.
And what we really need to do is focus on getting our young generation equipped, basically, for the industries of the future.
Things will move faster.
But that’s a totally different issue.
I think the people in the factory towns of Ohio or Pennsylvania or Wisconsin or Michigan — they know what happened to them.

You mentioned automobiles.
And we’ve been talking about tariffs.
There’s a thing called the ‘chicken tax,’ which I know you know what it is.
The chicken tax is a tax on light trucks.

Yeah. One of the few really strong sectors in our economy is light trucks, and that’s because we have a 25% tariff on that.

Is there a possibility —
They’re not looking at the chicken tax.

They’re not looking at the chicken tax, but is there a —
The chicken tax is sacrosanct, okay?

But is there a possibility that it could be extended to all automobiles?

The president has raised, repeatedly, the prospect of imposing some level of tariffs on imported autos if he can’t get fairness from our allies.

Yeah. It sounds like you’re saying, ‘Yeah, there’s a good chance we could impose tariffs on automobiles.’

The president is looking into this.
But, again, it’s like — He only takes these actions if our partners are unwilling to stop treating us so poorly.

Do you think the tariffs are working?

I think that the tariffs will be highly successful on China, in terms of slowing down the theft of our technology and attacks on our industries, coupled with the new reforms on investment practices by foreigners taking technology.
It’s called FIRRMA.
Congress just passed that.
And it’s gonna be a long process, not just with China, but with all of these other countries.

You came into the administration and you said you had a couple of goals.
One, renegotiate NAFTA, get rid of NAFTA.
Two, encounter this ascendant China.
And three was get rid of TPP.

Well, actually —
Here’s what I want to ask.
You have been quite successful, the administration has, in renegotiating — I mean, you have the USMCA, which is a feather in the cap.
You have a renegotiated Korea deal.
Why not renegotiate TPP in a way that works with all of our economic allies in the region?
Because if you know anything about China, as you do, most people who know China think that if there were a regional economic alliance that didn’t include them, they would do everything they could to join it and that you could use that leverage in order to exact certain outcomes.

True.

Isn’t there an opportunity for the Trump administration to make TPP better?

We are, effectively, renegotiating TPP within the context of bilateral negotiations.

Are you working on a bilateral with Japan?

Yes.
That’s already been announced.

Yeah.

This is — I mean, this is like — Peoples heads are spinning, because, you know, initially, everybody, including people on Capitol Hill, were criticizing the president for being reckless about trade and talking too tough, and you’re gonna upset the applecarts.
And they now all understand, unless they haven’t been paying attention, that what the president’s firm commitments and principles to fair, free, and reciprocal trade do is — they bring people to the negotiating table and they get deals done.

The G20 is meeting in Argentina at the end of November, the beginning of December.
President Xi and President Trump are going to meet.
Why did The White House ask for that meeting?

It’s not clear The White House asked for that meeting.
That might have been reported in the press that way.

Apparently, Ambassador Branstad mentioned that to the American Chamber of Commerce in China.

I can’t comment on that.
What I can tell you is this.
It’s normal for heads of state to meet inside meetings, at the G20 or at the G7.

So you’re saying The White House didn’t ask for the meeting?

I have no — I can’t say one way or the other on that.
What I’m saying is that G20 — of course, he’s gonna meet with President Xi.

The president, as recently as August, said that the Chinese were manipulating their currency.
You have recognized that the Chinese manipulate their currency.
Why do they do that?
Why aren’t we calling them out for it?

Treasury Secretary Steven Mnuchin gets very upset when others in the administration talk about the particulars of currency manipulation.
Here’s what I can tell you, and I think —
Wait. So this is a turf war.
This is a staff turf war.

Yeah.
He views that as his domain.
Here’s what I can tell you.
China undervalued its currency and was the worst currency manipulator, it’s generally recognized, from about 2003 to about 2014.
And when a country undervalues their currency, what that does is — it makes their exports cheaper and it makes our exports more expensive.

You don’t think they’re doing it anymore?

Well, there’s more debate about it now, but it’s an interesting and important issue.

What are we doing, from a trade perspective, from your office, or from the administration, to compete with China not just in China, but what about the spheres of influence they are expanding to — Latin America, Africa, Southeast Asia?

The reality is that we haven’t done soft power very well for many, many, many decades.
There’s an awareness now that we need to do it better, and we’re moving —
You mean foreign aid?

No. I think that…
You mean foreign investment?

…we give away too much money and get nothing in return but the contempt of the people who take it from us, and that’s not President Trump’s style.
But to the extent that we can help build infrastructure projects in countries where American companies are involved and it builds our alliances and it’s mutually beneficial and it doesn’t drain our pocketbooks, that’s a good thing.
That’s soft power the Trump way.

Dr. Peter Navarro, thank you very much for coming to ‘Firing Line.’

Great pleasure. Take care.

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