The Cable

Economists Take Aim at Trump Trade Theory — Again

Top Trump trade advisor Peter Navarro said Monday trade deficits undermine national security, but economists disagree.

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Peter Navarro, the head of Trump’s newly formed White House National Trade Council, said U.S. President Donald Trump will make addressing trade deficits a top priority to boost the U.S. economy in remarks that drew criticism from experts and economists.

“Bilateral trade deficits do indeed matter, and it is a critical economic goal and in the interest of national security to reduce these deficits in a way that expands overall trade,” Navarro told an audience of business economists on Monday. He said the administration would tackle trade deficits, in effect find a way for the United States to export more than it imports on a bilateral basis, to close the deficit gap. “If we are able to reduce our trade deficits through tough, smart negotiations, we should be able to increase our growth,” Navarro said.

Navarro’s comments drew skepticism from trade experts and economists across the political spectrum, who said that line of thinking on economics was flawed. Economists say trade deficits aren’t an indication of good or bad economic times, but rather a function of savings and investments. (The United States enjoyed a stellar trade surplus during the Great Depression in the 1930’s, for example.)

“He won’t find economists — either on the left or the right — that believe trade deficits are this huge a problem,” Chip Roh, a former assistant U.S. trade representative and trade lawyer, told Foreign Policy. “It doesn’t make economic sense.”

“When economists hear, ‘Our goal is reduce the trade deficit,’ it baffles us,” Gordon Hanson, a trade economist at the University of California, San Diego, told FP. “He’s either using it as a cheap political ploy or there’s a misconception — he doesn’t understand how it operates.”

Navarro named a few bad apples in his speech. He called out China for purposefully undervaluing its currency to boost exports, and India and Japan for their trade barriers. And he said Germany was also in the administration’s sites. “Germany is one of the most difficult trade deficits that we’re going to have to deal with but we’re thinking long and hard about that,” he said in his speech Monday. In January, Navarro ripped into Germany for its trade policy, accusing the country of currency manipulation. German Chancellor Angela Merkel will visit Trump in Washington on March 14 amid the disagreements over trade. 

Navarro isn’t a fan of foreign investment in the United States either, it seems. The country would experience “conquest by purchase” if trade deficits aren’t addressed and foreign investors keep buying up chunks of the U.S. economy, Navarro wrote in an op-ed for the Wall Street Journal published Monday. “How might that alternative version of conquest by purchase end for our sons and daughters? Might we lose a broader cold war for America’s freedom and prosperity, not by shots fired but by cash registers ringing?” he wrote.

Trump and his advisors have said they favor bilateral trade deals over multilateral deals, which they argue have hurt American workers. In his first weeks in office, Trump backed out of the Trans-Pacific Partnership agreement, a deal the Obama administration had been pursuing with 11 other countries, and said he would renegotiate the North American Free Trade Agreement. That was a step away from his rhetoric on the campaign trail, when he vowed to scrap NAFTA altogether.

Trade experts are still nervous he may do so. “It would be a disaster for the us and the world economy if we pulled out of NAFTA,” William Krist, a trade expert with the Woodrow Wilson International Center for Scholars said.

Photo credit: SAUL LOEB/AFP/Getty Images

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. @robbiegramer

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