A Case of Déjà Vu With Navarro

The following is a piece originally published at PennLive in August 2019. 

Nobody can say he wasn’t warned.

In the days leading up to President Trump’s announcement that he intends to impose a 10 percent tariff on an additional $300 billion imported Chinese goods, virtually every on of his advisors cautioned against the move. They said it could have a negative impact on the U.S. economy.

Treasury Secretary Steve Mnuchin, Chief of Staff Nick Mulvaney, Chief Economic Advisor Larry Kudlow, National Security Advisor John Bolton and even Robert Lighthizer, the president’s own trade negotiator, reportedly all said it was a bad move.

However, one man had the ear of the person who ultimately mattered – the President of the United States. That man is Peter Navarro.

Anyone who thinks that Peter Navarro might be some hard right economist nestled among a bunch of conservative advisors better look more closely. Peter Navarro is a liberal Democrat. He ran for Congress as one. He ran for other political offices as a “no growth” candidate. And he has some astonishing views on trade.

Having a Rasputin-like sway on trade policy, Navarro has apparently convinced the Commander in Chief that we are somehow immune to the problems that historically followed the imposition of punitive tariffs.

In the wake of the president’s announcement came the predictable reaction from the American markets. As they’ve done with each previous announcement of punitive tariffs, they took a tailspin.

At the close this week, the Dow Jones closed with the worst week of the year. The first day of the next, Monday, August 5 was the worst single day of the year for the Dow Jones. The market is more than 1,000 points off its recent all-time high.

This came on the heels of the Chinese response to additional tariffs. They devalued the yuan, their major currency. Signaling that the trade war had now escalated into a currency war, the U.S. immediately branded China as a “currency manipulator.” That’s been true for a long time, although not necessarily for the action they took last week.

And there were additional ominous signs for the economy in the wake of the latest tariff announcement. Bond yields also plummeted globally. The yield curve is now inverted, at its widest margin since 2007. (Remember what happened then?) The 10-year Treasury note yield fell below 1.74 percent, its lowest of the Trump presidency.

The economy is otherwise doing exceptionally well. There’s record low unemployment, raising wages, sustained growth and higher consumer and investor confidence. That’s usually enough to guarantee a president’s re-election.

The one thing that could derail the Trump train on the economic rail is an increased and expanded trade war. While the stock market isn’t the economy or the only indicator of it, it’s the one the president likes to cite the most. And why not? The market has been booming since he was elected.

But the market has also now sunk below where it was when the president began to aggressively pursue punitive tariffs as a way of getting a trade deal with China. Recently over a trillion dollars have been sucked out. That hits hard at individual’s 401 (k)s as well as the overall economy.

There’s been additional damage, too. Farmers have been particularly hard hit by the tariffs as the Chinese scaled back purchases of U.S. agricultural products as a result of the tariffs imposed on them.

All of this hits at the core the Trump constituency. Maybe the loyal base will stick with him out of conviction that he’s properly punishing the Chinese.

Let’s face it: the Chinese are not fair traders. They cheat. They manipulate currency. They steal our intellectual property.

But the best way to punish them is not with a trade war between the worlds’ two largest economies. That’s a lose-lose proposition. It threatens to undermine all the good the president’s wise polices of tax cutting and regulatory reform have done. And it threatens his re-election. Even his faithful supporters grow weary of watching their retirement saving evaporate.

A trade deal now looks less likely that it did just a few weeks ago. Perhaps there will not be a major overarching deal this year. But a mini-deal or series of micro-deals can get accomplished. After all, our president is the consummate dealmaker.

The current situation is bad for both China and the U.S. But President Trump has to run for re-election. General Secretary Xi does not.