WASHINGTON – The Trump administration’s top trade adviser said Monday U.S. trade deficits are a threat to national security that could cause the loss of American freedom and prosperity.
Outlining an unapologetically aggressive trade policy, Peter Navarro, director of the White House National Trade Council, accused economists and the media of ignoring the risk posed by trade deficits and embracing an “antiquated view of the world.”
Navarro singled out China and Germany in particular, saying that “in the real world of fixed exchange rates, managed floats and outright currency manipulation,” the U.S. trade deficit cannot adjust as economists say it should in theory.
That leads to large and persistent trade deficits which leave the United States open to foreign takeover, he said in a speech to the National Association for Business Economics.
“Suppose it is not a benign ally buying up our companies, our technology, our farmland and our food supply chain, and ultimately controlling much of our defense industrial base,” he warned. “Rather it is a rapidly militarizing strategic rival, intent on hegemony in Asia and perhaps world hegemony.”
That could lead to the loss of a “broader cold war for our freedom, prosperity and democracy, not by shots being fired but by cash registers ringing,” and ultimately even to loss of a “hot war.”
He said China, which accounts for nearly $350 billion of the U.S. trade deficit, about half the total, is engaged in a “conscious strategy” to dramatically increase investment around the world, including in the United States and in Germany, where it is buying one company a week.
He railed against China for manipulating its currency and for rules that include requiring companies that want to operate in China to enter into joint ventures with national firms.
Navarro said the Trump administration will focus on tough actions aimed at “eliminating currency manipulation and other forms of trade cheating,” which will create growth and jobs.
Asked about Trump’s pledge to declare China a currency manipulator — a move that would start a process that could lead to trade sanctions — Navarro said the Treasury Department will issue a report next month.
Pressed on whether China’s currency is undervalued currently, Navarro said that would be determined in the Treasury report, but it is “clear that historically the Chinese have taken aggressive policies to make sure the currency is undervalued.”
Germany, which accounts for $65 billion of the U.S. trade deficit, is “one of the most difficult trade deficits that we’re going to have to deal with,” because their stance is they cannot as a member of the European Union and eurozone hold independent trade talks with Washington, the official said.
“That may or may not be true,” Navarro said, but noted that with Chancellor Angela Merkel’s planned visit to Washington on March 14, “I think that it would be useful to have candid discussions with Germany about ways we could possibly get that deficit reduced outside the boundaries and restrictions that they claim that they are under.”
Navarro dismissed as “obvious alarmism” that the Trump trade threats — including unilateral import tariffs on countries like Mexico and China, and working outside of the World Trade Organization — could provoke a trade war.
Navarro’s ideas on the trade deficit stand in stark contrast with generally held views of many economists, a difference he seemed to relish in his remarks. Most economists see trade deficits as an outcome of a nation spending more than it saves, rather than the result of bad trade deals. They worry that the measures pushed by Navarro, such as higher tariffs, would raise prices for imports of consumer goods such as clothes, toys and electronics.
According to Navarro, the White House’s focus is on eliminating cheating, including dumping products in the U.S. market at artificially low prices, and “the broader goal of our free trade policy is not to raise tariffs or non-tariff barriers but to encourage our trading partners to lower theirs.”
Navarro described his job as leading a “SWAT team” in the White House that helps U.S. companies contend with unfair trade practices abroad and burdensome regulations at home.
His remarks also sketched out the full ambition of Trump’s trade policies. For example, Navarro said the administration wants to encourage more companies to make or source their parts in the United States, rather than simply assembling foreign-made parts in the U.S.
“One of the major goals of the Trump administration is to reclaim all of the supply chain and manufacturing capability that would otherwise exist if the playing field were level,” he said.
Yet this could be a tall order; many large U.S. corporations source parts from dozens of countries around the world, a result of decisions made over decades. Boeing, for example, uses parts from 90 countries.
Glenn Hubbard, who served as George W. Bush’s top economic adviser, said during a press briefing at the conference that forcing the relocation of supply chains “would be very disruptive.”
“I don’t think business people are comfortable with that,” Hubbard added.
Doug Elmendorf, former director of the Congressional Budget Office and a former Clinton administration official, said that Trump’s proposed tax cuts and deregulatory agenda could accelerate the economy’s growth. But the administration’s trade policies could offset those benefits.
“Their approach to trade policy is one thing that will lower growth,” Elmendorf said.