Economists lambast Peter Navarro’s crooked research that derails US trade policy

By Xie Wenting Source:Global Times Published: 2018/7/25 19:05:42 Last Updated: 2018/7/26 1:24:38

Peter Navarro's book Death by China is considered politicized, and is poisoning the US-China policy

He has little contact with or credibility among reputable economists or China experts

His ideas are being adopted for their emotional appeal rather than their prospects for solving problems

China's national flags fly over showrooms of American car brands Ford and Buick in Beijing on April 8. Photo: VCG

US President Donald Trump's aggressive trade policies toward China don't come from nowhere. 

Behind him, Peter Navarro, Trump's top trade advisor, is viewed as the key force who is pushing these policies.

Navarro, a Harvard graduate, is a longtime China critic, and his aggressive economic policies are deemed "out-of-the-mainstream" in Western media, academia and the political world. His hawkish China attitude is best summed up in his book Death by China (2011) and the ensuing documentary, in which he accused China of being America's top enemy and called for imposing the punitive tariffs that Trump is now pursuing.

The New York Times reported that Navarro caught the eye of Trump by fanning his "protectionist instincts."

Navarro "pushed the president to pursue aggressive trade policies including tariffs and investment restrictions," often "over the objections of other advisers like Steven Mnuchin, the Treasury secretary." Most Western mainstream economists said that the hefty tariffs that Navarro advocates are "too blunt" and an ineffective tool, according to the New York Times article.

"While purportedly an economist by training, Navarro's economics is misguided, inaccurate and politicized," Stephen Roach, a faculty member at Yale University, and former chairman of Morgan Stanley Asia, wrote in the Global Times.

Zhang Tengjun, an assistant research fellow at the China Institute of International Studies, agreed that Navarro's extreme economic view is highly politicized. He told the Global Times that Navarro's thought shows the fundamental changes in America's strategy toward China.

The Clinton administration preferred to do business with China, believing this was beneficial for the US. The administration also harbored the idea that the engagement of China in the global agenda could bring about political changes. But this thought was proved misguided over the time. Now China is viewed by many as a rival, and its high tech development is challenging US hegemony. "So people like Navarro began to develop extremely hawkish views," Zhang said.


Not mainstream

Navarro is a business professor at the University of California, Irvine. In 1992, he ran for San Diego mayor but failed.

In 2011, he published Death by China. In the book, he maliciously accuses China of causing a massive US trade deficit and damaging the US manufacturing base using myriad ways including currency manipulation, export subsidies and protectionism. He said that imposing tariffs on Chinese commodities could help change the current situation.

Trump later openly praised the book and in his run for presidency, he enlisted Navarro on his team.

The New York Times article said directly that Navarro's thoughts "do not align with most mainstream economists." "Many of those experts say Mr. Trump's planned tariffs would backfire - by raising costs to American businesses and consumers, and by inviting retaliation against American exporters," said the article.

According to Roach, the fixation on the bilateral trade imbalance which is the backbone of Navarro's narrative is flawed. 

First, the US trade problem is multilateral, not bilateral. In 2017, the US had trade deficits with 102 countries. In keeping with one of the oldest principles of economics, the distribution of those trade deficits from country to country reflects a comparative advantage.

Second, trade today is less about individual nations and more about multi-country supply chains that reflect a wide cross section of components and parts that come from many nations. Third, America's saving-investment imbalance is likely to get worse in the years ahead, pushing the multilateral trade gap deeper into deficit, he noted.

Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, told the Global Times that the key reason behind America's trade deficit lies in its people's low savings.

Since the 1980s, the Chinese people's annual savings rate has been 10 percent more than their American peers, and in many years, the figure is more than 20 percent.

"If the US wants to change its trade deficit, they should increase people's savings rate as well as cut spending in fields including the military," he said.

The retaliatory tariff increases on Chinese commodities will eventually cause price increases for downstream firms and American consumers, because Chinese commodities enjoy a large market share in the US, he added.

Many downstream factories as well as American farmers have already been harmed by the trade war.

Tim Worstall, a fellow at the Adam Smith Institute in London, wrote in Forbes that as Adam Smith pointed out, nothing is so ridiculous as concern over the balance of trade.

"If we're to talk about the balance of trade then we should talk about trade, not just trade in goods. Hollywood's exports are services (because movies are classified as services) and there's a substantial surplus there," he wrote. "Anyone shouting about only the goods deficit is by my definition wrong."

Hollywood movies have now captured a big chunk of China's box office. Last year The Fast and the Furious grossed 2.67 billion yuan  ($394 million) and Transformers 5 took in 1.51 billion yuan in the Chinese mainland, which was even higher than their North American box office. 

He went on to say that the reason that America sets up companies offshore is "because of America's high taxes or burdensome regulations."

Navarro's shallow economic understanding is "embarrassing," given that he is now running US trade strategy, according to Worstall.

A political move

Chen Fengying, a research fellow at the China Institute of Contemporary International Relations, told the Global Times that what Navarro portrayed in his book doesn't represent today's China and there is no need to use economic theories to refute him. "We only need to show him reality," she said.

She added that Navarro's accusations about China's sweatshops and the government's indifference toward pollution to gain an economic edge are far from truth.

Zhang Tengjun noted that what Trump and Navarro advocate may be out of a motive to cater to certain groups of voters who hold a hostile attitude toward China, rather than any coherent economic principles.

Navarro tries to make China a "scapegoat" for America's domestic issues and in this way alleviates pressure on the Trump administration, he said.

Zhang said the US tariffs are surely "trade bullying," which means a stronger country uses wrongful measures to compel the weaker one to give in to its agenda. And some go even further and refer to America's malfeasance as "trade terrorism," according to Zhang. "This shows the seriousness of the matter."

A recent Washington Post article said most economists think Navarro is "out of his depth" when it comes to China.

Foreign Policy interviewed a dozen top China experts from academia, the private sector, think tanks and those formerly in government. They all said they either "didn't know Navarro" or "had little interaction with him."

"My recollection is that he generally avoided people who actually knew something about the country," Kenneth Pomeranz, a professor of Chinese history at the University of Chicago and formerly at UC Irvine, told Foreign Policy.

Patrick Chovanec, chief strategist at Silvercrest Asset Management and a frequent commentator on the Chinese economy, was quoted in the article as saying, "The China that [Navarro] describes in Death by China bears only a tangential relationship to the China that I lived in for a decade."

In addition to launching attacks on China's economic policy, Navarro also accused China of expanding military capabilities through economic gains and colonizing Africa.

James McGregor, a former chairman of the American Chamber of Commerce in China, told Foreign Policy that Navarro's book and his documentary "have close to zero credibility with people who know the country," and are filled with "hyperbole, inaccuracies" and a "cartoonish caricature of China that he puts out."

But this also exposes a lack of China experts now in America. The Washington Post said that actual China experts are now largely abandoning their attempts to influence the country's policy, due to the harassment and persecution they suffered during the Cold War. This created a chance for Navarro's rise as a dubious "China expert."

Zhang said that the older generations of China experts really understood the country and they had affection toward China. They experienced the age where the US wasn't the only world leader, so they didn't have the "egoistic" mindset that America should be the leader and winner of everything, a mindset that people like Navarro have.

Mei cautioned the Global Times that even as the US imposes heavy tariffs on Chinese goods, the manufacturing industry won't return to the US. "People will just buy things from other countries and this could lead to inflation and is detrimental to the country's macro-economy," he said.

"It will also put a brake on investment in the US as investors can't know what the future environment would be," he added.

Zhang said that China won't start a conflict, but it won't fear a trade war either.

Most US companies that have been dragged into the trade war by the Trump administration want negotiations.

"There are no winners in a trade war," William Zarit, chairman of the American Chamber of Commerce in China, wrote in a press release on its website. "We urge the two governments to come back to the negotiation table with the aim of having productive discussions based on achieving results - focused on fairness and reciprocal treatment - instead of escalating the current situation. Only a mutually-beneficial solution for both the US and Chinese economies will be sustainable for the long run."

Newspaper headline: Out of his depth


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