http://www.forbes.com/sites/timworstall/2016/08/06/donald-trumps-economic-adviser-peter-navarro-is-simply-wrong-about-trade-wholly-and-entirely/#1b67b0114f26AUG 6, 2016 @ 11:07 AM 9,365 VIEWS The Little Black Book of Billionaire Secrets
Donald Trump's Economic Adviser, Peter Navarro, Is Simply Wrong About Trade - Wholly And EntirelyTim Worstall , CONTRIBUTOR
Donald Trump has now announced his economic advisory team and if we’re honest about it it doesn’t look good for the free trade and free market types like myself. Actually, it doesn’t look good for economic rationality either. As Tyler Cowen tells us the most important person on the team is probably Peter Navarro. Not because he’s the most famous nor because he’s the most politically involved but because his views are so at odds with generally accepted economic theory. Stephen Moore has been delightfully overenthusiastic over the years about the merits of tax cuts but that is an overenthusiasm rather than a flat out denial of the basics of how economies work. Navarro seems to be stuck in a mercantilist view of trade. One that we know is simply wrong and one which led Napoleon to make a quite delightfully silly error back in the day.
Mercantilism is, essentially, the thought that exports are what make a place richer, imports make it poorer. This was the standard view back in the day and this led to Napoleon’s error. At one point during the wars with England there was a crop failure in Britain. The standard thought of the time was that if France exported grain to Britain then this would make France richer. For British gold would flow to France. So, despite there actually being a shooting war going on between the two countries Napoleon allowed the wheat exports.
This is of course absurd – Britain gained from this as sure, it lost some yellow metal and didn’t lose tens of thousands of people to starvation. It was the imports which made Britain better off that is. And that’s the general view about trade today. Imports are what make us richer, imports are the point and purpose of trade itself. Exports are our sweat, blood and tears that we send off for Johnny Foreigner to consume while imports are those of J. Foreigner that we get to consume ourselves. It really is true that imports are the reason we bother to trade at all.
This is not what Peter Navarro believes at all. And he’s the source of Donald Trump’s misunderstandings on this point too. As Tyler Cowen points out:
In contrast, his “The Coming China Wars” is mostly a series of emotional diatribes against the Chinese government, opening with charges of cheating and slave labor and never much considering the positive side of Chinese economic growth.
His film is in this same polemical, neo-mercantilist vein. In an e-mail to me he writes: “The film features a priceless history of how Bill Clinton sold America down the Shanghai River.” Trump’s endorsement read: “DEATH BY CHINA is right on. This important documentary depicts our problem with China with facts, figures and insight. I urge you to see it.”
A useful guide to economic rationality is whether Don Boudreaux approves of you or your ideas. He does not. And one quote from Navarro himself which seals the deal for me:
Is it about declining U.S. dominance?
That would be jingoistic. It doesn’t matter to me who’s the most powerful or profitable country in the world. All countries want to be prosperous. What’s happening is a zero-sum game between China and the U.S. where their gain is our loss. It’s about the fact that we don’t make things any more, that we lost our manufacturing base, the 25 million people who can’t find a decent job in this country, the zero wage growth. I want consumers to connect the dots, to go to any store and look at the label and connect the dots between buying cheap China products, which is better for the wallet, and all the other things we lose, like jobs.
The idea that an economist could describe trade as a zero sum game is an absurdity in and of itself. It’s a voluntary exchange – and thus, by definition, it must be beneficial to both parties taking part in it. It’s also simply not true that the US has lost its manufacturing base – manufacturing production is just around all time peaks (yes, obviously, adjusted for inflation). So Navarro is wrong both in theory and also in fact. This does not bode well for whatever economic policy Donald Trump might follow if elected.
