One of Donald Trump’s economic advisers will point out the shortcomings of U.S. trade policy by citing less-popular passages of classical theory. Another has witnessed the deficiencies firsthand in the steel industry.
Peter Navarro, a trained economist with a doctorate from Harvard, says Trump’s critics ignore the caveats in David Ricardo’s early-19th century work on the benefits of free trade. As former chief executive officer of steelmaker Nucor Corp., Dan DiMicco wants Trump to slap tariffs on Chinese goods.
Navarro, an economics professor at University of California at Irvine who advises the Trump campaign on trade issues, explains the Ricardian formula depends on countries operating with freely floating exchange rates and assumes all involved play by the rules. But Navarro says China is in violation of both conditions, so the theory breaks down.
“I know how it works, but more importantly I know how the Ricardian trade model doesn’t work,” Navarro, who over a 15-year period has written books and directed a documentary on the U.S.-China trade relationship, said in a phone interview. “Bad trade deals are at the heart of America’s economic malaise. Trump knows that in order for the global economy to prosper, we need to trade freely. But he’s not going to stand, for a second, cheating.”
Navarro blames Nafta and China’s 2001 entry into the World Trade Organization for much, if not all, of a 15-year economic slowdown in the U.S. The world’s largest economy grew an average 1.8 percent during that span, down from 3.4 percent growth from 1986 through 2000.
China is Trump’s biggest target, with his campaign charging that illegal export subsidies, currency manipulation, intellectual property theft, and lax worker safety and environmental standards amount to an “undeclared trade war” on the U.S.
“There’s a natural antipathy on the part of the voters to a continuation ofglobalization as we know it,” Navarro said. “It’s simply a code word today for bad trade deals that disadvantage the American people.”
Navarro and DiMicco, the campaign’s senior trade adviser, slam both political parties for not recognizing this “war,” much less fighting it. They point to Ronald Reagan as the last president to tackle the issue responsibly, and use his example as inspiration for Trump’s plan of action.
Chinese Tariff
First, Trump will play “nice guy” by employing a “defensive” 45 percent tariff on Chinese goods, said DiMicco. That’s merciful compared with the 100 percent tariff that Reagan slapped on Japanese electronics in 1987, DiMicco said in a phone interview.