Peter Navarro's "The Era of American Complacency on Trade Is Over" Op-Ed—Annotated and Explained

C. Fred Bergsten (PIIE) and Melina Kolb (PIIE)

June 25, 2018 10:45 AM

President Trump’s trade advisor, Peter Navarro, has criticized the six other G-7 countries for not recognizing their roles in supposedly contributing to the US global trade deficit. His critique ran in a New York Times op-ed on June 8. C. Fred Bergsten, in a handwritten annotation of Navarro’s piece, explains why Navarro’s main premise is based on a fallacy. But Bergsten notes that Navarro has some valid points on the need to reduce certain foreign trade barriers.

An Expression of “Concern and Disappointment”

AN EXPRESSION OF “CONCERN AND DISAPPOINTMENT”

Central to Navarro’s argument is the idea that other countries are responsible for the US global trade deficit. This is wrong. In fact, the president’s own 2018 Annual Economic Report of the President says the deficit is a result of macroeconomic conditions, not trade: “If a country invests more than it saves, or imports more than it exports, it finances the resulting deficit through foreign borrowing.” The report then states that policies that try to affect the trade balance without considering the overall savings and investment of the country “will be hard-pressed to succeed in the long run.”

Consider Germany

CONSIDER GERMANY

Germany also successfully sells cars in countries with higher import barriers than the United States, like China and Japan, and with wages that are much higher than those in the United States (a factor that is even more important than tariffs).

Germany Runs Huge Trade Surpluses with the United States

GERMANY RUNS HUGE TRADE SURPLUSES WITH THE UNITED STATES

Germany’s bilateral trade surplus with the United States has little economic significance since it is normal in trade to have surpluses with some countries and deficits with others. But there is reason to complain about Germany’s global current account surplus. The European Commission agrees that Germany should be spending more on public investment and other measures to stimulate growth, but so far the German government has refused to implement them.

Trade Deficit in Goods with Japan

TRADE DEFICIT IN GOODS WITH JAPAN

Japan does have room to open up to American agricultural products, and this would have been modestly but meaningfully accomplished if the United States had stayed in the Trans-Pacific Partnership (TPP). Before Trump pulled out, Japan had agreed to reduce barriers to large US exports like beef, pork, and soybeans. Japan may be willing to negotiate if the deal were resurrected.

As for Canada

AS FOR CANADA

The Trump administration often cites examples of high tariffs or trade barriers protecting markets abroad but ignores US protectionist policies—like its 49 percent tariff on sugar and large subsidies to the agriculture industry. Ironically, one country the United States does not have a trade deficit with is Canada.[1]

Trade Must Be Not Only Free But Also Fair and Reciprocal

TRADE MUST BE NOT ONLY FREE BUT ALSO FAIR AND RECIPROCAL

Put another way, the US global trade deficit exists because America has a strong dollar, a government budget deficit funded by foreign creditors, and low household savings and Americans have more money to spend on imported goods—not because of foreign tariffs.

The Right to Defend Those Industries

THE RIGHT TO DEFEND THOSE INDUSTRIES

The chief target of any US trade offensive should be China, as President Trump has argued repeatedly. But these national security tariffs are not only threatening to damage US alliances and global economic relationships the United States needs to effectively confront China on real trade abuses but also inviting retaliation that will directly cost US consumers and hamper exports—undermining the administration’s primary goal.

Notes have been edited to fit the screen. Here is the fully annotated document from C. Fred Bergsten.

Note

1. In goods and services, the United States has a $3 billion surplus with Canada including energy, or $58 billion surplus excluding energy for 2017, according to the US Bureau of Economic Analysis and US Census Bureau.

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