As I thought, President Trump is off to a great start thanks to the much better team of people he now has compared to last time. One exception: he brought back Peter Navarro, and he allowed him to design the massive April 2nd tariff orders. Dr. Navarro for most of his career was a Hillary Clinton Democrat who promoted terrible economic ideas, just like fellow Ph.D. economist Paul Krugman.
His obsession is protective barriers that will bring back manufacturing to America, especially autos. But he is about 50 years behind the times. He still thinks it’s 1970 and Japan and Germany, with brand new factories, are flooding the world with cheap, well-made cars.
Times have changed. Basic economics dictate most vehicles today are made in the part of the world where they are sold. Japanese and German car makers long ago realized it’s cheaper to build in North America, in non-union plants, to supply our market. Most of our imported cars actually come from other North American countries — Mexico and Canada. Thanks to free trade agreements, almost all American goods easily cross these borders both ways.
In fact, American manufacturers are so integrated with our neighbors, the recent tariff scheme is shutting down American car plants as supply chains are disrupted.
Navarro makes a misleading defense of his position by saying the real money in autos is in drive trains — engines and transmissions — and these are much more likely to be imported. Well, sort of, but not a big deal. The real profit center is with the white-collar engineers who come up with the technology — in offices, not factories, in Detroit, Tokyo, or Germany.
It’s also hard to physically make engines here, partly because of environmental regulations for casting steel and aluminum. These types of factories are highly automated, and don’t employ so many line workers.
lots of big countries — Britain, Brazil, Netherlands, Spain, Australia, and Saudi Arabia, yet they all get hit with his 10% minimum tariff. Why? We should be rewarding every country where we have a surplus or near surplus; they are obviously wide open to us.
Second, look at this list of countries that are hardest hit by his tariffs. Most are insignificant traders, like North Macedonia. Why bother with a punitive tariff for them? They aren’t stealing any jobs and are in no condition to buy much from us, anyway.
Also, consider countries like Vietnam and India that do run big trade deficits with us. For decades we have promoted them as a friendly alternative for Chinese goods. This is succeeding. We might consider moderate tariffs to encourage open trade, but they, like other parts of Asia – the Philippines, Malaysia, etc. — are already doing a great service for us, just by competing with the Chinese.
We also have small, super high-tech countries like Israel (which has had a free trade agreement since Ronald Reagan), Switzerland, and Taiwan. They are never going to be big buyers of American agriculture products or vehicles, while they churn out some of the world’s leading-edge products. How would we ever expect to run trade surpluses there?
Likewise, Canada runs enormous surpluses with us, but it’s due to one factor — the Oil Sands. By some measures this is the world’s largest potential petroleum source. It has to go through America to be refined or exported. It allows other American oil, such as in Alaska, to be sold abroad. Why do we want to mess with this? We should be importing more of this oil and building the Keystone XL Pipeline to do it.
Now certainly, there are countries that we ought to tariff. Red China, with its slave labor/predatory pricing economy, is the main one. We want to get them out of our supply chain as much as possible, for national security reasons.
We should also ding countries like Japan, South Korea, and parts of the EU, which use non-tariff barriers to keep out high demand American goods, like our food products.
But we don’t need Navarro’s tariff cannon to kill these houseflies. Going forward, the new levies are expected to amount to a minimum of $700 billion in annual collections. Our whole federal government brings in less than $5 trillion a year in all manner of taxes. This is not going to work.
Tariffs have always had an appropriate place as a revenue source for our federal government, when done in moderation, like any other sales or excise tax. They are also helpful when dealing with rogue economic powers, like Red China.
But the Navarro tariffs are poorly thought out, and the markets are reacting badly, as they should. Placing such a huge cost on our economy when it appears that meaningful tax cuts are still months away is a poor idea.
A great thing about Donald Trump is that he doesn’t stubbornly hold onto a losing hand. I expect tariff policies to undergo some major changes in the next few weeks, and to be seeing a lot less of Peter Navarro.
Image: U.S. Mission Geneva
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