tv Peter Navarro Outlines Trump Administrations Trade Policy at Economic... CSPAN March 6, 2017 8:26pm-9:16pm EST
and home and security reporter for the associated press will be on. she will talk about the newly revised travel ban. be sure to watch c-span's at 7:00on journal live eastern tuesday morning. join the discussion. the national association for business economics hosted a policy conference in washington dc. next, peter navarro, white house trade council director talks about the trade policy goals of the trump administration. this is 50 minutes. >> nabe is here for the 33rd
economic policy conference. wonderful to see so many of you with us here. our conference theme this year is recalibrating policy growth or policy for sustained growth. i think that is quite apropos given the topics that will be debated at our very first opening session. i'm delighted to invite our moderator for the session, the chief economist of core logic. the cochair of our planning committee for this conference to introduce our speaker. >> thank you so much stewart. it is a pleasure to of light -- invite peter navarro today. he is the director of the white house national trade council.
has been the, he professor of economics and public policy at the university of california irvine for the last 25 plus years. i taught in san diego before that. he comes with a great deal of experience. join me in welcoming peter to the platform. [applause] peter: good morning. it is not church, good morning. i want to thank them for this kind invitation to deliver this keynote address. it is indeed a great honor. the broad topic i want to talk about is whether trade deficits matter. before i do that, let me tell you a little bit about what i do as the director of the white house national trade kelsey.
counsel. a trade council swat team. this is to help our ranchers and farmers with any type of trade problem they may be having. whether it is with a cheating competitor or difficulty within our own bureaucracy or anything in between. every day as the requests of ir assistance come in, am amazed by how hard it is for our companies to compete on a level pailaying field. iconheartland of america is grappling with a practice called country hopping. two of the south korean competitors, lg and samsung simply move the production to another country each time whirlpool wins and anti-dumping cases against them. such country hopping has happened twice to will pull already -- whirlpool already.
lg and samsung have moved from china to vietnam and thailand. this is the kind of trade treaty that must be stopped. it undermines the whole international order, even as it puts thousands of americans on the unemployment line. it imposes millions of dollars of losses on companies like whirlpool. at the macro level, i have also been tasked with assisting on trade related issues and the important trade negotiations that will soon be moving forward when nafta partners with mexico and japan. as well as other allies such as britain, theat overall goal is to promote what president trump has called free there and reciprocal trade. fair, and reciprocal
trade. the problem is that america's trade with the rest of the world is anything but reciprocal. while we have the lowest tariffs and barriers in the world. foreign capital enters this country with few restrictions, american exporters, service providers, and investors are not afforded the same treatment. wet, if not all countries run significant trade deficits with. that observation is a perfect segue to our topic today. do trade deficits matter? this is an important question because america's trade deficits in goods is large and inconsistent. in 2016.ion about $2 billion every single day. communist china counts for roughly half of that trade deficit. 47% to be exact.
germany,t mexico and japan each run annual surpluses with america of over $60 billion. that counts cuba tivoli -- .umulatively as we use the yardstick of the percent of our volume of our two-way trade, ireland and 65%, 61%re at respectively. they actually outstrip china. thailand arealy, not far behind. other countries with which we deficits on the order of $15 billion annually include india, south korea, taiwan, france and switzerland. what all this as up to is a group of 16 countries that account for the lion's share of
our deficit problem. if you see these bilateral trade deficits as a problem. before us. question do trade deficits matter? more specifically, to america's large, persistent trade deficits pose an economic and national security threat? to begin our inquiry, let's not down the strawman typically set up to do both concerns over the trade deficit. that view is summarized in a quotation from a think tank analyst. i will reach you this in two parts. the trade deficit is not caused by unfair trade practices broad or declining industrial competitiveness at home. if this is true, one must wonder ever bother to use
unfair trade practices like tariffs, quotas, nontariff barriers, forced technology transfers or currency manipulation to boost their competitive advantage of broad or protect their markets at home. we must also wonder why countries ever try to improve their industrial competitiveness by lowering their corporate tax rates or reducing their regulations or by trying to boost research and development rate of innovation and capital investment. the fact is that after some brief thought, you may agree with me that this statement seems silly on his space. less silly is part two of the trade deficits don't matter argument. the flowicits reflect of capitalism across national borders, flows that are determined by national rate of savings and investment.
here's is the important point, this renders trade policy and any tool for reducing the nation's trade deficit. accounting age old identity argument. it must be offset by a surplus in the capital account. at least, from a balance of payments point of view, the country is always in balance. far as it goes. there are two obvious problems with the statement. it fails to recognize that a persistent deficit is offset by capital inflows and inevitably must see an equally -- over time, this can have significant long-term negative consequences. it may result in what warren buffett has referred to as conquest by purchase.
this is a risk that i shall return to later when i discussed the trade deficit as it relates to national security. the second obvious problem with the statement is that it far too narrowly concerns trade policy. it describes it as an ineffective tool for reducing the nation's deficit. at least in the trump administration, we see tax, regulatory and energy policy reforms along with eliminating currency manipulation and other forms of trade cheating. essential helmet of a broader policy. for example, suppose the trump administration succeeds in lowering the corporate tax rate, trimming the tory burden, reduce the cost of energy and imposing
-- in the improved business climate, companies like ford and carrier will invest more in michigan and indiana been mexico and china and that export their products back into the u.s. market. this broadly defined trump trade policies. working in concert with traditional tools to defend against practices like dumping .nd legal subsidization it will hardly be ineffective. trump trade policy will create more jobs in the homeland and the heartland even as it improves our trade balance. the larger point is that this current account versus capital account view of the world has failed to grasp the full significance of the trump deal of trade policy even as it ignores the basic reality of the global marketplace.
with that as a prelude, let me turn to the arguments in support of the claim that the trade deficit that only matters when it comes to jobs and growth and national security but they matter a great deal. at this point in my remarks, you may have noticed that i prefer to focus on the trade deficit in goods rather than the overall trade balance which includes services. while services are a critical part of our economy and an essential part of trade, as is our incredibly productive and equally important agricultural sector, the production of manufactured goods tends to have both a higher job multiplier and command higher wage levels. it follows that if the u.s. is to increase its rate of job creation and see it income levels rise, in the process rejuvenate the once vibrant manufacturing hubs like ohio,
michigan, north carolina, pennsylvania, we must focus on enhancing and expanding our industrial base through prudent tax, regulatory energy and trade policies. for those of you who will inevitably claim that automation , not bad policy is the real problem in the decline of manufacturing employment in america, i noticed this for the record -- i note this for the record. contrast has some of the most advanced robotics in the world and continues to employ 20% of its workforce and manufacturing. -- in manufacturing. i also note for the record that a strong manufacturing and defense industrial base is the america'sck for national security. a theme that i will return to
later. turn to the question of why trade deficits matter in economic growth and job creation. escrow -- let's start by noting the ability to create jobs and generate additional income and tax revenues depends on only four factors. consumption, government spending, business investment and exports. let's look at the exports term. that is exports minus imports. exceed imports, that is a trade deficit. if we can reduce our trade deficit through tough and smart negotiations, we can increase our growth rate. let me give you an example. you successfully negotiate bilateral trade deals with germany and mexico this year, as a key part of the term sheet, agreesmpany -- country
to purchase more bothered from the united states than it now purchases from the rest of the world, this would show up in the government data. it would be increased u.s. exports, decreased trade deficit and an increase in u.s. gdp growth. at the same time, if the u.s. uses is leverage in the world's largest market to persuade india to reduce its notoriously high tariffs and japan to lower its formidable nontariff barriers, morell surely sell washington apples, florida oranges, california one and -- californiase wine and wisconsin cheese and harley davidson water cycles. we will see our trade deficits fall, our growth increase and real wage levels rise.
what about the investment term in the gdp equation? extent of unfavorable regulatory policies pushing capital investment offshore or discouraging more onshore investment at the margin, nonresidential fixed investment is reduced in the gdp equation. so do quarter to quarter and year to year. the rate of economic job creation that could have otherwise been achieved will also be reduced. the is not the end of general equilibrium story. if such offshore production generates products for export back into the u.s. markets, for example, the american consumer buys a ford focus imported from mexico rather than assembled in detroit, there is a further reduction in gdp growth through that export channel.
to understand this complex dynamic better, let's take a beenfic example that has in the headlines. the carrier company. during the 2016 presidential campaign, carrier's management announces decision to close its production in indianapolis and moved to mexico with the intent of selling some of its product back to the u.s. tariff rate under the nafta treaty. a move that is harshly criticized by candidate trump. after the election, president vice trump with president-elect pants successfully negotiated a deal in which carrier will remain in the u.s. and expand its facilities. down the road, the carrier deal will show up in government statistics as an increase fixed on residential investment rather than a decrease. " from mexico will be lower than they otherwise would have been.
will carry more product overseas. critics might say that the deal will make carrier's air-conditioners more expensive. you can't buy an air conditioner , much less pay your mortgage if you get laid off because your job when offshore. the story,pilogue to proactive trump trade policy is that carrier's sales appear to be up on the basis that they have made a strong commitment to be made in the usa. consumers are responding to that positive message. , to paraphrase gordon gecko is that growth is good, growth that comes from strategic reduction in the trade deficit and an equally strategic increase in business investment is especially good.
now, let's turn to the question of whether america's large and persistent trade deficits might pose a security threat. this falls outside the silo goals of the world of academic and business economist. rhetoric, this type of question within the context of the trade deficit is simply a form of strategic risk assessment. assessing this risk, you must remember the central premise of those who debunked the dangers of trade deficits. any such deficits must be offset by surpluses in the capital account brought about by investment into the u.s. by foreigners. this, benign version of those who which we accumulate
trade deficits will return our dollars to our shores. they will do so by investing in our bonds and socks -- stocks. course, our mortgage and loan rates will be lower. our stock market will be abundantly capitalize, our capitalizedundantly and our people will be fully employed. it is the best and weakest part of the debunker's argument. they say that this can't possibly process. they say that the dollar must we , our exports must rise, our imports must fall. trade must inevitably come back to balance. here's the problem. in the real world, fixed exchange rates and terms currencyn -- and minute relation, we're not seeing the adjustments. instead, our trade deficit remains large and persistent.
if the current distorted market patterns continue, to paraphrase , in the long run, we are all likely to be owned by foreigners. this is precisely the threat i learned to earlier. that radical warren buffett first race, conquest by purchase. in warren buffett's view, the u.s. trade deficit is allowing our net worth to be transferred abroad at alarming rate. warns that foreigners will on so much of america that we will have nothing left to trade. we'll wind up working long hours just to have food to eat and service our death. -- debt. conquest by purchase is too simplistic, to sanitize and to titized and too
benign. suppose that it is not a benign ally buying of our companies, our technologies, our farmland and our food supply chain and ultimately controlling much of our defense industrial base. it is a rapidly militarizing strategic rival intent on hegemony in asia and of course world hegemony. how much this alternative version of conquest by purchase and for us? and our sons and daughters? lose by cash registers ringing? maybe lose a hot war? today, after decades of trade deficits, the mass migration of
our factories offshore, we have only one company in the entire united states that can repair navy submarine propellers. today, we do not have a single company in the u.s. that can panel displays for our military aircraft. the other items we cannot havece in the u.s. that important military applications include everything from night vision goggles and certain types of armor plated steel to integrated circuits. meanwhile, i was still industry is on the ropes and our aluminum industry is flat on his back -- it's back. is shipbuilding industry gathering particles, we have already begun to lose control of our food supply chain. there is a full war ground game underway for the foreign purchase of large swathes of treasures in silicon valley. my point is this, most of those
in our profession have chosen to ignore the broader national security risks that stem from large and persistent trade ourcits and the decline of manufacturing and defense industrial base. profession,t of our as well as much of the mainstream media continues to embrace and espouse an antiquated view of the world that has little to do with the events or risks of our time. however, as vice president pence was remarked on the campaign trail, the people of fort wayne know better. i might add here, the pentagon knows better as well. admittedly harsh judgment of the state of international trade economics, let me conclude his remarks by addressing certain well-known arguments against taking action
to produce our trade deficits. there is the inflation argument, i looted to that earlier. ifgoes something like this, you chop administration succeeds tough trade our negotiations and cracking down on cheating, this will drive the up and products disproportionally on the poor. in the extreme view, even if a intony is dumping products our markets, we should take whatever they want to export and for providing consumers with great bargains and lowering our inflation rate. to me at least, this seems to be an elitist out of touch argument. it assumes that the poorest segments of our society would rather have cheap products than a good job and a good paycheck. i for 1 am far more focused on increasing economic growth. i'm not worried about any modest
inflationary effects that might result from wiping away the from theade practices liberal trading order. as a second argument in defense of trade deficits, we don't or can't make it here. goes, the united states does not and cannot produce many of the things that directly for consumption or indirectly for its supply chain. therefore, even a more muscular trade policy will have no effect on u.s. manufacturing jobs. the only thing that i can tell you here is that one of the major goals of the trump administration is to reclaim all of the supply chains and manufacturing capabilities that would otherwise exist if the playing field level. one of the again, major goals of the trump administration is to reclaim all of the supply chains and
manufacturing capabilities that would otherwise exist if the playing field level. , remember, 20%s of germany's workforce is in manufacturing compared to 8% here in the united states. of course, i know they will be difficulties and bottlenecks and labor issues to address as we see two rebates -- rebuild our manufacturing base. i know that this will all take time. that doesn't mean that we shouldn't try. the final common argument used in defense of trade deficits and more broadly, the status quo, if we try to stop unfair trade if we contribute to these trade deficits, that will start a trade war. i would ask in response to this obvious alarmism the following
question, would not both america and the global trading order be better off if trade were truly free, fair and reciprocal as president trump is asking for. to the principles of fairness poseeciprocity, i would these additional questions, is it a coincidence that japan has barriers not tariff and exports more vehicles to the united states in today's that the -- then the u.s. exports to japan in a year? is it fair for germany to provide its exporters with a 90% -- 19% rebate when under the unequal treatment of power incontact system, by the world trade organization, exporters from america to germany can't get a reciprocating even gets rebate.
rebate.rocating india has some of the highest tariffs in the world and harley davidson has to export its order cycles to india in parts for assembly by local hands. as it fair for countries like vietnam and thailand to serve as platforms for the divers and eric dumping of chinese state-owned industries and korean conglomerates? company sethinese up on u.s. soil and sell brewed into our markets when a u.s. company producing on chinese soil must take on a 50% joint venture chinese partner and run the very real risk of losing its intellectual property? i could go on and on here. if i had to filibuster all day during this conference, i won't do that. all i would need to do is pull out a copy of the latest trade
estimate reports on foreign trade barriers published by the united states trade representatives and start reading it. filibuster, ithat could just as easily ask this, how come that report gets bigger every year? what i am saying here is that trade should be free, fair and reciprocal just as president trump has stated. on that note, let me be abundantly clear, the broader goal of the free-trade policy based on fairness and reciprocity is not to raise either terrace or nontariff barriers rather, it is simply to encourage our trading partners to lower theirs. a policy of free, fair and truly reciprocal trade that begins and ends with you believe that bilateral trade deficits do
indeed matter and it is a critical economic goal. in the interest of national security, to reduce these deficits in a way that is expanding over all trade, even as americans are allowed to compete on a level paying field -- playing field. our workers and domestic manufacturers and our farmers and our ranchers deserve no less from our country's trade policies. it is long past time that we deliver both for them and for america. and iyou for listening look forward to your questions. [applause] >> you should have cars -- cards or paper at the table. staff members,
they will bring your questions up to me here. thank you for your remarks here today. one principal you made very clear is that trade should be, free, fair and reciprocal. is releasing a survey of its membership. there was clearly a majority that felt that trade should be freer. we should have freer trade. generally oppose any restrictions, unfair restrictions on trade. there was also a sentiment in the survey that u.s. tax policy may be impeding the export sector. you mentioned that tax reform was one of the critical essential elements that the administration would be looking sector.lp the export
weone of the key themes that hammered on in the campaign was the idea that if you're going to solve your economic problems, you had to think of it holistically. it is tax policy, it is regulatory policy, it is energy policy and trade. the analysis is that if you're at 2% growth and you deconstruct that, he tried to figure out how to get 3.5% or 4% likely want to do, each one of those components -- tax tradeacks -- there is a synergistic component. we always talk about corporate tax, in the context of how that
ax rate and our regulation and our energy prices down, all of together, and where ie tax for me was always start first. got to adhere -- add here, can't they afford some cards for maybe pens?d this is priceless. tpp moved the u.s. towards free and fair trade. hy did the administration walk away from it?
stated is to try to increase rules of origin provisions in all the that we'rerade deals going to pursue. we have rightblem now, we have a lot of big but ings in this country those are basically assembly for foreign components. we have righthat now, this country just in those big boxes. they're in the small and medium firms that constitute the supply change and tpp moved us exactly the opposite of that goal. the other problem is
corporate tax rate? give me a hand. only four people in this room want to lower the corporate tax don't want to t agree with me on anything? [laughter] crowd.h [laughter] >> our policy is simple. lower the taxes. cut the regulations. hen you cut the regulations, you're going to be lowering our energy costs. down on trade cheating. make sure our bilateral trade deals include things like rules origin that benefit our supply chain. looking at andre trying to skate to where the puck is going to be. else you got? >> okay. here's one on currency manipulation. during his campaign, president the said he would direct treasury to declare china a manipulator. has the president changed his mind on that point?
the treasury department has to report twice a year on that coming up in s april. steve here you get seat.ut him on the hot currency feel chinese is over or undervalued right now? >> that's an interesting question. he asked whether he thought or ese currency was under overvalued which is a different question as to whether you think it.'re manipulating right? it's half of our trade deficit and good.
the old styleieve to happen is d that you want to increase in value and the dollar is supposed to weaken and we're supposed to ell more exports, buy fewer imports, and trade is supposed to come back into balance. so if you just look at it that lens, it's clear hat the chinese currency is undervalued. it's also clear that istorically the chinese have taken aggressive policies to ake sure the currency is undervalued. now, to the question of whether overvalued today, let me say two things about that. a point of view that because of the crackdown by that ent shi in china there's a lot of money trying to get out of the country.
the currency ving down. the second order small effect compared to a onscious strategy by the chinese to essentially dramatically increase their oreign investment around the world including here. day, i can't verify this but i've been told by people this is true. hina's buying one company a week in germany. ertainly they're very aggressive about buying assets here. so it's an interesting question.
but how would do that since germany doesn't have an policy?ent trade sure. they can't have any kind of united ons with the states about reducing their $70 billion trade deficit. that may or may not be true. i think that is useful to have a discussion with germany about ways that we could ossibly get that deficit reduced outside the boundaries and restrictions that they claim that they're under. but it's a serious issue. one of the most difficult trade deficits that
we're going to have to deal with we're thinking long and hard about that. angela merkel is coming here soon and perhaps be some discussions bout how we can improve the german u.s. economic relationship. 'm sure they can teach us a thing or two about how to get ore of the workforce in manufacturing. 25% e dollar was about overvalued and now the dollar is even stronger than it was a year ago. overvalued dollar is like a factories.es of u.s. what can the u.s. do to reduce overvalued dollar? >> don't really have any that.ts on
he premise of the question i'm not wild about and i don't -- in erms of policy, i know there's always the debate about strong or weak dollar or whatever. focused on is imply how this country can compete better internationally. andwe can sell more exports how we can prevent imports that dumped into our country. place.t's my >> okay. here's a question on the bilateral surplus and that the u.s. has. cal does free, fair, resip trade mean for those u.s. companies that specialize in services? the. >> well, service is of course a our counterbalance to trade deficit and goods and the administration is going to do it can to continue to
abroad.services >> okay. what's your position import bank? >> i don't have a position on that. that one is ing above my pay grade. do you square the likelihood that a return to jobs would be skewed to jobs when we don't have adequate job training in countries like germany. sure. so as the director of the my onal trade council, mission is to stand up for merican workers and domestic manufacturers. this is an effort between
the department of commerce, department of labor, the overnment, the white house, other agencies, to try to address the skill gaps and we're hard to do k really that. the first way to solve a problem is to recognize there is one and do that. know that. across the federal government sounds like a good step. idea.que yes. silo of be called the commerce. >> thank you so much, peter, for being here with us today. [applause] ended right on time. well done. [laughter] i would like to introduce the
session. a confirmation hearing for two of president nominees for the justice department. nominee for deputy attorney handling doj policies programs and rachel brand overseeing law enforcement. live coverage here on c-span at 10:00 a.m. eastern. veterans affair secretary and senate arms services on ittee testify tuesday efforts to boost access to healthcare for veterans. with the house veterans affair committee at 7:30 p.m. eastern on c-span 2.