Economy & Business

Navarro’s Faith-Based Case for Tariffs

White House trade adviser Peter Navarro gives an interview with Fox News outside of the White House, December 4, 2018. (Leah Millis/Reuters)
Our economy is strong but its strength has come in spite of Trump’s tariffs rather than because of them.

The president’s trade adviser recently made the case in the Wall Street Journal that the president’s tariffs have helped the economy. I’ll examine some of its claims in sequence. Excerpts from him are in italics.

Though the current economy is among the strongest of the past 50 years, critics of President Trump’s transformational trade policies continue to insist that the tariffs are hindering rather than helping the boom.

Of course an economy can be strong while also being hindered by misguided government policies. The administration itself takes the view that some government policies, which it would like to change, harm the economy.

Why have the gloom-and-doom forecasters been so wrong?

Navarro has at this point not identified any forecaster who has been wrong—and, spoiler alert, he won’t go on to identify one—although we can stipulate that anyone who thought that tariffs would by themselves stop a relatively strong economy from being relatively strong was indeed incorrect.

The economy has added more than seven million jobs during the Trump presidency, and more than 2.4 million Americans have risen out of poverty. 

This is all great news, but it merely restates the banal point he made earlier (we have had a strong economy and tariffs) without proving his distinct headline claim (tariffs have helped the economy).

This jarring disconnect between the forecasts and the real Trump economy would be comical if the policy stakes weren’t so high.

Again, identifying a mistakenly pessimistic forecast would not establish that the tariffs have been helpful; but Navarro hasn’t even done that in this op-ed.

What is sorely missing from these forecasts is a “general equilibrium” analysis of tariffs, which would assess the whole economy, with a concomitant “dynamic scoring” of their effects, to account for the new investment tariffs induce.

You might expect that Navarro is about to perform or cite such an analysis. He isn’t. Note also that his hypothetical analysis does not commit to accounting for any investment the tariffs prevent from happening.

Here’s an equally important consideration, this one regarding strategy: President Trump’s imposition of actual tariffs has made the threat of tariffs more credible, and a variety of Trump tariff threats have borne robust results. These include the successful renegotiation of two of the worst trade deals in U.S. history, the North American Free Trade Agreement and the deal struck with South Korea in 2007. The administration also forged a new pact with Japan that will boost American electronics along with farmers and ranchers.

At best this would establish that the long-term benefits from these deals were worth the short-term pain the tariffs inflicted on the economy, not that the tariffs had helped it. But they don’t establish even that. The new version of NAFTA is largely the same as the old one, with some modest changes that for the most part were either available to the U.S. without tariff threats or are likely to cause net economic harm (see here for more). The major change in our trade deal with South Korea was its expansion of the number of auto exports we are allowed; our carmakers weren’t hitting the old quota. And so on.

In addition to missing the upside of supporting American industries, critics overlook the ways the U.S. has suffered under open trade. Research by economists like MIT’s David Autor has illustrated the socioeconomic harm caused by expanded trade with China in the 2000s, which contributed to the loss of tens of thousands of American factories and millions of manufacturing jobs and the hollowing out of many Midwest and Southern communities.

There’s a lot to be said about this oft-misused research, but let’s again go back to the central claim Navarro is making. Autor has said that the “China shock” his colleagues and he analyzed is over. The existence of prior harms does not imply that tariffs today counteract those harms.

We have two hundred years of economic theory and decades of studies suggesting that tariffs usually and on balance impose economic harms on countries that impose them. As Navarro implicitly concedes, every analysis of the effect of Trump’s tariffs has found them to impose net harms on the U.S. economy too. Against the weight of that consensus we have Navarro’s unsupported speculation that a more complete analysis would up-end it. How much weight should we put on his view? It seems relevant that Navarro has repeatedly shown that he does not understand how national income is calculated.

Our economy is strong, and it should help the president’s reelection bid. There is no reason to doubt, however, that its strength has come in spite of Trump’s tariffs rather than because of them.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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