Trade

Five Questions for Peter Navarro

Peter Navarro listens to a news conference outside of the West Wing of the White House, March 4, 2019. (Leah Millis/Reuters)

1) Economists who disagree with you on trade often assert that you don’t understand economics. If you were teaching a trade class, what would your thumbnail sketch of the canonical trade model be?

I invite anyone to go to Coursera.org and view my course on macroeconomic principles, which in weeks ten and eleven go over the standard discussions of absolute versus comparative advantage; the nuts and bolts of comparative advantage and the gains from trade, tariff, quotas, trade barriers, protectionism, and the dead weight loss; the pros and cons of protectionism; the limitations of Ricardian free trade in the real world; floating versus fixed exchange rates; the gold standard, and Hume’s gold specie flow adjustment mechanism; the dollar standard and its collapse; today’s hybrid exchange rate system, currency blocs, and fixed pegs; and how chronic trade deficits can persist, the multiplier link, and global coordination of fiscal and monetary policies.

The beauty of teaching the “canonical model” as you put it is that it equips me to understand just how that model often fails in the real world.

 2) Why do you think that model fails in the real world?

There are at least two types of real-world problems American workers and domestic producers face in the global trading environment. The first is outright trade cheating. The second is a set of World Trade Organization rules that disadvantage the U.S.

The poster child for trade cheating is the Chinese Communist Party (CCP). It engages in what I have referred to as the “seven deadly sins.” These include cyberattacks on American businesses to steal trade secrets, intellectual property theft, forced technology transfer, dumping into American markets below cost, the predatory pricing of the CCP’s state-owned enterprises, a long history of currency manipulation, and fentanyl shipments to the United States that have helped fuel an opioid crisis that has harmed the U.S. labor force. If Adam Smith, David Hume, or David Ricardo ever imagined such systematic and structural cheating, they would never have imagined it at the scale and scope of the CCP.

The Trump administration has zero tolerance for these kind of predatory and structural attacks on the U.S. economy and is using tools like tariffs to defend U.S. interests. Any economist who tolerates this kind of behavior in the name of “cheap prices” for consumers does so at the peril of American workers and the integrity of our manufacturing and defense-industrial base.

The second real-world issue economists must acknowledge is the non-reciprocal nature of the global tariff system. As I wrote in the Wall Street Journal, under WTO rules, American exporters face systematically higher tariffs in the markets of more than 100 U.S. trading partners. This nonreciprocity is evident in small markets from Algeria to Zimbabwe and in larger markets from China, the European Union and South Korea to India and Vietnam.

For example, the American tariff rate on automobiles, is 2.5 percent while the European Union’s is four times as high. India’s auto tariff is more than 10 times as high — and in 2017 the U.S. exported only 638 autos to India while the U.S. has become India’s third-largest auto export market.

My office analyzed 132 countries with which the U.S. does not have free-trade agreements and found that across more than 600,000 product lines, U.S. exporters face higher tariffs more than two-thirds of the time. India applies higher tariffs 90 percent of the time and China 85 percent. This non-reciprocal environment is indefensible by any stretch of the Ricardian imagination.

The Trump administration supports a reciprocal trade environment period full stop.

3) Have you accomplished as much as you hoped on trade? What does the agenda look like going forward?

President Trump promised during the 2016 campaign to renegotiate bad trade deals and put a big check in that box with a revamped South Korean pact and a swap of Joe Biden’s NAFTA for Donald Trump’s USMCA. We also have a Phase One deal with the CCP that addresses some of the seven deadly (structural) sins of CCP predation.

The Trump team thought we had a full and comprehensive deal with the CCP’s trade negotiators in May of 2019 — but the CCP reneged on it. Clearly, there is much more work to be done in the second term to end the CCP’s economic aggression. In the meantime, we fully expect the CCP to fully honor the terms of Phase One.

The broader mission of the Trump administration is to continue bringing our supply chains and production home, particularly for critical areas like Essential Medicines. If we have learned anything from this China virus pandemic, it is that the U.S. is dangerously dependent on the world for its medicines, medical supplies like masks and gowns, and medical equipment like ventilators. On August 6, 2020, President Trump signed a sweeping executive order to bring the production of our Essential Medicines back onshore.

When thinking about the American imperative to bring home our supply chains for critical sectors of our economy, classically trained economists must be much more mindful of the negative national-security, geopolitical, and exogenous shock externalities associated with global supply chains and build them into their models.

The world has changed. Our profession must do a better job of anticipating such change.

4) You have strong views on China, of course. You have been almost implying that they unleashed the virus on us purposefully. What is your evidence for that?

In November of 2019, many of the first confirmed cases of people infected by the China virus were traced back to a wet market in Wuhan, China.[1] This market is in close proximity to two biological laboratories,[2] leading to speculation by the media as well as some in the scientific community that the virus may have escaped or been released from one of the labs[3] (and possibly from a biological weapons lab).[4]

Over the course of the next several months, the Chinese Communist Party (CCP) would hide the possibility of a pandemic from human-to-human transmission of the virus,[5] in part behind the shield of the World Health Organization (WHO).[6] During these critical months, China — traditionally a significant net exporter of personal protective equipment (PPE) — would vacuum up and hoard much of the world’s N95 respirators, surgical masks, goggles, and other PPE, including at least two billion masks.[7] In February alone, while the WHO was still hiding the dangers of the China virus, the CCP bought $40 million of PPE out of America’s warehouses, only to re-sell some of it later at record prices.[8]

This cornering of the PPE market by the CCP during this critical time would contribute to worldwide PPE shortages.[9] These shortages would, in turn, have a material effect on the ability of health care workers around the world — from Milan to New York and beyond — to defend themselves against the China virus.[10]

While the CCP was hiding the virus’ pandemic potential from the world, the Chinese government locked down domestic travel to protect its own people on the Chinese mainland.[11] However, the CCP freely allowed hundreds of thousands of Chinese nationals to fly around the world.[12] With some of these Chinese nationals almost certainly infected by the virus, this unrestricted international air travel helped spread and seed the virus around the world[13]— thereby almost certainly assuring a global pandemic.

In May, the FBI warned that China-linked hackers are targeting U.S. China virus research.[14] This despite promising in the Phase One trade deal, the CCP would stop trying to hack American computers and steal American intellectual property.

As I have said accurately in the media repeatedly, “the CCP lied, Americans died.” Economists may want to spend some of their time estimating the full costs to America of the CCP virus in terms of life lost, lost economic output, and policy costs associated with stimulative fiscal and monetary actions.

5) You have been a strong advocate of the use of hydroxychloroquine. Yet many in the medical community disagree. What are the best papers supporting your views? Are there any that you think are solid and tell the opposite story?

As the Defense Production Act policy coordinator, my office is sitting on over 60 million tablets of hydroxychloroquine that could be used, under a physician’s care, to treat over four million Americans. This medicine, which might save thousands of lives if recent studies are accurate, can’t be used now because of a “Hydroxy hysteria” propagated by a media that seems to be against anything President Trump is for.

For more than six decades, hydroxychloroquine has been viewed as a relatively safe medicine.[15] It is listed on the World Health Organization’s Model List of Essential Medicines.[16] The FDA has approved hydroxychloroquine to treat malaria as well as autoimmune conditions that include rheumatoid arthritis and lupus.[17] The CDC cites hydroxychloroquine as its preferred anti-malarial medication due to its long history of safety and deems it safe for nursing mothers and pregnant women.[18]

Hydroxychloroquine has not just been considered relatively safe for decades. It is also easy to administer and one of the least expensive medicines on the market. At a cost of no more than 60 cents per 200 milligram tablet,[19] a treatment course adds up to less than $12 per patient; and this medicine can be taken orally, and conveniently, outside a hospital setting. In contrast, another therapeutic, remdesivir, costs over $3,000 per patient[20] and must be administered intravenously in a hospital setting for up to ten days.[21]

Numerous research studies support HCQ’s potential use (under a physician’s guidance) as either a therapeutic medication for those infected with the virus or as a prophylactic for those who face a high risk of infection. The potential benefits of hydroxychloroquine notwithstanding, this medicine is now under attack by both the mainstream media and segments of the medical profession. These attacks appear to be more partisan and political than science-based, as they began only after President Trump spoke favorably about hydroxychloroquine.[22]

As explained in a 2005 Virology Journal article, the medicine “appears to interfere with terminal glycosylation of the cellular receptor, Angiotensin Converting Enzyme-2. This [effect on the ACE-2 receptors] may negatively influence the virus-receptor binding and abrogate the infection, with further ramifications by the elevation of vesicular pH, resulting in the inhibition of infection and spread of SARS CoV at clinically admissible concentrations.”[23] In addition, the medicine “elevates endosomal pH and results in an “increase in pH within intracellular vacuoles.”[24]

In layperson’s terms, hydroxychloroquine is hypothesized to work through at least two biological pathways: It may help block the entry of the China Wuhan virus into your cells by affecting the sugar content of the ACE-2 receptors (the “antiviral blocking effect”). If the China Wuhan virus penetrates your cells, hydroxychloroquine may also help kill the virus or slow down its replication by raising the pH or alkalinity within your cells (the “alkalinity effect”).

To understand this science of HCQ is to understand that it is likely only to be efficacious as a therapeutic in early treatment. “Early treatment” means that a patient who becomes infected with the China Wuhan virus must be treated approximately within the first seven days of exhibiting symptoms. During this early treatment phase of the disease, many patients experience a fever that may become more severe. Patients can also develop an initial dry persistent cough as the virus continues to invade their airways and slowly travels into their lungs. Also common is an abnormally profound fatigue.

If hydroxychloroquine is administered within these first critical early treatment seven days — and the earlier the better — it may have the medicinal strength to combat the virus and mitigate, slow, or reduce the onset of more severe signs and symptoms. In such situations, a favorable outcome may be measured by factors such as reduced viral load (measured by cell culture), days of hospitalization, use of supplemental oxygen, need of a ventilator, and, most importantly, a reduced mortality rate.

Once, however, the patient moves past Day Seven into the late treatment phase, hydroxychloroquine simply may not have the medicinal strength to combat a virus that has reached full attack mode inside the body. In this late treatment phase of the disease, the patient has likely developed areas of more severe local inflammation inside the lungs. The dry persistent cough becomes more of a “wet” or “productive” cough that begins to bring up phlegm to help clear the airways.

In the last week of June, two major U.S. studies by major medical systems — the Ford Hospital system[25] in Detroit and Mt. Sinai[26] in New York City — have provided evidence for a 51 percent and 50 percent reduction in mortality rates for patients given hydroxychloroquine in the very early phase of the infection. French doctors at IHU Marseille have released their study of 3,737 early treatment cases,[27] and Dr. Vladimir Zelenko has released his retrospective case series study.[28] All four of these true early use studies show dramatic results without any serious cardiac events.

Any HCQ skeptic weaned on the “Hydroxy hysteria” of the anti-Trump media would do well to watch Scott Adams, the creator of the Dilbert series. In a video appearing on Twitter, he “tell(s) you why Trump is medically correct and CNN might be killing tens-of-thousands” with its biased coverage.” For another evisceration of the media and solid review of some of the extant bogus studies, don’t miss Steven Hatfill’s “An Effective COVID Treatment the Media Continues to Besmirch” on RealClearPolitics.

—Peter Navarro is an assistant to the president and the director of the Office of Trade and Manufacturing Policy.

*   *   *

Endnotes

[1] Duarte, Fernando. “Who Is ‘Patient Zero’ in the Coronavirus Outbreak?” BBC Future, BBC, www.bbc.com/future/article/20200221-coronavirus-the-harmful-hunt-for-covid-19s-patient-zero.

[2] “Brief Introduction.” Wuhan Institute of Virology. http://english.whiov.cas.cn/Research2016/Brief_Introduction2017/

[3] Xiao, Botao, and Lei Xiao. “The Possible Origins of the 2019 NCoV-19 Coronavirus.” Research Gate, February 2020. http://img-prod.tgcom24.mediaset.it/images/2020/02/16/114720192-5eb8307f-017c-4075-a697-348628da0204.pdf

[4] Gertz, Bill. “Coronavirus May Have Originated in Lab Linked to China’s Biowarfare Program.” The Washington Times, 26 January 2020. www.washingtontimes.com/news/2020/jan/26/coronavirus-link-to-china-biowarfare-program-possi/

[5] Bostock, Bill. “China Knew the Coronavirus Could Become a Pandemic in Mid-January but for 6 Days Claimed Publicly That There Was No Evidence It Could Spread among Humans.” Business Insider, 15 April 2020. www.businessinsider.com/coronavirus-china-hid-pandemic-news-six-days-2020-4

[6] Givas, Nick. “WHO Haunted by January Tweet Saying China Found No Human Transmission of Coronavirus.” Fox News, 27 March 2020. www.foxnews.com/world/world-health-organization-january-tweet-china-human-transmission-coronavirus

[7] “China Customs Has Cleared 2.02 Billion Imported Anti-Epidemic Supplies by February 24.” General Administration of Customs of the People’s Republic of China, 2 March 2020. http://english.customs.gov.cn/statics/84bba05b-23f8-479f-bac7-ecc8e774dc84.html

[8] Based on U.S. export data for the following HTS codes: 3926201010; 3926209010; 4015110150; 6210507500; 6505000100.

[9] Chaib, Fadela. “Shortage of Personal Protective Equipment Endangering Health Workers Worldwide.” World Health Organization, 3 March 2020. www.who.int/news-room/detail/03-03-2020-shortage-of-personal-protective-equipment-endangering-health-workers-worldwide

[10] “COVID-19: Strategies for Optimizing the Supply of PPE.” Centers for Disease Control and Prevention, 16 July 2020. www.cdc.gov/coronavirus/2019-ncov/hcp/ppe-strategy/index.html

[11] “China’s Airlines Told Not to Axe Global Flights as Thousands Cut.” Channel NewsAsia (CAN), 4 February 2020. www.channelnewsasia.com/news/asia/wuhan-coronavirus-china-airlines-resume-global-flights-cancel-12390606

[12] “China Travel Advisory Update: Level 4- Do Not Travel to Hubei Province”. U.S. Department of State. 24 January 2020. https://china.usembassy-china.org.cn/health-alert-012420/See also: “China’s airlines told not to axe global flights as thousands cut”. Channel News Asia. 4 February 2020. https://www.channelnewsasia.com/news/asia/wuhan-coronavirus-china-airlines-resume-global-flights-cancel-12390606

[13] “Public Health Response to the Initiation and Spread of Pandemic COVID-19 in the United States, February 24-April 21, 2020.” Centers for Disease Control and Prevention, 7 May 2020. www.cdc.gov/mmwr/volumes/69/wr/mm6918e2.htm

[14] https://www.cnbc.com/2020/05/13/coronavirus-vaccine-china-linked-hackers-are-targeting-us-research-fbi-warns.html

[15] According to the FDA, it is contraindicated in the presence of retinal or visual field changes attributable to any 4-aminoquinoline compound, in patients with known hypersensitivity to 4- aminoquinoline compounds, and for long-term therapy in children. As an adverse reaction, the FDA also notes that “cardiomyopathy has been rarely reported with high daily dosages of hydroxychloroquine.” “Dermatologic reactions … may occur and, therefore, proper care should be exercised when it is administered to any patient receiving a drug with a significant tendency to produce dermatitis. For more information, see, U.S. Department of Health and Human Services, Food and Drug Administration, “Plaquenil ® Hydroxychloroquine Sulfate, USP,” 2007. https://www.accessdata.fda.gov/drugsatfda_docs/label/2007/009768s041lbl.pdf.

[16] World Health Organization Model List of Essential Medicines, 21st List, 2019. Geneva: World Health Organization; 2019. https://apps.who.int/iris/bitstream/handle/10665/325771/WHO-MVP-EMP-IAU-2019.06-eng.pdf?ua=1

[17] U.S. Department of Health and Human Services, Food and Drug Administration, “Plaquenil ® Hydroxychloroquine Sulfate, USP,” 2007. https://www.accessdata.fda.gov/drugsatfda_docs/label/2007/009768s041lbl.pdf.

[18] U.S. Department of Health and Human Services, Center for Disease Control and Prevention, “Medicines for the Prevention of Malaria while Traveling: Hydroxychloroquine (Plaquenil),” https://www.cdc.gov/malaria/resources/pdf/fsp/drugs/Hydroxychloroquine.pdf.

[19] Listed prices for Hydroxychloroquine range from $0.50 to $0.60 per tablet. See, “Hydroxychloroquine (Plaquenil)- Overview,” PushHealth, https://www.pushhealth.com/drugs/hydroxychloroquine. Additionally, Rowland, Darrel, “Fact check: Price didn’t drive promotion of remdesivir over Hydroxychloroquine,” USA Today, 9 May 2020. https://www.usatoday.com/story/news/factcheck/2020/05/09/fact-check-price-didnt-push-remdesivir-over-hydroxychloroquine/3094440001/

[20] Gilead is yet to put a definitive price on Remdesivir. Estimates range in the low ball park of $10 all the way up to $4,450 per patient. It is generally agreed upon that prices can be predicted in the middle range of $1,000 to $2,000 per patient. For more information, see, Bulik, Beth Snyder, “Can the price be right? With the world watching, Gilead faces a no-win decision on remdesivir,” FiercePharma, 7 May 2020. https://www.fiercepharma.com/marketing/waiting-for-gilead-how-much-will-drugmaker-charge-for-covid-19-treatment. Also, Lupkin, Sydney, “Putting a Price on COVID-19 Treatment Remdesivir,” NPR, 8 May 2020. https://www.npr.org/sections/health-shots/2020/05/08/851632704/putting-a-price-on-covid-19-treatment-remdesivir

[21] Lupkin, Sydney, “Putting a Price on COVID-19 Treatment Remdesivir,” NPR, 8 May 2020. https://www.npr.org/sections/health-shots/2020/05/08/851632704/putting-a-price-on-covid-19-treatment-remdesivir

[22] All studies claiming that Hydroxychloroquine treatment is dangerous in COVID-19 patients were published between 16 April 2020 and 22 May 2020. See Table 3 for specifics. All neutral studies were published between 14 April and 7 May 2020. See Table 2 for specifics. President Trump first vocalized interest in Hydroxychloroquine as a potential COVID-19 treatment on 19 March 2020. The Emergency Use Authorization was granted near the end of March. On 14 April 2020, in a round table with recovered COVID-19 patients, some of the patients praised the use of Hydroxychloroquine in their treatments. For a timeline of events related to Hydroxychloroquine and COVID-19, see, Solender, Andrew, “All the Times Trump Has Promoted Hydroxhloroquine,” Forbes, 22 May 2020. https://www.forbes.com/sites/andrewsolender/2020/05/22/all-the-times-trump-promoted-hydroxychloroquine/#2b2cb6ed4643

[23] Vincent, Martin J et al. “Chloroquine is a potent inhibitor of SARS coronavirus infection and spread.” Virology journal vol. 2 69. 22 Aug. 2005, doi:10.1186/1743-422X-2-69

[24] Fox, R I. “Mechanism of action of hydroxychloroquine as an antirheumatic drug.” Seminars in arthritis and rheumatism vol. 23,2 Suppl 1 (1993): 82-91. doi:10.1016/s0049-0172(10)80012-5

[25] Henry Ford COVID-19 Task Force, “Treatment with hydroxychloroquine, azithromycin, and combination in patients hospitalized with COVID-19,” International Journal of Infectious Diseases, 1 July, 2020, https://www.ijidonline.com/article/S1201-9712(20)30534-8/fulltext

[26] Mikami, T., Miyashita, H., Yamada, T. et al. Risk Factors for Mortality in Patients with COVID-19 in New York City. J GEN INTERN MED (2020). https://link.springer.com/article/10.1007/s11606-020-05983-z#citeas

[27] Lagier, Jean-Christophe, et al. “Outcomes of 3,737 COVID-19 patients treated with hydroxychloroquine/azithromycin and other regimens in Marseille, France: A retrospective analysis.” Travel medicine and infectious disease, 25 June, 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7315163/

[28] Scholz, M.; Derwand, R.; Zelenko, V. “COVID-19 Outpatients – Early Risk-Stratified Treatment with Zinc Plus Low Dose Hydroxychloroquine and Azithromycin: A Retrospective Case Series Study.” 3 July, 2020, https://www.preprints.org/manuscript/202007.0025/v1

Kevin A. Hassett served in the Trump administration as a senior adviser and is a former chairman of the Council of Economic Advisers. He is the senior adviser to National Review's Capital Matters, a new initiative focused on financial and economic coverage.

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