Abacus | Trump’s anti-China trade chief is no economic illiterate

“A complete incompetent” whose ideas are “dangerous, misguided” and downright “crazy”, and whose work is “incredibly shoddy” and “a complete mess”; the chorus of protest that has greeted the appointment of economics professor Peter Navarro to head US President-elect Donald Trump’s new National Trade Council has been excoriating.

At first glance much of the criticism looks justified. Navarro is best known for his YouTube video Death By China, which accuses China of deploying “weapons of job destruction” against the US. It’s a crude polemic, short on serious analysis and long on highly emotive language; hardly the sort of thing you’d expect from someone tasked with formulating trade policy for the world’s largest economy.

WATCH: Death By China

But Navarro also has a record of weightier research. For example, 10 years ago, when US politicians and economists were calling for a marked upward revaluation of the yuan to redress the trade imbalance between China and the US, Navarro pointed out that currency undervaluation barely contributed to China’s overall competitive advantage in international trade. Far more important were unit labour costs at just one-fifth of the US level, coupled with extensive subsidies and the clustering effect of supply chain concentration. The implication was that an upward revaluation of the yuan would do little or nothing to slow the offshoring of American jobs to China or to narrow the US trade deficit. It was a message few of those in Washington calling for yuan appreciation wanted to hear, but it undeniably proved accurate.

So it is worth looking a little more closely at Navarro’s current approach to trade policy, and seeing whether the accusations levelled by his critics stand up. Navarro outlined his stance in a paper co-authored with Wilbur Ross, Trump’s appointee as commerce secretary, and published in September. In it, the authors sketched their plans to boost US growth and create jobs by cutting taxes, reducing the regulatory burden and “eliminating America’s chronic trade deficit”.

Trump picks fierce China critic Peter Navarro to lead new trade office

It quickly becomes clear that in accusing Navarro of “economic illiteracy”, his detractors have zeroed in on a couple of paragraphs in the 30-page paper as the focus of their criticism. Most notably they seize on the authors’ assertion that in national accounting, a trade deficit is subtracted from gross domestic product. Therefore, if all else is equal, reducing the trade deficit will equate to faster GDP growth.