On March 6, Peter Navarro in the Wall Street Journal alleged that exports were good in the sense they promote economic growth while imports are bad. He is the newly-appointed director of the newly-created “National Trade Council” which is evidently influential in the White House. Presidential advisors, especially Steve Bannon, espouse economic nationalism as a way to bring vigor back to the labor force. “Economic nationalism” means government interference with imports and help for exports. The G20 recently dropped its language against protectionism at the urging of the Secretary of Treasury, Steven Mnuchin. While macroeconomists have repeatedly criticized the logic and empirical foundations of economic nationalism, I think there is a simpler approach to this “intellectual” argument. Lets make some money off of these guys. I will travel to Canada where I will send Navarro – or anyone else in the White House--$10 Canadian. He can send me $20 US. His exports will be more than twice his imports making him better off by the logic of economic nationalism. If he is confused by currency and wants to trade products, I’ll send him a six-pack of Molson Golden--- actually five beers after I drink one—and he can send me a fifth of good Kentucky Bourbon which will also make him better off and will improve employment in Kentucky.
Where does this Alice-in-Wonderland view of the world come from? For Navarro, a recent Politico article (3/11) gives us a clue. Twenty years ago he was running for Congress as a Democrat and first lady Hillary Clinton campaigned for him. He was focused on the costs of international trade while completely ignoring the benefits and this sold in the Democratic Party. He spoke at the 1996 Democratic convention. After he was soundly defeated by sensible Californian voters, he went on to write a book and produce a movie on how Chinese trade hurts the US. His book and movie got the attention of Trump who has also continually focused on the costs of international trade while ignoring the benefits. Navarro believes that China is manipulating currency by lowering its value with the intent to take over US production and control much of the US defense industrial base, threatening America’s freedom and prosperity. The mechanism of all this bad stuff is that the low currency induces us to buy Chinese goods which increases our imports and decreases our exports. Let’s engage in a thought experiment and suppose the Chinese were so successful at manipulating that we could buy everything in China for $100. China would be making everything for us and we would be making only $100 worth of stuff for them. All we would have left is our wealth. What we do with all our money? We could pay each other to write poetry while the Chinese would, according to Navarro, threaten our freedom. We would respond with sonnets. But we would be so wealthy that we could buy weapons from the Germans and hire Indians to protect our freedom from the manipulators.
The reality is that we have 200 years of experience with economic nationalism. Protectionism destroys the protectors and strengthens those who have the courage to trade. Every administration after World War II, knew this. These economic nationalists will leave a trail of economic destruction if they are successful, but before they figure this out, I want my fifth, Larceny Bourbon will do just fine. I’ll send them the five-pack of Molson. Your choice Navarro, put up or shut up.