Trump protectionism, Trade Chief Peter Navarro – and the quest to demonize China

Recently, President-elect Trump chose Harvard-trained economist Peter Navarro to head the newly-created National Trade Council (NTC) in the White House to oversee industrial policy. Targeting the trade deficit is expected to pave way to Trump's "First America" trade protectionism.

While news media has portrayed Navarro appointment as a move toward trade protectionism in America, Navarro's longstanding quest to have a voice in Washington and the White House has been downplayed. In reality, his trade commentaries have been published widely by the leading US media that now sees him as a fringe threat to pro-trade US interests.

In reality, Navarro is a Republican insider who advised President George W. Bush and Mitt Romney's failed campaign. I warned that Navarro's China demonization has little to do with economics as it is taught in Harvard more than three years ago. Indeed, Navarro and former Nucor CEO Dan DiMicco, who has been considered for Trump's US Trade Representative, represent not just trade protectionism but a longstanding effort to mainstream anti-China bias in America. This effort is ridden by self-interested economic agendas and moral hazards, which I analyzed in the following commentary that was originally published in August 2013.

While most Americans view China as friendly though not as an ally, those who favor demonizing China seek to change both perceptions and realities.

In a New York Times op-ed of August 5, 2013, business professor Peter Navarro concluded that "buying 'Made in China' — whether steel for our bridges or dolls for our children — entails large costs… [which are] hurting our country — and killing our economy."

The harsh content of the commentary was not new. But the venue – the editorial page of the "New York Times" –was. Such voices do not represent majority views in America. But nor are they any longer marginal.

While they reflect the concerns of a fragmented minority, they do share a common denominator: the quest to demonize China.

China as a "deadly" scapegoat

Navarro's commentaries on China build on his The Coming China Wars (2008) and the more extreme Death by China (2011), which was co-authored with Greg Autry, who represents Coalition for a Prosperous America and the American Jobs Alliance, which advocate a hard line against China.

Ultimately, these treatises are less about facts and more about political persuasion. In San Diego, Navarro was known for great political ambitions and repeated political failures in the 1990s (e.g., for mayor, city council, county supervisor, congress). Failing to appeal to American voters, he wrote books on business until the great recession. Afterwards, demonizing China offered a way to exploit the national malaise and the politics of resentment – as evidenced by the anti-China campaign ads in the elections of 2010 and 2012.

"Americans are being injured or killed by the Dragon's dangerous exports: poisoned food, spiked drugs, toxic toys," Navarro says. "Meanwhile, huge U.S. corporations have allied with China's state-owned enterprises to destroy American manufacturing..."

Such statements are fatally misguided. In reality, quality issues are not just a Chinese challenge. More than half of Chinese exports are products that are manufactured by foreign multinationals operating in China. For years, many have been cutting corners for cost-efficiencies. The problems extend from quality to fraud, including multinationals that have tried to boost their market share through corruption; from Big Pharma and the French GlaxoSmithKline, which allegedly bribed hundreds of Chinese physicians, to J.P. Morgan which is said to have hired children of influential Chinese officials to win lucrative business.

Furthermore, the argument that Chinese companies have "destroyed American manufacturing" is plain silly. According to U.S. data, some $900 billion of the manufacturing fixed assets of the U.S. companies remain in America, and over $100 billion in major European locations, as opposed to $21 billion in China. The "hollowing out" of U.S. manufacturing originates from the 1970s. In turn, Asian companies have shifted their export manufacturing base to China over the past two decades, which is reflected in the U.S. trade deficit.

China is now the third largest export market for U.S. goods, while currency policies have not had much of an impact on the U.S. trade balance or jobs, as U.S.-China Business Council has argued.

Getting steel-tough against China

"Death by China" calls China the biggest threat to global peace since Nazi Germany, urging U.S. business executives "to be like Nucor," America's largest steel producer.

Navarro's anti-China books gave rise to his documentary, "Death by China" (2012). But who funded the documentary? And why?

Before the great recession, Nucor made fortunes. In 1995-2005, its stock price rose from $15 to $20. Thereafter, it almost tripled to $75 in mid-2008, followed by a plunge to less than $34 in February 2009. That year Nucor suffered a loss of $293 million. It was then that its executive chairman Dan DiMicco and Navarro began to co-write op-eds blaming U.S. trade deficits on China's currency manipulation (Wall Street Journal); decrying China's "weapon of mass production" (San Francisco Chronicle); and urging Washington to "get tough" with China (Barron's). DiMicco gave testimony on Chinese currency policy in the Congress. Navarro penned his "Death by China".

When Navarro began to develop his documentary, he again turned to Nucor, but wanted the $1 million deal done through Utility Consumers' Action Network (UCAN), a San Diego non-profit, led by his friend Michael Shames. So UCAN deposited Nucor's checks to Navarro's production company. In February 2012, UCAN, Navarro's production company, Navarro and his wife were subpoenaed to testify before a federal grand jury, which wanted to see all financial records and contractual agreements. The UCAN debacle led to a long legal mess.

The combination of industry protectionism and corporate lobbying is a déjà vu of the 1980s, the rise of Japan, and the competitiveness debates. That's perhaps also why China bashers are in a hurry. With Japan, friction eclipsed as the Japanese moved from exports to investment in America. Today, Chinese capital is going global, though from a very low point (in 2012 China invested $6.5 billion in the U.S., barely 1.5% of that by UK in 2011).

Chinese investment in the U.S. means new capital and jobs, which, in turn, has the potential to defuse much of the current bilateral tension. And that is precisely what China demonizers dislike.

From trade hawks and hard-liners to battle plans

In the U.S., the interest groups that promote greater nationalism in economic relations comprise corporate giants that are not well-prepared for global competition; small and medium-sized manufacturers that cannot cope with competitive imports; and organized labor that has shrunk dramatically. These groups are supported by trade hawks, neoconservatives and their intellectual counterparts, as well as democracy, human rights and religious activists. They also hope to shape the future course of Asia Pacific.

Since 2011, President Obama has advocated U.S. rebalancing in Asia seeking to move 60 percent of U.S. naval fleet to the Asia-Pacific by 2020. In the last elections, neoconservatives persuaded Romney to recommend increasing the number of warships far more than the Navy itself asked for. At the time, Romney's economic adviser was R. Glenn Hubbard, President Bush's leading economic adviser and Navarro's co-author in a 2010 book, which blamed America's economic ruin on the Obama White House. The rearmament would have cost an astounding $2.1 trillion over the next decade, but it would have supported the neoconservatives' AirSea Battle Plan to militarize containment in the South China Seas – a doctrine that General James Cartwright, aformer vice chair of the Joint Chiefs has criticized for "demonizing China."

In U.S. history, difficult times have translated to periods of xenophobia, isolationism and protectionism, from the anti-Chinese legislation in the late 19th and early 20th centuries, to the anti-Japanese sentiments in the late 1980s. Demonizing China today is not as virulent as Henry Ford's International Jew in the 1920s, but it, too, is based on shrewd manipulation of economic data, exploitation of political sentiments, social stereotypes and psychological bias.

Criticism is based on facts, but demonizing also suggests evil culpability. Historically, it has been typical to demonize the enemy in the run-up to war. And yet, only one of ten Americans sees China as an "enemy." In June, Gallup discovered that more than half of Americans perceive China as friendly, though not an ally. In turn, one of four Americans views China as unfriendly. Accordingly, the strategic goal of China's demonization is, first, to convert those who already hold negative views on China into a harder line and, over time, to increase negativity among those who see China as potentially friendly.

America's lingering jobless recovery has hardened views on economic and trade policies. That's what the messengers of demonization are exploiting, in the quest to mainstream anti-China bias in America.

Dr Dan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

The original commentary was released by China-US Focus on Aug 19, 2013.