Another day, another shot across the bow from Donald Trump aimed squarely at China.
Having already participated (and in the case of one, precipitated) two mini diplomatic snafus with Beijing in just the past two weeks, Trump is sending a clear message to Beijing that US-China trade under his administration will be anything but business as usual, by creating a National Trade Council inside the White House to oversee industrial policy and has decided to appoint a hard core China hawk to run it.
According to the FT, which broke the news, Trump has chosen Peter Navarro, a Harvard-trained economist and one-time daytrader, to head the NTC. The author of books such as “Death by China” and “Crouching Tiger: What China’s Militarism Means for the World” has for years warned that the US is engaged in an economic war with China and should adopt a more aggressive stance — a message that the president-elect sold to voters across the US during his campaign.
Speaking to the American public, Trump said “I read one of Peter’s books on America’s trade problems years ago and was impressed by the clarity of his arguments and thoroughness of his research,” Trump said. “He has presciently documented the harms inflicted by globalism on American workers, and laid out a path forward to restore our middle class.”
Fast forward to today, when Trump has made it clear that at least when it comes to the Chinese trade relationship, the president elect will engage in a wholesale overhaul of the legacy relationship. More details from the FT:
The Trump transition team described Mr Navarro as a “visionary economist” who would “develop trade policies that shrink our trade deficit, expand our growth, and help stop the exodus of jobs from our shores”. His appointment is the second restructuring of trade policy that will see Mr Trump attempt to follow through on his focus to resurrect manufacturing, and create more industrial jobs, in the American economy.
The Trump team said the NTC would lead a “Buy America, Hire America” programme that would boost job creation in areas such as infrastructure and defence. It will work in tandem with three other offices in the White House: the National Security Council, the National Economic Council and the Domestic Policy Council.
They added that it would mark the first time there was an office dedicated to manufacturing inside the White House, in a strong signal that Mr Trump plans to follow through on the promises that he made on the campaign trail.
While the Navarro appointment will certainly raise eyebrows, the move to create the new office is also likely to be seen as controversial by mainstream economists, many in the business community and pro-trade Republicans. Targeting the trade deficit is seen by many economists as likely to lead to protectionist trade policies. It may also be complicated by Mr Trump’s plans for an increase in spending and rising interest rates, both of which have already yielded a surge in the dollar that is likely to make US exports less competitive and would normally lead to a bigger trade deficit.
Navarro’s appointment also means that the speculation that Trump may launch a “Border tax proposal” to eliminate the US trade deficit is far more likely than the 30% probability some assign to it. If it indeed passes, then watch out, because as Deutsche Bank calcualted yesterday, it would lead to a 15% surge in the dollar, which would almost certainly lead to a full blown Chinese economic crisis.
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