Economic Nationalism

Peter Navarro's No-Good Economic Nationalism 

Navarro is the missing link between the democratic socialists on the left and the economic nationalists on the right.


Peter Navarro is a loser. Literally.

He has run for office five times and never won. He has never gained approval from the Senate to occupy an official cabinet post. He started a trade war that may not technically be lost yet, but it hasn't been a roaring success by any account.

And yet, somehow, he's become one of the most powerful people on the planet.

In a presidential administration that quickly jettisoned the few serious economists who signed on to help steer it away from catastrophe, Navarro has been the perfect fit. He's a tough-talking Democrat-turned-Republican who maintains a set of deeply held beliefs that influence his policy choices and who refuses to be compelled by expert opinion or facts. He has no governing experience and recognizes few of the practical or institutional limits on governmental behavior. In many ways, he is a magic mirror for President Donald Trump: He reflects Trump's ethos and ideas but adds enhancements and policy details that would likely otherwise elude the president.

By anointing Navarro as, effectively, the czar of a new "economic nationalism" project that disdains free trade and delivers corporate handouts to favored firms, the Trump administration—and, by extension, the GOP—hasn't found a new formula for winning elections or countering China. Instead, Republicans have embraced a warmed-over variant of what they once would have recognized and denounced as the losing economic policies of the political left.

"I don't know why so many people in America hate Hillary Clinton; I found her to be one of the most gracious, intelligent, perceptive, and, yes, classy women I have ever met," wrote Navarro—yes, the same Peter Navarro—in 1999's San Diego Confidential. The book is a thoroughly egotistical exercise: a first-person, beat-by-beat account of Navarro's failed 1996 bid for a seat in Congress. From the perspective of 21 years later, it is also an intriguing historical artifact that is equal parts jarring and illuminating.

That's particularly true whenever the Clintons enter the picture. In the book, Navarro lavishes praise on the then–first lady, who flew to San Diego to host a Navarro rally less than two weeks before the election. He describes the event as "a heavenly experience," even including a copy of the next day's front-page story in The San Diego Union-Tribune, which features a picture of Navarro and Hillary standing side-by-side onstage. When it comes to then–President Bill Clinton, Navarro takes a sharper tone: He criticizes Clinton for working with then–Speaker of the House Newt Gingrich and selling out the left wing of the Democratic Party in the process—a wing with which the Navarro of 1999 clearly identifies.

Indeed, San Diego Confidential is chock full of anecdotes that seem out of place for someone who would eventually rise to power in a Republican White House. Navarro recalls marching in a pride parade in San Diego and makes an appeal for Democrats to recognize gay rights as a political strategy. He describes how excited he was to have Ed Asner—a famously left-wing actor who helped organize a Screen Actors Guild strike in 1980 to protest President Ronald Reagan's foreign policy—record a "powerful and perfect" campaign ad on Navarro's behalf. "I do not trust the Republican Party to do anything but trash the environment under the phony banner of economic progress," he writes.

Joe Matthews, a longtime California political commentator, recently wrote in wonderment that a guy who seemed like "San Diego's Bernie Sanders in the 1990s and 2000s"—though without the electoral success Sanders has enjoyed—could morph into a leading figure in a Republican presidential administration. The explanation, according to Matthews, offers "a lesson about what kinds of people prosper when a nation's civic conversation becomes dominated by anger and accusation."

Navarro was practicing a sort of quasi-populism built around resentment and self-aggrandizement long before Donald Trump appeared on the political scene. As different as the Trump of today and the Navarro of the 1990s might appear at first blush, there is an undeniable similarity that may help explain why the two have been able to work side-by-side for so long in an administration where top advisers have tended to come and go quickly.

Navarro grew up in the well-heeled suburbs of Cambridge, Massachusetts, and Bethesda, Maryland, as the child of divorced parents. He graduated from Harvard with a doctorate in economics in 1986 and promptly moved to San Diego, where his first political venture involved launching an explicitly anti-development organization called Prevent Los Angelization Now (PLAN). Navarro's former spokeswoman, Lisa Ross, described the outfit in The San Diego Union-Tribune as "battling to stop big bad builders from obtaining zoning changes to convert open-space and single-family home neighborhoods into high-price, high-rise and high-density developments."

It is perhaps fitting that Navarro would not only turn from a progressive Democrat into a Trumpian Republican but that he would begin his political career as San Diego's leading NIMBY ("not in my backyard") before rising to work for a president who made his name as a real estate developer.

Navarro's losing streak as a politician began with a run for mayor in 1992. He finished first in a tightly contested race but failed to get a majority of the vote, then lost the subsequent run-off by fewer than 20,000 ballots. A turning point in the race came when Navarro unleashed a blistering attack on his opponent, Susan Golding, whose ex-husband had recently been convicted of money laundering. "Navarro's attack was so gratuitous it created sympathy for Golding, who cried in the debate and rallied to win the race," writes Matthews.

Navarro lost a city council race the following year by less than 300 votes. In 1994 he tried for a seat on the San Diego County Board of Supervisors but lost, this time by a wider margin.

By 1996, when California Democrats tapped Navarro to run against incumbent Rep. Brian Bilbray, Navarro's personal brand was already well-established—and it wasn't a good one. Navarro seems to have realized that. In San Diego Confidential, published a few years later, he calls himself "the cruelest and meanest son of a bitch who ever ran for public office in San Diego." Larry Remer, a campaign consultant who worked on some of those losing campaigns, described Navarro to Politico earlier this year as "the biggest asshole I've ever known."

The 49th District race in 1996 was a crucial battleground, as Democrats tried to wrest control of Congress after the "Republican Revolution" of two years prior. Hillary Clinton's last-minute campaigning was insufficient to change San Diego's opinion of Navarro or to overcome the power of incumbency. He lost to Bilbray by more than 10 points. After one more defeat at the ballot box, in a race for city council in 2001, it looked like Navarro was done with politics.

But he wasn't done being controversial. Navarro, who has maintained a position at University of California, Irvine, since 1989 as a professor of economics and public policy, spent the early 2000s writing pop-investment advice books; 2003's If It's Raining in Brazil, Buy Starbucks is probably the most well-known of the bunch. Besides dispensing meteorological stock trading tips, Navarro used the book to opine on the state of global trade. He also debuted the fictional "Ron Vara," introduced as a plucky Harvard grad and Desert Storm veteran who'd allegedly made a small fortune by shorting nuclear stocks on the eve of the Chernobyl disaster.

Although initially introduced as a stock character in a book full of them—each chapter in If It's Raining opens with a small narrative about an obviously fictional person—Navarro went on to use Ron Vara, an anagram of the author's last name, with less context in future books. The Chronicle of Higher Education found in 2019 that Navarro had quoted Vara more than a dozen times in six books. In a statement to the Chronicle, Navarro claimed that Vara was nothing more than a "whimsical device and pen name I've used throughout the years for opinions and purely entertainment value, not as a source of fact." He compared the character to Alfred Hitchcock's habit of making cameos in his own films.

Of course, Hitchcock was making fictional films. Navarro was writing supposedly nonfiction books about economics and foreign affairs, and he was using Vara as a mouthpiece for his own opinions. Contacted by the Chronicle, two people who worked with Navarro on books in which Vara appears said they had no idea he wasn't a real person. Would Hitchcock's camera operators have been similarly surprised?

But if "Ron Vara" is Navarro's mirror image superimposed over ostensibly scholarly works, it explains quite a bit. As the 2000s passed, Navarro's books shifted from a focus on how to make a few bucks on the stock market to warning about a coming geopolitical struggle. As if titles such as The Coming China Wars and Death by China: Confronting the Dragon—A Global Call to Action were too subtle, both those books included increasingly Sinophobic opinions from Ron Vara.

"Only the Chinese can turn a leather sofa into an acid bath, a baby crib into a lethal weapon, and a cellphone battery into heart-piercing shrapnel," Ron Vara warns in Death by China, published in 2011. Elsewhere in the book, Vara drops this nugget of everyman geopolitical wisdom: "The manufacturing Dragon is voracious. The Colonial Dragon is relentless. The American Eagle is asleep at the wheel."

It's easy to roll your eyes at Ron Vara's anti-China shtick. It is easier still to roll your eyes at Navarro's assessment (in the book's first paragraph) that China is "rapidly turning into the planet's most efficient assassin." Later in the opening chapter, Navarro claims that "thousands literally die" from the "onslaught" of cheap Chinese-made goods. He warns of, among other things, the dangers of "booby-trapped extension cords" and "self-immolating boom boxes" but provides little evidence that either is any more real than Ron Vara.

Navarro's books do raise some legitimate questions about the Chinese government's treatment of foreign firms, its currency manipulations, and its labor policies. If you sweep aside the scaremongering and the firehose of disdain for a global trading system that has lifted millions out of poverty, there's a nugget of serious thought in there somewhere.

And that, apparently, was enough. "When Trump wanted to speak more substantively about China" on the campaign trail, Vanity Fair's Sarah Ellison reported in 2017, "he gave [Jared] Kushner a summary of his views and then asked him to do some research." Kushner, the president's son-in-law and a key campaign adviser, did some Googling and stumbled upon one of Navarro's books. One phone call later and the Trump campaign had its first economic adviser.

Finally, Ron Vara had gotten his big break.

"The tariffs are hurting China. China is bearing the entire burden of the tariffs," Navarro claimed, falsely, during an August 2019 interview with CNN's Jake Tapper.

By then, Navarro had become the leading field general in the Trump administration's trade war, which began in 2018 with the announcement of new tariffs on steel and aluminum imports. To justify the levies, the White House had hyperbolically declared foreign metal supplies a national security threat. By late 2018, the trade war was focused more narrowly on Navarro's longtime nemesis, China. By the middle of 2019, the conflict had done little more than drive up prices for Chinese goods imported into the United States, cut off American farmers from a key foreign market, and create diplomatic headaches.

Faced with that reality, Navarro drove forward with all the egoism and academic rigor that he'd displayed while running for office and writing his books. That is to say: He ignored inconvenient facts and invented his own.

"Look at the data," he told Tapper when asked about the trade war becoming a burden for American consumers and businesses. "There is no evidence whatsoever that American consumers are paying any of this."

Perhaps it is Navarro who should look at the data. Tariffs are taxes applied to goods that enter the country, and economists widely agree that it is importers—that is, American consumers and businesses—who pay the cost of those taxes. Goods subject to new tariffs imposed by the Trump administration have increased in price by about 3 percent on average since February 2018, while items not subject to the new tariffs have fallen in price by about 1 percent, according to a Goldman Sachs analysis of Labor Department numbers. A March 2019 paper published by the Centre for Economic Policy Research in London found that Trump's tariffs on steel, aluminum, washing machines, solar panels, and a wide range of other items made in China are draining roughly $1.4 billion out of the U.S. economy every month. The tariffs "were almost completely passed through into U.S. domestic prices," the authors of that paper concluded. To quote the U.S. Chamber of Commerce's blunt assessment, "American businesses and consumers are bearing the brunt of the global trade war."

While Trump bears the ultimate blame for the economic pain inflicted by his misbegotten tariff policies, Navarro is rightly viewed as the architect of the trade war.

Navarro joined the administration as director of the newly created White House National Trade Council. During Trump's first year in office, he consolidated his authority and fought a behind-the-scenes battle with Gary Cohn, then-director of the National Economic Council and the president's top adviser on trade issues. Cohn, a former president of Goldman Sachs, had butted heads with trade-skeptical Trump. Navarro exploited the situation, telling Bloomberg in mid-2017 that his evolving role in the White House included providing "the underlying analytics that confirm [Trump's] intuition on trade."

Sucking up to the boss worked out. By early 2018, Cohn was on his way out of the administration, and Navarro, who had never been able to win so much as a seat on a county board of supervisors, was suddenly one of the most influential economists in the world. Within weeks, Trump was slapping tariffs on imported steel and aluminum while eying further tariffs on everything from German-made cars to nearly every type of Chinese import.

But Navarro's trade policies have gone off the rails because both he and the president share a basic economic misunderstanding. Trump has repeatedly claimed that America's trade deficit—the gap between the value of everything a country imports and the value of its exports—is proof that China is "winning" in that bilateral arrangement. He has therefore sought to use tariffs to reduce America's imports and close the trade deficit.

In a 2019 op-ed for The Wall Street Journal, Navarro explained why he thinks limiting imports helps the U.S. economy: "Because imports don't contribute to gross domestic product, unfair trade reduces growth, and narrowing the trade deficit through higher exports and lower imports boosts growth." He then claimed that every $1 billion reduction in the U.S. trade deficit would boost American employment by about 6,000 jobs.

Navarro is right that imports don't contribute to gross domestic product, but he's wrong to imply that they harm it. In fact, they don't directly influence GDP at all. Yet the ability to import component parts—like raw steel or aluminum, for example—can boost domestic production of finished goods.

"If we permanently stopped all the container ships from delivering iPhones, for example, then domestic producers would start producing more cellphones and that would add to GDP," economists Tyler Cowen and Alex Tabarrok explain in their book Modern Principles of Economics. "But producing more cellphones would require producing less of other goods….If we were buying cellphones from abroad because producing them abroad requires fewer resources then GDP would actually fall—this is the standard argument for trade that you learned in your microeconomics class."

Navarro is also wrong to conflate a lower trade deficit with stronger economic growth. In 2017, the United States recorded GDP growth of 2.22 percent and ran a trade deficit of about $502 billion. Meanwhile, France grew at 2.16 percent but had a trade deficit of just $18 billion. Germany grew at 2.16 percent too, but it ran a trade surplus of $274 billion. No matter where you look, the claimed correlation just doesn't exist. That same year, Ireland and India both grew by about 7 percent, despite having wildly different trade deficits. Italy and the United Kingdom both grew at less than 2 percent even though Italy's trade deficit was twice as large.

To understand why trade deficits don't really matter, the Stanford economist John Cochrane proposes a simple exercise: Imagine three nations trading with one another—Australia, China, and the United States. America buys $1 million in shoes from China, Australia buys $1 million in airplanes from America, and China buys $1 million in coal from Australia. All three nations are now running $1 million bilateral trade deficits with one of their partners, but all three are better off.

"Bilateral trade 'deficits' are meaningless," Cochrane writes. Even the use of the word deficit is imprecise, because it implies "something is deficient every time you go to the Starbucks and suffer a coffee trade 'deficit.'"

Economic theory aside, the real-world experiment that Navarro has conducted since 2018 also refutes his understanding of how trade works. The trade deficit has risen in recent years. In July 2020, the U.S. recorded its largest monthly trade deficit since 2008. Tariffs haven't stopped imports from happening; they've just made some of them more expensive and, like any tax, become a drag on the economy.

The tariffs have also failed to stimulate domestic manufacturing jobs—and some of the biggest losers have been the very "key national industries" that Navarro said he wanted to protect. According to the Peterson Institute for International Economics, U.S. consumers and businesses paid about $900,000 for every steel job created or saved by Trump's tariffs. Even before the more severe damage caused by the COVID-19 pandemic, manufacturing was teetering on the edge of recession.

"The tariffs have played out exactly as the experts—the experts that Navarro and Trump maligned for so many years—predicted," says Scott Lincicome, a trade policy scholar with the libertarian Cato Institute and lecturer at Duke University. "We have reams and reams of history and economic analysis showing the harms and inefficacy of tariffs and protectionism. If that didn't convince the administration two years ago, there's no reason to think that subsequent experience would."

"One of the beautiful things that this crisis has unveiled," Navarro told Fox News during a May 9 interview, "is the power of the federal government merging with the power of private enterprise."

As bizarre as it is to hear any government official describe a pandemic as "beautiful," the moment was a telling one. For Navarro, the COVID-19 crisis was evidence that he was right all along about the threat posed by China.

Trump had appointed Navarro in late March to oversee the implementation of the Defense Production Act (DPA), a relic of the Korean War that gives the executive branch emergency authority over American industry. Navarro quickly pivoted to attacking American companies for having the nerve to fulfill contracts with customers in other countries. He told The New York Times that businesses such as 3M Corp., a Minnesota-based multinational company that was exporting some face masks to Canada, lacked "pride and patriotism" and threatened to invoke the DPA to block those exports.

On its face, that might have seemed to make sense—America's mask supplies were insufficient to meet the crushing demand of the early days of the pandemic. But it ultimately served to reveal, to paraphrase F.A. Hayek, how little Navarro knows about what he imagined he could design. In reality, many of the masks 3M makes in America are dependent on wood pulp that's imported from Canada. Within days of the White House ordering 3M to cut off exports, the company explained that doing so would leave America with fewer masks, not more, because other countries would likely retaliate with their own export restrictions. If every country followed Navarro's protectionist logic, the United States would end up with a net loss of $5 billion in annual medical goods and supplies, according to an analysis by the Peterson Institute.

Trump and Navarro ultimately backed down, but even the threat of shutting off exports has rebounded in ways that hurt Americans. In August, the governments of Canada and Ontario handed 3M about $70 million to build a new manufacturing plant north of the border. "Instead of depending on increasingly unreliable trading partners like the United States to provide N95 masks made by American workers, Canada will now be making its own," says Bryan Riley, director of the free trade initiative at the National Taxpayers Union Foundation.

But that initial setback didn't stop Navarro from invoking the Defense Production Act in expensive and counterproductive ways in the months that followed.

On May 19, he announced that the administration was giving a Virginia-based pharmaceutical company a $350 million contract to stimulate domestic drug production. "This is a great day for America," Navarro said. "This has all the elements of the Trump strategy."

Indeed, the contract granted to Phlow Corporation does share much in common with the administration's half-baked trade war and other follies. Almost immediately, red flags were raised. Phlow Corp. "has no track record in drug manufacturing," Politico reported, "and it's not clear when its assembly lines will begin churning out products." A spokesman for the company told BioPharma Dive, a trade publication, that executives had been "communicating with government officials about the U.S. pharmaceutical supply for more than a year," even though the company itself had only been founded a few months before the White House gifted it with what BioPharma Dive said was the largest contract ever awarded by the federal government to a single pharmaceutical manufacturer.

A few weeks later, Navarro was at it again. In July, the White House announced a $750 million loan to Eastman Kodak—a camera company that had declared bankruptcy in 2012—with the goal of further developing American drug manufacturing. The deal was "a great win for the American people," Navarro proclaimed. Like the grant to Phlow Corp., the Eastman Kodak deal was intended to prevent America from being too dependent on drugmakers in China and elsewhere, Navarro said.

But there was little cause for concern on that score. The global supply chains for pharmaceuticals are diverse and resilient. And though China's share of the market has been growing in recent years, the United States imports far more pharmaceuticals from other countries than it does from China. Only 13 percent of the facilities used to make the bulk active ingredients that go into America's drug supply are in China, according to the Food and Drug Administration. Last year, less than 1 percent of the finished drugs imported into the United States came from China—compared to 23 percent that came from Ireland.

Doling out tons of taxpayer cash won't change those global supply chains much, particularly when the government is investing in companies like Eastman Kodak that have no experience making pharmaceuticals. But the company clearly has something to gain from the Trump administration's pivot toward economic nationalism. Eastman Kodak ramped up its federal lobbying in the months before the deal was made, according to the Center for Responsive Politics, which tracks such corporate expenditures.

The Wall Street Journal reported in August that Navarro "spearheaded the idea, then used his sway within the administration to help Kodak navigate the bureaucracy to be first in line for the potential contract." The contract was doled out without congressional approval, because it was part of the emergency powers Trump seized and Navarro consolidated under the DPA. But when it came out that the Securities and Exchange Commission was investigating Kodak executives for leaking the agreement to boost stock prices, Navarro immediately distanced himself. "What happened at Kodak was probably one of the dumbest decisions made by executives in corporate history," he told CNBC on August 17. "You can't even anticipate that degree of stupidity."

It's a pattern that's recurred throughout Navarro's career in the public eye. If something goes wrong—you lose an election, suffer under a trade war, or make a misbegotten deal—it must be someone else's fault. That means never having to take a hard look at yourself or to question your own belief in the power of state-managed capitalism.

Navarro and the other economic nationalists in the White House have not let the crisis go to waste. They've funneled hundreds of millions of taxpayer dollars to companies with no track record of manufacturing drugs and thrown federal subsidies at the Taiwan Semiconductor Manufacturing Co. so it can build a $12 billion plant in Arizona to make microchips that, as The Wall Street Journal reported in May, will "likely not be at the leading edge of chip-making technology" by the time the facility is up and running in a few years.

These are the types of expensive, ineffective federal intrusions into the market that would have made conservatives howl just a few years ago. Now they generate little attention. But they still matter. The Trump years have demonstrated that the global marketplace is too large a place for any single country—even one as economically mighty as the United States—to reshape with tariffs. The same is true of an industrial policy that depends on spending like there's no tomorrow and not caring whether the money is used effectively. Trump's Republican administration is spending huge sums of money America doesn't have to relearn a lesson the right used to know by heart.

It might be tempting to place all of the blame on Navarro for "loaning hundreds of millions of taxpayer dollars to 'stupid' executives," says Riley. But "the reality is that no federal employee has the knowledge needed to micromanage private economic activities. These recent DPA failures illustrate not just the poor judgment of Navarro but, more importantly, the inherent folly of industrial policy."

Once upon a time, GOP lawmakers might have put a stop to the kind of economic authoritarianism that Navarro and Trump have been pumping out of the White House. And initially, a few of them did try.

"Whoever advised him on this ought to be reprimanded," Sen. Orrin Hatch (R–Utah) told reporters on March 2, 2018, shortly after the news broke that the White House was considering imposing new tariffs on steel and aluminum. "It's not a wise thing to do, and I don't know why the president has gone along with it."

"You'd expect a policy this bad from a leftist administration, not a supposedly Republican one," said Sen. Ben Sasse (R–Neb.) at the time.

More than two years later, any hope that pushback from congressional Republicans would blunt Navarro's agenda—either by overturning the tariffs with legislation or by pressuring the White House to change course—has faded. The Republican Party chose not to adopt an official platform in 2020, opting instead for a blanket statement of support for Trump's second-term agenda. Since the president has had a difficult time articulating an agenda for his next four years, that effectively means that if Trump is reelected, Navarro will be able to fill in the details as he sees fit.

What does he want to do? Navarro's office did not respond to requests for an interview for this piece, but he did sit down with National Review's Kevin Hassett in August to talk about what might come after 2020.

"The broader mission of the Trump administration is to continue bringing our supply chains and production home, particularly for critical areas like essential medicines," Navarro said. "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….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."

In short: more of the same policies that have cost so much and accomplished so little in the past four years, but now with even less resistance from a fully Trumpified GOP and from conservative media that are increasingly on board with the president's nationalist agenda.

Whether it's stopping real estate development in California or erecting barriers to trade with China, Navarro has never let failure or facts stop him before. Congress apparently has little interest in doing that, either.

In many ways, Navarro is the missing link between the democratic socialists on the left and the economic nationalists on the right. He left behind his roots as San Diego's Bernie Sanders when he rebranded himself as a China hawk and then wormed his way into a Republican administration. But after nearly four years of advising the president on economic policy, it seems obvious that he has retained a strong belief in the government's duty to direct human behavior in the marketplace.