The Personal Histories of Lighthizer & Navarro + the Near-Term Future of US-China Trade

The Personal Histories of Lighthizer & Navarro + the Near-Term Future of US-China Trade

Part 1: Lighthizer—Background and Beliefs 

 

Part 2: Navarro—Background and Beliefs 

 

Part 3: What They Have Done So Far

 

Part 4: What They Want

 

Part 5: The Future

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Trump thinks. Navarro legitimizes. Lighthizer does. 

 

Part 1: Lighthizer—Background and Beliefs

 

Who is Lighthizer?

 

First, understand where he comes from. 

 

He grew up in what is now the Rust Belt, the central part of the United States once dominated by factories and manufacturing facilities. Today, the factory towns throughout the Rust Belt are nothing compared to what they once were. Though he was raised comparatively wealthy—his father was a doctor—growing up in this area has clearly long influenced his trade views. There is no question that manufacturing has been hit hard in the US. Some argue about the root causes of this problem, but the fact remains that American manufacturing has been on a long decline. Regions like those where Lighthizer grew up have been the most affected (See chart 1)

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Chart 1: US Manufacturing Employment

 

Lighthizer’s career can be defined by the “revolving door.” Many professionals in the United States alternate between jobs in politics and at corporations. Political jobs in the United States do not pay particularly well, but they provide people with experience getting to know policy, making connections, and building up influence. Professionals are then able to leave politics and take lucrative jobs at corporations. Lighthizer has alternated between jobs in Republican politics and work as a trade lawyer. 

 

He worked as Deputy US Trade Representative during the Reagan years and later served as treasurer for Bob Dole’s presidential campaign. Now, of course, he is Trump’s chief Trade Representative. Between these political assignments, he worked for some of America’s largest corporate law firms. He typically defended American companies from unfair practices by global firms and sought to increase American exports. 

 

He is known for having done, in particular, a lot of work representing the American steel industry.This is an important point—as the Trump administration has imposed 25% tariffs on steel imports. This has generally forced American companies to use domestic steel for their products. The prices for steel have increased 13.5%, according to the American Steel Index. This is good for steel manufactures and bad for pretty much everyone else. That’s important, because companies who buy steel in the United States employ 46 times as many people than companies that sell steel. So, while steel companies have benefitted from the tariffs, many more companies have been hurt.

 

What does Lighthizer Believe?

 

Lighthizer does not support the World Trade Organization. He believes that agreements between countries should be bilateral and not involve international institutional bodies. James Bacchus, a former congressman, said that Lighthizer—one of the most notable international lawyers in the country—"does not believe international law should even exist.” In this sense, agreements should be bilateral and essentially non-binding. 

 

Distilled down to its core, I believe that Lighthizer’s view is loosely in line with the message that the Trump administration (and Trump himself) has been communicating from the early days of the campaign: The current global trade order is not working for the United States and China’s rise has been incredibly damaging to the American economy, particularly the manufacturing sector. 

 

In this view, why should the United States support the WTO and free and fair-trade practices when China heavily subsidizes industries, steals technology, and spies on American corporations? China does not play by the rules, therefore the only way to deal with China is to play tough.

 

In this view, the US-China trade relationship is not reciprocal, mostly because China has much more access to the US market than the US has to the Chinese market. At its heart, the trade debate is about this issue more than any other: market access. 

 

Part 2: Navarro—Background and Beliefs

 

Who is Navarro?

 

If Donald Trump had not been born into a real estate empire, and, instead, had decided to become an economics professor, he would probably look a lot like Peter Navarro. 

 

Navarro has had an unconventional career. For years, he has been an MBA professor in California. He has also run and lost for office in Southern California 6 separate times—trying but not succeeding at becoming part of the “revolving door” that has defined Lighthizer’s career.

 

When reading about his campaigning style, he often appears quite similar to Trump. 

 

“Peter could get the media to show up on a dime, they loved him,” Lisa Ross, his former press officer said. 

 

He is described as combative, even once bringing an opposition to tears. A political operative in California, Larry Remer, said “If Trump wasn’t the biggest asshole in Washington, Peter could be.”

 

In short, Navarro doesn’t seem to care much about making enemies and winning whatever battle he is in is his primary concern. 

 

He later became an investor-advisor of sorts, writing books and commentating on TV about trading on macroeconomic trends. Before becoming the architect of Trump’s trade policy, in the most recent iteration of his career, he transformed into an anti-China pundit. That is, someone who, like Lighthizer and Trump, holds a deep conviction that China is a nefarious global actor and that it is to blame for many of the United States’ economic issues, particularly those related to trade. 

 

After arriving at the White House, he frequently argued with Gary Cohn—Trump’s former chief economic advisor and the former president of Goldman Sachs. Cohn believed in a more traditionally conservative, pro-free trade, pro-globalization approach to international economics. In the end, it was Navarro’s approach—which was always more similar to Trump’s—that won out. Cohn resigned on March 6, 2018. Navarro became the White House’s key voice on trade economics, someone who has Trump’s ear. 

 

What does Navarro Believe?

 

Navarro’s views on trade are very similar to Lighthizer’s and Trump’s. They are considered extreme, firmly outside the mainstream. In regard to trade, journalist Adam Davidson said that he was “Unable, even with Navarro’s assistance, to find another economist is fully agrees with Navarro’s views.” In terms of China, the former Chairman of the American Chamber of Commerce in China, James McGregor said, “Navarro is not known in any China circles.” 


“My recollection is that he generally avoided people who actually knew something about China,” said Kenneth Pomeranz, a professor of Chinese history at the University of Chicago and formerly at UC Irvine (where Navarro was also a professor).

 

       Navarro has said that his views on China began when he noticed his MBA students having trouble finding jobs in the late 80s and early 90s. He traced this phenomenon to China’s rise. He—like Trump—is obsessed with the US trade deficit with China and the rest of the world. Whereas most economists do not believe a trade deficit is a negative thing on its own, Navarro appears to view the deficit in stark, zero-sum terms. The country that imports more than it exports is losing. Period. We have heard Trump echo this sentiment on many occasions. 

 

       Navarro, again, like Lighthizer and Trump, views imbalanced trade as responsible for America’s wage stagnation, class issues, and polarization. He holds the view that while American corporationsoften do win (at least in the short term) from offshoring operations to China and other countries, the American worker has been decimated. 

 

       In Navarro’s three China books, he paints the Sino-American relationship in warlike terms. (cite/quote) In fact, he believes that there is a legitimate likelihood that China and the United States will ultimately solve their problems with an actual war as opposed to a trade war. He views China as a cunning and odious authoritarian power that will stop at nothing to “win,” militarily, politically, socially. 

 

       Like Lighthizer, this belief leads him to recommend a very tough, bilateral approach to dealing with China. 

 

Part 3: What They Have Done So Far

 

       The three most important, actionable steps that the administration has taken on trade are:

 

1)     The renegotiation of NAFTA

2)     Destaffing the WTO 

3)     The tariffs/trade war with China

 

1.     Renegotiation of NAFTA

From the beginning of his campaign, Trump had constantly maligned the North American Free Trade Agreement as “unfair” “terrible” and “the worst deal ever.” One of his top priorities was renegotiating NAFTA. Trump wanted to overhaul NAFTA, but the new agreement, the US, Mexico, Canada Agreement is only slightly different than the initial version. That said, it is generally agreed that the US did gain more—at least economically—from the near deal. The new deal provides increased protections for US auto manufacturers and it also opens up the Canadian dairy market to American farmers. It is not, however, a massive overhaul of the original deal. And, it is often argued, using such tough tactics to extract relatively minor gains may be detrimental to US international relations going forward. 

 

2.     De-staffing the WTO 

A less discussed, but important result of the first two years of the Trump administration has been the weakening of the WTO. Lighthizer and Navarro are both very hostile to the trade organization. The US has vetoed all appointments to the WTO appeals court—making it impossible to hear all cases. This is seen as a deliberate weakening of the WTO on the part of the administration. 

 

3.     Trade war with China 

Trump, Navarro, and Lighthizer are obsessed with the trade deficit that the US runs with China ($375 billion in 2017). They view this trade deficit and China’s rise as the principle issue in the American economy. In addition to consistent Anti-China rhetoric, the administration has taken real action against China in hopes of decreasing the deficit. Some of the key steps that have been taken to date:

 

-       30% tariffs on solar panels

-       25% tariffs on steel and 10% tariffs on aluminum 

-       25% tariffs on $50 billion worth of Chinese goods

-       Propose 10-25% tariffs on $200 billion of commodities 

-       Imploring countries all over the world to reconsider telecom deals with China—for example, Huawei 5G networks

 

Part 4: What They Want:

 

       The Key Three—Trump, Navarro, and Lighthizer—are primarily concerned with the US-China trade deficit, which includes reshoring manufacturing jobs. In a broader sense, they are concerned with China’s rise. To reduce the deficit, they are demanding:

 

• Greater market access to China. For example, as Treasury Secretary Steven Mnuchin said, “China should not force American companies to engage in joint ventures if they want to operate on the mainland.” 

 

• Crackdown on Chinese company’s IP theft 

 

• More transparent legal and financial information, particularly in terms of currency. Generally speaking, they would like to see as stronger Yuan.  

 

Part 5: The Future 

 

Dealing with Lighthizer and Navarro: 

 

       The convictions held by Lighthizer and Navarro are incredibly deep. I believe they will do everything in their power to assist American manufacturing and contain China. They are true ideologues—both are close to 70 years old and neither appears to have ambitions unconnected to ideology at this point. They are unelected, and, even if they were fired by Trump (as many officials have been), it does not seem that they would much care. 

 

       This is what makes the situation difficult to predict with certainty. Lighthizer and Navarro have strong views and little incentive to compromise them

 

       I believe Navarro and Lighthizer will continue their crusade to bring a more protectionist, America First trade policy into action. In short, dealing with Lighthizer and Navarro is essentially a non-starter. Their feelings toward China long predate the Trump administration.

 

       Endgame:

 

It is important to remember that, while the China views of Navarro, Lighthizer, and Trump may be extreme in their hostility, the basic premise—that China is unfair in its economic practices and needs to be more open—is a view shared by basically every single person in Washington. While many of Trump’s positions are deeply unpopular with a huge portion of the American population, his views on China are not. 

 

If the renegotiation of NAFTA is any indication, the important thing is that the Trump administration and the Republican Party have something resembling a victory to show to voters. Lighthizer and Navarro are tough guys who will make the negotiating process more difficult, combative, and long, but they will not be the ones making the final decisions. Ultimately, decisions regarding China will not be made by Peter Navarro and Robert Lighthizer. They will be made by the elected officials in the American government. Thus, they will be made by the American voting public.

 

       The trade dispute will not escalate to the point that Navarro and Lighthizer may prefer it to: inflicting incredible economic pain on China and isolating it from the world. But, I do believe it will ultimately end up in some concessions from China—looking more like the type of changes that treasury secretary Steven Mnuchin is calling for. With the addition of the “tech war” now unfolding around Huawei and Chinese technological advancement, issues with the US are also often issues with the EU, Canada, and other American allies. While Trump may be unpopular, the United States is still the preferred political partner for the developed world. I believe that the leverage ultimately does lie with the United States and that most countries want China to be more open, and do support, if not with the same extreme rhetoric as the Key Three, the gist of the trade war. If nothing else, the trade war will help accelerate that process—which is already underway.

Literature Review: Dollar Hegemony & RMB Internationalization

Literature Review: Dollar Hegemony & RMB Internationalization