When Donald Trump came to office, many feared that he would break up our close economic relations with Mexico and/or start a trade war with China. So far, neither has happened.
It’s true that our free trade agreement with Mexico and Canada is still under threat, and Trump has placed tariffs on some Chinese goods. But his trade ire seems increasingly focused on an unexpected target: the European Union, which he tweeted has “horrific barriers & tariffs on U.S. products going in.”
This is odd on several levels. To the (very large) extent to which Trumpism is based on racial enmity, picking a fight with Europe, of all places, seems strange. Furthermore, the U.S. has always looked favorably on the EU, which is, for all its faults, a major force for peace and democracy. Why rush into a spitting match with our allies that only serves the interests of enemies of freedom like Vladimir Putin? Oh, wait.
Beyond all that, however, Trump is just wrong on the facts. “U.S. exports to the European Union enjoy an average tariff of just 3 percent,” says the U.S. government’s own guide to exporters.
Where is Trump getting his misinformation? Probably from Peter Navarro, his trade czar, whose star is clearly rising. And the story of Navarro’s rise tells you a lot about the nature of the Trump administration – a place that rewards sycophants who tell the boss what he wants to hear.
First, how was Navarro recruited? According to reporting in Vanity Fair by Sarah Ellison, now at The Washington Post, during the campaign Trump told Jared Kushner to find some research supporting his protectionist trade views. Kushner responded by going on Amazon, where he found a book titled “Death by China.” So he cold-called Navarro, one of the book’s authors, who became the campaign’s first economic adviser.
Navarro has an economics Ph.D. but holds views very much at odds with the mainstream. True, taking advice from a heterodox figure can sometimes work out well, since orthodoxy isn’t always right. But giving heterodox views a hearing only works if the people seeking advice are themselves open-minded thinkers, willing to put in the hard work of understanding opposing views and assessing the evidence. If this sounds to you like a description of Donald Trump, you might want to seek professional help.
In fact, Navarro’s nonmainstream views mainly seem to involve basic conceptual and factual errors. One of these errors, which bears directly on the Trump-Europe spat, is a complete misunderstanding of the trade effects of value-added taxes (VATs), which the U.S. doesn’t have but play a large role in most European countries’ revenue.
In Navarro’s version of the world, for example as expressed in a campaign white paper, VATs give European companies a huge, unfair trade advantage. U.S. products sold in Europe have to pay VAT – for example, they must pay a 19 percent tax if sold in Germany. This, says the white paper, is just like an import tariff. Meanwhile, German producers pay no VAT on goods they sell in America; this, the paper says, is just like an export subsidy. I’m pretty sure that’s what Trump means when he talks about “horrific” tariffs.
But what this story misses is the fact that when German producers sell to German consumers, they also pay that 19 percent tax. And when U.S. producers sell to U.S. consumers, they, like German producers, don’t face any VAT. So the tax doesn’t tilt the playing field at all, in either market. In reality, a VAT has nothing to do with competitive advantage; it’s basically a sales tax – a tax on German consumers – which is why VATs are considered legal by the World Trade Organization.
So how does someone who misunderstands such a basic, well-understood point about taxes and trade get to be a key economic adviser? As I said, it’s because he tells the boss what he wants to hear. More than that, he’s willing to abase himself in extraordinary ways.
Here’s what he told Bloomberg recently: “My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters.” Wow.
I mean, one expects White House aides to share many of the president’s views and defend him in public. But this goes far beyond that. Not only is Navarro proudly declaring that he’s a propagandist, not a policy analyst – that his role is solely to confirm Trump’s prejudices – he’s also engaging in an utterly un-American level of sycophancy. Since when has it become acceptable to declare that Dear Leader is infallible?
Now, it’s a commonplace, but also a euphemism, to say that Trump has authoritarian instincts. A more accurate statement would be that he expects the kind of treatment tin-pot dictators demand, free from any criticism inside or outside his government and greeted with constant hosannas of praise.
And everyone who isn’t willing to play the full game, who has tried to play by something resembling normal democratic rules, seems to be fleeing the administration. Soon only the shameless sycophants will be left. This will not end well.