Peter Navarro is losing
By Scott Sumner
The recently announced trade deal with the EU pushed stocks higher late in the day, as it averts the risk of a trade war. Before explaining why this is a big loss for economic nationalists such as Peter Navarro and Steve Bannon, it’s worth considering a few facts.
Economic nationalists (aka mercantilists or protectionists) believe that countries with trade surpluses are stealing jobs from deficit nations. Today, it is continental Europe that dominates the world in current account surpluses, with European nations (excluding the UK and Turkey) running a surplus of roughly $650 billion with the rest of the world. Japan is next, with a surplus a bit below $200 billion, and there are some other smaller surpluses in East Asia. But Europe is the “Great Enemy” for people with a mercantilist/nationalist/protectionist worldview. The deal being discussed is likely to lock in place the current reality, with some minor tweaks.
My hunch is that Trump really does have protectionist instincts. So why did he agree to this deal? The good news is that Trump’s main objective seems to be doing deals and getting “wins”, not adhering to any fixed ideology. The stock rally today may have reflected relief that Trump will not push the trade war too far.
From the beginning, I’ve felt that big trade wars are not practical in the modern global economy, at least over any prolonged period of time (say a year.) I still wouldn’t rule out a trade war with China, but even that is likely to get resolved before doing too much damage.
Navarro, Bannon and other mercantilists have gone to war against global neoliberalism, and so far they are losing. Look for America to continue running very large (and growing) current account deficits.
Bonus prediction: Brexiteers will be unhappy with the final outcome of Brexit.
PS. Kudos to Larry Kudlow for quietly pushing globalization from within the Trump administration. And I think Gary Cohn would be pleased with this deal.