Dilluns, 17 Juny 2019

A Democrat in the White House

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In 1984, the same year Ronald Reagan was elected for a second term in the White House, Peter Navarro completed his PhD at Harvard University  with a doctoral thesis entitled “The Policy Game: How Special Interests and Ideologues Are Stealing America.” Politically close to the Democratic Party, Navarro ran for office in California during the 90’s but never won. He published Death by China in 2011 and the book was later broadcast as a documentary.  It explains how the petrodollar model evolved in the Chinese case, but at a heavy cost for the American working class. The dollars for factories trade-off has benefited the financial sector because it implies a reduction of salaries and an obvious competitive edge on costs. This, however, has not benefited the American people, and in part, this fact explains the rise of Donald Trump.

Navarro is now the director of the White House National Trade Council. Ironies of the Internet, if you look it up on Wikipedia, you will see it is only translated into Japanese, Chinese, and German. The main task of the Council is to advise the President on foreign trade. Navarro reports directly to the President exactly like the Director of National Intelligence and somehow like the Director of the Central Intelligence Agency. It hints at the importance of Navarro’s job. But until now, the U.S. Department of Commerce has carried the trade policy. It still does, but it now has the National Trade Council, with Navarro acting as an advisor in the White House, and Rex of the American trade.

Wilbur Ross is the United States Secretary of Commerce in the Trump administration and the long relationship between Mr Trump and Mr Ross is worth analyzing to understand the government structure of the White House. We will go into it in another time. Ross and Navarro worked on an economic strategy paper for the then candidate Donald Trump: “Scoring the trump economic plan trade regulatory & energy policy impacts (29 de September, 2016).” In reading it, the fog of tweets and untimely statements of the President of the free world, seemingly disappear for a moment. The document is the intellectual argument behind the protectionist agenda, the renegotiation of NAFTA and the scrapping of TTP and TTIP. But above all, it explains the alef bet of the President’s relation with Europe and China. This is: Germany takes benefit from excessively low Euro vs the Dollar, thus promoting German exports. Interviewed in the London Times, Trump warned that “You look at the European Union and it’s Germany. Basically a vehicle for Germany.” And as a result of Germany’s refugee policy, he adds, “others will leave.” But these words do not come out of nowhere. They come after the strategic paper mentioned before. Where Trump accuses China of being a currency manipulator, Navarro explains that China maintains a stable Yuan with the US -its biggest trade partner- by buying American treasuries. Navarro keeps hammering currency manipulators with the Euro and Germany,

“A similar problem exists because of the European Monetary Union. While the euro freely floats in international currency markets, this system deflates the German currency from where it would be if the German Deutschmark were still in existence.”

And he adds,

“In effect, the weakness of the southern European economies in the European Monetary Union holds the euro at a lower exchange rate than the Deutschmark would have as a freestanding currency. This is a major reason why the US has a large trade in goods deficit with Germany – $75 billion in 2015 – even though German wages are relatively high.”

Concluding,

“Of course, a weaker currency stimulates the currency manipulator’s exports, discourages imports, brings about a more favorable trade balance, and the currency manipulator grows at the expense of its trading partners.”

Trump’s political interpretation, was to threat the German auto industry with a 35% tax, said Trump in an interview at Bild German newspaper:

“If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax,”

“I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that”

The provocation did not receive a very diplomatic response from the minister for the economy at the time, Sigmar Gabriel: “[if Mr. Trump want Germans to buy American cars] Build better cars.” Taking into account the strength of the American economy, and the dollar, it is easy to see this is not the best response.

One of the reasons why President Trump is not loved in Washington and in the US in general, is because Trump causes antipathy in regions like Europe. Thus, the former US ambassador to the EU candidate, Ted Malloch, was not the friendliest. Interviewed by Bloomberg he stated, “I think there is probably – from an economist’s perspective – a very strong reason for Greece moving away from the euro.” He stated at the BBC, that he was not sure there “is going to be any EU in the future to trade with,” Malloch was more in favor of state vis-à-vis state deals. What does say Malloch about the EU, nowadays? Nothing, because Trump has not appointed any US ambassador to the EU. Many will say it is a matter of neglect, or that there is no official willing to participate in Trump’s administration. It may be a little bit of both. But the main reason to leave the EU post vacant is an ideological one. Trump does not appoint an EU ambassador because he does not believe in the multi-state organization the EU represents. According to Denis McShane, former UK ambassador to the EU, “Trump, like President Putin, can’t handle the EU. Instead, he prefers bilateral relations so having an EU ambassador is low on his priority.” Another follower of the Navarro doctrine, Robert Mnuchin, stated at the World Economic Forum in Davos that, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.” Mnuchin’s statement has not been welcomed at the European Central Bank, essentially because it caused the dollar to devalue in front of the euro. Thus, Benoit Coeuré (appointed to the executive board of the ECB) stated that, “Any discussion on the exchange rates should be sent back to where it belongs, which is multilateral bodies, which is G-7 and G-20.”

Navarro’s obsession as the Rex of the American Trade, is to revise the dollar’s role in international economy, and boost American exports, possibly at the EU’s expense.

But what is the picture of the dollar? The petrodollar as a model is in constant retreat. Asia is opting for alternative payment systems. And the dollar’s valuation is in free fall, due to the aforementioned facts, and because countries like China are not buying American treasuries anymore. Navarro is obviously looking for a dollar depreciation. But this should not be something bad. Politics is the art of the lesser of the evils, and a devaluation can spark a manufacturing, and economic boost in America. When it comes to the EU, even though Trump accuses Germany of being a currency manipulator, it does not imply the break up of the euro, or the disintegration of the EU. The US is more than a President, and the American Constitution has mechanisms to avoid concentration of power at the hands of the executives. But careful, les jeux sont faits, and Trump has already imposed a tax on iron and aluminum imports.

Pol Serrano is a journalist, and MA in Politics and International Relations at the University of Kent. He specializes in economics and security.

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