Team,
Check out my conversation with economics correspondent Victoria Guida at Politico’s Economy Summit.
In a great discussion, I cover tariffs, Trumpnomics, the Federal Reserve, and the World Trade Organization, among other topics.
President Trump is achieving what nobody imagined was possible: fundamentally restructuring an international trade order that was cheating Americans for decades.
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Peter
TRANSCRIPT
VICTORIA GUIDA: We’re delighted to kick off the day with White House trade advisor, Peter Navarro, who is a veteran of the Trump Administration, having also served during the President’s first term. This is a chaotic time in the economy with a war in the Middle East that’s causing oil prices to surge. It’s also a pivotal time in trade policy with the Supreme Court having thrown out the current tariff regime and now they’re building an entirely new one. So, thanks for taking the time to chat with us, Dr. Navarro.
DR. NAVARRO: My pleasure.
GUIDA: So, I’ll dig right in. There’s plenty to cover. It’s been almost exactly a year since Liberation Day, when the Administration announced an entirely new global tariff regime, and I just wanted to sort of level set, is there anything that’s happened in the past year, whether from how the Administration’s policy has played out or how people have reacted to it, that surprised you?
DR. NAVARRO: If you don’t mind, I’d like to level set just quickly for the audience in terms of my bio, because what we’re going to talk about today, you and I, and throughout this, is the economy. And I think it’s important when you listen and try to learn, there’s an issue of credibility. And I just wanted to give you a quick bio, just some time points. In 2006, I published a book called The Coming China Wars, which was widely ridiculed at the time as being too critical of communist China. But today, I think people would generally agree that that book was absolutely spot-on. The same year, I was doing a lot of macro forecasting, and I warned of a housing bubble, 2006 and 2007, with my macro newsletter. I told everybody to get out of the stock market in November 2007, and that call was exactly right.
The first day after the election in 2016, I got on Squawk Box in the morning, futures were dead red down, and I said the Dow would go to 25,000. We hit that in 18 months. And then, just more recently, in April of last year when the futures were dead red down, I again went on the financial cable things and said—the Dow was at 38,000 at the time—I said it was going to 50,000. And we hit that. And throughout, I have said repeatedly that tariffs do not cause appreciable inflation—going back to the first term I was saying that—and they will not cause a recession. And I’ve been absolutely right about that. Now, I say that because you’re going to hear a lot today about people who are going to say just the opposite, and it just hasn’t happened. It’s not there in the data.
Now, with respect, Victoria, to your fine question, nothing surprised me. The strategy that we embraced going back to the early days incorporated the possibility that the Supreme Court would in fact do what it did, and we were absolutely prepared for that. But we thought at the time that by going forward in a full-spectrum way, the President would be able to establish the ability to negotiate, not just with China, but more importantly with the rest of the world that cheats America, and move towards a fundamental restructuring of the international trade order. And that goal has already been accomplished. It’s been really remarkable how many deals that the United States Trade Representative Jamieson Greer, who is truly fine at his job, working with Howard Lutnick and the Treasury Secretary, Scott Bessent, that we’ve been able to do. So, the only other thing I would say about the Supreme Court decision is that even though we lost the IEEPA tariffs, it was the best possible outcome because the justices ratified and affirmed the use of every other statute we’ve been using to implement tariffs. The 232s on commodities, the 301s on countries, and everything in between. So, I think we’re in a very good place for America, and our trade policy is fundamentally revamping the entire ‘world order,’ in the language of the other side.
GUIDA: So, on the strategy of what you’re pursuing now that those other tariffs have been overturned, there’s a 10-percent tariff. You said that the Supreme Court ratified all of the approaches that you all are taking. I think there’s a question as to whether, you know, that authority applies here, but I—
DR.NAVARRO: Which one? Which one?
GUIDA: The 10-percent tariff that’s supposed to—
DR. NAVARRO: Oh, I see. Well, that’s Section 122, right?
GUIDA: Right.
DR. NAVARRO: And it’s gone to 15, by the way. I don’t know if you noticed that.
GUIDA: So, I wanted to ask you about that. Why hasn’t that happened yet?
DR. NAVARRO: It has happened, or at least it’s in process to happen, but I wouldn’t get too—
GUIDA: Well, when will that take effect, though? The 15 percent?
DR. NAVARRO: We’ll do the fact check on that later, but the point is, I wouldn’t get too lost in the day to day of that. The bigger strategy here, which we’ve been preparing from the very beginning with the section 32s—232s—those are the ones that are applied to specific commodities. Okay? We’ve done two things. One is we’ve gone from simply the commodity—take steel. We’ve greatly expanded what’s called derivative products, derivative articles. Now, why is that important, Victoria? Because what we learned in the first term is that if you put tariffs, for example, on steel, what the people outside our borders will do, as well, they’ll start making stuff with the steel and bringing it in to evade the tariffs. So, we handle that with the derivative articles. But if you think about what we do, steel, aluminum, copper, pharmaceuticals, chips, critical minerals, and that list continues to expand.
So, over time, what you wind up doing is getting the equivalent, essentially, of the IEEPA tariffs, because those 232s apply to the whole world, not to specific countries. And then, at the same time, Jamieson Greer has been methodically moving—and quickly— through additional section 301s. That was—by the way, that was a novel use of [Section] 301 in the first term, when we used it for China. And there was a lot of handwringing, saying, ‘well, they can’t do that.’ But those have been ratified, and they’re very, very powerful and important, and Jamieson’s just working through that in the fantastic way that he works. I can’t say enough about what he’s doing. So, I think we’re at a good place. And look, the reason why we do this, let’s be clear, Victoria. The reason why we do this is that the World Trade Organization rules are perverse in that they have set up a system going back decades, something called the ‘Most Favored Nation’ way to set tariffs, that allowed the rest of the world to charge us systematically higher tariffs. And because the dispute resolution mechanism is broken, they allow the rest of the world to impose systematically higher non-tariff barriers. And we lose our jobs and our factories and our defense industrial base. And Donald Trump, going back in history, channeling Alexander Hamilton, channeling McKinley, channeling Henry Clay, is basically adopting an America First policy where the protection against unfair trade makes us stronger.
GUIDA: So, on the Section 301 investigations—
DR. NAVARRO: Sure.
GUIDA: —which are these country-specific investigations, you were just referring to, a lot of these countries the President reached trade deals with. So, is the outcome of these probes predetermined, that basically you’re doing this investigation, but the idea is to get to the tariff that you agreed to with the country?
DR. NAVARRO: Nothing’s predetermined. It’s all about the negotiation. But the beauty of the situation is that we have the best negotiator in the world sitting in the White House, and we have a group of very seasoned people in Bessent, Lutnick, and Greer able to implement the President’s vision in a way. Now, remember—
GUIDA: So, are they—are you all renegotiating, potentially, some of these deals?
DR. NAVARRO: We’re not re—Okay. There’s deals that are being made, and the important thing is, when the deal gets made, what happens is there may be a lowering of the tariffs that everybody else gets, but we get things in return, and it’s bespoke. It’s customized depending on the country at hand and depending on what their strong suits are. So, we get a different set of things from Japan versus Korea versus other nations, and it works for America in that way.
I mean, it’s brilliant in the sense that nobody imagined that this was possible. I think—look, as much as a lot of people in this audience here and virtually do not like Donald Trump, you have to look at the chessboard and say, this is a fundamental restructuring of an international trade order, which was screwing us for decades, and which is certainly more fair now. And that’s good for America. You have to acknowledge that. There’s no other conclusion to make here.
GUIDA: So, you’re saying that it’s possible that some of these tariffs could go down lower than the deal if the countries give more in return?
DR. NAVARRO: Yeah, that’s the way it works. Yeah.
GUIDA: Okay.
DR. NAVARRO: That’s the whole idea. Okay? But remember, again, it’s like first principles here. Why the tariffs? Well, the tariffs are in response to a set of unfair trade practices. And every country, it’s like fingerprints. They cheat us in different ways, right? But the common denominator we have with every country cheating us is some level of a trade deficit. So, in general, the rule here with the reciprocal tariffs is that the bigger the trade deficit we have with a country, the higher the tariff’s going to be, because the goal in the IEEPA context was to eliminate a trade deficit, which is and continues to be a significant national security threat. I mean, trade deficits year to year aren’t bad, trade deficits for decades are toxic. They drain the lifeblood out of a nation. And again, I think that is something that everybody should agree on and can agree on regardless of their political party. I mean, if you run what is equivalent of like 18 trillion dollars of trade deficits over the last decade and ship off—see, those are claims on our assets. If you ship off that much of the assets of America, that’s not a prescription for prosperity. That’s a prescription for the workers of this country working for foreign capital rather than domestic capital and for the loss of our farmland and our food security and things like that.
GUIDA: So, I do want to talk about things other than trade, but I did also want to ask, you know, you were starting to win the argument that you were making, that the tariffs are not, you know, going to lead to a sustained increase in inflation, but now we have this war in Iran that is, you know, pushing up oil prices. Are you worried that that might give some companies that have been maybe absorbing these tariff costs license to pass those along to consumers?
DR. NAVARRO: No. I think what we have to do is clearly differentiate between demand-side inflation and supply-side inflation supply shocks. This is a classic energy price shock. And I know, Victoria, that you cover the Fed, and I think it might be useful—I don’t know if you know this—but if you look historically at how the Federal Reserve has handled energy price shocks, it’s very interesting that both Alan Greenspan and Ben Bernanke saw oil price shocks as a reason not to raise interest rates, but to lower them. I don’t know if you’re aware of that. Greenspan basically said he had a policy that was a little laxer than Bernanke. He said you should look through oil price shocks because of the nature of that beast. Bernanke was more active about it. And he, as he was dealing with the crisis in ’06, ’07, and ‘08, we had energy price shocks, and he actually continued to lower rates. And so, I think that when we think about what’s happening now, there’s that to consider. I think Jay Powell—worst Fed chairman in modern history, just the worst—is making, what, his fourth major blunder since he got into the place he’s at. And it’s going to be—he just imposes cost upon cost, and he’s just not seeing the chessboard. So, that’s a real problem.
GUIDA: Can I also ask you, since you brought up Jay Powell, does the White House have a position on whether, if Kevin Warsh is not confirmed by the time that Powell’s Fed chairmanship ends, that he can stay on as acting chair?
DR. NAVARRO: Okay, so that’s not my lane. But, what I, there’s a—if you’re curious about some of the work I do on these macro indicators and Fed decisions, RealClearMarkets has been really good about publishing articles about this. And I had one just about the latest Powell blunder. And if you look, kind of, at the history of Fed chairs staying on, nobody does after they retire. The only one we had—
GUIDA: Well, Marriner Eccles.
DR. NAVARRO: The only one we had, which you know, is an outlier many, many years ago, right? But they all—Greenspan, Bernanke, Yellen, on down, they go. And there’s a reason they go. The reason they go, and it’s been written well about, is that you don’t want a previous Fed chair overhang on the leadership of the current Fed chair. And in this case, it would be absolutely toxic because Jay Powell has an attitude, okay? His attitude is tariffs cause inflation, and he doesn’t understand—
GUIDA: Well, he was watching for that, right? I mean, he backed off that.
DR. NAVARRO: Has he backed—you know, I didn’t see him back off to the point where he lowered rates, but he—
GUIDA: He did lower rates, though.
DR. NAVARRO: He stopped lowering rates, and he didn’t do 50 [basis points] like Stephen Miran wanted. He did 25, and it was begrudging. But I think the point about Powell, I mean, if you just do the history on it—work with me on this. So, we come in in the first term, and what Powell doesn’t understand is kind of the power of the Trump agenda. Right? It’s a supply-side agenda, I think in the best possible definition of that, meaning that we ran—I mean, I remember on the campaign trail, 2016 with Wilbur Ross, you know, we’re out there, we’re talking tax cuts, we’re talking deregulation, we’re talking strategic energy dominance, and we’re talking fair trade. And every single one of those is a way of reducing inflation and promoting growth. And so, Powell, when we’d come in and we implement that agenda, sure enough, we start getting robust growth above, like, the new normal that was Obama of like one percent—I don’t know if you remember those days. And Powell panics, and he raises rates too soon. He was “Too Early” Powell then. So, then we’re out, and Biden and his merry band of spenders get in and they start spending like drunken sailors. And Powell sits there wanting to get reappointed, doesn’t do anything. And again, I think everyone would agree—because the Fed agreed post-analysis—that they waited too long. And so inflation gets out of control, right? And then we come in again and things are going good, the inflation going down, trending down, and Powell sits there and sits there. Finally, begrudgingly lowers a little bit, but we’re still too high. The housing market’s suffering, credit markets are suffering. And now he is doing this. I believe the man fundamentally misreads the power of Trumpnomics, but he also has an animus towards the President. And I would say to everyone out here in Politico-land, look, there’s not a lot of people who read Politico who love Donald Trump and his policies, but we’ve got to separate this wanting to get rid of Trump or hating Trump or whatever from what’s good for the country. And we haven’t been able to do that politically, Victoria, and it worries me deeply. It’s one of the reasons why I came today. I want to speak to what we regard legitimately as the other side and try to figure out kind of how we as a nation are going to navigate this. It’s very serious.
GUIDA: So, as a nonpartisan reporter, I can say I’m very interested in hearing your point of view.
DR. NAVARRO: Yes.
GUIDA: I do want to—we’re almost out of time. One thing I did want to ask you, you know, you were talking about the WTO. There’s a ministers meeting later this week, and on the sidelines of that, there is—
DR. NAVARRO: In Europe you’re talking about.
GUIDA: Well, in Africa, in Cameroon.
NAVARRO: Okay.
GUIDA: The World Trade Organization ministers are meeting.
DR. NAVARRO: Preceded by the Europeans calling for a major revamp of the WTO.
GUIDA: Yeah. So, but what I wanted to ask was on the sidelines of that—
DR. NAVARRO: Yeah.
GUIDA: —there’s some European and Asian Pacific countries sort of spearheaded by Mark Carney, the prime minister of Canada—
DR. NAVARRO: Yeah.
GUIDA: —calling for a separate agreement that sort of is intended to check the power of the U.S. I was wondering if you had any thoughts on whether the U.S. should be worried about that?
DR. NAVARRO: Well, no, the U.S. shouldn’t be worried about that, but it’s typical Carney behavior. We’ve got a problem in Great Britain and Canada with liberal Trump haters. What’s more important here of historical significance—and again, I go back to my earlier remarks. I mean, I’ve been saying, as Donald Trump has, and he said it first, that the WTO fundamentally is set up in a way to disadvantage the United States. It needs to be reformed. And Europe has finally heard that call because—this is the more important thing I’ll tell you—because as we’ve protected ourself from China and now the rest of the world, China has started dumping, wholesale, everything it can’t sell to the U.S. onto the European continent, Latin America, Africa, all over the world. Its trade surplus is soaring, and it’s doing really, really big damage, particularly in Europe, at a delicate time. So, what Carney should be saying is, ‘Hey, let’s reform the WTO in a way that doesn’t provide advantage to people who want to use unfair trade practices.’
GUIDA: Well, unfortunately, we’re out of time, there’s a lot more I wanted to get to, but I appreciate the time you gave us. Thank you very much.
DR. NAVARRO: Yes, ma’am. I appreciate that. Yes ma’am. Bye bye. Thank you.
