Another Open Letter to Trump Lieutenant Peter Navarro

by Don Boudreaux on March 2, 2018

in Balance of Payments, Myths and Fallacies, Trade

2 March 2018

Dr. Peter Navarro

Dr. Navarro:

Yesterday in your interview with Tucker Carlson you lauded the Trump administration’s newly announced punitive taxes on Americans who buy imported steel and aluminum, in part because you believe that these obstructions will prompt foreign producers to move their production to the United States.  The result, you argue, will be not only a stronger American economy but also stronger U.S. national defense.

I’m baffled, for you also famously warn of the dangers of U.S. trade deficits – including the alleged dangers that these ‘deficits’ pose to America’s national defense.  Have you suddenly changed your mind about trade deficits?  Or do you not realize that when non-Americans open factories in the U.S. these investments at best do nothing to reduce the U.S. trade deficit (as when all of the funds used to pay for the factories are transferred from foreigners’ other dollar-denominated investments), or, more likely, actually increase the U.S. trade deficit by prompting foreigners to buy fewer American exports in order to accumulate the dollars needed to fund these investments?

As a top trade advisor to the president of the United States, you owe to the American people an explanation for what is either your abrupt and inexplicable change of mind about trade deficits, or your even more inexplicable failure to understand that foreign investments in the U.S. contribute to U.S. trade deficits.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

(I thank Robert Coli for the pointer to the Carlson interview of Navarro.)

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