Peter Navarro outlines the Trump economic plan

To score the benefits of eliminating trade deficit drag, we don’t need any complex computer model. We simply add up most (if not all) of the tax revenues and capital expenditures that would be gained if the trade deficit were eliminated. We have modeled only the impacts of implicit profits and wages, not any other economic aspect of the increased activity.

Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports. Again assuming labor is 44 percent of GDP, eliminating the deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent (including trust taxes), yielding additional tax revenues of $61.6 billion.

In addition, businesses would earn at least a 15% profit margin on the $500 billion of incremental revenues, and this translates into pretax profits of $75 billion. Applying Trump’s 15% corporate tax rate, this results in an additional $11.25 billion of taxes.

Emphasis is added by this author.

Here is the full document (pdf).  Here is my earlier profile of Peter Navarro.  For the pointer I thank the excellent Binyamin Appelbaum.

Addendum: Scott Sumner comments.


I'll be the first to say this, but the analysis is flawed. You can easily eliminate a trade deficit by fiat (just stop all imports) but the welfare loss to society will be great.

LOL. I enjoyed Trump during last night's stand-up bit, but this is funnier. It's like an economic plan consisting of the words "buy low, sell high". No, that's too realistic: more like "Don't give anyone anything and make everyone give you their stuff". Actually I'm having a hard time coming up with a good analogy. This plan requires the US to 1) magically reduce consumption (a necessary consequence of reducing imports and increasing exports) and 2) magically convince the rest of the world to keep buying American exports when America refuses to buy any of their exports.

Really, the debate was so silly, and I was shocked to see Trump actually answering the odd question in contrast to Hillary's completely tangential talking point non-answers. But reading this reminds me that the absurd clown I know and love is still there under the toupee.

"Magically convince the rest of the world to keep buying American exports when America refuses to buy any of their exports."
Can't you make Mexico pay for it?

Heck, why stop at zero? A really huge plan would be to run a $500bn trade surplus through a combination of increased exports and reduced imports: then we get another $73bm of tax revenues.

Hey, not often that this comment section is honored by the presence of a samurai.

Maybe America still gets the imported goodies it loves & demands but just doesn't pay for them?

What would the "take the oil" plan do to America's balance of payments?

Perhaps with regard to China it could be modified to "Take the Barbies, Nikes & iPhones?"

Just ask China how they managed to get that "screen door" installed. (see Dani Rodrik(sp?) in NYT.)

If China can convince Airbus to set up production facilities in China, while also allowing China to export freely to the EU, then why can't the USA demand the same?

You want "access" to our markets? Here's the new rules...

I don't agree with this from an ideological view, but if China, Japan, Korea, etc. can manage to keep out imports why not the USA?

Maybe ask that Bad Samaritan author how the US could do it.

Question here. If this is the case, how did China get this to happen?

Was it part of "engagement with the West"? The US and the West *allows* China to trade under these conditions, despite the inevitable disparities and deconstruction of American production, in the belief that it means growth for China towards capitalism, and inevitable End of History political-economic convergence, and various goodies from Chinese labour for the West as a nice little bonus.

Or is it more that the class of owners of industry and production (the Capitalist class) wanted this? Out of the belief that it put more immediate "problems" with high wages and restive 1950s-1970s Western industrial unionized workers holding down shareholder profits out of the picture, and then we'll worry about industrial infrastructure being increasingly all territorially within the Chinese state later on. Free and fair trade be damned.

Or something else?

Careful what you ask for. The reason Honda has factories in the US was due to China style trade barriers. Honda, a motorcycle seller in the US, was late to selling autos in the US, so Toyota and Datsun (Nissan) had locked up most of the 500,000? car import quota, so Honda could import only 20,000. Toyota started importing trucks which were not restricted, and Datsun followed along with several others, but not Honda.

The result was the mini pickup truck, which Ford and GM took years to respond to with the minivan, built on a car chassis.

And Japanese factories in the US. Honda built all the expensive components in Japan and shipped them to the US where they used the inferior US workers to produce the bodies and assemble them, paying US workers less than Japanese workers because US workers required so much training to understand what the American Deming had taught the Japanese: quality first.

Once Honda paved the way, lots of factories have been built in the US. With lots of US governments, State and local, subsidizing them.

So, China subsidizes building factories, and the US subsidizes building factories, but in China the national government does it to increase total jobs, while in the US, States compete to move a declining number of jobs from one State to another State - the new factory will use more advanced manufacturing to produce the same thing.

The primary subsidies to get factories and jobs is infrastructure, worker training, and credit insurance.

Note that all three are top of the list in most economic debates. Conservatives oppose a national policy for any of the three. Liberals are with the Chinese, Japan, Germany, et al, on all three. And Trump says he has great solutions for all three, really great!

So then I guess he will also eliminate the current account surplus? What will happen to U.S. asset values?

Screw Keynes, it's back to Colbert and Louis XIV!

That's a good parallel there. Trump and Navarro = Luis XIV and Colbert of the 21st century. Mercantilism returns for the spotlight again!

First scanned this as Stephen Colbert.

Imports reduction will be achieved via competitiveness of US in certain products and services or simply by imposing trade barriers? If Trumps goes for the latter he should expect either opposition from WTO or retaliation from trade partners...

China has trade barriers for imports, and yet is granted essentially open access to many markets.

Where was the "retaliation" against them?

See also Japan, Korea, Taiwan, and everyone else who plans on export-oriented industrialization as their model.

They shouldn't neglect all of the sweet increased sales taxes we will be paying at the state level when everything costs twice as much. Although there might some drop in consumption. Dynamic! Sad!

This is a complete misunderstanding of what a trade deficit is. As the only PhD economist advising Trump, Navarro is embarrassing himself here. First, non-oil trade deficits tend to correlate with declining unemployment. Second, the reason should obvious to any economist: trade deficits essentially mean foreign countries give us things for free in exchange for the ability to invest in US assets. Dollar depreciation increases US exports but also makes US assets appear relatively stronger, hence the trade deficit is difficult to reduce while the US economy is much stronger than other developed countries. If US growth were slower, the trade deficit would naturally unwind via the depreciation channel.

None of this has anything to do with overseas tariffs or other barriers, and I know of no serious analysis that suggests the US trade deficit is primarily driven by barriers to exports.

The wages calculation is also absurd. If Ohio had to buy only cars made in Ohio, then their "trade deficit" with Michigan would fall. But would increase wages in Ohio at 44 percent of the cost of those Michigan cars? Not clear - some people would buy cars made in Ohio at the now higher price, but exports back to Michigan would also fall, and total income would fall for the usual Ricardian reasons. That is, it matters why there was a trade deficit in the first place. Failing to model those latter channels vastly overstates the benefit of shutting off trade, and no economist who seriously understands trade would think to do so.

"This is a complete misunderstanding of what a trade deficit is."


"Trade Deficits" do not exist in any economic sense.

It is a naive misunderstanding of capital accounting... and apparently an eternal myth of economics.

Alternative from a definite unschooled non-economist (likely dumb, likely Trumponomic):

Trade deficits for the US mean that production infrastructure (goods & services) is moved overseas, in exchange for a promise to invest in US productive infrastructure in the future (represented by foreign nations holding US currency). Free stuff merely mediates the transfer.

Ultimately, maybe your overseas nation holding all those American dollars ultimately decides it will not wish to invest those productively, writing down much of the value, if its ultimately not keen on the idea of building up infrastructure in the US (perhaps it simply decides an economically strong US is not in its ultimate political interests). Or if it's always more worthwhile to continue trading that promise and opportunity to invest in the US (the US dollar), with the knowledge it will remain a stable currency and they'll never be called on to actually invest at a time not of their choosing.

Did he graduate at Harvard, Illinois?

Is there any other?

There's a Harvard University, I think it's in Boston (which is definitely not in Illinois)

It's in Cambridge.


I've never heard of it! Unless it is "the Harvard of the East" I hear so much about.

One dumb question I have: what is the real world alternative to using exports and imports to balance trade deficits? Maybe if we all simultaneously click our heels together 3 times and turn counterclockwise while reciting the alphabet backwards? Would that do it? I'm puzzled by the serious attention spent on discussing his vacuous "plan".
Maybe his plan is to nationalize all export/import trade! That'd be so cool. Central planning. I'll buy $10,000,000 of Champagne if you'll buy $10,000,000 worth of Harley-Davidson's (US Plants only)...

Look at China.

If you want to stop imports, set up rules for "market access."

So, you want to sell Americans your iphones?

Better have a joint-venture, 50% owned by Americans, and made in USA.

Have laws strictly demanding all automobiles use domestically made parts, etc.

Set up non-tariff barriers like Mexico's NOM's and what not. imported products must feature special labels, printed on special paper, that must be within very tight tolerances, etc.

sure, its crazy, but the world allowed China and others to do these things while keeping free market access to the west.

Remember, China was allowed to install a screen door.

Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports

In other news, I proposed to my company that they increase profits through a combination of increased sales and reduced expenses.

Again assuming labor is 44 percent of GDP, ....

Yes instead of addressing how my company can actually pull that off I will now assume they did and proceed to calculate the wonderful bonuses, Christmas parties and other goodies that will come from accomplishing that.

There, I have now produced my first professional economic model. When can I expect my Nobel?

Why do you need a No-bull ? You are making America great again.

Gee, isn't that how every budget proposed by a politician is presented and judged? The CBO is so helpful: "We take their numbers, and assume that everything is going to happen the way they say it's going to happen and look at this bright rosy future!"

Yet, somehow, we've managed to accumulate 20 trillion dollars in debt and an unsustainable health care law. Sad!

Not really the CBO might take a proposal to raise tariffs and attempt to calculate how much that would bring into the US Treasury, perhaps how much US production would increase due to spending shifting from imports to domestic goods etc. It might even, although it probably won't, as extra credit ask what would happen if the countries we impose the added tariffs on retaliate by imposing tariffs on US products.

Just shrugging and saying "let's pretend the trade deficit just gets balanced through some combination of exports and import changes cause by some unspecified policy changes" is not a budget.

I hope you got a big promotion and raise for that, Boonton. If you worked for Trump you surely would have.

Might he mitigate the trade imbalance by, in place of tariffs on imports, instead cleverly subsidizing U.S. businesses in ways that aren't likely to rile up the WTO?

Other countries have done this and dumped the subsidized products for export ; the recipient countries have generally raised hell and protested to the WTO.

Just speculating here, but it seems like there ought to exist a sweet spot of subsidies where you're deriving some benefit but not going so far as to piss off your trade partners and/or WTO. There's also the matter of optics. If you can couch your subsidies as something more forgivable (say, social programs to help workers?) then you might be given more leeway.

Consider the EITC. Isn't that basically subsidizing low-wage employment? Employers have to pay their low-wage employees less because the government is kicking in the EITC. If we imagine the EITC on steroids, or some sort of hourly wage subsidy, or perhaps a per-full-time-equivalent-employee tax break to businesses, those might pass muster with the WTO while still incentivizing employers to hire low-wage employees.

Which might, in turn, juice domestic manufacturing.

The math checks out. Solid.

Throw in some multipliers.

+1 Trillion dollar coin

Economic concern trolling.

To state the obvious, what is missing in a casual link to economic illiteracy ..

Trump would be dangerous if he were a brilliant but evil man putting forward a shrewd and defensible economic plan. People would be forced to say "yeah, he's right," before "concern trolling" good v evil.

But it's clear that's not who Trump is. He's an old man who understands the world by what he watches on "conservative" television (and a few quite questionable social media feeds), who somehow wandered on to a national Presidential debate stage. He clearly has no aspiration for a deeper understanding of the world than he gets from a spot on, or watching, Hannity.

So don't vote for Trump, not because he's an evil genius, but because he's just a bigoted, incurious, old man who seeks to be nothing more, except President.

+1. I really don't think there's anything to add about Trump. What you see is what you get. I listen to a Boston sports show with two outspokenly conservative hosts. This morning most of the show was dedicated to how stupid and ill-read Trump is, and what a bad job he did last night. It really is pretty obvious. Might be time ti make a bet at PredictIt.

I doubt he only watches conservative television. 15 years ago if not more recently he was a Democrat

Now it seems I need to figure out which of the three links is not allowed here - whether allenbwest, newsbusters, panelpatter (starting from first to last, no more allenbwest) -

'15 years ago if not more recently he was a Democrat'

Not precisely - 'A common charge heard against Trump is that he was once a Democrat and only recently became a Republican – and not too long before running for president. We’re all aware of liberal policies The Donald has held in the past, and the Democrats to whom he’s donated.

But what some might not know is that even before there was Democrat Donald Trump, there was Republican Donald Trump. Here he is at the 1988 Republican convention, introduced as “young, conservative, and rich.”'

Another source for this are a number of now decades old Doonesbury cartoons, mocking Trump, as Trump himself comments on -

'WALLACE: One last quick question: Can you laugh at the Doonesbury cartoons about the quality of the solid gold sinks in your yacht?

TRUMP: Well, everybody tells me I’m supposed to be honored by that. I’m not sure if it’s an honor or not. But he certainly — I mean, someday maybe he’s gonna be able to find another topic But I certainly seem to be in a lot of his cartoons. I’m not sure if they’re good, bad or indifferent, but I guess I’m supposed to be honored.'

This link gives a bit of background for just how long Trump has been irresistible material for Trudeau cartoonist -

Nobody considered Trump a Democrat in the later Reagan reign - but with Trump, who knows what he might say on the subject.

'Trudeau's cartoons' is correct, and though the link to the video of Trump speaking in New Orleans at the 1988 Republican Convention is lost, it isn't really all that hard to find.

Now the question is what the heck did Allen B West do to warrant being filtered here? The 'Meet Allen West' link at his web site seems to hit all the right buzzwords and associations in this citation - 'In November of 2010, Allen was honored to continue his oath of service to his country when he was elected to the United States Congress, representing Florida’s 22nd District. As a member of the 112th Congress, he sat on the Small Business and Armed Services Committees and was instrumental in passage of the 2012 National Defense Authorization Act.

Allen is currently the Executive Directer and Chairman of the Board for National Center for Policy Analysis, a 501(c)(3) nonprofit, nonpartisan public policy research organization, established in 1983. Its goal is to develop and promote private, free-market alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector.

He is also a Fox News Contributor, a Senior Fellow at the London Center for Policy Research, and regularly writes for numerous media outlets.' And just to clarify what party he is a member of - 'Allen Bernard West (born February 7, 1961) is an American political commentator, former member of the United States House of Representatives, and retired U.S. Army Lt. Colonel. A member of the Republican Party, he represented Florida's 22nd congressional district in the House from 2011 to 2013.' His election to Congress being notable for this reason - 'West took office in January 2011 as the first African-American Republican Congressman from Florida since Josiah T. Walls left office in 1876 near the end of Reconstruction.'

One just never knows what is and what is not allowed for links here.

Hillary was impressive, for sure, and Trump spent time spluttering and floundering, but he was actually able to find his feet and score some points. Very impressed with Hillary's command and projection of strength, but also impressed with Trump's ability to hang in there and not fall apart in the face of an impressive onslaught. I feel better about America this morning.

"Hillary was impressive, for sure,..."

I'd love to debate Hillary Clinton.

I'd ask questions like, "When you say 'we' should 'invest' mean that the federal government should take money from The People, and that the federal government should then spend that on what the federal government thinks is appropriate, right?"

And, "When you talk about making sure that no college student graduates without debt, you're talking about taking money from people who never went to college to give to people who are going to college, right?"

Also, "James Madison once said, 'I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.' Do you think James Madison was wrong? Do you think such a right is granted to Congress? And what about the President"?

Yeah your questions are so novel I bet she'd be totally stumped and everyone would see that they should never vote for her! Oh my god America did you know that your taxes go to the government and then they (gasp!) spend them?!?!!

"Mrs. Clinton has taken a lot of money from a lot of powerful people who seem to expect something in return, Hillary, if you aren't elected President and can't make good on the promises you've made, what do you think will happen to you?"

"Yeah your questions are so novel I bet she’d be totally stumped..."

What do you think she'd say about James Madison's comment? That he was wrong...that there is such an article in the Constitution? Or that he was right, but things have changed?

@Thomas: I know you're probably talking about the Clinton foundation but has any President in recent history *not* taken a lot of money from powerful people who seem to expect something in return just through campaign donations alone?

@Mark: I don't know what she would say. It would probably be some well-polled rehearsed statement invoking our communities, helping the middle class, and hope for our future or some crap, if it was on a debate stage. If it was in private I have no idea because I don't know her. I would ask you though, is there a single politician, regardless of party, that hasn't voted for in favor of an "object of benevolence?" The closest would probably be Rand and Ron Paul but I bet you could easily find some votes they made as well. So maybe you and James Madison can get together and declare every elected Congressman and Senator in violation of the constitution. Would help if you provided some evidence that every founder agreed with Madison.

@wait: You write, "I don’t know what she would say. It would probably be some well-polled rehearsed statement invoking our communities, helping the middle class, and hope for our future or some crap, if it was on a debate stage."

Yes, you're probably right. So I'd following that by saying, "Ms. Clinton obviously can't answer a simple 'Yes or no' question with a 'yes' or 'no' answer. I asked her whether she thought James Madison was wrong. She wouldn't answer. I'll answer for myself. I think James Madison was right."

Then I'd say, "People, you have a very clear choice in this election. If you don't give a damn whether your President follows the Constitution, you should vote for Ms. Clinton. If you do give a damn, you should vote for me. It's that simple."

Of course, I lose the election...but at least the point would have been made. And perhaps healthy conversation would be started.

@wait: You continue, "I would ask you though, is there a single politician, regardless of party, that hasn’t voted for in favor of an “object of benevolence?”

No, I don't think there has been such a federal government politician for at least the last 100 years.

You close with: "Would help if you provided some evidence that every founder agreed with Madison."

I don't see how that's relevant. The answer to my question about whether James Madison was right is either, "yes", "no"...or "not sure." If you or Hillary Clinton or anyone else thinks he was wrong--or even that he *may* have been wrong--it should be easy to point to "that article of the Constitution" that seems to allow Congress to spend money on "objects of benevolence." The Constitution is a very short document, and only a small portion is devoted to Congress, so the article shouldn't be hard to find.

my guy isn't a total looser, so i feel better about america
its 3am, Sept 2018
An aide wakes president Trump
Sir, US troops are under attack, what are you orders, sir ?
uh,,it is gonna be really great...huge....cyber something...bomb them all....

I am currently running a YUGE trade deficit with Walmart. Is that harming me?

If you have no job and no hope of ever getting one.... yes it is.

I expected NBC to carry Hillary's water after the debate, but am a little more surprised at the MR commentariat.

From her I heard: more green energy jobs, higher minimum wage, and forced profit sharing with employees. Full socialist isn't as bad as bumbling Trump, it appears.

What you didn't hear was: Republican Congress. I find comfort in that thought.

Yep. Can't stand Hillary, but deadlock with her is way better than anything with Trump

The bottom line on this election, distilled into 14 words in that perfect sentence.

If the Rs had nominated anyone but Donald, they would easily have beat Hillary. If the Ds had nominated anyone but Hillary (even that commie crazy Bernie) they would beat Donald. So thank you America for making this a potential nail biter. I was opposed to H, even told folks I would not vote for her, until one day Rush L (Yes, that RL) convinced me otherwise. He went into the most vile, repulsive, hateful rant against H. He convinced me to vote for her. Thank you, Rush Limbaugh.

That should be "an YUGE", we insist on proper English around here

Leave it to the inclusionary left to mock Trump's accent and skin color.

Orange is the new black?

Pencils down, we have a winner.

Maybe he could do it by buying VIGI with FICA taxes.

My plan to eliminate my supermodel banging deficit is to bang 15 supermodels by 2020. This would be a good thing because then I would get to have sex with 15 gorgeous women

The data strongly suggest that, in fact, the capital account is driving the current account.

We know this because the decline in the oil trade deficit has been offset just about one-for-one with an increase in the trade deficit with other countries (achieved through an appreciation of the dollar), leaving the total trade deficit essentially constant since the beginning of the current recovery. These dynamics suggest that the driver of the system is the total current deficit, which is a nonsensical notion taken by itself. More likely, the world economy needs the US to issue around $500 bn in debt annually through a trade deficit to grease the wheels of international commerce. Thus, the capital account is driving the trade deficit for now, and this cannot likely be fixed by trade interventions.

As ever, I have an analysis, here. It's from nearly two years ago, but if you check the latest graph over at CR, you'll see the argument continues to hold up.

It should be noted as part of this that we indeed let China purchase a ton of our debt to sterilize their trade surpluses.

(Chinese Central Banks buying US debt is NOT the free market, but some kind of centralized planning.)

We probably liked that for some reasons, but how did that mess with price signals over decades?

Let's say at most it just accelerated movement of production to China. No big deal...except it is a huge deal for those involved in the actual production - the workers who can't become programmers over night.

A slower, more organic growth in China, based on exporting (and importing!) would have been much better for China and the USA, IMHO. Using steroids is not healthy, in the long term.

I don't think the deficit is China-specific per se. I am guessing that the global economy, as trade grows, needs more collateral related to trade finance, and that's what the deficit provides. But I am just guessing here. There has to be some trade economist lurking among the commenters who can help here.

I know this is gonna sound crazy but hear me out. Last night after the debate I wondered what happened to Miss Teen South Carolina 2007. You know: "I personally believe that U.S. Americans are unable to do so because, uh, some, uh, people out there in our nation don't have maps and, uh, I believe that our education like such as in South Africa and, uh, the Iraq, everywhere like such as..."

Well according to her wiki, "Upton later signed a deal with Donald Trump's modeling agency in New York City."

I don't think I have to paint you a map of like, such as, here. When, if at all, did she sever ties with Trump? Why is she now residing in Navarro's bailiwick of SoCal? Is Navarro/Upton the Cheney/Rove of 2016?

This is parody, right?

The point was made above by a couple of people, but a fundamental problem here is the idea that we are going to be increasing our exports while decreasing our imports. Aside from a massive devaluation, how are we going to do that? If we do it by imposing a bunch of illegal tariffs according to our treaty obligations, will we not set off a massive trade war in which our exports will fall and the world will go into a big recession?

And as for pulling off a massive devaluation, which I do not see Navaroo/Trump proposing, that is not so easy to pull off in real life. Apparently a prez can impose tariffs and quotas without Congressional (or foreign) input, although doing so may provoke those foreigners to retaliate, hence the trade war like we had in the Great Depression after Smoot-Hawley. Great stuff that.

so the republican candidate is a moron
The Dem candidate is pretty typical of people like G HW Bush, Clinton, obama, Nixon

yet, after much judicious chin stroking, GOP pundits everywhere say Trump is so much better the that awful hillary
(cribbed from krugman)

Birtherism - racist idiocy
Benghazi - a myth promulgated by republicans
yet the two are equivalent

I took Prof. Navarro's Macro Econ a decade and a half ago while in B-School. And JEEZUS! Seriously ... DUDE. IS. BAT. SHIT. CRAZY! If this guy ends remotely touching "real-world" policy, I suggest two things: 1) Store food and 2) Buy guns. Oh, and maybe stash some krugerrands (to bribe the border guards). This could get ugly.

I'm going to start breathing into a paper bag now. Thanks Tyler!

Trump's theological advisor teaches at a school for auto-mechanics.

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