Peter Navarro Is Doubling Down on Tariffs

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1:22And when you're a Sinesta Travel Pass member, staying at America's Best Value In means earning points toward free nights, upgrades, and more every time you stay. Go to Sonesta.com to book your stay and unlock the best rates with Sonesta Travel Pass. Here today, Rome tomorrow. Join now at Sonesta.com. Terms and conditions apply. Bloomberg Audio Studios. Podcasts, radio, news. I always trust in the president. He's playing three-dimensional chess. You can have points of view. You win some, you lose some. But I always trust his judgment. Peter Navarro, economist, White House trade advisor, and the man who went to jail for President Trump.

2:09Yes, indeed. This morning I did walk out of a federal prison. Who would you trust to continue this agenda? You got J.D. Vance as the vice president and Marco Rubio. That would be a great ticket. From Bloomberg Weekend, this is the Michelle Hussain Show. I'm Michelle Hussain.

2:34It's been a dramatic start to the new year for the Trump administration. First, the seizure of Venezuela's leader, Nicolas Maduro, and saying the US will be running that country, at least for now. And then renewed talk of acquiring Greenland, which is part of Denmark, a NATO ally. Given Greenland's minerals and Venezuela's oil, all of this is another demonstration of just how acutely aligned US trade policy and foreign policy now are. But there's also a really important aspect to the trade story that is bubbling at home in the US. And it's part of this conversation with Peter Navarro, the man who has probably influenced Donald Trump on tariffs more than anyone else, a man who's been at his side for years.

3:27Right now, the administration is waiting for the Supreme Court to have its say on the legal basis for last year's tariffs. And if the White House loses, the implications are considerable. So keep that in mind as you listen. Navarro and I spoke in Washington before the Venezuela developments, But the way he sees the world is a crucial insight into how the Trump circle thinks and why. Dr. Navarro, welcome. Thanks for being with us. Great to be with you. I wondered if we could start with the origins of your bond with the president. When did you meet him for the first time? It goes back to 2006 when I wrote the first book in what would be my China trilogy.

4:17This was a book called The Coming China Wars. And at the time, it was widely viewed as hyperbole. Right now, it reads like a government report. Basically, based on my research, I had parsed the Chinese economic model. The prevailing view in the early 2000s, as China had joined the World Trade Organization, it was beginning to inundate the world with their dump manufactured products, was that it was simply cheap labor. And what my analysis showed that was a lot more than that, things I would eventually call the seven deadly mercantile of sins, which is to say that China set about taking the world apart using things like high government subsidies, intellectual property theft, counterfeiting piracy, the whole state-owned enterprise, the whole gamut.

5:18So I had spent several years doing research on that, published The Coming China Wars. And then in 2011, President Trump was doing an interview and they asked him what his favorite books on China were. And mine was on the top 10 list. So I sent him a note of thanks and we exchanged correspondences. There'll be typed letters, but it'll always put a handwritten note in it. And that's how that began. And when he went down the escalator with Melania and declared, I sent him a note, say, hey, you need anything? And they called me in 2016. I was supposed to go out to New York just for a couple of days.

6:09And I meet him there. It was pretty funny. I get into this black SUV in the back seat, right? And we're getting ready to go to the airport and get in his plane to go to a rally, okay? It was famous rallies. And he gets in the front seat and he's going, hey, Rupert, what's going on? It's like he's talking to Murdoch. And then he hangs up and he looks at back and he goes, who's that? Because he'd never seen me before. And I introduced myself, and that's kind of how it happened. So you bonded over China, essentially, your views on China, and then China became a big rallying point for him in his first run for the White House.

6:55I want to understand something about how your views evolved, because you used to be a Democrat, right? You used to talk about how bad protectionism would be, not only for the U.S., but the global economy. Well, you're conflating a few things there, because historically Democrats were the ones who were protectionists, who were in favor of basically defending the American working class against unfair trade. And we have in our history of this republic, a very long history of defending our manufacturing base. If you go back to Alexander Hamilton, first Treasury Secretary. He wrote a very stunning book about manufacturing and the need to protect it.

7:43Lincoln was a tariff man. McKinley was a tariff man. Henry Clay was a tariff man. I mean, all of these famous figures. And up until 1913, the United States actually funded its government entirely through tariff revenues. I don't know if you knew that. And then we had passed the income tax and kind of shifted away from that. And one of the running jokes the boss and I have is like, who figured the China thing out first? And of course he did, because if you go back, there's a famous interview with him and Oprah Winfrey back in the 80s. And he wasn't talking about China, but he was talking about Japan and how they were taking us apart with unfair trade.

8:26And everything he said back then would then fit the China model. Now, with respect to my evolution of thought, my first exposure to kind of the Chinese economic model was when I was in the Peace Corps in Thailand. And what was fascinating to me is that virtually everywhere you went in Asia, the commerce was run by Chinese. Even then? It's before China has joined the WHO? Oh, yeah, yeah. Well, this was the Chinese diaspora who had left because of Mao's starvation and famine policies. So you fast forward to, I'm teaching at the University of California, Irvine, business students who are fully employed, right?

9:12They come at night and on the weekends. And I'm noticing they're losing their jobs. I'm thinking, what's going on here? And this was circa 2003. and, curiously, two years after China joined the World Trade Organization. So I looked into this, and it's like all roads led to Beijing. I do the research project, and I realize, hey, this is cheating. It's devastating our manufacturing base, and I would continue that research. So bring us up to the present day then, because you were at President Trump's side in the first term. You went to jail for him. So to be clear, I went to prison in defense of the Constitution, the constitutional separation of powers.

9:56Basically, what Congress did in the wake of the January 6th riots on Capitol Hill was engaging a partisan effort to unseat the president and make sure he never ran for office again. I wonder how much it changed you, because I'm struck reading your account of your prison days, how much you notice and document all the small pettiness, really, the meanness that you see around you, the withholding of medicines, the lack of fresh fruit and vegetables. Did you see a different America which has informed your politics? No, no, I grew up poor. I grew up in that milieu. And prison didn't change me at all.

10:39I changed prison. I changed that place. I changed the system. I went in there to defend the Constitution on principle. And instead of crying in my beer, I turned myself into an investigative reporter and covered a$5 billion scandal. And since I've been out, I've solved that scandal. And that's a pretty good achievement. So prison had changed me. I changed it. And now you've been his trade counselor and advisor through this period. How's the relationship between the U.S. and China on trade going now? Help us understand it. Look, it's a work in progress, the relationship with China. I am a veteran of the first term.

11:24I spent months and months and months with then United States Trade Representative Robert Lighthizer, one of the great American patriots and thinkers in this country. and we negotiated with the Chinese a very, very comprehensive trade deal. It was an amazing thing that would have been really good for China as well as the United States because it would have completely reformed the Chinese model. And they agreed to it. And then at the last minute, Xi Jinping said no. Okay? So that's, like, really important to understand. Like, we went for a long, over a year negotiating what would have been a perfect deal, and then at the end they backed out on that.

12:15And then we signed what was called the skinny deal, and that was in January of 2020, the last year of the Trump administration, and they didn't abide by that. So the problem that we always face with China is that you always kind of wonder, whether they're just stretching you out, whether even if you sign a deal, they're going to retrade it. You're part of the US administration, which is why I want to understand what the actions currently are. For example, President Trump meets Xi Jinping, and essentially, you end up with a deal which lowers some tariffs and which suspends heightened tariffs. So there's effectively a year-long trade truce.

13:00Is that keeping with your mission to avoid death by China? So you're bearing the lead here. What's the current tariff rate now? Well, the ones I'm referring to are the lowering of some of... But what's the current rate after they've been lowered? Well, it's 10 % on some things, right? The total tariff on China is almost 50%. Okay, let me say that one more time. It's almost 50%. So when you say that we lowered the rates, we only lowered them down to 45%. But on Chinese imports imposed to curb fentanyl flows. And there was a suspension of high-tech reciprocal tariffs. You have to understand there was a baseline tariff because of the Section 301 actions in the first term.

13:47One of the few things Joe Biden kept that we added the reciprocal tariff to, which is still in place, and a 20 % fentanyl tariff, which we only lowered by 10%. So those are robust tariffs on China. And in fact, we are strongly encouraging Europe to adopt exactly the same level of tariffs that we adopt for the simple reason that when the president puts up tariffs to defend America from Chinese cheating, China can't sell as much here. Where does it sell it? dumps it in Europe, dumps it in Mexico. Now, as we are talking just in the recent news, Mexico did exactly what I'm suggesting, did so at the urging of our trade team, which is to say the Senate in Mexico passed 50 % tariffs on China.

14:42And they did it because China was dumping goods which would otherwise go into America. And Europe should follow the U.S. and Mexican lead. And they are doing that. They're doing that in steel. And I see that. That's the interest on other countries. But I'm sure that you can see why looking at the US-China relationship, one can see the contrast between when President Trump first arrived and we end up with a meeting after which he talks about having enormous respect between the two countries and how honored he is that President Xi has authorized the purchase of soybeans and other goods. So there is a softening.

15:21No, there's no softening. You have to understand how Trump diplomacy works. And the great thing that people, particularly on the left, don't understand is that it's functional for President Trump to have open lines with Xi Jinping, Vladimir Putin, Erdogan in Turkey, all of the people that the world regards as vicious dictators, which they are, but they are part of the world stage where you have to negotiate. Are you comfortable with him saying enormous respect for China? That's what he's talking about. Do you have enormous respect for China? I have enormous respect for the Chinese people. The Chinese people are under the boot of Chinese Communist Party, if China is going to escape its own mercantilist economic model, which is screwing the world, including Europe, and causing tremendous instability in the financial system and great anger towards China, it needs to do one simple thing.

16:29It needs to lower the savings rate in China by providing a social safety net for its people. It's extraordinary that a communist socialist country has no protections with respect to pensions or health care for its people. That's extraordinary. And instead, what the Chinese do, because that's the way they roll, is they let the Communist Party members become rich. They let a smaller slice of the entrepreneurial Euroclass become rich, and then everybody else, the Lao Baixing, suffer. I know how strongly you feel about this. You've written about it in successive books. I wonder if there are other people who would prioritize doing business with China who have influence over the president in a way that makes you less than comfortable.

17:26Jensen Huang has managed to get NVIDIA H200 chips being sold to China. Are you comfortable with that? That's a work in progress. Yes, that's an ongoing dialogue. I think people have to understand that there's a constant negotiation going on with countries around the world. I mean, and the China relationship is a very difficult one. I think you left out the part about how China has weaponized rare earths, critical minerals, which are a critical part of virtually every high technology product that's made around the world. and China has been flexing its muscles now in Europe, in India, in the United States, saying basically we're going to do what we want and if you try to stop us, we're going to take away your critical minerals because they think they have a monopoly on it.

18:26But that's just a matter of time. American innovation is going to quickly wipe away that weaponization. So what do you do in the meantime? You do diplomacy. And if people want to call that soft, then they don't understand the chessboard. So are you comfortable with China being able to buy NVIDIAs, specifically about NVIDIAs? They're the next generation AI. Chips not my lane, okay? Except it enables a lot of competition then with US AI companies. Let me let your viewers know this. I'm one of only three people who served as a senior advisor in the first Trump administration from the beginning to the end.

19:09That happened because I stay in my lane and chips are not my lane.

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22:04I know from one of your books, Taking Back Trump's America, that you know exactly what it's like to be part of an administration where different people have influence and how you worry about losing sight of a core agenda. You write essentially that people need to remember about delivering for working class Americans. So are there risks to the American people not understanding the agenda that you're trying to deliver now that we're in the run up to the midterms? Of course. And part of my job is to explain exactly what we've inherited, which is a mess, how we're addressing it, and how long it's going to take to see the fruits of the Trump policies.

22:51The model here... How long do you think it's going to take? Well, the model here is the transition from Jimmy Carter in the 70s era of stagflation to the presidency of Ronald Reagan. Carter, much like Biden-Harris, created a tremendous problem with both inflation and recession because of their policies. If you think about what Biden set us up for, it was a stagflationary scenario. So Carter did the same for Reagan. So Reagan comes in, does their deregulation, positive supply shock, does the tax cuts, positive supply shock, makes adjustments, stops doing stupid stuff like Carter did. But it takes time.

23:38And for Reagan, the time ran out because by the time the midterms rolled around two years after he assumed office, it was a bloodbath. And the Democrats won the House and basically paralyzed government. But the next six years were a beautiful thing because Reagan's policies took hold and we had one of the most prosperous times. Now, we understand that history and we're trying to make sure we don't get caught in that same vice. So what we have to do is explain very clearly to the American people. Let me give you two examples. I do want to ask you this, this point about the time frame. So work in progress, you need to convince Americans and work hard on that.

24:232028, in that election, Who would you trust to continue this agenda? It's not for me to say. That's not my job. You've got J.D. Vance as the vice president and Marco Rubio. That would be, for example, a great ticket. With who at the top of the ticket? J.D. would be there. But Marco's already said that if J.D. runs, he wouldn't challenge him. I love these guys. I always admired Marco back in 2016. I always thought he was like, of the people on that stage, the 16 Republicans, I always thought he was the sharpest tool in the shed besides Donald Trump. Right. He couldn't hold a candle to Trump with respect to everything.

25:06But but he's he's he's really a very capable person. But I think you're on to something here with the messaging because people on your side of the Atlantic are going to be watching that election for Congress very carefully. Because what happened in 2018, because we lost the House, I write about that in my book. There were some mistakes made that I hope we don't make again. It became, let's say, a crap show. That's a little easier way of saying it. Because the Democrats just started issuing subpoenas and impeachments and all that. We don't want to repeat that. But here's what we're up against. It's like we come in and we got egg prices off the charts and we got beef prices off the charts.

25:54OK, it's like that's terrible. It's like it's it's as American as you can. Scrambled eggs in hamburgers. Right. So with eggs, we've been able to dramatically reduce the price of eggs almost immediately. How did we get there? This is really interesting how politics works here. It's like the Democrats come in and with chickens, they kill 80 million chickens. Literally, Joe Biden slaughters 80 million chickens because he overreacts to an avian flu thing. At the same time, with beef, he reduces grazing land because they want to eat soy burgers. But Dr. Rouse, there's also questions about your policy, aren't there?

26:35You mentioned beef, and I'm conscious of the fact that President Trump reduced tariffs on beef, tomatoes, coffee and bananas exactly because of the pressures on the household budgets of ordinary Americans. So that's an acknowledgement, isn't it, that some of the actions the administration has taken, including on tariffs of which you are the architect, they have played a role in hurting ordinary Americans. I'm totally supportive of no tariffs on products we don't make here. We don't make coffee here. So why did that happen? It made no sense. It happened. And now we make adjustments. That's what we do.

27:15We make adjustments. But if you look at the economics of that or elasticities of supply and demand, it's like we don't make coffee, right? So we don't make chocolate. So we lower the price on that. In the short run, we can import a little beef. But we just had oil drop below$60 a barrel, which is where it was when we left office the first term for Trump. OK, Biden jacked that price up to about$75. And so what that does, it not only increases the cost of heating your home and driving your car. it increases the cost of fertilizer for crops. So food prices go up. It increases the cost of transportation for food to the market.

28:05And actually manufacturing jobs have declined for seven straight months. Let's shift to that. Let's think about that. Okay. That's my job. I'm the senior counselor for trade manufacturing. I take that really seriously. How long do you think it's going to take you to change it? I can tell you that with exactitude. Okay. Okay. Here's how it works. No, how long is it going to take for you to be able to change that? Well, let me just work you through the quick math. For you to have a new factory in this country, ready to produce things and therefore have new manufacturing jobs, that's about two to three years.

28:41Now, what you see in the interim is this. We're having literally trillions of dollars of investment come in from abroad as well as domestically, which is, as we speak, beginning to design those factories and get ready to build them. Now, what happens then? You have a boom in construction jobs. That's the first phase of that. But you won't see any improvement in manufacturing right then. But then once you build the factories, that's when you see the manufacturing jobs. So Rome wasn't built in the day. China took us to, it's going on 25 years now where they've taken us apart. It's not just the factories they took.

29:26They took our supply chains. And we can't like wave a magic wand. It doesn't work like that. But if you simply look at the trajectory, it's going to be a beautiful thing. Do you think it's going to be enough of a message to be saying to Americans in the run up to the midterm, it's a work in progress? The Democrats left us a really bad inheritance. Don't you think you might have to do more? We are doing more. I can assure you. Let me give you one concrete thing. What about increasing taxes on the wealthiest, like a 40 percent tax rate? That's something Steve Bannon, who you know well, is in favor of.