Trump is officially on a trade war path.
Defying threats of retaliation from the Chinese, on Friday Bloomberg reported that President Trump was pushing for the "harshest possible" global tariff of 24% on all steel imports and 10% on aluminum, a decision that would anger nearly every industrial manufacturer based in the US, while at the same time helping revive the fortunes of US steel producers. The rates were first proposed by Commerce Secretary Wilbur Ross last week.
Now, two days later, in the latest and clearest indication yet that Trump will not back down from the coming global trade wars, the WSJ reports that the president plans to promote his advisor Peter Navarro - also known as the author of "Death by China" and "Crouching Tiger: What China's Militarism Means for the World" and an unrepentant trade hawk, best known for his protectionist views on trade policy and giving economic nationalists a stronger voice in internal debates as the Trump administration nears decisions on high-profile trade issues.
Peter Navarro, an economist who helped shape Donald Trump’s 2016 protectionist campaign platform, will be named an assistant to the president, according to a person familiar with the matter.
Navarro, who one year wrote a WSJ Op-ed in which he warned that deficits "Could Put US National Security In Jeopardy", began Mr. Trump’s presidency with broad influence and regular access to the Oval Office but his role was quickly limited after he clashed with the aides who oppose his views on trade deficits and multilateral trade agreements.
Navarro was originally made head of a newly created National Trade Council, but was given little staff. That was eliminated in April and he was instead made head of a new Office of Trade and Manufacturing Policy that was seen as having little influence and was ultimately made to report to Gary Cohn’s NEC.
As such, his sudden "reincarnation" within the Trump circle of trust likely indicates that the influence of Trump's Wall Street-based globalist wing - Gary Cohn and Steven Mnuchin - is waning, and comes as the White House is nearing decisions on several high-profile trade matters (one almost smells an off the record phone call between Trump and Bannon here).
Meanwhile, with the Trump administration facing an April deadline on whether to impose broad-based steel and aluminum tariffs in the name of national security, Navarro's promotion will be certain to tip the scales in the direction of trade war.
Navarro has been a strong advocate of the view espoused by Mr. Trump—and rejected by most mainstream economists—that big trade deficits are, per se, bad, and that trade policy should be crafted to try to slash imbalances. Incidentally, Navarro may be on to something - despite the recent slide in the dollar, US net trade has failed to catch a boost, and as the chart below shows, the US Trade deficit excluding soaring petroleum exports, just hit an all time high!
And with US officials also completing an investigation on widespread complaints that China improperly forces U.S. companies to turn over valuable intellectual property, a probe that is expected to result in significant economic sanctions against Beijing, it is safe to say that US-Chinese trade relations are about to hit rock bottom.
It is unclear exactly how Mr. Navarro’s role will change, but the promotion is likely to give Mr. Navarro a more regular role in trade debates and meetings at the White House, according to the person familiar with the matter, a trade expert who has discussed the move with White House officials.
“This gives Peter a more formal seat at the table when trade and manufacturing policies are discussed,” the WSJ source said. “That’s something that has been in question the last six months.”
The WSJ adds that the appointment would make Mr. Navarro one of about two dozen “assistants to the president” in the Trump administration. Other officials with that title include the White House legal counsel and the heads of the various White House policy councils.
Early in the administration, Navarro came close to persuading Trump to withdraw from the North American Free Trade Agreement with Mexico and Canada and a separate agreement with South Korea, until he was stymied by Mr. Trump’s more globalist-minded advisers, led by Gary Cohn. Both are now being renegotiated. Early in 2017, Navarro also roiled currency markets by publicly accusing Germany of unfairly manipulating the European currency to boost exports.
“The change in his stature is a sign that the promises the president made on trade and manufacturing are more likely to be implemented,” said Michael Wessel, who advises labor unions and serves on the U.S.-China Economic and Security Review Commission, a congressional advisory panel.
So while it took capital markets about 17 years to realize that the US has "double deficits" - the most frequent argument cited for the recent plunge in the dollar, even though the US has not had a C/A or fiscal surplus since about 2001...
... we wonder how long it will take to figure out that trade wars are coming, and that they are not exactly good for either risk assets or risk-parity and vol-targeting funds...