Seven years ago, I walked through the White House’s Executive Office of the President to meet with Peter Navarro, an adviser to then-President Donald Trump. Navarro’s office was cluttered with papers, and he presented me with a report titled “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.” This report emphasized the need for industrial policies and trade controls due to the US’s reliance on overseas suppliers for essential goods.
At that time, advocating for such measures seemed outdated, reminiscent of post-World War II policies or the protectionism that followed the 1929 Wall Street crash. The prevailing ideology in the White House favored free-market principles and globalization, championed by economists like David Ricardo. Navarro, however, dismissed this approach, proclaiming that “Ricardo is dead!” and criticizing mainstream economists and media outlets like the Financial Times.
Fast forward to today, and the debate on trade has shifted dramatically. With Trump set to become the 47th president of the United States, Navarro is poised to return as a senior counselor for trade and manufacturing. The paradigm of open trade and minimal state intervention has given way to a more protectionist stance, with tariffs being used as a weapon against friendly nations. The ideas once considered fringe, championed by Navarro and others, have now taken center stage.
To understand this shift, it’s essential to look at Navarro’s background. Born in 1949, he initially embraced the ideals of globalization and free markets. However, as he observed the impact of China’s entry into the WTO in 2001 on American jobs and industries, his views began to evolve. Navarro’s journey from a pro-globalization economist to a proponent of protectionist policies reflects the changing tides in economic thinking.
As we navigate this new era of trade policy, it’s clear that the old models and ideologies no longer hold sway. The ivory tower of economics must adapt and reevaluate its assumptions in light of these shifting realities. More specifically, Navarro aimed to eliminate the Corn Laws to allow goods to be priced based on demand and advocated for countries to focus on their strategic advantages to reduce costs, such as England exchanging exports of wool for Portuguese wine. However, Navarro believed that with China in the WTO, creating a fair playing field like Ricardo envisioned was impossible due to China’s manipulation of the system. He criticized America for being exploited through a trade deficit that transfers wealth into foreign hands, citing industrial espionage, cheating, intellectual property theft, forced technology transfer, state capitalism, and currency misalignments.
Economists, particularly those in academia, disagreed with Navarro’s views, attributing America’s trade deficit to automation rather than China and arguing that cheap imports were offset by financial flows. Additionally, they pointed out that modern trade involves services and digital operations that cross borders, making it more complex than Ricardo’s time.
Despite the pushback from neoliberals, the shift towards protectionist policies gained momentum, culminating in actions taken by both Trump and Biden to address trade imbalances and protect domestic industries. The IMF noted a rise in industrial policy measures globally, attributing it to concerns about supply chain resilience, market efficiency, and public dissatisfaction with elites.
This shift in economic policy reflects a growing recognition of the limitations of traditional economic models, which failed to account for various real-world factors such as technological advancements, social conflicts, and environmental challenges. The era of viewing trade as a separate realm from politics has given way to a more nuanced understanding of the interconnectedness of economic and geopolitical forces. The Greeks who coined the term oikonomia saw it as a form of household or community management, in contrast to neoliberals who believed that markets should be self-regulating. This shift back to oikonomia reflects a dominance of Homo politicus over Homo economicus, where trade is now seen as a power play rather than just an economic exchange.
As political ideologies evolve, the right aims to manage national security while the left focuses on managing ecology and social equity. This shift emphasizes the importance of power dynamics in trade relations, reminiscent of early 20th-century ideologies described by economist Albert Hirschman.
The current geopolitical landscape, particularly in the context of US-China relations, highlights a move towards overt displays of power in trade negotiations. The reevaluation of trade flows may also necessitate a reexamination of financial systems to protect national interests, potentially leading to a restructuring of the Bretton Woods system.
In the midst of these changes, the unpredictability of Trump’s rhetoric on trade adds a layer of uncertainty to future policy decisions. Despite conflicting promises and potential consequences, some in Trump’s circle advocate for a more aggressive approach to trade relations, driven by a populist nationalist agenda.
As countries and companies adapt to changing trade dynamics, global supply chains continue to evolve, with many economists predicting continued growth in trade despite protectionist sentiments in some regions. The challenge lies in balancing national interests with global interconnectedness, as different nations navigate the complexities of international trade in an increasingly interconnected world. The core of Maganomics is encapsulated in this concept. Is it madness? Genius? Or simply a reflection of the ever-changing tides of history and intellectual trends? Perhaps in seven years, historians will provide a definitive answer. For now, all we can do is observe with a sense of unease.
Gillian Tett, a columnist and member of the editorial board for the Financial Times, explores these questions and more in her latest piece. Stay updated on our latest stories by following FT Weekend on Instagram and Twitter, and don’t forget to sign up for the FT Weekend newsletter every Saturday morning. following sentence:
The cat chased the mouse around the house.
Rewritten sentence: The mouse was chased around the house by the cat.