Professor Navarro, among other things, makes economics errors that would be obvious to an undergraduate. This has been commented on at some length elsewhere, most prominently after he published a review of the Trump economic plan (a review co-authored with Wilbur Ross, who is not an economist but is now secretary of commerce) in which he proffered the schoolboy argument that, because GDP is defined as the sum of consumption, investment, government spending, and net exports, eliminating our trade deficit with China would add substantially to GDP. In economics terms, he has mistaken an accounting identity for real-world causality; in layman’s terms, this is horsepucky, “a mistake that an econ professor like him really shouldn’t be making,” as Noah Smith of Bloomberg put it.
“Net exports” means “exports minus imports,” and, because the United States currently runs a trade deficit, that figure is negative. And it is not a trivial figure: Our trade deficit with China in 2016 equaled about 2 percent of GDP. But eliminating that trade deficit would not add 2 percent to GDP; imports are subtracted from the GDP model because they already are counted in other consumption and we don’t want to double-count them. As Cato’s Dan Ikenson puts it in his savage write-up of Navarro’s “economic illiteracy” — his words — in The Hill: “Imports have nothing to do with GDP — other than the fact that they increase when the economy is growing and they tend to decrease when the economy is contracting. . . . There is no inverse relationship between imports and GDP, as Navarro asserts.” He calls Navarro’s appointment an “assault on the fundamental premise that public policy should be rooted in fact and reason.”
Deficits in trade are married to surpluses in investment. The Chinese choose to consume less and invest more for many reasons: One is that China is still poor and does not wish to be, and its leaders understand that real prosperity does not come without real investment; another is that any Chinese national with the wherewithal to invest outside of China is smart enough to know that doing so is prudent when you live under a police state that is by necessity always one serious economic crisis away from civil unrest.
Professor Navarro never gives any serious consideration to the actual fact of trade-offs between consumption and investment, trade-offs being the coin of the realm for economists doing economics.
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