A macroeconomist working with the Trump campaign’s economic team tells Breitbart News Donald Trump’s economic plan would address structural drags on the American economy, principally trade.
“The big dog in all of this is the trade deficit,” said Peter Navarro, author a number of books about how Chinese policies have directly hurt the United States. “We have a $2 billion a day trade deficit that’s approaching $800 billion a year, which is a direct subtraction from the U.S. GDP growth rate. My calculations indicate that trade with China, which is half of that deficit, accounts for a halving of our growth rate.”
As China saps America’s economic growth, revenues to the federal government lag, leading to the Treasury borrowing money from China to pay its bills and fund the stimulus spending politicians use to mask the lack or real economic activity, he said. This creates a spiral of twin deficits, trade and budget, that require serious reform, he said.
The economist said he first connected with Trump after he read an interview with the New York City developer, with he cited Navarro’s book The Coming China Wars as one of the books Trump read to understand how China is beating us.
Before the United States allowed China into the World Trade Organization in 2001, America’s annual economic growth rate has fallen from 3.5 percent, which was consistent for the 50 years after World War II, to 1.8 percent, he said. “It means that every year, because of that slow growth, because of the trade deficit, we create 1.5 million jobs less and we have trillions of dollars in tax revenues that we don’t collect and we have downward pressure on growth, so wages have been stagnant for the last 15 years.”
The main reason behind the trade deficit is that nations cheat, especially China through currency manipulation, the forced transfer or outright theft of intellectual property as well as making themselves a safe harbor for environment practices and labor conditions illegal in the United States.
Trump understands this very well, said the economics professor at University of California-Irvine.
“I don’t know why people think that a billionaire, with so many successes, is not smart enough to understand this,” he said. “The guy is brilliant. Just because he speaks to the Common Man does not mean he is not smart. Let’s be honest, when most politicians are about to make a policy decision, they go to their pollster and their policy people and they come up with options, throw them out the window and see which way the wind is blowing. Trump never does that.”
In addition to trade, there are three drivers of economic growth: government spending, consumption and business investment, he said. Putting aside government spending and consumption, there structural reasons why business investment is not where it should be.
The economic establishment is dominated with disciples of John Maynard Keynes, they view economic problems as episodes in a cycle, he said. But, the problems are structural. This is why President Barack Obama can increase the federal debt by $10 trillion in eight years with no improvement in economic growth at all and the same goes for Federal Reserve buying up of billions of dollars in corporate bonds and keeping interest rates artificially low.
The Keynesians ignore the systemic cause of our lack of growth, but Trump does not, he said.
It is also important to mention the inherent tax advantage the WTO gives countries with a Value Added Tax, he said. Many of our trading partners use the VAT, instead of personal or corporate income tax. The VAT is a sales taxes levied at each stop in the production to sale chain. But, the WTO allows countries to rebate all or part of the VAT paid on products that are exported.
Companies exporting to the United States receive a tax incentive that the WTO does not allow for American companies, he said. America’s 35 percent corporate tax rate is already one of the highest in the world. In addition, it acts as a further penalty upon American businesses competing with foreign companies-literally driving American companies to invest overseas and then import back to the United States.
The 35 percent corporate tax rate also drags on economic growth because when American companies repatriate profits earned overseas, the Treasury takes a straight 35 percent cut with no allowances or deductions, he said. This means that at least $2 trillion is sitting overseas with all the incentives for American companies to invest them overseas or hold them overseas until the tax rate drops.
Trump’s proposed 15 percent corporate tax rate not only mitigates the VAT-subsidies, it allows encourages companies to bring their overseas profits home, he said.
Navarro said, “My interaction with Trump through correspondence, and through the fine people that I work with on the campaign, signals to me that this gentleman is tough, smart, decisive and really has a reading of the macro environment, the likes we have not seen ever in the post-war period.”