If you don’t watch CSpan, you missed an important speech by Dr. Peter Navarro, White House National Trade Council and Office of Trade and Manufacturing Policy Director, on November 9th at the Center for Strategic and International Studies in Washington, D. C.
Dr. Navarro spoke about the manufacturing and defense industrial base and how U.S. economic strength is an element of national security and how it fits with the Trump strategy in dealing with the broader economic and defense issues. Dr. Navarro said that in December 2017, as part of formulating a national security strategy, President Trump introduced the maxim that “economic security is national security.”
He explained that everything that the Trump administration has done is part of this strategy, such as tax cuts, deregulation to reduce the onerous regulations put in place by the Obama Administration, ending the war on coal, and the steel and aluminum tariffs. These are all part of supply side economics to help companies be more competitive and grow in a non-inflationary way.
He commented that instead of the “doom and gloom” of economists, there has been “a flood of new investment and capital expenditures” by steel and aluminum companies, and “the waivers granted by the Department of Transportation have gone down from a flood to a trickle.”
He said, “In my estimation, we have the finest U. S. Trade Representative in U. S. history. Doing the Section 301 investigation was a power that lay dormant for decades. This is the way we are able to now protect our technology from Chinese predation. It has been tremendously successful in doing that.”
He outlined how Trump’s tough trade policy, backed up by tough action, has led to the renegotiation of two out of the three main trade deals – NAFTA, the Korea deal, and the WTO. With regard to NAFTA, now called the USMCA, he said, “The whole essence is a provision to bring domestic content back onshore and share the fruits of the assembly and supply chain with our neighbors to the south and to the north. This is a deal which will strengthen all three countries and strengthen the defense industrial base.”
He commented that President Trump is a man who thinks every day about how to put more American men and women back to work, particularly those who work with their hands. He discussed how during his time on President Trump’s campaign trail, a report came out stating that one out of four people were out of the workforce, the so-called “discouraged workers” – men and women who had given up looking for work. He said, “We were told that the jobs for people who work with their hands were never coming back. Now, we have historically low unemployment., and rising employment among Blacks, Hispanics, and woman. Over a million people are back in the workforce through a fundamental restructuring of the manufacturing and industrial base. It isn’t just the quantity of jobs; it’s the quality of jobs.”
He said, “I was blessed to be part of a large team that restructured the sale of arms to our allies and partners. From an economic security point of view, it means more jobs here, good jobs with higher wages. When you reactivate a supply chain, you activate 400 suppliers in that supply chain in 41 states. It helps expand production lines. If you are able to sell arms to allies and partners, it makes that country stronger.”
He then turned his attention to the findings of the “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States Report” that was prepared by the Interagency Task Force in Fulfillment of President Trump’s Executive Order 13806.
He said that an Interagency Task Force, led by DoD, created sixteen working groups with over 300 subject matter experts from across the federal government. Nine working groups focused on traditional industrial sectors, and seven working groups assessed enabling cross-cutting capabilities, such as machine tools. The report revealed that there are almost 300 gaps and vulnerabilities in America’s manufacturing and defense industrial base. The Executive Summary states, “Currently, the industrial base faces an unprecedented set of challenges: sequestration and uncertainty of government spending; the decline of critical markets and suppliers; unintended consequences of U.S. Government acquisition behavior; aggressive industrial policies of competitor nations; and the loss of vital skills in the domestic workforce.”
Dr. Navarro asked the rhetorical questions, “How did we get to the place where the greatest military power in the world faces serious gaps, close to 300 gaps, in the defense industrial base?…What happens when you randomly cut off dollars from the defense department?
He explained, “There are five macro forces that bear down on the defense industrial base:
- Budgets and sequestration
- Decline of American manufacturing capability and capacity
- S. government procurement practices
- Industrial policies of competitor nations
- Decline of U.S. STEM and trade skills
He commented that the decline of the manufacturing base itself was due to the forces of globalization as well as the industrial policies and unfair trade practices of our economic competitors, our so-called allies, and our strategic rivals, particularly China. He said, “This report called out China for its policies of economic aggression…China is engaged in unfair trade practices and currency manipulation. From 2003 to 2014, it was documented that China was the worse currency manipulator in the world…so that we are running up annual trade deficits of half a billion dollars.”
He showed a chart, titled “China’s Categories of Economic Aggression.” He said, “This chart is founded on the underlying assumption that China is a non-market economy, a state-directed economy. They use international rules when they benefit them and violate them when it’s to their benefit.” He outlined` six economic strategies that China uses:
- Protect their home markets from competition and imports
- Protect China’s share of global markets
- Secure and control core natural resources globally
- Dominate traditional manufacturing industries
- Acquire key technologies and Intellectual Property from other countries and the U. S.
- Capture emerging industries of the future that will drive future growth and advancement in defense industries.
He said, “There are over 50 ways that China engages in these acts, policies and practices s to achieve these strategies…, if you could negotiate to eliminate 25 of these tactics, you would still have 25 that would hurt us.”
This point is very relevant to the preliminary agreement that President Trump negotiated with Chinese President Xi Xinping at the G20 this past weekend. The agreement included a 90-day delay to the planned January increase in US Section 301 tariffs—which were set to rise from 10 percent to 25 percent on $200B of Chinese imports.
Judging from past history of negotiations with China, it is unlikely that China will keep their part of the bargain of this latest agreement. It will probably unravel before the 90 days are up. Dr. Navarro alluded to the problem of negotiating with China when he said, “The biggest problem is the trust issues. One of the things about working in the White House is that you can ask for stuff. I asked them to give me all the instances where China has agreed to something and then not kept their promise. I got back like five pages of stuff going back 30 years. It’s frightening…”
Space does not permit me to cover his discussion of the tactics China uses. Through research, I discovered that Dr, Navarro had used this same chart when he spoke to the Hudson Institute on Thursday, June 28, 2018, an image of which can be viewed at this link.. It looks to me that he created the chart to be a visual summary of key points made in his report, “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World,” which he submitted to President Trump in June 2018.
His comments included mention that the globalization of the supply chain has resulted in having only a single source for some critical product or components. For example, he mentioned that there is only one company that can make turrets for tanks. He said, “The F-34 has a seven-tier supply chain, and you need to make sure that production lines for parts can continue and expand if there is a surge of demand…If you have foreign sources for products and components, that is a big problem, especially if China is the source.”
He also briefly commented on the problem of the decline of U. S. STEM and trade skills saying that if you have labor shortages because you don’t have enough skilled labor, that is a problem.
He concluded by saying, “The day that Pat Shanahan turned in the report, DoD and other agencies of government were already moving forward to fill these gaps and vulnerabilities. The day that the report was handed in, we signed two Defense Protection Act Title III orders that would help a couple of small companies in that fragile supply chain…We have initiatives for the national defense stock pile program to help with critical material issues. There is an effort to modernize the organic industrial base…This administration is working tirelessly, tirelessly, to fix those gaps and vulnerabilities. This effort really is the purest expression of the principle of economic security is national security. We will strengthen America’s manufacturing and defense industrial base, and in the process, we will create jobs and build factories and better protect our homeland…”
I’ve made the point repeatedly that we can’t protect our national security or even defend our country without a strong manufacturing base. After writing about how and why we needed to save and now rebuild our manufacturing industry by writing three books and over 300 articles since 2009, it is gratifying to me that action is finally being taken to address this situation the Trump Administration.
