Trump’s Trade ‘Bad Cop’ Thinks He Has Found a Winning Formula

(Bloomberg) --

In Donald Trump's world, Peter Navarro is the self-described “bad cop” of economic policy, the senior figure most willing to reinforce the president's protectionist and nationalist instincts as others try to placate markets and pull Trump back into the calmer mainstream.

So what happens when Navarro thinks he has a winning formula for shaking up pillars of the multilateral order such as the World Trade Organization?

We may be about to find out.

When the U.S. earlier this year leveraged a threat to leave the Universal Postal Union -- which since 1874 has guaranteed the international delivery of mail -- into that body giving it the right to unilaterally raise the price it charges to carry packages from China and elsewhere, it was a quiet victory for Navarro.

To him, it was also just the beginning of the story.

In an interview, Navarro called that win a model for pursuing reform at other multilateral bodies ranging from the WTO to the International Monetary Fund and World Bank, institutions he warned remained in the sights of the Trump administration.

“These multilateral organizations can get away with treating us like a piggy bank for decades. And before President Trump, nobody in the Oval Office, nobody in the State Department, and nobody on Capitol Hill, did anything about it. And it was not because the stakes were too small. It's because they didn't know how to deal effectively with these multinational organizations,” Navarro said.

That should serve as a reminder: Even as Trump closes in on a partial deal with China designed to de-escalate one economic conflict, many of his closest aides still see other fronts on which to wage his trade wars.

The UPU issue the White House sought to tackle was what Navarro calls the “Mighty Mug” problem. When Trump in February 2018 saw a Wall Street Journal op-ed written by the owner of Mighty Mug, which was struggling to compete against copies of its spill-proof mugs from China being shipped to the U.S. at a cheaper rate than he was charged for domestic shipping, the president called in Navarro and told him to “fix this.”

His beef was with the UPU's “terminal dues” system, which bound the rate the U.S. and other postal providers around the world could charge to carry inbound mail.

“That was a bad thing in the days of snail mail and Ronald Reagan -- it became a bad thing on steroids in the days of e-commerce,” Navarro said. “We were paying half a billion dollars in subsidized rates to the Chinese for the privilege of putting thousands of Americans out of work.”

China in the past managed to block U.S. efforts to renegotiate prices by building coalitions of developing countries to oppose changes and taking advantage of divisions between Washington and traditional allies like Germany with more entrepreneurial postal systems.

The plan hatched by Navarro (and the small group of diplomats and junior White House staff enlisted to tackle the issue) hinged on Trump's willingness to leave the UPU, which the president announced in October 2018 by giving the requisite one-year's notice.

Using that leverage, the strategy mixed Navarro's role as a table-thumper and that of seasoned diplomats trying to build a U.S.-led coalition to overcome China's efforts to block any changes. It climaxed at a special UPU congress in Geneva in September that agreed on a new system to set postal rates.

Just how replicable the UPU model is when it comes to the WTO is unclear, even some administration officials concede. That doesn't mean, though, that Navarro isn't pushing.

Trump also makes no secret of his disdain for the WTO. “They know that I'm very tentative on the WTO,” he said in a Nov. 12 speech.

Exiting the WTO would require action by a Congress now less willing to blow up the international trading system, though current and former administration officials say Trump has privately mused about leaving the trade arbiter repeatedly.

But the assault is clearly underway.

Choke Hold

The U.S. has put the WTO dispute system into a death spiral by blocking the appointment of new judges to its appellate body. It is raising pressure by threatening to block the WTO's budget and demanding an end to rules that allow China and other countries to self-declare as “developing nations” and thus open their economies at a slower pace.

Navarro argues the WTO should go further and renegotiate the “Most Favored Nation” system of tariffs enshrined through decades of wrangling over the General Agreement on Tariffs and Trade.

Critics point out that most tariff imbalances are the result of past U.S. decisions to defend some interests over others. The U.S. charges a 2.5% tariff on imported cars versus the 10% levied by the European Union. But it imposes a far higher 25% import tax on light trucks that has protected domestic carmakers like Ford Motor Co. and General Motors Co.'s hold on the lucrative pickup market.

Navarro dismisses that argument. His solution is contained in the Reciprocal Trade Act, a bill before Congress which would allow U.S. presidents to unilaterally raise tariffs on any country that charges higher import duties than the U.S. on specific products. Trump has backed the bill. It seems unlikely, however, Congress will.

Not everyone in the administration agrees the U.S. ought to threaten to leave the WTO or that the UPU model is applicable. Robert Lighthizer, the U.S. trade representative and the man technically in charge of the relationship, has said that if the WTO didn't exist the U.S. would have to invent it.

The campaign for WTO reform also remains a secondary priority versus taking on China. But it is part of a broader fight the administration wants to keep waging. “We've got a marathon to run when it comes to trade policy in terms of righting all these wrongs that are being perpetrated against American workers,” Navarro said.

To contact the reporter on this story: Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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