Behind the Mnuchin vs. Navarro Battle, a Difference over China Strategy

Navarro, Mnuchin
AP/Getty Images

Everyone in the Trump administration these days can recite the administration’s trade policy: they want international trade deals that are free, fair, and reciprocal.

But press any deeper and the consensus falls apart.

The hardcore trade hawks stress the “fair” part of the Trump trade catechism. These members of the Trump  administration have long focused on countering China’s plan to dominate high tech manufacturing, what China calls the “China 2025” plan. As a result, they stress the importance of getting China to give up practices that the administration calls “forced technology transfer,” whereby U.S. companies are forced to hand over technology and know-how as the price of entry into China’s markets. They also express concern over Chinese investment in U.S. tech companies and the use of Chinese technology in the U.S.

White House trade adviser Peter Navarro is considered the leading voice of the hardcore hawks.

This group has recently found itself in a very public dispute with officials allied with Steve Mnuchin. The Treasury faction has recently focused on reducing the size of the trade deficit rather than combating the predatory practices of the Chinese. One way this could be accomplished would be to have China lift tariffs and non-tariff barriers on agricultural products. If China were to import more of the products of America’s farmers, not only would the trade deficit shrink but the Trump administration could consolidate its support in America’s heartland, these people have argued.

To the Navarro-aligned hawks, this strategy ignores some of the biggest threats posed by what they call “Chinese predatory mercantilism.”

“They’re worried we’ll give them the crown jewels of innovation and the keys to the economic future in exchange for China buying soy and pigs,” one person familiar with the matter said.

While the fight between Navarro and Mnuchin’s allies has highlighted rifts between administration factions, many members of the White House staff and others in the administration take a holistic view of the China problem. Mnuchin has spoken out against forced technology transfers, for instance. And Navarro has often decried the size of the trade deficit.

The differences are more over emphasis in the current negotiations than an absolute ideological divide, according to people familiar with the matter.

“The sad thing about this stupid fight is that everyone wants to get a better deal with China. But the Mnuchin people think we should press for China to import more from the U.S. to lower the deficit, fearing that pressing too hard on the technology issues will kill the talks altogether. So to avoid a trade war with China, they’ve started a war with Navarro,” a person familiar with the thinking of Treasury staffers said.

The strife began even before a shouting match broke out between Mnuchin and Navarro on a recent trip to China, according to two administration sources. That trip began with a request from Mnuchin, who envisioned it as a much smaller affair, allowing him to meet individually with Chinese leaders. U.S. Trade Representative Robert Lighthizer initially opposed the trip, arguing that the administration should hold off on negotiations until later this year, according to a person familiar with the matter.

Eventually, however, the trip grew into a much larger endeavor. Lighthizer joining the trip was a natural development, since he is officially the lead trade negotiator for the U.S. Navarro was added to the group, with free trade-friendly Kudlow added to balance Navarro’s hawkishness. Commerce Secretary Wilbur Ross was a late addition to the group, a person familiar with the matter said.

Mnuchin was officially still the leader of the delegation. And it was Mnuchin’s attempt to steer the trip back toward his original vision–where he and his staff would meet alone with Chinese counterparts–that resulted in some other members of the delegation feeling shut out. When Navarro privately confronted Mnuchin over this outside of the hotel where the delegation was staying, the two men ended up in a heated argument, using coarse language and raised voices.

When word of the argument leaked out Wednesday night, with anonymous sources describing Navarro’s behavior as “erratic and unprofessional,” Navarro’s allies saw the hands of Mnuchin or his staff on the “bloody shiv,” one person familiar with the matter said.

This was followed by hours of confusion. Bloomberg News reported that Navarro was going to be excluded from the negotiations with Chinese officials this week. The White House responded by saying that Navarro and Kudlow would be participating in the talks. Navarro, however, told people that as of Thursday morning he had no been given official word as to whether he would be invited. It later emerged that the first day of talks, to be led by Mnuchin and held at Treasury, would include only cabinet-level officials. That is, no Navarro or Kudlow.

Kudlow has played down the infighting, saying the reports are merely gossip.

Navarro’s allies and economic nationalists outside the administration, however, continue to resent what they see as a power-grab by Mnuchin and the Treasury staff.

“Mnuchin is Cohn 2.0,” one former administration official said, referring to the former National Economic Council director who was nicked named “Globalist Gary” by the president.

.