Nearly all economists disagreed with Trump, but he found an academic economist who hated free trade as much as he did. He brought him to the White House as both director of trade and industrial policy and director of the National Trade Council. Peter Navarro was a 67-year-old Harvard PhD in economics. “This is the president’s vision,” Navarro publicly said. “My function really as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters.”
Gary Cohn was convinced that trade deficits were irrelevant and could be a good thing, allowing Americans to buy cheaper goods. Goods from Mexico, Canada and China were flooding into the United States because they were competitively priced. Americans who spent less money on those imported goods had more money to spend on other products, services and savings. This was the efficiency of global markets.
Cohn and Navarro clashed. At one meeting in the Oval Office with Trump and Navarro, Cohn said that 99.9999 percent of the world’s economists agreed with him. It was basically true. Navarro stood virtually alone.
Navarro took Cohn on, calling him a Wall Street establishment idiot.
The core of Navarro’s argument was that U.S. trade deficits were driven by high tariffs imposed by foreign countries like China, currency manipulation, intellectual property theft, sweatshop labor and lax environmental controls.
The North American Free Trade Agreement (NAFTA) had sucked the manufacturing lifeblood out of the U.S. just as Trump predicted, Navarro said, turning Mexico into a manufacturing powerhouse, while driving U.S. workers to the poorhouse. U.S. steelworkers were being laid off and steel prices were dropping. Trump should impose tariffs on imported steel.
Trump said he agreed.
“If you just shut the fuck up and listen,” Cohn said to both Trump and Navarro, dropping deference for the moment, “you might learn something.”
Goldman Sachs, to Cohn, had always been about research, data and fact. Anytime you went into a meeting, you should have more hard, documented information than anyone else in the room.
“The problem,” Cohn said, “is that Peter comes in here and says all this stuff and doesn’t have any facts to back it up. I have the facts.” He had sent Trump a heavily researched paper on the service economy. He knew Trump had never read it and probably never would. Trump hated homework.
Mr. President, Cohn said, trying to summarize, “You have a Norman Rockwell view of America.” The U.S. economy today is not that economy. Today, “80 plus percent of our GDP is in the service sector.” Cohn knew it was about 84 percent but he did not want to be called out for rounding numbers up. The Goldman way was to carefully round down.
“Think about it, sir, when you walk down a street in Manhattan today versus when you walked down a street in Manhattan 20 or 30 years ago.” He chose a familiar intersection from memory. Twenty years before, the four corners had been occupied by a Gap, a Banana Republic, J.P. Morgan and a local retailer.
“Banana Republic and Gap don’t really exist anymore, or they exist in the shadow of themselves. The local retailer doesn’t exist. J.P. Morgan still exists.
“Now it’s Starbucks, a nail salon and J.P. Morgan. They’re all service businesses.
“So when you walk down Madison Avenue today or you walk down Third Avenue or you walk Second Avenue, it’s dry cleaners, it’s food, it’s restaurants, it’s Starbucks and it’s nail salons. We no longer have Ma and Pa hardware stores. We don’t have Ma and Pa clothing stores. Think of who you rent space to in Trump Tower.”
“I do have the largest Chinese bank as one of my major tenants,” Trump said.
“Who’s your one retailer in the Trump Tower?”
“Starbucks,” Trump replied. “And a restaurant in the basement. Oh, and two more restaurants in the basement.”
“Exactly,” Cohn said. “So your retail space today is services. It’s not people selling shoes, or hard goods, or white goods. This is what America is today. So if we’re 80-plus percent services, if we spend less and less money on goods, we have more disposable income to spend on services or do something miraculous called savings.”
Cohn found he almost had to shout to be heard. “Look,” he said, “the only time that our trade deficit goes down” were times like the financial crisis in 2008. “Our trade deficit goes down because our economy’s contracting. If you want our trade deficit to go down, we can make that happen. Let’s just blow up the economy!”
On the other hand, Cohn said, if they did it his way—no tariffs, no quotas, no protectionism, no trade wars—“if we do things right, our trade deficit’s going to get bigger.”
And when the trade deficit got bigger each month, Cohn went to Trump, who grew more and more agitated.
“Sir, I told you this was going to happen,” Cohn said. “This is a good sign. It’s not a bad sign.”
“I went to parts of Pennsylvania,” the president said, “that used to be big steel towns and now they’re desolate towns and no one had a job and no one has work there.”
“That may be true, sir,” Cohn said. “But remember there were towns 100 years ago that made horse carriages and buggy whips. No one had a job either. They had to reinvent themselves. You go to states like Colorado, you’ve got 2.6 unemployment rate because they keep reinventing themselves.”
Trump did not like, or buy, any of the arguments. “It has nothing to do with it,” Trump said.
Cohn brought in Lawrence B. Lindsey, a Harvard economist who had held Cohn’s job under President George W. Bush. Lindsey bluntly asked, Why are you spending any time thinking about our trade deficit? You should be thinking about the economy as a whole. If we can buy cheap products abroad and we can excel in other areas—service and high-tech products—that should be the focus. The global marketplace provided immense benefits to Americans.
“Why don’t we manufacture things at home?” Lindsey asked. “We’re a manufacturing country.”
Of course the United States manufactured things, but reality did not match the vision in Trump’s mind. The president clung to an outdated view of America—locomotives, factories with huge smokestacks, workers busy on assembly lines.
Cohn assembled every piece of economic data available to show that American workers did not aspire to work in assembly factories.
Each month Cohn brought Trump the latest Job Openings and Labor Turnover Survey, called JOLTS, conducted by the Bureau of Labor Statistics. He realized he was being an asshole by rubbing it in because each month was basically the same, but he didn’t care.
“Mr. President, can I show this to you?” Cohn fanned out the pages of data in front of the president. “See, the biggest leavers of jobs—people leaving voluntarily—was from manufacturing.”
“I don’t get it,” Trump said.
Cohn tried to explain: “I can sit in a nice office with air conditioning and a desk, or stand on my feet eight hours a day. Which one would you do for the same pay?”
Cohn added, “People don’t want to stand in front of a 2,000 degree blast furnace. People don’t want to go into coal mines and get black lung. For the same dollars or equal dollars, they’re going to choose something else.”
Trump wasn’t buying it.
Several times Cohn just asked the president, “Why do you have these views?”
“I just do,” Trump replied. “I’ve had these views for 30 years.”
“That doesn’t mean they’re right,” Cohn said. “I had the view for 15 years I could play professional football. It doesn’t mean I was right.”
* * *
Staff secretary Rob Porter had been hired by Priebus. He came into the job with five-star recommendations from people who had served as staff secretaries to Republican presidents. Priebus had required Porter almost to sign a blood oath of loyalty to him. “It’s great you went to Harvard, Oxford; you’re smart and everybody vouches for you. But what really matters to me is that you’re going to be loyal to me.”
Porter had overlapped at Harvard with Jared Kushner, who had taken a class there taught by Porter’s father, Roger Porter, who had served on the staffs of Presidents Ford, the first Bush and Reagan. Jared and Porter met during the transition for about two hours. The first hour also seemed like a loyalty test.