by Greg Rushford (Milken Institute Review, April 21, 2017)
Recent polling by the Wall Street Journal suggests that Americans have become skeptics about international trade, with less than half believing that cross-border commerce is, on balance, beneficial. A vociferous third go further, agreeing with their new protectionist-in-chief that “our free trade has led to a lot of bad things happening.” And while President Trump’s trade agenda is yet to be fully shaped, the outline of what he wants is becoming clear: high tariff walls to curb competition from imports and more stringent Buy American laws for U.S. manufacturers — all in the name of protecting domestic jobs.
So what should Americans who reflexively cringe at the economic nationalism currently in vogue say to the skeptics? One option is to point to history: countries in the post-war era that have relied upon high protectionist tariffs and “buy domestic” import-substitution schemes — think India, Brazil and Argentina — lost their economic mojo and only began to recover their places in the sun when they opened their borders.
But there’s also an argument that doesn’t require historical perspective. Just look around at the most successful American manufacturers, and observe how access to global markets sustains their American workforces. Of course, it isn’t quite that simple. As David Autor of MIT reminds, trade produces losers as well as winners. But this reality can’t be allowed to block the American economy’s only plausible path toward ongoing prosperity.
Take Harley-Davidson, the motorcycle maker headquartered in Wisconsin that sells its iconic “hogs” in a zillion countries. The jobs of the men and women who make those Fat Boys growl depend upon imported components — transmissions from Japan, wheels from Australia, tires from Spain and Thailand. While Harley declines to reveal specifics, it’s a safe bet that, all told, about one-third of the value comes from outside the United States.
It’s a similar story for Merck, the New Jersey-based pharmaceutical giant that makes some of its lifesaving potions in Elkton, Va. (pop. 2,042). Because it operates there in a free-trade zone authorized by the federal government, Merck can save serious amounts by importing chemicals. But nobody has told Merck’s Elkton workers that free trade puts food on their tables.
Likewise for the venerable diesel-maker Cummins, which is based in Indianapolis. Cummins’s American workers could not make those engines as well or as cheaply without key imports including gaskets, bearings and cylinder heads.
“Half of the goods the United States imports are inputs and raw materials that are necessary for U.S. companies to operate their domestic production,” explains Scott Miller, a former Procter & Gamble executive who now edits TradeVistas, an economic research website for the Center for International and Strategic Studies in Washington. Those imports, Miller stresses, are “absolutely essential to the health of American manufacturing.”
True, Miller adds, the U.S. government could adopt the Indian-Brazilian-Argentine import-substitution model to force domestic manufacturers to bring their global supply chains back to American shores. But there would be consequences in the form of higher consumer prices, problematic quality resulting from undermining competition — and ultimately fewer American jobs.
Ironically, though, you aren’t likely to hear the CEOs of American export-oriented companies celebrating the role of imports in sustaining the jobs of their workforces. When I first started writing about the importance of imported components to domestic jobs in the 1990s, Harley-Davidson’s supply-chain managers freely acknowledged that they bought the best parts wherever they could be found. But these days the company is lying low, loath to offend customers who apparently assume their hogs were born and raised exclusively in Menomonee Falls and Kansas City. Cummins and Merck are hardly more communicative about their dependence on international trade, both for imported components and markets.
The explanation for the low profile of American corporations whose employees as well as profits depend on open trade is that few companies are prepared to stick their proverbial necks out when political leaders find it more convenient to pretend they never took Econ 101. Echoing Republican presidents Ronald Reagan and the two Bushes, Bill Clinton said he was for “free and fair trade” without specifying what the qualifier “fair” meant. Barack Obama was hardly better: his three favorite words, he often told audiences, were “Made in America.” Meanwhile, the populist from Mar-a-Lago — who does everything bigger — says that his four favorite words are “Made in the USA.”
Over the years, America’s corporate leaders have gotten the message: limit the anti-protectionist talk to only friends and family. There’s no good reason to spend goodwill on the topic, especially when corporate America has bigger fish to fry in the form of corporate tax reform and deregulation.
This see-no-evil approach has often translated into economic buffoonery when presidents and CEOs talk about trade to the American people. Obama, for instance, perfectly illustrated the point in a February 2012 speech to Boeing’s workforce in Everett, Washington. That’s where Boeing makes its newest commercial aircraft, the dazzling 787 Dreamliner. “Boeing has suppliers in all 50 states, providing goods and services like the airplane’s ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama,” Obama boasted. American workers, he said, are the best in the world.
Boeing executives on that stage beamed enigmatically — perhaps because they were aware that some 70 percent of the Dreamliner’s parts come from an atlas’ worth of countries. “The wings are produced in Japan, the engines in the United Kingdom and the United States, the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France,” a study by the Swedish National Board of Trade concluded. “All in all, a Boeing airplane is not particularly American.”
Perhaps irony is less surprising in the case of Donald Trump — but it is still striking. The president’s private Boeing 757, famous for its silk-lined master bedroom and solid gold bathroom fixtures, is kept airborne by Rolls Royce 211 fanjets, the UK-made workhorse of an entire generation of Boeing aircraft. Somehow, as Trump campaigned in front of the plane railing against nefarious foreigners stealing our manufacturing jobs, nobody seemed to take note of the “RR” logo prominently displayed on the portside engine.
As for the new American president’s passion for slapping high tariffs on imports from Mexico, perhaps Trump might consider some awkward facts. The Dreamliner’s wiring comes from Mexico. And, in return, the Mexicans are among Boeing’s most enthusiastic customers for the big plane — Mexico’s president Enrique Pena Nieto proudly flies one. Boeing’s CEO, Dennis Muilenburg, who seems no more enthusiastic about throwing his weight behind open trade than the CEOs of Merck, Cummins and Harley-Davidson, did not respond to an invitation to say whether he thought that was a pretty good deal for his company and its nearly 150,000 U.S.-based workers.
Somebody (other than college professors and think-tank nerds) needs to get back in the game of explaining the benefits of trade to American audiences. The Geneva-based World Trade Organization is giving it a shot. In a recent speech, WTO Director-General Roberto Azevedo appealed to a younger audience: “A jar of Nutella can contain hazelnuts from Turkey, palm oil from Malaysia, cocoa from Nigeria, sugar from Brazil and flavoring from China,” he noted. Meanwhile the company, which is headquartered in Italy, has a plant in Canada that brews up the chocolatey goodness sold by retailers across America.
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It’s easy to dismiss the awkward silence of American corporate executives who know American jobs (and profits) depend on global supply chains simply as pragmatism-as-usual. But one indirect consequence, the sheer ignorance of American workers and politicians as to how their bread is buttered, is dangerously exposing the global economy to uncertainty. Is it too much to ask corporate America to explain that economic nationalism is a recipe for stagnation and joblessness?
Wall Street Journal
Scores of Chinese dredgers ground up the coral of semisubmerged reefs in the South China Sea over the past three years to build artificial islands that are now becoming military bases. The enormity of the destruction to marine biodiversity is unprecedented. The Chinese government has destroyed more than 5 square miles of coral reef in fishing grounds that help feed hundreds of millions of people, including Chinese.
“China is committing a grand theft of the global commons,” says Philippine Supreme Court Justice Antonio Carpio in an e-book published earlier this month. It’s a theft that has inflicted “permanent and irreparable harm to the coral reef ecosystem,” an arbitral tribunal in The Hague determined last year in litigation brought by the Philippines.
Yet Greenpeace, the World Wide Fund for Nature and Conservation International have all averted their eyes. “None of them have really stepped up to the plate,” says Edgardo Gomez, an award-winning professor emeritus of marine biology at the University of the Philippines.
The best-funded environmental groups don’t have much to say when asked about the issue. A spokesman for Conservation International in Manila declines to comment. “As we’re sure you can appreciate, we cannot undertake conservation efforts everywhere,” says WWF spokesman Christopher Conner in Washington. “WWF is not a political organization,” adds Joel Palma, president of WWF-Philippines.
It’s the same story with Greenpeace. “The reason we don’t work on the South China Sea is because the nations around the area are embroiled in a territorial dispute,” says J.P. Agcaoili, the communications manager for Greenpeace Southeast Asia. Mr. Agcaoili asserts that it would be “counterproductive” to tackle the South China Sea issue.
But the environmental NGOs don’t usually hesitate to confront governments. For example, Greenpeace activists scaled an oil rig in 2012 to protest Russian drilling in the Arctic Ocean. The WWF and Greenpeace even spoke out against Chinese-government subsidies that have resulted in destructive overfishing, especially off the coast of West Africa.
So why didn’t they utter a peep about China’s degradation of the South China Sea?
Knowing when to keep their mouths shut seems to be the price these organizations must pay to enjoy the good will of Beijing. It’s one thing to offer respectful criticism over Chinese fishing subsidies within the bounds that the Communist Party tolerates as a social safety valve. But it’s another matter entirely to condemn the crimes that China is committing in the South China Sea, a position that would infuriate the Politburo.
Greenpeace, Conservation International and the WWF all have offices in China. The WWF’s programs to protect the giant panda drive donations globally, and well-heeled do-gooders pay $10,000 per person for panda safaris in Sichuan. Mr. Gomez of the University of the Philippines laments, “Sad but true, money talks.”
As the WWF notes on its website, it operates in China “at the invitation of the Chinese government.” But invitations can be withdrawn. With dozens of Chinese nationals employed on the mainland by the WWF, Greenpeace and Conservation International, the NGOs’ operations in the Middle Kingdom are hostage to the whims of the Party.
The WWF’s international board of directors includes Wang Shi, founder of China’s biggest residential real-estate developer. An avid sportsman, Mr. Wang is no stranger to danger, having climbed Mt. Everest. Yet he declined to comment on China’s actions in the South China Sea.
Likewise the WWF-Philippines board, which includes some of that country’s wealthiest executives, has stayed silent. Christopher Po, the CEO of Century Pacific Tuna, is looking to China as a major growth market for his seafood exports. Jaime Augusto Zobel de Ayala, who chairs one of the Philippines’s largest conglomerates, is currently in talks with Chinese enterprises about infrastructure projects.
Hotel developer Elizabeth Sy has even closer ties to the mainland. Ms. Sy is an advisor to the board of SM Prime, which has shopping malls across the Philippines and also in five Chinese cities. She is the daughter of the Philippines’s richest man, Henry Sy Sr. , who was born in Fujian and has large ventures on the mainland.
WWF-Philippines president Joel Palma, on behalf of the board, declined requests for comment on conflicts between members’ businesses and protecting the marine environment. The WWF has revenue of more than $300 million annually.
Environmental organizations appeal for donations by pointing to their record of speaking truth to power. But the flagship groups are betraying their ideals in the pursuit of money and access in China. That’s the real reason we don’t see Greenpeace’s Rainbow Warrior protesting Beijing’s environmental crimes in the South China Sea.
Mr. Rushford is editor of the Rushford Report, which tracks international economic and security issues.
By Greg Rushford
Next Tuesday, July 18, will be another big day for the Center for Strategic and International Studies, which has been one of Washington’s most prestigious think tanks for more than a half century. The Seventh Annual CSIS South China Sea Conference, as have its previous incarnations dating to 2011, will once again draw public attention to Chinese assertiveness in the South China Sea. Speakers with impressive national security credentials will be flown in from Singapore, Vietnam, the Philippines, and elsewhere in Asia. They will be joined by leading American authorities from such respected institutions as the U.S. Naval War College and its Center for Naval Warfare Studies. Sen. Cory Gardner, a Republican from Colorado who chairs the Foreign Relations Committee’s Asian panel, will kick off the day with a speech on “Renewing American Leadership in the Asia-Pacific.”
So who has been generously paying for conferences aimed at encouraging the importance of renewing American leadership in Asia? CSIS President and CEO John Hamre has been ducking the question for the past six years. Last July, for instance, CSIS informed the public that its sixth annual South China Sea conference had been “made possible by general support to CSIS.”
That’s not only too vague to convey real meaning, but a flat-out “misrepresentation,” according to a source who prefers to remain anonymous. To substantiate that charge, the source has provided me internal “Confidential” CSIS documents that show exactly where the money has been coming from.
The memoranda, e-mails, and other records reveal that Hamre has had a secret angel — in Hanoi.
And the angel has had an important say in who has been invited to the annual CSIS maritime conferences, and who hasn’t. CSIS’s secret benefactor is an arm of Vietnam’s Ministry of Foreign Affairs. The unit, called the Diplomatic Academy of Vietnam, reports to Foreign Minister Pham Binh Minh and the Communist Party, according to it’s official website. Pham Binh Minh, currently Vietnam’s deputy prime minister, is a senior Party member who has served as foreign minister since 2011.
Since 2012, Vietnam’s government has given CSIS more than $450,000 to hold the annual South China Sea conferences. Over the years, CSIS has added another $55,000 from the think tank’s internal accounts, the sources of which are not identified in the documents I have been shown. CSIS chief Hamre declined to respond to persistent requests for his comment.
Questions about transparency
This is not the first time that questions have been raised in the press about CSIS and shadowy contributions from foreign sources. On September 7, 2014, for instance, the New York Times published an article headlined “Foreign Powers Buy Influence at Think Tanks.” Reporters Eric Lipton, Brooke Williams and Nicholas Confessore tracked millions of dollars from foreign governments that have been flowing into influential Washington think tanks, including CSIS, in recent years. The murky money “has set off troubling questions about intellectual freedom,” they noted, citing instances of scholars whose opinions seemed to be unduly influenced by financial considerations.
In response to the inquiries from the Times, CSIS agreed to release a list of more than a dozen foreign government donors including Japan, Sweden and Turkey. But the disclosure from CSIS chief Hamre was semi-transparent at best. CSIS “declined to disclose details of its contracts with those nations or actual donation amounts,” the newspaper reported.
Currently, the CSIS website discloses eleven foreign governmental donors. The United Arab Emirates, for instance, has contributed “$500,000 and up,” for unspecified “regional studies.” Saudi Arabia and Turkey have chipped somewhere between $100,000 – $499,999,” again unspecified. And donations between $5,000 – $99,999 have come from five other governments including Kazakhstan and Germany. No contributions are now listed from the government of Vietnam.
Hanoi’s Hidden Hand
That some Vietnamese money has been given to CSIS, however, is noted elsewhere on the CSIS site — tucked away under gifts received from 48 foundations, non-governmental organizations, and “Nonprofit Donors.” The Diplomatic Academy of Vietnam is listed as having donated at least $5,000 to CSIS, but not more than $99,999. What the DAV is, or what the money was intended for, other than the usual unspecified “regional studies,” is not disclosed.
There is nothing anywhere on the CSIS site to indicate that the DAV is an official arm of Vietnam’s Ministry of Foreign Affairs. Nothing to suggest that the Diplomatic Academy of Vietnam advises the foreign minister “in the formulation, planning and implementation of the foreign policy of the State,” as it notes on its own website. To glean that DAV also participates in “academic exchanges” with research institutions, inside Vietnam and overseas, one has to go to the DAV website, where CSIS is not mentioned.
The official connections between CSIS officials and the Vietnamese government, according to the documentation I have been shown, date to April 25, 2012. That’s the day the first memorandum of understanding between CSIS and a Vietnamese diplomat was inked. Ernest Bower signed on behalf of CSIS as the think tank’s senior adviser and director of its Southeast Asia Program. Since 2011, Bower has also been the president and CEO of the BowerGroupAsia, an international consulting firm that has offices in Vietnam and other Asian countries.
Tung Nguyen Vu, who in 2012 was the deputy chief of mission of the Vietnamese embassy in Washington, signed on behalf of DAV. Hanoi contributed $129,236 to hold the second CSIS conference that July. CSIS added another $20,000.
Diplomat Tung — who is also referred to as Nguyen Vu Tung — is now a senior official with DAV; he appeared on a panel at the 2016 CSIS South China Sea conference, held last July 12. And at next Tuesday’s seventh CSIS event, Dang Cam Tu, the deputy director of the DAV’s Institute for Strategic Studies, will appear on a panel moderated by CSIS senior adviser Murray Hiebert.
Hiebert is also a senior adviser to the BowerGroupAsia. His work as a private business consultant does not appear on his CSIS bio, nor does he does not disclose his corporate affiliations in his public CSIS appearances. Hiebert has declined to explain his dual roles, and CSIS chief Hamre and the think tank’s board of directors have also remained silent.
In 2015 Hiebert admitted that a CSIS study on U.S.-Vietnam relations he had co-authored had been paid for by the Vietnamese government — a fact that the published study had not disclosed. Hiebert has drawn previous attention for his unwillingness to offer critical analysis of Vietnam’s tarnished human-rights record. He once even summoned a security guard escort a prominent Vietnamese-American pro-democracy advocate from the CSIS premises, after being pressured to do so by Vietnamese security officials. (For further details, see How Hanoi Buys Influence in Washington, D.C., and Obama’s Vietnam ‘Legacy’ Trip: A Reality Check, on www.rushfordreport.com.)
These days Vietnam’s chief paymaster to CSIS is Tran Truong Thuy. Thuy is a veteran DAV official who has been involved with the annual CSIS maritime conferences since the first one in 2011. On July 11, 2016, Thuy signed the confidential CSIS memo of understanding which set the budget for last year’s conference. He was then wearing another hat: director of the Foundation for East Sea Studies.
FESS describes itself on its website as a non-profit that DAV and senior Vietnamese diplomats launched in 2014. FESS and the DAV share the same address in Hanoi. FESS’s mission is basically to explain to domestic and international audiences the Vietnamese government’s positions on its maritime disputes with China. The short explanation of the bureaucratic arrangements: the Ministry of Foreign Affairs — and ultimately the Communist Party — calls the shots for both DAV and FESS.
Last year’s CSIS conference budget was typical of its predecessors. The Vietnamese agreed to pay $94,935 of the total costs of $104,935. CSIS’s Asia Maritime Transparency Initiative chipped in the other $10,000. The money was to be used to pay for CSIS staffers’ time spent on the event, travel and hotel costs from various Asian locations for invited speakers, and other conference costs such as those associated with meals and printing documents. CSIS agreed, as it had in previous years, to send all of the receipts to Hanoi.
While the contractual arrangements with Hanoi specified that both CSIS and the Vietnamese would “together draft the agenda and the list of participants,” CSIS also asserted its rights to full editorial independence and its “total discretion and final decision-making authority.”
Those rights were put to the test in the days before last year’s conference, which was held on July 12, 2016. That same day, an international tribunal in The Hague issued a ruling that determined that China has been acting in violation of its international legal obligations by destroying coral reefs to build weaponized artificial islands in waters with the Philippines’ exclusive economic zone — putting both Manila and Hanoi in range of Chinese jet bombers.
The Paymasters’ Power Play
Given the likelihood of intense public interest in the wake of the tribunal’s ruling, CSIS staffers Murray Hiebert and Greg Poling asked China’s ambassador in Washington, Cui Tiankai, to speak at the conference. Considering the beating that Beijing would be taking that day in light of the legal ruling, Hiebert and Poling thought that was only fair, and said so in their e-mail correspondence.
Poling informed Thuy on July 7 that he had heard from the Chinese embassy, and that Cui was willing to speak.
Thuy hit the roof.
“Murray, we cannot agree with the way you handle the conference,” the Vietnamese diplomat informed Hiebert in one July 8, 2016 e-mail. “You invited Chinese Amb without consultation with us and now saying that you cannot disinvite him. Please understand that to create a forum for promoting Chinese propaganda is not our purpose.”
Hiebert shot back: “Our goal is not to create a form for Chinese propaganda, but to create a credible forum that shows China’s unacceptable behavior in the SCS [South China Sea]. Amb Cui won’t convince anyone that justice is on his side. Allowing him to speak will give our all day event and the event’s sharp criticism of China much more credibility without detracting from our message.”
Finally, after the flurry of e-mails with the CSIS staffers had reached an impasse, Thuy put his foot down. “Murray, not allowing Chinese Amb to deliver his speech is not only my personal opinion but a strict requirement from our ‘sponsors’ and I don’t have chance to convince them anymore.”
Faced with the implacable attitude of the men with the money in Hanoi, Hiebert and Poling crafted a compromise position. “Thuy, Amb. Cui will not speak at the SCS conference tomorrow,” Hiebert informed his Vietnamese benefactor on July 11. “Instead, he will speak later in the day after the conference has ended at the invitation of the China Power Program, which is not related to the SE Asia program that organized the conference.”
As Hiebert had promised Thuy, the July 12 conference that the Vietnamese government had paid for adjourned at 4:30 p.m. Fifteen minutes later, at 4:45 p.m., the Chinese ambassador delivered his remarks, which were live-streamed.
Enter Irony — and Moral- and Intellectual Failures
There is an irony to this story. CSIS has earned genuine respect in leading foreign-affairs circles for its success in focusing the American public’s attention on China’s misconduct in the South China Sea. The rub is the evasiveness concerning who was paying the bills. That has been compounded by the business affiliations of CSIS officials who were raising money from the Vietnamese government at the same time they were promoting private business dealings in Vietnam.
Readers will draw their own conclusions as to what the Vietnamese government has gotten for its money. During the years covered in this article, Vietnam’s agenda in Washington has had several key parts. Hanoi wanted to create a climate of opinion to foster a closer diplomatic and security relationship with the United States. CSIS analysts also wanted that. The Vietnamese wanted President Barack Obama to visit Vietnam, to help deepen the relationship. CSIS also advocated that trip. Hanoi wanted Washington to lift its ban on the sale of lethal arms to the communist regime. CSIS analysts shared that part of the agenda also. And Vietnam wanted American support for the Trans-Pacific Partnership trade deal. CSIS was on the same page.
To be sure, CSIS officials could plausibly argue that the agenda they have been pressing on behalf of better U.S.-Vietnamese relations was reasonable.
But there’s more to this story that raises troubling questions. Above everything else, the Vietnamese government has wanted foreign policy elites in Washington to avert their eyes on Hanoi’s gross violations of human rights. The Communist Party sees its very survival as dependent upon its continued ability to suppress even peaceable dissent. And as I have reported previously in How Hanoi Buys Influence and Obama’s Vietnam Legacy Trip, John Hamre, Ernie Bower, Murray Hiebert, and Greg Poling have been careful not to cause undo offense to the powers in Hanoi when awkward questions about political prisoners have arisen.
To refuse to speak out when courageous Vietnamese citizens are imprisoned merely for peaceable exercising their universal rights to free speech is surely a moral failure.
And there’s also an intellectual failure. Vietnam, a member of the United Nations, is a signatory to various international legal instruments that guarantee its citizens universal freedoms of speech and expression. Any analyst who criticizes China for flouting international law in the South China Sea surely is obligated to point out that Vietnam’s continuing persecution of some of its best citizens also is in violation of accepted UN international legal norms.
Except, perhaps, if there is money to be made by looking away.