Obama: Back on the Campaign Trail
The “Made in America” president got back on the campaign trail last week.
Barack Obama’s name, of course, will not be on anyone’s ballot come the Nov. 4 mid-term congressional elections. But the president, fearing he could become a politically impotent lame duck during his last two years in the Oval Office, is naturally keenly interested in doing whatever he can to head off any possibility that the Republicans could control both the House of Representatives and the Senate.
A key part of Obama’s current politicking portrays congressional Republicans as uninterested in using sensible government leverage (and a few tax dollars) to keep what the president calls good “middle class” American manufacturing jobs at home in a competitive global economy. It is a continuation of a successful political formula based on patriotic-sounding Buy American rhetoric that has helped an inexperienced junior senator from Illinois win two terms in the White House. The Republicans have never figured out an effective response to Obama’s economic nationalist rhetoric.
But while his politics have been savvy — or at least smarter than his political opposition —Obama’s grasp of global economic realities remains uncertain. He’s been missing a simple insight that is at the core of International Econ 101. Nearly four years ago, then-WTO Director General Pascal Lamy began issuing repeated — and well-publicized — reminders to World Trade Organization member countries why open international trade flows are so important. Thanks to the rapid development of modern global supply chains, the WTO chief explained, manufactured products are no longer made in just any one country. Rather, they are assembled from components and raw materials that are “Made in the World.” Put another way, countries that pursue inward-looking policies pressed by parochial politicians who play to protectionist-minded lobbies — whether Buy America, or Buy India, or Buy China — are going to be left behind.
The WTO’s cutting-edge economic research continues under Roberto Azevedo, Lamy’s energetic successor from Brazil. Obama, however, remains a Made in America politician — and bases his economic policies on such. Over the last year, Obama’s top trade negotiator, Michael Froman, has declined to respond to persistent inquiries as to whether the White House would care to associate itself with the WTO’s Made in the World educational endeavors. But that background gets ahead of the facts that drive this story, which begins on Jan. 15, when Obama flew to North Carolina’s celebrated Research Triangle Park.
Some 170 companies conduct advanced high-tech research and development in the Triangle. Some of the biggest names that are associated with modern technological advances —- think America’s IBM, Intel, Microsoft, Biogen, and Cisco; and also BASF, Ericsson, Sumitomo and even China’s Lenovo — have made the Raleigh-Durham-Chapel Hill area a living illustration of American technological innovation at its best. Last week, Obama singled out one particularly admirable company to visit, the research and development offices of Vacon Inc. The president’s idea was to explain how federal subsidies for such praiseworthy private-sector innovators could help keep manufacturing jobs in America.
Never heard of Vacon? Well, this smart company is in everyone’s daily lives, one way or another. Vacon makes something called AC drives. While AC drives are hardly household words, they are highly useful things. Essentially, they use software attached to electronic boxes to make electric motors run more efficiently. Vacon’s clean-energy drives lower costs for a great many useful things that help make the American economy run more efficiently: including elevators, escalators, fans, pumps, compressors, you name it. Vacon’s biggest customers include the likes of giants like Honeywell and Eaton. As Obama rightly noted, Vacon’s innovations tell a very “good news” story.
Vacon is one of 18 corporations that are participating in a federally supported consortium of six universities led by North Carolina State that aims to come up with even more advanced clean-energy ideas. Obama’s Energy Department has pledged to support the hub with $70 million over five years, drawing on funds that the president says he has the existing executive authority to spend. The White House says it has another $130 million available to launch two more so-called “manufacturing hubs” that have yet to be announced.
In his 2013 State of the Union address, Obama said he would ask Congress for $1 billion to create a nationwide network of 15 manufacturing hubs. But unsurprisingly, the idea stalled on Capitol Hill. This election year, the president has doubled down politically, saying that what he’d really like is congressional authorization to subsidize 45 public-private manufacturing institutes. While this is hardly likely to happen, Obama at least has the more opportunities to criticize a do-nothing Congress between now and the Nov. 4 vote. And that’s exactly what he did (with tub-thumping relish) in North Carolina last week. “Where I can act on my own, without Congress, I’m going to do so,” Obama declared on Jan. 15. “And today I’m here to act,” Obama said to applause.
The president’s message was delivered to an enthusiastic audience of some 2,000 at North Carolina State: Smart spending of tax dollars is what it takes to promote an American manufacturing renaissance that will keep good “middle class” jobs at home, rather than continue to ship them overseas, Obama declared. “So the reason I came here today is because we’ve got to do more to connect universities like NC State with companies like Vacon to make America the number-one place in the world to open new businesses and create new jobs,” Obama declared. “We want to do that here in North Carolina, and we want to do this all across America,” Obama vowed.
The president recalled how North Carolina had seen textile- and furniture-making factories “closing their doors down” while “jobs were getting shipped overseas.” More federal support for such “good news” success stories like Vacon, Obama said, will keep the jobs of America’s future here at home. “I don’t want the next big job creating discovery, the research and technology, to be in Germany, or China or Japan; I want it to be right here in the United States of America,” Obama said.
The following six sentences about Vacon from Obama’s Jan. 15 speech are worth quoting in their full context, as they clearly illuminate the president’s view of what international economics is all about: “So this company is making these engines and these systems more efficient, saving businesses big bucks on energy costs, improving the environment. Those savings get passed on to customers, puts money in people’s pockets. And growing companies that need the products that Vacon makes, they’re benefitting enormously. So it’s a good-news story. But in a global economy, that company, just like every company in America, has to keep inventing and innovating in order to stay on the cutting edge. And that’s where all of you come in.”
And that’s where the Made in the World trade flows enter this story. Obama was certainly correct in portraying the innovative Vacon as an entrepreneurial success story. But the praiseworthy entrepreneurial energy came from — Scandanavia. Vacon Plc is headquartered in Vaasa, Finland. Its U.S. operations are only a small (if important) part of the Finnish company’s international business strategies.
Yes, it stands to follow that Vacon’s factory workers in America will benefit from whatever technological advances come from the tax dollars that Obama will channel to the North Carolina manufacturing hub. But that’s only part of the story. Vacon also has factories in Europe and Asia, as well as R&D operations in other countries. So any high-tech breakthroughs that are made in the Triangle will also help Vacon’s workers around the world, including, you guessed it…China.
A quick look at how Vacon is thriving in a competitive global marketplace easily explains.
In 1993, thirteen engineers who worked for the ABB Group in Vaasa, Finland, faced an uncertain future when the giant Swedish-Swiss conglomerate decided to shut down its Finnish lab. At the time, Finland’s economy was in the tank, suffering from a lingering economic hangover after the collapse of the neighboring Soviet Union. Still, the intrepid Finns bravely struck out on their own, launching Vacon Plc. They risked their job security, their homes, their families’ welfare, and took all the other usual risks that aspiring entrepreneurs do as they summon the inner strength to endure. But the geeks believed in the strength of their ideas.
Today, this fine Finnish company that figured out smarter software to transform the ways that electrical energy is processed holds about 5 percent of a worldwide $11-plus billion AC Drive market. Company revenues were over $500 million in 2012. Altogether, Vacon employs about 1,500 people worldwide. Some of these work in the United States.
Vacon employs nearly 20 highly motivated workers in the Research Triangle. (The words “highly motivated” explain why innovators from around the world find the Triangle attractive.) Another 100 Americans work in Vacon’s factory in Chambersburg, Pa. The company’s U.S. headquarters are in Milwaukee, with support offices in Chattanooga and Houston. They have reason to be enthusiastic about the possibilities of the manufacturing consortium that Obama is pushing — as do Vacon’s factory workers in Suzhou, China, and also in Europe.
Vacon’s website notes that the Finnish company sees its “focus of growth” in six other countries besides the United States: Germany, Brazil, Canada, India, South Korea, and China. Vacon’s website notes that it’s “focus of production is moving to Asia.” Vacon, like other globally competitive corporations, has a natural economic incentive to be near to its growth markets, whether they are in Chambersburg, Pa., or Suzhou.
Moreover, all of Vacon’s factory workers, no matter which country they live and work in, are dependent upon international trade flows across borders, which give them the necessary components they must have to assemble their AC drives. Without access to the imports, all of the factories would fold.
According to Import Genius, an authoritative private research firm that tracks U.S. Customs’ records online, Vacon’s U.S. operations import key parts such as frequency connectors from Finland, valves from China, and control modules from Mexico. Likewise, the workers in Vacon’s factory in China could not assemble their Made in China AC drives without the necessary imported components from various countries. As Karl Marx might put it if he were alive in the 21st century: Workers of the world, you really are united.
But when the president of the United States talks of promoting an American manufacturing renaissance, he is loath to mention that imported components help sustain American manufacturing jobs. The protectionist-minded labor unions that heavily influence the Democratic Party’s trade policies don’t much like to talk about such things.
The puzzle is why the Republicans — who have allowed themselves to be the Fall Guys in Obama’s successful economic morality play — have never figured out how to deflate the patriotic sounding presidential rhetoric. Especially as evidence they would need to put Obama on the defensive is right under their noses.
Remember Obama’s much-touted pledge, first uttered in 2010, that he would move heaven and earth to double U.S. exports between 2009 and 2014? Obama said his White House had a Five Year Plan, which he called the National Export Initiative? It sure had a nice ring to it during the 2012 presidential campaign.
Last week in North Carolina, Obama — who now has new buzz words for job creation, like “manufacturing hubs” — didn’t mention his so-called National Export Initiative. No wonder, considering the numbers.
In 2009, during the economic whirlwinds created by the Great Recession struck, U.S. exports of goods and services totaled $1.5 trillion. But by 2012, the 4th year, U.S. exports had only risen to $2.2 trillion. The numbers aren’t in for all of 2013 (they will be released on Feb. 6.). But it looks like last year was about the same as 2012. So U.S. exports, instead of doubling in five years, have risen by only about one third. To reach Obama’s goal of doubling in five years, U.S. exports this year would have to reach a little over $3 billion. It’s not likely.
But that’s only part of the story. It turns out that there is one existing federal program that actually has an enviable track record of sustaining American jobs — a government program that has steadily been helping exports skyrocket for many years. The reference is to the nationwide network of highly successful U.S. Foreign Trade Zones, which are administered by the Commerce and Treasury departments.
Some 2,800 corporations employ more than 340,000 American workers in FTZs located in every state of the Union, plus Puerto Rico. Manufacturers in these special zones are allowed by the federal government to import the raw materials and components they need to manufacture the finished products, without initially paying import duties. If the goods are sold in the United States, they pay the lower U.S. duty rate for the finished product. Or they could be exported, paying only whatever tariffs buyers in foreign countries are subject to.
The FTZ’s performance clearly illustrates the benefits of a duty-free world. From 2004–2008, the value of exports from FTZs more than doubled, from $19 billion to $41 billion. Since 2009 they have been up more than 80 percent. Last year the department reported that exports from the zones reached a record-high of $54 billion in 2011, a 56 percent increase from fiscal year 2010. (These are the most current numbers the federal government has published.)
Dan Griswold, the president of the National Association of Foreign Trade Zones, has observed that the export numbers “confirm that companies operating through the FTZ program are contributing more than their share toward meeting the president’s National Export Initiative goal of doubling U.S. exports between 2009 and 2014.” Yet the Obama White House, far from putting FTZs at the center of the president’s National Export Initiative, basically has talked about the free-trade zones as little as possible. The economically thriving zones have been about as far from the center of the president’s National Export Initiative as the White House can keep them.
During the 2012 presidential contest, neither Obama nor his Republican challenger, Mitt Romney, visited a Foreign Trade Zone to tout the benefits of a zero-tariff world. In fact, in more than a quarter century of covering the politics of international trade, memory does not recall any example of a presidential candidate of either party who ever trumpeted the jobs-creating virtues of FTZs.
Still, such export success stories are dotted all over the U.S. BMW has exported more than one million spiffy roadsters and four-wheel drive vehicles from the company’s zone in Spartanburg, S.C. since 1994. Mercedes exports its M-Class SUVs and other luxury cars from a duty-free zone in Alabama. Toyota has announced it will be selling its Kentucky-made Venza Crossover to customers in Russia and Ukraine.
Another shining FTZ success is found in Elkton, Va. (pop. 2,700), nestled in the Shenandoah Valley about 100 miles southwest of Washington, D.C. There, pharmaceutical giant Merck operates a sprawling factory that, according to the company’s federal filings, makes drugs to treat diseases ranging from HIV to river blindness to Parkinson’s to cervical cancer. Workers in Elkton make their pills without Merck’s paying U.S. tariffs on imported raw materials (various chemicals, gums, resins) that otherwise would be subject to duties. Free trade is what Elkton, Va. is all about — ask the Merck workers whose jobs depend upon it.
Or take Caterpillar Inc.’s operations in a Foreign Trade Zone in Victoria, Texas, where it makes its iconic yellow excavators and frame assemblies. There is a very long list of imported parts that Cat brings in duty free to keep its Texas workers busy: including various rods and tubes, hoses, fittings, seal strips, clamps, caskets, glass, ceramics, and many more.
There’s another company that has been creating American jobs in a place where they are much needed, but which isn’t in a Foreign Trade Zone. A commendable start-up named Shinola has started putting Americans to work making fine watches and bicycles in bankrupt Detroit. “We know there’s not just history in Detroit, there’s a future,” the company declares on its website.
Hopefully, savvy risk takers like Shinola will become shining successes, inspiring other intrepid entrepreneurs to start re-building Detroit — a sad city that is perhaps the nation’s number one example of the consequences of unenlightened economic policies. (The AFL-CIO’s unions and the old-line U.S. auto manufacturers bear the responsibility for this, but prefer to blame import competition.)
And of course it happens that Shinola’s prospects for success turn on the ability of this entrepreneurial-minded company to benefit from global trade flows. Shinola sources its bike frames and fork tubing from Mississippi, the chainstay plates from Wisconsin, spokes from Colorado — but also imports other necessary parts from Asia and Europe. And the Shinola workers who assemble watches in Detroit, make them from Swiss movements, and also cases, dials, hands, crystals and buckles from China. So this success story is Made in the World, not Made in America.
Given his attitude towards import competition, Obama is not likely to go to Detroit and call for economic policies that would make the entire city a free-trade zone. Nor have prominent national Republicans expressed any such interest.
While American politicians of both political parties remain intellectually trapped in their insular Made in America mentality, other countries — China, for instance — are thinking of better adjusting their economic policies to fit Made in the World economic realities.
Last summer, with the apparent endorsement of Chinese Premier Li Keqiang, Beijing announced plans to make parts of Shanghai a free trade zone. As the South China Morning Post, the respected Hong Kong daily newspaper, has observed, this will be the “first Hong Kong-like free trade area in mainland China.” And according to various recent news reports, Beijing is also considering creating another dozen such duty-free zones around the country. They include Guangdong, which is economically close to Hong Kong, the port of Qingdao, and Hangzhou, home of the e-commerce giant Alibaba. While the Chinese plans’ implementation are still works in progress, at least Beijing’s leaders are asking the right questions.
As for Obama, it might help if the president would spend less time thinking about effective campaign rhetoric, and more effective governance. After all, it’s the latter that eventually determines presidential legacies.
Obama’s “Déjà vu” Vietnam Diplomacy
A high-stakes diplomatic drama is playing out between the United States and Vietnam. While the focus is on enhancing bilateral economic ties in the ongoing Trans-Pacific Partnership negotiations, the economics are also related to broader security- and human rights issues. This article has some fresh news to report on what’s going on behind the scenes: What the ruling Politburo in Hanoi has decided about deepening its economic ties with the major powers. What Vietnamese President Truong Tan Sang and U.S. President Barack Obama had to say to each other during their July 25 White House meeting in the Oval Office. Who else was in the room — and why that was important.
There is also background information to report that sheds light on the intense pressures that U.S. Trade Representative Michael Froman has been bringing to bear on Vietnam, notably last week in Bandar Seri Begawan, Brunei. On Aug. 22-23, Froman had private talks with his Vietnamese counterpart, Vu Huy Hoang, on the sidelines of the 19th round of the TPP trade talks, which are continuing this week in Brunei. Washington has been playing an intimidation game, pressuring Hanoi to accept an economic deal that is clearly not in Vietnam’s best interests — and just might get away with it.
But it’s not the hard news that captivates, but rather, the déjà vu feeling of another historical turning point in U.S.-Vietnamese relations. On Aug 30, 1945 — 68 years to the day, it turns out, that the TPP’s 19th round of negotiations will conclude this Friday in Brunei — Ho Chi Minh wrote the first of several letters to U.S. President Harry Truman. Uncle Ho sought Truman’s support for Vietnamese aspirations to gain independence from French colonial rule. The letters went unanswered, as the Truman administration’s higher priority involved helping the French recover from the devastations of World War II.
“In historical terms, it was a monumental decision by Truman, and like so many that U.S. presidents would make in the decades to come, it had little to do with Vietnam herself — it was all about America’s priorities on the world stage,” historian Fredrik Logevall has observed in his acclaimed Embers of War. The concerns of more enlightened observers in the U.S. State Department and in the intelligence community, who worried about the consequences of getting on the wrong side of the battle against colonialism, were overridden.
When they met in the Oval Office last month, President Sang displayed a keen sense of history when he gave Obama a copy of one of Uncle Ho’s letters to Truman. Hanoi has good reason to worry that the top Obama White House priority, once again, is not really focused on the Vietnamese economy.
In the TPP trade talks, the White House has been fighting tooth and nail on behalf of the protectionist U.S. textile lobby — Obama’s loyal allies who have supported him in his two successful presidential races. The top priority of the (globally uncompetitive) U.S. mills is denying Vietnam more access to protected U.S. clothing and footwear markets in a TPP trade deal.
As in the late 1940s, a few enlightened U.S. diplomats (quietly) and intelligence officials (very quietly) have now let their concerns be known around Washington. But Washington’s seasoned Asia hands find themselves basically sidelined by the White House domestic political priorities, much as their predecessors were nearly seven decades ago.
Meanwhile, President Sang, on behalf of the ruling Politburo, had his own message to deliver to Obama last month.
To better understand the nuanced blend current spot news and history, let’s begin with that White House meeting.
Spinning Oval Office diplomacy
When it comes to diplomacy, sometimes what the public sees is true — just not the whole picture. Consider the video that the White House posted on its website on July 25. Viewers see Sang and Obama meeting alone in the Oval Office, sitting in armchairs in front of a fireplace, each wearing appropriate dark power suits with muted ties. The image that the White House spinmeisters — who also put the video on You Tube — intended to convey recalls famous historical one-on-one diplomatic talks at the highest level: Nixon with Mao, or Roosevelt and Stalin.
But the Obama-Sang meeting was hardly a Roosevelt-Stalin like moment. It was a scripted, ceremonial occasion, typical of how American presidents have come to host visiting foreign dignitaries in recent years.
An unpublished photo shot by someone else in the room with a wide-angle lens shows that Sang had nine men in the Oval Office with him. Trade Minister Hoang was there, along with Agriculture Minister Cao Duc Phat and the head of Vietnam’s presidential office, Dao Viet Trung. Vietnamese Ambassador to the United States Nguyen Quoc Cuong also was present, as was Lt. Gen. To Lam. Gen. Lam is the deputy minister of Public Security, and formerly headed the ministry’s counter-intelligence department. Lam is also a member of the Communist Party’s Central Committee.
With so many watchers — not all of them necessarily loyal to President Sang’s own supporters in the Politburo — no Vietnamese president would be positioned to engage in substantive bargaining.
A sense of history
Perhaps the three most interesting Vietnamese officials present were the translator, Pham Xuan Hoang An; Foreign Minister Pham Binh Minh, and Colonel General Nguyen Chi Vinh, the deputy minister of national defense. These men carry a sense of history with them — and a longstanding serious professional interest in U.S.-Vietnamese diplomacy. To experienced Vietnamese watchers, the news that An, Vinh and Minh were in the Oval Office will convey a sense of Vietnamese seriousness.
Interpreter An’s father, Pham Xuan An, was perhaps the most important communist spy during the Vietnam War. An’s cover was as a reporter for western news outlets, including Reuters and Time magazine. This complicated man was made a general after the North Vietnamese victory in 1975. But then Gen. An was also detained in a camp for “reeducation” for a year, because he was suspected as being too close to the Americans.
In fact, An loved America (he helped one of the CIA’s most important assets escape when the communists took Saigon). But after the war, the spy explained to his American friends that his top priority had always been working for his country’s independence. An’s double life was the subject of Larry Berman’s fascinating Perfect Spy, published in 2007. Now, An’s son, translator Pham Xuan Hoang An, works in Vietnam’s consulate in San Francisco. Like his father, the younger An is a man who knows both countries very well.
While Colonel Gen. Nguyen Chi Vinh is hardly a household name in America, he is well known to Vietnamese watchers. His father, Gen. Nguyen Chi Thanh, was Vietnam’s second-ever general, after Vo Nguyen Giap. Gen. Thanh was the mastermind of the coordinated uprisings in nearly every major South Vietnamese urban center during the Tet Lunar New Year festivities in January of 1968. The Tet Offensive did not succeed in a military sense. But it is credited with being the proverbial last straw for the fed-up American public, which realized that the White House claims that the communists were on the verge of defeat were false.
Vinh is a member of the Communist Party’s Central Committee, and formerly headed the military intelligence department known (and feared) as Tong Cuc 2. Veteran Hong Kong-based foreign correspondent Greg Torode has called Vinh Vietnam’s wily “Old Fox,” a man who is generally regarded as “Vietnam’s shrewdest strategic thinker.”
Vinh has been a key actor in Vietnam’s delicate balancing act involving major powers with security interests in the Pacific. He has been an important player in a variety of sensitive issues: countering Chinese intimidation in the South China Sea while simultaneously establishing military ties with Beijing; submarine and other weapons purchases from Russia; and also increasing U.S.-Vietnamese military cooperation. Vinh, who is well known in both Washington and Beijing, also showed up earlier this month for private talks with senior defense officials in Tokyo (who also have good reasons to worry about Chinese continuing aggressive moves in the Pacific).
Foreign Minister Pham Binh Minh also has a famous father. Nguyen Co Thach was Vietnam’s foreign minister from 1980 – 1991, where he worked unsuccessfully to normalize ties with the defeated Americans. Like his father, Foreign Minister Minh has a reputation as being keenly aware of the strategic importance of developing closer ties with the United States, by way of countering undue Chinese influence.
Minh related candidly at a Council of Foreign Relations event in 2011 that he had been full of “hatred” during the war, when as a child he endured the U.S. bombing of Hanoi. But ever since he joined the Vietnamese diplomatic service after the 1975 communist victory, Minh — like his father — has focused his own career upon finding ways to forge closer ties with Vietnam’s former war enemy.
Obama’s Diplomatic Team
While the July 25 Sang-Obama White House meeting was a tightly scripted affair, there was at least one moment of spontaneity, where Obama briefly reached out to strike a personal rapport with his Vietnamese guest. When U.S. and foreign “pool” journalists were admitted to the Oval Office for the usual photo opportunity, they shouted some questions to the two presidents. Obama ignored them, but was overheard whispering to Sang, “reporters are the same everywhere.”
A White House press aide declines to discuss who else was in the meeting on either the Vietnamese- or the American side. Pool reporters who were let in for the photo ceremony saw two U.S. officials besides National Security Adviser Susan Rice: Commerce Secretary Penny Pritzker, and U.S. trade negotiator Froman.
Pritzker, an Obama fundraiser from Chicago, is new to foreign affairs. Her Commerce Department is the agency that is widely resented in Vietnam for inflicting protectionist anti-dumping tariffs on the Vietnamese shrimp and catfish industries. And Froman, although also close to Obama, brings more of a domestic political focus to his job than genuine foreign policy experience. (Any diplomatic heavy lifting that was done would have been done a few blocks away from the White House, at Secretary John Kerry’s State Department. Kerry, a Vietnam War veteran, hosted the Vietnamese presidential delegation on July 24. He was in New York when the Vietnamese visitors met with Obama the next day.)
Scripted or not, still, important signals were sent by both presidents.
A Message from the Politburo
The Vietnamese delegation made it clear to Obama — as they had a day earlier in a meeting with trade negotiator Froman — that they were sincere about attaching a very high priority to advancing economic ties with the United States in the TPP negotiations, according to well-informed Vietnamese officials and also senior U.S. diplomatic officials who asked not to be identified.
Carlyle Thayer, a respected Vietnamese watcher who has excellent high-level connections in Hanoi, explains. Thayer, who is affiliated with the Australian Defense Force Academy, says he has seen a copy of an April 10 resolution drafted by the ruling Politburo, which has not yet been publicly released. “It makes economic integration with all the major powers Vietnam’s top priority, over all other forms of integration, including security,” Thayer reports.
In the Oval Office, President Sang stressed to Obama what Vietnamese officials have been saying for the last three years: that if the TPP negotiations are to succeed, Vietnam will need economic incentives — mainly substantial additional access to U.S. clothing- and footwear markets, which are currently encumbered with high tariffs. Vietnam’s main problem with the TPP is that for the same past three years, the White House has held up progress in the negotiations by refusing to make serious tariff-slashing offers.
White House press officials decline to discuss Obama’s response to Sang. For public consumption the two presidents agreed to put out a (bland) public statement noting that they would instruct their aides to do their utmost to complete the TPP by the end of this year. (The White House said the same thing last year, and also in 2011. Froman has been telling people that this time, the administration really means it.)
Signals from Washington
What little detail is known about what Obama said during the meeting has been revealed by U.S. Ambassador to Vietnam David Shear, who spoke to a high-powered Vietnamese-American gathering in Washington, D.C.’s Virginia suburbs on August. 16. Shear said that the Obama administration considers the TPP negotiations to be “extremely important.” But without “demonstrable progress on human rights” by Hanoi on human rights, “we will not be able to generate congressional support” for a TPP deal, the ambassador added.
Shear related that human rights had come up twice in the Obama-Sang meeting. The first, he said, was part of a general reference linking human rights as the key to enhanced economic and security ties.
According to the ambassador, the second reference to human rights came after Sang expressed Vietnam’s desire to purchase U.S. “lethal” weapons. “If you want to do that,” Shear said that Obama replied, “you’ve got to improve your human-rights practices.” (A full transcript of Shear’s remarks has not yet been posted on the U.S. embassy’s website.)
As Hanoi’s human-rights record is currently being compared unfavorably to Vietnam’s Asian neighbors — even notorious Cambodia has held elections, while Myanmar has been busy freeing its political prisoners — Obama’s point is well taken. The Politburo must be asking itself these days what benefits the country is getting by continuing to imprison more than 160 peaceable political prisoners, whose “crimes” were merely exercising their rights to free political speech and peaceable assembly.
But the same Politburo members who are on the defense on human rights must also be asking why they should sign onto a TPP deal that would offer Vietnam dubious economic benefits.
Secret “21st Century” negotiations
Some parts of the TPP negotiations, to be sure, would clearly be aimed at boosting the Vietnamese economy. Vietnam has been struggling with the politically difficult task of reforming the country’s famously inefficient state-owned enterprises for some two decades.
Vietnam’s SOEs basically are secretive black holes and a drag on more than a third of the country’s economy. When the Obama White House spins the TPP deal as a “high-standard, 21st century” deal that will set an enviable template for trade in the Asia-Pacific region, SOE reforms come immediately to mind.
But other than the self-serving slogans, the White House has been refusing to explain to the watching publics any details of what the Vietnamese are being asked to do. Ironically, the White House is demanding that the Vietnamese economy become more open to market-oriented economics, while classifying what that might entail as a state secret.
Enter “Yarn Backward”
What Hanoi wants most in the TPP is for the United States to slash its high tariffs on imported footwear and clothing. There is a sort of role reversal here. The commies in Hanoi are pressing for free-market access to protected American markets. The Americans are demanding state control. The economic notion is called “yarn forward,” but the economics are hardly forward looking.
As I’ve previously reported, the French 19th century colonialists required that their Vietnamese subjects supply the mother country with textiles. Such imperial preference schemes supported France’s economic domination of Indochina — and inspired Vietnam’s independence movement.
Now the Americans are demanding the same sort of arrangement in the TPP. Vietnam would only qualify for duty-free treatment on its clothing- and footwear exports to the United States if it bought yarn and fabrics from another TPP country — translation: from the declining mills in the U.S. South, not non-TPP countries like China.
It doesn’t take an economics degree to see the flaws. Nobody — beyond insular-looking U.S. mills that long ago lost their competitive edge in global markets — pretends it makes economic sense. Why would any White House pressure the likes of Levis or Gap to buy their (heavy) denim from U.S. suppliers and ship it across the Pacific to Southeast Asia? Why would Obama even think of trying to force giant underwear manufacturer Hanesbrands to stop supplying its Vietnamese manufacturing from Hanes’ established suppliers in China or Thailand? Why would any White House insist that it has the right to disrupt the global supply chains of such respected major American corporations?
U.S. Trade Representative Froman has refused repeated requests to explain exactly why “yarn forward” would be in Vietnam’s best economic interests.
I have also asked U.S. Ambassador Shear if he was able to point to any economic benefits to Vietnam in the yarn forward notion. Shear has been put in the diplomatically awkward position of defending the White House position on yarn forward to the Vietnamese. Shear declined to defend yarn forward’s economic rationale publicly. The ambassador referred the question back to trade negotiator Froman, who again declined comment.
[Ambassador Shear has a reputation as a thoughtful diplomat, albeit something of a team player. His deliberate non-answer could be interpreted as a diplomatic wink, conveying his distaste for the whole business. In private meetings with U.S. corporate executives, Shear has toed the Obama line, but his body language has suggested his discomfort.]
Meanwhile, the White House has been demanding that American clothing manufacturers turn over confidential information on how their global supply chains operate. Intimidated, the companies have mostly knuckled under. The Office of the U.S. Trade Representative even has a special web site for the companies to divulge their business secrets to the government. This access to the private proprietary data has given Froman and his aides the means to instruct the domestic industry where it can source their materials (the U.S. South) and where they can’t (China).
The American clothing importers are now scrambling behind the scenes to receive special exemptions for themselves from the White House. The corporate lobbyists are looking to protect at least parts of their global supply chains from White House interference.
Of course, even with the limited TPP carve-outs that the feds may grant, the rules would always still be subject to sudden change, depending upon unpredictable bureaucratic whims. The American companies could stop the whole business if they had the nerve to stop groveling — which they have never quite summoned in previous U.S. trade negotiations.
The White House unconvincingly denies that the TPP is part of an anti-China economic encirclement strategy. Yarn forward was first included in the U.S. preferential trade deal with Mexico in the early 1990s, and then to other Latin American countries. The idea then, as now, was to hold back Chinese and later, other Asian imports.
It has failed. The rules are so cumbersome that only about 17 percent of Latin American trade goes through the “yarn forward” rules. Companies mostly prefer to pay the tariffs rather than suffer the paperwork.
Relief for Africa
When the Africans were negotiating the Africa Growth and Opportunity Act with the United States in the 1990s, the congressional Black Caucus vehemently objected to yarn forward rules because the principle offended them. Congressmen like Charles Rangel, a Democrat who represents New York’s Harlem neighborhood, fumed that yarn forward reeked of colonialism. Moreover, Rangel protested, such rules were even racist. Consequently, the AGOA trade deal allows the Africans to buy their cotton and other fabrics from China, or anywhere, as long as the final clothes are “cut and sewn” in Africa. In the TPP negotiations, anything short of clean “cut and sew” rules for clothing would hold back Vietnam’s export potential.
Another bitter irony for Vietnam: These days Rep. Rangel and other African-American lawmakers are lobbying for Obama to force upon Vietnam the same yarn-forward rules they formerly attacked as colonial and racist. And Central American countries like the Dominican Republic, who aren’t in the TPP and want to keep Asian competitors at bay, are also piling on Vietnam.
Undeterred, in Brunei last week, trade negotiator Froman still insisted that strict yarn forward rules remained at the “core” of what the U.S. wants in the TPP. He continued to withhold from the public any real details of what was in the TPP, other than the spin that it would be a “high standard, 21st Century” trade template.
The smart money would bet that the Vietnamese will end up swallowing hard and accepting a watered-down TPP deal, giving them modest increased market access for shoes and clothes, while making minimal market-opening concessions to the Americans. Call that TPP Light.
But perhaps the shrewd Politburo operatives in Hanoi, or at least enough of them, have the same sort of determination as did their fathers’ generation. After all, the Vietnamese negotiators should understand that Obama is the one who needs a TPP deal most. Could the American president really allow the TPP to fail, just because the Vietnamese want to sell Americans more pairs of underwear, blue jeans, and sneakers?
Talk about a déjà vu feeling. In the 1940s, President Truman ignored prescient warnings from U.S. intelligence and diplomatic officials that it would be a big mistake for the United States to get on the wrong side of the struggle against colonialism. Now, President Obama pays little heed to warnings that it is unwise to risk important trade talks with Vietnam — and America’s standing in Asia — for parochial domestic politics.
Some people never seem to learn their history.