Posts Tagged ‘American businesses’

American Entrepreneurs Who Flocked to China Are Heading Home, Disillusioned

December 7, 2018

Worsening costs, taxation, tech transfer and regulation prompt foreign-owned businesses to throw in the towel

Image result for Xi Jinping, waving, photos

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SHANGHAI—Fifteen years ago in California, a tall technology geek named Steve Mushero started writing a book that predicted the American dream might soon “be found only in China.” Before long, Mr. Mushero moved himself to Shanghai and launched a firm that Amazon.com Inc. and Alibaba Group Holding Ltd. certified as a partner to serve the world’s biggest internet market.

These days, the tech pioneer has hit a wall. He’s heading back to Silicon Valley where he sees deeper demand for his know-how in cloud computing. “The future’s not here,” said the 52-year-old.

For years, American entrepreneurs saw a place in which they would start tech businesses, build restaurant chains and manage factories, making potentially vast sums in an exciting, newly dynamic economy. Many mastered Mandarin, hired and trained thousands in China, bought houses, met their spouses and raised bilingual children.

Now disillusion has set in, fed by soaring costs, creeping taxation, tightening political control and capricious regulation that makes it ever tougher to maneuver the market and fend off new domestic competitors. All these signal to expat business owners their best days were in the past.

The Trump administration is making a hard-nosed challenge to China using trade tariffs, investment controls and prosecution of technology thieves, and many in American business are cheering, if silently, having soured on the market after years of trying.

At a curry luncheon hosted a few times a year by Steven Bourne, a law professor and 13-year resident of Shanghai from Massachusetts, guests these days chew over shrimp samosas and exit plans. On a recent Friday, a Swedish maker of beauty products said he would move his family to Hong Kong, where regulations are clearer and taxes are lower. An American art dealer who suffered when his rich clients got pinched by currency controls was headed to California.

Another, Jack Tung, a 47-year-old who grew up near Philadelphia and had the costumes made for Hollywood movies like “The Painted Veil” and “The Great Wall,” said absorbing a sixfold rise in tailoring rates since 2003 changed China into a high-cost, low-profit, stressful hardship. He lost the feeling “it’s all happening” in Shanghai and will try Thailand.

Expats always ebb and flow, said Mr. Bourne, but for entrepreneurs “it’s harder for them to live here now.”

Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007.
Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007. PHOTO: CHARLIE XIA

Relocations firm Santa Fe Group A/S said it moves more families out of China than into it these days. Enrollment at Shanghai American School—where annual tuition tops $30,000—is nearly 17% off its peak five years ago. The American Chamber of Commerce in China said 75% of its members are feeling less welcome. Its Shanghai chapter lost over 600 members in recent years, while a poll of U.S. businesses by the organization in manufacturing-heavy Guangdong found 70% may delay China investment or shift it overseas.

“How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?” former U.S. Treasury Secretary Henry Paulson asked at a November conference in Singapore.

Many mark a turn in the climate for foreign businesses at around 2012. China was reckoning with how boom times had weighed it down with debt and overcapacity plus widespread corruption and appalling pollution. When Xi Jinping became Communist Party leader, he used the power of the state to shore up employment and living standards. Government-owned companies shielded from daily business hassles were in favor.

Authorities stepped up scrutiny of visas and actively enforced pollution controls. A new social security law lifted local wages and made it tough to fire workers, so much that some employers called the policy a modern “iron rice bowl.” Mr. Xi reinforced China’s Great Firewall of internet controls; big domestic tech firms thrived while laws excluded foreign rivals or pressured them to share technology.

About 20 years ago, when China fever was building, Bob Boyce’s hankering for an affordable beer and burger in Shanghai prompted him to “jump into the sea,” as locals then called starting a business. The Montanan’s bar and grill featuring $5.80 burgers proved an immediate hit.

“It was a time in China if you made some effort, people responded well and you could figure things out,” said Mr. Boyce.

Mr. Boyce targeted China’s white collar crowd, which was taking off along with the economy. The Beijing Olympics in 2008 seemed to crystallize China’s ascendancy. Money was pouring in. Foreign direct investment topped $100 billion for the first time in 2008, helped by new spending by Boeing Co. , Goodyear Tire and Rubber Co. and Microsoft Corp.

Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.
Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.PHOTO: BOB BOYCE

Over the years, Mr. Boyce expanded his single burger joint into a 10-city, $70 million chain of restaurants under the names Kabb and Blue Frog. He figures they employed a total of 12,000 over the years, some of whom went on to launch their own restaurants.

Still, he said, “the label of ‘foreigner’ is always on your forehead.”

Health inspectors were initially so unfamiliar with Western kitchens that he said they nitpicked—he was cited for out-of-date dried oregano—then new rules started cropping up. Officials required restaurants to dedicate a separate space of exactly 8 square meters to prepare salad, not a staple of Chinese cooking. After a retired Chinese leader moved in near his original Blue Frog outlet, police checked noise levels nightly and the restaurant closed in 2012.

“China started to become less clear about what the endgame was for foreigners,” said Mr. Boyce. Last year, he decamped to Seattle after selling his chain to a European company.

From Silicon Valley in 2003, Mr. Mushero felt China’s rumblings and started writing his book, “Off-Shoring the Middle Class.” He saw U.S. companies save money by shifting accounting, X-ray evaluations and other technical jobs overseas. China, he thought, was becoming globalization’s “one-stop-shop” for manufacturing, basic tech work and advanced research.

He predicted a broad shift to China of not only factory work, but U.S. white collar jobs, too. “Imagine these people’s surprise to be out of work, having lost their job to a young Chinese girl earning 25% of their salary,” he wrote.

In 2004, he ran into a friend working at International Business Machines Corp. who asked: “Have you thought about living in Shanghai? We’re hiring like mad.”

An Alibaba office at the internet giant’s headquarters in Hangzhou, China.
An Alibaba office at the internet giant’s headquarters in Hangzhou, China. PHOTO: WANG HE/GETTY IMAGES

By September 2005, he was in Shanghai to pursue consulting leads. His first night, Mr. Mushero was on the terrace of a riverside nightclub chatting with his mother by mobile phone when a burst of fireworks lighted the skyline. “Awesome, they’re celebrating my arrival,” Mr. Mushero told her.

A few evenings later, Mr. Mushero attended an American Chamber of Commerce mixer where he met two future business partners: an American techie, James Eron, and a local businesswoman, Gu Yinan, whom he would marry.

The first foreigner hired at a video sharing service called Tudou.com, a China version of YouTube, Mr. Mushero got a fast education about keeping a site functioning on China’s rough-and-tumble internet. One duty involved locating clips of pornography hidden in uploaded cat videos.

He wondered: “What is everybody else doing?”

At a Starbucks in mid-2008, he sketched out “a napkin business plan” for a new company called ChinaNetCloud (Shanghai) Co. with Mr. Eron. China was overtaking the U.S. as the biggest internet market, and the partners would trail-blaze into cloud services by managing the online operations of local businesses. To a Silicon Valley investor named Dave McClure known for early bets on tech trends, ChinaNetCloud was a proxy for “the exploding Chinese internet market,” he said in a 2010 blog, and he pumped in $200,000 for his first China investment.

Companies such as Alibaba and Tencent Holdings Ltd. soon harnessed cloud technology and today deliver on-the-go shopping, gaming, payments and other consumer services. When Alibaba and Amazon Web Services began selling enterprise cloud space in China, each certified ChinaNetCloud to configure and monitor software for their corporate clients.

Tougher regulations and competition deterred foreign players. China’s reputation for technology theft kept many out of the market, which reduced the number of Mr. Mushero’s potential clients. In 2013, the American Chamber of Commerce said only 10% of its members trusted data security enough to consider cloud services in China.

A night view of Shanghai in 2005, when new companies launched by foreigners were soaring.
A night view of Shanghai in 2005, when new companies launched by foreigners were soaring. PHOTO: CANCAN CHU/GETTY IMAGES

Walt Disney Co. tapped ChinaNetCloud to manage the computers hosting some interactive games in 2012, including one based on its hit movie “Frozen.” Mr. Mushero looked forward to more work with the U.S. entertainment giant, but Disney scrubbed the gaming push in mid-2014. Disney declined to comment. Online gaming in China is dominated by big domestic tech companies; it is derided by regulators as chaotic and harmful and hit regularly with new rules.

Soon another customer, British online retailer ASOS PLC, pulled out of China after three years trying to compete in a market dominated by giants Ailbaba and JD.com Inc. ASOS didn’t respond to questions.

Mr. Mushero pushed on, setting his sights on taking ChinaNetCloud public, after Alibaba’s $25 billion initial public offering in 2014 boosted investor enthusiasm for Chinese tech.

ChinaNetCloud lifted staffing to 125 and fancied up its offices in a high-tech zone with a second floor that featured colorful wall-size monitors Mr. Mushero likened to the Starship Enterprise. He hung up the napkin business plan and hired lawyers, figuring the company was worth $60 million.

Mr. Mushero in 2008 at ChinaNetCloud.
Mr. Mushero in 2008 at ChinaNetCloud. PHOTO: STEVE MUSHERO

As a foreign-owned company, ChinaNetCloud couldn’t easily raise money from local investors, and rules blocked listed Chinese companies from buying it before it was profitable. Foreign investors, meanwhile, were uneasy about China’s tightly regulated internet sector. “We were too Chinese for the Americans and too American for the Chinese,” said Mr. Mushero.

When China’s stock markets crashed in mid-2015 so did ChinaNetCloud’s fundraising hopes. The setback left Mr. Mushero and his co-founder, Mr. Eron, personally liable for a $6 million loan from local firms. Mr. Eron quit and returned to the U.S.; he declined to comment.

Lacking funds, ChinaNetCloud later restructured into Shanghai YunChang Network Technology Ltd. to become a fully China-registered company instead of a foreign enterprise. Mr. Mushero’s wife, Ms. Gu, took over as chief executive, while he stuck to technology.

In August 2017, Ms. Gu appeared on the season finale of China’s version of Shark Tank, a TV show where entrepreneurs try to sell famous investors on their business plan. Ms. Gu raced through the story of the company’s early success and more recent money challenges. When a panelist asked about juggling family and work, Ms. Gu broke down in sobs.

“We have been struggling for nine years. Nine years,” she said. The panelist leapt up to hug a trembling Ms. Gu. Soon, all five investors were wiping away their tears as they pledged Ms. Gu the equivalent of $1.5 million. “We’re very touched by your story,” one said.

Still only occasionally profitable and down to about 40 employees, the company in October fled the tech-zone for a cramped office near a railway station. The Shark Tank funding wiped away Mr. Mushero’s debt but slashed the company’s valuation.

On a recent drizzly afternoon, flanked by framed commendations from Amazon and Microsoft for his firm’s achievements in China, Mr. Mushero said that after New Year’s he will head back to California, where he sees burgeoning demand for corporate online services, to market the company’s cloud-management tools. China is big, messy and complicated, he said. “We have been out there in the trenches for many years.”

Write to James T. Areddy at james.areddy@wsj.com

https://www.wsj.com/articles/american-entrepreneurs-who-flocked-to-china-are-heading-home-disillusioned-1544197068

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U.S. Business Leaders Are Bullish Amid Global Gloom

July 25, 2018

Potential perils are in plain sight: An intense and unpredictable tariff battle is alarming businesses across the country. The annual federal deficit is heading toward $1 trillion. Credit card debt is soaring. And the synchronous wave that lifted every world economy at the year’s start has dissipated.

So what?

Such risks have done little to puncture the exuberant optimism that is encouraging American businesses to ramp up hiring and consider new investment.

By Patricia Cohen
The New York Times

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The confidence is rooted only partly in hard-nosed data, like the rapid pace of growth expected for the second quarter and record low jobless rates. It is also a sign of harder-to-measure sentiment. “Animal spirits are high,” said Tim Ryan, United States chairman of the global accounting and consulting firm PwC, referring to the gut feelings and impulses that can drive economies to elation or despair.

Business leaders who complained that they sometimes felt vilified as engineers of inequality — or greedy exploiters — now say they are pleased to be viewed as part of the solution, creating jobs and wealth. “They feel good about themselves, like they are the good guys,” Mr. Ryan said, describing comments from hundreds of chief executives to his firm over the past quarter. “They are sitting up a little straighter in the chair.”

The optimism index of the National Federation of Independent Business is in the 99th percentile, an “astounding” number, according to the group’s president, Juanita Duggan. At the start of this week, nearly nine out of 10 companies in the Standard & Poor’s 500-stock index reporting earnings so far had beat expectations.

“I’m bullish,” Mike Ferretti, chief executive of Great Harvest Bread Company in Dillon, Mont., declared. At the beginning of 2016, sales were so slow that the company sharply discounted the initial franchise fee for its bakery cafes, from $35,000 to $20,000. This month, Mr. Ferretti restored the $35,000 price. “We’re confident that the economy is strong enough to not need the discount.”

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Such exhilaration is not evenly spread throughout every sector or region. Soybean and pork farmers, automakers and some manufacturers are profoundly worried about rising raw material costs, sinking sales in export markets abroad, broken supply chains and shipment delays. A survey of metal stampers and fabricators, found that the share of companies looking forward to improved business conditions swooned to 31 percent in June from 97 percent in February. And uncertainty about the future is at heartburn levels.

Still, many business leaders are shrugging off otherwise troubling developments like a nasty trade war, labor shortages fueled by restrictive immigration policies, and cracks in the postwar order and America’s touchstone alliances with remarkable ease.

Mr. Ferretti says he understands that an all-out trade war will hurt the economy, and that immigration restrictions are making it tougher to find workers.

But at the moment, what seem to be more distant risks are being far outrun by immediate enthusiasms. Steep tax cuts for corporations and other enterprises have heaped plump windfalls on many investors and chief executives. After-tax corporate profits account for 9.6 percent of the nation’s total domestic output, roughly 50 percent above the historical average. Environmental, financial and safety regulations decried as cumbersome by businesses are being rolled back. And the stream of foreign investment in the United States is continuing.

“My entire career, we’ve all been screaming over the deficit,” said Mr. Ferretti, recalling lectures he heard in business school. “I’m pushing 40 years into my career, and the deficit fears just never happened. At some point it feels like worrying about the sky falling.”

While the anxieties are speculative, “the tax reform package truly does put more money in our pockets now,” Mr. Ferretti said, “so we have more money to grow the business.”

Mark Liston, president of Glass Doctor, a company in Waco, Tex., that replaces and repairs commercial, automotive and residential glass, says he hasn’t seen this much optimism in his 37 years in business. “Those of us who are outside the Beltway, we ask, ‘How is my checkbook, how are my investments, how’s my job security?’” Mr. Liston said. “And if all those are positive, I feel O.K. spending money.”

Mark Liston, president of Glass Doctor, a company in Waco, Tex.

Beth Wolsleben, a manager at Office Evolution, updates a directory of small-business tenants. The company expects to double the number of franchises to 60 by the end of the year.CreditBenjamin Rasmussen for The New York Times

With Democrats and Republicans fiercely battling for control in Congress, it is unclear how much business and consumer sentiment — which has also been very high in surveys — will ultimately affect voters’ choices in the November elections.

Read the rest:

NYT:https://www.nytimes.com/2018/07/24/business/economy/business-confidence-economy-private-sector.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

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Trump Boils Maine Lobstermen

June 30, 2018

A case study in how a tariff war will hurt small businesses and blue-collar workers.

Lobsters are processed at the Sea Hag Seafood plant in St. George, Maine.
Lobsters are processed at the Sea Hag Seafood plant in St. George, Maine. PHOTO: ROBERT F. BUKATY/ASSOCIATED PRESS

Donald Trump has upended global trade relationships, promising that temporary disruption will end in better terms for American businesses. Tell that to the Maine lobster industry that his policies are putting at a major disadvantage in Europe and China.

These should be halcyon days in lobstertown. Maine harvests more lobster than any other U.S. state or Canadian province. Last year it landed nearly 111 million pounds—its fourth-largest annual haul—which it sold for $450 million. The lobster industry accounts for 2% of Maine’s economy.

And China represents a hungry new market. The post-molt lobsters Maine harvests from July through November have softer shells than Canadian lobsters, so they’re lower quality. But they also sell for several dollars less a pound. In the price-sensitive Chinese market, that has given the U.S. industry a competitive advantage over its Canadian counterparts. In 2017 the U.S. exported more than $137 million in lobsters to China, up from $52 million in 2015.

Yet Mr. Trump’s unilateral tariffs are about to erode the price advantage of American lobsters. After the U.S. announced on June 15 plans to impose a 25% tariff on $50 billion in Chinese goods, Beijing retaliated with a new 25% tariff on American seafood, farm products and autos, effective July 6. That’s on top of the 10% to 15% tariffs China already imposes on U.S. and Canadian lobster.

Meanwhile, on July 1, China’s tariff on Canadian lobster will drop to 7%. “I suspect that will virtually wipe out my company’s Chinese sales,” says Tom Adams, CEO of Maine Coast Company, a lobster dealer.

Mr. Adams founded Maine Coast in 2011, but he’s been in the lobster business since summer 1985, when he turned 15. His “sweat equity” has paid off, and last year his company brought in $57 million in revenue. More than one-fourth of those sales are in China. The company employs 50 workers in Maine and Massachusetts, and last year Mr. Adams expanded his York facility, borrowing for much of that $1.5 million investment.

“What happens if we lose 30%, 40%, even 50% of our market share?” he says. “We have to keep paying the bank for that borrowed money. If we do have an impact in sales, it’s going to have a direct impact on jobs. That’s the only way we reduce our expenses. I hope that doesn’t happen. And to date we haven’t laid anyone off.” Mr. Adams adds that if the trade tensions don’t abate, he would consider moving some of his operations to Canada.

The lobster-sales forecast is also stormy across the Atlantic. While Mr. Trump tweets, the world’s trade negotiators are moving on without the United States. The Comprehensive Economic and Trade Agreement between Canada and the European Union took effect in September 2017, and over seven years it eliminates tariffs on 99% of trade between the two.

The EU has already eliminated its 8% tariff on Canadian live lobster. And over the next three years it will phase out a 6% tariff on frozen whole lobster, a 16% tariff on frozen lobster parts, and a 20% tariff on processed lobster. Those penalties still apply to the United States. In 2017 American lobster exports to Europe dropped by more than $20 million.

“Never did we expect it to be so intense,” Mr. Adams says. “Between China and Europe, it’s a double whammy. It’s like taking body blow after body blow.”

The losers here will be small family businesses and blue-collar workers. Maine lobster wholesalers and processors employ around 4,000 people. Much of the work is highly physical, with workers grading and packing lobsters. Maine also licenses around 4,500 lobster fishermen, limiting them to one boat and one set of gear. You can usually count their crews using your thumbs.

Mr. Trump is furious with Harley-Davidson for moving some motorcycle production abroad amid his tariff battles, but at least Harley is big enough to move. Most of Maine’s lobster industry won’t have that luxury as it pays the price for Mr. Trump’s trade folly.

Appeared in the June 30, 2018, print edition.

https://www.wsj.com/articles/trump-boils-maine-lobstermen-1530315457

Republicans Feel Triumph, Fear Tragedy

December 4, 2017

Tax plan, Mueller’s Russia probe help produce two potential divergent paths

President Trump speaking to reporters at the White House Monday morning.
President Trump speaking to reporters at the White House Monday morning. PHOTO: JIM WATSON/AGENCE FRANCE-PRESSE/GETTY IMAGES
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In the era of President Donald Trump, when up can be down and down can be up, it’s no surprise that the Republicans’ hour of great accomplishment also is their hour of great peril.

That is precisely where things stand as a new week dawns upon a thoroughly changed political landscape. Washington’s tectonic plates shifted twice last week, first when special counsel Robert Mueller announced a guilty plea from a now-cooperative former Trump national security adviser, Mike Flynn, and then when the Republican Senate passed the party’s top legislative priority, a giant tax cut.

(And by the way, passage of a tax bill by the full Congress, which now seems assured in coming days, was always the highest priority for most Republican leaders, outstripping even repeal of the Affordable Care Act.)

The Republican establishment’s bargain with Mr. Trump always has been essentially this: It is worth putting up with his excesses and an undercurrent of mutual mistrust because ultimately he would promote and then sign the Republicans’ long-sought tax cut. The benefits of the latter would outweigh the dangers of the former.

Now the test of that proposition begins. Will it go well or badly for the GOP? Let’s look at the two potential scenarios for the party:

The Positive Scenario:

The tax cut and its benefits for American businesses extend and solidify already-robust economic and job growth. The prospect, and ultimately the reality, of greater business investment send positive ripple effects into wage growth. All that builds a firmer footing beneath a booming stock market.

Politically, the tax bill erases 11 months of doubts about Republicans’ ability to govern effectively and washes away the party faithful’s memories of failed efforts to undo the health law, known as Obamacare, and the concurrent exposure of deep intraparty divisions.

Moreover, it’s clear that Mr. Trump’s barbs directed at senior members of his own party—Senate Majority Leader Mitch McConnell, Sens. John McCainJeff Flake and Bob Corker, and House Speaker Paul Ryan —don’t get in the way of the GOP uniting for something really important. The idea that Republicans can repeat that feat in 2018 on health and infrastructure doesn’t seem so far-fetched.

In short, the first year of the Trump presidency suddenly looks a lot better, which sets the table nicely for the 2018 midterm elections. Republican plans to make Democratic House leader Nancy Pelosi rather than Mr. Trump the unpopular face of the election year succeed. Republicans suffer some losses in House races but retain control of Congress.

Meanwhile, the Mueller investigation picks off a few more figures around Mr. Trump but never quite proves either collusion with Russians or a presidential effort to obstruct justice. Mr. Trump manages to avoid stirring the pot with Twitter rants that actually make his case worse, and the inquiry wraps up early next year having struck blows but no fatal damage.

The Negative Scenario:

Middle-class Americans revolt against the tax bill, concluding that they agree with Democrats that the rich and corporations are the real beneficiaries, not them. Middle America also is frightened and then appalled by the tax bill’s coming boost to the national debt, and Trump voters decide the party and the president they supported in 2016 don’t share their common-sense aversion to running up big bills and leaving them for the kids.

Meantime, a failure to agree on a new spending bill forces a government shutdown just before Christmas, and the GOP fails to put the blame off on Democrats. That instantly sullies Republicans’ newfound reputation for governing effectively.

Corporate leaders don’t make the kinds of job-creating investments Republicans predict. Meanwhile, the tax cut’s stimulative effect overheats an economy already near full employment, pumps up an overextended stock market and compels the Fed to keep raising interest rates. The bubble bursts.

The Obamacare infrastructure also collapses in 2018, and Republicans now are the party bearing the blame for health-market chaos.

Something bad for Republicans happens in Alabama’s special Senate race next week. Either a victory by party nominee Roy Moore, who takes on those party leaders who disowned him over allegations of sexual misconduct involving teens, which he has denied, or a shocking Deep South victory by his opponent cascades into momentum for Democrats in 2018.

Mr. Mueller uses information from Mr. Flynn and others to carry his inquiry deep into the Trump circle. Two potential nightmare scenarios for the White House emerge: Trump world financial entanglements with Russians gave the Kremlin leverage over the eventual president, and it’s shown Mr. Trump obstructed justice to stop investigators from finding out. Mr. Trump, feeling the pressure from Mr. Mueller, becomes ever more defensive and wedded to conspiracy theories that he vents on Twitter, as he did over the weekend. Impeachment by a Democratic House becomes a possibility.

Either scenario is entirely plausible, which says plenty about today’s volatile climate.

Write to Gerald F. Seib at jerry.seib@wsj.com

Identity Politics Are Tearing America Apart

August 31, 2017

Political leaders should focus on the common good. Floodwaters and rotting bridges don’t discriminate.

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Aug. 30, 2017 6:38 p.m. ET

The two of us have seen this before: a critical point in U.S. history, when political, social and economic upheavals have left too many Americans battling one another rather than working together to build a better country. We lived through the Great Depression, when men armed with bats and clubs went to the streets in violent attempts to resolve labor differences. We also experienced the civil unrest of the 1960s, when inner cities burned with the heat of racial division and authorities killed innocent students peacefully protesting a war.

Somehow, the drumbeat of dissonance seems harsher today. America’s national ideal of “e pluribus unum”—out of many, one—threatens to become a hollow slogan. Jaded Americans are constantly confronted by a deluge of animus from their televisions and smartphones. The U.S. finds itself increasingly divided along lines of race, ethnicity, gender, religion and sexual identity. Countless demagogues stand ready to exploit those differences. When a sports reporter of Asian heritage is removed from his assignment because his name is close to that of a Confederate army general, political correctness has gone too far. Identity politics practiced by both major political parties is eroding a core principle that Americans are, first and foremost, Americans.

The divisions in society are real. So are national legacies of injustice. All can and must be addressed. Those who preach hatred should be called out for their odious beliefs. But even as extremism is condemned, Americans of good will need to keep up lines of civil, constructive conversation.

The country faces a stark choice. Its citizens can continue screaming at each other, sometimes over largely symbolic issues. Or they can again do what the citizens of this country have done best in the past—work together on the real problems that confront everyone.

Both of us have been at the center of heated disputes in this country and around the world. And there’s one thing we’ve learned over the decades: You achieve peace by talking, not yelling. The best way to resolve an argument is to find common ground.

We encourage Congress and the White House to take this approach in the fall. First, they should raise the debt ceiling and fund the government. There is no benefit to shutting down the government simply because one side does not get all it wants from the legislative process. A government shutdown would only fortify most people’s dissatisfaction with a federal government they (often correctly) believe doesn’t work for them. And it would only breed more debilitating cynicism.

We hope that leaders in Washington will also focus on infrastructure projects that can help the U.S. keep pace with its global competitors, particularly China. Floodwaters don’t distinguish between Republicans and Democrats. Nor do rotting bridges discriminate between whites and blacks. This is an important and easy area to emphasize common interests. Political leaders should prioritize and provide tangible policies that benefit Americans. They are long overdue.

We also encourage Washington to focus with laserlike intensity on the federal tax code, which handcuffs American businesses. This country needs to find politically palatable ways to streamline that code and bring corporate taxes in line with those of other countries. As a way to protect the debate from becoming a battle over whose ox gets gored, Congress should make any tax reform revenue-neutral. Legislation should also encourage investors to bring their money back into the U.S., where it can be put into civic projects that improve America.

Congress and the president must do more than just act on these pressing issues. They also need to set an example to all Americans. We understand that politics is a contact sport, but leaders in Washington need to restrain their rhetoric and practice the lost art of compromise. They should stop pandering to the worst in us and appeal instead to what President Lincoln called “the better angels of our nature.”

Alexis de Tocqueville, the 19th-century French diplomat who identified strengths in the American experiment, admired the resiliency of the system the Founding Fathers devised. He wrote in the first volume of “Democracy in America” that “the greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.”

America has many faults that must be repaired—from a failed health-care system to a military that needs upgrading. Americans must, as Dr. Martin Luther King Jr. said during a 1965 commencement address for Oberlin College, learn to live together as brothers and sisters. Or, we will perish together as fools. We are convinced that the vast majority of Americans would like leaders in Washington to remember King’s advice when they return to work after Labor Day.

Mr. Baker served as U.S. secretary of the Treasury (1985-88) and state (1989-92). Mr. Young served as U.S. ambassador to the United Nations (1977-79) and mayor of Atlanta (1982-90).

US and China talks in Washington end in deadlock as threat of trade war rises

July 20, 2017

The first Comprehensive Economic Dialogue came amid the White House’s threat to impose punishing tariffs on Chinese steel and aluminium

By Zhenhua Lu, US correspondent
South China Morning Post

PUBLISHED : Thursday, 20 July, 2017, 7:47am
UPDATED : Thursday, 20 July, 2017, 6:35pm

China and the US failed to reach an agreement on trade at the first Comprehensive Economic Dialogue in Washington on Wednesday, casting a shadow over their trade relations amid White House’s threats to impose steel and aluminium tariffs on Beijing.

Both countries cancelled their press conferences earlier in the day, providing no explanation for the moves but indicating it was unlikely any concrete results had come out of the talks. The US side cancelled its press conference first, the Chinese side followed.

The US delegation released a short statement late on Wednesday. It said: “China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve.

“The principles of balance, fairness, and reciprocity on matters of trade will continue to guide the American position so we can give American workers and businesses an opportunity to compete on a level playing field,” the statement said. “We look to achieving the important goals set forth by President Trump this past April in Mar-a-Lago.”

A statement issued by the Chinese delegation only said both sides would promote cooperation in the manufacturing sector, improve communication about macro economic policies, as well as cooperating in the financial sector and its supervision.

Despite the restrained wording of both sides statements, the threat of trade war still looms. On Wednesday, when asked by a reporter if he would impose tariffs on steel imports, President Donald Trump said it “could happen”.

The two sides had a day of contentious talks at the US Treasury Department to address the United States’ US$340 billion trade deficit with China, plus restrictions on access to Chinese markets.

 A man working in a steel market in Yichang in central China’s Hubei province. Photo: Associated Press

The economic dialogue – one of four mechanisms set up by President Xi Jinping and US President Donald Trump during the leaders’ first summit in Florida in early April – is co-chaired by US Treasury Secretary Steven Mnuchin, US Commerce Secretary Wilbur Ross and Chinese Vice-Premier Wang Yang. The sides issued no statements about the results of the dialogue as the day progressed.

At the opening session on Wednesday morning, Mnuchin said the dialogue’s purpose was to pursue a “fair and balanced economic relationship” between the US and China, addressing imbalances caused by Beijing’s interventions in the Chinese economy, and communicating to revise existing policies and regulations or to reach new ones.

Ross claimed he didn’t regard the trade deficit as “a natural product of free market forces”. “It’s time to rebalance our trade and investment relationship in a more fair, equitable and reciprocal manner,” he said.

 A man walks near the Shougang steel mills in Qianan in northern China’s Hebei province. Photo: Associated Press

Over the last 15 years, according to Ross, China’s exports to the US have grown 268 per cent. The trade imbalance has increased 205 per cent to US$309 billion from US$101 billion. China now accounts for nearly 50 per cent of the US goods trade deficit.

Wang said at the opening session that the two sides agreed on an approach that would be non-confrontational, mutually respectful and promote win-win results. “Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both,” he said.

Sending an open letter to Ross on Tuesday, a group of US steel and aluminium companies is pushing the Trump administration to take “remedial action” on national security concerns to protect the American steel and aluminium sectors from low-priced Chinese imports.

 Chinese workers load steel tubes onto a truck at a logistics centre in Lianyungang in east China’s Jiangsu province. Photo: AFP

“For too long, America has tolerated China’s massive and strategic subsidising of its state-controlled industries, including steel and aluminium,” said Michael Stumo, chief executive of the Coalition for a Prosperous America, one of the letter’s signatories. “Other countries take action on national security grounds to preserve industries but the US has not, as of yet, done so.”

It is time for the US to “assert its rights more forcefully in manufacturing and agriculture”, Stumo said. Possible tariffs on large foreign steel exporters, including China, could potentially range up to 20 per cent, according to Axios, a US news and information website.

http://www.scmp.com/news/china/policies-politics/article/2103362/us-china-fail-patch-trade-rifts-after-day-contentious

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Lack of Progress at U.S.-China Talks Raises Stakes for Trump (China Making Trump a Chump)

July 20, 2017

Meetings end without concrete steps or a mention of when talks would resume

U.S. Treasury Secretary Steven Mnuchin, Chinese Vice Premier Wang Yang and Commerce Secretary Wilber Ross (L to R) open trade talks, with the US officials demanding more ‘fair and reciprocal’ trade with China. AFP photo

Updated July 19, 2017 11:31 p.m. ET

WASHINGTON—High-level economic talks between the U.S. and China ended Wednesday without any concrete agreement or future agenda, leaving the Trump administration’s efforts to recast trade ties with Beijing in limbo.

After a full day of bilateral meetings, the U.S. side issued a terse statement saying that “China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve.”

The statement didn’t provide further details on just how much the two sides could agree on, or when they would resume discussions. Chinese officials made no comment.

The failure to take concrete steps to close America’s $347 billion trade deficit raises pressure on the Trump administration to consider shifting from its embrace of cooperation with Beijing toward more confrontation.

The meetings were held to mark the end of a 100-day period that President Donald Trump and Chinese President Xi Jinping had set to come up with a comprehensive plan to reset commercial ties between the world’s two largest economies.

The U.S.’s statement, issued by Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin, the co-chairs of the American delegation, added that the administration would pursue a trade policy seeking a “level playing field” for “American workers and businesses.”

But it didn’t elaborate on whether the U.S. would now pursue that by ramping up unilateral trade actions that Trump aides have been weighing.

The decision to issue a statement from just the U.S. side was a break with past practices after similar negotiations held in recent years during the Obama and Bush administrations. In the past, both countries issued common statements summarizing what they had discussed and emphasizing areas of agreement. It was also a contrast with the more amicable joint statement given by Mr. Trump and Mr. Xi during an April Florida summit.

Both sides also canceled plans to hold a press conference at the end of the talks.

It was clear when the talks began Wednesday morning that both sides were braced for a tough day of talks. In his opening remarks, Mr. Ross said he wanted to “rebalance our relationship in a more fair and equitable direction,” and, while pointing to modest sector-specific, market-opening agreements that he had reached with Beijing two months earlier, noted “the hardest work remains to be done.”

Chinese officials had cautioned against veering off the path of cooperation.

“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both,” Chinese Vice Premier Wang Yang told Mr. Ross and his team at outset of the day’s meetings.

Wednesday’s negotiations offered a kind of a reality check for the Trump administration as it assesses the surprisingly cordial bilateral relationship struck up between the two presidents during their April summit at Mr. Trump’s Mar-a-Lago Florida resort. At the time, Mr. Trump set aside his campaign-trail attacks on Chinese trading practices and agreed with Mr. Xi to launch a “100-day action plan” to reset commercial ties through a new “Comprehensive Economic Dialogue.”

This week’s meetings, the first in that dialogue, were scheduled to mark the end of that 100-day period and to assess whether the two governments can work cooperatively to craft a broad plan easing long-festering trade tensions, or whether Mr. Trump may ramp up plans to take a more adversarial approach. The U.S. leader’s trade advisers include longtime China critics.

As preparation for that latter path, Trump aides have been reviewing, among other things, the prospect of imposing tariffs on Chinese steel and solar panels and imposing tighter limits on Chinese investment in the U.S.

The administration has so far chosen not to implement those policies, but Mr. Trump has indicated a frustration with Chinese trade progress and a desire to do more.

“We have to fix the trade with China because it’s very, very nonreciprocal,” he told reporters last week. “We have the worst of all trade deals…with China.”

Mr. Trump’s administration has faced a similar dilemma — between cooperation and confrontation — in its geopolitical discussions with Beijing. In the weeks since the Mar-a-Lago summit he has edged toward a harder line. Mr. Trump rebuffed Chinese objections in approving news arms sales to Taiwan, which Beijing considers a renegade province, and sent bombers and naval patrols this month to the South China Sea to assert American freedom to navigate those contested waters. Mr. Trump also tightened economic sanctions against companies and banks allegedly doing businesses aiding North Korea’s nuclear program.

The North Korea issue in particular may affect Mr. Trump’s economic approach to China. The president said earlier that he would cut China some slack on trade in return for Beijing’s help curbing Pyongyang’s nuclear ambitions. He has since said he was disappointed with China’s efforts, which may make him feel freer to yield the trade club.

“In terms of North Korea, our strength is trade,” Mr. Trump said last week.

The Trump team early on expressed optimism that it had found a new formula for solving nettlesome trade tensions where prior administration has failed. In May, as part of a quick down-payment, the two governments announced agreement on Chinese market-opening measures in agriculture and finance, with a Chinese pledge to deliver concrete results before this week’s meetings.

But some U.S. business groups and affected companies have complained that while China has met the letter of its pledges, it has failed to live up to the spirit of them, removing the promised trade barriers, while leaving other impediments in place. A new tiff flared up this week when Dow Chemical Co. said China had appeared to renege on a promise to provide an expedited review of its genetically modified soybean crops as part of the May pledge to accelerate approval of eight stalled biotechnology products.

The Chinese government said there had been a misunderstanding and that the Dow product hadn’t been on their priority clearance list.

–Kate O’Keeffe in Washington and Jacob Bunge in Chicago contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Ian Talley at ian.talley@wsj.com

.

https://www.wsj.com/articles/u-s-opens-difficult-china-trade-talks-1500478896

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Obama Administration Strategy has been to Use Business to Lock In Iran Deal — Make It Difficult for Future Administration to End the Deal

June 24, 2016

Administration officials say they want to make Obama’s policies hard for successors to undo

A Boeing 747 of Iran's national airline is seen at Tehran’s airport in 2003. Boeing Co. has signed an agreement to sell aircraft to Iran Air.
A Boeing 747 of Iran’s national airline is seen at Tehran’s airport in 2003. Boeing Co. has signed an agreement to sell aircraft to Iran Air.PHOTO: HASAN SARBAKHSHIAN/ASSOCIATED PRESS
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June 23, 2016 8:13 p.m. ET

WASHINGTON—The White House is pushing to ease the way for companies to complete deals with Iran, aiming to cement the landmark nuclear agreement reached last year and make it difficult for future administrations to undo it, senior U.S. officials said.

The effort, which borrows from President Barack Obama’s playbook for solidifying U.S. relations with Cuba, got a boost this week when Boeing Co. reached a $17.6-billion deal with Iran to sell commercial jets to the country’s main airline.

A Boeing spokesman declined to comment on any specific effort by the administration. In a letter Thursday responding to criticism of the deal from two Republican lawmakers, the company’s senior vice president for government operations, Tim Keating, said the administration had made it clear in consultations with Boeing that “the ability to provide Iranian airlines with U.S. and European replacement commercial passenger aircraft for their aging fleets was key and essential to reaching closure on the agreement.”

 

Administration officials are also studying whether to publicly back Iran’s bid to join the World Trade Organization, a move opposed by America’s Persian Gulf allies, such as Saudi Arabia.

The global agency responsible for combating money laundering, the Financial Action Task Force, this week is weighing whether to remove Iran from a blacklist in a bid to improve its ability to conduct financial transactions through Western banks. A decision is expected as early as Friday, said U.S. and European officials.

U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif spoke to the media in April in New York.

U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif spoke to the media in April in New York. PHOTO: FRANK FRANKLIN II/ASSOCIATED PRESS
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Administration officials have said they are seeking in Mr. Obama’s final months in office to make his policies toward Cuba and Iran, which have been controversial, difficult for his successors to unravel.

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U.S. officials are also exploring what they say are other ways of integrating Iran into the global economy, with more announcements expected in the months before Mr. Obama leaves office in January. Among them is a process for giving Iran limited access to the U.S. dollar, which administration officials said has made some progress.

“We’re not going to stand in the way of permissible business activity with Iran,” a senior administration official said. “As long as Iran is meeting the terms of the deal, then we’re going to uphold our end of the bargain, and that is going to result in some additional business activity with Iran.”

The administration’s moves to integrate Iran into international business and financial markets, although limited to the terms of the nuclear deal, have drawn criticism from U.S. lawmakers and stoked concerns among America’s Middle East’s allies.

It is also causing friction between the State and Treasury Departments, U.S. officials say. Secretary of State John Kerry, the administration’s point man on Iran, has been the most forward-leaning on ways to aid Iran’s economy.

‘We’re not going to stand in the way of permissible business activity with Iran.’
—Senior Obama administration official
Mr. Kerry and other U.S. officials are hoping an economic windfall in Iran will empower Iranian President Hassan Rouhani, seen as a pragmatist and a relative moderate in Iran’s revolutionary government.

Administration officials say a longer-term goal is that business engagement with Iran will facilitate political change there, as Mr. Obama hopes is the case in Cuba.

“Over time that could help strengthen some of the forces inside of Iran that would like to take their country in a different direction,” the senior administration official said.

The Boeing deal with Iran Air quickly came under scrutiny from U.S. lawmakers when the company announced it this week. The administration sees the pact as a significant marker for the first anniversary of the nuclear deal reached by the U.S. and world powers with Iran on July 14, 2015.

Boeing

But critics say the deal could aid Iran’s efforts to send arms and supplies to its regional military allies, such as the Assad regime in Syria and the Lebanese militia Hezbollah, which the U.S. designates as a terrorist organization. The U.S. Treasury sanctioned Iran Air in 2011 for its role in ferrying supplies to these groups.

‘If Boeing goes through with this deal, the company will forever be associated with Iran’s chief export: radical Islamic terrorism.’
—Rep. Peter Roskam (R., Ill.)

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“If Boeing goes through with this deal, the company will forever be associated with Iran’s chief export: radical Islamic terrorism,” said Rep. Peter Roskam (R., Ill.), who introduced new legislation this week to try to block the deal and was the recipient, along with Rep. Jeb Hensarling (R., Texas), of the Boeing executive’s letter on Thursday.

Under the nuclear agreement, U.S. companies are allowed to sell commercial aircraft to Iran. American companies can also request special licenses from the Treasury Department to conduct transactions with Iran in other sectors, such as agriculture and medicine.

White House officials say deals such as the one reached by Boeing, which they expect the Treasury Department to approve, are carefully scrutinized. “We’ve had to be very careful in assessing how the civil aviation sector does or does not become utilized by the bad actors in Iran who may try to fly material to places like Syria,” another senior administration official said.

Iran’s blacklisting by the FATF has greatly undercut the country’s ability to conduct banking transactions. Currently, Iran and North Korea are ranked as the countries posing the greatest risk to the international financial sector, due to their role in illicit businesses and financing terrorism.

Treasury Secretary Jacob Lew in April specifically discussed with Iran’s central bank governor ways that Tehran can improve its standing in FATF, according to senior administration officials. U.S. and European officials said FATF could agree this week to suspend some of the countermeasures countries are asked to employ against Iran because of commitments Iranian officials have made to address FATF’s concerns.

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“This is a technical process and we are confident that the FATF will treat Iran fairly,” said a Treasury official.

The Obama administration is caught in a growing struggle among its allies over another economic integration avenue: Iran’s quest to join the World Trade Organization.

Since the nuclear deal last year, countries such as Oman and Switzerland have pressed for forming a special committee of the WTO to address Iran’s bid. Iran’s regional rivals, particularly Saudi Arabia, have opposed that effort.

The George W. Bush administration once pledged to support Iran’s bid if a nuclear agreement was reached. Obama administration officials said they are now trying to find a consensus among allies on the WTO issue.

“We have also noted the uptick in interest in Iran’s WTO accession, and we are mindful that this is a major priority for the EU, Oman, and others,” said a State Department official. “The WTO accession process is based on consensus, and as of now, there are a number of countries that oppose appointing a chair to Iran’s working party on accession.”

Business diplomacy has been a core part of Mr. Obama’s foreign policy approach in engaging U.S. adversaries. Mr. Obama sees the expansion of business transactions with the West in countries such as Iran and Cuba as the most promising means for solidifying the president’s policies there, his aides have said.

White House officials also see the use of businesses transactions as a more effective way of facilitating political changes in countries such as Iran and Cuba than traditional U.S. government efforts.

While business is the overarching tool in cementing Mr. Obama’s policies toward Iran and Cuba, the two efforts differ, administration officials said. The White House sees encouraging business with Cuba as a way to advance the president’s decision to restore diplomatic ties—an effort Havana has embraced.

Iran, however, hasn’t agreed to a broader thaw in relations, despite Mr. Obama’s willingness to pursue one. The administration’s use of business as a means to facilitate its Iran policy is more targeted, aimed at doing everything the U.S. can to abide by the sanctions-relief provisions in the nuclear deal to make sure it doesn’t unravel, officials said.

One point of tension the White House has faced is that U.S. companies are more interested in doing business with Iran than Cuba because it is a bigger market. White House officials said they increasingly spend time explaining to business groups why the administration can’t approve ambitious deals with Iran.

“There was a sense that there would be more opportunity than there has been,” the second senior administration official said. “And I think there’s a sense that how come the European businesses get this opportunity and we don’t.”

Write to Carol E. Lee at carol.lee@wsj.com and Jay Solomon at jay.solomon@wsj.com

http://www.wsj.com/articles/u-s-encourages-firms-to-make-deals-with-iran-in-bid-to-cement-nuclear-deal-1466727183

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Qassem Suleimani, the commander of the Iranian Revolutionary Guard’s Quds Force, threatened to retaliate against the Bahraini government for its move.

US Navy sailors kneeling before their Iranian captors in the Persian Gulf, January 13, 2016. AFP photo

U.S. Ready To Welcome Vietnam’s Party Chief Nguyen Phu Trong To “Historic Visit”

July 5, 2015

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Nguyen Phu Trong, Vietnam’s top Communist Party official, in Hanoi in February. He is traveling to Washington this week to meet with President Barack Obama. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

By Grant Peck

HANOI, Vietnam (AP) — Vietnamese Communist Party chief Nguyen Phu Trong doesn’t hold an official government post, but it’s not surprising that he’ll meet with President Barack Obama on his visit to the United States this week. He is the de-facto top leader of his country.

More telling is one of Trong’s other engagements — a dinner reception hosted by the U.S. Chamber of Commerce, bastion of American free enterprise. Economic imperatives drove the U.S. and Vietnam to normalize postwar relations 20 years ago, and they remain a major incentive to boost ties.

President Bill Clinton announced the normalization of relations between the U.S. and Vietnam on July 11, 1995, following up on the lifting of punitive economic sanctions imposed after the Vietnam War ended in 1975 with a communist victory.

The bitterness on both sides gave way to pragmatism. Vietnam’s socialist planners were running the economy of the newly unified nation into the ground, and needed a helping hand. American businesses saw opportunities that might otherwise be seized by Asian and European competitors.

Trong called his trip on Tuesday “a historic visit.” He said he expects Obama to make his first visit to Vietnam later this year.

Photo: Vietnamese Communist Party General Secretary Nguyen Phu Trong on July 3, 2015. (AP Photo/Tran Van Minh)

U.S. officials are eager to take relations with Vietnam — currently friendly but hardly intimate — to a new level. Vietnam could be a linchpin in Obama’s “pivot” toward Asia, playing a strong geopolitical and economic role. As a front-line country nervous about Chinese expansionism in the South China Sea, Vietnam also would not mind the U.S. directing at least a little hard talk at Beijing.

“We believe that as one of the world’s leading major powers and a member of the (U.N. Security Council), the U.S. has a great interest and responsibility in maintaining peace and stability in the world, particularly in the Asia-Pacific,” Trong said Friday in a written response to questions submitted by The Associated Press.

In careful diplomatic language, he said he hoped “that the U.S. will continue to have appropriate voice and actions to contribute to peaceful settlement of disputes in the (South China Sea) in accordance with international law in order to ensure peace and stability in the Asia-Pacific and the world.”

U.S. ambitions to remain a Pacific power hinge in large part on projecting its power by drawing a line with China.

Popular sentiment in Vietnam is generally hostile toward China’s assertive maritime territorial claims, but the country’s leaders are loath to antagonize their much bigger neighbor. The practical perils of proximity are one matter, but more doctrinaire communists such as Trong are uneasy about casting their lot with the democratic West instead of their old communist kin in Beijing.

In Washington’s view, however, wooing a hard-line skeptic such as the 71-year-old Trong is key to achieving the two countries’ goals.

While Trong’s trip is a sign of how far the U.S.-Vietnam relationship has come in the 40 years since the end of the war, that doesn’t mean an alliance is in the works, said Walter Lohman, director of the Asian Studies Center at the Heritage Foundation in Washington.

“They want to have eggs in the American basket to balance off what they’ve got in the Chinese basket, all in the service of Vietnam’s interest and strategic vision,” he said.

Trong emphasized the importance of Vietnam’s relationship with the U.S.

“Vietnam would like to be a friend and reliable partner of all countries in the world,” he wrote in his response. “In this effort, we attach great importance to the relations with the U.S. as one of the most important partners in our foreign policy.”

What Washington has to offer Hanoi are economic benefits, particularly under the yet-to-be finalized multilateral Trans-Pacific Partnership. It can point to a solid track record: Since 1995, annual U.S.-Vietnam trade has increased from less than $500 million to $35 billion last year. Vietnam has now surpassed Malaysia and Thailand as Southeast Asia’s top exporter of merchandise to the U.S. .

Trong’s visit “is part of the discussion in Hanoi about the nation’s future … how to balance the economic and political links with China against the lure of U.S. markets and security assurances,” said Frank Jannuzi, a former Senate Foreign Relations Committee staffer who now works at the Washington-based Mansfield Foundation, which aims to promote U.S.-Asia relations.

Jannuzi pondered whether the trade pact’s economic benefits and U.S. guarantees on South China Sea security would carry the day, or if Vietnam’s communist government would stick to the model of their Chinese comrades “and follow the path of resilient authoritarianism, with state control of key sectors of economy and strict controls on power-sharing.”

Human rights remains a sticky issue, with Vietnam’s repression of dissidents undercutting political support in the U.S. Congress for sweetening any deals with Vietnam, such as acceding to Hanoi’s desire to be allowed to purchase lethal weaponry.

The Obama administration “deserves credit for continuing to pressure Vietnam on political prisoners, labor rights and religious liberty. The problem is, it’s not working,” said John Sifton, Human Rights Watch’s Asia advocacy director in Washington.

The U.S. says prosecution of dissidents has decreased and the number of political prisoners has dropped from more than 160 two years ago to around 110 — progress it attributes to Hanoi’s desire to join a U.S.-backed trade pact of Pacific Rim nations. But Sifton said the reduction was due to people serving out their terms, not early releases. Human Rights Watch estimates there are still about 150 political prisoners being held.

Trong acknowledged differences with the U.S. on issues of democracy, human rights and trade. But he added: “We should maintain dialogues in an open, candid and constructive manner to increase mutual understanding, narrow differences and make best use of our cooperation potentials. We should work to make sure such differences do not hinder bilateral relations.”

Associated Press writer Matthew Pennington in Washington contributed to this report.

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Merkel With Obama In White House says No More Sanctions: German Firms Including Siemens, Volkswagen, Adidas, Deutsche Bank and BASF Reject Obama Foreign Policy

May 2, 2014

German Chancellor Angela Merkel meets with President Obama on Friday to discuss economic sanctions on Russia. However, she is in a difficult position because many German businesses could be negatively affected.

By Matthew Karnitschnig
The Wall Street Journal

German Chancellor Angela Merkel meets with President Barack Obama in the Oval Office Friday. Reuters

BERLIN— Angela Merkel is carrying a clear message from Germany’s business lobby to the White House: No more sanctions.

Several of the biggest names in German business—including chemical giant BASF   SE, engineering group, Siemens AG, Volkswagen AG, Adidas AG, and  Deutsche Bank   —have made their opposition to broader economic sanctions against Russia clear in recent weeks, both in public and in private. (Read the latest updates on the crisis in Ukraine.)

As a result, Germany’s position on additional, tougher sanctions is unlikely to shift, barring a dramatic escalation of the conflict in Ukraine—a message Ms. Merkel is expected to deliver to President Barack Obama when they meet in Washington on Friday, officials in Berlin say.

As the Ukraine crisis has worsened, German officials have faced a barrage of telephone calls from senior corporate executives, urging them not to take steps that would damage business interests in Russia, people familiar with the matter say.

Until now, Western sanctions have targeted individuals and companies, but the U.S. is pushing for broader sanctions that could hit entire Russian sectors if the situation escalates.

In public, some German corporate chieftains have warned against escalating the measures.

“If there’s a single message we have as business leaders, then it’s this: sit down at the negotiating table and resolve these matters peacefully,” Eckhard Cordes, a former Daimler AG executive who now heads the Ostauschuss, German industry’s lobbying arm for Eastern Europe, told a recent conference in Berlin.

BASF Chief Executive Kurt Bock, whose company is a close partner with Russia’s state-owned gas giant OAO Gazprom, recently admonished European politicians to consider the costs of sanctions and warned that unwinding the measures is often difficult. “It’s up to politicians and historians to determine efficacy of boycotts, but I have my doubts,” Mr. Bock said in an interview with the daily Süddeutsche Zeitung.

Herbert Hainer, chief executive of Adidas—which outfitted Russian athletes in the Soviet era and operates more than 1,000 retail outlets in the country—has suggested the West should have done more to engage Mr. Putin. “One has to wonder if someone like Putin shouldn’t have been included in the process much earlier, instead of waiting until it was too late,” he said.

In most countries, it would be highly unusual for corporate executives to inject themselves into geopolitics and matters of national security with the forcefulness that a number of German business leaders have. But many of Germany’s largest companies have substantial Russian operations, built in some cases over decades, and worry that tough economic sanctions would rob them of a key growth market when their home market—Europe—is stagnant.

That has led to intense pressure on Berlin. Germany’s chancellor has repeatedly criticized Russia for its actions in Ukraine and warned the Kremlin it would face serious consequences if it doesn’t change course. Yet Ms. Merkel has stopped short of endorsing broader economic sanctions, opting instead to impose travel bans and asset freezes on individuals with close ties to the Kremlin.

“Merkel is coming knowing that she faces a heavy debate with the Americans,” said John C. Kornblum, a former U.S. ambassador to Germany who also previously served as U.S. assistant secretary of state for European affairs.

U.S. companies, which have less at stake in Russia compared with their European competitors, are expressing their concerns about further sanctions more privately with the Obama administration. American companies have stressed in Washington that proposed sanctions on broad sectors of the Russian economy, if pursued unilaterally, would cause Russian state-dominated industries to back out of deals with U.S. firms and open the market to competitors from Europe and elsewhere. Business officials in Washington say International Business Machines Corp.   , for instance, has urged the Obama administration to take as multilateral of an approach as possible to further penalties.

“The concern for business is that if it becomes a fragmented approach, with the U.S. going out in front of the Europeans, it won’t be effective,” said Myron Brilliant, executive vice president for international affairs at the U.S. Chamber of Commerce. “And we are worried about the boomerang effect of getting caught in the crossfire.”

U.S. business dealings in Russia include Boeing Co., Exxon Mobil’s Arctic venture with state-controlled oil giant OAO Rosneft. This week, the U.S. imposed sanctions on Rosneft’s chief, Igor Sechin, as well as Sergei Chemezov, head of a state conglomerate that includes aircraft production and Russian titanium used to build Boeing planes. 


Exxon Mobil said it is pushing ahead with its plans to drill in Russia’s Arctic seas—its biggest opportunity to discover oil and gas—though deteriorating relations between Moscow and the U.S. have increased the risks.

White House spokesman Jay Carney said the administration was continuing to hold “informational conversations” with American companies over Russian sanctions. The White House has urged top U.S. executives to scrap plans to go to the coming St. Petersburg International Economic Forum, which Mr. Putin formally hosts.

On Thursday, PepsiCo Inc. said Chief Executive and Chairman Indra Nooyi canceled plans to participate in the forum. The company, though, said that the change of plans was due to a scheduling conflict rather than political tensions and that other executives from the snack-and-beverage giant would attend.

Germany isn’t alone in Europe in its reluctance to take a harsher line with Moscow. Italy and Greece also have resisted a more aggressive response because of the potential impact on their economies. Some of Washington’s closest military allies, including Japan, Egypt and Israel, also are cautioning the Obama administration against taking steps that could permanently rupture Mr. Putin’s ties to the West, according to Asian and Middle East officials.

But Germany’s size and economic weight make its voice especially crucial. Without Berlin’s backing, U.S. attempts to box in Russia through sanctions and other measures will be hampered.

Some 6,200 German companies, from industrial giants such as Volkswagen to small family-owned machine-makers, are active in Russia, more than those in the rest of the EU combined. Many of those companies, both in public and behind the scenes, have warned that any sanctions affecting trade with Russia could cost tens of thousands of German jobs and hit the economy hard, officials in Berlin say.

“There’s no question that Germany’s economic interests would be best served by avoiding sanctions,” said Klaus-Jürgen Gern, an economist at the Kiel Institute for the World Economy, a leading German economic institute.

German economic growth could decline by as much as two percentage points if harsh sanctions were leveled against Russia, according to an analysis by the Kiel Institute led by Mr. Gern. Under current economic forecasts, that could push Europe’s largest economy into recession.

A breakdown in Germany’s trade relations with Russia could cost as many as 300,000 German jobs, according to the German government.

Germany’s bilateral trade with Russia is relatively modest, at €76 billion ($105.4 billion) in 2013, and Russia accounts for about 3% of German exports. But Germany derives one third of both its gas and oil from Russia. The latter point is critical, Mr. Gern said, because a loss of access to Russian oil would hit the German economy hard. A $20-per-barrel increase in the price of crude alone would shave about one percentage point off German growth, according to the institute’s analysis.

Many big German companies were active in the Soviet Union and began an aggressive expansion into Russia and its neighbors after the fall of communism. German industry’s focus on heavy engineering made it well-suited to service a vast region hungry to modernize everything from its railroads to its energy sector.

Russia itself accounts for a fairly modest, though not inconsequential, proportion of total revenue for most big German companies. What the figures don’t reflect is the importance of Russia as a growth market.

Just days after Russia annexed Crimea, Siemens Chief Executive Joe Kaeser visited Mr. Putin at his residence outside Moscow, posing for the cameras with the Russian leader.

While Ms. Merkel has censured Russia’s actions in Ukraine, Mr. Kaeser described the geopolitical crisis as “temporary turbulence.”

One reason German companies have been more vocal on German foreign policy is that their home market has waned in importance. Siemens, for example, generated less than 15% of its €77 billion in global revenue in Germany last year, compared with 28% in the Americas.

That dynamic has made some German companies less beholden to their own governments than in previous decades.

“You’re dealing with a global German industry that barely hangs onto its German identity, while at the same time using it to its advantage to do business in places like Russia,” Mr. Kornblum said.

Deutsche Bank would suffer little direct impact from economic sanctions against Russia, but Jürgen Fitschen, the bank’s co-CEO, recently warned against taking further punitive measures against Moscow, arguing that the broader economic damage could be substantial.

Volkswagen, which sells about 300,000 vehicles in Russia and considers the country its key European growth market, has also urged against a rash response. “”We’re counting on everyone in the East and the West to handle this situation with prudence,” Volkswagen Chief Executive Martin Winterkorn said recently.

Ms. Merkel’s efforts to build a united front at home against Russia have been further undermined by her predecessor as chancellor, Gerhard Schröder.

Mr. Schröder, who is the chairman of Gazprom’s Nord Stream AG pipeline subsidiary and a personal friend of Mr. Putin’s, traveled to St. Petersburg this week to celebrate his 70th birthday. He was photographed embracing Mr. Putin upon the Russian president’s arrival.

Though Mr. Schröder’s affinity for Russia and Mr. Putin are well known, the symbolism of the party as German soldiers were in the custody of pro-Russian forces in Ukraine drew harsh criticism from some in Germany.

The party, organized by Nord Stream, underscored the close ties between Gazprom and Germany’s business community. Several German executives, including representatives from BASF’s gas subsidiary, Wintershall, and German power company E. ON SE, attended the party, as did Germany’s ambassador to Russia.

Philipp Missfelder, the foreign affairs speaker for Ms. Merkel’s center-right bloc in parliament, also joined the celebration.

—William Mauldin, Mike
Esterl and Jay Solomon
contributed to this article.

Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com

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