It had been American policy to encourage trade with Vietnam.
Now we are pulling the rug out from under Vietnam.
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| Bloomberg headline this morning |
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| Bloomberg headline yesterday |
Americans fought and died 60 years ago because we wanted a strong, independent Vietnam. It would stop a falling domino of Chinese communist expansion. We had the deluded idea that a strong Vietnam would be willing to be a colony -- and then a client state -- of a Western, Christian, capitalist country, first France and then the USA. It was a profound mistake. Vietnam wanted independence, both from the West and from China. The irony is that the U.S. achieved its war aims by losing and leaving.
Vietnam is a major trading partner with the U.S., a vital part of a global supply chain, sometimes manufacturing things themselves, sometimes assembling and remanufacturing and adding value to products made elsewhere, including China. A strong Vietnam is good for American business. A prosperous Vietnam is part of an American strategy of surrounding China with independent and capable neighbors. It is part of a larger goal of keeping the South China Sea an international body of water.
Manufacturing in China has moved up the value chain. Its competitive advantage is no longer low-wage workers. That work has moved toward Vietnam and Indonesia. Nike -- the largest company headquartered in Oregon -- has moved most of its manufacturing from China to Vietnam over the past 20 years.
The scale of this is huge. Nike has 155 factories in what used to be known as South Vietnam and Saigon. It employs over a half million people. It has 10 giant factories that employ over 10,000 people at one site.
Some Americans have called these "sweatshops." My own observation goes the opposite direction. Those factories primarily employ women, and at high wages for the local economy. In Indonesia I learned that an experienced public works employee, a man doing roadwork midday in the equatorial sun, earned one dollar a day. I asked about Nike jobs. The tour guide brightened, "Oh, Nike! Wonderful jobs. Air conditioned. It pays three dollars a day, for work by women!" He had only one concern about Nike jobs: they allow wives to make far more money than their husbands, which can create trouble in the marriage. The jobs are too good.
Factories are expensive long-term investments. They cannot be turned on and off with a switch. There are complicated, expensive supply chains of intermediate goods and infrastructure to move the goods in and out. The jobs in those factories are never going to return to the USA. But the 46 percent tariff placed on products coming from Vietnam dramatically changes the economics of those factories and the country that has such a significant part of its workforce working in them. We just threw a wrench into that system. Nike stock has fallen another two percent as I type this.
It is in the U.S. interest for Vietnam to consider the U.S. a reliable, consistent trading partner. Insofar as China is the great threat to world peace and now our primary long-term strategic rival, it is in our interest for Vietnam to be a vital part of each others' economies.
Trump targeted Vietnam because we have a balance of trade deficit with it. He interpreted the trade imbalance to be caused by a Vietnamese tariff or some other non-tariff restriction on trade, and therefore characterized this new 46 percent tariff as "reciprocal." We have two-way trade with Vietnam, buying from each other technology products and food that we each grow better in our own climates. The U.S. sells Vietnam machine tools. It is commonplace for developing countries to sell wealthy ones more than they buy because poor countries lack the money to buy rich-country goods. Money comes into those countries by means of "direct investment," i.e. Nike and others building factories there. We had a healthy relationship with Vietnam.
Trump supporters hope this period of chaos is just performance and a negotiating tactic by Trump. In a day or week he will say "nevermind," and he will have shown Vietnam who is boss and they will act more like supplicants to a strong America whose president can dangle favor and disfavor. Maybe this was just a bully flexing his muscles, with Trump being the great negotiator and practitioner of six-dimensional chess. Trump doesn't really mean to destroy the economy and he doesn't really expect textile factories to return to New England.
But in fact the damage is done, in Vietnam, among our other trading partners, and in foreign policy among our allies. Trump has demonstrated that America is unreliable. It doesn't act on the basis of ideology or self interest -- something one can predict and plan around. The U.S. has become like a family dog that suddenly begins biting you and your friends, leaving blood and scars, for no apparent reason. You can never trust it again. It might turn on you. Trump is doing it right now, justifying it, lying about it, insisting he is right.
Oregon's richest man, Nike founder Phil Knight, the "Uncle Phil" to the University of Oregon Ducks, has increasingly become a funder for GOP politicians, Nike has lost a quarter of its value in the six weeks since it became clear that Trump really meant it when he said he would impose punitive tariffs on our trading partners. Trump is unpredictable.
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