Buoyed by U.S. firms, Vietnam emerges as an Asian manufacturing powerhouse

By David Nakamura | May 21

In a campaign season that has renewed public anxiety about U.S. job losses to China, one Michigan shoe company stands as a stark example of how the economic dynamics are changing quickly in Asia.

Wolverine Worldwide exemplifies a sharp shift among American footwear and garment producers away from China toward an emerging manufacturing hot spot: Vietnam.

Over the past three years, the Rockford, Mich.-based maker of brands such as Keds, Hush Puppies and Saucony has more than doubled its production in the Southeast Asian nation, taking advantage of the lower labor costs there. Vietnam now constitutes nearly 30 percent of Wolverine’s output, while China’s share has fallen from 90 percent to 50 percent, company officials said.

Many other U.S. firms have made a similar move, brightening the economic fortunes of Vietnam, where President Obama will arrive Monday for a two-day visit to Hanoi and Ho Chi Minh City. If Obama has his way, the communist country will become even more appealing to U.S. capitalists through the Trans-Pacific Partnership (TPP), an expansive 12-nation trade deal that would phase out steep import tariffs on Vietnamese-made goods.

Obama has touted the pact as a vehicle to help embed the United States in fast-emerging markets in Southeast Asia and exploit global economic trends to America’s benefit. China, attempting its own economic transformation toward the service sector, is pursuing a separate trade pact that includes Vietnam and other Southeast Asian nations.

Administration officials have warned against ceding the region to the United States’ biggest economic competitor. Yet critics of the TPP trade deal, including the presidential candidates from both parties, have said the accord would further decimate U.S. manufacturing and cost domestic jobs. Congress has yet to ratify the accord, and lawmakers have been wary amid the anti-trade sentiment on the campaign trail.

For companies such as Wolverine, the deal could make an already lucrative business decision even more profitable.

Company officials said that eliminating an estimated $20 million in annual tariffs on Vietnamese-made products would reduce the cost of shoes for American consumers and boost sales. Furthermore, the officials said, declines in the company’s domestic manufacturing workforce have been offset by hiring in other departments.

Although Wolverine employs just 700 workers in its remaining U.S. factories, another 5,000 U.S.-based employees work in corporate positions such as sales and marketing, said Michael Jeppesen, the president of global operations.

“Our head count outside manufacturing is so much larger,” he said. “It’s the same with every company in our industry. Everyone is focused on higher-paying, more white-collar jobs.”

For Obama, the push to sell the nation on the benefits of a broad, structural shift away from blue-collar jobs to match what he calls a modern “21st-century economy” has failed to resonate among large swaths of the U.S. electorate that feel left behind. Voters have blamed U.S. trade policies for perpetuating a set of economic winners and losers and a widening income gap.

“It’s not about looking backwards and trying to bring [manufacturing jobs] back,” said Celeste Drake, a trade policy specialist at the AFL-CIO. “It’s about not locking in incentives that promote losing the jobs we still have.”

She added that “when you’re talking about the TPP, Vietnam is the world’s third-largest shoe exporter after China and Italy. We view it as cementing that in.”

Aides said Obama will use his Vietnam trip to promote the trade pact with business leaders. Although Japan, which Obama will visit after Vietnam, is by far the largest trading partner for the United States among TPP nations, Vietnam better illustrates the administration’s strategy to pursue the accord as the economic cornerstone of a more robust Asia policy.

Obama’s trip aims to highlight warming bilateral ties between the former enemy nations. Last summer, Nguyen Phu Trong became the first general secretary of Vietnam’s Communist Party to visit the White House, and the Obama administration lifted portions of a long-standing arms embargo to help strengthen Vietnam’s maritime security.

But it is on trade and commerce where the administration sees perhaps the biggest potential to draw Vietnam closer to the United States. An economic-impact study from the World Bank in January said Vietnam stands to become the biggest beneficiary of the TPP pact, with its gross domestic product surging by 10 percent by 2030.

“Vietnam has the greatest potential to grow,” said Patrick Cronin, an Asia-Pacific analyst at the Center for a New American Security. “But it’s up to the Vietnamese government to make the right decisions, and what the U.S. is trying to do is provide the incentives to do that.”

Under the trade deal, U.S. footwear tariffs, which can be as high as 40 percent, would be phased out over seven years in Vietnam. That would give Vietnam an advantage over China, Cambodia, Indonesia and the Philippines, which are not TPP members, and accelerate a manufacturing boom inside the country that is already underway.

From 2013 to 2015, U.S. footwear imports from Vietnam rose by almost 50 percent, growing from $2.9 billion in 2013 to $4.3 billion in 2015, according to an analysis by the U.S. International Trade Commission. The study found that shoe company imports to the United States would rise by an additional 23 percent among TPP countries, mostly from Vietnam, over the next 15 years.

Matt Priest, president of the Footwear Distributors and Retailers of America, estimated that U.S. companies in Vietnam stand to save $500 million in footwear import taxes under the trade pact.

“That’s a huge differentiator to have access to the U.S. marketplace on a duty-free basis,” he said.

Critics said the deal would deliver another blow to an industry that has been decimated in the United States. Former congressman Michael H. Michaud, a Democrat from Maine, said in a letter to the Obama administration in 2011 that domestic footwear production fell by 75 percent between 1999 and 2007 and that 28,000 U.S. jobs were lost.

“A trade agreement that includes Vietnam, and that does not adequately protect domestic footwear manufacturers, will only accelerate this trend,” Michaud wrote.

But Obama has received support from the industry’s heaviest hitters. Last May, he visited Nike’s headquarters in Beaverton, Ore., to highlight a pledge from Nike to create 10,000 new domestic jobs in advanced manufacturing if the TPP accord is approved by Congress.

That figure is dwarfed by Nike’s workforce in Vietnam, its largest manufacturing base.

During his remarks, Obama emphasized that the TPP would require Vietnam to raise working standards, set a minimum wage and allow workers to form labor unions.

“That would make a difference,” Obama said. “That helps to level the playing field, and it would be good for the workers in Vietnam, even as it helps make sure that they’re not undercutting competition here in the United States.”

Human rights advocates are skeptical of the ability of the United States to enforce the new standards. Drake, of the AFL-CIO, acknowledged that the “language is getting stronger” in the TPP than in past deals, such as the North American Free Trade Agreement.

But she added: “It could take literally a century to move a country having egregious and abusive labor rights standards using these tools.”

Obama’s message also has not gone over well with one of Nike’s competitors, New Balance, which employs 1,400 manufacturing workers in the Northeast — the largest domestic workforce of any athletic shoe maker. This spring, New Balance formally announced its opposition to the TPP, citing broken promises from the Obama administration.

Source: www.washingtonpost.com/politics