Business Beyond the Reef

The Associated Press published a leak from the White House that President Obama’s budget proposal, to be presented today, will contain $26 million to establish a “new” Interagency Trade Enforcement Center. If you saw my post about the State of the Union, you already know that this is a snare and a delusion. Washington is already loaded with trade enforcement offices. Our country is the most litigious member of the the World Trade Organization and, before that, the General Agreement on Tariffs & Trade. But it is always popular to beat up on foreigners.

$26 million is pocket change, but I have to wonder where it will come from. What I hope is that it will simply be transferred from current enforcement offices that will be combined to create the new Trade Enforcement Center. What scares me is that it will come out of the hide of our already deficient trade promotion agencies. There is a myth in Washington that, if only other countries would play fair, our companies would have no problem selling whatever they wish anyplace in the world. This is complete bunk, of course. Rather than increasing “enforcement”, our tax dollars would be better spent helping our small companies get into trade or to build the trade they already have. But doing something positive is just not part of the political psyche in an election year. Any difficulties must be the fault of others – and they must be punished. It can’t be ourselves that have screwed up, can it?

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There is a bill in the Hawaii legislature that is not grandstanding, but is still unfortunate. The bill, SB 2400, is a well-intentioned attempt to have the state help businesses take advantage of China’s growth as a world economic power. The premise is simple: China is growing and has a lot of money so how can we get some of it? The bill would establish a state task force to figure this out. The problem is that Hawaii has no other trade or investment strategy. Here’s the testimony I have submitted:

SB 2400 is not ready for prime time and should not be passed in its present form.

Why China? Sure, there is a media frenzy about China, but China is not the only source of money and markets out there. It is easier for Hawaii’s small companies to do business almost anywhere else in the world. Does the state have a strategy for doing business with, say, Canada, Australia, Chile, Singapore, Germany or any place else? All of these markets have plenty of willing buyers and potential investors – and all rank higher than China for ease of doing business. The World Bank ranks China as 91st in the world for overall ease of doing business, and 60th for doing business across borders. That means there are at least 59 markets out there that Hawaii’s companies should look to before they even think about China. Does the state have a strategy for helping our companies find and pick the lowhanging fruit? I don’t think so.

The bill’s focus on film and digital media; culture and the arts; education; health and medical services and research; and tourism is old-style thinking. We tried pushing those industries for eight years and have little to show for it except some increase in tourist traffic. Any strategy needs to look at what the market wants, not what we think we want to sell. We can succeed in China, but not by ignoring what China wants from us.

Hawaii needs to look at the profound difficulties that confront any small company attempting to do business in China. Can we responsibly encourage local companies to go to China when there are so many easier markets to enter in which we have a chance of competing successfully? Yes, China has a lot of money, but the same can be said of Hong Kong, Taiwan, Mexico, Brazil, Malaysia and many, many more. You don’t want to be responsible for sending neophytes into one of the toughest markets in the world.

The bill also makes no mention of a strategy for attracting investment. Trade and investment go hand-in-hand, so any economic strategy needs to examine what investment we seek. Do we know what industries we want investors for? That would be worth looking at, but it need not be restricted to investment from China. Our state needs investment from diverse sources. It doesn’t much matter if it comes from China, Canada, India, the United States or Saudi Arabia as long as it comes.

The intent of SB 2400 is laudable, but the bill lacks vision. Hawaii needs a global strategy – not just a China strategy.

The U.S. Chamber of Commerce bit the big one yesterday. In their infinite wisdom, sitting a quarter of the way around the world, the Chamber inserted itself in Hawaii’s race for a U.S. Senate seat. Bear with me on the politics; this does have something to do with international trade. Let me set the scene for you, ignoring the fringe candidates.

Hawaii is overwhelmingly Democratic, has been for decades. So local and national Republicans are very excited that they have a viable candidate to take a Senate seat out here, something that has been only a dream for them since Hiram Fong left the Senate in 1977. Linda Lingle, a former two-term governor, earned good marks for supporting business and Hawaii’s economy. She is opposed in the primary by John Carroll, a former state senator, airline pilot and businessman. I know them both slightly. John is a nice guy, and I agree with his views on shipping, but Linda will be the Republican candidate. I am not sure her support for Sarah Palin four years ago will help in the general election, but Linda is a very strong campaigner with impressive financial backing.

The two main Democratic contenders are Mazie Hirono, former Lt. Governor and present Congresswoman, and Ed Case, a former Congressman. Again, I know both of them, Mazie slightly, and Ed better. It is fair to say that Mazie is the Democratic establishment candidate, which makes her rather liberal from a mainland perspective. Ed is more of a centrist, and so is viewed with suspicion by the left-leaning establishment out here. That said, they are both strong campaigners. Case vs. Lingle, or Hirono vs. Lingle, it’s going to be vicious in the fall.

There are strong, polarizing differences on economic issues among these four. Mazie Hirono, like her mentor Senator Daniel Inouye, tends to vote the party line on trade issues. (For you trade policy junkies, Hirono voted against all three free trade agreements last fall.) John Carroll and Ed Case, though in opposing parties, both want to repeal the Jones Act (or its application to Hawaii) because it raises shipping costs for anything moving into or out of the state via the U.S. West Coast (which is almost everything). Hirono supports the Jones Act and I don’t recall that Lingle did anything about it during her time as governor. Lingle was a strong supporter of trade and investment with China. Case has broader trade interests. I’m not sure about Carroll and Hirono. [Full disclosure: Ed Case is a former member of the Hawaii Pacific Export Council, which I chair, so I know his views on trade issues better than I do the others.]

There is one trade issue on which all four candidates agree, regardless of party affiliation and political spectrum. No politician in Hawaii can ignore or diss tourism – and all support Hawaii’s #1 industry and leading export earner. All have done so in state office, and both Case and Hirono have done so in Congress. If there is any topic that wins bipartisan support in Hawaii, it is tourism. Lingle, Case and Hirono have each endorsed President Obama’s new national plan to support tourism. Carroll probably has, too. Tourism is NOT a differentiating issue.

So the U.S. Chamber of Commerce decided to endorse Lingle and yesterday began fielding TV ads in her favor. What issue did they pick to emphasize? Her support for tourism! Nice flashy ad. No substance, and no suggestion of how Lingle’s support for tourism is different from her opponents, but the photography is good. There must be another agenda at work, since this is perhaps the only issue on which all the candidates can agree.

I suspect the Chamber’s support for Lingle will backfire, as she was already being accused of relying too much on financing from outside Hawaii. The Chamber ad will tend to reinforce that whether the charge is true or not. That’s not a problem for her in the primary, but could be a big issue come November. If there is an impact in the primaries, it may be to foster a suspicion of business, which would tend to favor Mazie Hirono over Ed Case. And that could put Mazie Hirono in the U.S. Senate – probably not the U.S. Chamber’s objective.

Johnson Choi is a Honolulu businessman who does much of his work in China, Hong Kong and with Chinese in California. Johnson has been taking an informal survey of his Chinese contacts to find out what seriously rich travelers from China are looking for. His major intent, I think, is to find some evidence that Chinese tourists might be attracted to Hawaii by Hawaiian culture. You know, hula, slack-key guitar, poi, grass skirts – all that stuff Hawaii stresses in its tourism marketing. Johnson has come up with five questions for his unscientific survey and has kindly shared the comments of his Chinese friends.

What role does Hawaii’s unique culture play in attracting Chinese visitors to our islands? While sun, sea and surf are part of the equation, Hawaiian culture and history are not. The fact that Chinese officialdom has come to Hawaii (e.g., for APEC last fall) counts for something, but so does Hawaii’s relative isolation. It’s almost humorous, but Johnson tells me that China’s super rich come to Hawaii because they know they won’t attract any press while they are here. He suggests they can walk the beaches with their girlfriends and no one will recognize them. Probably true.

What do Chinese visitors think of the Bishop Museum and ‘Iolani Palace? They don’t. These are two of the most important sites in Honolulu if you are remotely interested in Hawaiian or Polynesian culture and history. Johnson’s friends are unimpressed. Few Chinese care about Hawaii’s history – except maybe for the years that Sun Yat-sen spent here – and virtually none want to spend more than thirty minutes at historic sites – except for the U.S.S. Arizona memorial. (The same has to be said for the vast majority of Hawaii’s visitors, wherever they come from. If it comes to a choice between spending time at a museum or on the beach …)

What do they want to see more of in Hawaii? Salespeople, hotel staff or others who speak Mandarin. To be fair, Hawaii is working on this. Sheraton has been in the forefront, and more and more of Waikiki’s high-end stores are looking for Mandarin speakers. It seems particularly frustrating at the airport. Hawaii had the same problem when Japanese visitors first came, managed to catch up and turned catering to Japanese into a very profitable business. These aren’t languages picked up quickly. (I know, it took me quite a while to learn to order lunch or give taxi instructions as an expat in Taipei.)

What is missing in Hawaii? Good Chinese food. Hawaii has some decent Chinese restaurants, but most are old-style Cantonese – and they are not in Waikiki or in major hotels where rich Chinese visitors will find them. We need top-of-the-line restaurants in Waikiki that feature the rest of China’s cuisines. And I defy you to find a decent Chinese breakfast in our hotels. Chinese visitors will try other foods, but, like most people, they want their own comfort foods.

We have plenty of Korean bars, but little other late-night entertainment. Chinese visitors tend to fly in from the west, so jet lag leads them to be up late. And they expect Vegas-style, big-name shows. Most of Hawaii’s entertainment is geared to travelers from North America who go to bed early. We have had the same complaints for years from our Japanese and Australian visitors, but little has been done about it.

As a final question, Johnson asks his Chinese friends what they think of the idea of doing business in Hawaii. He says they try to be polite, but their comments and facial expressions boil down to “Are you kidding me?”.

Seems like Hawaii has some work to do.