SHANGHAI, China — On Sunday, the most densely occupied section of Shanghai was a roughly quarter-mile square at the center of the Shanghai World’s Fair. There, beneath the towering red inverted pyramid that serves as the China pavilion, and a black umbrella borrowed from the St. Regis hotel, Gov. Tim Pawlenty waited in the rain for the Singaporean Prime Minister to finish his official visit to the iconic structure. In this he was joined by a busload of Minnesotans and thousands of impatient Chinese tourists.
Fact is, Pawlenty may be instantly recognizable in Minnesota and, increasingly, across the United States, but in Shanghai he’s as anonymous as any of the 42 Minnesota farmers and small manufacturers accompanying him on this, his second trade mission and third overall trip to China. None of the 350,000 Chinese who decided to attend the six-month World’s Fair on Sunday (outside of the United States, more commonly known as Expo 2010) gave him a glance in his yellow shirt; and even the trade mission delegates appeared to have grown accustomed by the near-constant presence of a national Republican widely expected to be a presidential contender in 2012.
Glamorous, this trade mission is not: Pawlenty is accompanied by three burly state troopers who look as much as tourists as he does, and exactly one reporter — MinnPost’s. The rest of the media — Chinese, U.S. national, and Minnesota — either weren’t interested in, or couldn’t afford, coverage of Pawlenty abroad.
Perhaps they should have made more of an effort. Earlier in the day, over the course of an exclusive interview at his hotel, Pawlenty provided MinnPost with a candid and sometimes gloomy assessment of the challenge that China poses to the U.S. economy and quality of life. To an extent that he hasn’t done so before, he explained that many of his best-known and most controversial policy positions — especially his stands against new taxes — are in large part inspired by his travels and exposure to high-growth Asian developing economies that are overtaking and out-competing economies throughout the developed world.
“[S]ometimes for people who are in the United States or Minnesota, they have this mistaken impression that Asia is just this commodity-producing low skill low education backwards place,” he explained. “It’s way, way beyond that.” In the course of our half hour conversation, he repeatedly noted: “They’re not racing us to the bottom. They’re racing us to the top.”
The facts are stark: China’s economy is growing at a rate that U.S. economy hasn’t enjoyed in decades; Chinese living standards are rising while U.S. living standards have stagnated; and China suddenly has an expanding pool of money for schools, infrastructure and other social improvements that U.S. state governments must now cut back.
That’s the bad news. The silver lining is that, during Pawlenty’s eight years as governor, increasingly wealthy China has moved from the fifth largest export market for Minnesota goods, to the second largest. And, among many of Pawlenty’s staff and cabinet, and especially among the Minnesota farmer who have driven much of that export growth, there’s little question that at some point in the not-so-distant future, China will surpass next-door-neighbor Canada to be the state’s top export market. Minnesota, as a producer of agricultural goods and quality manufactured products is starting to benefit from Asia’s rise: total manufactured exports from Minnesota to China now total in excess of $1 billion, annually, up from $14 million in 1987.
In the context of Pawlenty’s soon-to-end eight years as governor, his thoughts on China, trade, and America’s competitive future could be viewed as valedictory and mildly interesting. But Pawlenty is much more than an outgoing governor, he’s a potential Republican presidential candidate, and he has the potential to shape both the Republican and national dialogue on how to respond to the quintessential American question of the next decade: how does the United States respond to an economically vibrant and competitive Asia?
In that sense, his comments — one of his first extended interviews on a foreign policy topic — are quite interesting, indeed. Unlike many of his Republican counterparts, he views China as a competitive economic threat that needs to be confronted now, both on the international level, but also with fundamental shifts in how the United States, and its states, operate. These thoughts are worth taking seriously: Pawlenty may be anonymous at Shanghai’s World Fair, the chances are reasonably good that — at some point in the near future — he won’t be.
As Chinese cities go, Shanghai is relatively young. As late as the mid-19th century, it didn’t turn up on most maps. But then, in the late 19th century, as foreign funds started pouring into its strategically located port, the city expanded, and has continued to expand (for simplicity’s sake, ignoring 1950 — 1950) right through to the present day. In 2010, it’s all but impossible to visit any part of the Delaware-sized metropolis, population perhaps 20 million, and not have someone point to a cluster of high-rises, a highway, or a subway line, that wasn’t mere farm fields just a decade ago. Pawlenty is aware of this narrative.
“[T]wo million people moved into Beijing since the Olympics,” he tells me over black coffee in a meeting room at the St. Regis Hotel in Shanghai, where he’s staying and which — just a decade ago — was a farm field. “Point is, with [Minnesota’s] five million people, we’re not going to be the biggest place in the world, and we’re not going to have that small base of demographics or population [to] generate the marketing opportunities for our businesses. So we have to have business that are outward looking and can sell into these rapidly growing markets.”
Across the room is P.T. Anderson, Pawlenty’s deputy chief of staff, checking email on his phone, and downstairs the trade delegation is milling about the lobby, getting ready to board the buses that will take them to the Expo. For the most part these are small to medium-sized exporters — or prospective exporters — relatively new to the idea of trading with China, and in need of some help.
The governor and his staff don’t promise deals and dollar amounts on trade mission, but that’s not the point of these trips: “[T]hey’re about how do you build understanding, awareness, and information relationships that will serve our economy well over decades.”
So, specifically, the trade mission is often a series of meetings and introductions between delegates and potential business partners, government officials and — often overlooked — expats, who can help Minnesota businesses connect with an often indecipherable foreign market. The governor’s role in these meetings is often minimal, but his presence is essential: high-level Chinese officials don’t show up for low-level state officials.
Minnesota firms go global
To a large extent, Minnesota’s thriving trade with China is the result of a conscious decision by Minnesota companies to become more global. But in another sense, they didn’t have a choice. During our discussion, I mentioned to Pawlenty that Shanghai is home to an increasing number of young Minnesota entrepreneurs who’ve chosen to set up their business in China rather than Minnesota, in part out of the belief that the long-term growth prospects are better in Asia.
He didn’t disagree. “If you’re in business, and you’re looking for exceptional growth, you’re going to want to focus your marketing and distribution and sales and production on areas that have exceptional demand,” he told me. “China is one of those places. And you can’t look at the history they have of double digit GDP growth, the plans that they have for migration of entire segments — their version of a rural agrarian economy to a suburban or urban middle class economy and concluding anything other than as a business you want to be in that market. It’s powerful. I mean they’re transitioning more people from their version of agrarian lifestyles to their version middle class lifestyles over the next fifty years than we have in the history of our whole country times two.”
Pawlenty is quick to point out that comparing China to Minnesota, or even the United States, is an “apples to oranges” exercise on many levels. But he doesn’t dismiss the competition, either. “So you have to look in the mirror and say: what is your comparative advantage? … [F]or Minnesota and the United States our costs aren’t going to be as low as some other places around the world because of our lifestyles and standards of living and our commitment to things like decency in labor laws and the like.
“That being said, we can’t be so smug about how special we think we are or how insulated we think we may be from all of those forces to think that we can price ourselves out of the market without it having a consequential effect. And I think that’s a lesson that the United States and Minnesota is going to have to come to terms with.”
From Pawlenty’s perspective, the cost of doing business in Minnesota — and across the United States — enters into that cost equation. Labor prices will, to an extent, be dictated by the market. But the price of government and regulation is — to a degree — open to adjustment. Pawlenty cites permitting, regulation and above all, taxes, as controllable costs inhibiting American competitiveness with China and other developing economies. And, to a very real extent, he’s right: low labor costs aside, it’s largely indisputable that the cost of doing business in China is lower. More important, the pace of doing business is quicker: it’s not unusual to see a large factory operating in China just a few months after a company announces an intention to build it. That simply doesn’t happen in the United States, and it’s a serious cost advantage for companies operating in china.
“That’s why I’ve been so adamant as governor when I say we’re not making it worse and over time we’ve gotta make it better,” he explained, his words gaining pace. “And sometimes the Star Tribune or others kick me in the shins and say, ‘Well, you know, it’s just politics [that] he doesn’t want to raise taxes.’ Other people think I’m nuts for not wanting to raise taxes. I’ve looked at this stuff, I’ve looked at it hard for 18 years, 10 years as a legislator and eight as governor and I’m telling you — Minnesota’s costs, we can’t afford to push them up any higher. In fact, we’ve gotta push them lower.”
Despite the fact that Pawlenty’s thinking on taxes and competitiveness is — he acknowledges — shaped by visits to developing countries, he’s not outside of mainstream Republican orthodoxy. But when the discussion turns to how the United States should confront China in the near term on trade and economic policy issues, and especially on what many economists portray a purposely undervalued Chinese currency, Pawlenty begins to sound more like an economic nationalist along the lines of Sen. Charles Schumer, than a national Republican.
“We all agree from an American perspective that the Chinese manipulation of their currency and pegging of it to the dollar is inappropriate and unfair,” he told me. “That concern has been raised and mostly ignored over the years … [I] think the United States has to continue to be very aggressive on putting that front and center in the relationship with China.”
The use of the word “manipulate” in the context of the ongoing argument between China and the USA over the Chinese currency is highly provocative, and has real power: every year the president must submit an annual report on what countries are “manipulating” their currencies to achieve trade advantages against the United States (a devalued currency makes Chinese exports cheaper, and more competitive, and American exports more expensive, and less competitive). If a country is determined to be manipulating, the Treasury Department is required to open negotiations with the offending country.
To the uninitiated, that sounds mild enough, but in the case China, which views attacks on its currency policy as a direct threat to sovereignty, a “manipulation” determination has the potential to become a major diplomatic spat, if not a trade war. In 2009, Treasury Secretary Timothy Geithner set off a mild sell-off in United States treasuries, and a minor diplomatic spat, when he told senators, during his confirmation, that President Obama believed that China was “manipulating” its currency. And earlier this year, during one of the worst periods in years for U.S.-China relations, the Treasury Department delayed issuing the currency report altogether, lest it make a bad situation worse.
When I asked Pawlenty if he was content with the Obama administration’s approach to China, he implied that — current distractions aside — more could be done. “I think the shift of attention from Asia to other things is partly understandable when you’ve got an Iranian situation percolating or continued concerns about Iraq and Afghanistan. But as you know, the rise of Asia is going to inevitably and irreversibly occur, and we need to make sure we do all we can that it happens in a way that’s helpful to the United State and not threatening to the United States.”
Pawlenty’s is a stark, highly competitive view of the U.S.-China relationship, and the impact that it may very well have on Minnesota living standards. It’s not exactly a twilight struggle, but it’s certainly no Sunday touch football competition (Pawlenty says, ideally, it’s a “friendly competition”) and, toward the end of our interview, he seemed to recognize that it was, in fact, too stark of a vision.
As he walked me out of the room, he asked me to turn on my voice recorder, once more, so that he could address “disgruntled expats” whom I mentioned were nervous about Minnesota’s future as compared to China’s. “Japan was going to kick our butt,” he told me. “It didn’t. You know, the EU was going to kick our butt. They didn’t. China is both an opportunity and a challenge. But this notion that the United States can’t rise to that challenge and overcome it and compete is hogwash.”
Reverting to a sports metaphor, he added: “Right now, we’ve got a big lead, but instead of playing like a sports team sitting on a big lead, but play like a sports team that’s hungry and wants to keep scoring points.”
There’s little question that Pawlenty is anxious about the fast-growing Asian economy outside of the hotel doors, and its impact on Minnesota’s quality of life. As governor, he’s been aggressive and sincere in promoting Minnesota exports (partly as a means of growing Minnesota businesses that can’t grow at home) and — so far as he can — cutting what he views as excess costs from doing business in the state. But as his vision widens (and during our interview, he repeatedly shifted from talking about Minnesota, to talking about the United States) it’s clear that he’s ready to embrace a more aggressive approach to America’s strategic competitors than what’s being practiced in Washington — home to a mostly bi-partisan China policy — right now.
Jammed with tourists
On Sunday, after waiting 20 minutes for the China pavilion at Expo 2010, the governor and trade delegation were led inside. On the way, a Chinese official shook his hand and exchanged cards with him. Once inside, the group was handed off to a tour guide who led them into a large, empty theater. There was a brief moment of silence — just long enough to give the group the impression that they’d be watching the film alone — and then the doors flew open and hundreds of Chinese tourists came storming — some sprinting, full-speed — into the space, grabbing every available seat and even placing themselves in the aisles on small portable stools that they carried with them. As the room filled, and people became more desperate, the tourists began rushing down the governor’s aisle, careening past the obviously shocked and nervous chief executive of Minnesota, until one of his state troopers put an end to it by jamming his umbrella into the middle of the aisle, like a stake.
Later, the governor descended, with no help from the Chinese hosts, through several exhibits jammed with tourists, and into a large exhibition space where each of China’s 33 provinces is allowed a small house-sized pavilion. The governor’s destination was the pavilion belonging to Shaanxi Province, for nearly 30 years a sister state to Minnesota, and source of long-term trade, education, and cultural exchanges. No Minnesota governor has ever visited Shaanxi (Pawlenty was scheduled to go there until his tight travel schedule prevented the trip), and so the Expo pavilion would have to serve as a stand-in.
The provincial pavilion was crowded in a way unique to China. For comparison’s sake, imagine the Minnesota State Fair’s Dairy Building on a Sunday afternoon, packed tight with visitors escaping a thunderstorm. Now triple the number of people and add a live Chinese opera being broadcast at deafening volume over the PA: that’s the China provincial building on a Sunday during a typhoon season storm.
Pawlenty was met at the Shaanxi pavilion by two provincial officials, and then led onto a stage where he posed for photos with performers in traditional costumes. From there, he was led through the exhibits — packed with people — by a tour guide who spoke to him through a microphone that broadcast out of a speaker worn around her waist.
At one point, as Pawlenty, with trade delegation in tow, was practically trapped between a video screen and a Chinese opera performance, one of the Shaanxi officials — an English speaker obviously embarrassed that more care hadn’t been taken in preparing for their distinguished visitor, turned back with a smile. “Sorry,” he said. “Too many people.”
Pawlenty smiled at him. “It’s OK,” he said. “It’s China.”
Adam Minter is an American writer in Shanghai, China, where he covers a range of topics, including religion in contemporary China, the Chinese environment, and cross-cultural issues between the West and Asia. He can be reached through his blog, Shanghai Scrap.