The real reason manufacturing jobs are disappearing | Augie Picado

155,092 views ・ 2017-09-28

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00:12
When someone mentions Cuba,
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what do you think about?
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Classic, classic cars?
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Perhaps good cigars?
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Maybe you think of a famous baseball player.
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What about when somebody mentions North Korea?
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You think about those missile tests,
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maybe their notorious leader
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or his good friend, Dennis Rodman.
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(Laughter)
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One thing that likely doesn't come to mind
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is a vision of a country,
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an open economy,
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whose citizens have access to a wide range of affordable consumer products.
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I'm not here to argue how these countries got to where they are today.
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I simply want to use them as an example of countries and citizens
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who have been affected, negatively affected,
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by a trade policy that restricts imports
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and protects local industries.
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Recently we've heard a number of countries
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talk about restricting imports
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and protecting their local, domestic industries.
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Now, this may sound fine in a sound bite,
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but what it really is is protectionism.
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We heard a lot about this during the 2016 presidential election.
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We heard about it during the Brexit debates
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and most recently during the French elections.
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In fact, it's been a really important topic
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being talked about around the world,
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and many aspiring political leaders
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are running on platforms positioning protectionism as a good thing.
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Now, I could see why they think protectionism is good,
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because sometimes it seems like trade is unfair.
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Some have blamed trade
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for some of the problems we've been having here at home in the US.
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For years we've been hearing
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about the loss of high-paying US manufacturing jobs.
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Many think that manufacturing is declining in the US
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because companies are moving their operations offshore
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to markets with lower-cost labor
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like China, Mexico and Vietnam.
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They also think trade agreements sometimes are unfair,
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like NAFTA
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and the Trans-Pacific Partnership,
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because these trade agreements allow companies
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to reimport those cheaply produced goods back into the US
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and other countries from where the jobs were taken.
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So it kind of feels like the exporters win
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and the importers lose.
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Now, the reality is
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output in the manufacturing sector in the US
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is actually growing,
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but we are losing jobs.
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We're losing lots of them.
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In fact, from 2000 to 2010,
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5.7 million manufacturing jobs were lost.
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But they're not being lost for the reasons you might think.
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Mike Johnson in Toledo, Ohio
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didn't lose his jobs at the factory
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to Miguel Sanchez in Monterrey, Mexico.
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No.
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Mike lost his job to a machine.
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87 percent of lost manufacturing jobs
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have been eliminated because we've made improvements
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in our own productivity through automation.
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So that means that one out of 10 lost manufacturing jobs
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was due to offshoring.
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Now, this is not just a US phenomenon.
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No.
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In fact, automation is spreading to every production line
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in every country around the world.
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But look, I get it:
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if you just lost your job
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and then you read in the newspaper
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that your old company just struck up a deal with China,
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it's easy to think you were just replaced
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in a one-for-one deal.
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When I hear stories like this, I think that what people picture
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is that trade happens between only two countries.
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Manufacturers in one country
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produce products and they export them
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to consumers in other countries,
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and it feels like the manufacturing countries win
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and the importing countries lose.
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Well, reality's a little bit different.
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I'm a supply chain professional,
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and I live and work in Mexico.
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And I work in the middle
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of a highly connected network of manufacturers
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all collaborating from around the world
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to produce many of the products we use today.
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What I see
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from my front-row seat in Mexico City
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actually looks more like this.
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And this is a more accurate depiction of what trade really looks like.
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I've had the pleasure of being able to see
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how many different products are manufactured,
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from golf clubs to laptop computers
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to internet servers, automobiles
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and even airplanes.
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And believe me, none of it happens in a straight line.
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Let me give you an example.
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A few months ago, I was touring the manufacturing plant
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of a multinational aerospace company
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in Querétaro, Mexico,
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and the VP of logistics points out a completed tail assembly.
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It turns out the tail assemblies are assembled from panels
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that are manufactured in France,
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and they're assembled in Mexico
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using components imported from the US.
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When those tail assemblies are done,
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they're exported via truck to Canada
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to their primary assembly plant
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where they come together
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with thousands of other parts,
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like the wings and the seats
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and the little shades over the little windows,
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all coming in to become a part of a new airplane.
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Think about it.
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These new airplanes,
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before they even take their first flight,
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they have more stamps in their passports
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than Angelina Jolie.
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Now, this approach to processing goes on all around the world
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to manufacture many of the products
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we use every day,
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from skin cream to airplanes.
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When you go home tonight, take a look in your house.
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You might be surprised to find a label that looks like this one:
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"Manufactured in the USA from US and foreign parts."
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Economist Michael Porter
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described what's going on here best.
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Many decades ago, he said that it's most beneficial for a country
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to focus on producing the products it can produce most efficiently
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and trading for the rest.
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So what he's talking about here is shared production,
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and efficiency is the name of the game.
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You've probably seen an example of this
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at home or at work.
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Let's take a look at an example.
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Think about how your house was built
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or your kitchen renovated.
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Typically, there's a general contractor
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who is responsible for coordinating the efforts
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of all the different contractors:
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an architect to draw the plans,
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an earth-moving company to dig the foundation,
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a plumber, a carpenter and so on.
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So why doesn't the general contractor
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pick just one company
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to do all the work,
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like, say, the architect?
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Because this is silly.
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The general contractor selects experts
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because it takes years
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to learn and master
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how to do each of the tasks it takes to build a house or renovate a kitchen,
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some of them requiring special training.
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Think about it:
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Would you want your architect to install your toilet?
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Of course not.
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So let's apply this process to the corporate world.
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Companies today focus on manufacturing
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what they produce best and most efficiently,
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and they trade for everything else.
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So this means they rely
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on a global, interconnected, interdependent network of manufacturers
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to produce these products.
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In fact, that network is so interconnected
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it's almost impossible
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to dismantle and produce products in just one country.
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Let's take a look at the interconnected web
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we saw a few moments ago,
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and let's focus on just one strand
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between the US and Mexico.
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The Wilson Institute says that shared production represents
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40 percent of the half a trillion dollars in trade between the US and Mexico.
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That's about 200 billion dollars,
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or the same as the GDP for Portugal.
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So let's just imagine
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that the US decides to impose
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a 20 percent border tax on all imports from Mexico.
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OK, fine.
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But do you think Mexico is just going to stand by and let that happen?
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No. No way.
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So in retaliation, they impose a similar tax
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on all goods being imported from the US,
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and a little game of tit-for-tat ensues,
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and 20 percent -- just imagine that 20 percent duties
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are added to every good, product, product component
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crossing back and forth across the border,
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and you could be looking at more than a 40 percent increase in duties,
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or 80 billion dollars.
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Now, don't kid yourself,
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these costs are going to be passed along
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to you and to me.
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Now, let's think about what impact that might have on some of the products,
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or the prices of the products, that we buy every day.
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So if a 30 percent increase in duties were actually passed along,
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we would be looking at some pretty important increases in prices.
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A Lincoln MKZ would go from 37,000 dollars to 48,000.
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And the price of a Sharp 60-inch HDTV
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would go from 898 dollars to 1,167 dollars.
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And the price of a 16-ounce jar of CVS skin moisturizer
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would go from 13 dollars to 17 dollars.
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Now, remember, this is only looking at one strand of the production chain
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between the US and Mexico,
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so multiply this out across all of the strands.
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The impact could be considerable.
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Now, just think about this:
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even if we were able to dismantle this network
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and produce products in just one country,
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which by the way is easier said than done,
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we would still only be saving or protecting
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one out of 10 lost manufacturing jobs.
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That's right, because remember,
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most of those jobs, 87 percent,
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were lost due to improvements in our own productivity.
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And unfortunately, those jobs, they're gone for good.
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So the real question is,
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does it make sense for us to drive up prices
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to the point where many of us can't afford the basic goods we use every day
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for the purpose of saving a job
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that might be eliminated in a couple of years anyway?
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The reality is that shared production
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allows us to manufacture higher quality products
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at lower costs.
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It's that simple.
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It allows us to get more
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out of the limited resources and expertise we have
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and at the same time benefit from lower prices.
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It's really important to remember
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that for shared production to be effective,
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it relies on efficient cross-border movement of raw materials,
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components and finished products.
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So remember this:
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the next time you're hearing somebody try to sell you on the idea
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that protectionism is a good deal,
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it's just not.
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Thank you.
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(Applause)
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