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