WEBVTT

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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)