The real reason manufacturing jobs are disappearing

We've heard a lot of rhetoric lately suggesting that countries like the US are losing valuable manufacturing jobs to lower-cost markets like China, Mexico and Vietnam -- and that protectionism is the best way forward. But those jobs haven't disappeared for the reasons you may think, says border and logistics specialist Augie Picado. He gives us a reality check about what global trade really looks like and how shared production and open borders help us make higher quality products at lower costs.

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,

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 sound bite,

but what it really is is protectionism.

We heard a lot 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 of high-paying
US manufacturing jobs.

Many think that manufacturing
is declining in 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 Querétaro, 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 USA
from US 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 shared 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, a 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 shared production represents

40 percent of the half a trillion dollars
in 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.

OK, 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 impact
that 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 shared 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 shared 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)