The real reason manufacturing jobs are disappearing | Augie Picado

Summary

This script addresses the misconceptions surrounding protectionism and its impact on global trade. It uses Cuba and North Korea as examples of restrictive trade policies and argues that protectionism, often touted by politicians, is not a solution to domestic economic issues. The speaker, a supply chain professional, explains that automation, not offshoring, is the primary cause of job losses in the U.S. manufacturing sector. The script highlights the interconnectedness of global supply chains, emphasizing the benefits of shared production for efficiency and cost-effectiveness, and warns against the high costs of protectionist measures.

Takeaways

• 🚗 The script begins with a comparison of Cuba and North Korea to highlight the negative effects of protectionist trade policies on economies and citizens.
• 🚀 It mentions that North Korea is often associated with missile tests and leadership rather than an open economy, contrasting with the common perception of countries with protectionist policies.
• 📢 The speaker aims to use Cuba and North Korea as examples to discuss the broader issue of protectionism and its impact on global trade and domestic industries.
• 🗳️ Protectionism has been a significant topic in recent political discussions, including the 2016 U.S. presidential election, Brexit, and the French elections.
• 🏭 The script argues that while some believe protectionism can protect domestic industries, it often leads to a loss of jobs and economic stagnation.
• 🛠️ Automation, not offshoring, is identified as the primary cause of job losses in the U.S. manufacturing sector, accounting for 87% of the losses.
• 🌐 The speaker, a supply chain professional, emphasizes the interconnectedness of global manufacturing and the complexity of modern trade networks.
• ✈️ An example of an aerospace company's manufacturing process illustrates the global nature of production, involving multiple countries and components.
• 🏠 The script encourages the audience to look at the labels on their products, which often reveal a blend of domestic and foreign parts, indicating shared production.
• 📈 Economist Michael Porter's concept of focusing on efficient production and trading for the rest is highlighted as a beneficial approach for countries.
• 💡 The script uses the analogy of a general contractor coordinating different experts to explain the importance of specialization and efficiency in production.
• 🛃 The potential economic consequences of imposing tariffs, such as increased costs for consumers, are discussed, emphasizing the interconnectedness of the U.S. and Mexico trade.
• 🛒 The script concludes by questioning the logic of driving up prices through protectionist measures to save jobs that are likely to be lost to automation anyway.

Q & A

What are some common perceptions about Cuba and North Korea?

Common perceptions about Cuba include classic cars and good cigars, while North Korea is often associated with missile tests, their notorious leader, and the unusual friendship with Dennis Rodman.

What is protectionism and why has it been a topic of discussion in recent years?

Protectionism is a trade policy that restricts imports and protects local industries. It has been discussed in recent years during events like the 2016 U.S. presidential election, Brexit debates, and the French elections, with political leaders advocating for it as a beneficial strategy.

Why do some people blame trade for the loss of high-paying U.S. manufacturing jobs?

Some people believe that trade agreements like NAFTA and the Trans-Pacific Partnership allow companies to move operations offshore to countries with lower-cost labor, leading to a decline in U.S. manufacturing jobs.

What is the actual cause of job loss in the U.S. manufacturing sector?

The majority of job losses in the U.S. manufacturing sector, about 87 percent, have been due to improvements in productivity through automation, not offshoring.

How does the speaker describe the global supply chain and its impact on manufacturing?

The speaker, a supply chain professional, describes the global supply chain as a highly connected network of manufacturers from around the world collaborating to produce products. This interconnectedness makes it nearly impossible to produce products in just one country.

Can you provide an example of shared production from the script?

An example given is the manufacturing of airplane tail assemblies in Mexico, using panels made in France and components from the U.S., which are then assembled in Canada with other parts to form a complete airplane.

What does the speaker mean by 'shared production' and why is efficiency important in this context?

Shared production refers to the collaborative manufacturing process where different parts of a product are made in different countries. Efficiency is crucial as it allows countries to focus on producing what they can produce most effectively, trading for the rest.

How does the speaker compare shared production to the process of building or renovating a house?

The speaker compares shared production to the process of building or renovating a house, where a general contractor coordinates the efforts of various specialized contractors, emphasizing the importance of using experts for efficiency and quality.

What is the economic impact of imposing a 20% border tax on imports from Mexico, according to the script?

Imposing a 20% border tax on imports from Mexico could lead to a tit-for-tat situation where Mexico imposes a similar tax on U.S. imports, potentially increasing duties by more than 40% and adding an extra 80 billion dollars in costs.

How would increased duties due to protectionist policies affect the prices of consumer products?

Increased duties could lead to significant price increases for consumer products. For example, a Lincoln MKZ car could increase in price from $37,000 to $48,000, and a Sharp 60-inch HDTV could go from $898 to $1,167.

What is the speaker's final argument against protectionism?

The speaker argues that protectionism drives up prices to the point where many people can't afford basic goods, and for the purpose of saving jobs that might be eliminated due to automation in a few years anyway, which is not a sensible trade-off.

Outlines

00:00

🚗 Impact of Protectionism on Global Trade

This paragraph discusses the common perceptions of countries like Cuba and North Korea and contrasts them with the idea of an open economy. It highlights the negative effects of protectionist trade policies that restrict imports to protect local industries. The speaker uses recent political discussions to emphasize the prevalence of protectionism and challenges the notion that it is beneficial, citing the loss of US manufacturing jobs not to offshoring but to automation. The paragraph also introduces the concept of shared production in the global economy.

05:02

🌐 The Reality of Global Supply Chains

The speaker, a supply chain professional, provides an example of the complex nature of global manufacturing by describing the production process of an airplane tail assembly. The components are sourced and assembled across multiple countries, illustrating the interconnectedness of global trade. The paragraph emphasizes the inefficiency of trying to produce goods in a single country and the importance of focusing on efficient production and trading for the rest. It also discusses the potential economic repercussions of imposing tariffs, using the US-Mexico trade relationship as an example.

10:06

💰 The Consequences of Protectionist Policies

This paragraph delves into the potential costs of protectionist measures, such as a hypothetical 20% border tax between the US and Mexico, and the retaliatory actions that could follow. It explains how these additional costs could significantly increase the prices of various consumer goods, affecting everyday life. The speaker argues that even if all manufacturing were to return to one country, it would not save the majority of lost jobs, which were due to automation. The paragraph concludes by advocating for the benefits of shared production and efficient cross-border trade.

Keywords

💡Protectionism

Protectionism refers to government policies that protect domestic industries from foreign competition by taxing imports. In the video, it is presented as a controversial trade policy that has been discussed in various political contexts, including the 2016 U.S. presidential election and Brexit debates. The script argues against protectionism, suggesting it leads to increased costs for consumers and is not an effective solution to job losses in manufacturing.

💡Trade Policy

Trade policy encompasses the laws, regulations, and agreements that govern international trade. The video uses Cuba and North Korea as examples of countries negatively affected by restrictive trade policies, and it critiques the idea of protectionism as a form of trade policy, which restricts imports to protect local industries.

💡Manufacturing Jobs

The term 'manufacturing jobs' refers to employment in industries that produce tangible goods. The script discusses the common perception that these jobs are being lost due to offshoring, but it clarifies that most job losses are due to automation, not trade agreements or foreign competition.

💡Automation

Automation is the use of technology to perform tasks without human intervention. The video explains that 87 percent of lost manufacturing jobs in the U.S. were due to automation, which has increased productivity, rather than offshoring or trade policies.

💡Shared Production

Shared production is a concept where different stages of manufacturing are carried out in different countries, leveraging each nation's strengths. The script uses the example of an airplane's tail assembly, which involves components from France, assembly in Mexico, and final assembly in Canada, to illustrate the complexity and benefits of shared production.

💡Supply Chain

A supply chain is the network of organizations, people, activities, information, and resources involved in producing and delivering a product or service. The video's speaker, a supply chain professional, emphasizes the interconnectedness of global supply chains and how they contribute to the efficiency and cost-effectiveness of production.

💡Economic Interdependence

Economic interdependence refers to the reliance of different economies on each other for trade and economic stability. The video argues that the global production network is so interconnected that it is impractical and costly to attempt to produce goods solely within one country.

💡NAFTA and TPP

NAFTA (North American Free Trade Agreement) and TPP (Trans-Pacific Partnership) are examples of trade agreements that have been criticized in the script as potentially unfair. They are presented as agreements that allow for the reimportation of cheaply produced goods, which some believe contributes to job losses in the U.S.

💡Productivity

Productivity refers to the efficiency with which goods and services are produced. The video script points out that improvements in productivity through automation have led to job losses in manufacturing, rather than trade or offshoring.

💡Consumer Goods

Consumer goods are products or services that are acquired by consumers for personal use. The script discusses the potential impact of protectionist trade policies on the affordability of consumer goods, suggesting that such policies could lead to higher prices for everyday products.

💡Economist Michael Porter

Michael Porter is a renowned economist known for his theories on competitive strategy. The video references Porter's idea that countries should focus on producing what they can produce most efficiently and trade for the rest, highlighting the importance of specialization and trade in a global economy.

Highlights

Cuba and North Korea are used as examples of countries negatively affected by trade policies that restrict imports and protect local industries.

The speaker challenges the notion of protectionism, a topic prevalent in recent political discussions such as the 2016 U.S. presidential election and Brexit debates.

The perception that trade is unfair and contributes to job losses in the U.S. is discussed, particularly in the manufacturing sector.

Contrary to popular belief, most U.S. manufacturing job losses are due to automation rather than offshoring, with 87% of jobs lost to productivity improvements.

The global impact of automation on manufacturing jobs is highlighted, showing it's not a phenomenon unique to the U.S.

The speaker, a supply chain professional in Mexico, describes the interconnectedness of global manufacturing networks.

An example of a multinational aerospace company's manufacturing process illustrates the complexity and global nature of product assembly.

Economist Michael Porter's concept of shared production for efficiency is introduced, emphasizing the importance of focusing on what a country can produce most efficiently.

The analogy of a general contractor coordinating different experts for a construction project is used to explain the benefits of shared production in the corporate world.

The interconnected and interdependent global manufacturing network makes it nearly impossible to produce products in isolation.

Shared production between the U.S. and Mexico represents 40% of the half a trillion dollars in trade between the two countries.

The potential economic impact of imposing a 20% border tax on imports from Mexico and the retaliatory measures is discussed.

The cost implications of increased duties on consumer products, such as cars and electronics, are highlighted, showing significant price increases.

The impracticality of dismantling the global production network and the limited job preservation from protectionist measures is emphasized.

The benefits of shared production, including higher quality products at lower costs and efficient use of resources, are underscored.

The importance of efficient cross-border movement for the effectiveness of shared production is stressed.

The speaker concludes by urging the audience to reconsider the idea of protectionism as a good deal, arguing against its merits.

Transcripts

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)