TED@UPS
Augie Picado: The real reason manufacturing jobs are disappearing
Filmed:
Readability: 4.4
1,763,045 views
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.
Double-click the English transcript below to play the video.
00:12
When someone mentions Cuba,
0
880
1696
00:14
what do you think about?
1
2600
1200
00:17
Classic, classic cars?
2
5200
2056
00:19
Perhaps good cigars?
3
7280
1320
00:21
Maybe you think
of a famous baseball player.
of a famous baseball player.
4
9600
2096
00:23
What about when somebody
mentions North Korea?
mentions North Korea?
5
11720
2336
00:26
You think about those missile tests,
6
14080
2095
00:28
maybe their notorious leader
7
16200
1896
00:30
or his good friend, Dennis Rodman.
8
18120
2000
00:32
(Laughter)
9
20640
1496
00:34
One thing that likely doesn't come to mind
10
22160
2336
00:36
is a vision of a country,
11
24520
1760
00:38
an open economy,
12
26960
1256
00:40
whose citizens have access to a wide range
of affordable consumer products.
of affordable consumer products.
13
28240
4519
00:47
I'm not here to argue how these countries
got to where they are today.
got to where they are today.
14
35240
4616
00:51
I simply want to use them
as an example of countries and citizens
as an example of countries and citizens
15
39880
3696
00:55
who have been affected,
negatively affected,
negatively affected,
16
43600
3216
00:58
by a trade policy that restricts imports
17
46840
2280
01:01
and protects local industries.
18
49960
1520
01:04
Recently we've heard a number of countries
19
52480
2896
01:07
talk about restricting imports
20
55400
2176
01:09
and protecting their local,
domestic industries.
domestic industries.
21
57600
3016
01:12
Now, this may sound fine in a sound bite,
22
60640
3256
01:15
but what it really is is protectionism.
23
63920
2240
01:19
We heard a lot about this
during the 2016 presidential election.
during the 2016 presidential election.
24
67160
3760
01:23
We heard about it
during the Brexit debates
during the Brexit debates
25
71600
2456
01:26
and most recently
during the French elections.
during the French elections.
26
74080
3320
01:30
In fact, it's been
a really important topic
a really important topic
27
78680
2736
01:33
being talked about around the world,
28
81440
2136
01:35
and many aspiring political leaders
29
83600
2416
01:38
are running on platforms
positioning protectionism as a good thing.
positioning protectionism as a good thing.
30
86040
3560
01:42
Now, I could see why they think
protectionism is good,
protectionism is good,
31
90800
2776
01:45
because sometimes
it seems like trade is unfair.
it seems like trade is unfair.
32
93600
4120
01:51
Some have blamed trade
33
99120
1936
01:53
for some of the problems
we've been having here at home in the US.
we've been having here at home in the US.
34
101080
3136
01:56
For years we've been hearing
35
104240
1376
01:57
about the loss of high-paying
US manufacturing jobs.
US manufacturing jobs.
36
105640
3200
02:01
Many think that manufacturing
is declining in the US
is declining in the US
37
109560
3576
02:05
because companies are moving
their operations offshore
their operations offshore
38
113160
3136
02:08
to markets with lower-cost labor
39
116320
2416
02:10
like China, Mexico and Vietnam.
40
118760
2560
02:14
They also think trade agreements
sometimes are unfair,
sometimes are unfair,
41
122720
3656
02:18
like NAFTA
42
126400
1696
02:20
and the Trans-Pacific Partnership,
43
128120
1816
02:21
because these trade agreements
allow companies
allow companies
44
129960
3456
02:25
to reimport those cheaply
produced goods back into the US
produced goods back into the US
45
133440
3240
02:29
and other countries
from where the jobs were taken.
from where the jobs were taken.
46
137720
3136
02:32
So it kind of feels like the exporters win
47
140880
3096
02:36
and the importers lose.
48
144000
2000
02:38
Now, the reality is
49
146960
1216
02:40
output in the manufacturing
sector in the US
sector in the US
50
148200
2920
02:44
is actually growing,
51
152080
1736
02:45
but we are losing jobs.
52
153840
1576
02:47
We're losing lots of them.
53
155440
1240
02:49
In fact, from 2000 to 2010,
54
157400
2696
02:52
5.7 million manufacturing jobs were lost.
55
160120
3640
02:56
But they're not being lost
for the reasons you might think.
for the reasons you might think.
56
164560
3560
03:01
Mike Johnson in Toledo, Ohio
57
169120
1840
03:04
didn't lose his jobs at the factory
58
172080
1976
03:06
to Miguel Sanchez in Monterrey, Mexico.
59
174080
2456
03:08
No.
60
176560
1216
03:09
Mike lost his job to a machine.
61
177800
2280
03:13
87 percent of lost manufacturing jobs
62
181600
3296
03:16
have been eliminated
because we've made improvements
because we've made improvements
63
184920
2816
03:19
in our own productivity
through automation.
through automation.
64
187760
2560
03:23
So that means that one out of 10
lost manufacturing jobs
lost manufacturing jobs
65
191720
4696
03:28
was due to offshoring.
66
196440
2280
03:31
Now, this is not just a US phenomenon.
67
199680
2416
03:34
No.
68
202120
1216
03:35
In fact, automation is spreading
to every production line
to every production line
69
203360
3336
03:38
in every country around the world.
70
206720
1920
03:41
But look, I get it:
71
209720
1616
03:43
if you just lost your job
72
211360
1496
03:44
and then you read in the newspaper
73
212880
1656
03:46
that your old company
just struck up a deal with China,
just struck up a deal with China,
74
214560
2616
03:49
it's easy to think you were just replaced
75
217200
2456
03:51
in a one-for-one deal.
76
219680
1200
03:54
When I hear stories like this,
I think that what people picture
I think that what people picture
77
222080
2976
03:57
is that trade happens
between only two countries.
between only two countries.
78
225080
3280
04:01
Manufacturers in one country
79
229120
2416
04:03
produce products and they export them
80
231560
1936
04:05
to consumers in other countries,
81
233520
2640
04:09
and it feels like
the manufacturing countries win
the manufacturing countries win
82
237000
3016
04:12
and the importing countries lose.
83
240040
2560
04:15
Well, reality's a little bit different.
84
243520
2520
04:19
I'm a supply chain professional,
85
247400
1576
04:21
and I live and work in Mexico.
86
249000
1760
04:24
And I work in the middle
87
252520
1256
04:25
of a highly connected network
of manufacturers
of manufacturers
88
253800
3176
04:29
all collaborating from around the world
89
257000
2136
04:31
to produce many
of the products we use today.
of the products we use today.
90
259160
2400
04:34
What I see
91
262600
1216
04:35
from my front-row seat in Mexico City
92
263840
2576
04:38
actually looks more like this.
93
266440
2320
04:41
And this is a more accurate depiction
of what trade really looks like.
of what trade really looks like.
94
269680
4080
04:46
I've had the pleasure of being able to see
95
274616
2000
04:48
how many different products
are manufactured,
are manufactured,
96
276640
2496
04:51
from golf clubs to laptop computers
97
279160
2816
04:54
to internet servers, automobiles
98
282000
2576
04:56
and even airplanes.
99
284600
1200
04:58
And believe me, none of it
happens in a straight line.
happens in a straight line.
100
286520
2760
05:02
Let me give you an example.
101
290440
1286
05:05
A few months ago, I was touring
the manufacturing plant
the manufacturing plant
102
293520
4256
05:09
of a multinational aerospace company
103
297800
2976
05:12
in Querétaro, Mexico,
104
300800
1280
05:14
and the VP of logistics points out
a completed tail assembly.
a completed tail assembly.
105
302920
3560
05:19
It turns out the tail assemblies
are assembled from panels
are assembled from panels
106
307440
4376
05:23
that are manufactured in France,
107
311840
2496
05:26
and they're assembled in Mexico
108
314360
2216
05:28
using components imported from the US.
109
316600
2920
05:32
When those tail assemblies are done,
110
320040
2016
05:34
they're exported via truck to Canada
111
322080
2456
05:36
to their primary assembly plant
112
324560
2176
05:38
where they come together
113
326760
1256
05:40
with thousands of other parts,
114
328040
2416
05:42
like the wings and the seats
115
330480
2376
05:44
and the little shades
over the little windows,
over the little windows,
116
332880
2896
05:47
all coming in to become
a part of a new airplane.
a part of a new airplane.
117
335800
2400
05:51
Think about it.
118
339480
1200
05:53
These new airplanes,
119
341320
1456
05:54
before they even take their first flight,
120
342800
2576
05:57
they have more stamps in their passports
121
345400
2456
05:59
than Angelina Jolie.
122
347880
1240
06:02
Now, this approach to processing
goes on all around the world
goes on all around the world
123
350760
3496
06:06
to manufacture many of the products
124
354280
2496
06:08
we use every day,
125
356800
2536
06:11
from skin cream to airplanes.
126
359360
2320
06:14
When you go home tonight,
take a look in your house.
take a look in your house.
127
362520
2440
06:17
You might be surprised to find
a label that looks like this one:
a label that looks like this one:
128
365680
3200
06:22
"Manufactured in the USA
from US and foreign parts."
from US and foreign parts."
129
370080
4200
06:27
Economist Michael Porter
130
375160
2176
06:29
described what's going on here best.
131
377360
1960
06:31
Many decades ago, he said
that it's most beneficial for a country
that it's most beneficial for a country
132
379840
4736
06:36
to focus on producing the products
it can produce most efficiently
it can produce most efficiently
133
384600
4376
06:41
and trading for the rest.
134
389000
1760
06:44
So what he's talking about here
is shared production,
is shared production,
135
392000
2760
06:47
and efficiency is the name of the game.
136
395520
1880
06:50
You've probably seen an example of this
137
398720
2536
06:53
at home or at work.
138
401280
1360
06:55
Let's take a look at an example.
139
403800
1736
06:57
Think about how your house was built
140
405560
2120
07:00
or your kitchen renovated.
141
408520
1400
07:02
Typically, there's a general contractor
142
410600
2456
07:05
who is responsible
for coordinating the efforts
for coordinating the efforts
143
413080
2216
07:07
of all the different contractors:
144
415320
1616
07:08
an architect to draw the plans,
145
416960
1640
07:11
an earth-moving company
to dig the foundation,
to dig the foundation,
146
419480
2936
07:14
a plumber, a carpenter and so on.
147
422440
1880
07:17
So why doesn't the general contractor
148
425000
1856
07:18
pick just one company
149
426880
2616
07:21
to do all the work,
150
429520
1216
07:22
like, say, the architect?
151
430760
1200
07:24
Because this is silly.
152
432600
1200
07:26
The general contractor selects experts
153
434760
2296
07:29
because it takes years
154
437080
1736
07:30
to learn and master
155
438840
1736
07:32
how to do each of the tasks it takes
to build a house or renovate a kitchen,
to build a house or renovate a kitchen,
156
440600
3776
07:36
some of them requiring special training.
157
444400
2280
07:40
Think about it:
158
448040
1216
07:41
Would you want your architect
to install your toilet?
to install your toilet?
159
449280
3440
07:45
Of course not.
160
453320
1416
07:46
So let's apply this process
to the corporate world.
to the corporate world.
161
454760
2840
07:50
Companies today focus on manufacturing
162
458200
2576
07:52
what they produce best
and most efficiently,
and most efficiently,
163
460800
3336
07:56
and they trade for everything else.
164
464160
1840
07:58
So this means they rely
165
466680
2696
08:01
on a global, interconnected,
interdependent network of manufacturers
interdependent network of manufacturers
166
469400
4976
08:06
to produce these products.
167
474400
1256
08:07
In fact, that network is so interconnected
168
475680
2056
08:09
it's almost impossible
169
477760
1240
08:12
to dismantle and produce
products in just one country.
products in just one country.
170
480080
3360
08:16
Let's take a look
at the interconnected web
at the interconnected web
171
484120
2296
08:18
we saw a few moments ago,
172
486440
1656
08:20
and let's focus on just one strand
173
488120
2296
08:22
between the US and Mexico.
174
490440
2080
08:26
The Wilson Institute says
that shared production represents
that shared production represents
175
494640
2816
08:29
40 percent of the half a trillion dollars
in trade between the US and Mexico.
in trade between the US and Mexico.
176
497480
5080
08:35
That's about 200 billion dollars,
177
503080
2656
08:37
or the same as the GDP for Portugal.
178
505760
2960
08:41
So let's just imagine
179
509720
2536
08:44
that the US decides to impose
180
512280
3096
08:47
a 20 percent border tax
on all imports from Mexico.
on all imports from Mexico.
181
515400
3720
08:51
OK, fine.
182
519840
1216
08:53
But do you think Mexico is just
going to stand by and let that happen?
going to stand by and let that happen?
183
521080
4360
08:58
No. No way.
184
526120
1696
08:59
So in retaliation,
they impose a similar tax
they impose a similar tax
185
527840
3056
09:02
on all goods being imported from the US,
186
530920
2840
09:06
and a little game of tit-for-tat ensues,
187
534640
2240
09:10
and 20 percent -- just imagine
that 20 percent duties
that 20 percent duties
188
538200
3456
09:13
are added to every good,
product, product component
product, product component
189
541680
3496
09:17
crossing back and forth across the border,
190
545200
2696
09:19
and you could be looking at more
than a 40 percent increase in duties,
than a 40 percent increase in duties,
191
547920
3336
09:23
or 80 billion dollars.
192
551280
1760
09:25
Now, don't kid yourself,
193
553800
1776
09:27
these costs are going to be passed along
194
555600
2296
09:29
to you and to me.
195
557920
2240
09:33
Now, let's think about what impact
that might have on some of the products,
that might have on some of the products,
196
561960
5256
09:39
or the prices of the products,
that we buy every day.
that we buy every day.
197
567240
2720
09:42
So if a 30 percent increase in duties
were actually passed along,
were actually passed along,
198
570600
4416
09:47
we would be looking at some
pretty important increases in prices.
pretty important increases in prices.
199
575040
3640
09:51
A Lincoln MKZ would go
from 37,000 dollars to 48,000.
from 37,000 dollars to 48,000.
200
579640
3800
09:56
And the price of a Sharp 60-inch HDTV
201
584760
3360
10:00
would go from 898 dollars
to 1,167 dollars.
to 1,167 dollars.
202
588800
5216
10:06
And the price of a 16-ounce jar
of CVS skin moisturizer
of CVS skin moisturizer
203
594040
4136
10:10
would go from 13 dollars to 17 dollars.
204
598200
3440
10:14
Now, remember, this is only looking
at one strand of the production chain
at one strand of the production chain
205
602240
5376
10:19
between the US and Mexico,
206
607640
1376
10:21
so multiply this out
across all of the strands.
across all of the strands.
207
609040
2800
10:24
The impact could be considerable.
208
612600
1656
10:26
Now, just think about this:
209
614280
2656
10:28
even if we were able
to dismantle this network
to dismantle this network
210
616960
3240
10:33
and produce products in just one country,
211
621480
3216
10:36
which by the way is easier said than done,
212
624720
2496
10:39
we would still only
be saving or protecting
be saving or protecting
213
627240
3416
10:42
one out of 10 lost manufacturing jobs.
214
630680
2896
10:45
That's right, because remember,
215
633600
2040
10:49
most of those jobs, 87 percent,
216
637400
2656
10:52
were lost due to improvements
in our own productivity.
in our own productivity.
217
640080
2680
10:55
And unfortunately,
those jobs, they're gone for good.
those jobs, they're gone for good.
218
643520
3160
11:00
So the real question is,
219
648160
1560
11:02
does it make sense for us
to drive up prices
to drive up prices
220
650520
2336
11:04
to the point where many of us can't afford
the basic goods we use every day
the basic goods we use every day
221
652880
5520
11:11
for the purpose of saving a job
222
659280
2216
11:13
that might be eliminated
in a couple of years anyway?
in a couple of years anyway?
223
661520
2480
11:18
The reality is that shared production
224
666040
2016
11:20
allows us to manufacture
higher quality products
higher quality products
225
668080
3656
11:23
at lower costs.
226
671760
1216
11:25
It's that simple.
227
673000
1200
11:26
It allows us to get more
228
674960
1856
11:28
out of the limited resources
and expertise we have
and expertise we have
229
676840
2416
11:31
and at the same time
benefit from lower prices.
benefit from lower prices.
230
679280
3200
11:35
It's really important to remember
231
683560
2056
11:37
that for shared production
to be effective,
to be effective,
232
685640
2816
11:40
it relies on efficient cross-border
movement of raw materials,
movement of raw materials,
233
688480
5416
11:45
components and finished products.
234
693920
1960
11:48
So remember this:
235
696960
1200
11:51
the next time you're hearing somebody
try to sell you on the idea
try to sell you on the idea
236
699120
4056
11:55
that protectionism is a good deal,
237
703200
2320
11:58
it's just not.
238
706440
1576
12:00
Thank you.
239
708040
1216
12:01
(Applause)
240
709280
2760
ABOUT THE SPEAKER
Augie Picado - Border specialistAugie Picado is the country manager for UPS Mexico.
Why you should listen
By leading strategy and operations for UPS across Mexico, Augie Picado has developed a nuanced familiarity with the day to day of cross-border trade. Prior to this position, Picado led various aspects of UPS's marketing strategy. Recent positions include vice president of marketing for the Americas region and the senior director of marketing development in Atlanta. He began his career with the company in 1985 as a loader in New Jersey.
Picado earned his BA from Montclair State University and his MBA from Fairleigh Dickinson University, both in New Jersey. He also earned a masters certificate in project management from George Washington University in Washington, D.C.
Augie Picado | Speaker | TED.com