Scott Ball / Rivard Report
Today, the United States has a record in manufacturing and exporting, and international trade is a primary cause for this growth.
Trade is a fundamental creator and supporter of jobs. It is impossible to manufacture and export if you do not import parts, raw material, technology, services – whichever components are necessary to manufacture.
That’s trade: pure and simple.
The act of moving one ocean container of imported goods at a U.S. seaport supports three jobs. Numbers from 2013 show that U.S. exports alone supported close to 11.5 million jobs, and trade with Mexico supports almost half of this number. This goes to show that “Made in USA” jobs really matter.
During that year, the U.S. exported to more than 230 countries, and more than a third of that was to Canada and Mexico. Think about that. North America supplies itself. North America is an exemplary trade bloc.
NAFTA is not about the U.S. selling a television set to Mexico or Mexico selling an automobile to the U.S. The complete and absolute supply chain and market are symbiotic – one cannot exist without the other. Any interruption will cause economic damage and fierce job loss, especially in the U.S.
It is easy and popular to point fingers at other countries when there is a shift in manufacturing jobs. Don’t blame other countries. Blame the R2D2s and C3POs.
Take General Motors, for example. GM is cranking out more automobiles than ever before with less workers. What is going on? More with less. This means technology and automation are the culprits for jobs fading away.
Yes, manufacturing has come back from the Far East (the famous “re-shoring” term comes to mind), but to highly automated manufacturing. Steel once made in China is now being made here again at highly sophisticated high-tech mini-mills that use scrap metal. By 2020 the U.S. will be the most competitive country in the world in manufacturing, mostly due to high-tech automation. The economics are better than re-training a person.
And on a positive note, confidence in the U.S. economy has caused healthy foreign direct investment. The job creation caused by this, in combination with other things, has offset whatever jobs migrated out of the U.S.
We also like to use the term “cheap labor” when we refer to Mexico or other countries. This needs to be put into perspective – cheap labor has a sweat shop connotation to it. Mexico, for example, has very strict labor laws, and costs are more in tune to economies of scale than “cheap labor.” Ironically, as the peso slides due to the pessimism in the market triggered by the grim rhetorical climate on trade, it makes manufacturing there more cost effective.
I am a big supporter of binational shared production. A plant in Mexico or the U.S. has an intrinsic supply chain value creating binational jobs and growth. Let’s take Toyota Motor Manufacturing of Texas (TMMTX) in San Antonio, which assembles Tundra trucks. The plant’s chassis supplier is in Monterrey, Mexico. The chassis are brought up by rail service, which must be an efficient system for such critical components to make it on time. Air cargo services have been developed for automotive parts.
The tier suppliers on the TMMTX campus not only supply the San Antonio plant but also automotive plants in Mexico. Parts manufactured in Mexico supply the Toyota plant in San Antonio as well. Partially assembled components cross the border multiple times. This is not endemic to San Antonio. Plants in Mexico and the U.S. are all interconnected to include other areas of the world as well. Manufacturing, trade, and job creation are integrated in North America. This is what we call symbiotic supply chains.
I haven’t even touched on the most important player in all of this: the U.S. consumer. Competitive prices at retail outlets are a result of trade – just ask Walmart – even though Walmart is not a retailer but rather a very sophisticated, well lubricated logistics machine. That’s why your automobile costs $30,000 and not $80,000.
Threatening manufacturers that may migrate a plant to another country with heavy tariffs only raises the cost to the consumer. Ford’s recent decision to move some of their manufacturing to their Mexico plants was a decision based on the need to re-tool a U.S. plant for a newer model. Manufacturers that have plants throughout the world have a grander vision of how things should work. It is not one against the other, it’s globalization. These organizations see what is beneficial between regions, and protectionism can make all this come to a screeching halt. Protectionism is a strong basis for abysmal recessions in economies, and South Texas should be worried.
Let’s take Corpus Christi, for example. In recent years, this Texas city has been a success story in attracting domestic and foreign direct investment. Manufacturing and energy companies from all over the world have invested more than $40 billion for various reasons: 1) a friendly business environment, 2) labor availability, 3) cheap gas, 4) excellent logistics, and 5) a closeness to Mexico.
Corpus Christi is becoming a primary supplier of natural gas to Mexico – primarily to Monterrey, a top industrial center in the country and a key component to North American business. Gross shifts in trade policy can and will affect manufacturing which in turn will affect the fuel supply to places like Monterrey, not to mention jobs created by this foreign direct investment.
Other advancements in binational trade also will be damaged. Let’s take, for example, the recent U.S. Customs-Mexico Aduana protocols. Though both countries have shared cooperative protocols in the past, such as binational agricultural export inspections, the most recent agreements regarding customs has special significance. For the first time in history Mexico customs is on U.S. soil clearing automotive parts at the Laredo International Airport bound for Mexico.
Though this operation is small it has teeth. First, it is air cargo which basically guarantees non-tampering security in pre-cleared goods. The goods arrive to Mexico already cleared by Mexico customs. This project is a prototype and by no means is it endemic to Laredo. In the foreseeable future, this project may very well be done on intermodal transportation from other parts in the U.S. such as Chicago.
In other words, Mexico customs will clear goods from the manufacturing or distribution source in a secure location in Chicago, then the cargoes will be securely transported to destinations within Mexico already cleared by customs. And by the same token, U.S. Customs is now in Chihuahua clearing cargoes bound for the U.S. and for the first in history, though under very strict conditions and protocols, the U.S. agents are armed. Mexico adjusted laws for this to happen. Until recently this was unheard of.
Great examples of binational cooperation in trade. This could all vaporize under a protectionist umbrella.
It also is very naïve and foolish to believe that other countries will be willing to buy U.S. goods without reciprocal arrangements. The rhetoric today is very confusing to people. We hear how the incoming government will support U.S. agriculture. And at the same time, we hear of the abandonment of the Trans-Pacific Partnership (TPP) which is a huge booster to U.S. agriculture. By the way, agriculture in the U.S. is suffering due to a lack of U.S. workers willing to do the jobs. U.S. farmers are obliged to bring in workers from Mexico and other places on temporary HIB-A work visas to get the fruits and vegetables to your table. Go figure.
A renowned air conditioning company has its plant in Monterrey with its distribution center in San Antonio. This not only helps consumers keep their homes cooled here at competitive prices, but it has more than supported various U.S. trucking companies in business in transporting the units to the U.S. market. The drivers are thankful for the work and jobs.
I attend the San Antonio Transportation Association monthly luncheons as much as I can. And without fail, the trucking companies attending are always looking for drivers. There is a lack of drivers in the United States. And as manufacturing and trade grows so will the need for these jobs. These are good paying, honorable jobs.
So, if a manufacturing plant migrates, retraining is in order. As well as reassignments. Jobs abound in the United States. Ed Rendell, the former governor of Pennsylvania, has a precise view on this. But to be honest, the part of society involved in open and free trade, which is a minority, has done a very poor job in educating and sharing information with John and Jane Q. Public. Me included.
We have behaved like elitists. We have done too little too late in promoting and marketing trade in a way that is acceptable to society. And this is when populism rattles its sabre.