The Surprising End After 25 Years of Successful Outsourcing To Mexico


 

Nafta

1992 signing of N.A.F.T.A. by US and Mexico

When President Trump was merely Candidate Trump, he said that he was able to negotiate with Automaker Ford to end outsourcing and keep jobs in America. HIs campaign got a big boost, even though Ford said that it did not make any agreement with Trump to change its plans to outsource to Mexico. In the end, Trump’s version of their discussion has won out. Ford has announced that it will not outsource the Ford Focus to Mexico. Instead, the Ford Focus will be built… in China.

Let’s think about this for a moment. China has a GDP of $10.9 trillion, vs. $1.12 trillion for Mexico. The US exports $115 billion in goods to China, compared to $262 billion to Mexico. Let’s put that another way. China imports American goods worth 1% of its economy, vs. Mexico importing 22% of their economy. Nearly a quarter of the goods bought in Mexico are made in America. Mexico is incredibly loyal to U.S. products. American goods are insignificant to the Chinese economy. So. Which trading partner would you value the most? Maybe the one on your southern border?

What did Trump name his book, “The Art Of The Deal?” I’m pretty sure that Trump’s book doesn’t say that you should keep insulting your best customer. Nor does it say that you should then publically state that you are going to break your trade relations with your best partner. That kind of talk can lead to things like… Ford moving to China.

Ford’s decision to build the Ford Focus in China is bigger than you think! By building the Focus in China, it hands over two important markets to China. First, transfers critical knowledge needed to advance China’s fledgling automotive market. But not quite as much as you would think. China has been building up its experience in building cars, working for Volkswagen, Buick, Toyota, Honda, Audi, BMW, Fiat, and others. Ford is just the icing on the cake.

More importantly, it fulfills China’s ambitions in Robotics. China is already the world’s biggest buyer of Industrial Robots. With a massive $250 billion infusion of cash last year for automation, China is becoming the world’s biggest BUYER of robotics companies and the largest manufacturer of robots. While the 250,000 industrial robots built every year in America, Europe, and Japan are counted, the 100,000 Chinese manufactured robots are invariably omitted.

Why are they forgotten? Because they are often used by the firms that make them, they don’t register on the global market. Just one firm, Foxconn (the world’s largest corporation), has talked about building a million robots on their own. That’s a LOT of robots!

If we add China’s robots to global sales we will start with 350,000 robots in 2016. If sales continue to grow at the 35% rate of the past few years, in 2020 1.2 million robots will be sold. If one robot can do the work of just 10 people… that means that 12 million people will be replaced in 2020. In 2025, 5 million robots will be built. At the same rate of replacement, that’s 50 million jobs. Carry that forward for a few years and you can see the massive impact robotics will soon have on employment.

That seems like an impossible number! Yet, consider your first smartphone. There were earlier mobile phones, but the iPhone started the trend of a phone having a screen, GPS, music playback and other features. The iPhone is 10 years old. Before that most people didn’t have mobile phones, let alone smartphones. Today we manufacture 1.6 billion annually. Smartphones went from devices that no one knew that they needed to something that more than half of the world owns. Robots won’t be any different.

Also, just like the iPhone, robots will improve. The average robot of 2030 will be five to ten times as productive as robots today. Look at that original iPhone from 2007. Or your first iPad. Whoops! There was no iPad 10 years ago. It arrived in 2010. How advanced will industrial robots, or Artificial Intelligence, be in a decade? Meanwhile, you and I and the rest of the human race will be pretty much the same as the 2017 model.        

Back to today. Whether work goes to China or if it stays in the US, China will “own” the world’s workforce. That’s the future guys! The world spent the 20th century worrying about Communism taking over the world. Now we can spend the 21st century worrying about Chinese robots taking over our work. Who would have thought that Communist robots would take over the world! Gee. Thanks, President Trump!

OK. It’s not really Trump’s fault. Anyone sitting in the White House has the same options. Do you promote outsourcing, prevent it or just leave the issue alone. You can create all the penalties you want, but if the benefit is greater, you’re still going to outsource. Now that a lot of the work that has already been outsourced can be performed by AI’s robots and automation, that work WILL come back from Mexico to the US. After all, the robots cost the same regardless of where we put them, and if the work stays at home, we save the cost of shipping materials around the world.

Likewise, work that was going to go offshore will be re-evaluated and stay at home. But when we build new automated factories onshore that can compete with offshoring, old and inefficient America factories are going to upgrade. Instead of being built to Mexican workers, US goods are going to be built by America robots (well, Chinese robots rented by American’s).

What does all this mean? It means that if Trump does what he says, he will cut off manufacturing work in Mexico, and keep it in the US. He may be able to do that, but the work that is kept in the US will not create a lot of new jobs, due to automation. Taking jobs out of Mexico means that fewer Mexican will be employed, and unable to buy US products. If Mexico is unhappy about the new rules we create, they could retaliate and further reduce the sales of US products in Mexico.

If anyone in Washington is listening… a lot has happened in the last 25 years. It’s possible that back then America should have negotiated a different, better deal. But today the technology of outsourcing has changed. The White House believes that Mexico can be made to negotiate a deal that would have been more beneficial to the US in 1992. Perhaps it can. But will that deal truly benefit us in 2018? Maybe not. But the facts clearly show that Washington needs a better understanding of how the relationship with Mexico works today before we try to change the last quarter century of economic history.  Don’t agree? Then comment and tell us your opinion!

This entry was posted in Best Practices, Common Sense Contracting, Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s