Future Of American Manufacturing Strategy

With no fees or minimums on checking accounts. It's no wonder the Capital One bank guy is so passionate about banking with Capital One. If he were here, he wouldn't just tell you about no fees or minimums. He'd also talk about how most Capital One cafes are open seven days a week to assist with your banking needs. Yep, even on weekends. It's pretty much all he talks about, in a good way. What's in your wallet? Terms apply. See Capital One dot com slash bank. Capital One N From the New York Times, I'm Natalie Kitrow. This is the Da ily About a year into Trump's global trade war, China hasn't just survived. It's emerged stronger than ever on the world stage. And that's because after years of careful planning, China Today, my colleague Keith Bradsher explains how despite Trump's best efforts, China's robot-powered superfactories are taking over the world . It's Tuesday, March 2 4th. Keith, it's been about one year of tariffs on China, one year of I think it's fair to say economic war on China, a crazy year, honestly, which was capped off by a Supreme Court ruling saying many of these tariffs were illegal. And what we're here to do today is figure out what did the last year amount to? And you are here because you've been covering trade for approximately one billion years. Is that right? Since nineteen ninety one, yes, thank you. Okay, close to a billion. And so what we want is for you to help us understand what these tariffs have wrought when it comes to China . These tariffs are changing China's trade in important ways, but not nearly as much as the Trump administration expected. Yes, China's not shipping as much to the United States as it was before, but China's also not buying as much from the United States as it was before. The overall trade surplus of China, how much its exports exceed how much it's buying from the rest of the world is still growing. It became even more immense last year when it reached one point two trillion dollars. One point two trillion. Just put that in context, how big of a deal is that? 1.2 trillion is bigger than the economies of most of the countries in the world. And what was particularly striking about it was that the trade surplus for China in manufactured goods, which create a lot of jobs, a lot of high skilled, well-paid jobs, that trade surplus was even bigger. China's truly become the factory of the world, the dominant producer of everything from basic materials like steel and chemicals, all the way through electric cars and solar panels. Is that the most aggressive tariffs against China in decades didn't really stop China from dominating in manufacturing. Why? What explains that? There are four reasons. One, China ramped up its sales in a hurry to other markets, not just in Asia, but in Africa, Latin America, and in Europe. Second, China ramped up sales of goods that are indirectly reaching the United St ates, like exporting the parts of a vacuum cleaner or some other system that then gets assembled in another country and then shipped into the United States. So a lot of indirect shipments to the United States through other countri es. Third, China has managed to weaken its currency a lot. That makes China's goods much cheaper in foreign markets, and it makes foreign goods like American goods or European goods very expensive in China. But the last reason, and in some ways the most important reason, why China is producing such enormous trade surpluses is that it is years ahead right now in advanced manufacturing. Hmm. Pretty much anything can be made less expensively in China than anywhere else. They're not just the least expensive place to make clothing or furniture. Now they're the least expensive place to make cars, batteries, all these other technolog ies. And a big part of that is because they're making them in very advanced factories with more robots than anyone else in the world. Okay, just to spell this out, you're saying because China's factories are just so automated, the country's able to produce a ton of stuff, even advanced products, extremely cheaply, so cheaply that China has become almost immune to Trump's tariffs. They're not completely immune, but they are a lot more resistant than anyone else expected. Okay. So I wanna understand, what exactly does that automation inside China's factories look like? Let me tell you about a car factory I visited some months ago in eastern Ch ina. The very start of the process is making the car body components, which used to be made mostly out of steel. This was making it out of aluminum, which is lighter weight, works better with an electric car. It's much harder to do, but they were doing it in a more advanced way than you see practically anywhere el se. There were robotic sleds carrying bars of aluminum to an automated elevator, up, up, up, up to the top of a machine the size of a McMansion in the United States. Wow. I mean this piece of apparatus was enormo us. And the elevator automatically dumps the alumina ingots in a furnace, and that furnace turns them into molten aluminum that is then poured into precisely the shapes of the various car body components that are needed. And then those car parts are taken still by human drivers with forklifts, although that will be automated at some point as well, into a very large warehouse from which they then feed the assembly line. The assembly line is 820 robots. It's a so-called dark factory. Dark factory because humans aren't involved and robots don't need light to function. That's exactly right. You can turn out the lights, they keep making whatever they're making and they are assembling all these components into the skeleton of the car. Now some of that you find elsewhere in other car factories, elsewhere in the world. But the integration of everything is very impressive. It was also using artificial intelligence. Cameras were taking lots of pictures of the finished car and comparing them in detail to a database of other cars that were viewed as very well put together and identifying if there were any flaws that needed to be corrected. So AI is doing quality control in this case. AI is doing quality control. AI is involved in tracking practically every step in the process. What you're seeing in China more than any other country is the adaptation of AI to manufactur ing And how does that compare to what you see in the rest of the world to the rest of the world's factories? So other countries are no longer as automated. In fact, Germany, Japan, the United States now have factories that are less automated, that have fewer robots than China. China now has a higher number of robots for every 10,000 manufacturing workers than any of those three countri es. China also is installing more factory robots each year now than the entire rest of the world combined. Aaron Powell How did China get to the point where it is more advanced at manufacturing than the US, than Germany, than Japan? These are countries that were all known at one point for being manufacturing titans for specializing in this. How did China get here? The rise of advanced manufacturing in China is a remarkable story. It's not just an economic story. It's also an education story, it's a culture story, it's a demographic stor y. You have to go back to the mid-2010 s. China had really already emerged But that wasn't all they wanted to do. They didn't want to just be the manufacturing power that made the most things. They wanted to make the best things, the most advanced technology products. At the same time though, the supply of young Chinese workers has peaked and is rapidly dropping thanks to stringent family planning policies. China was starting to realize that its so-called one-child policy had produced an unintended result. The policy significantly reduced birth rates, especially in rural areas, the source from which the bulk of China's floating labor population comes. China had been restricting families from having more than one ch ild for several decades by then, and the policy had gone too far. The birth rate was collapsing. As Americans struggle with pink slips, Chinese factories are putting up red signs seeking workers. Right now there are just too many factories looking for laborers, this recruiter says the pressure is on to fill spots. So much of a drop they began worrying are we going to have enough young people coming into the workforce? And so that put a lot of pressure With fewer young people available for work, there are concerns the country may not be able to sustain the fast economic growth that has transformed China into the world's second largest economy after the United States. Has offset a falling birth rate. But China allows almost no immigration whatsoever. In the U.S., it's over a million green cards a year. In China, it's several thousand 10-year residency cards, which isn't even a full green card, it's just 10 years. In a vast country, China has fewer foreigners per capita living in it than even North Kore a. Essentially what you're saying is without immigration and with a rapidly falling birth rate, China just doesn't have enough bodies to sustain itself as the world's factory, especially as their ambitions are growing. China doesn't have enough workers unless it does an extraordinary amount of automation. Because this is not just about a declining number of workers Aaron Powell And why? Why don't people want these jobs? People don't want these jobs because they are much, much better educated than the previous generation. With the one child policy, couples put everything they had into making sure that child has the best possible educ ation. Families like one that I know in northwestern China. The father is an illiterate coal miner, working for almost nothing in illegal coal mines. The mother, also illiter ate, works as a checkout clerk in a corner store. But they put everything into training their daughter, and when I first started going every two years to meet that family in 2006, I noticed in seventh grade she was already doing algebra that was ahead of the algebra in many American schools. And here she was in a tiny village going to a school for the children of the illiterate, and she did go off to college . And so the result is a nation of not just high school graduates, but now more than half the young people are college graduates as well. And the last thing they want to do is a rote job on a factory floor doing the same assembly day after day. There's also a Confucian tradition that working with your hands is somehow inferior to other forms of work, such as writing. That tradition has made many families reluctant to see their only child take a factory job, and often their only child shares that reluctance. So while the manufacturing sector is still growing, is still producing a vast cornucopia of goods, there is a mismatch between these vast numerous factories and a labor force of only children who went to college and are often wary of factory work. The result, as the 2010s unfolded, was a real anxiety among business leaders and government leaders. Where were the factory workers of tomorrow going to come from . And their response was to create a very ambitious program to automate the nation's factories . We'll be right back. This podcast is supported by the American Petroleum Institute. Energy is all around. Today, America's natural gas and oil keeps the country moving, growing, and building, and makes every day a little easier. But energy demand is growing, and the infrastructure built today will help secure a more affordable, reliable future with enough energy to go around. When America builds, America wins. The right technology can strengthen human judgment. That's why Deloitte brings together AI and data analytics with multidisciplinary teams who can help you connect the dots across your enterprise, from risk to operations to customer needs, so opportunities don't slip by and surprises don't spread. Because the smarter your systems, the sharper your instincts. That's how technology makes people better at what they do best. Deloitte Together Makes Progress. Learn more at Deloitte.com slash Together Makes prog ress. In theory, I knew that this kind of thing can happen in any famil y. Upstanding citizens are always turning out to be secret criminals, and I wouldn't even call my cousin Alan, an upstanding citizen. But it's one thing to know and another thing to understand. Alan, murder, me? What the hell was Alan think ing? From Serial Productions and the New York Times, M I'm M M. Gesson, and this is the Idiot. Out March 26th, wherever you get your podc ast. Okay, Keith. So what exactly does China do? How did China become, I think it's fair to say the, automation capital of the world ? China had a plan for this. China's big on plans. It's a country that still does five-year plans. And what happened in 2015 was they did a 10-year plan for good measure, and that was called Made in China 2025 to make China globally competitive in 10 major sectors, whether it was semiconductors, electric cars, advanced materials like rare earth magnets. Perhaps most important, China decided it really wanted to move ahead in robotics. And why was there such an emphasis on robotics? Just explain that to me. China doesn't want only to be the country that makes advanced products. China also wants to be the country that makes all the equipment to produce advanced products. And the equipment, whether it's for semiconductors, whether it's for electric cars, whether it's for solar pan els, the equipment for all of these categories involves a lot of automation. And so China put the investments into doing the robotics, the factory automation needed to manufacture those advanced products. So they're not just investing in building EVs or building planes or semiconductors. They're investing in building factories and the equipment and the technology that you need to build all these other things. Like building advanced factories was an end in and of itself. And robotics, you're saying, was essential to that. That's exactly right. They are really trying to make sure that the whole supply chain of advanced manufacturing happens in China. It's not enough for them to take delivery of the latest factory equipment from the West. Now they want to be making all of the latest factory equipment themselves and all of the latest automation themselves. And so how did China execute this made in China plan. They threw money at these projects in incredible s ums. Hundreds of billions of dollars in government investment funds, going into many different tech startups in all kinds of areas. Well, China has been on a worldwide buying spree, as we all know, announcing an unprecedented $207 billion worth of mergers and acquisitions this year. If you want to take a look at the China didn't have a crucial step in China's advances in the latest manufacturing came at the start of twenty seventeen. Some breaking news coming through on the Chinese attempts to buy CUKA. CUKA says that the US has given a green light to the takeover by midday A Chinese company was allowed by the United States and Germany to buy Kuka, a German company that in many ways led the world in making factory robots. People didn't realize at the time how important this was. If you want an example of a company that's moving up the food chain here in China from low-value manufacturing to high-end manufacturing innovation robotics and really Medea is the one to watch. It bought Cuka the German robot maker about a year ago. I've been going to car factories all over the world for 30 years. Kukka robots are everywhere in those factories. And since the start of 2017, all of a sudden, that know-how, that manufacturing capability shifted to China. Today,, man manyy, many Cuka robots are made in Shanghai. And the knowledge associated with that, not just of how to build robots, but everything the robots build like cars has moved to Shanghai and to the rest of China as well. They essentially just imported that expertise wholesale. They bought the company and imported and transferred the expertise to China. Exactly right . And this helped China become very strong in roboti cs. What's remarkable is that China has become so good at making factory automation and makes it in such enormous quantities that nowadays you don't just find advanced robots in car factories. You find them even in small back alley operations. So last year, for example, I was in a gritty industrial neighborhood of small storefront workshops in Guangzhou in southern China, and I went to a small operation that was just welding together sheets of steel to make backyard barbecues for sale to local canteens in developing countries. So something pretty basic. Very basic. Ten workers, no air conditioning, open to the street, even though the temperature was approaching 100 degrees, several guys with welding torches, big stacks of steel sheets around. It was very basic. And yet the owner said, I'm about to get a robot. And I said, how does that work out? How is how does that make sense for you? And he said, well, a couple of years ago, if I wanted to buy a robot to automate part of my business here, it would have cost me $140,000. Now, it costs me a quarter of that. And all that needs to happen is one of my workers does the motions for welding together these sheets of steel to make the sides of the oven. A camera on the Chinese supplied system watches exactly how the worker welds the steel, and it then automatically programs the robot to do exactly the same welds. Amazing. Incredible. Even in China, with wages much lower than in the United States, it's now cost effective, he said, to replace a worker, or actually several workers, with a robot, because they said, look, this robot is can do this 24 hours a day. The workers are eight hours a day, and it's hard to find workers these days who want to work when it's 95 degrees. Welding, which is hot work, in a storefront workshop with no air conditioning. How do workers feel about this, Keith? Obviously, in the United States, the idea of automating all these factory jobs has produced a ton of anxiety. And I can imagine in China it also might not feel great to see a robot take over. But at the same time, you've said there's a reluctance among the Chinese to take these factory jobs. So how's it playing? There is far less hostility to automation than in any other country I know about. Because right now there are more factory jobs than there are factory work ers. The total output of these factories is just going up and up and up with exports. So what you're seeing with automation is often the same number of workers making more and more and more. And where are all these goods going? They're going into exports. They're going to other countries. So the workers who are losing their jobs because of China's rise in automation are not in China. They're often in other countries that have not invested as much in the latest automation and in the latest quality control and in the latest inventions. Germany, for example, is losing close to 10,000 factory jobs a month right now. And a big, big part of that is the rapid rise of China's exports taking away business from Germany's factories. And that's an issue in Germany, but that's not an issue for factory workers in China. Right. It makes sense that if you're not actually seeing the main downside of automation, you might not be as opposed to it. Keith, where does the US stand in terms of catching up? And is it fair to assume that in order to genuinely compete with China, we'd have to make factories more like China's heavily automated as much as possible . The US is going to have trouble being competitive if it doesn't start investing very heavily as well in factory automation. There has been some replacement of workers through automation in the car industry in the United States as well. But the car industry in the United States is an interesting example of how dependent the rest of the world is becoming on How so car factories in the United States now buy a lot of their automation from China. There is a product that is more than two-thirds the length of a football field that stamps steel sheets into the shapes for various car body components. So those huge highly automated pieces of equipment that are installed in Chinese factories are also being shipped by China in some cases to American factories because the United States doesn't make anything that really is competitive in that category. It's interesting. You're basically saying either way, China wins. If we want to compete, we have to buy their equipment to do that. That's increasingly true. There is good Swedish, German, Japanese, and Korean equipment, but a lot of the least expensive equipment these days is made in China. So China now has a broad lead in a wide range of automation technologies and is determined to hold on to that lead and is continuing to invest in preserving that lead. I want to ask about what all this says about the purpose of competing with China on manufacturing. Because what you've said makes me wonder: if we actually do succeed in bringing manufacturing back to the US, will that mean that we actually get the kind of jobs that people seem to want? In China, you've said many people don't want factory jobs anymore, but in the US, a lot of people do. It was a big reason people voted for Trump because they thought he was gonna bring those high quality jobs back. But what you've described is a future where any factory job that comes here is probably gonna look a lot Today's factories are much more pleasant to work in than they were even ten years ago, and certainly much more pleasant than twenty or thirty years ago. The ergonomics are better, the noise is less, the air quality is much better. All of this automation does mean that factory jobs are very attractive jobs if you can get them now. And the question is going to be whether the US can catch up enough to be competitive. And it's a question not just for the United States, but also for Europe, for Japan, for South Korea, and for emerging industrialized economies like Brazil, India, Mexico, and Indonesia. It's a big question for the whole rest of the world. What kind of factory jobs will they be able to offer their people? Aaron Powell Well, and how many, right? Aaron Powell And how many, yes. But if you have a lot of production, if you have a large market, automation will gradually erode the total number of jobs, but you end up with different kinds of jobs. You end up with jobs in designing the robots that make things instead of doing a rote task again and again. You end up with jobs creating new products. And the question is whether the US, which to some extent had that chain 30 and 40 years ago, can manage to revive it. Just to turn back to Trump's tariffs on China, if so far they haven't stopped the country from exporting so much stuff across the world, why is the Trump administration still trying to reinstate tariffs against China. We've heard of these new investigations into unfair trade practices that supposedly will put the US on the path to slapping new tariffs on China. Why do that if it doesn't actually seem that tariffs stood a chance? It's very hard for American manufacturers to compete at all if they face a constant flood of very low-priced Chinese goods. So the goal of having tariffs is to provide some shelter from this vast influx of Chinese goods while American manufacturing begins to find its feet again. But that is a very difficult tas k. What we've learned from Trump's year of steep tariffs on imports is that tariffs by themselves have not yet produced a big broad revitalization of the American manufacturing sector. But that doesn't mean that tariffs are a bad idea. What it means is that many economists now say tariffs should only be part of a broader range of measures, strengthening the training of American workers, helping companies invest in the latest technologies, working with other countries to prevent their being used as simply pass-throughs for inexpensive Chinese goods, taking a broader look at what is needed to revitalize American manufactur ing at a time when the United States does have very real national security concerns, given China's very close relationships with Russia, with Iran, with North Korea, with many governments that the United States is worried about. Well Keith, thanks so much for coming back on the show. Thank you so much. Always good to talk to you, Natalie . We'll be right back