Dueling manufacturing visions

Trump pushes protectionism, but GE CEO Immelt sees technology integration as path to high-value factory jobs    GE Chairman and CEO Jeffrey R. Immelt sits on President Donald Trump’s Manufacturing Jobs Council, but the two leaders have fundamentally different world views about the state of industry in a globalized economy.
   Immelt, who has been in charge since 2001, is leading GE through a digital transformation to take advantage of Big Data and open new revenue opportunities for the maker of jet engines, refrigerators, medical diagnostic equipment, locomotives, gas turbines and other machinery.
   Trump has met twice at the White House this year with two dozen manufacturing CEOs, who will provide advice on ways to stimulate growth in domestic manufacturing.
   One of his chief messages is that free trade has undermined the U.S. economy, incentivizing corporations to close factories, move them to countries with cheap labor and then export the goods for sale in the United States. He says he doesn’t want American companies making products overseas and has threatened to impose high import tariffs on companies and industries that do so.
   During his Feb. 27 meeting with top manufacturing leaders, Trump stated his case: that the United States has lost one-third of manufacturing jobs since the North American Free Trade Agreement (NAFTA) was enacted and that 70,000 factories have closed since China joined the World Trade Organization in 2001 and the United States granted China permanent normal trade status. At a March 20 campaign-style rally in Louisville, Ky., Trump blamed China for the loss of 60,000 factories.
   U.S. Census Bureau data backs Trumps’ figures, but economists say that there are many potential reasons for the factory closures in addition to the negative impact from trade with China. Economists, however, are loathe to say how many factory closures can be attributed to unfair Chinese trade practices, and the draw to outsource due to low labor costs and lower tariffs. Trade deficits with other countries, the Great Recession, and increased productivity of American factories have also contributed to the decline in the number of factories.
   Trump has said his policies will be based on bringing back jobs from overseas.
Immelt, who also served as chairman of President Obama’s Council on Jobs and Competitiveness, says most sophisticated companies today practice a different breed of globalization. They need to produce goods closer to where their customers exist.
   “Moving stuff out of the United States purely for wage arbitrage, that’s 1980s,” he said in an interview Sunday on CNN’s “Fareed Zakaria GPS” foreign affairs show. “That’s the old global playbook. And unfortunately, people in the U.S. get confused between globalization and outsourcing. To me globalization is, we have 70 percent market share of jet engines in China. We have 30 to 40 percent market share in health care in China. That’s good for this country. To me, that’s globalization.

Moving stuff out of the United States purely for wage arbitrage, that’s 1980s. That’s the old global playbook.

   “So, if we have to make things in other places to sell them in other places I view that as also creating jobs here and the good part about globalization. If you make something someplace else to ship it here, then there’s going to be a discussion around what do we do about border adjustability and taxes. And I get that. And I think that defines a certain set of companies, but I don’t think it defines the modern global companies who have really built these extended global enterprises not for the purpose of shipping things back here, but for the purposes of winning there. And that, I think, is being a good citizen.
   “Our people aren’t afraid to compete in China, and they are winning there,” Immelt said.
   GE exports about $22 billion worth of goods and imports $6 billion, a discrepancy which likely explains why GE favors the Border Adjustment Tax proposal of House Republican leaders that would eliminate input costs from imports for the purpose of determining taxable income, while allowing companies to retain all profits associated with export sales.
   Legislative proponents say it is designed to level the playing field for domestic manufacturers forced to compete with foreign companies that receive export tax exemptions in their nations. Other analysts say those exemptions are different because they are associated with indirect sales taxes that apply to everyone regardless of production origin.
   Immelt is heavily focused on making GE a digital industrial company that is able to mine continuous data from sensors and controls in equipment it builds to monitor performance and predict when repairs are needed, and sell that data back to customers through service contracts.
   GE’s chairman said the industrial Internet – the next evolution following the consumer Internet defined by Amazon, and the enterprise Internet defined by Microsoft and Google — has the potential to be a multi-hundred billion dollar industry. GE has invested heavily in merging hardware, software, robotics, and data analytics during the past seven years, including $4 billion to $5 billion last year.
   The conglomerate had $123.7 billion in sales in 2016 and net profit $8.2 billion.
   The digital industrial revolution will create the high-value jobs Americans expect by making factory workers “smarter,” Immelt said. That means, for example, a field service technician will be able to fix something correctly the first time instead of having to guess about a problem and go back for additional repairs. Technology will create a manufacturing worker “who is as adept with a welding machine as with a computer,” he predicted.
   The GE chief downplayed the potential loss of jobs and pointed to Germany as a model of manufacturing innovation. Germany has high wages, but 24 percent of its labor force is in manufacturing compared to 9 percent in the United States, he noted.

If we have to make things in other places to sell them in other places I view that as also creating jobs here and the good part about globalization.

   “They have great training, great infrastructure, they have an export bank, and tax policy that encourages it,” Immelt said. “The banks have to lend to small business.”
Developing a workforce that can adapt to the new technological work environment is critical, according to policy experts and industry leaders, and GE is doing its part to bridge the skills gap.
   On Thursday, the company announced a proprietary skills curriculum to train global supply chain employees for new, high value jobs needed in the digital industrial economy. The new initiative will focus on lean, advanced, additive and digital manufacturing. The curriculum will include seminars, workshops, online courses and a series of immersion boot camps on modern manufacturing practices.
   The United States represents a quarter of the global economy, but only 5 percent of the global population.
   “We’re not going to sustain that unless we know how to make things here and sell them everyplace in the world,” Immelt said. “That’s where the most valuable manufacturing jobs are created.”
   In a Time magazine commentary in December, the GE CEO blamed a burdensome tax code and overregulation, not trade, as big reasons American companies are less competitive than foreign counterparts.
   As for the upcoming legislative agenda, Immelt echoed the mantra of business leaders that modernizing the tax code, dialing back regulations and infrastructure investment will help spur economic growth. He said the 20 percent surge in the stock market is based on hype about what Trump and Congress can do on those issues. Right now, he said, the economy continues on about a 2 percent GDP growth path, which is partially the result of marginally better growth in other parts of the world.
   Immelt expressed concern about Trump’s heavy-handed approach towards Mexico, which he has characterized as abetting illegal migration to the United States and taking advantage of trade rules to steal U.S. jobs. Trump has said that the NAFTA is the worst trade deal ever and threatened tariffs of 20 percent on Mexican imports, and 35 percent on U.S. companies that outsource production south of the border.
   “I don’t agree with the rhetoric around Mexico,” Immelt said. “Really, Mexico has been a good partner. It’s been a good place to do business. I agree with keeping our company safe, but I hate to cast an entire country in a light. I also don’t agree with things like walls. I don’t think they, in the end, are really functional and will work.
   “That being said, really, I think it’s natural to want to renegotiate something like NAFTA after 25 years. It’s not the same world that it was 25 years ago. And I think the president has every right to say this relationship should be restructured. There’s just no case where Mexico and the U.S. aren’t going to end up being friendly. We’re neighbors. We almost have to be, right?”