Why Foreign Robots Are The Real U.S. Job Killer

Over the past several months President Trump has called out pretty much every major auto OEM for their efforts to move low-skilled assembly jobs to Mexico.  But absent new tariffs, it's not terribly surprising to most people that American companies would seek to move low-skilled, labor-intensive jobs to lower cost labor markets...the math is pretty simple.

But what is somewhat surprising is how poorly the U.S. is performing versus international competition in the development of advanced manufacturing robotics.  As the Wall Street Journal points out this morning, when it comes to automating a manufacturing floor, buying robotics 'Made in America' isn't even an option.

Vickers Engineering Inc. embodies the potential of American manufacturing. The New Troy, Mich., machining company supplies precision parts to clients including Toyota Motor Corp. and Volkswagen AG , and exports to Mexico and Canada. Its staff has risen fivefold and average pay has doubled over the past decade, says Chief Executive Matt Tyler.

What’s helping to power Vickers’s made-in-America success? Advanced Japanese and German factory equipment. When Vickers first bought industrial robots in 2006, it chose between only European and Japanese models, says Mr. Tyler, and has been adding Japanese robots ever since. “We were not aware of any American-made option.”

America is losing the battle to supply the kind of cutting-edge production machinery that is powering the new automated factory floor, from digital machine tools to complex packaging systems and robotic arms.

Commerce Department data show the U.S. last year ran a trade deficit of $4.1 billion in advanced “flexible manufacturing” goods with Japan, the European Union and Switzerland, which lead the industry. That is double the 2003 deficit. It was down from $7 billion in 2001, but much of the decline came from foreign equipment suppliers expanding in the U.S., not from an American comeback.

Meanwhile, U.S. firms are also losing market share at home, according to Germany’s VDMA industrial-machinery trade group. In 1995, they satisfied 81% of domestic demand for factory equipment. In 2015, the most-recent data, that had slipped to 63%.

And while the U.S. lags, China is looking to make aggressive moves in advanced manufacturing robotics and is seeking to move beyond its reliance on cheap labor to compete globally. Its ‘Made in China 2025’ strategy aims to dominate advanced manufacturing, in part through aggressive foreign acquisitions such as appliance-maker Midea Group’s purchase last year of Germany’s Kuka AG, a world leader in industrial robotics.

Of course, the U.S. wasn't always the laggard in advanced manufacturing and actually dominated the space through the 1970's when the domestic auto manufacturers were at their strongest.  But that all ended in the early 80's as domestic auto production got cut in half and the USD strengthened.

The U.S. dominated advanced manufacturing through the 1970s, when the cutting edge was largely machine tools. Detroit was at the forefront. The world’s first industrial robot, the two-ton Unimate built in Connecticut, was installed in 1961 at a General Motors Co. plant in Trenton, N.J., according to the International Federation of Robotics, a trade group. GM and Ford Motor Co. tested robots through the 1970s. GM and Fanuc in 1982 created a joint venture.

In the 1980s, as U.S. manufacturing slumped, almost seven of 10 American machine-tool companies closed due to falling demand, the strong dollar and strategic miscues, according to a 1993 Rand Corp. study.

The decline continued this century as U.S. manufacturers outsourced more and baby boomers retired. Shrunken manufacturers demanded fewer production experts, accelerating the factory-technology decline. “In the U.S. there’s been a brain-drain in manufacturing technology,” says Alex West, manufacturing-technology analyst at London consultants IHS Markit. 

Over the long-term, of course, the loss of low-skilled labor positions in the U.S. is inevitable.  Moreover, further regulations like minimum wage hikes and border tariffs will only help to ensure their long-term demise by making capital investment projects even more attractive.  But, without a presence in manufacturing robotics, all that capital is sure to flow overseas rather than into American households.

Credit to Zero Hedge