America Did Not Just Outsource Factory Work. It Outsourced Getting Better at It.
Jamie Dimon says the savings were tiny, about five cents a magnet, but the loss was the know-how that improves with time.
WSJ What's News · Violent Rioting Sweeps FranceJamie Dimon of JPMorgan was talking through American weak spots, rare earths the United States relies on China for, semiconductors, and the key ingredients that go into prescription drugs, when he offered a review of what went wrong.
Saving a few cents by having those things made elsewhere made sense at the time, he argued. The lasting cost, he said, was losing the ability to keep improving the manufacturing know-how. As Dimon put it: “We lost the ability to advance the IP.”
By IP, short for intellectual property, he seemed to be talking about the manufacturing know-how itself. What Dimon said was that know-how did not stand still after the work left, as he put it: “That IP was improved since we outsourced it 10 years ago.”
He used rare earths, the specialized metals used in magnets and other components, as his example. Dimon said the United States saved almost nothing by outsourcing them, about $500 million by his rough math, because companies were trying to save perhaps five cents on a magnet that might save $10 on a car.
Dimon was self-critical about the miss. He said the United States should have acted long before China built up its position, that there were warnings, and that people did not fully think through what was being given up. He also said China is not an enemy, and that he would not want to depend on any single country for such materials, noting that his bank keeps multiple supply chains for the same reason.
His answer now, as Dimon put it, is to “roll up your sleeves and get to work.”
Questions people ask
What are rare earths and why do they matter so much?
Rare earths are a group of 17 metals used in small amounts to make powerful magnets, batteries, lasers, and other components. They are essential for electric cars, wind turbines, smartphones, and many military systems. The mining and refining are concentrated in China, which is why they have become a leverage point in trade disputes.
Does Dimon consider China an enemy?
No. Dimon argues the problem is concentration, not one country. His position is that the United States should not rely on anyone for all of its supply, which is why he favors multiple suppliers. That is a common risk management practice in banking and manufacturing.
Why would outsourcing production cause a country to lose technical know-how?
It means engineers learn by making things. When production moves abroad, the daily problem solving, tooling tweaks, and design changes happen there too. Over a decade, that can leave the original country unable to rebuild the same industry quickly, even if it spends the money.