Snap-on CEO Pinchuk Talks Trade Policy, The Future Of Manufacturing

pinchukWith international trade policy and tariffs on imported goods making business news headlines seemingly every week, U.S. manufacturers keep plugging away, as they don’t have the luxury of waiting to see how things shake out in the long term.

But Snap-on Inc. CEO Nick Pinchuk told Chief Executive that U.S. manufacturers are used to a shifting playing field, where variables such as shifting international currency values are par for the course.

“We’re constantly having to adjust our view of the world based on those currencies, what we can sell for and what our costs are going to be versus what our customers are going to pay. And that’s just business as usual,” Pinchuk says. “So I don’t think the current situation is riskier than it was, say, a year ago before the tax law changed.”

Chief Executive caught up with Pinchuk to talk about how President Trump’s approach to tariffs and trade negotiations is impacting manufacturers, the biggest challenges that U.S. manufacturers face moving forward and what he’s most excited about as a manufacturer in the coming years. Here’s what he had to say:

How recent trade and tariff headlines are impacting the manufacturing sector in America

I think it’s in early the days and these things are just coming to form. You’ve got the steel and aluminum tariffs, and I think people don’t really like that. And you have these recent things about the 25% tariffs associated with China and you have the interplay with both the EU and Canada. And so, I think people are wondering what’s going to happen. I am a member of the National Association of Manufacturers, 14,000 manufacturers, and our view is trade is good. Free trade and balanced trade is good. We think there can be improvements in our trade positions versus partners, and I think I speak for all of the manufacturers in America like that.

On the other hand, nobody wants to venture into a trade war where we get a lot of tit-for-tat and so on, because that creates some uncertainty in the business. So I think people are looking at it and saying, “We can understand what the president’s doing. He said he was going to focus on American jobs and the American worker, so reducing taxes on manufacturing and trying to get better trade deals, whether bilateral or multilateral, is a good thing,” from an American worker perspective, but on the other hand, trade is important. You have got to keep it flowing. I think all manufacturers do that.

From a Snap-on point of view, we’re a little bit different. We tend to make in the region we sell, so across border exposures aren’t so high. For example, Snap-on’s known for its tools, but we use $40 to $45 million worth of steel. Not so much, given what you might think from a company our size. But, raw steel rolls in the back of our factory and we add very little to it except labor and capital and it comes out in gleaming tools on one side. And by the way, that steel is U.S. steel for us. So you can see that we’re kind of a little bit insulated from this.

Stepping back to the broader industry, everybody looks at this and says, “I wonder what’s going happen.” But on the other hand, this is kind of what we do as manufacturing managers. I hear the idea of tariffs and going back and forth but if you look at currencies, if you were a U.S. manufacturer exporting to places, you’ve seen currencies move all over the place and that changes everything. Let’s say over a couple of years, you’ll see the euro move 26% versus the U.S. dollar. Weakening so a U.S. dollar product lobbed into Europe, 26%, 25%, 20% difference just because of tariffs. And the Canadian dollar, 34% over 5 or 6 years. The cocktail of currencies in which you’re exporting to always moves around. So we’ve been challenged as manufacturers with those in pretty large proportion and consistent proportion over time. Managing around that is what you do if you’re a manufacturing manager.

“If we want to take advantage of our great advantage—which is the middle class—we need to upskill the workforce so they clearly win the global competition for jobs.”

Pinchuk’s take on the future of U.S. manufacturing

What excites me is this: I think manufacturing is the sector which makes the most use of the American middle class, which has always been our advantage. A reasonable question, I think, and historians have asked themselves this question, is why has America been descendent versus all the other countries of the Western Hemisphere, which basically started at the same time? And the answer is that we’ve had broad participation in the economy by a middle of makers and fixers.

What has been happening is, partially because of the asymmetric burdens associated with taxes and a number of other things, we kind of got away from making, creating, and shifted a little more, depending on our economy, on transaction, selling things and financial services and those things, which are all good things. But they don’t engage the middle with the same breadth as manufacturing does. I believe that was at the basis of saying, “Well, the middle class is shrinking.” People say that. I say, “No kidding, Sherlock?” Thirty percent of manufacturing jobs disappeared in 20 years.

And even as we’ve added robots, we’ve added employment because we customize it. It’s allowed us to customize product and more to our customers. So it’s actually enhanced our product line, not reduced our labor. And so that’s been a good thing, but stepping back, what happened is a lot of that went offshore. It wasn’t the only reason, but some of it did because there was an asymmetric burdens on American manufacturing, and also, offshore got more competitive.

What’s happening now is that we had been in a global competition for jobs and the competition over the years with China and India by educating their population and getting more infrastructure had gotten more competitive. So when someone got an idea, like Steve Jobs or somebody else, the competition to be the amplifier of that idea which usually would’ve gone to American manufacturers went to China or someone else. Now what’s happening with the shifting in this current environment, people are starting to pay more attention to manufacturing. You start here: the idea that manufacture is important, manufacturing jobs are important to our economy. There is a dignity of work in manufacturing that people feel good about themselves and they can have jobs which will keep their family warm and safe and dry and have careers of dignity and satisfaction, and a plan.

And so I see manufacturing growing, and you can see it in the joblessness rates and so on, where there are actually more jobs available now than there are people looking for jobs.

I think the one thing we need to care about is this, because the jobs are changing, there are new technologies, there are robots, we need to make sure our population is upskilled to take full advantage of that. So in my mind, step one is to say, “Manufacturing’s important as a government, as a people and we’re going to emphasize it, we’re going to make policies that are going to support it.” The president…I’m not necessarily a supporter of the president, but on the other hand, he did say in his inauguration, “I will take no action on trade, on strategy, on the environment, on economics that will not be in the interest of American jobs and American families.” And that creates a different aura. And we can see that starting now. But the thing you have to do as part of that is make sure our people, Americans are up to the skill levels required.

I think it requires a shift, a focus on technical education. The idea is that the career in technical education, the two-year colleges, the associate degree, the certifications of particular skills. Snap-on’s involved in this. We’re in 2,500 schools but we’re part of an organization called the National Coalition of Certification Centers which provides certification on different skills and I think there are over 400 two-year schools involved in that and almost 100,000 kids have gotten certification. We keep pushing those things.

And so when you listen to the rhetoric on TV or from Washington, you’re seeing it shift towards saying American jobs are important and the upskilling is important and this is where we need to be.

The biggest challenge facing U.S. manufacturing moving forward

If we want to take advantage of our great advantage—which is the middle class—we need to upskill the workforce so they clearly win the global competition for jobs. I think one of the things that manufacturers and businesses can do is to work with education to be able to make sure that whatever’s being taught in the schools—and I’m really talking about the technical education, the skills that are being taught in those schools to prepare people for the workplace—to work with them, to make sure that those skills are exactly what they need.

I think that’s the most important thing and I think it sounds like a simple thing but it’s not as easy as it might seem. That’s one of the reasons why we went into [The National Coalition of Certification Centers]. For manufacturers, if there’s one issue, it’s to try to make sure that you can get the structure that is our education system to match what they need. And this is more for the mid-size and small companies because the companies the size of Snap-on are bigger, can train their own if they have to. But we’re talking about the great engine which is the smaller company, the smaller business. Seventy-five percent of the National Association of Manufacturers are small companies.

Number two is, I do think this needs a little more help. I want to reemphasize the idea that, boy, people look at technical jobs and worry that they’re not worthy of their children. Sometimes when you say to people, “How would you feel if your son or daughter, niece or nephew was going to be a welder in a factory?” You could hear a pin drop in the room because they know that’s what they think other people’s kids do.

We need to change that, and one of the ways to change that is to celebrate those jobs. A great organization that does that is Skills USA. They have chapters all around the country where they teach secondary-school students skills like welding and cosmetology, all kinds of skills that are really technical, and they celebrate them. They teach them life skills, how to work at a job, how to do an interview, all those kinds of things. Then they have regional, state, and national competitions, and they give out medals in front of 16,000 cheering kids in Louisville at the national convention. It’s a kind of celebration, like we celebrate the quarterback or the valedictorian. And I think one of the recommendations I always make to mid-tier manufacturers and any manufacturer is to get involved in those kinds of things and in that kind of organization. And celebrate technical jobs.

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