Monday, October 24, 2011

World Economic Power is Shifting Back to the U.S.A.: The 21st Century May Be American After All

Ambrose Evans-Pritchard writing in the U.K. Telegraph:

"The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labor gap with China in a clutch of key industries. The current account might even be in surplus.

"The U.S. was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day," said Francisco Blanch from Bank of America, comparing the North Dakota fields to a new North Sea.

Total U.S. shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m barrels per day by mid-decade. This is a tenfold rise since 2009. The US already meets 72% of its own oil needs, up from around 50% a decade ago.

"The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players," said Mr. Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, 're-inshoring' is the new fashion. "Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16% a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture. "A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

The gap in "productivity-adjusted wages" will narrow from 22% of US levels in 2005 to 43% (61% for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The 21st Century may be American after all, just like the last." 

HT: Lyle Meier

20 Comments:

At 10/24/2011 8:32 AM, Blogger PFCT said...

Be advised that Ambrose is prone to hyperbole and has a poor track record.

 
At 10/24/2011 8:44 AM, OpenID ntk said...

At least he uses "productivity-adjusted wages" instead of just looking at the gap in wage costs.

Cheap labour is cheap because it't not very productive, so any useful comparison of wage costs will be indexed against the productivity of that labour.

 
At 10/24/2011 8:57 AM, OpenID moneyjihad said...

Not sure what the facts are. But all things being equal, this morning I'm in the mood to read this good news as opposed to whatever gloom & doom the rest of the media & blogosphere are pedaling today.

 
At 10/24/2011 10:30 AM, Blogger Benjamin said...

Well, I like to read this anyway. If the USA can recover from the Bush Administration, I guess we can do anything.

 
At 10/24/2011 12:26 PM, Blogger bc said...

If you broaden the perspective to include North, Central and South America - this could be a no-brainer. More resources than the rest of the world, combined. An abundant supply of both cheap and educated labor and a free trade agreement in the hemisphere. All that you need is a new resident in the WH and it could all fall into place.

 
At 10/24/2011 1:15 PM, Blogger Benjamin said...

I am also reading more often of Chinese Communist Party arrogance in dealing with Western business people.

The easy permitting, do anything to get a factory days are over.

 
At 10/24/2011 1:56 PM, Blogger AIG said...

"The gap in "productivity-adjusted wages" will narrow from 22% of US levels in 2005 to 43% (61% for the US South) by 2015."

Holy Moly!! Thats something. Add to that the awful quality one gets out of Chinese manufacturers (we couldn't get them to drill holes without realizing when to change drill bits, never mind anything more complex)

 
At 10/24/2011 1:58 PM, Blogger AIG said...

BTW is there any source where one can get such productivity adjusted wage data or comparisons (or how they're calculated)?

 
At 10/24/2011 4:27 PM, Blogger sethstorm said...

Lock in the gains by keeping the jobs here, even if by tariffs or various prohibitions on offshoring.

 
At 10/24/2011 4:51 PM, Blogger VangelV said...

What a joke. Other countries have shale too and the means to get oil and gas out of it. The reason why they do not has to do with the fact that the process is not economic, not that it can't be used. There is nothing exceptional about the US that gives it an advantage over many other countries any longer. In the case of shale production the companies involved are destroyers of capital, something that Ambrose Evans-Pritchard ignores.

I find it interesting that Mark has never once discussed the actual profitability of shale production and that years after the process has become common is still referencing articles that deal in hype rather than a rational analysis of the data.

In a few years, after the bubble has run its course many people will try to blame some promoters in the sector and on Wall Street. But it should be clear that the promoters have gotten a free pass and a lot of help from people like Mark and Ambrose Evans-Prichard, who kept playing up the hype without ever taking the time to listen to the conference calls or read the 10-K reports that show the terrible economics and the optimistic assumptions that hide the real picture.

 
At 10/24/2011 4:52 PM, Blogger VangelV said...

Not sure what the facts are. But all things being equal, this morning I'm in the mood to read this good news as opposed to whatever gloom & doom the rest of the media & blogosphere are pedaling today.

How nice. That is exactly what the people who wanted to believe in the internet bubble wanted.

 
At 10/24/2011 5:04 PM, Blogger Jet Beagle said...

"The current account might even be in surplus."

Why does this writer imply that reducing the current account deficit has any significance at all? All this accounting measure indicates is how foreigners prefer to use the dollars gained in trade. If they desire to invest in U.S. equities, U.S. capital assets, U.S. bonds - so what?

Global trade has been extremely positive for Americans. Amborse Evans-Pritchard does not seem to understand that when Toyota builds an automobile plant in San Antonio, they are helping the economies of both the U.S. and Japan. He does not understand that when a U.K. investor buys U.S. corporate bonds, that investor is helping both himself and that U.S. corporation. Evans-Pritchard does not understand that when China buys U.S. Treasuries, China helps U.S. corporations by keeping interest rates lower.

 
At 10/24/2011 11:51 PM, Blogger StVIS said...

Wow, did hear you this? We have nothing to worry about. In the US, thousands of dams are considered structurally deficient, many which pose a threat to human life; we have beat up roads with pot holes; there's leaking water pipes near 80 years old; and 1 in 4 bridges are considered functionally obsolete. This stuff will take decades to rebuild and will cost tens of trillions of dollars. Also, did I mention the majority of scientifically-skilled professionals will be retiring this decade?

On the shale gas front, I do believe their may be some feasibility with this, but prices need to go up. What I've read about the industry, nat gas prices need to be around $7-$8 per MMBtu for profitability. There have been some cooler heads warning the current price climate is too low for shale gas (as they warned about the US subprime bubble, Dubai, Europe).

Back to infrastructure. China's future seems bright, but it appears there will be some near-term problems in need of sorting. I know guys who do business in China, and some of the new infrastructure is poorly built. The poorly built stuff can deteriorate alarmingly fast. Some five-year-old buildings will appear thirty, and some condos will experience leakage and mold problems, peeling floors and broken toilets after only a few years of age.

 
At 10/25/2011 7:44 AM, Blogger VangelV said...

Wow, did hear you this? We have nothing to worry about. In the US, thousands of dams are considered structurally deficient, many which pose a threat to human life; we have beat up roads with pot holes; there's leaking water pipes near 80 years old; and 1 in 4 bridges are considered functionally obsolete. This stuff will take decades to rebuild and will cost tens of trillions of dollars. Also, did I mention the majority of scientifically-skilled professionals will be retiring this decade?

It is hard for a country that is short of savings and running a huge deficit to find the capital needed to rebuild its decaying infrastructure.

On the shale gas front, I do believe their may be some feasibility with this, but prices need to go up. What I've read about the industry, nat gas prices need to be around $7-$8 per MMBtu for profitability. There have been some cooler heads warning the current price climate is too low for shale gas (as they warned about the US subprime bubble, Dubai, Europe).

Sadly, there are too many people like Mark. They prefer naive optimism to a rational analysis of the facts as they are. Mark would rather concentrate on the fact that the shale boom is creating jobs than on the fact that the shale producers are destroying capital.

Back to infrastructure. China's future seems bright, but it appears there will be some near-term problems in need of sorting. I know guys who do business in China, and some of the new infrastructure is poorly built. The poorly built stuff can deteriorate alarmingly fast. Some five-year-old buildings will appear thirty, and some condos will experience leakage and mold problems, peeling floors and broken toilets after only a few years of age.

I witnessed this first hand. Even my then ten-year-old son noticed the terrible methods used to build some of the highrises in Xi'an. They were so bad that he asked if the buildings were to code.

 
At 10/26/2011 5:25 PM, OpenID Sprewell said...

This guy is hopelessly clueless. Those manufacturing jobs are never coming back and we should hope they don't, because they'll only come back if we become a third-world country, with low wages to match. There is an immense low-skilled labor pool in China and the rest of Asia. If prices start rising, some entrepreneurs will simply move the factories elsewhere and cut their costs again. As for an American century, it's looking increasingly unlikely, because Americans have become fat and satisfied: witness the giant deficits and whining about a relatively mild recession compared to the third world. The big advantage America has had is its freer markets, likely because of a diverse immigrant population that never embraced the welfare state as much as other more ethnically homogeneous countries, and relatively less oppressive govt, with less regulations and smaller deficits than many other developed countries. That's why the US is number 1 today, but both are being damaged as we speak by our overreaching govt.

Will we reverse that trend? I doubt it. My prediction is that India will be no. 1 by the end of the century, since they too have a diverse population that is more open to new ways of doing things and have a chance to opt for freer markets, though there is no guarantee they will continue to do so. The US can hang on to number 1 until then, just by not making the dumb mistake of eschewing freer markets, but like all things eventually do, it seems to be declining by the year in that regard.

 
At 10/26/2011 5:30 PM, OpenID Sprewell said...

StVIS, "scientifically-skilled professionals?" Good riddance. Science and math are highly over-taught in our worthless public schools, likely turning off entire generations on trying to learn more. The coming generations will get by just fine without such worthless scientism.

Vange, funny how you trumpet China's infrastructure elsewhere, but now admit their quality issues. Your continuing disdain for central planning juxtaposed with your praise elsewhere for China's backward-looking manufacturing rise, planned by their govt, is curious.

 
At 10/26/2011 6:21 PM, Blogger Mark J. Perry said...

Manufacturing jobs ARE coming back:

1. Manufacturing employment increased last year for the first time in 13 years – +109,000 new jobs in 2010 – marking the first annual gain in manufacturing jobs since 1997. 

2. In 2011, another 192,000 manufacturing jobs were added in the first eight months, the largest January-August increase in manufacturing jobs since 1994.  

3. The Manufacturing sector alone was responsible for more than 22% of the one million new payroll jobs added to the U.S. economy this year, even though manufacturing jobs represent fewer than 9% of the total payroll jobs in the economy.

Q.E.D.

 
At 10/26/2011 7:07 PM, Blogger VangelV said...

Vange, funny how you trumpet China's infrastructure elsewhere, but now admit their quality issues.

I have driven on China's roads, traveled through Chinese airports, and been on Chinese trains. They compare very favorably to the counterparts in the US and Canada. I have spent a lot of time in Chinese condominiums and apartments. While some are wonderful and of very high quality there are many terrible buildings that will have serious problems in the future.

Your continuing disdain for central planning juxtaposed with your praise elsewhere for China's backward-looking manufacturing rise, planned by their govt, is curious.

I have experienced China's central planning first hand and saw how bureaucrats in Beijing were thwarted by local companies that talked a nice game but did what they wanted most of the time. In many ways China has far less central control than the US and Canada. As Jimmy Rogers and Marc Faber point out, at this point in time the Chinese are a better example of free market capitalists than Americans.

 
At 10/26/2011 7:22 PM, Blogger VangelV said...

1. Manufacturing employment increased last year for the first time in 13 years – +109,000 new jobs in 2010 – marking the first annual gain in manufacturing jobs since 1997.

Last year the economy was coming out of a severe contraction. A small increase is not very significant given the trend, particularly when hundreds of billions of liquidity were added as stimulus.

http://tmp.americanthinker.com/USManufacturingEmployment.gif

2. In 2011, another 192,000 manufacturing jobs were added in the first eight months, the largest January-August increase in manufacturing jobs since 1994.

As I pointed out above, hundreds of billions were added in liquidity to stimulated a tiny increase in employment. This is probably not sustainable. And even if it was, it will take a great deal to offset the 6 million jobs lost since the late 1970s, when the population was significantly lower than it is today.

3. The Manufacturing sector alone was responsible for more than 22% of the one million new payroll jobs added to the U.S. economy this year, even though manufacturing jobs represent fewer than 9% of the total payroll jobs in the economy.

You are talking about 20% of a tiny number. Given the fact that U-6 is more than 16% and that the auto sector is sliding into turmoil again I doubt that you will see a sustained recovery in the absence of new stimulus.

 
At 10/26/2011 8:11 PM, OpenID Sprewell said...

Mark, I agree with Vange that your recent stats are not that impressive, particularly given the many more that were recently lost: are you the same guy who pointed out just 7 months ago that manufacturing is declining as a percentage of GDP everywhere and claimed that was a good thing? Because based on your recent oil and manufacturing jobs triumphalism, hyping up small booms with a weak case, I wouldn't be able to tell. ;) Even the Chinese are planning to replace their workers with robots where they can, particularly with cool new robots like this. Whether the work is done by poor Asians or robots, it is never coming back to a rich country like the US, where people are used to high wages and a standard of living that manufacturing just won't pay. The sooner we accept that truth and retrain them, the faster we get to where we're going: the information economy. :)

Vange, good to see you acknowledge that the massive Chinese boom has produced mixed quality levels. Many talk about the Chinese being more free market in some regards now, like you do, but given the mess their political system is, that means a clash is inevitable. All those hyping China, like Rogers or Faber, need to have a credible narrative for how that clash will resolve itself into something approaching a workable system, or how they plan to pull their money out before it happens. I suspect the Chinese cheerleaders have not thought it out, which is why the massive Chinese collapse that's coming, caused either by the inevitable collapse of their boom or by the govt refusing to turn over political power, will likely surprise them more than anyone else.

 

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