Tuesday, October 25, 2011

Some Encouraging News

Ambrose Evans-Pritchard, the International Business Editor for the Telegraph, has a very encouraging article in the October 23, 2011 issue arguing that the balance of world power is going to swing back to the U.S. over the next several years:
Telegraph readers already know about the "shale gas revolution" that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing - breaking rocks with jets of water - will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

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

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.
 It is not just energy; Evans-Pritchard points to something that I have pointed to previously:
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 16pc 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.
I have mentioned here some of the surprising goods that I find myself buying that are made in America--like socks!  There comes a certain point where American advantages in efficiency, little or no transportation costs from maker to consumer, and perceived quality advantages, win over the Chinese sweat shops.

Maybe Evans-Pritchard is too optimistic.  Maybe Obama will win the battle over cheap energy, and succeed in making us dependent on Middle Eastern oil and alternative technologies powered by unicorn flatulence.  Or perhaps the Republican Party will make a dramatic turnaround actually stand for free markets and capitalism.  But I need all the optimism I can get right now.

1 comment:

  1. The "little or no transportation costs from maker to consumer" is, at least for things like socks, probably directly a non-issue. The Box quoted a figure of something like 19 cents for a pair of jeans.

    I suspect the real key is what most Americans seem to miss about what is probably the most important aspect of Just In Time manufacturing: quasi-instant detection of defects. Sure, it radically reduces inventory (the sort of financial thing we tend to obsess on), but compare these two scenarios from, say, car manufacturing:

    Assembler orders and receives widgets quarterly; a jig of widget maker's gets out of alignment but is not detected, one quarter's lot are delivered with most of them useless. No one wins in that situation.

    Jig goes out of alignment. Manufacturer tries to assemble widget into cars or whatever within hours or one day at most. The assembly lines are stopped, the problem is fixed, proceed as usual.

    Now, for something like socks, someone will have to be doing statistical QA to catch the problem before it reaches the retailers, but anyway you look at it, the feedback loop is much shorter.

    Final note: Chinese manufacturers are generally notorious for delivering lower quality over time. Might not be a problem for Foxconn (which seems to be a special case and is run out of Taiwan anyway), but for the sort of manufacturer the average small to medium firm can retain I gather it's a big deal (and I can confirm this if desired with a friend of my father's).