Posted on 03/08/2013 2:38:13 PM PST by ckilmer
(Reuters) - A long-term U.S. manufacturing rebound is under way, and it will likely endure because the United States is becoming more competitive with China and other emerging economies.
According to a recent report by the Boston Consulting Group titled "Made in America, Again," the cost advantage China has over the United States is shrinking fast. "Within five years, rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America," the report said.
(Excerpt) Read more at reuters.com ...
...the cost advantage China has over the United States is shrinking fast. "Within five years, rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America," the report said.The only thing that will close the cost gap will be the US becoming less dependent on foreign energy sources. The problem is, of course, China is doing the same (or attempting to). Their main fear is that the US import demand will be filled more and more by other countries, such as India.
Nice that Reuters finally found this in their stack of stuff, as BCG has been putting out papers on this topic for the past year.
Well it sure isn’t due to USG lessening the _HUGE_ amount of regulation and employee overhead (which BTW fully warrants import tariffs).
China sure doesn’t have hadly any of this, so it must be due lowering USCorporations expenses, like wages and growth in the energy cost per production; shipping from China growing more than shipping from USA.
I buy the currency manipulation angle.
However, I think think 3-D printing and advanced robotics will break outsourcing model.
US demand for energy has been declining for the last 3-4 years even as production of oil and gas has increased. It doesn’t look like the Chinese will gain the fracking technology for another couple years. But when they do their production will come on strong. —estimates are that they have more natural gas than the USA. This is a good thing because it will put downward pressure on the price of energy around the world. Lower energy prices increase the wealth and productivity of everyone.
Yea and when it breaks at 20,000 still won’tbe worth the purchasing power of the magic 800 mark had 20 years ago. Thanks to the mystical powers of the offset press.
I am all in favor of the US becoming less dependent on foreign energy sources, but the point of the article is that, finally, China is inflating its currency faster than the United States.
It's monetary inflation that creates trade deficits. When the currency is inflated, prices and wages rise faster than productivity and make the country's products more expensive.
A lot of FReepers want to blame free trade for our miserable economic situation, but freedom never hurts a country's economic growth. Inflation, however, does.
I'm surprised the Chinese don't know that [I suspect they do], but their economic situation is so desperate they're willing to risk it. They're following us down the inflation rathole we've been in for 50 years now.
Well, welcome to the club.
I wholeheartedly agree that some FReepers blame free trade, claiming it isn’t really free, or is some kind of plot of the Bilderbergers, or some other paranoid crap.
OTOH, all US price inflation is due to high petroleum prices. All products (including especially agriculture / food) are affected by the petroleum price, either directly or indirectly (including transportation, distribution, and travel to and from the store).
China has had to devalue its currency from time to time, and to the same end has been continually buying US debt to shore up the dollar. None of that caused the trade deficit. China’s on the same rat wheel that Japan was in the 1970s and 1980s, and it won’t end well for them. And that’s good.
Meanwhile the US has interest rates hovering for years at or near historic lows, which impedes capital formation. Free-floating interest rates are also often condemned (by name or implication) as some kind of conspiracy of crony capitalism. Given that US plants can’t effectively compete due to ridiculously lower labor costs in various other countries, expansion has to be done overseas, or on an as-you-go basis.
You’ve nailed it — energy is a component of production, and when energy prices rise (as they did, bigtime, during the OPEC embargo of the early 1970s) there’s a net loss of productivity. Similarly, when the wage demands rose (the so-called COLA), that too yielded a de facto loss of productivity. Employment rises and falls with productivity.
Euro-unions demanded a 30 hour workweek 20 or 25 years ago, claiming it would create jobs because more people would have to be hired to get the same work done. What happened instead was a net loss of productivity and a rise to a persistent high unemployment which hasn’t gone away. Foreign (”Asian” and “African” labor, ie a lot of Moslems) were allowed in to do low-end slag labor jobs for little money but with other, gubmint-”provided” perks like free housing and health care unavailable in their Hellhole Homelands.
Same thing is going on with our own porous border, for the same or similar reasons.
Yeah you have the productivity angle down. (I even think that a lot of the credit for the Reagan boom can be given to the Saudis for collapsing the cost of oil to kill nascent US alternate energy production and oil shale production in the late 70’s and early 80’s.)
But there’s more to it than that. 1973 OPEC embargo came just as US oil production began to decline and the US started to import oil.
What’s happening now is that all that is being re spooled. The effects are just huge. Its not just that the balance of trade is shrunk considerably. Its that...hmm we’ll say it this way...
The fed is printing fiat money to the tune of several trillion dollars. Money from nothing. That’s bad.
But the new oil and gas fracking technology has just created 50-100 trillion dollars in hydrocarbon reserves from nothing. That’s good.
They cancel each other out and then some.
But the value of the dollar is not based on what happened in the past. Its based on events of the future. Just like stocks. That means that the direction of the dollar is up. No matter what the Fed prints.
There’s more. I have seen graphs of federal deficits vs rising oil imports. They go together. I’d bet in five or six years or so federal deficits will be down a significantly—because of rising revenues.
The terrible thing is that there is a huge amount of good news coming—which the democrats will be positioned to claim credit for. But nothing they have done or will do will have had anything to do with the successes that are coming.
Oh yeah. And is oil independence coming as fast as they say?
Yeah there’s a third super field coming online starting late this year and nest in the Permian Basin West Texas that’s bigger than Bakken and Eagle Ford combined. Its called the Cline Shale Formation.
But, dude! Think! Oil is demoninated in dollars. Dollars, due to inflation, are worth less. Oil prices rise to compensate for the shrinking dollars.
With all due respect [and your point of higher energy prices harming the economy is well-taken], you have it backwards. The inflated currency is causing oil prices to rise -- not the other way around.
The demand for oil remains high, and will continue to be high while production is controlled by a cartel, and/or the high market prices are not allowed to result in higher production.
IOW, yes, US price inflation is due to high petroleum prices.
China is hit even harder, it ships so much of its product to the US and consumer prices there (where so much is produced) remain too high for most.
Japan’s been in this situation even longer, and has had to import a much larger percentage of its energy than China or the US.
And no, oil isn’t priced in dollars in any way but name — it’s priced in Euros and kept artificially price-stable in Euros. When the dollar falls against the Euro, the price of oil goes up in dollars, but not in Euros. And when the Euro falls against the dollar, vice versa.
OPEC does this in order to keep a tight rein on the European market, which is fairly nearby, but Russia is considered the ‘natural’ supplier of oil. If Vlad Putin hadn’t wrecked free market petroleum production, Russia would have kept pace, and we’d all be in much less of a mess by now. The second- and third-tier EU economies/banks don’t have much to worry about, OPEC keeps things easier, and does so with the money we send there for oil. Mighty nice of us.
OPEC Has Already Turned to the EuroI'm again reminded of P.J. O'Rourke's remarks about the Middle East OPEC nations -- how their entire non-hydrocarbon economic output, combined, does not equal Finland's. :') In the same piece he referred to them as "bone-idle bums". If you think US socialists are not excited by the prospect of expanding the welfare state on the back of a renewed oil industry, bridge to sell you etc.
GoldMoney Alert
February 18, 2004
...The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.
2001
As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.
We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.
......................
I like your reasoning here. However, I want to immediately fast forward to today to check to see if it still works.
Even without doing the math you can see that the euro is roughly 1.30 and a the cost of oil is.....brent is 110 and wti is 91. The price of oil has roughly quadrupled and the euro has gone up roughly 20%.
So you’d need to reconcile those numbers to make that theory work.
On alternative energy, in the late 70’s and early 80’s—the story that I heard was that it wasn’t solar or wind or bio that had the saudis concerned so much as the work that was being done in the green river basin. Big oil had a couple billion invested there at a time when prices could support chunking out the oil shale. When the Saudis increased production and collapsed the price of oil, that whole operation was abandoned because it was uneconomical.
IOW, yes, US price inflation is due to high petroleum prices.
High demand for oil and government restrictions on its production do result in price increases. That is not the same thing as price "inflation".
Inflation is the result of the central bank's increasing the supply of money. Please, let's not confuse normal market forces with government meddling in the economy.
That was my point.
Since the price of oil is set by OPEC production, why, indeed, yes it does.
If inflation were the result of the central bank’s (in the US, the Federal Reserve and Treasury) increasing the supply of money, we’d have had a steady, crazy level of inflation since LBJ (at least). Instead, we see a long-term increase in prices that look amazing in a 50 year retrospect, but only have sudden spikes of inflation when the price of oil spikes, with periods of price stability and full employment with the times OPEC keeps the supply up and the price is down.
That’s just the facts, and that is my point.
The reasoning there was from the article, but okay. The more recent price spike is indeed a different story, and isn’t it amazing that the EU just happened to go through its credit crunch / member deficit / bailout crisis just after that? The Saudis wanted to balance their internal budget, and to do that they needed to increase the price of their sole product, so everyone got hit. Chinese and Indian demand continues to rise; they sell goods and services to the US and into other places (including Europe), so indirectly, the US is paying for their oil as well.
The Saudis are reconciled to the idea that there will be a time after oil wealth, as Sheikh Yamani put it, “the Stone Age didn’t end because people ran out of stones.” The reason the Saudis pushed up production was to undermine Iran in particular and to bring a speedy end to the Iran-Iraq war. It didn’t work. As weapons go, oil seems to be a poor one — Yamani has also said in interview that the 1973 embargo backfired bigtime, because wells were drilled all over the Earth, and (including the Middle East itself) proven reserves rose tenfold in a few years. And what he didn’t say, the price of the imports the Saudis (et al) needed (which is everything besides oil) went up as a consequence of the embargo.
Yes...... The price of $$ is measured against the standards of oil and gold.
That’s just the facts, and that is my point.
OPEC's supply has been very steady and very high these past several years. The price of oil is rising because the Fed is printing so much money that its benefactors, the banks, are searching desperately for somewhere to park it.
And when the Fed's-a-printin', commodities are the choice of savvy newly-printed-money-investors everywhere.
That's also a fact, and that is my point. Be careful not to mix up cause and effect. Inflating the currency is always the cause of our economic problems.
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