The Industrial Imperative
by David Reavill
America is the most woefully imbalanced economy in the world. Although, Spain is a close second in this measure of out-of-wack economies. Each month both countries anxiously wait for the goods and materials they need to function, like a junky waiting for a fix. We’re constantly hoping against hope that those giant cargo ships offload our lifeline of products.
We cover up this situation by calling it a “Supply Chain.” But it is much more than that. It is simply our unwillingness to make for ourselves. There is a lingering illusion that the United States is a great industrial power. It’s not. If it were, we wouldn’t have to import $100 billion-plus in trade goods each month to survive. If we had a normally functioning industrial sector, it would represent half our economy. Instead, industry in this country is only one-third of the total economy. The balance of goods we need must come from overseas.
Two-thirds of our economy comes from consumption. We’re pretty good shoppers but pretty lousy producers.
Our need for overseas products is no accident. Business leaders, as well as political leaders, designed the economy this way. We’re programmed to shop and not to build.
It all began about 40 years ago when Nike and Apple Computer first developed a business model that shipped their production primarily to China—enticed by China’s predatory pricing. China moved into the American market and undercut production costs for the American companies. To the US Companies, this was irresistible. Corporate America couldn’t say no. And so, over the decades, US Plant and Equipment moved to China and other Asian nations.
Today the most advanced plant and equipment and highly skilled workers are in Asia, not the USA. The competitive advantage is most visible in the current troubles obtaining semiconductors.
Ford Motor and other automakers, for instance, have had to stop their production line waiting for Semiconductors to arrive from across the Pacific as America remains, hat and hand, for some other country to produce the components our companies need to operate.
Ford, at least, is beginning to wake up. They have started the process of producing their semiconductors, but it will no doubt be a long and arduous process.
A process that I call the Industrial Imperative. An essential prerequisite for a fully functioning economy. Something that we haven’t had in a couple of generations.
The Global Economy is about to suffer its most significant setback since the end of World War II. Nations are pitting themselves against nations. The War in Ukraine has been the catalyst, bringing up to the surface animosities between presumed peaceful trading “partners.”
Shut off supplies. I fully expect China to do what Russia has done to the European Union to America. Russia has done it by simply closing the European oil and gas pipeline. China can do it to the US in a thousand ways. They can cut our supply of the many products they ship to us each month. Stop those cargo ships, and we will be in a world of hurt.
Slowly America is beginning to wake up to the daunting task ahead. A few business leaders see the necessity of bringing production back to our shores. We can measure just how we’re doing. It’s an obscure economic report that most economists haven’t looked at in years, called the Productivity Report. This quarterly report will be published in just a few minutes by the Bureau of Labor Statistics.
Now, when last reported, Productivity in the United States fell by the most since the end of World War II. That’s right. We recorded the worst level of Productivity in nearly 70 years. And it wasn’t because workers in America suddenly forgot how to do their job. We’re asking workers to do jobs they’ve never done before.
After World War II, we asked workers to transition from making war materials, guns, and tanks, to making civilian goods, cars and appliances. It was a difficult transition. But after a few months, the industry re-trained its workers, machinery was re-tooled, and the industrial powerhouse of the 1950s began.
Many industrial workers have retired, and the mighty industrial factories have closed. Take Ford, for instance. They must build from scratch an entirely new semiconductor facility. Their factories must compete against state-of-the-art facilities in Taiwan and mainland China. In short, they must go from the 20th century to 21st-century production. And they must do it overnight.
This process of American Re-Industrialization is why US Productivity is dropping as we must replace overseas production with our own.
Today’s Industrial Challenge is comparable to the Industrial Challenge following World War II. One, we must begin today.
In economics news, something that you might not expect. Both Japan and Great Britain auctioned off 30 years of bonds last night. Now conventional wisdom has it that these bonds should have a higher yield, as the world is caught in the grip of this universal inflation.
But that was not the case, as the long bonds for both Japan and Great Britain had lower, not higher, yields. In the extensive back and forth between higher yields and slower growth, slower growth won, at least last night.
Then a little later this morning, we will get those two significant measures of first labor costs and then labor productivity. Don’t expect to hear much about these two reports on the nightly news. But to me, these represent the key to understanding our current transition. It is not a transition to green energy. It’s a transition from overseas production to US production. As the global supply chain breaks down, US manufacturers must build their parts. Made in the USA, it may become a “thing” again.
But this supply chain transition will not be easy. And we see that reflected in the added costs of labor, plant, and equipment.
A big day for earnings reports, with over 300 companies reporting. Leading off will be the other Sysco. This is Sysco Corporation is the giant food services company, then health properties company Well Tower LLC. And finally, the industrial company Emerson Electric.