In a speech he made at a North Carolina auto parts plant this month, US President Obama said that he foresees a 'resurgence of American manufacturing'.
'We don't give up. We get up. We innovate. We adapt. We learn new skills. We keep going,' President Obama said. There is some very clear evidence in support of his statements.
1) Manufacturing is coming back to the US
A growing number of American companies such as Dow Chemical, Caterpillar, General Electric and Google are moving their manufacturing back to the United States (so called 'reshoring').
General Electric (GE) last year moved manufacturing of washing machines, fridges and heaters back from China to a factory in Kentucky. This year, General Electric plans to open three parts factories in Mississippi and Alabama with the aim of safeguarding the roll-out of its new energy-efficient engines to power the next generation of commercial jetliners. By doing more of the work itself, GE hopes to protect its technology, speed up development and secure supplies of needed components. Caterpillar has built a manufacturing plant close to Athens in Georgia to relocate production of excavators and backhoes from Japan. Google has attracted a great deal of attention for deciding to make its Nexus Q, a new media streamer, in San Jose. And, Apple plans to move some production of Macintosh computers to the United States from China this year.
2) Cheap energy from shale gas resources
The successful extraction of natural gas from shale in the United States has dramatically lowered the price of energy. The accountancy firm, PricewaterhouseCoopers, estimates that these lower American energy prices could result in one million more manufacturing jobs in the next 10 years as firms build new factories. Companies including Dow Chemical, Formosa Plastics, Chevron Phillips, Bayer Corp., Westlake Chemical, Nucor and Shell Oil have already announced major new manufacturing investment in America to take advantage of low gas prices.
3) Advanced manufacturing technologies
Advanced manufacturing technologies are being developed in America and include robotics, 3D printing, artificial intelligence and nanotechnology. 3-D printing, a process in which individual machines build products by depositing layer upon layer of material, is already being used in factories in the US. In addition, factories are also using cheaper, more user-friendly and more dextrous robots.
These advanced technologies promise to alter the economics of production, making it a far less labour-intensive process and therefore making it much easier for US producers to move manufacturing back to the US. Even if the manufacturing activity itself does not employ that many people, the supply chains that spring up around it will create significant new work.
4) Other factors
Wages of the bottom half of American workers have significantly declined in real terms over the past decade while those of US manufacturing rivals, in particular China, have soared
Since the GFC, American workers are working longer, faster, with greater anxiety, than ever before
The dollar has weakened against major currencies over the last few years, making imports more expensive and producing in or exporting from the US more competitive
Oil prices have more than doubled adding significantly to the transportation cost of importing into the US
Natural disasters and disruptions in recent years have spooked US companies dependant on global supply chains
In conclusion it seems appropriate to quote Warren Buffett: 'Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
'We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America's best days lie ahead.'
Fred Strauss CA CFA
Waterways Capital Pty Ltd