For the past 30 years in the West, it’s become fashion to believe everyone’s better off making their livelihoods in an economy as far away from manufacturing as possible because industry brings dreary benefits to the individual, family and environment (with unrepentant smokestacks belching out pollution à la 1942). The theory went ‘let’s make China the world’s factory;’ we’ll kick back, import cheap personal and commercial goods, and somehow, someway, in our non-manufacturing world of economically self-inflicted wounds we’ll become a sound society consuming all the goods we need. And, no smokestacks.
The illusion has vanished; both households and businesses continue to spend zillions of dollars, pounds, and Euros on manufactured goods, often more in relation to their current income or revenue than they did 30 years ago, and pollution still rises from their imported cars and construction materials, and, of course, power plants. Got to have that juicy electricity even for a non-manufacturing, low-wage service economy!
Don’t rely on the fuzzy service economy
Even without any political impetus, the rising costs of production (and increasing internal consumption) in a maturing Chinese economy compounded by the ever-narrowing comparative advantage will mean in the not-so-distant future it’ll become just about as expensive to import many of those personal and commercial goods as it is to manufacture them at home. The future is in manufacturing.
PMI at 54.9%
As reported by the Institute for Supply Management (ISM) in its May 2017 Manufacturing ISM Report on Business, the Purchase Managers’ Index (PMI) for the US in May, 2017, reached 54.9%, with new orders, inventories and employment growing, while supplier deliveries began to slow and prices continued to climb. Demand for manufactured goods mirrored the expansion of the overall economy, which has grown for 96 consecutive months.
Now, the kicker, especially for us in milling, machining, cnc machine tools, is that the worldwide figures on steel production as collected and reported by World Steel Association (worldsteel) has ballooned from 189 million tons in 1950 to 1,630 million tons in 2016. Just in the 10-year-period of 2006 to 2016, which incorporates the Great Recession of 2008-2009, there was a staggering increase in worldwide steel production and use. Crude steel production shot up by 378 million tons, while apparent steel use (finished steel products) jumped almost as high, 369 million tons.
Imagine all the machining and metalwork going into those steel components, intermediary goods, and finished goods!
Another interesting point is that although China’s got the dragon’s share in worldwide crude steel production (and its phenomenal rags-to-riches drive of domestic production and consumption helped it buck the trend of the Great Recession), since 2013, it’s has fallen in line with the overall worldwide trend. The rate of growth in its China’s steel production since 2013 is in step, albeit at a larger volume, with that of the West and the rest of the world, indicating it’s no longer the dirt-cheap steel mill and bargain-basement factory it once was.
Even The New York Times have reported how blue-collar wages in China have absolutely soared:
Chinese blue-collar wages have surged as much as eightfold in the past dozen years. That has considerably eroded the country’s once-daunting advantage in labor costs compared with the West, but it has also produced a broad-based surge in prosperity that has fostered a rise in consumer spending. (Bradsher, Keith. China’s Economy Grows 6.9%, but Warning Signs Persist. The New York Times 16 April 2017, https://www.nytimes.com/2017/04/16/business/china-gdp.html)
Rising domestic consumption in China competing for its own finished steel products, increasing costs, a maturing economy and a narrowing of the comparative advantage between the economies of the West and China foretells a clear opportunity for manufacturers of finished steel products in the US and the EU to retake their once-coveted home-court advantage, producing and selling goods in its own markets.
Once upon a time in Detroit…
Years ago, Motor City spawned a middle class while feeding America’s automotive appetite. Though the Rust Belt won’t spring to life and retake the manufacturing helm, both manufacturing in general and steel production/finished-steel manufactured goods are poised to make a healthy recovery.
In closing, to show there’s no animosity between the competing economic powerhouses of China and the West, we offer you a picture of a very cute Chinese red panda, taken by a digital camera probably made in China from ideas and technology developed by American engineers.
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