« Will the War Clouds Pass Us By, Or Will the Storm Break? by Alastair Crooke | Main | White Helmet Films, Inc. ? »

03 March 2018

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Jan Czekajewski

Most of the posting is about management. Giving credit to myself I never got a management degree from Harvard, or otherwise but I run small company for 40 years making every year profit. Such method was possible, because my products were niche products in scientific field, not steel or aluminium.
Back to tariffs.
If we are preparing to have a war, as Soviet Union, Germany and US in 1930 ties did, then all economy discussion is no longer valid. We have do it, we have to built it does not mater of cost. The difference is when we have prolonged peace, even as it was cold war in meantime.
US won the cold war because it still run market economy, while Soviets run its economy as a hot war economy. Soviets were defeated by peace!
Now back to the cost of steel mills.
People who are interested in steel, calculate cost of making it in US. They probably know how to do it, taking account of excavation of iron ore, cost of building new more efficient mills, cost of regulations, cost of labor in US including Trade Union wages, availability of labor force with particular skills etc and availability of long time private capital for long time investment. Then management, together with bankers will calculate risk of competing with Chinese steel.
If Chinese operate more like Soviet Union subsidizing its own still industry for very long time, they will get broke as USSR did, or they will have to increase prices and be less competitive. Therefore all depends if we are going to conventional war with China, or war will be short and nuclear. This is up-to US President to decide.

Degringolade

Huckleberry:

I have to agree with you about the conservative movement possibly morphing into a nationalist Republican Party. I can't say such a thing will offend me.

Look, at the end of the day, we have to rebuild the working class. We aren't going to do this by passing off cheap consumer goods, made in third world countries as the core of our economy.

Tariffs are a tool to fix a prior mistake or to allow an internal industry a competitive edge. We made a mistake thinking that "globalization" would fix things. We offshored our industry to allow lazy managers and greedy stockholders the ability to line their pockets at all costs.

Yes, the move was political. I think that maybe some of the unannointed in Washington are beginning to notice that the 20% of the population that we call the "professional" class isn't enough to win elections.

I read this over at that rabidly anti-capitalist site Zerohedge (that's a joke son)

“Trade wars are good, easy to win,” tweeted Trump, knowing the statement would trigger every nerd with a college degree. Some worried about their jobs. But not terribly. Because their unemployment rate is just 2%, their labor force participation is 74%. They’re as well off as they’ve ever been. Particularly when set against those who never went to college, 5% of whom are unemployed, and 50% don’t even participate in the labor force. They’ve given up. These trade policies are for these forgotten people. To hell with the consequences. That’s the point.

Huckleberry

Ever looked into how much of that "Canadian steel" actually originates in Canada? Not as much as one might think.

LeaNder

Ulenspiegel: I keep leaving out words. Sometimes my mind is faster then my fingers. ;)

Correction: Although, I realized that the easiest way to respond [to a legitimate question by an SST member] would [have] be[en] a google translate version of [a German] Wikimannia [article].

The best other chance to get matters over would have been to Google translate a Swiss article on the issue. That, on the other hand Google couldn't really handle. The article played with words which rendered words (algorithmic correction - assumed typing errors?) meaningless. I surely can understand the words used were in fact quite exquisitely chosen made up words or Wortspiele.

Take care. Pleased to see your name around occasionally. ;)

Terry

Family farms, quality products, and applied technology aren't incompatible. A small farmer is far more likely to value the land he owns than a quarterly profit driven corporation that sees it as a resource to be exploited. Small farmers maintain biodiversity, usually having multiple crops and animals vs monocropping huge tracts of land. I have seen the transformation of a large tract of land where I grew up from diverse small farms with plenty of forested land to now empty large tracts empty of trees and wildlife all producing the same crop.

The key is FDR/Wallace style government programs that balanced the boom/bust cycles to give the small farmers steady markets.

The old farmers I know were hardly broken in body or soul, quite the opposite - long lived and hardy salt of the earth souls far healthier, happier, and more sane than the industrial fed drones working in cubes and living off dead foods. My reality check is just fine -and actually based in experience.

A couple of examples - When Hannibal invaded and occupied southern italy the land was full of small farms regularly producing food products and strong citizens for the Republic. They fled to Rome and after Hannibal was driven out the land was taken by the elites for large estates run by slaves. To this day southern italy hasn't recovered compared to the north.

A more modern example is Poland where laws are being enacted that favor big ag vs small farmers in the name of "efficiency". Efficient yes, in producing cheaper food of poor quality, degraded land, and profits.

http://www.nytimes.com/2008/04/04/world/europe/04poland.html

https://theecologist.org/2016/jan/25/polish-government-backs-small-farmers-and-food-sovereignty

Big ag is a disaster - ecological, cultural, demographically, biodiversity, and healthwise.

ISL

Ulenspiegel,

if the goal is simply to support internal German jobs, then the added value means the support was too generous.

if the goal was to move electricity to solar for the long term health of the German economy, then Chinese solar panels are more economical and the support was too generous.

And if the goal was to be able to improve balance of trade by exporting to other economies, then the support should have continued.

Were the German politicians ever clear on what their goals were?

Adrestia

The paradox in Europe is that Europe needs immigrants, but the population doesn't want them. This is why populist anti-immigration parties get so many votes.

https://en.wikipedia.org/wiki/List_of_countries_by_median_age

Merkel said "wir schaffen es" and not as a whim. Germany has a median age of 47; which means that half the population is older. Italy has a median age of 45. In the United States this is 38 years. Older people don't grow an economy (which IMO is another paradox); younger people are needed for that.


Ultimately this and the rigid determination not to reform the Euro and institutions (eg European laws are superior to national law) will break the EU. The population doesn't want it anymore.

This and the end of globalisation by Trump (international agreements, tariffs, etc) will cause many problems we cannot oversee yet.

IMO there is no clear solution. Everything is connected and is a house of cards. Since we (the people of the OECD world) are very slow in seeking/implementing reform, this will be forced upon us by the externalities we choose to ignore (inequality, democracy, climate change, war etc)


English Outsider


Ulenspiegel - "Even with imported Chinese modules the added value is 60% in Germany."

You identify a problem that is serious in I think all Western economies. Tacit or overt cartels and way over the top compliance and distribution costs

I installed Chinese solar units a few years back. Unsubsidised, since I didn't want helpful officials all over the place and in any case me and forms aren't friends.

I paid £650 per unit and that was cheap. At the time over the counter prices in China for an identical unit were around £150. That leaves a lot of excess for shipping, distribution and selling costs.

The "added value" costs you mention can be astronomical. I've seen £750 quoted for a part for a tractor gearbox that left the (local) factory gate for £50 maximum. £10 to £20 for shrink-wrapped items that cost a few pence to turn out. It's often cheaper, if one can find a local machine shop still going, to get an item laboriously made on out-dated machines than to buy it over the counter and get one that comes from a big efficient production run.

Some thirty years ago a man working for one of the big cement companies told me what happened in his trade. Some enterprising builder would discover that he could supply ready mixed at below the usual cost. He'd invest in the plant, tell all his mates he was open for business, and do a roaring trade. Within a radius of, if I remember accurately, some 20 miles, the prices of all the big suppliers would drop. When the local man had gone bust prices would go up again. That was standard practice.

You see similar examples in the price of plumbing fittings, or of fixings. Someone enterprising will buy bulk and undercut the big outlets, still making a profit but better quality and lower priced. You then see them get bought up by the big outlets. Prices back up to normal and quality down.

The stupid thing is that no one local makes more out of it. The profits go to financial institutions elsewhere. I suppose if pension funds and the like invest in turn in them there's something comes back locally, after the multi-million salaries and the London rents have been paid, but it's a roundabout way of silting up a local economy and not what Adam Smith ever dreamed off.

That's for simple stuff where design and compliance costs are lowl. At the more sophisticated end of the market it's similar. Design the item. Make the prototype. That always used to be done in-house but now it's sometimes cheaper and quicker to email the specs to China even for the prototype. Test the prototype and get the final product made in China. Then the real profit is made in selling and distribution. The mark-up isn't your 60%. It's many hundreds. That's fair enough for small runs in a chancy market but when it comes to standard mass produced items, though I'd guess the mark up can't near be as high, we really are paying more than is justified by what we get.

Compliance costs are difficult. Of course you don't want waste dumped in the river or workmen put at risk. But stopping that doesn't need to cost as much as it does. Moving over to the intricate tick box mechanism of enforcement of farm regulation and subsidy for example was one of the reasons so many farmers sold up. Filling in all the forms drove them mad and subbing the compliance paperwork out to a specialist, or as much as they could, cost them too much.

It doesn't work. You end up with large production units that must shave prices by sailing close to the wind on compliance. Or an increasing number of small cowboy farmers whose profit comes not from quality or efficiency, but from fooling or evading the system. What's the point of having all the good farmers filling out forms as if their lives depended on it, and the bad not bothering? It puts the competitive advantage where you don't want it. The Foot and Mouth outbreak a few years back was said to be a result of one such failure of the system.

That's a general problem with compliance costs. For an increasing number of enterprises survival depends not so much on producing the goods as finding or making the loopholes. That's before you get into the deadening effects of cronyism, large and small scale, and since a lot of the serious money is made on Government work, that matters.

It's not all bleak. There are plenty of enterprises around doing well and turning an honest penny. But too much niche or fringe, I'd guess, seldom that brilliant a prospect for the money and effort put into them, and nowhere near enough of them. The challenge faced by "Trumpism", as it's termed above, won't be met by merely slapping a few tariffs around. There's a long way to go before we can pretend to have a viable or efficient economy again.

For a young person starting out I suppose the best solution is to become a snowflake. I don't know how good the money is but at least then such problems needn't be thought about.


Babak Makkinejad

Small farmer? In 1982, a fellow trying to start as a small farmer needed 100K just for equipment & implements, let alone the land.
How do you judge the quality of food? I know tomatoes peaches, and strawberries sourced from US are pulpy and tasteless. But it was not caused by agri business.

Dr. Puck

The first truism derived from the Pareto Efficiency is that no country is great at all productive capacities. The corollary is: what a given country is competitive at evolves, degrades, progresses, in short, changes, over time.

(Here in Cleveland the graduate engineering and medical schools have many many foreign-born students. Similarly, Silicon Valley has many legal immigrants and VISA holders in their work force.
The USA is very very good, is the world leader, at educating persons in various fields.)

The simplistic hydraulic thinking in Trump's 'I'm having a bad day fit-of-pique' tariff policy won't bring back any manufacturing class at all. imo

If one wanted to do so, you might look at the Mittelstand in Germany for starters for imagining what a synergistic partnership here between schooling, workers, management, and owners would look like, and, what it could possibly achieve.

It's a complex problem in any case. It will not yield to turning one dial in one direction and another dial in the opposite direction as if the global economy is like a variety store on some idealized main street.

Incidentally, I don't understand at all the sweeping generalizations being deployed here to demonize managers and unions. We're the richest and most productive economy in the world for exacting reasons that are conclusions of one of the most researched subjects areas. Those reasons are also why another round of supply-side on steroids won't showcase people leaping to build supply--prior to the arrival of demand.


TimmyB

Spot on. The entire world trade system was designed and implemented so that a few extremely wealthy people could become richer when domestic industries shipped manufacturing overseas to be performed by first Mexican and now Chinese peasants. The results of these policies have been devastating. Here in the US, millions of high paying manufacturing jobs went overseas. These job losses devastated entire sections of the US. We even made up a name for these places, the "Rust Belt."

Sure, it's more "efficient" from an economic standpoint to have the lowest cost labor on the Earth make stuff in a place where there are no laws against polluting the local air and water and the manufacturer does not have to pay any taxes. But screw efficiency. This policy has hurt millions of American workers and their families. It has improvised large areas of the US. On the whole, it has made my country a worse place for most of the people who live here.

This is why Trump got elected. The economic losers who live in our formerly vibrant manufacturing centers wanted a change. And now, Trump is doing exactly what he promised, trying to save American jobs. If the completely corrupt world trade system goes down because of Trump, that's a win too. All the free trade cheer leaders want is a continual race to the bottom, where US jobs will come back only when the middle class is completely destroyed and we will agree to have our children drink polluted water, breath polluted air and work for slave wages in horrific conditions. Screw that.

Account Deleted
I think that maybe some of the unannointed in Washington are beginning to notice that the 20% of the population that we call the "professional" class isn't enough to win elections.
Yes indeed and in many other places besides, Italy being the latest.

Like the flaw Greenspan discovered in his Randian unfettered market logic, this is the logical flaw in applying unfettered Globalism to democracies. Offshore 'Human Resources' all you like, but the associated votes will stay firmly 'onshore'. Same with the EU's cherished economic freedom (sic) re the free movement of people; those who move take their votes with them. The inevitable political consequences in the donor countries should not have been a surprise to anyone.

Adrestia

The EU is built around neoliberal thought and globalisation:

* free flow of capital => restrict this and economies will become more local. Cypris did this recently!
* free flow of people => cheap labor. Eastern Europeans work for lower wages. In my country this is increasingly creating problems. Eg with construction and truckers
* free flow of goods => this should be maintained without tariffs. It is as Walrus said. Tariffs and other subsidies don't make bad-companies and management perform better or less incompetent , but makes them just lazy.

Add to these the curse of the common currency and the recipe for public discontent and election results is complete.

shepherd

Reading through this, you'd miss the fact that America is actually reshoring a lot of manufacturing, and has been for some time. I'd urge anyone who's curious to go to the Bureau of Labor Statistics and poke around. Or to read one of the numerous reports on this topic. A couple of points:

China has become much less competitive. Land costs in the relevant parts of the Yangtze River Valley are 4x what they are in the Carolinas. Labor costs, the chief advantage of overseas plants, are actually less of an economic factor than is commonly believed. They are becoming less relevant as new plants require fewer workers, and wage inflation has soared overseas. It also costs a lot to maintain a lengthy supply chain. As a result, if you're starting from scratch, you're more likely to open a modern factory in the US today than to go to China.

If you look up a category called Digitally Native Vertical Brands (DNVB), you'll find dozens of new American manufacturers in places like Pittsburg and Detroit. For the most part, they are using local sourcing strategies to produce extremely high quality products at really reasonable costs. An example would be Mission Workshop. They have a factory that produces messenger bags in San Francisco, which has some of the highest real estate prices in the country. Their products are competitively priced and guaranteed for life.

Manufacturing jobs have been steadily rising not falling in the US long before Trump, as have wages. I believe we've added something like a million new manufacturing jobs since hitting bottom around ten years ago.

Here's why, independent of politics, the tariff is stupid. Process manufacturing (steel, chemicals) generally employs far fewer workers than discrete (products) manufacturing. For example, the entire US steel industry employees only 135,000 workers, while the auto industry employs 2 million. Protecting steel jobs means you're hurting industries that employ far more people. It's a clear case of cutting your nose off to spite your face. And that's before retaliatory measures-likely aimed at farmers and discrete manufacturers-take their toll.

Fred

Babak,

" I know .... strawberries sourced from US are pulpy and tasteless."
Why bless your heart. Next time you get to Florida in the winter stop in here for real American strawberries. The others can't be expoted to Iran, sanctions don't you know....
http://flstrawberryfestival.com

Babak Makkinejad

2.5 million jobs created by US corporations outside of US - those people's standard of living jumped all of a sudden.

Google Snow Crash.

Fred

outthere,

You left out Union support for the Jones act.
https://aflcio.org/about/leadership/statements/support-jones-act

Balint Somkuti, PhD

Cara mia! I know this.

I am from Hungary. ;)

BillWade

"How do you judge the quality of food? I know tomatoes peaches, and strawberries sourced from US are pulpy and tasteless. But it was not caused by agri business."

You can't be serious? Those items are picked by big-ag before they ripen and are gassed enroute to the final destination to appear to be fresh-ripe, they taste like crap because they have not matured normally and are lacking in nutrition as well.

Dr. Puck

Eric, do you have any historical demonstration (via credible research findings,) with respect to the USA's track record that tax cuts and tariffs and deficit spending and deregulation brought intra-country prices on hard goods or commodities to parity?

Second question. Do you know what externalities are in economics?

Third question. Whose pockets do you hope to prioritize?

Dr. Puck

I note you didn't mention the new round of supply-side tax cuts that lower corporate taxes in perpetuity, and income taxes temporarily. On the campaign trail Trump actually said he was going to pinch the hedge fund and financial elites.

Then he brought Goldman-Sachs to the table of cronies and next did the bait-and-switch for the sake of rewarding the GOP donor class; you know the reaganomics that libtards warned he would inevitably unfold. Easy call, that. . .

Babak Makkinejad

They were bad 40 years ago.

They are bad today.

The ones imported from Chile are good.

Babak Makkinejad

You evidently do not shop in the same places as I have.

Americans can mass-produce produce a lot of fine things but edible peaches, strawberries, grapes, berries, and tomatoes are not among them.

walrus

I understand your feelings TimmyB but you suffer from common misperceptions. The product coming from China aren't made by "peasants",nor are they by implication hammered out by hand on the floor of a mud hut for pennies. Nor are they necessarily of low quality. Nor are they necessarily polluting their environment. This is where Trump and the protectionist crowd are fatally misguided.

The scary reality is that the Chinese workers parents may have been peasants but the Chinese today are relatively well educated, hard working and intelligent and they are enjoying a rising standard of living. They are not ignorant slaves. The cost of living is not as high as the West either. So argument number one fails they like their job, they are good at it, they work hard and are well paid by their standards despite the WSJ running stories about slaves building iPhones.

Secondly, Chinese products are made in state of the art factories using the most modern technology they can buy. The Chinese saw through the old western scam of shipping old second hand machinery to their Asian subsidiaries a long time ago. They demand the best.

As for pollution, Yes China has a problem but they are aware of it and the government is doing everything it can to improve things as fast as it can. The problems are a combination of old command economy thinking, Chinese notorious resistance to government regulation and the speed of Chinas industrialisation.

The Chinese may not be living a Beverly Hills lifestyle but they don't want, to paraphrase you, their children drinking polluted water, breathing polluted air and working for slave wages in horrific conditions either and they are trying to fix things.

To put that another way. Chinese products are not made by orcs in the dungeons of Mordor. If you want production back in the USA then you are going to have to work very hard to beat them in efficiency terms. As for regulations, healthcare costs, etc. those are your own problems, fix them yourself.

wisedupearly Ceo

"There are plenty of enterprises around doing well and turning an honest penny. But too much niche or fringe, I'd guess, seldom that brilliant a prospect for the money and effort put into them, and nowhere near enough of them. "
Traditionally the president used his bully pulpit to honor the personally productive and publicise the worthy.
Compliance costs indicate a failure of common sense. If compliance mechanisms become pervasive and obligatory it means that the citizens are deficit in "common sense".
Of course, Wall Street has enough money to buy their freedom from compliance.

The comments to this entry are closed.

My Photo

November 2020

Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30          
Blog powered by Typepad