V-Shaped Recovery in U.S. Manufacturing

This is interesting. Frankly, you have to read WSJ just to get straight economic news. 

See, "Why You Might Have Trouble Getting the Refrigerator, Can of Paint or Car You Want":

A couple eager for a kitchen upgrade sold their existing refrigerator, stove and dishwasher, planning to replace them immediately. They were shocked to find out new appliances would be out of stock for months. https://t.co/6uBdrLjchM

— The Wall Street Journal (@WSJ) October 25, 2020

From makers of cars to appliances to paint cans, U.S. manufacturers are falling behind on demand for goods that Americans are buying up as the Covid-19 pandemic drags on.

Factory production of consumer products has largely recovered after shutdowns this spring related to the virus crippled manufacturing across the country.

But as companies rush to restock, buyers are snapping up items at an even faster pace, leading to inventory shortages on goods that have recently surged in popularity with people spending more time at home and nervous about travel, executives, retailers and analysts say.

Five months after vehicle production restarted, car dealers are still seeing their stockpiles dwindle as public transit-averse buyers flock to the new-car lot and more people relocate to the suburbs and countryside.

A surge in home-improvement projects has left paint producers with not enough cans and appliance makers short on parts to produce refrigerators, kitchen mixers and washing machines. 

Supply-chain disruptions, worker absences and other challenges related to virus-proofing the workplace are further complicating manufacturers’ efforts to catch up. Some executives say it won’t be until early next year before stock levels return to normal.

“We do not have the inventory on the new side or the preowned side to meet the demand that’s out there,” said Mike Jackson, chief executive for AutoNation Inc., the U.S.’s largest publicly traded dealership chain. He said he expects availability to improve next year.

Some manufacturers with big consumer businesses, including 3M Co. MMM -0.53% , Harley-Davidson Inc. HOG 1.93% and Ford Motor Co. F -0.61% , are expected to report earnings for their latest quarters this coming week, likely offering more insight into the state of U.S. supply chains.

Production of long-lasting consumer goods, like appliances, trucks and furniture, was down nearly 50% in April from January levels, according to data provided by the Federal Reserve. But over the summer it rebounded, and in September, production was up 1% from January, the data shows.

For buyers, shortages can be a letdown. But for businesses, there is also upside. With inventory tight, auto makers and dealers say they are able to charge more for vehicles, driving stronger profits. And the pent-up demand should help keep sales robust into next year, some executives say.

“It’s good that we have an exceptionally strong order book, but we are, of course, trying to minimize any customer frustration,” Marc Bitzer, chief executive of appliance maker Whirlpool Corp. , said on a call last week with analysts.

After widespread plant closures this spring, manufacturers began bringing workers back in late May under new safety protocols, many scheduling overtime to make up for lost production.

But the restart efforts were slow-going at first, with suppliers also struggling to reopen and factories confronting high rates of worker absences.

It wasn’t until August that many U.S. factories were back to a normal level of production, but by then, demand had also bounced back faster than many had expected, depleting inventories and creating a bigger supply gap, executives and retailers say.

Auto makers, in particular, have been straining to keep up with demand for new vehicles as low interest rates, extra cash from stimulus checks and growing interest in owning a car have stoked sales.

Part of the problem is that auto makers continue to grapple with supply-chain shortages, particularly on items from Mexico, and aren’t always able to get parts needed for the features and configurations buyers want, analysts and executives say.

 

*****

Still more.

Everyone Loses in the U.S.-Chinese Clash?

I was just skimming through my old copies of Foreign Affairs and came across this piece, from last year, by Weijian Shan.

It's amazing how quickly it's out of date, and badly wrong, considering the corona epidemic and its effects. President Trump has always been a nationalist on trade, and while he's been woefully uneven on China --- both praising and disparaging Beijing, often during the same press conference --- the strategy that Shan denounces is exactly what the U.S. should pursue.

Here, "The Unwinnable Trade War: Everyone Loses in the U.S.-Chinese Clash—but Especially Americans":

It is in the best interests of both the U.S. and China to move away from zero-sum thinking and put an end to the ad hoc decoupling that the trade war has threatened, argues Weijian Shan.https://t.co/oV4by2z06x

— Foreign Affairs (@ForeignAffairs) October 13, 2019

The trade war has not really damaged China so far, largely because Beijing has managed to keep import prices from rising and because its exports to the United States have been less affected than anticipated. This pattern will change as U.S. importers begin to switch from buying from China to buying from third countries to avoid paying the high tariffs. But assuming China’s GDP continues to grow at around five to six percent every year, the effect of that change will be quite modest. Some pundits doubt the accuracy of Chinese figures for economic growth, but multilateral agencies and independent research institutions set Chinese GDP growth within a range of five to six percent.

Skeptics also miss the bigger picture that China’s economy is slowing down as it shifts to a consumption-driven model. Some manufacturing will leave China if the high tariffs become permanent, but the significance of such a development should not be overstated. Independent of the anxiety bred by Trump’s tariffs, China is gradually weaning itself off its dependence on export-led growth. Exports to the United States as a proportion of China’s GDP steadily declined from a peak of 11 percent in 2005 to less than four percent by 2018. In 2006, total exports made up 36 percent of China’s GDP; by 2018, that figure had been cut by half, to 18 percent, which is much lower than the average of 29 percent for the industrialized countries of the Organ-ization for Economic Cooperation and Development. Chinese leaders have long sought to steer their economy away from export-driven manufacturing to a consumer-driven model.

To be sure, the trade war has exacted a severe psychological toll on the Chinese economy. In 2018, when the tariffs were first announced, they caused a near panic in China’s market at a time when growth was slowing thanks to a round of credit tightening. The stock market took a beating, plummeting some 25 percent. The government initially felt pressured to find a way out of the trade war quickly. But as the smoke cleared to reveal little real damage, confidence in the market rebounded: stock indexes had risen by 23 percent and 34 percent on the Shanghai and Shenzhen exchanges, respectively, by September 12, 2019. The resilience of the Chinese economy in the face of the trade war helps explain why Beijing has stiffened its negotiating position in spite of Trump’s escalation.

China hasn’t had a recession in the past 40 years and won’t have one in the foreseeable future, because its economy is still at an early stage of development, with per capita GDP only one-sixth of that of the United States. Due to declining rates of saving and rising wages, the engine of China’s economy is shifting from investments and exports to private consumption. As a result, the country’s growth rate is expected to slow. The International Monetary Fund projects that China’s real GDP growth will fall from 6.6 percent in 2018 to 5.5 percent in 2024; other estimates put the growth rate at an even lower number. Although the rate of Chinese growth may dip, there is little risk that the Chinese economy will contract in the foreseeable future. Private consumption, which has been increasing, representing 35 percent of GDP in 2010 and 39 percent last year, is expected to continue to rise and to drive economic growth, especially now that China has expanded its social safety net and welfare provisions, freeing up private savings for consumption.

The U.S. economy, on the other hand, has had the longest expansion in history, and the inevitable down cycle is already on the horizon: second-quarter GDP growth this year dropped to 2.0 percent from the first quarter’s 3.1 percent. The trade war, without taking into account the escalations from September, will shave off at least half a percentage point of U.S. GDP, and that much of a drag on the economy may tip it into the anticipated downturn. (According to a September Washington Post poll, 60 percent of Americans expect a recession in 2020.) The prospect of a recession could provide Trump with the impetus to call off the trade war. Here, then, is one plausible way the trade war will come to an end. Americans aren’t uniformly feeling the pain of the tariffs yet. But a turning point is likely to come when the economy starts to lose steam.

If the trade war continues, it will compromise the international trading system, which relies on a global division of labor based on each country’s comparative advantage. Once that system becomes less dependable—when disrupted, for instance, by the boycotts and hostility of trade wars—countries will start decoupling from one another.

China and the United States are joined at the hip economically, each being the other’s biggest trading partner. Any attempt to decouple the two economies will bring catastrophic consequences for both, and for the world at large. Consumer prices will rise, world economic growth will slow, supply chains will be disrupted and laboriously duplicated on a global scale, and a digital divide—in technology, the Internet, and telecommunications—will vastly hamper innovation by limiting the horizons and ambitions of technology firms...

President Trump's Assault on Free Trade

I'd argue some of the recent developments in the trade with China haven't been so great.

The cycle of increasing retaliation, with ever more punitive tariffs, will bring steep costs to both sides, and in the case of the U.S., employment sectors will be harmed and consumers will pay more for crucial goods and services affected by the dispute. Some businesses and agricultural interests are already screaming in pain as it is.

That said, China is an egregiously unfair competitor seeking to dislodge the U.S. as the world's leading economy. It will do anything to achieve its goals, including lying, cheating, and stealing. And so far no president has gone as far as President Trump to push back against China's unfair trade (and currency) practices.

I applaud the administration. And frankly, criticism against the new regime is of the "sky is falling" variety. The American economy is massive and diverse. Some sectors, in manufacturing, for example, are past their prime, and no amount of get-tough approaches will revive their glory. Still, it's about more than jobs and income. It's about who sets the rules of the game, and which side gets to keep its dignity and pride. If you watch the Netflix documentary "American Factory" you'll see that Chinese businesses are ruthless capitalists (ironically) who will to squeeze their labor force and supply chains to maximize the bottom line. Forget about organizing a union; you'll drive yourself right to the unemployment line.

In any case, FWIW, at Foreign Affairs, "Trump’s Assault on the Global Trading System: And Why Decoupling From China Will Change Everything":

“The Trump administration may end up destroying the old system without having drafted a blueprint for its successor.”https://t.co/lZrjZminVr

— Foreign Affairs (@ForeignAffairs) August 31, 2019

Donald Trump has been true to his word. After excoriating free trade while campaigning for the U.S. presidency, he has made economic nationalism a centerpiece of his agenda in office. His administration has pulled out of some trade deals, including the Trans-Pacific Partnership (TPP), and renegotiated others, including the North American Free Trade Agreement (NAFTA) and the U.S.-Korea Free Trade Agreement. Many of Trump’s actions, such as the tariffs he has imposed on steel and aluminum, amount to overt protectionism and have hurt the U.S. economy. Others have had less obvious, but no less damaging, effects. By flouting international trade rules, the administration has diminished the country’s standing in the world and led other governments to consider using the same tools to limit trade arbitrarily. It has taken deliberate steps to weaken the World Trade Organization (WTO)—some of which will permanently damage the multilateral trading system. And in its boldest move, it is trying to use trade policy to decouple the U.S. and Chinese economies.

A future U.S. administration that wants to chart a more traditional course on trade will be able to undo some of the damage and start repairing the United States’ tattered reputation as a reliable trading partner. In some respects, however, there will be no going back. The Trump administration’s attacks on the WTO and the expansive legal rationalizations it has given for many of its protectionist actions threaten to pull apart the unified global trading system. And on China, it has become clear that the administration is bent on severing, not fixing, the relationship. The separation of the world’s two largest economies would trigger a global realignment. Other countries would be forced to choose between rival trade blocs. Even if Trump loses reelection in 2020, global trade will never be the same.

BATTLE LINES

The first two years of the Trump administration featured pitched battles between the so-called globalists (represented by Gary Cohn, then the director of the National Economic Council) and the nationalists (represented by the Trump advisers Steve Bannon and Peter Navarro). The president was instinctively a nationalist, but the globalists hoped to contain his impulses and encourage his attention-seeking need to strike flashy deals. They managed to slow the rollout of some new tariffs and prevent Trump from precipitously withdrawing from trade agreements.

But by mid-2018, the leading globalists had left the administration, and the nationalists—the president among them—were in command. Trump has a highly distorted view of international trade and international negotiations. Viewing trade as a zero-sum, win-lose game, he stresses one-time deals over ongoing relationships, enjoys the leverage created by tariffs, and relies on brinkmanship, escalation, and public threats over diplomacy. The president has made clear that he likes tariffs (“trade wars are good, and easy to win”) and that he wants more of them (“I am a Tariff Man”).

Although the thrust of U.S. policy over the past 70 years has been to pursue agreements to open up trade and reduce barriers, every president has for political purposes used protectionist measures to help certain industries. President Ronald Reagan, for example, capped imports to protect the automotive and steel industries during what was then the worst U.S. recession since the Great Depression. Trump, however, has enjoyed a period of strong economic growth, low unemployment, and a virtual absence of protectionist pressure from industry or labor. And yet his administration has imposed more tariffs than most of its predecessors.

Take steel. Although there is nothing unusual about steel (along with aluminum) receiving government protection—the industry maintains a permanent presence in Washington and has been an on-again, off-again beneficiary of trade restrictions since the Johnson administration—the scope of the protection provided and the manner in which the Trump administration gave it last year were unusual. In order to avoid administrative review by independent agencies such as the nonpartisan, quasi-judicial U.S. International Trade Commission, the White House dusted off Section 232 of the Trade Expansion Act of 1962. This Cold War statute gives the president the authority to impose restrictions on imports if the Commerce Department finds that they threaten to harm a domestic industry the government deems vital to national security.

The Trump administration’s national security case was weak. More than 70 percent of the steel consumed in the United States was produced domestically, the imported share was stable, and there was no threat of a surge. Most imports came from Canada, Germany, Japan, Mexico, and other allies, with only a small fraction coming from China and Russia, thanks to antidumping duties already in place on those countries. The number of jobs in the U.S. steel industry had been shrinking, but this was due more to advances in technology than falling production or imports. In the 1980s, for example, it took ten man-hours to produce a ton of steel; today, it takes just over one man-hour. Even the Defense Department was skeptical about the national security motivation.

Prior administrations refrained from invoking the national security rationale for fear that it could become an unchecked protectionist loophole and that other countries would abuse it. In a sign that those fears may come true, the Trump administration recently stood alongside Russia to argue that merely invoking national security is enough to defeat any WTO challenge to a trade barrier. This runs counter to 75 years of practice, as well as to what U.S. negotiators argued when they created the global trading system in the 1940s.

The Trump administration dismissed all those concerns...

More.

Boeing 787-10 Dreamliner (VIDEO)

I love this:

Michelle Malkin, Who Built That

Following-up, "Manufacturing Hate for 'Made in America'."

Michelle knows whereof she speaks.

Check out her book, at Amazon, Michelle Malkin, Who Built That: Awe-Inspiring Stories of American Tinkerpreneurs.

Manufacturing Hate for 'Made in America'

From Michelle Malkin:

It’s “Made In America” week in Washington, D.C. You’d think this would be cause for bipartisan celebration. Who could be against highlighting the ingenuity, self-reliance and success of our nation’s homegrown entrepreneurs and manufacturers?

Enter Bill Kristol.

The entrenched Beltway pundit ridiculed a festive kickoff event on Monday at the White House, where President Donald Trump hosted companies from all 50 states to showcased their American-made products.

“Maybe it’s just me,” killjoy Kristol tweeted, “but I find something off-putting about turning the White House into an exhibition hall for American tchotchkes.” (That’s the Yiddish word for useless trinkets).

“Tchotchkes”?

Tell that to the engineers at Hytrol, the Arkansas-based conveyor manufacturer that brought a mechanical display of its technology to the State Dining Room. Hytrol’s late founder, Tom Loberg, started out as a gopher at an electronics parts factory during the Great Depression, worked his way up to designing Navy turbines, hydraulic pumps and cylinders, and entered the conveyor belt business after perfecting bag-transporting machinery for seed, grain and tobacco farmers.

Hytrol’s state-of-the-art products are now used by companies ranging from Amazon.com to Office Depot to leading pharmaceutical, retail, food and publishing conglomerates around the world. A pioneer in the materials handling industry, Hytrol employs 1,300 high-skilled workers and will rake in revenues of more than $200 million this year alone.

“Tchotchkes”?

Tell that to the employees of Wisconsin’s Pierce Manufacturing, which displayed one of its 30,000 custom-built fire trucks on the White House front lawn. Pierce started out as an auto body shop operating out of a converted church and now boasts a 2,000-person workforce. The company produces the iconic aerial tillers, pumpers, tankers and rescue trucks driven by first responders across the country every day.

“Tchotchkes”?

Tell that to Iowa-based RMA Armament’s founder Blake Waldrop, a former Marine and police officer, who was inspired to manufacture stronger body armor after losing a comrade in Iraq to an IED attack. His ceramic plates, also featured at the “Made in America” event on Monday, have been purchased by police departments in Baltimore, Los Angeles and Waterloo, Iowa. Waldrop is working on partnerships to bring his products to the U.S. military and overseas.

“I always tell people I didn’t invent armor any more than Steve Jobs invented the computer,” Waldrop told the Des Moines Register earlier this year. “I just found a better way to do it, just like he did.”

“Tchotchkes”?

Delaware’s ILC Dover participated in President Trump’s “Made in America” exhibition, too. Its trademark trifling bauble? The space suit worn by every U.S. astronaut since Project Apollo. Prolific inventor-turned-industrialist Abram Spanel, a Russian-born son of Jewish garment workers, spun off the company from his giant latex conglomerate that manufactured everything from girdles and swimwear to canteens and lifeboats.

ILC Dover produced high-pressure suits and helmets for the Air Force before winning a contract to design suits for NASA. In addition to displaying spacesuits used on the Space Shuttle and International Space Station programs, the company brought to the White House its DoverPac Flexible Isolator System used by pharmaceutical companies in their manufacturing processes; its Sentinel respirator used in the health care industry; and its SCape escape respirator used to protect U.S. government officials around the world from carbon monoxide, chemical, biological, radiological and nuclear contaminants.

It’s a crying shame D.C. is infested with effete talking heads whose only successfully manufactured product is condescending hostility toward the real movers and shakers in America. Patriotism is gauche and “off-putting” to incurable Trump-bashers like Bill Kristol, who supported Hillary Clinton and her foreign-subsidized pay-to-play cash machine over Donald Trump’s unapologetic nationalism.

Could Trump and his family’s own companies do better in hiring American and manufacturing in America? Sure.

Could the White House be doing more to freeze foreign worker visas at both ends of the wage scale and truly put A
merican workers first? Undeniably.

But to nastily deride the makers and job creators proudly showing off their wares in the nation’s capital at the invitation of our commander in chief takes a special level of anti-Trump lunacy and arrogance...