By John Richardson
THE US is well and truly back economically was once again one of the themes at this year’s Asia Petrochemical Industry Conference (APIC) in Pattaya, Thailand.
It was argued that shale gas has led to a manufacturing revival. Billions of dollars of investment in oil, gas, chemicals and fertilisers projects was cited as the reason for the new dawn.
One wonders whether people are conflating investment dollars with a manufacturing revival. One of the reasons why the value all the shale gas-based investments keeps going up in the US is that engineering and construction costs are soaring on all the building work.
Demographics guarantee that shale gas alone cannot achieve a broad-based, sustainable manufacturing revival in the US – but the “D word” hasn’t. so far, been mentioned once at the conference, which concludes today.
China’s role in this was also seen as entirely beneficial. For example, it was accepted as a given that rising labour costs in the country’s eastern and southern provinces would add further support to this revival.
And it was viewed as certain that China would successfully, and very swiftly, achieve its shift from being manufacturing investment to being consumption and services investment driven economy. This would thus result in an easy home for all of the US’s new manufacturing output in both oil and gas products and chemicals and fertilisers – and crucially, also, downstream as millions of new US jobs were created.
There are no guarantees that China will achieve its economic transformation. We think it probably will – but you need to plan for another scenario.
In the interim, also, as the monumental political and social challenges of this transformation are addressed, China has to preserve jobs – and one way of doing this is to subsidise exports. This will result in China exporting more and more of its massive basic manufacturing surpluses. It will export deflation, leading to ever-greater global trade tensions.
First of all, on the US jobs data, the numbers do not stack up claims of genuine manufacturing revival. As the FT pointed out:
- The pace of job creation among US manufacturers hit a peak during Barack Obama’s presidency in 2011, with more than 17,200 jobs created per month, according to labour department data.
- It has slowed significantly since then, to 13,900 per month in 2012, 7,300 per month in 2013, and 11,800 so far this year.
The subsidised rise of Chinese exports, as it tries to preserve jobs in the face of its policy-driven economic slowdown, also appears to be happening
“US steel imports surged 25.7 per cent in the first quarter, fuelling concerns that it is foreign producers, rather than American manufacturers, that are reaping the benefits of the shale gas revolution,” said the same FT article.
“Between January and March, the US imported 8.8m net tons of steel products, up from 7m net tons in the first three months of 2013, according to data analysed by the Economic Policy Institute, a liberal think-tank in Washington.”
The reason for the export surge is overcapacity in China, South Korea and Taiwan, added the newspaper. China is, as we said, supporting exports through, for example, a weaker Yuan. Meanwhile, because of China’s enormous overinvestment in steel, particularly post-2008, South Korea and Taiwan are finding it harder and harder to place their volumes.
Scott Paul, president of the Alliance for American Manufacturing, told the newspaper: “The manufacturing resurgence is largely an idea, rather than a reality – outside of a very strong performance in the auto sector.”