The Next Industrial Revolution: North America’s Advantage & Why Deglobalization is a Myth

After a Decade of Poor Returns and Capital Starvation Energy Intensive Businesses in North America Are Positioned to Outperform

Introduction

“Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.” – Thomas Sowell, American Economist

For my entire life industrial companies in the business of manufacturing goods have moved out of the United States to other parts of the world. With the movement of the productive process out of the US and into Asia high paying blue collar jobs have gone with it. The exportation of industry made it commonplace as a child to hear stories of close friends and family “losing jobs” to the Chinese or in some cases Hispanic employment. The mass exodus of US manufacturing became a hot button political issue on both ends of the aisle and has led to ethnic tensions from the US citizenry against these supposed thieves. Given my entire life has only seen one fact pattern of manufacturing and industry leaving the US to foreign lands, it was odd when in 2018-2019 I began to hear rumblings of “reshoring” or “friendshoring”.

As the COVID-19 pandemic exploited the world’s concentration of supply chains connecting through China, there was this narrative that quickly formed that diversity of the supply chain was needed. As jobs and industry began to change politicians claimed victory for themselves here in the US. The achievement in the minds of the politicians was they were bringing back jobs from Asia and would revitalize the US working class and the sad part is many Americans bought this hook, line & sinker. Luckily, our organization has a contrarian streak to it and rather than accept this new narrative we asked a simple question to start, where were these “reshored” jobs and manufacturing facilities actually coming from? What we found is while some of the industry coming back to the states were Asian based, the bulk of the activity over the last 5-6 years has been from Europe to the United States, not Asia or Mexico – despite what we had been told our entire lives by the politicians and the media.

As we began identifying who the main culprits of this newfound reshoring policy were, we asked another simple question – why would European industrial businesses prefer to be in the United States when for 40 years our industrial base has declined? The answer to this question is economic realities drive industrial change. Where manufacturing is done is always a function of economics and the term globalization is attached at the hip with industrial advantage. Jobs moved from the US to China because it was more economic to produce industrial goods there than it was in the United States. This change is also not solely a function of labor cost.

While the incentive to move jobs from the United States to China might have been a function of labor cost, there are many other pieces of the value chain that will determine where industrial activity occurs in the next decade. In the production of iPhones, China was advantaged for certain, but as the economy changes and the physical world requires investment the production of critical materials like Steel, Petrochemicals, Plastics, or Ammonia are not influenced by the cost of labor but instead, the cost of energetic & raw material inputs. The next logical question, and the one we aim to answer for our readers in this piece is why might the US be advantaged today and what kinds of industry do we think will enter the United States in the next decade?