Reshoring

I encourage you to read Joel Kotkin’s post at The American Mind on our supply chain problems:

The chaos on the ground level may not much hurt the elites of Manhattan or Palo Alto, but inflation, which is now expected to continue apace for at least the next year, has wiped out wage gains in the U.S., the UK, and Germany. Low-income groups are the most threatened, struggling to pay energy costs, surging rents, and higher food prices. All this is also eroding President Biden’s already weak poll numbers.

Our vulnerability to supply chain disruption clearly predates the Biden Administration, forged by the abandonment of the production economy over the past 50 years by American business and government, encouraged and applauded by the clerisy of business consultants. The result has been massive trade deficits that now extend to high-tech products, and even components for military goods, many of which are now produced in China. When companies move production abroad, they often follow up by shifting research and development as well. All we are left with is advertising the products, and ringing up the sales, assuming they arrive.

Unable to stock shelves, procure parts, power your home, or even protect your own country without waiting for your ship to come in, Americans are now unusually vulnerable to shipping rates shooting up to ten times higher than before the pandemic. Not surprisingly, pessimism about America’s direction, after a brief improvement Biden’s election, has risen by 20 points. The shipping crisis is now projected to last through 2023.

The views expressed there closely parallel my own. Follow that up with this post at Doomberg:

We aren’t in the hindsight business at Doomberg, but rather the foresight business. So, here’s our best guess at what is going to transpire after the coming dark storm clouds finish drenching us with their rain of doom:

• The breaking of the European energy markets is just a symptom of a greater disease. It reflects the demise of the just-in-time logistics philosophy at the heart of modern capitalism.
• Companies can no longer delegate their survival to the tight performance of their supplier base in the name of efficiency. This works until it dramatically and disasterously doesn’t.
• There will be a massive build out of raw material and work-in-progress inventory, which will likely further exacerbate ongoing inflationary pressures in the near term.
• There will be a staggering wave of onshoring. Businesses simply can’t rely on unreliable ports, a shortage of longshoremen and truck drivers, or a backup in rail car availability. So, they won’t.

If we’re right, the scale of the upcoming wave of onshoring will likely surpass the flight from the cities we observed after Covid, at least as measured by economic impact. America is going to learn to build stuff again.

We’ve spent the last 30 years doing exactly the wrong things. Rather than encouraging everyone to seek a college education we should have encouraged vocational training right along with it. College just isn’t everyone’s cup of tea and that shouldn’t be the expectation. Truly “building back better” means reshoring and nearshoring. Rather than encouraging businesses to move production offshore where it is decorously out of sight, we should have encouraged them to remain in the United States. Rather than encouraging trade with China we should have controlled trade with China very scrupulously, increasing it much more gradually and only as the Chinese authorities made genuine reforms.

And there will be problems in dealing with the BANANA wing of the environmental movement. Not only can we build more here and reduce carbon emissions at the same time, we must reshore and/or nearshore production if we are to reduce carbon emissions.