Continuing to look at the new economy through the prism of the new dimension, CTH notes the manufacturing landscape is shaping itself as predicted. However, the disclaimer should also be noted that most economic observers are stuck in old economic paradigms.
[…] The Institute for Supply Management said Monday that its manufacturing index rose to 57.8 last month from 54.9 in May. Anything above 50 signals that factory activity is increasing. The measure now stands at its highest level since August 2014, pointing to solid economic growth. (link)
Overall the trend-line is very positive for a resurgence in U.S. manufacturing. According to the report fifteen of the eighteen manufacturing industries surveyed posted growth in June. Those gains included: furniture, machinery, fabricated metals, petroleum and coal sectors. One transportation equipment firm surveyed for the report said “demand is up 5 to 7 percent.”
The manufacturing base is responding (via investing) to predictable market patterns. However, the rate of response (production investment) will increase in direct proportion to the upcoming (late summer) trade negotiations. Please keep that in mind.
An example of an industrial response to market changes comes within the Ford decision to manufacture some vehicles in China as opposed to their previous plans to manufacture in Mexico.
This was the original basis for Ford CEO Mark Fields (now fired) 2015 decision to assemble small cars in Mexico. Many of the actual components for the “value” line within the Mexico deal, actually originated from China.
China shipped the auto parts to Mexico. In Mexico Ford was going to assemble the components and send completed autos into the U.S. using NAFTA trade parameters. This is how NAFTA was exploited. If the parts came directly from China to Ford in Michigan, they would be subject to a different set of trade rules. However, by shipping them to Mexico, and then assembling there, Ford was able to exploit a vulnerability in NAFTA.
Commerce Secretary Wilbur Ross announced his intent to close this vulnerability, and together with U.S. Trade Representative Robert Lighthizer they fully intend to close this and other similar out-dated loopholes. Hence, Ford’s best play became to drop the Mexico investment, expand production in the U.S., and shift the component assembly concept directly to China where Ford vehicles will sell within the Chinese market.
As Secretary Ross, Trade Rep Lighthizer and U.S. Treasury Secretary Mnuchin work on closing these exploitative loopholes, the manufacturing production equation will continue a market response and shift accordingly.
As we have stated, yes, we can expect the price of some “durable goods” to increase, in the longer term, as some of these trade measures are put into place. However, high-turn consumable goods -including energy (specifically gasoline)- will continue price drops.
[Additionally, domestic manufacturing market forces will increase wage rates, so the bottom line will be more income to pay for slightly higher durable goods.]
Inflation on imported durable goods will take some time to actualize because the competing nations will first go through stages of increased efficiency to offset any additional costs to bring products to the U.S. market. The exporting countries will cut costs first, and then -after exhausting all other options- they will raise prices.
Please keep this in mind when the quality of imported goods begins to drop. The paragraph above explains the root cause.
Lastly, it is also important to shred all prior reference points to “global pricing” or “commodity pricing”. These common catch phrases are now inaccurate as used.
In the past three decades multinational companies have moved-in to control market prices. Multinational corporations invested in and purchased the majority inventory within multiple industries. Those corporations set the prices, NOT, I repeat, NOT, the larger free market.
In a world dominated by massive institutional multinational corporations, and massive institutional multinational banking interests, there is no such thing as “market prices”. There are only ‘controlled’ prices determined by corporate entities that own the majority inventory within a market.
Most of the agriculture sector is now essentially controlled by a handful of massive institutional multinational corporations. Those corporations control everything from field activity, through inventory and global distribution networks, and determine/control and shape the market price to their own best interests.
Global financial exploitation of national markets:
♦Multinational corporations purchase controlling interests in various national elements of developed industrial western nations.
♦The Multinational Corporations making the purchases are underwritten by massive global financial institutions, multinational banks.
♦The Multinational Banks and the Multinational Corporations then utilize lobbying interests to manipulate the internal political policy of the targeted nation state(s).
♦With control over the targeted national industry or interest, the multinationals then leverage export of the national asset (exfiltration) through trade agreements structured to the benefit of lesser developed nation states – where they have previously established a proactive financial footprint.
The ‘America First’ Trump-Trade Doctrine upsets the entire construct of this multinational export/control dynamic. Team Trump focuses exclusively on bilateral trade deals with specific policy only looking out for the national interests of the United States.
Yes, these multinational corporations can still do business here, but they still have to adhere to financial rules on foreign investment. Remember, Treasury Secretary Steven Mnuchin now heads CFIUS (Council on Foreign Investment in U.S.) and reviews trade policy to determine if the underlying economics have a negative impact on the U.S.
Most are not aware that in reality Steven Mnuchin has more control over economic national security than Secretary of Defense General Mattis has over military national security. Both Secretary of State Rex Tillerson and Defense Secretary Mattis are more reliant on Mnuchin than any other cabinet member.
No-one ever fully understood the national security trade leverage, apart from economic sanctions aspect, other than businessman Donald Trump, then candidate Donald Trump, and now President Donald Trump. His economic views/policies are specifically and intensely focused on America’s interests first. Hence, MAGA.
Team Trump (Mnuchin, Ross, Lighthizer, Tillerson etc) are using every angle and point of leverage to unraveling decades of global tentacles undermining our economy. [EXPLAINED HERE] Every single Trump policy is connected to economic security.
As we are seeing in action, the energy sector is the first beneficiary. This makes sense because it underlines all other manufacturing advantages. However, all other manufacturing sectors of a revitalized U.S. industrial economy will also benefit over time as the policies are actualized.