# At what point will USA manufacturers be viable again? **URL:** \ **Category:** Factual Questions\ **Created:** [June 1, 2014, 2:58pm UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772 "2014-06-01T14:58:50Z")\ **Posts on this page:** 11\ **Page:** 3
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 6, 2014, 3:07am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/41 "2014-06-06T03:07:43Z")
> [@Exapno\_Mapcase](#): > > Peak oil is a myth. Too late, as it already took place on different levels. More details in this thread: > **[The end of the oil era: The fall of civilization, or just a bump in the road?](https://boards.straightdope.com/sdmb/showthread.php?t=193097)** > > I’m opening this new thread to continue the discussion in this thread, in which the OP was about something else. We’ve heard it before. Oil will run out, and we will have to find other resources and methods to fuel our cars and our industry.... ---
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 6, 2014, 3:24am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/42 "2014-06-06T03:24:31Z")
> [@Exapno\_Mapcase](#): > > The free market dictates where manufacturing is found. Most commodity items (clothing is high on that list) will be produced in countries with low costs, especially low wages. Differentiable items, items up the luxury or technological complexity scale, will be produced where quality predominates. That’s always been true, even in antiquity. Exactly which products will become commodities and which countries will have the lowest costs and where luxury goods are made vary continuously and will continue to vary in the future, but the general principle always remains. > > People are very good at forgetting today how much disruption the technological revolution caused. All they see is the successful technologized world that resulted, a world that is now making its way into Asia and will soon lift hundreds of millions into the middle class. When China and India each have far more people in their middle classes than the entire U.S. population why would any economist think that the needs of our economy will continue to dominate that world? We’ll take what we can get, and that includes enormous disruption. The information revolution will produce a new economy and nobody today has a clue to what that will mean for 2074. > > That’s internal disruption. External disruption is likely to be greater. Wars, ideological disputes, class and racial differences will start affecting larger and larger swathes of the world as movement grows easier. Climate change is already happening, it’s not a prediction. That will greatly increase migration and immigration and cause huge internal damages. Peak oil is a myth in any case, but the pressure to limit carbon will be the single most important imperative for the rest of the century so the move into alternate technologies will make oil a secondary resource. > > Can the world sustain all of this? At some point there has to be a limit. Almost every extrapolation from the past put this limit at 7 billion people. Instead the 7 billion people alive today are far better off a whole than at any point in history. We don’t know where the actual limit will be. > > We live in interesting times. The fact that there is a limit proves peak oil. Regarding your other points: The free market in turn is dictated by availability of cheap energy, especially oil, which is used in manufacturing, mechanized agriculture, and delivery. Oil is part of many material resources that are also driven by physical limitations, which is why peak oil is obviously not a myth. Cheap oil coupled with the petro-dollar (propped up through military intervention, etc.) is the reason why the U.S. was able to outsource manufacturing. At the same time, environmental regulations were limited to keep the prices of manufactured goods low. That together with significant levels of energy and resource use is what led to both environmental damage and global warming. The problem is that various levels of production peaking (e.g., discoveries peaked in 1964, U.S. oil production peaked in 1970, global oil production per capita peaked in 1979, production peaked or has gone beyond it for two-thirds of oil-producing countries, etc.) has led to a tripling of oil prices (from less than $30 a barrel to $100), which combined with incredible levels of financial risk-taking (e.g., between $600 trillion to over a quadrillion dollars (notional value) in unregulated derivatives worldwide) has led to one economic crash after another worldwide (the U.S., Greece, Iceland, the Arab Spring, etc.) and a lengthy global economic crisis. Combine that with the effects of global warming (crop destruction due to droughts, disruption of businesses due to flooding, property destruction due to storm surges, etc.), the effects of decades of armaments production and deployment (different countries around the world challenging others over territorial disputes, military intervention to control various resources) and more (such as the spread of disease due to increased vectors), and we’re looking at a perfect storm involving multiple global crises. And then there’s the ave. ecological footprint exceeding bio-capacity: > **[List of countries by ecological footprint](https://en.wikipedia.org/wiki/List_of_countries_by_ecological_footprint)** > > This is a list of countries by ecological footprint. The table is based on data spanning from 1961 to 2013 from the > Global Footprint Network's National Footprint Accounts published in 2016. Numbers are given in global hectares per capita. The > world-average ecological footprint in 2016 was 2.75 global hectares per person (22.6 billion in total). With a world-average biocapacity of 1.63 global hectares (gha) per person (12.2 billion in total), this leads to a global ecological deficit of 1.1 glob... with the first set to increase further due to greater energy and resource demand worldwide and the second decreasing due to environmental damage and global warming. With that, the issue of local manufacturing has to be considered in a different light. Very likely, it will involve meeting only basic needs, will have to be localized (i.e., minimize the use of imported goods), and will involve more people working at lower wages (which means the demise of a middle class that earned primarily through the service industry and financial investments to purchase a wide variety of goods). ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [June 6, 2014, 3:43am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/43 "2014-06-06T03:43:06Z")
> [@ralfy](#): > > Too late, as it already took place on different levels. More details in this thread: > > [The end of the oil era: The fall of civilization, or just a bump in the road? - Great Debates - Straight Dope Message Board](http://boards.straightdope.com/sdmb/showthread.php?t=193097) Only if you don’t read any comments in that thread but your own. I flat-out disagree with your assessment of the current geopolitical situation. I’ve already said that a series of global crises should be expected, so I obviously agree with that piece, but my point was and is that so-called peak oil never was and never will be a major factor in it. [Oil hit $30 a barrel in 2014 dollars back in 1974 and peaked at $115 in 1979 and $135 in 2008, both obviously for other than structural oil reasons. Today it is about $85.](http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Chart.asp) You can spin the numbers however your want, but while I concede the importance of oil I cannot see it as a driver of global economies. The rest of your economics is similarly fanciful. ---
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 6, 2014, 4:02am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/44 "2014-06-06T04:02:09Z")
> [@Exapno\_Mapcase](#): > > Only if you don’t read any comments in that thread but your own. > > I flat-out disagree with your assessment of the current geopolitical situation. I’ve already said that a series of global crises should be expected, so I obviously agree with that piece, but my point was and is that so-called peak oil never was and never will be a major factor in it. [Oil hit $30 a barrel in 2014 dollars back in 1974 and peaked at $115 in 1979 and $135 in 2008, both obviously for other than structural oil reasons. Today it is about $85.](http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Chart.asp) You can spin the numbers however your want, but while I concede the importance of oil I cannot see it as a driver of global economies. The rest of your economics is similarly fanciful. In that thread, my comments are responses to what others said. What are the reasons why oil price went up? And what is driver of the global economy? ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [June 6, 2014, 4:03pm UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/45 "2014-06-06T16:03:22Z")
> [@ralfy](#): > > In that thread, my comments are responses to what others said. > > What are the reasons why oil price went up? > > And what is driver of the global economy? You resurrected a ten-year-old thread which concluded rightly that no oil peak crisis was coming. Since that time you’ve been arguing with people who actually understand numbers. Speaking of which, here’s a couple. Global demand for oil is at around 80 million barrels a day. At current prices that’s about $2.5 trillion. World GDP is now well over $70 trillion. Conclusion: oil prices do not drive the world economy. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [June 6, 2014, 8:20pm UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/46 "2014-06-06T20:20:40Z")
‘Manufacturing viable in the US’ is way too open ended. The US is a huge manufacturer and will likely continue to be in any likely scenario. Manufacturing hasn’t changed a lot as % the US GDP in recent decades, though it’s declined quite a bit as % of the workforce. The more reasonable question would be whether the relatively slight decline in manufacturing as % of US GDP will turn into a gradual rise again. Reasons might be: -higher energy prices: manufacture stuff closer to where it’s used, though for many products that means a choice between manufacturing in say China or Mexico to serve US market, not whether to do it in the US or not. -more energy production in the US: although potentially contradictory to the first point, a much higher level of energy development would tend to mean more manufacturing of stuff (capital goods, not consumer products) that US manufacturers are already competitive at making -additive manufacturing aka ‘3D printing’. Advances in flexibly and efficiently making small quantities, with minimal labor input, could reduce the advantage of lower labor cost countries -Chinese costs rising: in general if any single country’s cost rise, there’s always another low wage country further down the ladder. But China is so big that a lot of things to do with China don’t entirely follow the rule of ‘it would just be somebody else’. But at least to some degree it would be. -even current patterns in manufactured goods trade aren’t entirely due to labor costs. This is obvious enough to most people in seeing that certain manufactured goods can be competitively made in high wage countries. But the other side of the coin is that just because low wage countries’ labor costs rise doesn’t mean particular industries will clear out of them immediately. Take ‘plastic junk’ type consumer goods almost all of which as made in China (at least on US shelves). The original reason is low labor cost, but subsequently particular places in China have built up ‘clusters’ of different suppliers of all related kinds and skilled workers (some need to be skilled), etc. So for example a US company trying to get back into making plastic junk type stuff is going to pay more for the plastic and the injection molding machines, with _no_ labor in the actual plastic junk item factory, than it would cost a Chinese company including the direct labor, even if Chinese labor rates go up a lot more. Every stage of the process is vertically integrated in China. That can’t easily and immediately be replicated elsewhere, and a US company would be starting from scratch, so if one were to start from scratch replicating such a cluster, it would only make sense to do someplace cheaper than China. IOW there are a lot of mostly imported items where it’s pretty safe to predict they’ll never shift back to being made in the US, unless there’s some basic revolution in how they are made. ---
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 7, 2014, 1:37am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/47 "2014-06-07T01:37:30Z")
> [@Exapno\_Mapcase](#): > > You resurrected a ten-year-old thread which concluded rightly that no oil peak crisis was coming. Since that time you’ve been arguing with people who actually understand numbers. I posted in the thread because I was able to prove the opposite: as the IEA and recent EIA data reveal, crude oil production peaked in 2005. Also, global oil production per capita peaked in 1979. > [@](#): > > Speaking of which, here’s a couple. > > Global demand for oil is at around 80 million barrels a day. At current prices that’s about $2.5 trillion. World GDP is now well over $70 trillion. Conclusion: oil prices do not drive the world economy. The problem isn’t money, as we have not only that amount for world GDP but over a quadrillion dollars (notional value) in unregulated derivatives. If there’s anything that we can create easily, it’s credit. The problem is that increased credit doesn’t lead to increased production. From what I remember, the oil industry spent double from 2005 to the present to find new oil compared to the amount spent before that, and yet only managed to increase production marginally. Thus, capital expenditures are rising significantly, with hardly any increase in new oil found. The reason for that can be found in the peak oil thread. Finally, in relation to this topic, we can argue that both manufacturing and mechanized agriculture are dependent on fossil fuel use, not just for energy but for petrochemicals. Even if manufacturing is localized, various raw materials and components needed will still have to be obtained elsewhere. In addition, if financiers want increasing returns on investment and consumers the lowest costs possible, then we’ll have to go back to where we started, i.e., outsource manufacturing while consumers look for higher wages in the service industry or professional work. But that can’t be sustained given high oil prices, which means we will have to localize and lower consumption. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [June 8, 2014, 1:22am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/48 "2014-06-08T01:22:17Z")
> [@ralfy](#): > > The problem isn’t money, as we have not only that amount for world GDP but over a quadrillion dollars (notional value) in unregulated derivatives. If there’s anything that we can create easily, it’s credit. That doesn’t answer the point made by Exapno Mapcase. Credit (let alone notional amounts of derivative contracts) and GDP are apples and oranges. They both be measured in $ terms but aren’t the same thing. Depending how scarce oil were to get the price at which supply and demand met might be so high as to seriously undermine the world economy as we know it now. But, Exapno’s point is correct and you’re not giving it proper consideration. As of now the amount of money spent on petroleum compared to the total economic output of the world in money terms is quite small. And there’s no magic ‘multiplier’ effect to that. The cost of oil is really not the driver of the world economy, at prices in the wide range of 20’s-100+ we’ve seen in recent years, as the relatively small overall economic effect of that huge price swing shows. ---
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 8, 2014, 3:07am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/49 "2014-06-08T03:07:50Z")
> [@Corry\_El](#): > > That doesn’t answer the point made by Exapno Mapcase. Credit (let alone notional amounts of derivative contracts) and GDP are apples and oranges. They both be measured in $ terms but aren’t the same thing. From what I know, GDP consists significantly of credit and not physical assets. More important, total credit worldwide is many times higher than GDP. In order to back that credit, more material resources will be needed. But when these resources are used for manufacturing and sold for profit, credit is increased further through profits and returns on investment. On top of that, more credit is created through financial speculation. That’s why of all things we can create, credit is the easiest. The catch is that it does not and cannot reverse physical laws. In this case, no matter how much credit is created and given to the oil industry, the amount of oil extracted will still peak and eventually drop. That’s why even as capital expenditures rose significantly production rose only marginally, or not at all. There are more details in the peak oil thread. > [@](#): > > Depending how scarce oil were to get the price at which supply and demand met might be so high as to seriously undermine the world economy as we know it now. But, Exapno’s point is correct and you’re not giving it proper consideration. As of now the amount of money spent on petroleum compared to the total economic output of the world in money terms is quite small. And there’s no magic ‘multiplier’ effect to that. The cost of oil is really not the driver of the world economy, at prices in the wide range of 20’s-100+ we’ve seen in recent years, as the relatively small overall economic effect of that huge price swing shows. The driver of the world economy is not the cost of oil in terms of money but the cost of oil in terms of energy. More money can be created significantly, but that won’t increase production significantly because of the reality of physical limitations in oil supply. We’re already seeing that in rising capital expenditures for the oil industry but only marginal increases in production. Also, there’s a consequence to more money creation, and that’s return on investment. That’s why the oil industry needs higher oil prices to meet investors’ demands. There are more details in the peak oil thread. Thus, U.S. manufacturing will be viable in terms of business as usual only if oil prices drop to less than $30 a barrel, and that due to unprecedented increases in oil production globally. Increasing money supply alone will not help as that will only lead to financial instability due to greater risk-taking. If oil production cannot be ramped up readily, then manufacturing will have to focus on localization and resource use will have to decrease. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [June 8, 2014, 1:01pm UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/50 "2014-06-08T13:01:20Z")
> [@ralfy](#): > > 1. From what I know, GDP consists significantly of credit and not physical assets. More important, total credit worldwide is many times higher than GDP. In order to back that credit, more material resources will be needed. > 2. The driver of the world economy is not the cost of oil in terms of money but the cost of oil in terms of energy. I’m sorry, you don’t understand economics on even the most basic level, and even if you feel you’ve informed yourself extensively about oil, we can’t meaningfully discuss oil as it relates to the economy if you have no knowledge of how the economy works. 1. GDP is a measure of total output, the most simple measure (though any one measure is approximate at the margins) of the standard of living of the world is GDP per person. Credit is part of the economic system but has nothing directly to do with measuring GDP. 2. But what we’re considering here is the impact of the provision of energy on the whole economic situation, and this is where Exapno’s point comes in. If we studied and found that producing oil accounted for say 30% of the net output of the economy worldwide, measured in the terms (\*not\* the number of 's in circulation, a different topic), a doubling of the cost of extracting that oil would be an immediate and severe threat to the total standard of living we know. But given that it’s actually more like 3%, it’s much less of a concern, relatively speaking. Not a non-concern, depending on what one projects for an oil price (one could project much more than double and no one can conclusively disprove a future projection, but also also we need to consider all the ways oil could be substituted for with natural gas, electricity from other energy sources and so on). But it wouldn’t be a crippling factor if the price of oil doubled again, over some period of time where economies and consumers had time to adjust (not next month IOW). If producing oil started out as 30% of all we produce, then it would be a different story. So that number, value of oil consumed v total GDP, definitely matters, a lot. ---
**Author:** ![ralfy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ralfy/32/600_2.png) [@ralfy](https://boards.straightdope.com/u/ralfy)\ **Post date:** [June 9, 2014, 3:12am UTC](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772/51 "2014-06-09T03:12:21Z")
> [@Corry\_El](#): > > I’m sorry, you don’t understand economics on even the most basic level, and even if you feel you’ve informed yourself extensively about oil, we can’t meaningfully discuss oil as it relates to the economy if you have no knowledge of how the economy works. > > 1. GDP is a measure of total output, the most simple measure (though any one measure is approximate at the margins) of the standard of living of the world is GDP per person. Credit is part of the economic system but has nothing directly to do with measuring GDP. The total output consists of goods and services, but not only are they measured in terms of money, they allow money supply to increase. That is, goods and services are sold in exchange for money. In addition, money invested (which adds to money supply through interest) adds to money supply. That’s why even though economies have essentially as their base energy and material resources (which is why the issue of peak oil is important) the amount of money increases both production of goods and services stemming for these as well as demand. Finally, money is part of credit. > [@](#): > > 1. But what we’re considering here is the impact of the provision of energy on the whole economic situation, and this is where Exapno’s point comes in. If we studied and found that producing oil accounted for say 30% of the net output of the economy worldwide, measured in the terms (\*not\* the number of 's in circulation, a different topic), a doubling of the cost of extracting that oil would be an immediate and severe threat to the total standard of living we know. But given that it’s actually more like 3%, it’s much less of a concern, relatively speaking. Not a non-concern, depending on what one projects for an oil price (one could project much more than double and no one can conclusively disprove a future projection, but also also we need to consider all the ways oil could be substituted for with natural gas, electricity from other energy sources and so on). But it wouldn’t be a crippling factor if the price of oil doubled again, over some period of time where economies and consumers had time to adjust (not next month IOW). If producing oil started out as 30% of all we produce, then it would be a different story. So that number, value of oil consumed v total GDP, definitely matters, a lot. According to this article, “Evidence that Oil Limits are Leading to Declining Economic Growth” > **[Evidence that Oil Limits are Leading to Declining Economic Growth](https://ourfiniteworld.com/2012/07/13/plan-for-lower-growth-in-real-gdp-going-forward/)** > > The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical … there is a correlation between global supply growth and global GDP growth, and between U.S. employment growth and US GDP growth. Also, GDP decline is slower for the rest of the world than for the U.S. and EU. Oil consumption is rising for the rest of the world but remains flat for the U.S. and EU. According to article “How much oil growth do we need to support world GDP growth?” world real GDP to grow by around 3 pct, oil supply has to grow by around 1.4 pct. More details are given in the peak oil thread. According to the IEA, oil demand has been growing by an average of 2 pct each year for the last three decades. To maintain this demand rate, we will need the equivalent of one Saudi Arabia in new oil every seven years. To meet a growing global middle class, we will need even more. More details on that are given in the peak oil thread. Crude oil may be replaced by non-conventional oil, but both now have low energy returns, and we need high returns. Details are given in the peak oil thread. Finally, what does this mean for manufacturing? The latter requires extensive energy and material resource outputs. The same goes even for delivery systems. For these to be viable in meeting a growing middle class in the long term, high energy quantity and quality are needed plus petrochemicals. [Previous page](https://boards.straightdope.com/t/at-what-point-will-usa-manufacturers-be-viable-again/689772.md?page=2)