(1) the news that the US may become an exporter of energy and have energy independence in the coming decades, perhaps even with an era of cheap energy for the US itself; andIn brief, a report from the International Energy Agency (IEA) predicts that, with domestic oil production soaring, the US will possibly become the largest oil producer in the world by 2020, and by 2035 it could become virtually energy independent.
(2) the revolution in automation and robotics, and the return of manufacturing to the West from East Asia.
That also means that the US trade deficit will fall significantly.
The cheap energy will also feed into and reinforce the second factor above: the return and invigoration of domestic manufacturing, which will be effected by the increasingly cheap and effective forms of industrial automation, especially robotics.
There should be some return of manufacturing to the US and Western nations from East Asia and other developing, low wage countries, as production costs – above all, labour costs – fall significantly. If cost of production differences are not great, why not produce in the huge consumer markets of North America and Europe?
A third related issue is what this means for the rise of China. It was always nonsensical to suppose that superpower status has no relation to economic power. And the US’s status as the world’s superpower will be strongly reinforced, not weakened, by the emergence of energy independence and the return of manufacturing.
It has got to the point now that the idea that China is somehow destined to be the world’s new superpower is assumed by many people when discussing this issue. The RMB is touted as soon to be the world’s new reserve currency, and so on. But there is no inevitability about any of this, and there are many reasons to be rather sceptical.
For one, how can China be a superpower with a domestic currency functioning as a reserve currency when its financial and real asset markets are severely closed off to outside investors? Why hold RMBs, if you do not have a wide range of assets to buy with them, in order to get a return, and to repatriate your money quickly and easily?
The strength of the US is precisely its relatively free and vast financial and real asset markets that provide resting places for savings held in US dollars.
And here is the paradox: if China allows a highly liberalised capital account, liberalised asset markets, and deregulated finance sector, it could be digging its own grave, for the tight control of these things is actually the foundation of its economic stability.
In trying its hand at superpower status, a country like China could be setting itself up as new “lost decade” Japan.
Oil and Energy
“US is on Fast-Track to Energy Independence: Study,” 11 February 2013
“IEA Report: USA set to become Number One Oil Producer by 2020–Energy Independent by 2035, ” http://www.forbes.com/sites/rickungar/2012/11/12/iea-report-usa-set-to-become-number-one-oil-producer-by-2020-energy-independent-by-2035/
Robert J. Samuelson, “The U.S. may become energy-independent after all,” 11/14/2012
“Coming home: A growing number of American companies are moving their manufacturing back to the United States,” 19 January, 2013
Matias Vernengo, “Is China the new #1?,” April 9, 2012
Matias Vernengo, “Is China Buying the World?,” October 20, 2012
Matias Vernengo, “Is China really opening the capital account?,” March 6, 2012
Matias Vernengo, “Michael Pettis on the Chinese Growth Model,” March 28, 2013
Matias Vernengo, “On China and Jobs,” October 4, 2011
Matias Vernengo, “Is Growth in China Investment-Led?,” June 17, 2011