By Joe Petrowski
Here is an illustrative example of why we could be on the cusp of another glorious quarter century that will rival the 1949-1974 period, when compounded annual growth exceeded 5%, the stock market tripled and unemployment never exceeded 6% (midnight for this Cinderella period was the first oil shock of 1974).
A major US firm producing building materials and machine components out of plastics, resins and other composites just canceled their contract from China and relocated their production to the United States.
Patriotism? Reverse tax inversion? No. simple economics.
The largest cost inputs into manufacturing pvc, vinyl, plastic, pressed wood and synthetic aggregate are chemicals and the energy needed to transform and mold them—all of which are made from U.S. natural gas. Even the foam backing on some of the floor materials is made from corn-based cellulose.
The U.S. cost advantage in raw material cost and energy over China is well over 50%. Add in the transport time and cost (the average container from China weighed over four tons) and the choice is easy. With advantages from automation labor input could be reduced or limited to higher valued skilled labor where the United States has an advantage over China. Factor in shorter supply chains, being closer to the customer and changing designs, patterns and colors to suit the market (decreasing waste and inventory) and once again, the United States is the clear winner.
The company noted above added 10,000 new jobs, but the story in aluminum, glass, steel and synthetic materials is the same.
As in energy, we are in the import substitution phase, which is why we are seeing a strong dollar, improving balance of payments and stronger job growth. The next phase is to see our manufacturing prowess lead to net exports, which will power the next 25 years of GDP growth. Do I expect we will be selling TVs and radios to the world? No, but with the U.S. advantage in raw materials, energy, capital markets and contract integrity we can be the engine for a consumer boom and household formation across the globe.
Now if only the 364 million male Chinese under 35 could find a bride and start household formation… we could really take off.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008 he was named CEO of the now combined Gulf Oil and Cumberland Farms whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now managing director of Mercantor Partners, a private equity firm investing in convenience and energy distribution.
