Assumptions that the USA must inevitably spiral into economic and strategic decline – so like the chatter of the late 1980s, when Japan was in vogue – will seem wildly off the mark by then.
The technology of hydraulic fracturing – breaking rocks with jets of water – will bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.
“The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d),” said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.
The US already meets 72 percent of its own oil needs, up from around 50 percent a decade ago.
“The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players,” said Mr Blanch.
At the same time, the China-US seesaw is about to swing the other way. Offshoring is out, ‘Re-inshoring’ is the new fashion.
“Made in America, Again” – a report this month by Boston Consulting Group – said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the “default location” for cheap plants supplying the US.
“A surprising amount of work that rushed to China over the past decade could soon start to come back,” said BCG’s Harold Sirkin.
A “tipping point” is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.
The gap in “productivity-adjusted wages” will narrow from 22pc of US levels in 2005 to 43pc (61pc for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.
Meanwhile, the list of “repatriates” is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.
The trade-weighted dollar has been sliding for a decade, falling 37pc since 2001. This roughly replicates the post-Plaza slide in the late 1980s, which was followed – with a lag – by 3pc of GDP shrinkage in the current account deficit. The US had a surplus by 1991.
Charles Dumas and Diana Choyleva from Lombard Street Research argue in their new book “The American Phoenix” that this may happen again.
Yet America still possesses a pack of trump cards, and not just in sixteen of the world’s top twenty universities.
It is almost the only economic power with a fertility rate above 2.0 – and therefore the ability to outgrow debt – in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia. [via The Telegraph]