The biggest drawback to Anthony Albanese’s “Made in Australia” campaign is that both China and the US are adopting the same policy.
And this week we discovered that the already massive US spending on manufacturing plants is thwarting the US Federal Reserve’s strategy to lower inflation and creating dangers for US and global interest rate levels.
And, as I describe below, US Treasury Secretary Janet Yellen was this month in China warning of the dangers of the massive capacity China is installing to flood the world with low-cost green technology exports.
In the US, demand for labour and materials to implement Biden’s “Made in America” strategies is pushing up US inflation and causing the US bond market yields to rise, foreshadowing an end to the dreams of substantially lower interest rates. They may even rise further.
Republican presidential nominee Donald Trump has a very simple answer to rising US inflation – make the US the lowest cost energy country in the world by developing its coal, gas and oil reserves. Americans will be given the choice of carbon related low-cost energy and restraint on interest rates, or higher inflation and interest rates.
The outcome of that electoral battle is world changing.
The US government subsidies to develop new technologies and manufacturing in the US are massive and, if elected, Trump will not only increase them but impose a tariff on all imports including Australian and Japanese imports unless we arrange further special deals.
Australian companies are already benefiting from the US money splash. For example, the US Department of Defence has awarded a $US250m grant to Australia’s Lynas to build a rare earths refinery in Texas while AustralianSuper-backed graphite producer Syrah has also won US government money to build a coated spherical graphite factory in Louisiana. The US navy chose the 3D printing technology of Australia’s AML3D for an important role in the development of the next stage of the US nuclear submarine program.
If Australia is to build green technology manufacturing plants locally, it will need to make sure that it has access to either the markets in the US or China to make the projects economic because both countries aim to have similar plants on their own soil.
And to highlight the trend, the US this month announced one of its biggest US manufacturing subsidies – a grant of up to $US6.6bn to Taiwan Semiconductor Manufacturing (TSMC), the leading global maker of the most advanced microchips to bring cutting-edge semiconductor technology to the United States.
The funds, which come from the so-called CHIPS and Science Act, will help support the construction in Phoenix of TSMC’s first major US hub. The US now has some $US65bn set aside for these type of investments.
This is government spending on an unprecedented scale, and I don’t believe markets have understood the impact this will have on American inflation and global interest rates. Last night on Wall Street, markets captured a sense of what was happening via the latest inflation figures and immediately cut property stocks four per cent.
Now to China. Janet Yellen was chair of the Federal Reserve between 2014 and 2018, so as secretary of the treasury she is fully aware of the implications of American strategy.
Accordingly, there was no better person in the US to warn China of the incompatibility of US and Chinese manufacturing policies.
According to the South China Morning Post, Yellen described her packed series of high-level meetings in China as “productive, direct and extensive” and said they would provide “greater stability” to the relationship while also helping bolster confidence for firms investing in China.
She spent two hours with Chinese Vice Premier He Lifeng explaining America’s concerns on the overcapacity issue, and she said it was “critical” for China to understand that low-cost Chinese green technology exports would have “adverse impacts” on American workers and firms.
There would be no repeat of what happened in the 1980s when Australia’s iron ore helped develop a low-cost Chinese steel industry which destroyed large parts of American steel making and its industrial base.
Meanwhile, the rest of the world looks at Australia with a sense of amusement. It understands why Australia would seek to establish manufacturing facilities alongside its raw materials, but the nation has just introduced legislation to substantially lower productivity in manufacturing while Queensland and WA have done union deals to lift building costs by between 20 and 25 per cent. Other states will follow.
Just as foolish, Australia is looking to spend vast sums importing gas when the nation has some of the world’s lowest cost, onshore, no fracking and low net carbon gas right on its current energy distribution base in Victoria.
Accordingly, while a high cost gas importing facility is being planned, failure to allow the local low-cost gas to be developed forces the closure of Australia’s large Qenos plants and associated downstream manufacturers.
Qenos happens to be owned in China. It is highly unlikely that Australia was mentioned in any of the Yellen/China discussions, but if it was, there would have been uproarious laughter at those silly people Down Under.
Wesfarmers’ Catch killed off as boss swans in Switzerland
Rob Scott was conspicuous by his absence as yet another of Wesfarmers’ dud investments was put to the sword but why he was schmoozing at the Davos world forum is a head scratcher.
Coal price not right as Kestrel mine owners seek $4.8bn pay dirt
The owners of the Kestrel coal mine will have to convince buyers to pay about $4.8bn for the mine, but the coal price has fallen about 20 per cent since it was first set to hit the market.