It seems that just about every month, there’s a new crisis that threatens to transform our economy and balance of trade. Whether it’s the fall of the dollar, intellectual property theft in China, or the global specter of terrorism, there’s always a new or recurring headline that stays on everyone’s mind.
But we believe that it’s most important for U.S. manufacturers to consider the big picture items impacting the global economy to stay competitive. While breaking news can help serve as a guide to where the overall market is headed, the ultimate future will be the sum of various steps along the way, as well as actions and acts we. cannot predict.
Given this, we believe that smart U.S. manufactures should concern themselves with a handful of topics and themes to help guide their long term planning, rather than immersing themselves with CNBC or Wall Street Journal headlines. While these themes will vary for individual organizations based on the industries and geographies in which they sell their products into, there are certainly some macro issues which will impact the majority of U.S. manufacturers.
What tops the list in our book is the political, military, and economic stability of China and its neighbors. For example, an arms dealing nuclear North Korea threatens the U.S., if not the whole region. It’s a plausible scenario that to force China’s arm on joining us in taking action against North Korea, that we might sacrifice other interests in the region to appease our trading partner. What might these be? Taiwan, currency leverage, tariffs, etc. At the same time, our intelligence suggests that China is building up a Navy that is specifically designed to take on the U.S. in regional conflicts. This will certainly give the Chinese greater leverage in policy, trade and other negotiations in the future.
Beyond China, manufacturers should also look at opportunities that a chaotic Europe will bring. With the French and Dutch rejecting the EU constitution, and with rising nationalism and religious Islamic secularism in socialist France, a unified Europe is looking like a far off dream. The political and social, instability of certain countries might lead to economic downturn in regional areas and pockets of growth in others (i.e., Central Europe). Certainly, U.S. manufacturers buying from—or selling into―any European markets should be monitoring the situation closely.
But changes in the global economy will not be dictated by just Europe and the Far East. Consider the emerging instability of Venezuela, and the rise of Hugo Chavez. How much can we trust the man who claims that “All over the world, there is a clamor for equality … and profound rejection of the imperialist desires of the U.S. government … Faced with the threat of the U.S. government against our brother people in Iran, count on us for all our support.” Unfortunately, this is not someone we can afford to ignore because of his country’s importance to the U.S. How critical is Venezuela to our economy? The U.S. purchases 15% of its oil from the now nationalized oil company that Chavez rules with an iron fist and his leftist cronies. But this 15% represents over 50% of the country’s oil exports. Clearly, a co-dependent relationship between a Democratic capitalist superpower and a nationalist, freedom-hating regime with global ambitions will not be without hiccups along the way.
It’s not farfetched to consider that energy prices might be significantly impacted by political instability, conflict and U.S. military or diplomatic action in Venezuela, as Chavez steps up his tirades against our interests. Certainly, U.S. manufacturers should be considering this and the other big picture items we have discussed in evaluating their roles and strategies in the emerging global economy.