In my blog of September 19th " Back To The Future", I had mentioned that the United States would become less dependent on oil imports over a period of time. However, it appears to be happening much sooner than I had anticipated. There have been some news items which have surprised me . The Wall Street Journal recently had the following head lines " U.S Nears Milestone: Net Fuel Exporter, " " Big Oil Heads Back Home ". This after a period of 62 years.It could be a aberration, but trend wise I do not think so.This was not the first article and there have been others which are similar in nature. In manufacturing also it appears that things are beginning to change. The Boston Consulting Group recently put out a report "Made in America Again "giving examples of the United States regaining its edge in manufacturing. In my opinion, looking at the long term big picture over the next one or two decades , from a simple lay man's perspective and without doing a lot of academic research, there are signs that the twenty first century will not necessarily be the Asian century as is being predicted. Yes China and perhaps India will overtake Japan and Germany in terms of the size of the economy, but America will continue to be the eight hundred pound gorilla.
Driven by the domestic production of both gas and oil over the next decade you will see the revival of the United States. By 2020 it is expected that almost one third of the domestic consumption is going to be from shale gas or shale oil.This has lead to the oil majors refocusing their investments to the United States. According to Exxon by 2040 American crude oil imports will solely be from Canada. Yes while you have to deal with the environmentalists, it is better than dealing with with dictators and rulers who are into enriching themselves. No political risks to worry about. Besides no industry in the United States has a bigger lobby than the oil industry and who are normally supported by the Republicans.
At present China is considered the workshop of the world, but according to the Boston Consulting Group study and other anecdotal evidence which one reads from time to time, it is apparent that China is gradually loosing its cost advantage to countries such as Vietnam and Indonesia. After the war, we saw Japan playing a similar role that China has been doing over the last couple of decades, but by the late seventies and eighties Korea had replaced Japan. The ship building industry is a good example. In the sixties and even in the seventies, Japanese ship yards were the lowest costs producers out manufacturing the United States and Europe. Starting the eighties and into the nineties Korea overtook Japan. Presently China now appears to be overtaking Korea. However within a within a couple of decades China will start to face the same problem which Japan facing presently - the graying of the population. According to a study done by Prudential Foundation and the Center For Strategic & International Studies, in 2004 ( "The Graying Of The Middle Kingdom" ) , it is expected that the number of senior citizens ( over sixty years ) in China will overtake that of the United States by around 2030. However unlike Japan , China's citizens might not have accumulated the wealth to jump into the higher income category. However this could change if China changes its one child policy.
We all get mesmerized by China and the outsourcing industry in India, but what we overlook is that a lot of the new technology which will impact world economies and their ability to dominate is still coming from America. This might be in the form of weaponry or computer chips or in medicine. The so called innovations from outside the United States are marginal at the best. In the areas of shale oil and gas which will play a major role in the energy space, the United States is in the forefront of the of extraction technology. China and India will continue to play supporting roles.
In my opinion the reasons for this are two fold, the educational infrastructure and the immigration policy which the United States follows.
The excellent universities in the United States are difficult to replicate.In almost all the countries in the world, the educational infrastructure is devised, built and subsidized by the governments and you cannot prevent the politicians and the bureaucrats interfering in the running of the institutions. In the United States while the state does play a role in some institutions , the majority of the schools which are generally ranked among the top ten, are private institutions. The business model is unlike any other in the world. Linked to this is the philanthropic nature of its citizens who happily give ( with a little help from the tax authorities) to their educational institutions. Surprisingly these institutions also receive contributions from overseas benefactors who instead of donating to the institutions in their own countries which need the funding much more, happily write a check for millions of dollars to the Ivy League or other top universities, particularly if their children are studying there. In addition the institutions work closely with business to encourage practical research. This model is difficult to replicate within a short period.
While we read about some of the draconian policies followed by the states bordering Mexico and the complaint by e prominent business men such as Bill Gates, the United States immigration policies combined with its universities has enabled the country to continue to retain its dominant role in the world economy. There continues to be a stronger push for the government to tweak its policies further to allow the best and the brightest of the world who study in certain disciplines to stay on.If this goes through it will give it a further edge and America will be hard to beat.
Again taking a rather simplistic view of the world rather than on relying on complex computer models, if the dependencies on external oil and with some of the manufacturing moving back , from a long term point of view you will see the resurgence of the American economy .The Asian giants will likely overtake the rest of the world, but America will continue to dominate for the foreseeable future.
With that you will see the overseas investors investing in American financial and physical assets.If I have to make a long term bet - ten years and beyond, I would bet on the United States and the dollar.
