Tag Archives: Global Economy

America Must Secure Its Supply Chains Against A Vulnerability Of Its Own Making

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Image: EFT.com

DEFENSE NEWS

Today’s U.S. defense-industrial base is reliant on a globally integrated supply chain. Over the last 20 years, an embrace of the “free market” has created a fragile network of supply for countless critical materials that are the backbone of many major defense systems.

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“Over the past few decades, through an intentional dominance of the global rare earth market, China has cultivated immense leverage over the United States. As the current trade warescalates, China is poised to capitalize on its strategic plan — and indeed recent brinkmanship via Chinese President Xi Jinping’s visit to a major rare earth processing facility suggests it may.

If China’s rare earth leverage over the U.S. is one part strategic foresight, it is two parts American strategic miscalculation and shortsightedness. Today’s U.S. defense-industrial baseis reliant on a globally integrated supply chain.

A failure by the U.S. to take the long view of history — as has been taken by the Chinese for centuries — is manifesting itself in an uncomfortable realization that past industrial policy has left our military glaringly susceptible to supply chain disruption. As Chinese philosopher Sun Tzu wrote: “He will win who, prepared himself, waits to take the enemy unprepared.” Alarmingly, U.S. lack of preparation is now evident in the latest rare earth crisis, the second of the past decade.

The first crisis occurred in 2010 when a dispute over the Senkaku Islands resulted in an “unofficial” embargo on rare earth exports from China to Japan. That embargo shocked global supply chains, spiking rare earth prices. However, confident that trade ties between the U.S. and China would obviate any direct threat to the U.S., administration officials adopted a policy to “reduce, reuse, recycle and substitute” rare earths, while waiting for Wall Street to leverage the price spike into a “mine to magnets” supply chain. To promote this strategy, the U.S. government awarded a few small research and development contracts, conducted studies, and filed a World Trade Organization case against China.

In retrospect, this light-touch strategy was a national security disaster. Reduction, reuse and substitution efforts arguably took some of the best materials away from our defense engineers and resulted in no new domestic production. Relying on private investment resulted in over 200 rare earth “projects” on stock exchanges, the vast majority never producing anything.

The U.S. exception, Molycorp, imploded in less than five years, crashing from a $6 billion market cap to a bankruptcy worth less than $500 million (where most of its technology was dismantled or sold off, including to Chinese interests). The WTO case seemingly accelerated the Molycorp implosion by driving down Chinese rare earth costs, undercutting fledgling American and Australian producers.

Since 2010 I have been arguing that the U.S. needs to adopt a national security and production-focused strategy to break the Chinese monopoly. This strategy would secure the defense supply chain by producing enough to sustain limited defense demand, creating new supply to support future commercial demand. The steps are simple.

Mine-permitting reform would improve the predictability and economics of the mining industry, allowing investments to occur immediately, rather than years or even decades after a crisis. Rare earth investment evaporated after the Molycorp collapse, in part because of mine-permitting delays. Reducing bureaucratic hurdles would lower barriers to entry, making U.S. mining more attractive to private investors, ultimately reducing government cost.

The government should encourage — either through direct investment, tax incentives or tariffs — the development of high-value-added domestic oxide and metal production. Commentators lament the Chinese monopoly on rare earth mining but fail to recognize China has even greater dominance in the separation of oxides and metal making. Addressing only one aspect of the supply chain would be ineffective.

Direct government investment in items used by the U.S. military, starting with rare earth magnets, is also necessary. Novel rare earth magnet recycling techniques show significant promise in the near term. Last year, Congress recognized the importance of sourcing domestic magnets by prohibiting U.S. Defense Department use of Chinese magnets (and tungsten) — Section 871 of the National Defense Authorization Act is stimulating defense demand and encouraging upstream growth of non-Chinese alloys and metals as well. These were steps needed to reinvigorate an entire supply chain.

The current administration and Department of Defense are taking welcome steps to finally address the issue, pursuant to Executive Order 13806; they should work with Congress to fully resource the Defense Production Act Title III program as well as assist new producers in securing needed qualifications, in addition to other actions to incentivize production.

Implementing these recommendations will significantly reduce supply chain risk for the military, improve manufacturing strength and mitigate vulnerability. All these steps can be implemented but will require readdressing old assumptions about how to maintain our industrial base in a global economy.

While heeding the lessons of Sun Tzu, today’s Pentagon might find inspiration from former U.S. Marine Corps Commandant Robert Barrow — “Amateurs think about tactics, but professionals think about logistics” — and take the steps necessary to secure our supply chains against a vulnerability of our own making.”

https://www.defensenews.com/opinion/commentary/2019/05/31/america-must-secure-its-supply-chains-against-a-vulnerability-of-its-own-making/

The 8 Major Forces Shaping the Future of the Global Economy

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VC World debt.png

“STRATFOR WORLDVIEW” By Jeff Desjardins for Visual Capitalist

“With billions of people hyper-connected to each other in an unprecedented global network, it allows for an almost instantaneous and frictionless spread of new ideas and innovations.

Combine this connectedness with rapidly changing demographics, shifting values and attitudes, growing political uncertainty, and exponential advances in technology, and it’s clear the next decade is setting up to be one of historic transformation.”


“But where do all of these big picture trends intersect, and how can we make sense of a world engulfed in complexity and nuance? Furthermore, how do we set our sails to take advantage of the opportunities presented by this sea of change?

1. The Tech Invasion

For most of the history of business, the world’s leading companies have been industrially-focused.

Pioneers like Henry Ford and Thomas Edison innovated in the physical realm using atoms — they came up with novel ways to re-organize these atoms to create things like the assembly line and the incandescent lightbulb. Then, companies invested massive amounts of capital to build physical factories, pay thousands of workers, and build these things.

The majority of the great blue-chip companies were built this way: IBM, U.S. Steel, General Electric, Walmart and Ford are just some examples.

But today’s business reality is very different. We live in a world of bytes — and for the first time, technology and commerce have collided in a way that makes data far more valuable than physical, tangible objects.

The best place to see this is in how the market values businesses.

A graphic showing the top 5 publicly traded companies (by market cap)
(Visual Capitalist)

As you can see above, companies like Apple, Amazon and Microsoft have supplanted traditional blue-chip companies that build physical things.

The tech invasion is leveraging connectivity, network effects, artificial intelligence and unprecedented scale to create global platforms that are almost impossible to compete with. The tech invasion has already taken over retail and advertising — and now invading forces have their eyes set on health care, finance, manufacturing and education.

Will atoms ever be more valuable than bytes again?

2. The Evolution of Money

Money is arguably one of humanity’s most important inventions. From beaver pelts to gold bars, the form and function of money has constantly fluctuated throughout history.

In the modern world, the definition of money is blurrier than ever. Central banks have opted to create trillions of dollars of currency out of thin air since the financial crisis — and on the flip side, you can actually use blockchain technology to create your own competing cryptocurrency in just a few clicks.

Regardless of what is money and what is not, people are borrowing record amounts of it.

The world has now amassed $247 trillion in debt, including $63 trillion borrowed by central governments.

In today’s unusual monetary circumstances, massive debt loads are just one anomaly.

Here are other examples that illustrate the evolution of money: Venezuela has hyperinflated away almost all of its currency’s value, the “war on cash” is raging on around the world, central banks are lending out money at negative interest rates (Sweden, Japan, Switzerland, etc.), and cryptocurrencies like Bitcoin are collectively worth over $200 billion.

How we view money — and how that perception evolves over time — is an underlying factor that influences our future.

3. The Wealth Landscape

Wealth is not stagnant — and so for those looking to make the most out of global opportunities, it’s imperative to get a sense of how the wealth landscape is changing.

The modern view is either extremely healthy or bubbly, depending on how you look at it: Amazon and Apple are worth over $1 trillion, Jeff Bezos has a $100+ billion fortune, and the current bull market is the longest in modern history at 10 years.

Will this growth continue, and where will it come from?

Here’s one look based on projections from the World Bank:

A graphic showing the percentage of estimated global growth (2017-2019) in real GDP.
(Visual Capitalist)

Despite these estimates, there is a laundry list of items that the ultra-wealthy are concerned about — everything from the expected comeback of inflation to a world where geopolitical black swans seem to be growing more common.

Here’s why those building and protecting wealth are rightly concerned about such events:

A graphic showing how unexpected world events -- so-called black swans -- can trigger big losses in the markets.
(Visual Capitalist)

But the wealth landscape is not all just about billionaires and massive companies — it is changing in other interesting ways as well. For example, the definition of wealth itself is taking on a new meaning, with millennials leading a charge toward sustainable investing rather than being entirely focused on monetary return.

How will the wealth landscape look a decade from now?

4. Eastern Promises

The economic rise of China has been a compelling story for decades.

Up until recently, we’ve only been able to get a preview of what the Eastern superpower is capable of — and in the coming years, these promises will come to fruition at a scale that will still be baffling to many.

Understandably, the scope of China’s population and economy can still be quite difficult to put into perspective.

The following map may help, as it combines both elements together to show that China has countless cities each with a higher economic productivity than entire countries.

A graphic showing the GDP of Chinese cities compared with countries.
(Visual Capitalist)

In fact, China has over 100 cities with more than 1 million inhabitants. These cities, many of which fly below the radar on the global stage, each have impressive economies — whether they are built upon factories, natural resource production or the information economy.

As one impressive example, the Yangtze River Delta — a single region which contains Shanghai, Suzhou, Hangzhou, Wuxi, Nantong, Ningbo, Nanjing and Changzhou — has a GDP (PPP) of $2.6 trillion, which is more than Italy.

5. Accelerating Technological Progress

As we’ve already seen, there are many facets of change that will impact our shared future.

But here’s the kicker: When it comes to technological progress, the rate of change itself is actually getting faster and faster. Each year brings more technological advancements than the last, and once the exponential “hockey stick” kicks into overdrive, innovations could happen at a blindsiding pace.

A chart illustrating the deceptive nature of exponential change.
(Visual Capitalist)

This could be described as a function of Moore’s Law, and the law of accelerating returns is also something that futurists like Ray Kurzweil have talked about for decades.

Interestingly, there is another offshoot of accelerating change that applies more to the business and economic world. Not only is the speed of change getting faster, but for various reasons, markets are able to adopt new technologies faster:

A chart showing technology adoption by households in the United States.
(Visual Capitalist)

New products can achieve millions of users in just months, and the game Pokémon Go serves as an interesting case study of this potential. The game amassed 50 million users in just 19 days, which is a blink of an eye in comparison to automobiles (62 years), the telephone (50 years) or credit cards (28 years).

As new technologies are created at a faster and faster pace — and as they are adopted at record speeds by markets — it’s fair to say that future could be coming at a breakneck speed.

6. The Green Revolution

It’s no secret that our civilization is in the middle of a seismic shift to more sustainable energy sources.

But to fully appreciate the significance of this change, you need to look at the big picture of energy over time. Below is a chart of U.S. energy consumption from 1776 until today, showing that the energy we use to power development is not permanent or static throughout history.

A chart showing the share of U.S. energy consumption by major sources, 1776-2016.
(Visual Capitalist)

And with the speed at which technology now moves, expect our energy infrastructure and delivery systems to evolve at an even more blistering pace than we’ve experienced before.

7. Shifting Human Geography

Global demographics are always shifting, but the population tidal wave in the coming decades will completely reshape the global economy.

In Western countries and China, populations will stabilize due to fertility rates and demographic makeups. Meanwhile, on the African continent and across the rest of Asia, booming populations combined with rapid urbanization will translate into the growth of megacities, holding upwards of 50 million people.

By the end of the 21st century, this animation shows that Africa alone could contain at least 13 megacities that are bigger than New York:

A gif showing top 20 global cities by population, 2010-2100.
(Visual Capitalist)

By this time, it’s projected that North America, Europe, South America and China will combine to hold zero of the world’s 20 most populous cities. What other game-changing shifts to human geography will occur during this stretch?

8. The Trade Paradox

By definition, a consensual and rational trade between two parties is one that makes both parties better off.

Based on this microeconomic principle, and also on the consensus by economists that free trade is ultimately beneficial, countries around the world have consistently been working to remove trade barriers since World War II with great success.

But nothing is ever straightforward, and these long-held truths are now being challenged in both societal and political contexts. We now seem to be trapped in a trade paradox in which politicians give lip service to free trade, but they often take action in the opposite direction.

To get a sense of how important trade can be between two nations, we previously documented the ongoing relationship between the U.S. and Canada, in which each country is the best customer of the other:

A graphic showing trade between the United States and Canada.
(Visual Capitalist)

With the recent United States-Mexico-Canada Agreement, the two countries seem to have sorted their differences for now — but the trade paradox will continue to be an ongoing theme in economics and investing at a global level for many years to come, especially as the trade war against China rages on.”

https://worldview.stratfor.com/article/8-major-forces-shaping-future-global-economy?utm_campaign=B2C%20%7C%20Newsletter%20%7C%20060818&utm_source=hs_email&utm_medium=email&utm_content=66848402&_hsenc=p2ANqtz–VT7yHL5sGjNsnoF7KDufCcHeEzGppywWe94p26CmhHApJQgTad7hbuDJqTocxzt4rPHh1b9mMHl8PWyhbZMT77IPaoQ&_hsmi=66849710

 

Top Geopolitical Events of 2014

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                                                                          ~George Friedman

“The broad forces of history and geopolitics shape our lives, but we live our lives in the small things.”

1: Europe’s Persistent Decline

Europe’s inability to solve its problems, or really to make any significant progress, may not involve armies and explosions, but it can disrupt the global system more than any other factor present in 2014.

2: Ukrainian and Russian Crises

The failures of Russian intelligence services to manage the Ukrainian crisis and the weakening of the Russian economy raise serious questions about the future of Russia, since the Russian Federal Security Service is a foundation of the Russian state.

3: The Desynchronization of the Global Economy

That the major economic centers of the world are completely out of synch with each other, not only statistically but also structurally, indicates that a major shift in how the world works may be underway.

4: The Disintegration of the Sykes-Picot World

Sir Mark Sykes and Francois Georges-Picot were British and French diplomats who redrew the map of the region between the Mediterranean Sea and Persia after World War I. They invented countries like Lebanon, Jordan, Syria and Iraq.The central government collapses, and warlords representing various groups take control of fragments of the countries, with conflicts flowing across international boundaries. Thus the Iraqi crisis and the Syrian crisis have become hard to distinguish, and all of this is affecting internal Lebanese factions.”

http://www.stratfor.com/weekly/top-five-events-2014#axzz3NJ1tsbwB