The U.S. economy has a great opportunity for a manufacturing renaissance. Let’s hope that Democrats and green zealots don’t kill it by regulating and taxing manufacturing out of existence.
The threat is real. Just look at Western Europe, which reenacted the tale of the Pied Piper by embracing climate change with far too little sense. Put simply, Western Europe went way too green way too fast. Green policies are putting Western Europe’s heavy industries out of business. In Western Europe, steel plants, fertilizer companies, concrete businesses, chemical giants, glass fabricators, and metals operations are all shuttering their operations in the face of soaring energy prices.
This affects the people, as well as corporations and the broader economy. In Europe, natural gas costs 10 times more than in the United States. In Britain, households are facing an 80% increase in home heating bills. For Britons, the great green revolution is turning out to be a harsh hollow promise. Successive British governments decided to try and rely upon wind power. In so doing, the country turned away from its vast reserves of natural gas. Today, wind power supplies just 3% of the UK's energy needs.
At least for the moment, the U.S. is a low-cost producer of oil and gas. Oil and natural gas exports are soaring. Energy is a significant input cost (20-40% of total costs) for heavy industries such as steel, fertilizer producers, aluminum manufacturing, chemicals operations, glass fabrication, and concrete manufacturing. Again, this matters. In 2021, the industrial sector accounted for 35% of total U.S. end-use energy consumption and 33% of total U.S. energy consumption. Within the industrial sector, manufacturing accounts for the largest share of annual industrial energy consumption, generally followed by mining, construction, and agriculture. Manufacturing accounts for 80% of energy consumption in the industrial sector.
President Biden frequently talks about good, well-paying union jobs. Last November, Biden claimed, "Here’s what I’m going to do," he said. "I’m going to create good paying union jobs. Not $12 an hour, not $15 an hour, $45 bucks an hour and up with good benefits."
The energy industry offers a clear pathway to delivering on this pledge. Take Cleveland Cliffs, a major U.S. steel producer. The average salary at Cleveland Cliffs is over $60 an hour, $120,000 annually plus benefits. The wage structure at U.S. Steel is similar.
Also similar is the average annual salary at Dow Chemical, at over $100,000 ($50 an hour, plus benefits).
Moreover, the typical annual salary for a worker in the oil and gas production sector is over $100,000 plus benefits. By contrast, the average salary for a solar panel worker is approximately $50,000 a year, or $25 an hour.
Which begs the question: To deliver on his promise in service of his green energy fixation, will Biden now issue an executive order mandating that solar panel wages be increased by 100%? And would such an order be inflationary?
Because of its comparative advantage in carbon energy production, the U.S. has an opportunity to regain global market share in the manufacturing sector. The cost of energy here is significantly lower than in Europe or in many parts of Asia. (China, South Korea, and other Asian countries import liquefied natural gas, LNG, from the US. That LNG costs 7-9 times more than the natural gas that U.S. manufacturers use to power their facilities.)
Lesson: Let’s not emulate Europe and follow the green energy Pied Piper over the cliff to global economic irrelevance. The U.S. has the golden goose of cheap energy. Let’s feed the goose, not strangle it.
James Rogan is a former foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
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