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What in the World?

Detroit will rise again to be an industrial powerhouse

Nov 07, 2022


Detroit Mayor Mike Duggan recently announced the city’s unemployment rate has fallen to 7%, matching a 20-year low. Automobile manufacturer Jeep just opened a new assembly plant in the city, the first of its kind in the last 30 years. And a University of Michigan forecast “maintains a faster recovery for Detroit than the State overall through 2023.” Straight Arrow News contributor Peter Zeihan believes the U.S. is in a phase of rapid industrial growth that will benefit cities like Detroit, with large-scale pre-existing industrial infrastructure.

Excerpted from Peter’s Nov. 7 “Zeihan on Geopolitics” newsletter:

Despite what you might be hearing, the United States is in the midst of its greatest period of industrialization since WWII…if not ever. How did we get here?

For starters, the political environment of the last half decade or so has shifted rapidly. Part Trump, part COVID and supply chain snafus and part post-Russian invasion of Ukraine, the time is ripe to bring more of the production and manufacturing of US-destined goods back to the US. There are natural advantages to operating in the US as well–thanks to shale, Americans have some of the lowest-cost energy in the world. And thanks to the U.S.’ millennial baby-boom, we have a large cohort of relatively young people to lead consumption for decades to come.

Which brings us to Detroit. The current challenges facing America’s once mighty Motor City are well known–but there are plenty of reasons to be optimistic for Detroit’s future. It’s one time competitors like Germany and China are facing significant headwinds, and that production has to go somewhere. Detroit’s integration with southern Ontario’s manufacturing hub, America’s inland waterways and existing manufacturing base means the city is primed for much brighter days ahead.

Hey, everybody, Peter Zion coming to you here from Detroit. Today we’re going to talk a little bit about trade and reshoring. Now, the United States has been in the midst of its greatest industrialization period since at least World War Two. And I would actually argue that the pace of that and reindustrialization is faster than what we went through in World War Two. The reasons are threefold. Number one, people are starting to think of security as an issue and timeliness of deliveries, Trump helped with that COVID helped with that disruptions because of the Ukraine war are helping with that. Second, because of the shale revolution, that the United States has the lowest energy prices in the world,
in terms of oil, as well as electricity, and that makes it kind of important from a processing and manufacturing point of view. And third is workforce. Despite all the issues that the United States is facing, they’re nothing compared to what’s going on in the rest of the world. Our baby boomer cadre is about a quarter smaller relative to global norms compared to everybody else. So when they retire, that’s a problem. But it’s not as much of a problem as elsewhere. And the United States has a large millennial cohort with most of the world just simply lacks. So whether it’s for workers or for consumption, the United States is where it’s at. Which brings me to Detroit. This behind me right there. That is the Ambassador Bridge linking Windsor Ontario with the Motor City, and that one bridge is the densest trade way for international exchange in the world handling roughly 1/3 I believe of all trade between Canada and the United States. Motor City is often called Motor City because it breaks a lot of cars. And that bridge handles a lot of the intermediate products that shuttled back and forth across the border between Ontario and Michigan. I expect Detroit to be one of the cities to benefit a lot from the investment that is going to come in from the rest of the world in terms of building out the industrial supply chains, specifically for automotive. Now, the city obviously has challenges that’s gonna be the topic of something else, I think. But what to look for. There are three types of Vin investments. The first is portfolio going into things like stocks and bonds, that really doesn’t help Detroit directly. The second is foreign direct investment where foreign companies come in and set up major operations. That is not something that benefits most of the auto sector in the pre existing industrial plants in places like Detroit or say Houston, but instead favors places where there’s underutilized workforces, like say the American South. And the third is just plain old, generic boring domestic expansion. In the world, we are rapidly moving to the Chinese system is breaking down for a mix of reasons arrays ranging from political incompetence and mismanagement, to energy shortages to trade sanctions, all of those benefits of trade. We’re also seeing a breakdown of the German system because without the energy imports that form the basis of their electricity and petrochemicals model, the rest of the manufacturing doesn’t work at all.
All this is fantastic for a place that already has a pre existing industrial place, industrial base for the sort of industries that need to relocate. Obviously, automotive is going to be the big beneficiary, but also look for things like heavy machinery. We have a shortage in capacity for manufacturing in the United States for things like farming equipment, industrial equipment, mining, equipment construction, and generally they are produced in similar zones to automotive because in many ways, you’re just talking about a more advanced and larger, heavier, more powerful version of your quote, normal car, Detroit, Detroit, Detroit. The other place to watch of course, is Houston, where the Gulf Coast meets the Texas triangle meets Mexico, Houston might benefit more overall, but it’s also excuse me, a much larger city. Detroit is the place where the outsized benefit is likely to be felt most acutely. Anyway, after 20 3040 years of rough times in Detroit, I think the macroeconomic winds globally are benefiting it in a huge way. And the next 30 years should be very interesting. In a good way. That’s it for me. Until next time,

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