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Recent key developments in MAKE│NZ
There won’t be a newsletter next week (April 22nd). We’ll be away and – as we understand – so will be a fair share of our readers.
This morning we sent out the invites for our next up-coming Fireside! If you didn’t get an email but you’d like to get on the list please contact sabine@makenz.org.
Our friends at Hardware Meetup NZ will be holding their event this evening in Wellington with a watch party being held at the Ministry of Awesome in Christchurch.
There will be an opportunity for local networking, drinks, food, watching the live stream and participating in the Q&A sessions.
Their speakers include:
-Bradley Leuw – the head of HTS Subsystems at OpenStar
-Terry Miller – the founder and CEO of the hardware startup Eight360
-Craig Bond – the co-founder and head of product development at Goodnature
If you’d be interested in attending, you can find out more HERE.
Would you or someone you know benefit from improving productivity and learning how to lead through change? Maybe with some new digital tools helping along the way? Well do I have the event for you!
Tuning your Production Engine – Manufacturing Industry Conference
Make sure to get your tickets here, and see if you’re eligible for discounted tickets as a community member!
Recent key developments in New Zealand
• A recent visit to Wellington ended up being a sobering experience. It didn’t leave me with any confidence that our government is buzzing with activity to develop ideas or plans for New Zealand’s economic development, and when it came to talking about support for manufacturers, the response was “We’d love to help, but we haven’t got any money.” – Sigh …
• As there is a reasonable chance – due to the POTUS’ tariff antics and other developments – of global trade relationships being rearranged, the question is: how easily, and how quickly, can this be done? Take India, for example – heavily wooed as a promising market these days by many:
There can be little doubt that India will continue to grow as a source of imports into New Zealand, including for machinery and equipment. Off a low base, the number of tractors, motorbikes and cars made in India on our roads is growing. And during a recent visit to a North Canterbury sawmill, we were shown an installation to heat up oil for heat-treating sawn timber. The owner had approached a local engineering company for a quote and was told: “Forget it, you can get that from India for a fraction of the price!” And he did.
When it comes to exporting capital goods (machinery and equipment, etc.), sales are typically to a smaller number of customers and based on relationships that have been built over a long time. And New Zealand manufacturers of capital goods have traditionally had Australia and the US as their biggest export markets. What are the prospects of growing capital goods exports to India, for example – the world’s biggest country by population, and with GDP-per-capita growth rates that were typical for China during its period of rapid economic development:
It would be good to hear from people who are currently exporting about what their prospects are for finding new customers in new markets, should the markets we currently rely on heavily become less receptive – leave your answers in the comments below!
Recent key developments in the World
And now…
We’re all well aware of the tariff situation that’s on-going and ever-changing. Well, there’s an interesting response coming out of manufacturers in China. If you were to look on Tiktok (or any other short form social media I imagine) and you look up “Chinese warehouse” or “Chinese manufacturer” you’ll find something quite interesting. Some manufacturers in China are now aiming to skip the middle-man and undercut their own customers in what I can only imagine is a form of retaliation. Some examples I’ve personally seen include:
- An exercise clothing manufacturer sharing that they provide the same product to several luxury brands, then offering a heavily reduced price from what you’d find in store and branded, and the man presenting the video offering to help potential customers place orders and deal with getting the product from China to the individual.
- A laundry pod manufacturer showing that on Amazon it would cost $15-$30 USD for a container of pods where instead they’ll directly sell you a container for $1.60 USD.
- Several accounts where people are creating lists of which manufacturers to order directly from to get luxury goods before the official branding has been attached.
The interesting thing is that these videos clearly target both those looking to import and on-sell, AND individuals looking to buy just one or two items.
This could all be a flash in the pan response to the current trade situation or we could be looking at a new shopping experience direct from manufacturer to customer.
Right now the main target seems to be US customers, but these products that are being advertised with no middle man sell internationally. We may need to be on the look out even in New Zealand.
Anyway, back to our…
• To shine a light behind the curtain of the apparently erratic nature of the US government’s tariff policies, in our last edition we pointed to the role of the American Compass think tank and provided a link to an interview with its founder and chief economist, Oren Cass
(https://youtu.be/vgEQeLR-M0g ). If you watched that, and/or wanted to dig deeper, here is a link to another interview with one of the key members of American Compass, Mark DiPlacido (https://youtu.be/eef-okYh85o ).
• So, the US government is intent on bringing (a lot of) manufacturing capacity and capability back home. How well, and how fast, can that be done?
For a recent case study, let’s look at solar panel manufacturing. Under the Inflation Reduction Act [IRA] introduced by the Biden government in August 2022, more than USD100b over ten years were set aside to support the construction of new factories manufacturing solar panels in the US. The result:
– 70 new solar and storage manufacturing facilities have come online as the result of federal manufacturing incentives and 47 facilities are under active construction
– $36 billion of investments have been made in the sector in the U.S. in the last two years, which will create over 44,000 manufacturing jobs
– These investments will bring the total planned capacity of solar modules to over 50 GW, solar cells to 56 GW, wafers to 24 GW and ingots to 13 GW, making the U.S. the third largest module producer in the world.
However, even with this massive increase in domestic supply, the US still heavily relies on imports to meet domestic demand. The country imported 48.5 GW of modules in the first three quarters of 2024. These imports, predominantly from China and Southeast Asian countries, have been facing significant tariffs even before the recent announcements. Since May 2024, the US Department of Commerce has been running an ongoing antidumping and countervailing duty (AD/CVD) investigation on solar cell imports from four Southeast Asian countries. It has set preliminary duties for Thailand (71%), Cambodia (254%), Malaysia (22%) and Vietnam 274%). If implemented, these tariffs would increase the price of Chinese solar panels by US$0.1-0.15/W and bring them closer to price parity with US modules – as mentioned, all of that before the President’s more recent actions.
Those tariffs announced recently, expected to apply to the imported upstream components, mostly from China, which US solar panel manufacturers are still heavily dependent on, are likely to erode at least partially any improvement in the competitive position of US manufacturers provided to them by the tariffs on imported completed panels.
By the way, the tax credits and other subsidies for solar panel manufacturing under the IRA are likely to violate the WTO Agreement on Subsidies and Countervailing Measures. China has requested that a dispute panel be established to rule on the WTO compatibility of certain tax credits under the US Inflation Reduction Act, and the WTO’s Dispute Settlement Body (DSB) agreed to that at its meeting on 23 September 2024. A ruling against it would probably not trouble the US government much, and the matter has become less of an issue anyway, now that the US President has ordered “all federal agencies to immediately pause the disbursement of funds under the IRA” on his second day in office. But substantial payments to the industry have already been made, and it is exactly subsidies like that paid to manufacturers in other countries that the US Trade Representative has quoted in justifying the imposition of new tariffs.
• Thus, with a lot of direct funding support from government, substantial manufacturing capacity can be added to a country’s industry – this story is not the first example of that. Not to forget that US solar panel manufacturers enjoyed protection through anti-dumping duties and tariffs going all the way back to the Obama administration. Is it proof that the New Republican’s plan to re-industrialise the US is going to work? – ?!
For starters, there is the question where all the investment would come from. In the above example, government set aside $100b to boost a very small sub-sector of manufacturing, creating 44,000 additional jobs to date. At its peak in June 1978, there were 19.55m manufacturing jobs in the US:
Currently, there are 12.76m. Even to get back to pre-GFC levels would mean creating around 1.5m additional jobs in manufacturing. How much investment – and government subsidies – would that require? You do the maths …
Does the current US administration have any plans to supplement its tariffs with direct subsidies to establish more manufacturing operations? Current signs, like the freeze on IRA payments and the President’s campaign against the CHIPS Act, raise doubts about that. In the absence of government subsidies – which, as we can see, can come and go with a change in government anyway – investment in new factories will fully depend on private capital, where investments tend to be driven by expectations of returns, rather than political or philosophical considerations. And whether those RoI calculations will favour investment in the US will depend very much on individual business cases. It would be a brave person betting on a massive re-establishment of garment manufacturing in the US, for example.
There are plenty of reasons to criticise recent and current actions of the US government. But even if it is going about it the wrong way, the intention is laudable to rebalance their economy towards a bigger contribution to wealth creation coming from manufacturing. As are similar attempts, using a quite different approach, by our immediate neighbours. And in New Zealand?
And, finally, as a reward for reading to the end: I bet you this is something you will have never seen or heard of before – the singing bond, as announced on CNBC TV:
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