US Oil Rebounds, Slated for Job Growth

The now $55-a-barrel oil prices have been keeping steel pipes in excess demand domestically. Dropping oil prices in the last couple of years have given oilfield-equipment companies a significant surge in sales towards onshore drilling, so much so that these domestic sales have surpassed sales abroad. These firms are having difficulty meeting this demand, struggling to hire employees to haul the gear, even at a minimum $80,000 a year salary. As oil prices have rebounded following the large drop early last year, more wells have been tapped and the industry is growing.

Another result of this recent surge is a much higher expenditure on US and Canadian drilling, which is expected to climb three to four times more than the worldwide average this year. The latest rig technology and extraction methods will but pressure on wages as well, causing oil companies to shift their hiring strategies in order to fulfill the workforce demand. Rehires have become particularly important. For example, TMK Ispco, a gear supplying giant set payroll records last year by improving employee benefits and wages.

Despite the impressive industry rebound in the US, oil and pipe supply companies are not comfortable yet. Labor cuts are still outpacing new hires for most large oil companies and regions, while welling activity continues to grow. Firms are adjusting their target oil prices in accordance with these labor pressures, lowering the safe threshold oil price. Should oil prices reach comparable peak levels we’ve seen in the past, there could be extreme effects to further workforce cuts.

Overall, the news is positive across the US. Crude oil pricing has reached a stable level, driving more activity up and down the supply chain. Although increased competition has put strains on larger companies’ capacities, profits should begin to flow as supply grows. New contracts up the value chain will spur activity for all oil-related industries in the US, and recent budget proposals will act to support US firms in a rebounding crude oil environment.

Sources:

https://www.bloomberg.com/graphics/2017-oil-rigs/

http://calgaryherald.com/business/energy/as-u-s-shale-oil-drilling-rebounds-80-thousand-jobs-find-few-takers

http://business.financialpost.com/news/energy/another-8700-oil-jobs-are-at-risk-if-prices-drop-below-us50-according-to-new-study

U.S.-Sino Relations Under Trump

Four weeks into his presidency, Donald Trump has made sweeping statements regarding the U.S.’s current economic standing with China, and that tensions arising from economic conflicts has left China prosperous, of course to the detriment of the American people. Trump’s rhetoric suggests China is an economic enemy of the U.S., operating under different regulations, working standards, and currency meant to take advantage of the two nations’ globalized partnership. The China that Trump suggests currently exists, though, has not existed for some time. The supposed ‘sweat shops’ that continue to surface as news stories slamming Apple or Nike, are isolated and are in no way representations of the current manufacturing industry in China. The race to the bottom in the manufacturing industry has actually begun to shift away from China. Factory worker wages are the highest they have ever been, costs continue to rise in Chinese manufacturing, and there are a number of firms that are looking elsewhere, even the US, for their facilities.

As for Sino-U.S. relations, they seem to be strong and getting stronger, regardless of the skepticism surrounding Trump’s foreign policy. A familiar debate has sparked in recent years over this relationship: does the U.S. need China more, or vice versa? Now that China has become an even more industrialized, globalized state since this topic was first debated in the 1980s, questions are being raised about the ability for the two nations to maintain a symbiotic relationship. What economists, politicians and scholars have found is that the U.S. and China have far more economic similarities than they do differences, and must focus on these similarities in order to evolve and expand as modernized states. This gap between economic goals will only continue to shrink as China takes a larger role in the global economy. One example is GDP growth, which in China has grown from one eighth the size of the U.S. to nearly two thirds.

U.S. reliance on China illustrates the expectation that U.S.-Sino economic relations may remain relatively unchanged. U.S. exports to China far outweigh Chinese imports to the U.S., and Chinese investment in U.S. firms has grown 300% since 2015. Now that Trump is in office, his threats to this relationship have dwindled, for he has recognized that conflicts arising over a certain issue will do more harm than good in a partnership that must mature in order to meet both nation’s interests.

The Prof: This graph is very odd, in part because it ignores that for China the base in 2000 was very low.

This is not to say China is still not an economic threat to many areas of the U.S. economy, and a number of important steps must be made in order to assure the U.S.’s role is not diminished in this relationship. China’s focus has shifted away from low-tech and clothing manufacturing to be shipped to the U.S. Instead, Chinese firms are focusing on developing technology that they can label as Chinese products, directly competing with U.S. firms. One example of this shift is China’s intentions to be a global force in semiconductor manufacturing, with two of the largest firms operating heavily in China already (Samsung, TSMC). Further restrictions on foreign investment and trade have made it difficult for U.S. investment in China as well, threatening firms that must take advantage of Chinese GDP and income growth in order to remain profitable in those regions.

Thus, the question remains: how does the U.S. respond to Chinese growth and investment regulations without threatening their symbiotic relationship? Trump’s public stance is to back away from the relationship, imposing trade tariffs and export restrictions that may do the opposite of what he intends, sparking a trade war that will negatively effect both nations. A more tactical approach may be necessary. Jacob Parker of the U.S.-China Business Council suggests regulations that don’t specifically target China, but put pressure on Chinese trade. A more direct approach would be to reciprocate Bejing’s current trade and investment restrictions, but could result in backlash and potentially further restrictions. Whether by direct contention with Chinese business or not, Washington will need to carefully carry out trade policies with China over the next 4 years in order to assure both nations’ success through their long-standing symbiotic relationship made up of mostly similar economic goals.

 

Sources:

Bloomburg Article

Reuters Article

Shanghai Daily Article