From Reuters comes this piece on arms spending:
Demand for big-ticket U.S. weapons is expected to stay strong for at least the next few years, the trade group said in a 2012 year-end review and forecast released in December.
Fears resulting from China’s growing military spending (bolding mine…the US has about 4.8% spending to GDP ratio) should lead to enough U.S. sales in South and East Asia to more than offset a slowdown in European arms-buying, according to the forecast.
(Dan here:) The graph offers a year to year estimate of China’s spending to GDP ratio. What am I missing?
The trade group, whose members include Pentagon suppliers Lockheed Martin Corp, Boeing Co and Northrop Grumman Corp, did not put numbers to its 2013 forecast. Nor did the Pentagon’s Defense Security Cooperation Agency, which has overseen a boom in worldwide deals under President Barack Obama.
The security agency, in response to a Reuters request, said sales agreements with countries in the U.S. Pacific Command’s area of activity rose to $13.7 billion in fiscal 2012, up 5.4 percent from a year before. Such pacts represent orders for future delivery.
In 2012 there were about 65 notifications to Congress of proposed government-brokered foreign military sales with a combined potential value of more than $63 billion. In addition, the State Department office that regulates direct commercial sales was on track to receive more than 85,000 license requests in 2012, a new record.
Overall, the United States reached arms transfer agreements in 2011 totaling $66.3 billion, or nearly 78 percent of all such worldwide pacts, according to the nonpartisan Congressional Research Service. The 2011 total was swollen by a record $33.4 billion deal with Saudi Arabia. India ranked second with $6.9 billion in such agreements.
Rupert Hammond-Chambers, who consults for U.S. arms makers through BowerGroupAsia, an advisory with 10 offices in the region, predicted Southeast Asian defense budgets would expand steadily as a hedge against Chinese assertiveness in disputes in the South China and East China seas.
RJS had been a long-time commenter at my blog, News N Economics, and has joined Angry Bear’s thread of comments. RJS runs his own blog, Global Glass Onion, where he publishes a weekly newsletter encompassing news from around the world for his readership. Collaborating with Dan, we asked RJS to make a similar contribution to Angry Bear, where he has kindly agreed to format the topics and style to fit our needs. The style of rj’s Analysis is evolving, so please comment with your feedback. Rebecca Wilder
A guest post by RJS: “RJS Analysis – Japanese Disaster Impact”
Although some east coast Japanese ports were damaged by the tsunami, and most of the infrastructure in a primary agricultural region has been destroyed, it appears the major problem facing Japan right now is lack of electrical generating capacity; Citigroup analysts say it may be “irreversible”… Tokyo has been warned of blackouts during cold weather; this is not so much because of the loss of the infrastructure; rather the 9.7 GW taken out of service with the six closed reactors is a lion’s share of the electric power in the east. These operate on US style 60Hz power, while the generating capacity in the west of Japan is a legacy of 19th century German generators, which run at 50Hz, and the two systems don’t talk to each other… We now learn that rolling blackouts will likely continue into the summer because TEPCO will only be able to supply 50 million KW per day, whereas typical peak summer usage is 60 million KW… The shortfall may eventually be made up by spare gas and diesel generating capacity; but as of yet, I’ve yet to see a timeline as to when. So at present, even many of the Japanese manufacturers who were not damaged by the quake have shut down their production lines; and as many are the sole makers of various automotive & electrical components, manufacturing around the globe is starting to be affected… How bad this can become globally is still anyone’s guess; but in the one similar experience we had with a resin plant fire in japan in 1993, prices of semiconductors doubled in a matter of days. In just one example illustrative of the problem, making the i-phone alone involves 9 different companies, in Korea, Japan, Taipei, China, Germany, and the US…
(Read more after the jump)
Stress Test for the Global Supply Chain – “Day in and day out, the global flow of goods routinely adapts to all kinds of glitches and setbacks. A supply breakdown in one factory in one country, for example, is quickly replaced by added shipments from suppliers elsewhere in the network. Sometimes, the problems span whole regions and require emergency action for days or weeks. When a volcano erupted in Iceland last spring, spewing ash across northern Europe and grounding air travel, supply-chain wizards were put to a test, juggling production and shipments worldwide to keep supplies flowing. But the disaster in Japan, experts say, presents a first-of-its-kind challenge, even if much remains uncertain. Japan is the world’s third-largest economy, and a vital supplier of parts and equipment for major industries like computers, electronics and automobiles. The worst of the damage was northeast of Tokyo, near the quake’s epicenter, though Japan’s manufacturing heartland is farther south. But greater problems will emerge if rolling electrical blackouts and transportation disruptions across the country continue for long.”
Made in Japan: What Is Country Exporting? – “The crisis in Japan triggered by the March 11 earthquake hasn’t just disrupted domestic production, but also poses problems to trading partners that rely on Japanese goods. (See an interactive graphic showing Japan’s exports.) Japan is the world’s fourth-largest exporter and most of the products it sends overseas are machinery and transportation equipment, which include everything from heavy industrial machinery and semiconductors to refrigerators and cars. The country accounts for about 14% of world exports of automotive products. Japan exported some $469.64 billion of machinery and transportation equipment in 2010. Japan also is a key supplier of advanced components to Asian nations that specialize in the final assembly phase of manufacturing. China depends on Japan for 13% of its imports, largely capital goods such as machine tools and electronic parts for manufacturing. Filed under miscellaneous goods are such products as precision instruments, particularly scientific, optical instruments.”
Japan Quake Could Have Big Impact on U.S. Output – “Investors counting on robust manufacturing data for March may be in for an unpleasant surprise next month. When the March data come out in mid-April it will likely mark the second month in a row of declining U.S. industrial output and could mark the start of a worrying trend. Industrial output slipped 0.1% in February. Why will this decline likely happen? It’s because the after-effects of the March earthquake in Japan are disrupting automobile manufacturing in North America in a hefty way. This matters because, despite popular belief, automobile manufacturing still is a meaningful part of the industrial sector. Here’s how it’s playing out: Japan still is a major supplier of parts to U.S.-based car factories. It isn’t just Japanese car brands, like Toyota and Honda, which both announced they would temporarily halt production at some plants in the U.S. General Motors has been impacted by the problem, notably furloughing workers in New York state and Louisiana. It doesn’t take a supply disruption of many car parts to mean that a auto maker has to halt output for an entire plant, at least temporarily.”
Supply Shortages Stall Auto Makers – “General Motors Co. will stop some work at two European factories and is mulling production cuts in South Korea, amid growing uncertainty over how its plants around the world will be affected by the crisis in Japan. A shortage of Japanese-built electronic parts will force GM to close a plant in Zaragoza, Spain, on Monday and cancel shifts at a factory in Eisenach, Germany, on Monday and Tuesday, the company said Friday. Both factories build the Corsa small car. Meanwhile, the company’s South Korean unit said it is considering cutting production to deal with a potential shortage.”
Toyota: Quake to affect US – “Toyota Motor Corp. says it is likely to experience production interruptions at its North American factories because of the disruption in supplies of auto parts coming from quake-ravaged Japan. Toyota’s automaking operations in Japan have been halted since March 14 as it reviews the condition of suppliers providing the 20,000 or more components that make up vehicles. Auto engineers scouring the northeastern region have found many facilities that were damaged and others that were destroyed, and most automakers haven’t completed their assessments. Toyota’s U.S. manufacturing subsidiary in Erlanger, Ky., told its U.S. employees, plant workers and dealers Wednesday that some production interruptions in North America were likely. The automaker said it could not predict which sites would be affected or for how long. Most of the components used in Toyota’s North American assembly operations come from some 500 suppliers in the region.”
Libya war, Japan disaster putting brakes on auto industry – “There are about 15,000 parts in most cars, but the absence of just one can wreak havoc. That’s especially true when it comes to microprocessors, which control everything from an engine’s fuel mix to the car’s global positioning system.About one in every five microprocessors is made in Japan, and many are made at plants that were severely damaged in the March 11 earthquake and tsunami. So just as U.S. auto sales gather steam, the unexpected war in Libya, surging gas prices and now production cuts triggered by the earthquake have thrown uncertainty into automakers’ rosy 2011 outlook. Automakers could lose production of up to 5 million vehicles in the next four months,”
Automakers Still Reeling From Japan Quake – “The earthquake and tsunami in Japan are still disrupting the auto industry worldwide, and it could be harder to find that car you want as a result. Toyota (TM) says it will probably idle a truck plant in Texas because it can’t get enough parts, according to Reuters. “It is likely that we will see some nonproduction days coming,” a spokesman said. “At this point, we are still not sure of when those might hit or, if they do it, what the duration may be.” The entire sector is feeling aftershocks from the tragedy. Even American automakers are not immune, as they import parts from Japan. General Motors (GM) temporarily stopped production at a plant in Louisiana and laid off more than 50 workers at a plant in New York. But the Japanese automakers are the hardest hit, with recovery efforts hampered by widespread power outages. Post continues after video about Toyota and Honda production:“
Toyota and Ford to stop making cars in certain colors – “Automakers may run low on certain paint colors because of a shortage of a pigment produced in an area close to the damaged Fukushima-Daiichi nuclear power plant in northeastern Japan. Ford Motor Co. has alerted dealers to stop ordering vehicles in tuxedo black and three shades of red. Toyota Motor Corp. and Chrysler Group LLC also are among automakers that will be affected by the pigment shortage. The German pigment manufacturer Merck Group confirmed that the Japanese plant that makes a pigment called Xirallic had halted production because it was in the exclusion zone around the damaged nuclear power complex…once engineers can get inside the plant, the company believes production can be restarted in four to eight weeks.”
Panic buying raises prices on Prius, Fit – “Americans have begun snapping up Toyota Prius, Honda Fit and other fuel-efficient models made only in Japan almost the way shoppers denude bread and milk shelves in a supermarket when a storm is predicted. The intensity first spurred by rising gas prices has been amplified by predicted shortages of many models as the Japanese auto industry remains disrupted by the March 11 earthquake and its aftermath. “We’ve gone from 60 (Priuses) in stock to 16” over the last two months, . A dozen are coming, “but we are told they are going to dwindle” quickly after that. Indicating the shortages may not be brief, Honda has told dealers it’s not taking orders for any vehicles made in Japan in May. March and April orders already were delayed.”
Japan crisis could prompt Ind. autoworker layoffs -“Shortages of auto parts from earthquake-stricken Japan could lead to layoffs at some Indiana factories in the coming weeks. Business analysts don’t expect large cutbacks, but anticipate that some Indiana plants that employ about 50,000 autoworkers will use short workweeks, scattered short-term layoffs and slower line speeds to keep workers busy during the downturn. “I’m not sure it’s going to be a major event. It’s not clear yet,” said economist Thomas Klier of the Federal Reserve Bank of Chicago told The Indianapolis Star. “We still don’t know what the extent of the damage actually is in Japan.” Trying to determine which plants might be affected by the tumult in Japan is made difficult by the global supply chain that has developed in recent years. Subaru, Toyota and Honda assemble vehicles in Indiana, but the supply system runs to almost every major automaker.”
Bracing for the pinch on auto parts from Japan – “The disaster in Japan already is affecting the U.S. auto industry. Two key questions now are, how much and for how long? Toyota’s 13 factories in the United States, Canada and Mexico have been told to expect shortages of parts made in Japan, and U.S. makers that use Japanese parts also are expecting supply disruptions. And that could mean a temporary drop in inventoriesfor some high-demand vehicles in Texas showrooms. “The biggest unknown in the industry is the parts supply chain,” said Jesse Toprak, vice president of industry trends at TrueCar.com, a new car pricing site. Parts shortages could reduce global auto production by about 30 percent”
Automakers May Lose 600000 Vehicles as Quake Hits Parts, Paint — “Global automakers may lose production of 600,000 vehicles by the end of the month as the earthquake in Japan halts assembly lines and work at suppliers including the maker of a paint pigment. About 320,000 vehicles may have been lost worldwide as of March 24, and manufacturing at plants in North America may be affected when parts supplies start running out as soon as early April, said Michael Robinet, vice president of Lexington, Massachusetts-based IHS Automotive.“The next surge of shutdowns comes when the pipeline of parts that were already built dries up,” Robinet said yesterday in a telephone interview. “The rate of lost production will accelerate once North American plants join in.” Toyota Motor Corp., the world’s largest automaker, said it has lost output of 140,000 vehicles, and Honda Motor Co. has lost 46,600 cars and trucks and 5,000 motorcycles. Mitsubishi Motors Corp.’s was lowered by 15,000. Ford Motor Co. hasn’t lost any output, said Todd Nissen, a spokesman.”
Global auto output may fall 30 percent due to quake – “(Reuters) – A shortage of auto parts stemming from Japan‘s earthquake may cut global vehicle output by 30 percent within six weeks in a worst-case scenario, research firm IHS Automotive said on Thursday. This translates to a drop of as many as 100,000 vehicles per day, IHS analyst Michael Robinet said, adding there could be more North American plant shutdowns in the meantime. “We’re already feeling the impact in Japan,” “North America, Europe, China: those three areas for sure will feel some impact.” Last week, General Motors Co (GM.N) idled its pick-up truck plant in Shreveport, Louisiana. Toyota Motor Co is likely to idle its own pickup truck plant south of San Antonio.The delivery of parts from transmissions to electronics to semiconductors is being hampered by the Japanese earthquake and subsequent infrastructure problems. About 13 percent of the global auto industry output has been lost now because of parts shortages, Robinet said.The slowdowns could grow even more severe by the third week of April.”
Toyota, Sony Disruptions May Last Weeks After Japan Earthquake – “Toyota Motor Corp. and Sony Corp., two of Japan’s biggest manufacturers, are facing worst-case scenarios of long-term production shortfalls as scores of plants remain closed and workers are idled in the aftermath of the March 11 earthquake and tsunami. “The current situation is still difficult,” . The company has shut eight plants in Miyagi, Ibaraki and Fukushima prefectures, and workers are inspecting equipment and facilities, he said. Toyota has said it will keep 21 auto and components plants closed until March 22. Sony and Toyota’s efforts to resume production are complicated by the need for hundreds of different components to build TVs and cars from a variety of different suppliers that may have suffered plant damage in the earthquake and tsunami. Japan is also facing electricity shortages because a nuclear- power plant was crippled by the temblor. “This will be played out not in days, but in weeks,” . “Nothing on this scale has really occurred before.””
Shockwaves reverberate from mobiles to jewelery -“Nokia on Monday became the latest company to warn of disruption to its supply chain, highlighting Japan’s role in producing crucial components for a rangeof global manufacturing industries. The Finnish mobile phone maker, which sources about 12 per cent of its components in Japan, said the disaster was likely to affect its manufacturing and supply schedules. “Nokia expects some disruption to the ability . . . to supply a number of products due to the currently anticipated industry-wide shortage of relevant components and raw materials sourced from Japan,” the company said. The Japanese disaster has exposed the risks associated with modern global supply chains, in which companies rely on just-in-time deliveries from a network of global suppliers with little surplus inventory to cushion them from any disruption. Technology manufacturers are particularly exposed to Japan because of its importance as a supplier of semiconductors and other critical components in products such as mobile phones and computers. Several big Japanese technology companies, including Panasonic, Hitachi, Nikon, NEC and Sony, have reported disruption either from earthquake damage or power shortages since the disaster. Ericsson, the Swedish network equipment maker, and Sony Ericsson, its mobile phone joint venture with Sony, are among other non-Japan-based companies which have so far warned of supply chain problems.”
Sony | Japan Disasters Could Hit Consumer Electronics Hard… “Sales of consumer-electronics items, including television sets, DVD players, cameras, personal computers, and video-game players are likely to be impacted by the devastating Japanese earthquake and tsunami, Advertising Age observed today (Thursday). The trade publication observed that while the final assembly of those products takes place in other Asian countries, the components are made in Japan. With Sony, Nintendo, Panasonic, Canon, Nikon and other Japanese-based electronics companies forced to shut down plans, parts shortages are likely to increase prices of many items and produce product scarcity even into the holiday season, AdAge observed. Earlier this week research group iSuppli reported that two Japanese plants that account for 25 percent of the global supply of silicon wafers had been forced to suspend operations. Moreover, two other companies that account for 70 percent of the worldwide supply of the main raw material used to make printed circuit boards have also temporarily shut down.”