Manufacturing

Tariffs

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…a few quick notes.

The US reciprocal tariffs announced by Trump yesterday are not based simply on the other’s countries’ tariffs for imports of US goods; rather, they attempt to also factor in the effect of currency and of non-tariff barriers. The way the numbers were actually determined is based on a simple algorithm driven by relative trade flows.  Flexport CEO Ryan Petersen explains how it works.  Here’s some detail from the US Trade Representative.

Also from the USTR, a very long document containing a country-by-country analysis of non-barriers faced by US imports.

Interesting post from a guy whose company builds machine tools in Japan:

I’m on the machine builder side of the equation, out of Japan. Looks like our product is going up 24% in price (we’ll probably absorb some, but machine tool margins are not astronomical).

We do production machines. Our biggest single customer is Apple, so when you need 100,000+ of something, you call us. If this was just a Japan trade war, we would be boned…

But it isn’t. My books were already full of projects coming back from China. Small companies with big, commodity (500k+ unit) volumes, and we were already showing that you *can* do stuff in the US at a competitive cost with good process design, smart machine selection, and existing automation. This market will be able to absorb a 20% equipment price increase, and still come out way ahed compared to building their product oversees (not just China, but bejesus… overseas *anywhere*).

So short term, this is gonna suck… but the future was going in a direction of unlimited downside, and if this is what it takes to swing that into long-term health? So be it – all of the people saying this is insanity seem to be clinging to a status quo that everyone with eyes could see is headed towards disaster – they have no better answers.

 

 

 

Manufacturing versus ‘High-Tech’….Really?

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In yesterday’s WSJ, Phil Gramm and Don Boudreaux predictably argue for free trade and against tariffs and say:

We are today taking actions to protect manufacturing jobs the same way we did with agriculture a century ago. In the process, we are imperiling our access to the world market in high-tech and AI, which are the economic future.

I have often seen this assertion of a polarity between manufacturing (old, boring, low growth and low margin) and ‘high tech’ (new, cool, high growth and super-profitable) and wonder what the writers think ‘high-tech’ exactly IS.

Would they consider Taiwan Semiconductor Manufacturing (market capitalization $758B) as high-tech? It is certainly a manufacturing company!

How about ASML Holding NV (market cap $274B)?…this is the only company in the world that manufactures the Extreme Ultra Violet machines which are essential for making the highest-performance semiconductors.

Consider GE Aerospace, now trading as a separate company with a market cap of $206B. It may lack the Cool factor of the above two companies, but anyone who thinks that making jet engines doesn’t count as ‘high-tech’ should read this article: Why it’s so hard to build a jet engine at the Construction Physics substack.

The above examples are companies that sell business-to-business rather than to consumers.  For a business that sells to consumers, look at Tesla–there are many articles and videos available about this company’s innovations in manufacturing. (Here, for instance)

What, exactly, do Gramm and Boudreaux, and similar writers,  think ‘high-tech’ actually means?

Personally, I’m not particularly fond of the term, nor even of just ‘technology’ when used in a narrow and restrictive sense–I think it’s pretty odd to consider a company that sells some garden variety consumer product online (with sparkly AI algorithms!) as being ‘technology’ while excluding the making of jet engines (or power turbines) from that category.

One point that is not well enough understood: process innovation is as important as product innovation.  The manufacturing innovations of Matthew Boulton and John Wilkinson were as important for the success of the steam engine as were James Watt’s design innovations. In the case of the Model T Ford, the process innovations which allowed production at low and continuously-declining cost were perhaps even more important than the design of the car itself.

The idea of a polarity between ‘High-Tech’ and Manufacturing is unhelpful to clear thinking about policy.

Trade, Tariffs, and Prices, continued

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Palmer Luckey, founder & CEO of Anduril, on the importance of US manufacturing.

Warren Buffett had an interesting suggestion for an approach to tariffs: Import Certificates. The idea is that when you export products, you receive import certificates, according to the dollar value of the products exported.  In order to import products, you need to provide Import Certificates of equivalent value.  And the certificates trade. So the system would be self-balancing.

Buffett suggested this approach in a Fortune article more than 20 years ago, I have no idea if that’s still his view, but I think it’s an interesting approach. The original Fortune article is still online but paywalled, the content can be read without subscription here.

See also my post Trade, Tariffs, and Prices from last November, in which I cited an earlier post:

In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

This question should be fundamental to discussions of trade policy, along with national defense and resilience considerations.  See also the discussion about tariffs and consumer price markups–it’s far from true that it’s always just a simple pass-though.

Retrotech: An Automated Flour Mill in 1785

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(A guest post by Grok, with editorial guidance from David Foster)

 

In the late 18th century, America was still a land where much of life’s daily rhythm was dictated by manual labor, especially in the essential task of milling flour. Oliver Evans, born in 1755, a visionary from Delaware, would set the stage for an industrial transformation with his invention of the automated flour mill. This innovation not only changed the way flour was produced but also marked a significant leap into the era of automation in America.
Before Evans, milling was a labor-intensive process. Grain, once ground into meal, needed cooling and drying, a job performed by “hopper boys” who would spread the meal across the mill floor, often walking over it to ensure even distribution. This method was not only physically demanding but also introduced potential contaminants into the flour.

Evans’ revolutionary design, detailed in his 1787 publication “The Young Mill-Wright and Miller’s Guide,” introduced a system where human effort was significantly reduced through mechanical ingenuity. Here’s how:
  • Automatic Elevators and Conveyor Screws: Grain was lifted and moved using bucket elevators for vertical transport and the Archimedes screw, adapted into a conveyor screw, for horizontal movement. This was a significant departure from the muscle-powered methods of the past.
  • Self-Regulating Millstones: The grain was ground by millstones that adjusted themselves for consistency, eliminating the need for constant human oversight.
  • Mechanical Cooling: The role of the hopper boy was taken over by a machine of the same name, which used a rotating rake to spread the meal for cooling, ensuring hygiene and efficiency.
  • Automated Sifting and Packaging: The flour was then sifted and bagged without human intervention, making the process cleaner and faster.

The adoption of Evans’ system was slow at first due to resistance from traditional millers but soon spread like wildfire. By the early 19th century, it’s estimated that hundreds of mills across the United States were built or converted to operate on the Evans principle. Notably, within a few decades of his invention, from the 1790s through the 1820s, there were reports of over 200 mills adopting his methods, with some sources suggesting the number could be closer to 500 by the mid-19th century. This number reflects not just the mills directly constructed by Evans or his immediate associates but also those that adopted his designs independently or through licensure.
However, despite the widespread adoption of his technology, Oliver Evans did not reap the financial rewards one might expect from such a transformative invention. His patents, among the earliest granted in the United States, were often ignored or infringed upon. Evans spent much of his later life in legal battles to protect his intellectual property rights. While he did earn some income from selling rights to his mill designs and through his involvement in manufacturing, the financial success was not commensurate with his innovation’s impact. He also ventured into other fields, like steam engine design, but again, legal and financial challenges dogged him.
Evans’ automated flour mill was more than just an engineering marvel; it was a beacon for the future of industrial America. His work laid the groundwork for automation, reducing labor, increasing efficiency, and improving the quality of life by making food production more accessible and cleaner. His legacy, though not financially lucrative for him, has been a boon for generations, illustrating how one man’s vision could change the course of industry and daily life. His story is a reminder that innovation often comes with its battles, but its impact can endure far beyond the lifetime of its creator.
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(The automated flour mill had been on my list of retrotech posts for a while, thought I’d try the lazy man’s way and let Grok do it. I did have to give it multiple prompts to improve the result, and also found and added the image manually. Also, paragraph breaks were lost, which is common when copying anything into WordPress; I fixed some but not all of them by editing the HTML)

Book and Movie Review: The Valley of Decision (rerun)

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WSJ briefly reviewed Marcia Davenport’s book The Valley of Decision in its roundup of books about family businesses a couple of weeks ago. I reviewed both the book and the 1945 movie that it inspired (starring Greer Garson and Gregory Peck) last year.

The book could be subtitled An Industrial Romance, as could the movie. Both could enjoy some renewed attention at a time when the importance of manufacturing is receiving increased focus in the US.

Pittsburgh, 1873. The Scott family owns a steel mill, and sixteen-year-old Mary Rafferty has just started work as maid in their home.   There are 5 Scott children, but 17-year-old Paul is the only one who truly values the mill as anything other than a source of dividends.   William Jr, the eldest, is   engaged to a young Boston socialite and wants to to maximize his take from the mill to support their joint social ambitions.   Elizabeth is “plain and angular and earnest, full of purpose and good works.”   The twins Constance and Edgar, 9-year-olds when Mary first meets them, are always into mischief–“known in the backyards and nurseries of Western Avenue as holy terrors and limbs of the devil”…as they grow older, Constance dreams of marrying an English aristocrats, moving to Europe to get away from what she sees as her boring family, and meeting “all the wicked people,” while Edgar prefers life as a rather raffish gentleman of leisure to doing any kind of serious work.

Paul, though, shares with his father William a strong personal bond with the mill, the work it does, and the people who work there. Will Jr, who as oldest is the presumptive future chief of the mill,  has no desire whatsoever to be a part of scenes such as a Bessemer Converter blow:

And now excitement, familiar but primevally keen, swept everything else aside. The great bulbous brute towering above him began to rumble and belch. From its mouth high overhead a stream of scarlet flame threw itself at the acid winter sky. The blower gave a sign. The blow was ready, and suddenly the usual concert of barbaric noises in the shed was drowned in one fearful ear-crushing roar as the cold blast was shot into the converter’s belly.   Element grappled with element, oxygen in a death-struggle with carbon, a battle more terrible and wonderful than man had ever made before.   The flame, steady and fearfully red, began to change color, a descending scale of blinding flashes echoing from the death-and-birth agony of the elements. Inside the beast steel was being born, and from the vessel’s roaring mouth the solid fire changed from red to blue, to orange, to yellow…

Paul does see things differently from his father in that believes that a more scientific approach to steelmaking will be necessary if they are to compete successfully with giants like Carnegie Steel. When he returns from college he sets up a metallurgical laboratory at the mill, and an open hearth furnace is installed to help in the switch of focus to specialty steels.

There is an immediate strong attraction between Paul and Mary, but the are obstacles–not only the very different class positions of Paul and Mary, but the fact that Mary’s brother..a key skilled worker at the mill…is also a labor leader, attempting to organize a union among Scott employees. And while William Scott Sr does care about his workers, he will resist any attempts to interfere with what he see as his management prerogatives.

Mary quickly comes to share Paul’s emotional bond with the mill, and she also develops a strong sense of connection to and responsibility for the entire family..indeed, more of a sense of connection and responsibility that than felt by some of the family’s own members.

The book begins with Mary starting work for the Scott family, but the history of the mill goes back further, to its founding by Paul’s immigrant grandfather–and the book extends the story through multiple generations, up through the early years of World War II.   The mill played an important role in arming Union forces in the Civil War, and a similar role in later conflicts.   The importance of this exemplar of heavy industry to the national defense is played up strongly, as one might expect in a book published in 1941.

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