3 ms·

> now we are screwed for at least 6 months, since we don't have the ability to create the product anymore. So stockpile it. Just buy 6-month's supply of cheap

by glenra 13y ago

> now we are screwed for at least 6 months, since we don't have the ability to create the product anymore. So stockpile it. Just buy 6-month's supply of cheap foreign steel and store it in a warehouse somewhere. Now if things turn south we just draw down the "strategic steel reserve" for a while - we have 6 months to either reclaim our prior ability or find another trading partner willing to sell to us.

rayiner 13y ago
It takes a lot more than 6 months to rebuild war-making capability. It's not just the physical production that moves off-shore, it's the know-how and expertise. As we saw with the computer industry, it's not just production that moves off-shore. Eventually, so does much of the design capability. Thought experiment: if the key to saving our civilization was on the moon, how long would it take us to redevelop the technology and infrastructure to get back there?
- glenra 13y ago
  So store 12 month's supply, Or 18 or 24 months. And buy options to buy from a few other countries that we can exercise if need be.
  - rayiner 13y ago
    So what happens when you have a years long war? You can't rebuild a steel production industry from scratch while also fighting a war. More important than that, you can't keep the expertise in a stockpile. If we let e.g. shipbuilding go overseas, it could be a decade before we could gather together the expertise again to build a nuclear powered aircraft carrier, even if we had a stockpile of steel.
    - glenra 13y ago
      I don't think you understood what I meant by "buy options". So let's flesh that out a little. Suppose steel costs $2/unit from a US firm, but costs $1/unit on the world market. We can go to companies in various other countries and pay some nominal fee (say, $50k/year) to buy an OPTION to buy their future steel output, not at the current price, but at twice the world price. So in the best case scenario there's no war, the steel company gets paid a nominal fee for an annual option that never gets exercised, and the US military saves far more by buying low cost steel through the years than the cost of the options. But if there ever is a war, we execute the option and get to buy (on 6 month's notice) that factory's full capacity at a 100% markup, crowding out whoever else they would otherwise have sold that steel to at a much lower price. So in wartime we pay foreign companies exactly what we would have had to pay a US firm - twice the world market rate - without first having to wait to build any US factories! The foreign firm just has to allow for this in their contracts - that they reserve the right to cut off any buyer (paying a suitable penalty fee) with 6 month's notice. Now our stored 6-month supply is exactly enough to tide us over until options can reasonably be exercised (and penalty fees paid) that provide us with substitute sources. We sign those sort of contracts with firms in a variety of countries in a variety of geographic locations. Unless our primary low-cost supplier gets mad at us and ALL those "safety" countries also get mad at us at the same time, we have an adequate safety margin. All our steel - heck, all our ships - gets made for HALF the current cost until such time as there actually IS a war with our main supplier, whereupon it all gets made for exactly the price it would have cost to make domestically, had we kept that industry around.
      - harryh 13y ago
        So in the middle of a war a foreign company is going to sell war materials to the enemy because of a contract?
        glenra 13y ago
        Okay, let's make the example even MORE explicit. In normal times we'd buy most of our actual supply from China or Taiwan, because they're the cheapest, fastest, most flexible supplier. We'd buy those side OPTIONS (that are never exercised other than in a time of war) from companies NOT in China. We'd buy the options from companies in, say, Brazil, Mexico, Argentina, and Canada. Where the steel is typically a little more expensive per unit. In the middle of a war with China or Taiwan, a foreign company in Brazil, Mexico, Argentina, or Canada is unlikely to consider us "the enemy", so they'll have no trouble selling us all the steel they can make at the inflated prices we're willing to pay. The contract and the higher-than-normal price it specifies, should suffice to compensate them for inconveniencing their normal customers, foreign or domestic.
        harryh 13y ago
        What happens when China bombs the plant in Brazil and cuts off 25% of our supply?
        glenra 13y ago
        Um, you mean cuts off 25% of our potential supply. What happens then is we exercise more of our options (or just negotiate new deals) elsewhere to make up for it. In short, pretty much the same thing that happened when China declared war in the first place. However many plants in however many countries they bomb, we're still better off than if we had used and they had bombed the same plants in the US. Fewer American casualties, certainly. (Are you expecting China to declare war on us and bomb every country in the world that we do business with? That seems like a pretty expensive and unlikely proposition. It's also worth noting that international trade all by itself tends to improve communications and reduce the potential for hostilities.)

by glenra 13y ago

rayiner 13y ago

It takes a lot more than 6 months to rebuild war-making capability. It's not just the physical production that moves off-shore, it's the know-how and expertise. As we saw with the computer industry, it's not just production that moves off-shore. Eventually, so does much of the design capability. Thought experiment: if the key to saving our civilization was on the moon, how long would it take us to redevelop the technology and infrastructure to get back there?

glenra 13y ago
So store 12 month's supply, Or 18 or 24 months. And buy options to buy from a few other countries that we can exercise if need be.
- rayiner 13y ago
  So what happens when you have a years long war? You can't rebuild a steel production industry from scratch while also fighting a war. More important than that, you can't keep the expertise in a stockpile. If we let e.g. shipbuilding go overseas, it could be a decade before we could gather together the expertise again to build a nuclear powered aircraft carrier, even if we had a stockpile of steel.
  - glenra 13y ago
    I don't think you understood what I meant by "buy options". So let's flesh that out a little. Suppose steel costs $2/unit from a US firm, but costs $1/unit on the world market. We can go to companies in various other countries and pay some nominal fee (say, $50k/year) to buy an OPTION to buy their future steel output, not at the current price, but at twice the world price. So in the best case scenario there's no war, the steel company gets paid a nominal fee for an annual option that never gets exercised, and the US military saves far more by buying low cost steel through the years than the cost of the options. But if there ever is a war, we execute the option and get to buy (on 6 month's notice) that factory's full capacity at a 100% markup, crowding out whoever else they would otherwise have sold that steel to at a much lower price. So in wartime we pay foreign companies exactly what we would have had to pay a US firm - twice the world market rate - without first having to wait to build any US factories! The foreign firm just has to allow for this in their contracts - that they reserve the right to cut off any buyer (paying a suitable penalty fee) with 6 month's notice. Now our stored 6-month supply is exactly enough to tide us over until options can reasonably be exercised (and penalty fees paid) that provide us with substitute sources. We sign those sort of contracts with firms in a variety of countries in a variety of geographic locations. Unless our primary low-cost supplier gets mad at us and ALL those "safety" countries also get mad at us at the same time, we have an adequate safety margin. All our steel - heck, all our ships - gets made for HALF the current cost until such time as there actually IS a war with our main supplier, whereupon it all gets made for exactly the price it would have cost to make domestically, had we kept that industry around.
    - harryh 13y ago
      So in the middle of a war a foreign company is going to sell war materials to the enemy because of a contract?
      - glenra 13y ago
        Okay, let's make the example even MORE explicit. In normal times we'd buy most of our actual supply from China or Taiwan, because they're the cheapest, fastest, most flexible supplier. We'd buy those side OPTIONS (that are never exercised other than in a time of war) from companies NOT in China. We'd buy the options from companies in, say, Brazil, Mexico, Argentina, and Canada. Where the steel is typically a little more expensive per unit. In the middle of a war with China or Taiwan, a foreign company in Brazil, Mexico, Argentina, or Canada is unlikely to consider us "the enemy", so they'll have no trouble selling us all the steel they can make at the inflated prices we're willing to pay. The contract and the higher-than-normal price it specifies, should suffice to compensate them for inconveniencing their normal customers, foreign or domestic.
        harryh 13y ago
        What happens when China bombs the plant in Brazil and cuts off 25% of our supply?
        glenra 13y ago
        Um, you mean cuts off 25% of our potential supply. What happens then is we exercise more of our options (or just negotiate new deals) elsewhere to make up for it. In short, pretty much the same thing that happened when China declared war in the first place. However many plants in however many countries they bomb, we're still better off than if we had used and they had bombed the same plants in the US. Fewer American casualties, certainly. (Are you expecting China to declare war on us and bomb every country in the world that we do business with? That seems like a pretty expensive and unlikely proposition. It's also worth noting that international trade all by itself tends to improve communications and reduce the potential for hostilities.)