The politics of deglobalisation favours the robots

Last week Tokyo was teeming with fund managers from around the world eager to establish how Japan will fare as its biggest trading partners square up for a new cold war. The Daiwa Investment Conference provided the venue and the bento lunch boxes; robots, via their human advocates, provided the most convincing part of the answer.

Geopolitics, runs an argument that particularly favours a cohort of Japanese companies, is increasingly colliding with labour shortages. If we really are entering a phase where the manufacturing arrangements of companies in the US, China, Japan and elsewhere (South Korea and Taiwan in particular) are impelled to relocate by a new set of deglobalised carrots and sticks, then automation will be everyone’s best bet when it comes to deglobalised donkey-work.

To a significant extent, their slide into this role is already under way: factory automation has always looked like the future, but more so now that cold war-style tensions are forcing a grand reset of manufacturing.

Even before the pandemic, Beijing had been deploying the rhetoric of Made in China 2025 to cover a broad range of efforts to secure greater self-sufficiency in tech and specialist manufacturing. The impetus of that campaign has been accelerated by Covid-19, emerging with a much sharper nationalistic edge.

As relations between the world’s two biggest economies deteriorated, the US was also free to harden in favour of decoupling. The passage of the nakedly dirigiste Inflation Reduction Act and the Chips and Science Act last year meant that the US and China both entered 2023 with clear and oppositional industrial policies. Japan, whose industrial policy in the 1970s and 80s was both bogeyman and beacon to the world, has been left looking the least interventionist of the trio and, perhaps, best placed to play chief roboteer to the others.

All of this has enshrined concepts such as “reshoring”, “nearshoring” and “friend-shoring” as part of the new geopolitical toolkit. However deep the scepticism within the corporate world, the consensus for now is to play along, especially when there are generous incentives to move manufacturing bases and to create shorter and less globalised supply chains.

No one is sure how long this period will last, and it may be safest to assume that it is permanent. But as long as geopolitics are in the driving seat, the economic calculations that previously shaped global manufacturing will merely be passengers. Specifically, the pressure on companies to build multiple supply chains and reduce dependency on China creates new constraints on the ability to chase cheap labour wherever it is available. In many cases, moving manufacturing to the US or Japan will explicitly put it in places where labour and skills shortages are the most acute. The same dynamics are true in China, where the labour supply and demand gap has been widening steadily.

This, of course, is where robots and factory automation jump in. In the case of brokers trying to sell Japan, it re-enforces the “buy” recommendations on (among many others) robot maker Fanuc and factory automation supremo Keyence. The latter is now the country’s second most valuable company behind Toyota and arguably the one that more clearly represents Japan’s industrial cutting edge.

Since last year, the export volumes of industrial robots from Japan to the US have been rising at an unprecedented rate, with shipments in October and December at record highs. Research by the Association for Advancing Automation found robot sales to North American companies at a record $2.38bn in 2022, up 18 per cent from the year before.

Critically, says Morten Paulsen, a robotics analyst at CLSA, the composition of those exports is changing. The US auto industry remains the dominant source of robot demand but the balance is now shifting towards other industries including semiconductors, food and metals production.

The idea that the politics of deglobalisation will continue to favour the robots has also produced some eye-catching forecasts. A recent report by Grand View Research found that the global market for machine vision — the cameras, sensors and readers that empower robots and other automation technology — reached $16.9bn last year. Grand View forecast that the industry will exceed $40bn by the end of the decade.

Goldman Sachs recently hit clients with a weighty report outlining the investment case for humanoid robots. In its “blue sky” scenario, the US labour shortage gap could be 126 per cent filled by 2030 if humanoids can be made to toil for a solid 20 hours a day. That is a mere trifle compared with the workload of brokers currently attempting to sell investors on the great robot story.

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