History’s Largest Economic Power Struggle Is about to Begin

Now here’s a fact that might surprise you…

Amid 2022’s financial chaos, North America’s largest steel producer Nucor [NYSE:NUE] was booming. While many analysts and economists were predicting a construction and housing price crash in the US, this steel giant was delivering its best year on record.

That’s according to Nucor’s latest earnings report, indicating the company had its most profitable year, eclipsing prior records set in 2021.

So, what gives?

It’s been a long time since steel manufacturers experienced boom conditions. The last period was during the early 1970s when steel production reached a peak in the US.

Steel production is not a sector that garners much attention in this tech-focused nation.

Especially so when the US has just experienced a prolonged period of unrelenting rate rises. Construction would normally be the first casualty in this type of environment.

But Nucor’s stellar performance over the last few months would suggest otherwise.

According to the company, it produces steel products ranging from beams, structural tubing, electrical conduit, steel racking, steel joists, concrete reinforcing steel, steel fasteners, overhead doors, steel grating, and wire mesh.

Basically, any steel component used in US construction is manufactured by Nucor.

Given the recent earnings results, it’s not surprising that the company is experiencing unprecedented demand for these products.

But Nucor’s stellar run over the last few months has likely astonished many market observers…

Particularly those that believe we’re on the verge of economic calamity, thanks to persistently high inflation and record levels of government debt.

Yet right now, the US’s largest steel manufacturer, a company whose revenue is entirely dependent on economic growth, continues to post record-breaking earnings.

It’s why the stock is trading at near-all-time highs:

But is this the top for Nucor?

For the moment, there’s no sign investors are looking to jump out of Nucor’s stock any time soon…that’s despite strong consensus of US recession in 2023.

Nucor isn’t the only US based steel producer defying analyst expectations.

Reliance Steel & Aluminium [NYSE:RS], a producer of steel alloys and aluminium for the construction industries across North America, is experiencing similar growth.

The stock was up more than 30% in 2022 and has added a further 17% to its value this year.

See for yourself below:

With the company’s latest earnings report due shortly, recent price action suggests positive results are on the way.

So, why are US steel manufacturers defying the rather pessimistic outlook for the US economy?

One key reason could be this…

The US…in the fight of its life to maintain economic dominance

Many analysts have their eyes firmly fixed on China’s reopening.

It marks the ‘reawakening’ of an economic powerhouse that has sat in stagnation over the last three years thanks to self-imposed lockdowns.

But could this reawakening be the final leg up before China takes economic dominance away from the US?

Perhaps…but don’t expect the US do go down without a fight.

Some commentators suggest the brewing power struggle will insight war between the two nations. Instead, I believe it’s setting up for a major economic showdown, where both superpowers attempt to stamp their authority over supply chains.

How they undertake this power struggle will be vastly different.

For China, it means reigniting its multitrillion-dollar Belt and Road Initiative (BRI) to secure trade routes throughout Asia and Africa.

Of course, the country will need to work through its domestic issues first. Stimulus will play a large role in strengthening the country’s beleaguered housing industry.

No doubt, though, once these issues have been dealt with, President Xi Jinping will be ready to re-exert his authority over international supply chains.

That’s the primary goal of the BRI development.

It means extending highways, shipping lanes, and railways from China all the way through to the Middle East, Russia, and Africa.

But for the US, reimposing its influence in the global economy will look quite different…

It means replacing its crumbling infrastructure. Roads, bridges, ports, hospitals, airports, and utilities neglected for decades will need to be rebuilt if it seeks to hold its position as the world’s largest economy.

You can bet the US will do all it can to make this happen.

Both China and the US are set to throw trillions at their respective ambitions.

According to a recent White House statistic, the US Government has already approved more than 20,000 infrastructure projects that are set to come online over the coming months and years.

It’s part of a US$3.5 trillion ‘Biden Agenda’ that aims to rebuild critical infrastructure across the nation.

That’s good news for companies like Nucor and Reliance Steel & Aluminium that continue to defy the odds. As the nation looks to rebuild, there will be a focus on using ‘American made’ steel.

However, Australian resource companies are set to benefit in a big way too.

Mining companies here will be feeding the raw materials to China and the US as each nation attempts to take the lead in this coming economic power struggle.

No doubt, the situation in China has been well reported. The country’s emergence from lockdowns late last year have been a boon for commodity prices in 2023.

It’s offered strong tailwinds for copper, causing many analysts to suddenly flip on their long-term outlook for this strategic metal.

However, analysts are underestimating the US’s role in this power struggle.

US preparing to restamp its authority over economic dominance

According to many observers, China is destined to overtake the US as the world’s largest economic superpower.

That’s because, until recently, the US has been benign to the China growth story.

While it’s been slow in reacting to the power challenge, the US will not give up its century-long economic dominance easily.

Importantly too, unlike China, the US still has a growing population.

The US added the equivalent of Australia’s entire population in the last 10 years. That’s around 25 million people.

The US continues to take on the lion’s share of global immigration. That’s in stark contrast to the communist Chinese Government that shuns outsiders.

In terms of demographics, the US sits in a far stronger position.

But what’s sorely lacking in the US is competitive infrastructure.

Suffering from decades of underinvestment, much of its neglected utility and transport facilities wouldn’t look out of place in a third-world economy.

That’s in stark contrast to its bygone years where it represented the shining beacon of democracy and infrastructure that was the envy of the world.

The US has an enormous task ahead if it’s to avoid economic decay. Modernising its vast infrastructure will be the springboard that rejuvenates its economy for decades to come.

Utilities, fibre optics, railways, bridges, and roads are the fertile grounds that allow businesses to flourish…efficient transport and reliable supply chains are the lifeblood that fuel economic growth.

That’s why the US will move Heaven and Earth to act on its multitrillion-dollar commitment to rebuild and retain its status in the global economy.

It simply cannot afford to let its roads and bridges crumble.

So, how do you prepare for this situation as an investor?

These colossal nation building ambitions will place enormous pressure on raw materials.

History’s largest economic power struggle is about to begin…now is the time to own resource stocks.

Have a great week,

James Cooper,

Editor, The Daily Reckoning Australia

PS: Supply chains sit at the heart of this brewing economic power struggle. My colleague Jim Rickards has just released a book SOLD OUT! that focuses on this very issue. You can find out how to secure a copy here.