Space

Revitalizing the military industrial complex

The space industry is in the midst of a transforming era, often dubbed the "New Space Race." Driven by technological advancements, private investment, and an ambitious entrepreneurial spirit. This era promises better access to orbit and beyond, painting a vibrant picture of endless possibilities. Yet, beneath the surface of this rapid expansion, concerns regarding competitiveness in costs, efficiency, and safety for every party involved, suggests that this race, while exciting, might be undermining the very promises it appears to make. And perhaps nowhere is this dynamic more acutely felt than within the halls of NASA, the very agency that once unilaterally defined humanity's reach for the stars.

The NASA business model

The rise of commercial giants like SpaceX and Blue Origin has undeniably revitalize the industry. Their innovations, particularly in reusable rocket technology, have drastically reduced launch costs. This newfound accessibility has spurred a surge of innovation, attracting significant private investment and fostering the emergence of hundreds of new companies across various segments. From satellite manufacturing to in-orbit servicing. However, this rapid evolution isn't without its shadows, particularly as it casts a long, often challenging, shadow over the once-unquestioned dominance of the National Aeronautics and Space Administration.

For decades, NASA was the undisputed champion of space exploration, a beacon of national ambition and technological prowess. Its triumphs, from the Apollo moon landings to the Hubble Space Telescope and the International Space Station, captivated the world and defined the very concept of spaceflight. But the landscape has shifted dramatically. With a budget that has, for years, remained a tiny fraction of the overall federal spending. Currently hovering around 0.3%, NASA finds itself increasingly reliant on, and at times eclipsed by, the cut-throat commercial sector. This shift, while intended to foster efficiency and leverage private innovation, has inadvertently led to a perceived decline in NASA's direct competitiveness across several critical areas.

Efficiency for thee, not for me

Consider the intricacies of cost dynamics. NASA's own large-scale projects, often driven by the development of bespoke, cutting-edge systems, frequently face substantial cost overruns and protracted timelines by relying on third-party private contractors. The Space Launch System (SLS) and Orion capsule, central to the Artemis program aiming for lunar return, have become emblematic of this challenge. Each SLS launch carries an astronomical price tag, leading to persistent questions about its long-term financial sustainability, mainly from SpaceX’s side. Which, literally, blew through their NASA funding for their lunar lander without even succesfully making one single Starship trip.

NASA's internal projects appear cumbersome and expensive when placed alongside the lean, agile operations of its commercial partners. While NASA actively pursues public-private partnerships, effectively purchasing services from companies like SpaceX for ISS crew transport or lunar lander development, this reliance shifts its role from primary innovator and operator to a more substantial customer and facilitator. This transition, while strategically designed, lessens NASA's direct operational presence in key areas where commercial players now dominate.

Then there's the relentless pursuit of efficiency. The commercial sector, driven by market forces and the need for rapid turnaround, has often moved with a speed that traditional government agencies struggle to match. All to potentially hit profitablity in the future. This breakneck pace in the private sector can highlight the often slower, more bureaucratic processes in a large federal agency like NASA. NASA's meticulous safety protocols and extensive testing regimes are undeniably crucial, they can also contribute to longer development cycles and mission delays by relying on private contractors that are incompatible with this regime. For example, the Mars Sample Return mission, a joint endeavor with the European Space Agency, has seen its estimated cost balloon and its timeline slip significantly. Eventually being cancelled at one of the few last steps.

All this while China pushes ahead with its own ambitious Mars sample return plans, appearing to stay on budget and on time. This perceived lag in delivering on primary objectives can make NASA appear less nimble, and potentially less competitive, in the eyes of an increasingly impatient public and administration.

Safety is everything

Perhaps most critically, the intense competition and relentless drive for lower costs in the New Space Race raise serious questions about safety, a domain where NASA once set the unimpeachable standard. While commercial space ventures are held to rigorous safety standards, the sheer volume of new entrants and the rapid pace of development can create pressures. NASA, in its role as regulator and partner, must navigate the delicate balance of fostering innovation while ensuring robust safety oversight for all. The agency also grapples with internal challenges, such as staffing shortages in critical skill areas and the loss of experienced personnel, issues that can subtly erode its capability and responsiveness.

In an environment where proprietary data is often closely guarded, the broad sharing of safety lessons and best practices, once a hallmark of the space community under NASA's leadership, can become less common. Potentially hindering the development of holistic, industry-wide safety standards that benefit every party operating in space.

The New Space Race holds immense promise, yet it simultaneously presents a challenge to NASA's traditional role and perceived competitiveness. While NASA remains a vital engine of scientific discovery, deep-space exploration, and fundamental research, its shift towards being a major customer rather than the sole architect of space missions forces major budget overruns while not retaining the knowledge or very skilled personnel and scientists. To thrive in this transformed landscape, NASA must continue to innovate in areas where only a government agency can lead, such as cutting-edge science missions and human exploration beyond low-Earth orbit. The agency's future success hinges on its ability to leverage the strengths of its unique and indispensable role as a leader in space, ensuring that the benefits of this exciting area of science will truly benefit all of humanity, not just a select few.

Shipping

Shipbuilding is not as straightforward as it may seem

Shipping has been at the forefront of the unfolding trade war. An overlooked part of this whole story is the shipbuilding industry. The Trump administration wants to revitalize the US shipbuilding capacity, but this will take longer and more resources than many seem to think, all while being more expensive and difficult with Trump’s tariffs.

China’s dominance in the shipbuilding sector is huge. Other countries like Japan, Korea and Phillipines combined are currently producing 34% of gross tonnage. China on its own has a 51% market share. The US has only 0.1%. Even the Netherlands, with a market share of 0.14%, has more shipbuilding capacity and experience than the entire US.

Cause and effect

Many blame The Jones Act and China subsidies as the reasons American shipbuilding capacity and knowledge has been going down. While they are partially right, it leaves out a lot of the market dynamics that were involved with the downfall of western shipbuilding. Because there is one thing that the list of shipbuilding nations have in common, they are all east-Asian. Areas like Europe don’t have The Jones Act nor anything like it, they also subsidize the shipbuilders but at a lower scale. Yet, their gross tonnage built has fallen in the period 2014-2024 (with a few spikes in between).

One major factor is the costs involved with building large cargo ships. The US has more problems with this than the EU and especially Asian countries. The US does not have enough production capacity of things like steel, propellers and engines for example. This means that with even more heightened tariffs, these costs will only go up. Sometimes shipbuilders now pay double the world market price for steel.

This evolves it into another major issue, no scale of economy. Chinese, Japanese and Korean shipbuilders get orders for multiple ships at once. This allows them to order already cheap parts in bulk, while keeping the shipyard busy and mobilized. Add some more very cheap labour into the mix, and it all culminates in even lower costs per ship. Something even the EU can’t compete with.

The Jones Act and the fact other countries are willing to subsidize or give favourable loans only adds more pressure on the US shipbuilding industry. There is little to no incentive for US shipbuilders to go big or raise their productivity, as they control 100% of the in-land waterways production capacity and get out-competed at every front for international water vessels.

Opinion

Mining is hot again and so will inflation

DJT confirmed a 50% tariff on all copper imports. This move aims to bolster the domestic copper mining industry, but its ripple effects could be felt across the economy.

US-based copper projects and producers are cheering the news. The steep tariff effectively makes imported copper far more expensive, allowing domestic companies to command higher prices and potentially expand their market share. The goal, as stated by DJT, is to "build a dominant copper industry" in the US.

However, this comes with a big caveat: the increased cost of raw copper will inevitably make manufacturing goods within the US more expensive. Domestic producers now face the delicate balance of capitalizing on higher selling prices while navigating the risk of reduced demand due to these increased costs. Exporting the copper won’t be an option either, since the rest of the world’s copper prices will probably remain lower due to the high tariffs.

Ahead of the tariff, the US strategically built up a considerable copper stockpile. Reports indicate a significant surge in refined copper imports, with estimates suggesting the US has accumulated enough inventory to cover a substantial portion of its annual needs.

Despite this, copper prices have already seen a sharp ascent in the US, with futures hitting record highs. This has created a notable divergence between US Comex prices and international benchmarks like the London Metal Exchange, with US prices now considerably higher.

It would be unwise to use these stockpiles at a quick rate, as they have partially been accumelated to withstand any supply shock that could come in the future. Using it now to cover higher prices would be problematic, the elevated prices could persist for longer than the stockpiles would last.

While the tariff aims to strengthen domestic mining, it poses significant hurdles for US manufacturers and consumers:

• Rising Production Costs: Copper is a fundamental component in a vast array of products, from electric vehicles and electronics to construction materials. A 50% tariff on this essential input directly translates to higher production costs, potentially leading to "demand destruction" as manufacturers either absorb the costs or reduce output.

• Inflationary Pressures: These increased costs are likely to fuel inflation. For example, the automotive industry alone anticipates hundreds of dollars in additional costs per vehicle. This comes at a time when the US dollar's purchasing power has been steadily declining (down ~10% since the beginning of the year) and consumer confidence remains a concern.

• Strained Supply Chains: US supply chains, already under pressure from various global factors, will face further strain. Ramping up domestic copper production to meet demand is a long-term endeavour, with new mines and refineries taking years, if not decades, to develop.

• Consumer Confidence and Economic Slowdown: While recent consumer sentiment data shows some stability after earlier declines, overall confidence remains lower than a year ago. The manufacturing sector's PMI continues to indicate contraction, even with some slight improvements. The worry is that these rising prices, without a corresponding boost in domestic manufacturing capacity, could further dampen consumer spending and overall economic activity.

While the copper tarrifs seek to foster a stronger domestic copper industry, it introduces cost increases and supply chain disruptions. All of this could negatively impact the competitiveness of already dwindling US manufacturing and the purchasing power of consumers. Forcing lower corporate profits while hightening prices for the average US consumer.

I am personally of the opinion that miners should not rely on higher mineral prices as a selling point to their business, as it proves to me one thing. They are simply not competitive. Miners should seek the most efficient and cost-reducing methods to make their products as cheap as they can while still making a profit. Waiting around for higher prices will just make everything that is made with those metals, minerals or rare earths more expensive too. Something that the average person, including me, would rather not have.

The coming months will reveal how effectively the US economy navigates these interconnected challenges. If these tariffs will even last past the August 1 date that is. TACOs may still rear their head, although with significant cost to the real economy.

That’s it for this Maric’s weekly.

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Stay safe,

Maric