Today, I\u2019m talking with Willy Shih, an economist, a professor of management practice at Harvard Business School, and the author of the upcoming book, Where Does My Stuff Come From? The Powerful Economics Behind Global Supply Chains.<\/p>\n
Willy is one of my all-time favorite Decoder guests \u2014 his way of looking at the world through our supply chains is just a fascinating way of making sense of the global economy. I first met Willy in 2019, while The Verge was covering Foxconn\u2019s promise to build an LCD fab in Wisconsin. That obviously never happened, but Willy called it right away because he could see the supply chain to support a fab simply wasn\u2019t in place. We also had Willy on the show in 2021 to talk about what was then the pandemic-era chip shortage.<\/p>\n
Now, five years later, we\u2019re in another manufacturing mess, as we stand in the middle of a political fight over whether globalization is coming to an end. Trumps\u2019 tariffs keep changing, the factories that were supposed to reshore in America mostly haven\u2019t materialized, and AI is devouring the planet\u2019s computing resources during an unprecedented infrastructure buildout.<\/p>\n
Willy\u2019s new book is all about the economics underlying these complex systems, which our politicians and regulators seem to insistently ignore. You\u2019ll hear us talk about why the markets have reacted to all these disruptions the way they have, and why China remains a global manufacturing powerhouse even though every other country thinks that\u2019s so risky. I loved this conversation \u2014 it\u2019s in the weeds, and Willy really knows his stuff.<\/p>\n
Okay: economist Will Shih on his new book Where Does My Stuff Come From? Here we go.<\/p>\n
This interview has been lightly edited for length and clarity.<\/p>\n
Willy Shih, you\u2019re an economist and professor of management practice at Harvard. You\u2019re also the author of the new book, Where Does My Stuff Come From: The Powerful Economics Behind Global Supply Chains. Welcome back to Decoder.<\/p>\n
Well, thanks for having me back.<\/p>\n
I am very excited to talk to you. You and I first started talking ages ago when The Verge was covering Foxconn in Wisconsin. You are a reliable source of information on what it takes to actually build an LCD plant anywhere, not just in Wisconsin.<\/p>\n
The Foxconn in Wisconsin thing was funny because I tend to go on first principles on these things. Once I knew they weren\u2019t going to build a glass plant across the street, it\u2019s like there\u2019s no way there\u2019s going to be a factory.<\/p>\n
Now, what happened afterwards, of course, is people heard your show, and then I started getting calls from people who live in the community. They went to the zoning hearings in town, then sent me the plans and asked, \u201cIs this going to be a panel factory?\u201d I said, \u201cNo, I told you it\u2019s not going to be a panel factory.\u201d So they sent me the plans. I said, \u201cWell, there\u2019s not enough concrete to make this a panel factory.\u201d For a panel factory, you need stability, so you gotta have all this structural steel, and you have to have all this concrete.<\/p>\n
Verge Decoder\u00a0wherever you get your podcasts. Head here. Not a<\/p>\n
My favorite part of the Foxconn story \u2014 and I don\u2019t mean to rehash it, but it\u2019s just fun to talk to you about it again \u2014 is when you said there\u2019s not enough concrete and steel. It\u2019s great. We should actually talk about LCD manufacturing a little bit. There\u2019s an entire chapter in your book about why all of it is in China and China\u2019s investment in that. But I want to just take a big step back for a second.<\/p>\n
It seems to me that you\u2019ve written a book about the end of globalization in one particular way. We had big global supply chains. The pandemic came and shocked the just-in-time manufacturing system to its core. And then the Trump administration, in the second round, has imposed a whole bunch of tariffs.<\/p>\n
I\u2019ve had several guests on the show straightforwardly tell me we\u2019re de-globalizing the economy. That\u2019s what\u2019s happening here. We can\u2019t rely on it anymore. Your book, as you read it, is a little bit of a reaction to that, but you\u2019re also pointing out how globalization is one of the smartest ways to do it based on first principles of economics.<\/p>\n
Tell me about the state of the world and the state of our supply chains right now from your point of view.<\/p>\n
Well, I think the point about first principles of economics is actually spot on. I often tell people my father was an economist, and I used to see him come home from work, and I thought, \u201cI never want to do that. I\u2019m going to go into science and technology.\u201d So I went into science and technology and took all these engineering classes. And I was in product businesses only to discover, to my horror, that if you don\u2019t get the economics right, then it doesn\u2019t matter for science and technology.<\/p>\n
The book\u2019s subtitle is \u201cthe powerful economics behind global supply chains.\u201d I talk about all these principles behind global supply chains, but they\u2019re all actually driven by economics. In fact, what you see today is market forces responding to all this stuff.<\/p>\n
So, for example, when we put tariffs on stuff coming out of China, then manufacturers say, \u201cOkay, let me move that supply chain, and I\u2019ll do my assembly in Vietnam, or I\u2019m going to do my assembly in Mexico, or let me find some way to circumvent these tariffs.\u201d What I really find is that when you look at how these supply chains are structured, like why do cashew nuts say they come from Vietnam when they were actually grown in the Ivory Coast or Ghana? Well, there was an economic reason for all of these things. It\u2019s why frozen fish that are caught off the coast of Alaska go to Qingdao, China, for processing before they come back. Again, it\u2019s because it\u2019s cheaper to do it that way.<\/p>\n
When we put up these trade barriers, the first reaction tends to be, \u201cHow can I circumvent that?\u201d We saw a lot of that, especially last year. I remember Liberation Day was April 2nd, and if you look at the quarter right before, people knew stuff was going to be happening.<\/p>\n
We have this circumvention going. That\u2019s why in the first quarter of 2025, we had all-time-record imports from Ireland, and then the first half of 2026 showed slow imports from Ireland. That\u2019s because we\u2019re burning off all the stuff we imported in the first half of 2025.<\/p>\n
It all gets down to economics. I\u2019m getting all these TV set ads because the holiday season is coming up. Great, and they\u2019re all coming from Mexico. It\u2019s like, \u201cHow can they all be coming from Mexico?\u201d I know the flat panel factories that supply all these TV sets these days are all in China, and they\u2019re all in China because the plants have been subsidized so heavily or because of industrial policies that have encouraged those plants to be there.<\/p>\n
If you watch the trade lanes, you\u2019ll see this stuff. What happens is there\u2019ve been all these new shipping routes from China to Mexico over the last two years. Direct ocean container service from China to Mexico. It\u2019s like, \u201cHuh, I wonder what that\u2019s about.\u201d I\u2019ll tell you what it\u2019s about. It\u2019s about moving parts and components from China to Mexico so that I can assemble them in Mexico and then bring them in under the USMCA agreement.<\/p>\n
So what you\u2019re actually seeing is that these supply chains are organized the way they are partly because some places have the capabilities, but more often than not, a lot of these are just responding to economic forces. If I\u2019m going to add on tariffs or I\u2019m going to make it more expensive to ship something between two points, the market will find a way around that.<\/p>\n
That\u2019s something I want to come back to several times in this conversation. \u201cIt\u2019s cheaper\u201d was a real driving force of globalization. Americans like cheap things. They like cheap flat-panel TVs. The fact that I can go to Costco right now and get a 50-inch TV for $300 is a miracle of the modern supply chain and of modern manufacturing.<\/p>\n
It is a miracle, right? And it\u2019s cheaper, and it\u2019s because there\u2019s a place that, for better or for worse, can make it cheaper. By the way, American consumers benefit from that.<\/p>\n
One of the reasons that we pursued free trade and globalization so heavily in the United States is that we thought that creating economic ties between all these various countries would reduce the potential for an armed conflict. There are a lot of ways to think about that, but in general, if you tie the economies together, the price of having a war shoots up, and then you won\u2019t have free or cheap TVs, and maybe the public won\u2019t like that.<\/p>\n
That is under pressure now, right? We\u2019re sitting here in the middle of an AI conversation, where China is routinely invoked as the great threat that will rise up if they get to AGI before us. We are putting up tariffs, particularly on China. In the United States, the policy administration is to bring manufacturing back to the United States through the use of tariffs. Your point of view is that simple economics will provide enough contortions to avoid that blunt outcome.<\/p>\n
When we seal the borders for some products everywhere, then the price is going to go up. So, for example, putting tariffs on steel. Initially, when we just put tariffs on imported steel and aluminum, then what happened was, \u201cWell, gee, I happen to be making construction equipment. More than half of the cost of that construction equipment is medium carbon steel, so therefore it makes it easier for me to import construction equipment from somewhere else.\u201d We then say, \u201cOkay. Now we\u2019re going to tariff stuff based on your steel content.\u201d<\/p>\n
Eventually, when you close off all those things, which means you\u2019re basically tariffing everything, then stuff gets more expensive domestically. You could look back on the period from 2000 until really 2012 to 2014; we had relatively low inflation. Part of it is because we were getting cheaper stuff from China.<\/p>\n
I think there are a couple of things that drove a breakdown of this model, if you will. One is that people didn\u2019t really recognize that the connection between moving work out of the US to China meant you\u2019re leaving people behind who don\u2019t have any more work. That cost was spread over people who, by the way, also shop at Walmart and benefit from the cheap goods. But we as a country didn\u2019t think about it like, how are we going to retrain all those people who weren\u2019t making furniture in North Carolina or who were making castings and forgings in Kentucky or wherever?<\/p>\n
That was one part of the problem. The other part of the problem is that we have this gigantic trade deficit. Now, a lot of that is fueled by government spending and borrowing and so on. But typically, in some respects, you would\u2019ve expected the exchange rate or some other adjustment mechanism to compensate for that.<\/p>\n
I remember the last time exchange rates moved was in the 1980s. That was also the last time the US ever had a trade surplus, when the dollar got a lot cheaper relative to the Japanese yen, especially at that time. That had an adjustment on trade flows as well.<\/p>\n
So now you have China running this ginormous trade surplus. Basically, what they\u2019re doing is exporting their economic problems in China to the US, and they\u2019re exporting that at the expense of jobs elsewhere. The Europeans have suddenly woken up to that. Now go to a place like Germany, where half the economy revolves around the auto industry, and they now have figured it out, and it\u2019s like, \u201cWait a minute, this is an existential crisis for us.\u201d<\/p>\n
But on those two things, the controls you would\u2019ve expected to rebalance things didn\u2019t pan out. That\u2019s why we have so much discussion about this right now and a view of this as a problem.<\/p>\n
It feels like my entire teen experience was a conversation about NAFTA, and we should open free trade in North America. Later on, I got to college, and all the economic discussion was about the EU and creating the single market in the EU: \u201cWe\u2019re going to set up these big open markets, and there\u2019s going to be free trade inside of those markets, and that will lead to a kind of economic prosperity.\u201d<\/p>\n
Fast forward to 2026, and the desire to tear a lot of that down has gone way up, right? Particularly as you look at the USMCA and Chinese goods coming to Mexico to come to the United States, nakedly circumventing the entire policy goal of imposing tariffs.<\/p>\n
The goal is to build the iPhone in the United States. The goal is to build manufacturing in the United States. I know that you have never really thought that\u2019s an achievable goal, but that is the goal. That is what the administration promised. We\u2019ve created these trade groups, trade associations, that allow that goal to be circumvented. Do you think the walls are going to keep going up, or do you think they\u2019re going to come back down?<\/p>\n
I think we\u2019re going to see more pressure to moderate our behavior a little bit because, let\u2019s face it, there are a lot of goods that we, as a country, need access to inexpensive labor. So I\u2019m actually very pro-USMCA as a successor to NAFTA because I actually think there are things that we need inexpensive labor for. Mexico is a good place to source things like that. There are things that we need from Canada.<\/p>\n
So if we were to look at North America as a trading bloc, then what you would see is the benefits of specialization, which is the whole rationale for trade in the first place. We\u2019re better at doing this, you\u2019re better at doing that; you specialize in that, we\u2019ll specialize in this. We trade; everybody is better off. If you can do that with a community of countries that understand the need for that type of balance, then everybody is better off.<\/p>\n
I think the problem with China is they\u2019re very happy to have this imbalance, where they want the world to be dependent on them, but they don\u2019t want to buy stuff from the rest of the world. When you have that, then trade doesn\u2019t really work. So I think that\u2019s the problem.<\/p>\n
I\u2019m hoping we\u2019re going to realize that we\u2019re better off among a group of like-minded countries where we can trade within that bloc. So for example, if the US were to view North American partners and European partners in Japan \u2014 and countries in Southeast Asia, Australia, New Zealand, parts of Central and South America, and even Africa \u2014 and say, \u201cOkay, let\u2019s trade across this bloc,\u201d then we\u2019d have access to most of what we need, whether it\u2019s critical minerals, low-cost labor, or a lot of technology specialties. We could do much better with that, much better than a go-it-alone strategy in my view.<\/p>\n
The first part of your book \u2014 which I highly recommend the audience read; it\u2019s a fun read \u2014 is just setting up the first principles of why we trade at all in the very concept of labor arbitrage. It seems like we\u2019re having a national policy conversation that is 500 steps removed from these basic ideas of why we would trade.<\/p>\n
It is entirely centered around: can you bring manufacturing back to America because we let all the manufacturing jobs go to Mexico and China, particularly in high tech? And we\u2019re behind. There might be some extraordinarily bad event, like a war, where it\u2019s exposed how little manufacturing capability we have in the United States.<\/p>\n
That has nothing to do with the basics of specialization in various countries around the world. It\u2019s another problem, and the blunt instrument is, \u201cBoy, it\u2019s bad that all of our drones are made in China. We\u2019re going to prevent drones from being sold here. Of course, our industry will set up drone manufacturing in the United States.\u201d I don\u2019t see that connection. Do you see that working?<\/p>\n
No. I think that\u2019s a transactional view where you look at one piece at a time as opposed to looking at the bigger picture. I think we have to start with a core principle that the US is a high-cost country. Therefore, if you want manufacturing jobs coming to the US, then you\u2019ve got to have high labor productivity.<\/p>\n
In fact, if you look at the types of jobs that are coming back to the US, they tend to use a lot of automation, a lot of sophisticated manufacturing processes, and stuff that is high-skill that can justify the high labor cost. Either that, or they are things where we have a technological lead that nobody else knows how to do in the world.<\/p>\n
I was looking at the high-temperature superalloys that are used in the hot section of jet engines. There are only three companies in the world that know how to cast those, and two of them are in the US, and one of them is in the UK. There are things like that the rest of the world has to buy from us. So if you have high labor productivity or highly differentiated products, those we can make in the US; we can make them successfully. By the way, most of them never left the country.<\/p>\n
The US, France, and the UK are major suppliers of jet engines to the entire world market. Even the Chinese buy those from the West. So if we have these things that we do better than anybody else, we should invest in those and make sure that we\u2019re always in the lead, and then everybody else will buy from us, and then you\u2019ll have some balance where you can\u2019t be held up.<\/p>\n
There\u2019s a lot of this thinking like, \u201cI wish I could turn the clock back to the 1980s or the 1970s, when manufacturing was the path to the middle class in the US.\u201d But manufacturing has changed worldwide, and for those jobs that you want to have manufacturing in the US, you\u2019ve got to have high labor productivity or the high differentiation that\u2019ll go with it.<\/p>\n
I want to stay on the iPhone for one more second. Apple just inked a new deal where they\u2019re going to source a bunch of titanium from a Pennsylvania-based company called Perryman for the iPhone 18 Pro and the new iPhone Duo. They\u2019re going to source that titanium here. They\u2019re then going to ship it to China. They\u2019re going to assemble the phone in China, and they\u2019re going to ship the phones back to us. They do that with Corning and glass as well.<\/p>\n
I\u2019ve always looked at that. Tim Cook\u2019s job, in particular, is that he\u2019s a statesman. He has to negotiate with Donald Trump and Xi Jinping about iPhone production and tariffs in these supply chains, and the iPhone holds the global economy together. If the price of the iPhone gets too high because of tariffs, maybe there\u2019s an electoral impact in the United States.<\/p>\n
How do you see products like that? Are they as load-bearing as it feels to me, or are they just examples of the larger system?<\/p>\n
I think the iPhone is a terrific example of how difficult this problem is. Because right now you have components that have high technological complexity. The iPhone uses the most advanced chips produced by Taiwan Semiconductor Manufacturing Company. By the way, most of those chips are still going to be made in Taiwan. TSMC has a fab in Arizona, but its capacity is piddly compared to what it has in Taiwan.<\/p>\n
Those chips come from one place and require the most sophisticated processing tools that come from ASML in the Netherlands, but also companies like Lam Research and Applied Materials in the US. So it\u2019s that global thing. But the key thing is iPhones also require assembly labor. They require manual assembly because we\u2019re not at the point yet where you can assemble the whole thing with a robot.<\/p>\n
There\u2019s actually a chapter in my book where I talk about what Henry Ford and the lifestyles of the Chinese Communist Party have to do with assembling iPhones. It turns out it\u2019s a lot. The lifestyles of the Chinese Communist Party have to do with how they mobilize workers in what\u2019s called the Danwei model, which was established after the Communist Revolution. It\u2019s where you have a production site, a walled city with housing for workers, a means of production, warehouses, ways to feed them, and stuff like that.<\/p>\n
If you ever go to a phone factory in China, the real question is: how do I mobilize 100,000 to 200,000 workers to do this manual assembly on a scale that an Apple needs? They\u2019re trying to do it in India. They\u2019re having some success with India, but that was really hard. Once again, it\u2019s: how do I mobilize manual labor at that level of scale?<\/p>\n
So the iPhone, as you point out, is a great example of a global product because it needs the highest level of tech, and it also needs the huge workforce to do the manual assembly.<\/p>\n
There\u2019s actually a great book called Apple in China, which I also recommend. The narrative is that the Chinese government subsidized an awful lot of manufacturing in China. They built these cities, and they built the culture that enables the labor at scale. Your example in the book, again, is LCD factories, where the Chinese government invested in overcapacity, and that drove the price of LCD manufacturing down. Basically, it\u2019s all centered in China now.<\/p>\n
The flip side of that is, boy, it\u2019s pretty obvious that they stole a bunch of American intellectual property along the way. They developed these manufacturing capabilities. They took a lot of the know-how that Apple imported into that country. They did the same with Tesla in a lot of ways. They stood up an entire electric car industry on the back of the innovation Tesla had started through manufacturing in that country. Now they have those capabilities, and they\u2019re racing ahead of our companies because we don\u2019t actually have the manufacturing know-how.<\/p>\n
Can you rebalance that? I hear this concern a lot: that you can\u2019t rebalance it. If all the manufacturing happens there, they will actually be state-of-the-art, and we will fall behind.<\/p>\n
I\u2019m not sure if \u201cstole\u201d is the best description of how they got these capabilities. I would say they learned it, and in many cases we taught it to them. Being a supplier to Apple is often referred to as a golden ticket, and people say, \u201cWell, why is it a golden ticket?\u201d Well, obviously you get cash flow from selling products to them.<\/p>\n
But the other thing is that Apple is a real taskmaster. By making you work hard to improve your products, improve your specs, meet their performance specs, and meet their cost targets, you get better. The same thing happened when Tesla set up their factory in Shanghai. The fact that they qualified local suppliers raised the game in the Chinese EV market.<\/p>\n
Another thing I think a lot of people miss about China is that there is actually this very interesting competition going on. Beijing sets policies and objectives, but then all the regional governments, the provinces, and the major cities are competing with each other. They set up this free market dynamic, and so you have this fierce competition between regions.<\/p>\n
The regions are also very smart about setting objectives. They keep raising the bar for people so the technology gets better. You have a dynamic where there\u2019s really cutthroat competition in the Chinese market, and it\u2019s about survival to make better products at lower prices. That\u2019s something that\u2019s really driving it right now.<\/p>\n
To your point about how, to the extent we\u2019ve lost the ability to make things, the Chinese have a lot of capabilities. You should walk through some Chinese factories these days. They\u2019re way ahead of the US in terms of using automation, because they\u2019re investing like crazy.<\/p>\n
I had a student I was talking to about his father\u2019s factory in Shanghai, and he said his father\u2019s answer to everything, every competitive threat, was just more CapEx: \u201cI\u2019m going to throw more capital at it. I\u2019m going to buy the latest machine.\u201d I was in one factory a couple of months ago where the equipment was two or maybe three years old, and they were ripping it out and upgrading it to the latest generation because they said, \u201cThis is how we\u2019re going to survive. We have to make the product more efficiently, and we have to make a better product.\u201d<\/p>\n
So there\u2019s this internal competition in the Chinese marketplace that is really fearsome, and it\u2019s hard for Western companies to compete there, but that is an important dynamic that\u2019s going on as well.<\/p>\n
The interesting thing about that, as I compare and contrast China with the United States, is that the system in China is understood. It\u2019s stable. You can make a lot of criticisms of that system. I think you can make an endless number of human rights criticisms of the Chinese government. It\u2019s obviously a repressive government in a lot of ways.<\/p>\n
But the economic system is understood, and it\u2019s controlled at the top in a meaningfully stable way. The goals are apparent, the investment is apparent, and there\u2019s a lot of competition to achieve those goals with that investment.<\/p>\n
There are two things about that which I think are significant. The first is that China engages in long-term planning, five-year plans. Now, when I was a kid, I used to look at China\u2019s five-year plans, and I thought, \u201cThis is a big joke,\u201d because they would make a lot of mistakes, like Mao Zedong\u2019s Great Leap Forward, and they were doing this new type of tillage in farming, and they caused this huge famine and millions of people died.<\/p>\n
But to the credit of the government there, when they do this type of long-range planning, they learn from their mistakes, and they get better. If you look at their current five-year plans and the last couple of five-year plans, they\u2019re good plans. They understand what\u2019s important, and they focus on those things that are important.<\/p>\n
Then the second point is about what kinds of people they have implementing these plans. I was in one of these third-tier cities some number of years ago, and I was having dinner with the economic development commission there. At the beginning of dinner, I said, \u201cHey guys, just for fun, let\u2019s go around the table and talk about what you studied in school.\u201d It was mechanical engineering, industrial engineering, electrical engineering, metallurgy, metallurgy, mechanical engineering. You go to Washington and ask what people studied in school, and it\u2019s political science, economics, and government.<\/p>\n
So you have these technocrats competing in technology-intensive businesses and having that understanding. By the way, that\u2019s one of the reasons I wrote this book: I was serving on these committees appointed by the Commerce Secretary on supply chains, and I realized we have civil servants who don\u2019t have the exposure to supply chains and how stuff is actually made.<\/p>\n
China had this plan that was called the 863 plan. The 863 plan was when four scholars went to the government in Beijing in March of 1986 \u2014 that\u2019s why it\u2019s called \u201c863\u201d; it was \u201886, March. I remember the first time I looked at the 863 plan, and it was, \u201cIf we want to be a modern economy, we have to be good at these things.\u201d<\/p>\n
I looked at that plan in the 1990s, and I said, \u201cThis is a good plan.\u201d And they\u2019ve executed every one of those things. They said, \u201cWe need to be good at all these things, like information technology, biotechnology.\u201d In semiconductors, they still have a way to go, but they identified civil aircraft. But they identified all these different technologies like communications technology, software, and robotics.<\/p>\n
I would contrast that with the Trump administration here in Trump\u2019s second term, where\u2026 We already talked about Liberation Day. Howard Lutnick is on television saying, \u201cWe\u2019re going to move manufacturing back to the United States. This is the goal of the tariffs.\u201d<\/p>\n
Three weeks later, there are 900 lawsuits about the tariffs, and Howard Lutnick is back on TV saying, \u201cRobots will do all the manufacturing now. This is the goal. We\u2019re going to do heavy automation.\u201d And then the tariffs get struck down, and they find a new law for different tariffs.<\/p>\n
It does not seem like the same long-term planning that can be stuck to, or the same environment where businesses understand the stability of the trading system such that they can compete ferociously. Every CEO who does manufacturing and comes on the show usually ends up talking to me about how they scrambled to buy RAM at affordable prices to make their products, which has to keep them from doing anything else.<\/p>\n
How would you contrast that? Can we get out of this moment where it\u2019s a pure scramble, or is this fully shaking everything up?<\/p>\n
We\u2019re in a very transactional environment. Everything is short-term, and these rapid changes that you see in the tariffs\u2026 If you look at a map of 2025 and 2026 and put a dot everywhere there was some tariff action, it looks like a shotgun hit the wall. There are all these spots all over the place.<\/p>\n
The problem with that is when you have that type of instability, it\u2019s very hard for a company to make any long-term plans. Before I build a factory, I want to know that I\u2019m going to have stable demand for a couple of years, at least until I have a chance of earning a return on that thing. I\u2019ve talked to a couple of companies about this. These were overseas companies thinking about coming into the US market, and they said, \u201cWell, I can\u2019t do it because things keep changing. Do I go to Mexico? Do I go to the US? What part of the US do I go into?\u201d<\/p>\n
Especially with things like semiconductor fabs, you need to know that you\u2019re going to be able to get 10 to 20 years out of it. When things change every couple of weeks, what that does instead is say, \u201cI\u2019m just going to hold off on an investment because it\u2019s just too uncertain. It changes too often.\u201d<\/p>\n
Are you seeing that slow down in investment? Are you seeing companies say, \u201cWe can\u2019t actually invest in manufacturing in the United States\u201d?<\/p>\n
It varies. I see that with a lot of companies asking, \u201cWhere do I want to put my production operations?\u201d Okay, now we see some things like car plants coming into the US, and usually that\u2019s a function of the pain being too great.<\/p>\n
But the whole auto tariff thing is also a little bit crazy. If you look historically at production strategies in the auto industry, typically when you build a plant, you size it to build about 200,000 to 250,000 units of a model or a model family, because that\u2019s like the efficient scale for an auto plant.<\/p>\n
Then what you have is a company like BMW that says, \u201cGreat, I\u2019m going to build all my X Series SUVs in South Carolina. I\u2019ll build the 3 Series somewhere else. I\u2019ll build the 5 Series somewhere else, and I\u2019ll build the 7 Series somewhere else. And then what I\u2019ll do is exchange them.\u201d<\/p>\n
So BMW in South Carolina or Mercedes in Alabama, they build certain models in the US, export them to the rest of the world, and then import other models so that you have the whole product line. Toyota does that. For example, they build more Camrys in the US than anywhere else, and they were exporting some of those as well.<\/p>\n
But then when you start putting tariffs on imports, that screws up that whole strategy. Again, it\u2019s a decision that was made without understanding how the automakers had laid out that strategy.. You need to understand how the supply chain is structured and why it\u2019s structured the way it is, and then you can be more thoughtful..<\/p>\n
Do you see tariffs as mostly protectionist? I was in France earlier this year, and I took an Uber, and I think it was a BYD Seal, a Chinese EV. I asked the French Uber driver, \u201cHow do you like this car?\u201d He was very French, and he literally did the thing. He goes, \u201cPeugeot is shit.\u201d I almost started clapping because it was amazing. He\u2019s like, \u201cIf the French government would just allow the Chinese government to sell these cars here, these companies would all be dead.\u201d<\/p>\n
In the United States, I think Jim Farley, the CEO of Ford, is running around saying the Chinese EVs are superior to American products. It\u2019s the tariffs that protect our markets and protect our manufacturers, because you could import the cars, but you\u2019d pay such high tariffs that they\u2019re economically infeasible.<\/p>\n
That\u2019s just pure protectionism. That goes against what you\u2019re saying, which is that you need to protect your industry until their products are good enough to compete on the global scale. But we\u2019re not doing that with our carmakers. We\u2019re just protecting them.<\/p>\n
Yeah, and there\u2019s a cost associated with that. So, for example, one of the famous tariffs is a so-called chicken tax. I talk about this in the book as well. The chicken tax resulted from this trade spat where we put tariffs on imported light trucks.<\/p>\n
SUVs are built on that platform. It\u2019s one of the reasons the Detroit automakers have focused on SUVs and light trucks. That\u2019s their profit center because there\u2019ve been tariffs on that, and it\u2019s only happened in the last decade or so that Toyota and Nissan and others have made more light trucks in the US and Mexico. So that\u2019s one of the results of that type of tariff distortion.<\/p>\n
Wait. But that\u2019s a policy victory, right? Toyota, Nissan, and all the other foreign manufacturers are going to make trucks in the United States. You\u2019ve gotten some economic benefit; they can compete, and maybe all the trucks are going to get better.<\/p>\n
You get some economic benefit, but one of the reasons the Detroit guys still make so many trucks and SUVs on those platforms is because they\u2019re more profitable, which says the price is higher than it might otherwise have been. But I do see the benefit of that.<\/p>\n
Although I have to say, I was walking around the Toyota factory in Georgetown, Kentucky. I\u2019m walking around with the plant manager, and I said, \u201cYou\u2019re making sedans here?\u201d He said, \u201cYep,\u201d and a lot of the Detroit guys have given up making sedans because they can\u2019t make any money. I said, \u201cAnd you\u2019re using parts that mostly come from Kentucky, Ohio, Indiana, Alabama, Mississippi, and Texas, and some from Mexico and Japan, but mostly domestic content.\u201d He\u2019s like, \u201cYep.\u201d I said, \u201cAnd you\u2019re using American workers.\u201d He said, \u201cYep.\u201d I said, \u201cYou\u2019re using American-made steel.\u201d<\/p>\n
I\u2019m trying to get out of him that, okay, look, I know American steel costs a lot more than imported steel because I\u2019ve been in other factories that are still importing steel despite the steel tariffs because they say it\u2019s still cheaper in Asia. But I said, \u201cYou\u2019re using American-made steel.\u201d So I\u2019m trying to get that out of him: how much he\u2019s paying for steel.<\/p>\n
Obviously, he\u2019s not going to tell me, but he does say, \u201cWe have a strategic long-term relationship with our supplier.\u201d That tells you a lot, which is that there are ways you can do these things. You have to work with your suppliers. You have to give them longer-term arrangements, be less transactional, more strategic on things like that. So I think you can do it, but it really takes a comprehensive and more thoughtful approach.<\/p>\n
I understand the rationale for putting tariffs on foreign goods that undercut our markets. You\u2019re just going to increase the cost, and then maybe the consumer will buy the domestic product, and that\u2019s better for our economy. It just hasn\u2019t seemed to have worked.<\/p>\n
I don\u2019t see Liberation Day as having done anything except generally raise prices on everything. We haven\u2019t actually remapped the global economy. And a lot of what you\u2019re describing is, well, the system is pretty resilient. The system was pretty resilient to COVID. The system was pretty resilient to an oil tanker getting stuck in the Suez Canal. The system has been pretty resilient to the war in Iran. The system has been pretty resilient to absolutely chaotic tariffs.<\/p>\n
Maybe some prices have risen, and I\u2019m sure we\u2019re going to get listeners pointing out that all the prices have risen. It feels like the only thing the system isn\u2019t resilient to is the AI industry wanting every scrap of RAM that the whole world can produce. And so now there\u2019s not going to be inexpensive cell phones.<\/p>\n
What will push the system over the breaking point? Because globalization has seemed generally resilient to a bunch of people who want it to be over.<\/p>\n
I think what you\u2019re highlighting is that it\u2019s really the power of the market. In the case of closing the Strait of Hormuz, Brent North Sea crude prices didn\u2019t go to $150 a barrel like I was afraid they would, and a lot of people were afraid they would because the market adjusted.<\/p>\n
We applied a lot of tariffs on Liberation Day. The first response was circumvention or front-running. The next response was tariff engineering. The next response is like, \u201cOkay, let me move production to Vietnam or let me move production to Mexico, and I\u2019ll find a way around that.\u201d Now, eventually, when you close down all those things, then prices eventually have to rise.<\/p>\n
In the case of memory chips, that\u2019s a different problem because the demand far outstripped the capacity. I used to always buy memory cards on Black Friday. Forget that this year.<\/p>\n
Yeah, it\u2019s all over.<\/p>\n
I\u2019m just glad I stocked up on a previous Black Friday.<\/p>\n
If you want to know my prediction for when the AI industry will meet its true political end, it\u2019s when Grand Theft Auto VI comes out. Everyone goes out to buy a PS5, and they realize it\u2019s more expensive now at the end of its life cycle than it was at the beginning because the price of memory has skyrocketed.<\/p>\n
Yeah, no kidding. We\u2019re talking about huge amounts. But that\u2019s the same thing. We\u2019re in a phase where we see all these tactical actions taken by the government, very transactional, without necessarily understanding all the complex interconnections and interdependencies.<\/p>\n
You may have noticed, for example, that the administration temporarily suspended the Jones Act. I don\u2019t know if you remember that. Why did they temporarily suspend the Jones Act? Because oil refineries on the East Coast of the US couldn\u2019t get their oil from Texas cheaply because there were no domestic supertankers.<\/p>\n
The Jones Act requires that if you move stuff from Texas to New Jersey, you have to have a US-owned, US-crewed, US-built, very large crude carrier. There aren\u2019t any because we don\u2019t build those in the US. So that\u2019s why it\u2019s cheaper to bring oil from Algeria to New Jersey than it is to bring it from Texas. And that\u2019s why they suspended the Jones Act for a while. At least they understood that.<\/p>\n
I know at least some of our audience is going to be listening to this conversation, and you\u2019re steeped in global trade. You wrote a book to educate our government about how it works from the basics, which I think is sorely needed.<\/p>\n
But a lot of the promise for young people in our politics lately is that we will rebuild American capacity. We will rebuild manufacturing capacity. We will bring back a bunch of jobs where you don\u2019t need an advanced degree in AI prompt engineering or whatever to see the future. We will bring back the dignity of work.<\/p>\n
Politicians on both sides are making these promises all the time, and a lot of that requires closing down trade, forcing that economic activity back within our borders. It just seems like that isn\u2019t likely. So I\u2019m not going to ask you whether or not that is totally likely. I\u2019m going to ask: what\u2019s more likely instead?<\/p>\n
Well, I think what\u2019s more likely is that we will see efforts as you describe. I would love to sit down with people and say, okay, we want to move this type of production back to the US. Let\u2019s take a more strategic, more nuanced approach, understanding the bigger picture, considering what levers are available.<\/p>\n
The US is still a big, attractive market. It is the largest market in the world. It is the most attractive market in the world. That\u2019s, by the way, why the Chinese all want to come here: because they can make some money here that they can\u2019t make elsewhere. So then how do we harness that market power and that market pull with a more nuanced understanding of why our supply chains are organized the way they are today? Recognizing that, can I build a strategy to bring important things that are very strategic for the US to know how to do?<\/p>\n
Let\u2019s think about how we fix this problem with an understanding of that bigger picture.<\/p>\n
Willy, it\u2019s been great to talk to you. It is always just a pleasure. We have to have you back faster than five years. Thank you so much for being on Decoder.<\/p>\n
Thanks for having me.<\/p>\n
Questions or comments? Hit us up at decoder@theverge.com. We really do read every email!<\/p>\n","protected":false},"excerpt":{"rendered":"
Today, I\u2019m talking with Willy Shih, an economist, a professor of management practice at Harvard Business School, and the author of the upcoming book, Where Does My Stuff Come From? The Powerful Economics Behind Global\u2026<\/p>\n","protected":false},"author":1,"featured_media":34185,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-34184","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts\/34184","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/comments?post=34184"}],"version-history":[{"count":0,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts\/34184\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/media\/34185"}],"wp:attachment":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/media?parent=34184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/categories?post=34184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/tags?post=34184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}