Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you. World begins unprecedented third attempt on
Speaker 1: that wise crack on Twitter as the clock struck midnight
Speaker 1: on New Year's Eve captured the global mood rather well.
Speaker 1: I thought. We're stepping nervously into January, wondering whether this
Speaker 1: might be the year things finally get back to normal,
Speaker 1: trying to ignore the fact that nearly everyone we know
Speaker 1: either just recovered from COVID or recently had a positive test.
Speaker 1: Also that many of us in the US and Europe
Speaker 1: are once again working from home. So the first question
Speaker 1: on our agenda must be how is the latest wave
Speaker 1: of omicron infection affecting the global economy so far? And
Speaker 1: especially what's happening to that great snarl up in global
Speaker 1: supply chains that so dominated this podcast. In one we
Speaker 1: have the absolute latest on that in a minute from
Speaker 1: our supply chains are Brendon Murray. But even if COVID
Speaker 1: starts to fade from view, we know the pandemic will
Speaker 1: probably change some parts of the global economy for good,
Speaker 1: including maybe Mexico, which looks a lot more attractive to
Speaker 1: global manufacturers now than it did before COVID. Thomas Black
Speaker 1: has a report from sea quares just south of the
Speaker 1: US border. Later on, we also have the sad tale
Speaker 1: of fishermen and divers on the island of Iki off
Speaker 1: the coast of Nagasaki, whose way of life is already
Speaker 1: threatened by climate change, but may now also be hard
Speaker 1: hit by the Japanese government's efforts to cut the country's
Speaker 1: reliance on fossil fuels. I swim here every day, but
Speaker 1: the sea is dead now. At the bottom of the sea,
Speaker 1: it really feels like, definitely set. They are only optimates
Speaker 1: in there. Not our usual fare perhaps, but a parable
Speaker 1: of our times. That story coming up later from our
Speaker 1: japan economy reporter Yoshiaki Nohara, But first let's have that
Speaker 1: update from our supply chain group Brendan Murray. This omicron
Speaker 1: spread so dramatically in the last few weeks of twenty one,
Speaker 1: I guess many of us felt we might be coming
Speaker 1: back from our Christmas holidays and find the world ground
Speaker 1: to a halt. Again. It's early days, but what is
Speaker 1: the early evidence on the impact that the omicron wave
Speaker 1: is having. Well, the early evidence is showing that the
Speaker 1: global economy and supply chains in particular, are sort of
Speaker 1: withstanding the initial outbreaks, whether they be in France or
Speaker 1: the UK or the US. Uh. You know, a lot
Speaker 1: of companies have built in resilience plans to deal with
Speaker 1: workers as they as they call in sick. But still
Speaker 1: there are a number of of of hotspots where all
Speaker 1: of these cases are are affecting the ability of companies
Speaker 1: to to to have enough workers to move goods through
Speaker 1: the pipeline that they need to move through. So we
Speaker 1: were seeing some signs that uh, you know, supply chains
Speaker 1: were starting to repair themselves towards the end of the
Speaker 1: year after a very disruptive year. But then Omicron you know, came,
Speaker 1: you know with a vengeance in December and kind of
Speaker 1: slowed whatever progress we were seeing. So we're entering two
Speaker 1: with you know, even more question marks about the health
Speaker 1: of the global trade and whether goods can continue to
Speaker 1: move as as well as they have or as poorly
Speaker 1: as they have in a lot of cases for the
Speaker 1: past two years. And I guess that the latest news
Speaker 1: has been that that even a very small number of
Speaker 1: cases in China is causing them to have quite dramatic shutdowns.
Speaker 1: Um in a number of places. UM, we we know,
Speaker 1: even if we're going to hear later that some businesses
Speaker 1: are trying to just to change that, but currently they
Speaker 1: there is a lot of reliance on Chinese production, and
Speaker 1: you've got complete shutdowns in at least a couple of
Speaker 1: big cities talk of of barshor in towns like Sheene
Speaker 1: where their local supply chains are breaking down. If that
Speaker 1: is the story for for several weeks, if China starts
Speaker 1: having even the more national lockdown, I mean, that's surely
Speaker 1: gonna slow down this improvement in the state of supply
Speaker 1: chains exactly. This is the real wild card this year,
Speaker 1: especially in coastal towns where where ports are big employers
Speaker 1: and you know, important for the movement of goods you know,
Speaker 1: into China and out of China. There are you know,
Speaker 1: several hundred ships, you know, currently waiting outside of Ningbo,
Speaker 1: you know, one of the world's busiest ports, and the
Speaker 1: truck are slow to come and go from this port,
Speaker 1: and that just backs the whole system up those trying
Speaker 1: to get in to offload and then to reload and
Speaker 1: to come back to the States or to Europe. So
Speaker 1: that is really the big question, is the supply chains
Speaker 1: are really at the mercy of the virus, and especially China,
Speaker 1: which you know kind of is the gateway to much
Speaker 1: of the world's consumer goods and raw materials for that matter.
Speaker 1: So those shut downs to the zero tolerance policy in
Speaker 1: China for for COVID cases is really going to be
Speaker 1: the thing to watch as to whether supply chains can
Speaker 1: you know, kind of rebound or or stay as as
Speaker 1: nodded and tangled as they are. We tend to think
Speaker 1: of the impact of OMCORN as being about hospitalizations and
Speaker 1: is it you know, that the public health consequences, which
Speaker 1: obviously could be significant if enough people get COVID, particularly
Speaker 1: people who are not vaccinated. But what you're speaking to
Speaker 1: is this the sort of economic impact which comes not
Speaker 1: so much from people in hospital but just people being
Speaker 1: at home. And I can say in the UK we're
Speaker 1: probably in the sort of front line of this at
Speaker 1: the moment, having been the first developed economy to see
Speaker 1: a big spike in in infections. The worst case scenarios
Speaker 1: that the government's working with is that of the workforce
Speaker 1: might be at home in a few weeks, in the
Speaker 1: next couple of weeks, which, obviously, if that happens, you've
Speaker 1: got some pretty important workers who are not on the
Speaker 1: border controls, or not in the supermarkets, or not in hospitals.
Speaker 1: So it's going to be very interesting to see how
Speaker 1: that plays out. But you do get the sense Brendon
Speaker 1: that whatever happens, we're going to know quite quickly, because
Speaker 1: it really is spreading so fast through the economy. If
Speaker 1: you look past the next couple of months, um, what
Speaker 1: are the sort of structural elements of the supply chain story,
Speaker 1: um that might start to fall into place over the
Speaker 1: next year. You know, people talk, for example about just
Speaker 1: they're ramping up of production of container ships and that
Speaker 1: potentially having an impact. How do you see those kind
Speaker 1: of more medium term forces playing out. Once we get
Speaker 1: through this wave, we should start to see the benefits
Speaker 1: of that diversification strategy that began a few years ago.
Speaker 1: Actually even before the pandemic. During the U. S. China
Speaker 1: Trade war, it dawned on people that protectionism was was
Speaker 1: it was, it was a coming trend, and that tariffs
Speaker 1: could go up at any point, and so you needed
Speaker 1: to be geographically diverse. That it's not sustainable for them
Speaker 1: to be sourcing only from you know, a country like China,
Speaker 1: And they quickly developed different suppliers in Vietnam, Malaysia, places
Speaker 1: like Mexico, Turkey, Morocco. So later this year, perhaps maybe
Speaker 1: even next year, we should start to see the ability
Speaker 1: of companies to to get what they need when they
Speaker 1: need it, as opposed to as opposed to all these
Speaker 1: delays that we're seeing now. Some of those some of
Speaker 1: those structural elements take a lot more time. Building of
Speaker 1: chip factories and you know, that take you know, tens
Speaker 1: of billions of dollars and decade or more. Uh, you know,
Speaker 1: those kinds of things will take longer to come online.
Speaker 1: But the diversification that the pandemic sort of unleashed, we
Speaker 1: should start to see some of that. The capacity on
Speaker 1: the transportation side, new ships, uh, you know, newport capacity,
Speaker 1: cranes and and other you know, trucking and and these
Speaker 1: kinds of things, the infrastructure spending, those are those should
Speaker 1: be medium term things that we we see fairly soon.
Speaker 1: Three is what a lot of the experts say will
Speaker 1: be the earliest that will see any new container ships
Speaker 1: come into operations. So we're looking at, you know, at
Speaker 1: least six months to twelve months before we we see
Speaker 1: any real relief on the structural sides. Of things well
Speaker 1: bred and Murray. Thank you very much, and I'm especially
Speaker 1: thankful because you've given me a great link into our
Speaker 1: next item, because, as Brendan was saying that the pandemic
Speaker 1: is going to leave a mark on global supply chains
Speaker 1: and also the trade boards, it's not so long ago
Speaker 1: that we were talking about trade boards. Used to be
Speaker 1: that that cheap labor was all you really needed to
Speaker 1: attract global manufacturing firms and become part of their intricate
Speaker 1: supply chains, but not anymore. The pandemic has made businesses
Speaker 1: wary of basing key parts of their production process on
Speaker 1: the other side of the world, especially China, and for
Speaker 1: those based in the US the last year, they've also
Speaker 1: found it a lot more challenging to find any workers
Speaker 1: at all at any price. So all of that, it
Speaker 1: turns out, has been rather good news for a country
Speaker 1: teaming with willing workers that also happens to share a
Speaker 1: two thousand mile border with the US are Dallas based
Speaker 1: manufact Cacturing reporter Thomas Black went south of the border
Speaker 1: for a closer look. We have very big plans for Mexico.
Speaker 1: In Mexico is very very important market for ours. That's
Speaker 1: Isaac Larion, the founder and CEO of mg A Entertainment,
Speaker 1: Los Angeles based toymaker. You've probably seen or even bought
Speaker 1: some of the toys made by m g A, from
Speaker 1: dolls like Brats to the iconic Little Tykes cozy coupe.
Speaker 1: That's the bubble shaped plastic car that toddlers can climb
Speaker 1: in empower with their own feet. So what do toys
Speaker 1: have to do with Mexico. Well, mg A now makes
Speaker 1: that Little Tykes toy car. And see that what is
Speaker 1: a dust swept border city just across the Rio Grand
Speaker 1: from El Paso, Texas. The company's set up the factory
Speaker 1: only a few miles from the US border and in
Speaker 1: just nine months, beginning operations in November. And those big
Speaker 1: plans for Mexico that Larry and just spoke about, they're
Speaker 1: part of a strategy to shorten mg a's supply chain.
Speaker 1: Last year was a wake up call for m A.
Speaker 1: The company makes most of its toys in China and
Speaker 1: also has a large US plant in Hudson, Ohio, but
Speaker 1: both proved problematic. While the Chinese factories performed, mg A
Speaker 1: ended up with seven hundred and fifty shipping containers filled
Speaker 1: with millions of dollars of toys stuck outside the port
Speaker 1: of Los Angeles and completely missing the holiday shopping season.
Speaker 1: Adding insult to injury, the expense for sending those containers
Speaker 1: from China to the U S had skyrocketed from three thousand,
Speaker 1: two hundred dollars a container to an astonishing sixteen thousand dollars.
Speaker 1: But back in the US, the company couldn't crank up
Speaker 1: production at its Ohio plant because it couldn't find enough workers.
Speaker 1: To hire American workers if they are even available. I
Speaker 1: don't want to work in factories or forms. So we
Speaker 1: are moving across the borders into Mexico. We just opened
Speaker 1: up our first factory in Uarez, Mexico, and we did
Speaker 1: it in the record time. M g A isn't alone
Speaker 1: in increasing production in Mexico, and it's a trend that
Speaker 1: is only getting started. According to Jason Tolliver from real
Speaker 1: estate firm Cushman and Wakefield, the whole idea about sourcing
Speaker 1: was in the global connectivity, was to drive down production costs.
Speaker 1: A couple of things that made that more expensive. First,
Speaker 1: just to supply the Chaine disruption. So whether it's a
Speaker 1: pandemic or whether it's everything related to sustainability and and
Speaker 1: and natural disasters or anythinks of the cost transportation costs
Speaker 1: a kind of or less reliable. But labors also got up.
Speaker 1: And how companies looking at these problems of higher labor
Speaker 1: costs in China and the risks of sending their goods
Speaker 1: across the Pacific Ocean to the US. We see production
Speaker 1: companies saying, Okay, I've got three options. I can move
Speaker 1: to other areas in Southeast Asia, Vietnam, Me and mar
Speaker 1: perhaps India, but I don't have as reliable energy, I
Speaker 1: don't have as good of infrastructure that I don't have
Speaker 1: that it's harder to transport. I can move further inland
Speaker 1: into western China, or labor costs are a little bit
Speaker 1: lower and I can take advantage of, you know, the
Speaker 1: infrastructure that they have, but I still have all my
Speaker 1: exit one basket. Or I can become more regional shortness
Speaker 1: supply chain, come back to the America's manufacturer in Mexico
Speaker 1: at lower wage rate, and then push into the US.
Speaker 1: And that's really what's drawing people back. Mexico didn't become
Speaker 1: a magnet for foreign factories by accident. The country started
Speaker 1: pushing for manufacturing investment back in the late nineties six
Speaker 1: teas with a program designed to entice factories to Mexico's
Speaker 1: northern border, where the unemployment rate sword and poverty was crushing.
Speaker 1: There are now almost six thousand, five hundred of the
Speaker 1: so called Miki Ladora factories throughout Mexico that employed more
Speaker 1: than three million workers. Since the pandemic, even more plants
Speaker 1: are popping up, particularly in what Is. Excavators and bulldozers
Speaker 1: swarmed the city, carving out foundations for industrial plants from
Speaker 1: the sandy soil of the vast Chihuahuan desert. This one
Speaker 1: right here, this is a new built to suit for
Speaker 1: Warner Ladder. To your left, it's about four or fifty
Speaker 1: thousands for feet and they already half presents here, but
Speaker 1: they're bringing in lines from the USA UM and then
Speaker 1: here to your ride. This is our newest development that
Speaker 1: we're developing for buildings a total about seven hundred thousands
Speaker 1: were feet. That's Jesse Melendus. He's the director of real
Speaker 1: estate and new business development for Intermax, a Mexican company
Speaker 1: that was a pioneer for providing industrial space for foreign
Speaker 1: companies along the border. He's driving through what is showing
Speaker 1: off the construction boom that has taken hold here. Industrial
Speaker 1: real estate is tight in this city of space has
Speaker 1: been leased, and price per score foot has jumped more
Speaker 1: than twenty percent from a year earlier. But a lot
Speaker 1: will depend on how the economy performs in the US
Speaker 1: or Mexico sells about eight percent of its exports. We're
Speaker 1: seeing more US companies that are Indesia coming to Mexico
Speaker 1: and not the US, So instead of saying re shoring US,
Speaker 1: it's more like reshoring North America. One of the Mexican
Speaker 1: factory workers helping to make this possible is Fraying Gonzalez.
Speaker 1: The forty nine year old earns one thousand, eight hundred
Speaker 1: paces a week, or about ninety dollars plus benefits. Had
Speaker 1: a plant recently built by the unit of China's Kiss
Speaker 1: and Technology that makes suggestible beds. Like many workers in
Speaker 1: what is, Gonzales migrated north from southern Mexico, where jobs
Speaker 1: are scarce and pay is even lower. I've been here
Speaker 1: in Ware's for two years. Over there in Vera Cruz,
Speaker 1: there's no work for Mexico. This could be the start
Speaker 1: of a prolonged period of foreign investment from companies seeking
Speaker 1: to shortened supply lines, reduce risk and keep costs in check.
Speaker 1: Plant manager Menicio Garcia is convinced that this is Mexico's
Speaker 1: manufacturing moment. Do you think there's going to be more
Speaker 1: manufacturing coming that was done in China coming to and
Speaker 1: see what our quid is Mexico. I'm Thomas Black. Now,
Speaker 1: whatever impact the pandemic might ultimately have on our world,
Speaker 1: it's not going to come close to the global consequences
Speaker 1: of climate change. Will surely see more extreme weather events
Speaker 1: in the coming twelve months and government actions to reduce
Speaker 1: our reliance on fossil fuels that could affect us all.
Speaker 1: And the message from the scientists is this stuff is complicated.
Speaker 1: The forces we've unleashed are going to interact in unpredictable ways,
Speaker 1: even if we do all the right things from now
Speaker 1: on a big if we have a story now that
Speaker 1: teaches that lesson in a particularly powerful way. From a
Speaker 1: corner of Japan you've probably never heard of. Here's Yoshiaki Nohara.
Speaker 1: It's before dawn at the Japanese fish market. I'm on
Speaker 1: a remote island called iky off the Nagasaki coastline. In
Speaker 1: a matter of seconds. Bias snap up. Japanese butterfish, yellowtail,
Speaker 1: and red snapper all needs to replaced in cases of ice.
Speaker 1: I'm overwhelmed by the vigor and speed of the auction,
Speaker 1: But every fisherman I speak to says this is nothing
Speaker 1: compared to their heyday years ago. They all signed the
Speaker 1: same corporate behind their decline higher water temperatures due to
Speaker 1: global warming. They've all been coping with the effects of
Speaker 1: rising temperatures for years, long before Ikey became the fastest
Speaker 1: city in Japan to declare a climate emergency in two
Speaker 1: thousand nineteen. You have knows the fisher we used to
Speaker 1: find around here have been moving up north. We are
Speaker 1: getting fewer and fewer of them. They don't stay here
Speaker 1: for long anymore. Water temperatures have risen by about one
Speaker 1: degree celsius compared with the old days. That was Terataka Okubo,
Speaker 1: head of the Katsmoto Fishery Cooperative. He's seventy five and
Speaker 1: has seen the wax and wane of the local issery.
Speaker 1: Most boys he grew up with skipped to high school
Speaker 1: to become fishermen, but now many leave the island in
Speaker 1: search of college and jobs. The city has now about
Speaker 1: twenty people, just half of its population. In climate change
Speaker 1: isn't just twomorrow's problem here in Ikey. All generations living
Speaker 1: on the island see a needful action, but hard The
Speaker 1: reality is that in isolation, their efforts to transform the
Speaker 1: island's energy supplies to renewables won't stop temperatures from rising.
Speaker 1: Neither way they provide enough jobs to stop the exodus
Speaker 1: from the island. Generating windpower could also end up being
Speaker 1: more destructive for Ikey's fishing industry. Three small boats returned
Speaker 1: after the sun rises and all the best fish have
Speaker 1: been sold at market. Fishermen casually offload that catches on
Speaker 1: the concrete. They don't care whether the fish are dead
Speaker 1: or alive. They cought not because they're variable, but because
Speaker 1: they eat so much seaweed. They're disrupting the food chain
Speaker 1: in the local waters. One fish code is zumi. A
Speaker 1: striped brushy fish is particularly bad and arrived in drops
Speaker 1: from more tropical waters. The seaweed is all gone. That's
Speaker 1: a roted me to the fact that something is critically wrong.
Speaker 1: Fish used to leave their eggs on the seaweed. All
Speaker 1: of that is over. There are no sporting grounds here anymore.
Speaker 1: I approached Shinozaki, who wears a straw hat and he's
Speaker 1: chatting with his friends. Shinozuki is a fifty three year
Speaker 1: old local diver. His catch of auchens and abaloni has
Speaker 1: dwindled as the seaweed has disappeared. His days of harvesting
Speaker 1: seventy abaloni in one day a long gone. In the
Speaker 1: sixth month ending in September two thousan one, he didn't
Speaker 1: manage to find even ten abaloni. Shinozaki tells me how
Speaker 1: he can barely sustain his lifestyle anymore. Last winter, he
Speaker 1: took a construction job in the Tokyo suburbs just to
Speaker 1: make and smat The water is complete, really different. Now.
Speaker 1: I can't tell if I'll be able to continue what
Speaker 1: I'm doing for much longer, and I can't tell my
Speaker 1: children to follow in my footsteps. My Shinozaki and others
Speaker 1: let me hop on one of their boats and off
Speaker 1: we go. The water is emerald green. I see rocks
Speaker 1: at the bottom, clearly the scenes of pure beauty for tourists,
Speaker 1: I'm sure, but not for people like Shinzuki, who remember
Speaker 1: the water that used to be home to dark for
Speaker 1: a sub seaweed. The city of Ikey has been developing
Speaker 1: land based wind and solar power projects to prevent temperatures
Speaker 1: from rising higher. It's now aiming for offshore wind farms
Speaker 1: to make its power generation one renewable by two fifty,
Speaker 1: up from the current thirteen percent. That's in line with
Speaker 1: the Japan's target to go carbon neutral by two fifty.
Speaker 1: The nation is aiming to boost renewable energy like wind, solar,
Speaker 1: and hydrogen to cut its reliance on fastil viewers. Ikey
Speaker 1: and other rural towns have abandoned space and natural resources
Speaker 1: to power that transition. Ikey's mayor, Hirokazu Shirokawa fully supports
Speaker 1: the government's willingness to take on climate change. God the
Speaker 1: people may say, what's the point of this small island
Speaker 1: declaring a climate emergency, But that's helped us to raise
Speaker 1: awareness about this issue. We've got to take action otherwise
Speaker 1: nothing is going to change. Still, such a dramatic transformation
Speaker 1: will have a cost for local fishermen, Shirakawa says, they
Speaker 1: won't be able to carry on in the same way
Speaker 1: radio waves in sound from wind turbine blades will impact
Speaker 1: our fishing. I think we need the power company to
Speaker 1: guarantee some kind of compensation for our fishermen. Okubo, the
Speaker 1: head of the local fishery cooperative, so the offshore wind
Speaker 1: farm will impact of fishing grounds, even though he's not
Speaker 1: sure what the impact will be, but sticking with the
Speaker 1: status quo will only guarantee ongoing decline for fishermen. Understand,
Speaker 1: it's untried the territory for us. We don't know what's
Speaker 1: going to happen until we go with it. It's hell
Speaker 1: for us if we do it, and it's hell for
Speaker 1: us if we don't. If we just sit tight, things
Speaker 1: will keep going downhill and the proparation degline isn't going
Speaker 1: to stop. Okubo's predicament speaks to the price that rural
Speaker 1: communities will have to pay, even if we manage to
Speaker 1: meet global emissions targets. Both in Japan and abroad, Locals
Speaker 1: like Hisaa Takeo are fearful of what's the transition to
Speaker 1: renew Boenecy will mean for Ikey and its fishing industry.
Speaker 1: I'm against it. Abalone and other sea creatures are very sensitive,
Speaker 1: and things like wind turbines go in the water, they
Speaker 1: will disappear. So are you not. Takeo is one of
Speaker 1: the area's famous female diverse who've been catching abalone and
Speaker 1: other sea creatures for generations. Turbines only the latest threats
Speaker 1: to marine life She's witnessed in more than fifty years
Speaker 1: of diving. Tidal currents have moved, typhoons have become worse,
Speaker 1: and without the buff of the seaweed, waves have become stronger.
Speaker 1: Warmer waters have meant she can stay in the water longer,
Speaker 1: but there's less to catch. I swim her every day,
Speaker 1: but the sea is dead now. At the bottom of
Speaker 1: the sea, it really feels like death. Want on it?
Speaker 1: She in Aptimus And for Bloomberg News, I'm Yo shaky Nohara. Sorry,
Speaker 1: not a happy ending this week for Stephanomics. We'll try
Speaker 1: to do better next time. But for good and bad
Speaker 1: news about the global economy. Do follow at Economics on
Speaker 1: Twitter and rate this podcast, especially if you like it.
Speaker 1: This episode was produced by the Magnis Hendrickson and Yoshi's
Speaker 1: story from Japan was edited by Paul Jackson. Special thanks
Speaker 1: also to Chester Dawson, Yoshito Kubo, to Yoshi in Ajima,
Speaker 1: Takaki Iwabu Go or mitsu Yuko Takeo and Lucy Meekin.
Speaker 1: Mike Sasso is executive producer of Stephanomics, and the head
Speaker 1: of Bloomberg Podcast is Francesco Levy.