 Let's talk a little bit about supply chains. What are the things that have made state of living in the United States and in the rest of the world for that matter? As high as it has become over the last, I'd say 40 years, one of the things that has allowed for economic growth to continue in spite of the ever-growing regulatory state, in spite of the fact that taxes are higher and higher more and more manipulative, in spite of the fact that our educational system is horrific, and I think educational system all over the world are not particularly inspiring. In spite of all that, the economy's grown. Quality of life, standard of living has gone up. People are living better lives. I think life today is much better than it has been in the past. Life has been getting systematically better decade by decade by decade, in spite of people from the right and the left denying it. I think the reason for that has been, you know, you could call globalization and a real revolution in the thinking about supply chains, the shift to just in time inventory management, real application of scientific knowledge to supply chain management. Now what is supply chain? Supply chain is the chain of events, the chain of actions that is taken from the point where a product is manufactured to the point where the consumer picks it up, buys it, and picks it up. Everything that has to happen, the manufacture of all the pieces that go into the product, so I think I've told you the iPhone is made in 60 different countries, pieces that the iPhone made in 60 different countries, the supply chain includes the production in each one of those countries, the delivery from each one of those countries to any other intermediate places where they need to be assembled to the final assembly, to the shipping, directly to the consumer or the shipping to the Apple store, the shipping to warehouses in Amazon and the Amazon supply chain from the warehouse to all of you. So everything that has to do with the movement of the goods from the point of production of every piece of it, including the mining, going back to the mining, every piece of it, all the way until it gets to you, the final consumer, all of that, all of that is the supply chain. All of that counts as supply chain and managing that supply chain is complicated and an immense, huge achievement. It is absolutely non-trivial. There's an immense amount of thought, effort, math, algorithms, computer power, lots of strategy and thought that goes into devising and running and deploying effective and efficient supply chains. And one of the idea of just-in-time management, just-in-time inventory management, is not having to, not having to, thank you, Kuro, I appreciate it. Not having to hold on to a lot of inventory because you know where every item is at every point in time. You know the entire supply chain. You can play around with it. You can adjust the levers to increase supply, decrease supply based on demand and you can do it in real-time, do it in real-time. And it's stunningly amazing, efficient. Jennifer says this is all called logistics, yeah? It's all the logistics and all of it is coordinated, of course, by the price signal. You know, you can read Hayek for that. You can read Textbook and Economics for that. You know where we use those, I mean, but even within a company, there's massive supply chain fuel centrally planned. And managers, it's amazing how you get this to the Apple store on time. Really, do we have to wait? Really are there lines except when it first comes out? Now, one of the things that about 40 years ago started is that you could now shift some of the manufacturing to places that had manpower resources you never had before. Places that had a variety of different infrastructure and logistics that didn't exist before. So that you could now diversify your manufacturing in all kinds of places around the world. You could set up warehouses, you could set up production in all kinds of places around the world. You could also benefit from the skills people had all over the world, because by driving the cost of the supply chain down lower and lower, where something was built, where was assembled, where it was sold, all of those, it didn't matter because the cost of transportation, the cost of coordination, the cost of all of that was relatively minor. One of the things that did that, I did a whole show on this a couple of years ago, I think, was the container ship revolution, having containers, ship goods all over the world and building container ships specially designed to carry containers, lowered the cost of shipping of goods to almost zero. There was a period where it was almost zero, there was so much supply of ships that prices really went down to almost zero. Now, that happening over the last 40 years has made it possible for goods, primarily for goods, but even some services to slowly but systematically over time decline in price. If a good that is consumed by people declines in price, just that raises the standard of living. Now, one of the challenges that happened, I think in that we're now coming to grips with and I think COVID and what happened in Russia has now made this very real, is for a variety of reasons, China became the plane we place in which people outsourced to, that is where people set up, if you will, their supply chains, their production, their assembly. And the reasons for this are multiple. China was opening up, it suddenly had 1.2 billion people who were looking for work. So it was a massive, huge number of available employees wanting to work, willing to work, willing to work hard at pretty much any price because the alternative was so low. So it was cheap and massively plentiful. Now it wasn't very productive labor because they weren't very skilled. But suddenly there was this inflow of massive number of laborers. Which was very appealing to a lot of companies to move production, to where there were laborers, but it was more than that. Certainly by the 1990s and 2000s, China was also producing large numbers, really unbelievable numbers of engineers, tens of thousands of engineers a year. So if you needed skilled laborers, really high skilled laborers, China was the place you went. China also invested massively early on in infrastructure, highways, high speed trains and ports and airports. So China made it easy to integrate it into the logistics of the world. It had ports, it had massive port capacity, it had a number of amazing natural ports. All it had to do was grow them, improve their technology and the most advanced ports in the world, the most advanced ports in the world. Where robots do most of the work rather than unionized, expensive, unionized labor in China. So you get this massive increase in technology at the infrastructure level in China. So that if you produced in China, you could easily get the product to the port because of the highway system. And then you could easily ship it because their ports were so efficient. Again, computerized, roboticized, not having to deal with unions and corruption and everything else that goes along with it. And therefore shipping took off and shipping through China took off. China also has the advantage of sitting on a lot of ocean front, sitting on waters where they can easily go south and then west towards Europe, towards the Suez Canal in Europe, or directly east to the west coast of the United States. So they sit in a beautiful strategic place for the supply chains. So what happened, and one other element about China is that China was embracing business embracing profit, the profit motive, embracing foreign investment, embracing foreign expertise to come into China. And it appeared until about six, seven, eight years ago that it was embracing more freedom. It was moving in the right direction. And as a consequence of all that, a consequence of the geography and the fact that it had the investment in infrastructure and the fact that there were all these people available to work where there was low skill to high skill labor and a fact that the country was becoming more free and a fact that the country was welcoming of business and the profit motive and entrepreneurship. Because of all of that, China became a powerhouse, a productive powerhouse. And as part of that, American business started increasing their investment in China. And sadly, what happened is that the supply chain became very narrow, if you will. Companies forgot, forgot, ignored, started to ignore the concept of, they used to be, I remember, we talked about this in the 80s and early 90s, used to be a concept of country risk or political risk, which was the idea, you don't wanna back one particular country too much because you don't know if the ruler changes or an authoritarian comes to power or they get invaded or something like that. You wanna have some country diversification. You wanna factor into any investment you make into a country. What is the risk that your project gets nationalized? Or what is the risk that sanctions are placed in this country and you lose your investment? What is the risk that this country gets engaged in war and you lose the project? I have a sense that in the 2000s, maybe in the mid-90s to the mid-20s, maybe until the Russian invasion in Ukraine, COVID. People stopped thinking about those risks. It's like, what's gonna happen to China? I don't think it's gonna happen to China. Just keep investing. We could invest in India as well. China's just easier. Let's invest in China. India, infrastructure in India sucks, so we're gonna just invest in China. And what happened is that businesses stopped diversifying. They became globalist, but really, they became completely dependent on China on one avenue, one set of infrastructure projects, one channel for distribution. And I think that is what tells us that we're suffering today. So a few things have happened since then. One, China's taken a clear turn towards authoritarianism and against markets. It is far less friendly to entrepreneurs, to businesses, to profit than it used to be. It is reverse course and it's moving fast towards greater and greater state intervention. It's becoming more and more of a status country. Two, with COVID, we realized that whole countries or whole parts of countries can be literally shut down, locked down, production stopped, zero, nada, ports, clothes, ships can't go anywhere. COVID destroyed this idea that in a sense China or any other country would always be open for business. And we're seeing even more of that right now. Where whole cities like Shanghai are shut down because of COVID, whatever is produced in Shanghai usually is not being produced. People are not going to work, production is not happening. But the same is true of ports that are closed, shipping can't happen. Or ports on this side of the Pacific that can't, Atlantic or Pacific doesn't really matter, that are closed so there's no unloading, reloading, not a trucker, I mean just a whole COVID thing created these distortions and perversions but created an awareness that countries can get shut down. That you can't rely on one path and that too many of our things get produced in just one place. And then finally, I think the Russia example, here you have a war completely unexpected. Nobody, no corporation in America I think put in their one year plan the probability of war, even a 10% probability of war. I don't think it was in their minds, their consciousness, it was just not possible. There's no war, war never happens. Then a war happens. And not only does that shut down certain parts of the supply chain, natural gas, oil, wheat, other agricultural products that are produced in Ukraine but then you get sanctions, all kinds of sanctions that shut down whole other parts of the supply chain and basically make both Russia and Ukraine take some out of the global trade market which is having, going to have huge implications for food because Ukraine and Russia, the part of Western Russia are real bread baskets and now that food is going nowhere. It's created, of course we know the problems of natural gas and oil and the dependency of certain parts of the world on particular pipelines and particular supply chains and suddenly we realize this conception of just in time, not holding inventory but much more important than that even. The conception that we can concentrate all of our production or all of our anything, any part of the supply chain if we put it into any kind of bottleneck, if we put it into, if we rely just on one country for any particular resource whether it's food, wheat like Ukraine and Russia or whether it's manufacturing like it is in China or natural gas for Europe, Russia that opens it up to real disaster. What we used to call and somehow I've forgotten country risk or political risk, country risk and political risk are real. Yeah, here they are. We're living it right now. Now, what is the solution to this? Now, many of you think, maybe not many of you, some of you think that the solution is government forcing companies to ensure government placing tariffs, government controlling trade, government creating, I don't know, reserves of using emergency provisions to bring in, to fly in, what do you call it, baby formula, government, you know, chewing out CEOs, telling them where to put their plans and you know that I'm not gonna support any of those. The solution is more freedom. The solution is free trade. The solution is for the United States to lower tariffs to zero unilaterally. The solution then is for businesses in their own self-interest to start diversifying their supply chain. I just read yesterday that Apple is doing that. I've actually been reading this through the last really since COVID, really since Trump's tariffs that Apple is looking at both Vietnam and at India to put manufacturing plants. I'm eager for the day when people start looking at Africa as a place where they could put manufacturing plants and use all that to diversify the supply chain. That is, make sure that you're not solely reliable for any piece of the supply chain on one source. I think there's gonna be a rush to look for natural resources. Whether it's rare metals, whether it's other forms of metals and gases and make sure that there's not one supplier. I think Europe is gonna look at pipelines maybe from Azerbaijan, maybe from UAE, maybe from Israel to supply it with natural gas over the long run so they're not dependent on Russia. I think manufacturers are gonna start moving more, manufacturing from China to Mexico, from China to other countries. As long as Mexico doesn't go there out of authoritarianism, which unfortunately it might be. But moving it to other countries where they are good terms of trade with the United States, for example, and they won't move all the manufacturing because again you don't wanna be totally dependent on Mexico. So they will move some of it and they will take the hit that comes from less economies of scale in order to achieve diversification when it comes to manufacturing, when it comes to sourcing of materials. So I think what you're gonna see in the next decade is business, not government, business diversifying their own supply chains. Thank you for listening or watching the Iran Book Show. If you'd like to support the show, we make it as easy as possible for you to trade with me. You get value from listening, you get value from watching, show your appreciation. You can do that by going to iranbrookshow.com slash support by going to Patreon, subscribe star locals and just making a appropriate contribution on any one of those, any one of those channels. 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