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Ed Conway on the Hidden Supply Chains That Run the World · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Radio.
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  Speaker 1: News.
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  Speaker 2: Part of the point here is to say beneath the
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  Speaker 2: surface of everyday objects, and this time, you know, I'm
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  Speaker 2: looking at everyday objects, cars, bread and clothes. Beneath the surface,
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  Speaker 2: beneath the label, there is this story that is far
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  Speaker 2: more fascinating, sometimes disturbing, sometimes bonkers about where stuff actually
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  Speaker 2: came from.
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  Speaker 1: Welcome back to Merrin Talks Money, the podcast in which
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  Speaker 1: people who know the markets explain the markets. I am
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  Speaker 1: Merrin Somerset Webb, and this week I am speaking with
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  Speaker 1: Ed Conway, economics and data editor at Sky News, columnist
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  Speaker 1: for The Times and Sunday Times, and author of The
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  Speaker 1: Best-Selling Material World. He joins me to discuss his new book,
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  Speaker 1: Trade World, a sweeping history of the global networks that
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  Speaker 1: connect us and the forces now threatening to pull them apart.
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  Speaker 1: We talk about how trade in everyday goods from bread
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  Speaker 1: and clothing to cars has shaped economies, politics and human history.
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  Speaker 1: Why today's supply chains are far more complex than they appear.
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  Speaker 1: And what happens when the system we've come to depend
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  Speaker 1: on starts to fracture. Ed, welcome to Meron Talks Money.
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  Speaker 3: Thank you for having me back.
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  Speaker 1: Right, Ed, this is a story. about trade. And you
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  Speaker 1: go through three different things. You go through bread, you
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  Speaker 1: go through cloth, and you go through cars. You effectively
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  Speaker 1: give us a really well-considered history of trade throughout the ages.
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  Speaker 1: But I'm afraid I'm going to hope that the reader
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  Speaker 1: will go and take care of a lot of that
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  Speaker 1: early stuff themselves. And I want us to really look
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  Speaker 1: at where we are now And in your last chapter
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  Speaker 1: on cars is where you really talk about modern day
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  Speaker 1: trade a lot. And you talk about the fact that
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  Speaker 1: we've moved from a world where everything is made locally
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  Speaker 1: to a world where everything is made regionally to a
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  Speaker 1: world where we think that we have free trade to
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  Speaker 1: a world now in which basically the entire world is
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  Speaker 1: a giant supply chain. And you compare it to.
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  Speaker 1: The fungal network beneath us, how do you say it?
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  Speaker 3: Yes, the mycorrhizal network.
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  Speaker 1: The mycorrhizal network, thank you, which is beneath us all
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  Speaker 1: the time and we don't see it and we don't
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  Speaker 1: think about it until it suddenly pops up around us.
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  Speaker 2: Yeah, and in a way, we're still trying to fathom it.
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  Speaker 2: It's only kind of now a biologist starting to realise what,
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  Speaker 2: I know this is not a podcast about fungi, but
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  Speaker 2: only now are biologists trying to understand the extent to
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  Speaker 2: which a tree depends on the fungus beneath the ground
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  Speaker 2: and all of these tiny little kind of fungal roots
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  Speaker 2: that are connecting with other trees and all of that stuff.
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  Speaker 2: All of which is to say, this is kind of
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  Speaker 2: a book about supply chains. That's not in the title
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  Speaker 2: because I guess the publishers didn't think that was kind
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  Speaker 2: of sexy enough.
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  Speaker 3: But basically, this is.
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  Speaker 2: About why supply chains are extraordinary and why our understanding
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  Speaker 2: of how they actually function... is relatively primitive. Generally speaking,
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  Speaker 2: and in this sense, it's a companion piece to material world.
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  Speaker 2: Generally speaking, we tend to realise how the world around
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  Speaker 2: us is structured, mostly when something goes wrong. So when
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  Speaker 2: there's a fire in a factory, or you have the
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  Speaker 2: Strait of Hormuz being blocked off, or whatever it might be,
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  Speaker 2: or a ship blocking the Suez Canal. And The reason
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  Speaker 2: why I've kind of gone back and looked at this
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  Speaker 2: is obviously, you know, where are we today? We're in
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  Speaker 2: this moment where this is being tested. The global economy
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  Speaker 2: is being tested in various different ways. And where geography
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  Speaker 2: is returning. I mean, geography never went away. And we've
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  Speaker 2: talked about this quite a bit, Maren, haven't we? Geography
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  Speaker 2: never went away. Geology never went away. But we're now
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  Speaker 2: at this point where everyone's kind of realising, oh, hold on,
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  Speaker 2: this stuff actually matters. And, you know, to your point,
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  Speaker 2: I mean, in a way, one of the starting points
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  Speaker 2: for the book was a few years ago, I went
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  Speaker 2: to this factory where And it's a place in Birmingham
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  Speaker 2: where they make little metal parts that go into the
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  Speaker 2: car supply chain. And the car supply chain is an
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  Speaker 2: extraordinary kind of structure, an extraordinary creation. You've got 30,000,
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  Speaker 2: if not more, parts within a car, most of them
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  Speaker 2: being sourced from other companies, and they all get assembled
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  Speaker 2: at the car plant at the end. But one of
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  Speaker 2: these little parts that I saw being made in this
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  Speaker 2: tiny little factory just on the outskirts of Birmingham was
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  Speaker 2: a tiny little electrode. And this electrode, they said, goes
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  Speaker 2: into the rearview mirror of your car and helps it
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  Speaker 2: do the auto dimming function. So if someone flashes their
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  Speaker 2: headlights behind you, you don't get blinded in your mirror.
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  Speaker 2: So it's a tiny little electrode, but without it, you
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  Speaker 2: don't get that functionality. And I said to the guys
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  Speaker 2: at the factory, how many of these are you making?
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  Speaker 2: And they said, we're producing 55 or more percent of
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  Speaker 2: the global supply of of this part. And to some extent,
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  Speaker 2: the point of this book was to ask the question,
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  Speaker 2: how is it that we've got to the point where
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  Speaker 2: we have concentrated so much production for something in a
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  Speaker 2: single place? And what happens to the world when you
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  Speaker 2: start to take that mycorrhizal network apart and things go wrong?
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  Speaker 2: And to some extent, it seems immensely dysfunctional. But to
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  Speaker 2: some extent, that you've got so much production concentrated in
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  Speaker 2: a single place or the other example I like to
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  Speaker 2: give is when you buy you know we in the
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  Speaker 2: UK like our fish fingers or fish sticks as I
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  Speaker 2: believe they call them in America when you order up
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  Speaker 2: some fish fingers perhaps the fish was caught just off
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  Speaker 2: the coast of Scotland but A lot of the time,
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  Speaker 2: that fish having been gutted in the boat that catches it,
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  Speaker 2: it gets flash frozen, sent to China to be processed
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  Speaker 2: 15,000 miles, and then sent back to here for its
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  Speaker 2: final stage of production to be put into a box
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  Speaker 2: and go to the supermarket. And most people, when they
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  Speaker 2: buy the fish fingers, they look at the label and
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  Speaker 2: the label says it was caught in the North Sea
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  Speaker 2: and packaged in the UK. And you would have no
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  Speaker 2: conception about this extraordinary journey that has gone on.
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  Speaker 3: And so.
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  Speaker 2: Part of the point here is to say, beneath the
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  Speaker 2: surface of everyday objects, and this time, you know, I'm
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  Speaker 2: looking at everyday objects, cars, bread, and clothes. Beneath the surface,
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  Speaker 2: beneath the label, there is this story that is far
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  Speaker 2: more fascinating, sometimes disturbing, sometimes bonkers, about where stuff actually
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  Speaker 2: came from. And that backstory then gives you this, I think,
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  Speaker 2: a richer sense of the world we inhabit when you're
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  Speaker 2: then starting to think, okay, we've got this trade war
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  Speaker 2: at the moment. We've got what's happening in Hormuz. How
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  Speaker 2: does this kind of impact everything else? And the answer
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  Speaker 2: is it impacts it in so many different ways, some
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  Speaker 2: of which are kind of scary, but some of which
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  Speaker 2: actually have a surprising resilience that you might not have
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  Speaker 2: appreciated until you look at the world from the other,
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  Speaker 2: you know, from bottom up rather than top down.
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  Speaker 3: So that's the idea.
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  Speaker 2: And it's been one of the most fascinating kind of journeys,
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  Speaker 2: sets of rabbit holes I've ever gone down. And yeah,
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  Speaker 2: I've learned quite a lot through the process.
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  Speaker 1: I bet. I bet. One of the things that, let
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  Speaker 1: me pick up straight away on what you said about resilience.
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  Speaker 1: Does this make, or does this underground network make things
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  Speaker 1: more resilient or less resilient? It's very taken by chart.
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  Speaker 1: Page 340, for those of you who haven't got it yet.
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  Speaker 1: Page 340, wonderful chart here. You've got a carmaker, and
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  Speaker 1: then you look at the suppliers to said carmaker, and
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  Speaker 1: they've got their tier one suppliers, and then they've got
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  Speaker 1: tier two suppliers. And then underneath that, you've written lots
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  Speaker 1: of tier three suppliers. And this is a great chart
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  Speaker 1: because what it does, it plays into exactly what- I
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  Speaker 1: drew it originally.
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  Speaker 2: I drew it and it was so messy that the
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  Speaker 2: publisher actually did a slightly tidied up version of it
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  Speaker 2: in the book.
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  Speaker 1: Yeah, we have AI for that stuff. We have AI
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  Speaker 1: for that stuff for making your charts. But it's just
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  Speaker 1: interesting because you've got your three tier ones and then
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  Speaker 1: the way you've drawn the chart, there are six tier twos.
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  Speaker 1: Maybe there are loads more than that.
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  Speaker 3: It's a pyramid.
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  Speaker 1: And this whole idea that at the bottom- making these
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  Speaker 1: little parts, as you say, for mirrors or for lights
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  Speaker 1: or a tiny bit of a chip for this or
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  Speaker 1: a casing for a chip for that, whatever it is.
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  Speaker 1: You've got maybe hundreds of tier three suppliers, because what
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  Speaker 1: did you say, something like 30,000 parts per car? And
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  Speaker 1: you look at that and you think, well, hang on,
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  Speaker 1: when we think about supply chains branching out around the
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  Speaker 1: world and we think of being able to get parts
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  Speaker 1: made everywhere, in our heads, a bit like investing, you think, well,
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  Speaker 1: that's diversification. So we've diversified supply chains and that's a
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  Speaker 1: good thing. But actually, it brings in a new element
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  Speaker 1: of concentration, which is kind of worrying.
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  Speaker 2: Yeah, because that part that goes into the rear view mirror,
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  Speaker 2: most of them are made in a single factory.
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  Speaker 3: And if that factory goes down, then you've got a problem.
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  Speaker 2: During the tsunami in 2011 in Japan, terrible event, obviously,
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  Speaker 2: Fukushima happened and all of this awful stuff. But alongside that,
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  Speaker 2: there were various car parts supply factories, which no one
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  Speaker 2: had ever heard of, making little electrodes and making obscure
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  Speaker 2: types of paint, which were affected by it. And all
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  Speaker 2: of a sudden, Toyota and everyone else realised, oh, hang on,
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  Speaker 2: this actuator we're using to make our electric windows go
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  Speaker 2: up and down, the majority of the world's supply comes
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  Speaker 2: from a single place, and that single.
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  Speaker 3: Place has just gone down.
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  Speaker 2: And the point behind this, which I I don't think
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  Speaker 2: has been kind of as well studied as it could be,
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  Speaker 2: is that one of the kind of logical forces behind
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  Speaker 2: globalization and behind the effort over the past kind of
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  Speaker 2: few decades to make stuff as cheap as possible, which is,
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  Speaker 2: you know, that's ultimately the story of the economy in
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  Speaker 2: the past kind of 50 years or so post Berlin Wall,
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  Speaker 2: has been not just to disperse production and to make
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  Speaker 2: it so that if you're making, assembling a car here
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  Speaker 2: in the UK, many of your parts will come from
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  Speaker 2: China and they increasingly do. But to make it so,
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  Speaker 2: they increasingly come from a single factory in China, or
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  Speaker 2: indeed in Birmingham or somewhere else. And that is a
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  Speaker 2: concentration which is unnerving. But I'll tell you what, for me,
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  Speaker 2: the most striking thing about that story of the tsunami,
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  Speaker 2: and I go into it in depth, it's an interesting
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  Speaker 2: natural experiment, isn't it, in when things go wrong. And
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  Speaker 2: I think if there was a takeaway from last book
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  Speaker 2: i wrote in this book as well it's to say
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  Speaker 2: gosh we tend only to learn when these things go
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  Speaker 2: wrong when you know or we tend to learn the
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  Speaker 2: structure of a supply chain when something goes terribly wrong
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  Speaker 2: so a fertilizer plant is shut down all of a
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  Speaker 2: sudden you realize oh hold on that's where our carbon
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  Speaker 2: dioxide is coming from so all of a sudden you
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  Speaker 2: can't slaughter pigs and you can't you know have fizzy
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  Speaker 2: drinks will become some random fertilizer plant that's been shut
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  Speaker 2: down um or you know the in the tsunami, a
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  Speaker 2: lot of these plants went down and all of a
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  Speaker 2: sudden people couldn't get the shades of paint they wanted,
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  Speaker 2: or they couldn't have all of the GPS systems they
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  Speaker 2: wanted in their cars. You realise something, you realise this
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  Speaker 2: is the way the world works. Wouldn't it be nice
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  Speaker 2: to know about that stuff ex ante rather than ex post,
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  Speaker 2: or just to have some sniff of it? And that
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  Speaker 2: kind of understanding of the world's economy as a sort
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  Speaker 2: of map rather than this kind of chain as a
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  Speaker 2: web of different dependencies. I wonder if that's one of
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  Speaker 2: the you know, useful future areas of study for economics,
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  Speaker 2: as well as the fact, back to your point, that
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  Speaker 2: globalisation hasn't dispersed, it has concentrated. It's just concentrated lots
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  Speaker 2: of individual parts in particular places.
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  Speaker 1: Big companies have effectively outsourced everything along the way. They've
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  Speaker 1: outsourced their stockpiling, they've outsourced inventory control, they've outsourced all
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  Speaker 1: these mini manufacturing bits. And with that By doing that,
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  Speaker 1: they've outsourced responsibility at the same time, outsourced control and
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  Speaker 1: outsourced knowledge of their supply lines because no CEO of
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  Speaker 1: a big car company can understand 30,000 separate suppliers.
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  Speaker 3: Exactly.
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  Speaker 2: Yeah, it's back to the crazy mycorrhizal network, the most
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  Speaker 2: complicated biological system in the world. No one can begin
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  Speaker 2: to fathom it, so we don't try. And in the
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  Speaker 2: case of cars, you just hope that the person supplying
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  Speaker 2: the things to you is actually going to get them
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  Speaker 2: to you. And then they in turn, you know, the
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  Speaker 2: person who's making the module that goes on your dashboard,
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  Speaker 2: they in turn keep an eye on the next person
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  Speaker 2: down in the chain. But, you know, talk to someone,
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  Speaker 2: an OEM carmaker whose badge goes on the front, although
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  Speaker 2: I would say isn't really the maker of the car.
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  Speaker 2: I mean, that's the interesting thing to me. Talk to
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  Speaker 2: them and, you know, they won't necessarily know the mind
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  Speaker 2: that things are coming from, even though there's been lots
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  Speaker 2: of work that's been supposedly.
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  Speaker 3: Done on this.
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  Speaker 2: In practice, no one really knows their supply chain in depth.
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  Speaker 2: And whether that's reassuring or not, I don't know. But
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  Speaker 2: starting to understand that stuff is pretty important. And I
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  Speaker 2: think there's some more of it we could begin to
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  Speaker 2: delve beneath the surface so that if something goes wrong
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  Speaker 2: in the future, we'd have a better sense of it.
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  Speaker 2: But more than anything else, it's interesting. And this is
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  Speaker 2: the way the world works. And think about the You
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  Speaker 2: mentioned that things have become increasingly outsourced over the course
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  Speaker 2: of the past half century. I would say, if you
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  Speaker 2: were choosing the top 10 most important trends in the
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  Speaker 2: global economy in the last 50 years, the fact that
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  Speaker 2: things have been outsourced and increasingly offshored, so the production
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  Speaker 2: of something has moved to another country, I would say
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  Speaker 2: that is one of the most consequential economic trends we've
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  Speaker 2: seen in the last half century. Because if nothing else,
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  Speaker 2: that's what's contributed to the China shock. It's what's contributed
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  Speaker 2: to the rise of Donald Trump. It contributed to Brexit,
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  Speaker 2: the sense that all of these areas of our industrial
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  Speaker 2: heartland have been hollowed out and we're not making stuff anymore.
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  Speaker 2: That is really important. And yet, no one has really
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  Speaker 2: written the story, the history of how that actually happened.
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  Speaker 2: And so one of the things I've kind of done
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  Speaker 2: here is I've gone back to the very first people
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  Speaker 2: who began to invent offshoring and went out to Hong Kong.
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  Speaker 2: This is garment manufacturers, went out to Hong Kong and said, okay,
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  Speaker 2: the stuff that we're currently making in kind of South Carolina,
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  Speaker 2: You know, can you do it here in Hong Kong?
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  Speaker 2: And we, in this case, Americans and to some extent
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  Speaker 2: European kind of clothing manufacturers, went out there to Hong Kong.
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  Speaker 2: They went out there to Asia. They taught the people
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  Speaker 2: making clothes out there how to do it at a
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  Speaker 2: standard that was good enough that they could then buy
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  Speaker 2: stuff for cheaper and bring it back to America. That
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  Speaker 2: was the beginning of something that then led to the
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  Speaker 2: offshoring of technology. So, you know, high tech stuff, offshoring
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  Speaker 2: of toys, offshoring of car production. And here we are
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  Speaker 2: in 2026 talking about the car industry in, to some extent, America,
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  Speaker 2: but even more in Europe, facing the single biggest existential
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  Speaker 2: crisis it ever has because there is this wave, this
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  Speaker 2: tidal wave of cheap cars coming from China. And the
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  Speaker 2: truth is, it's not just that they're able to make
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  Speaker 2: cars cheaper than we can. It's not just that they
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  Speaker 2: have almost all of the battery supply chain for EVs.
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  Speaker 2: It's that they are also better at making tiny little
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  Speaker 2: components that go inside them than we are. They are
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  Speaker 2: better at making the car from the bottom up than
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  Speaker 2: we are. And that is, I think, one of the
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  Speaker 2: biggest stories that is going to hit us. It's not
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  Speaker 2: just the job cuts of the car makers. It's the
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  Speaker 2: fact that those car makers support a massive industrial base
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  Speaker 2: that stretches across all of those countries of good, pretty
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  Speaker 2: well-paying jobs.
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  Speaker 3: If the car companies go.
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  Speaker 2: Basically, most of your manufacturing sector is gone as well.
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  Speaker 2: And I think that is going to be absolutely enormous
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  Speaker 2: in the coming years. And we're just only beginning really
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  Speaker 2: to see the impact of it now.
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  Speaker 1: Yeah, because it is one of the things that you
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  Speaker 1: talk about in the book is how surprised you were
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  Speaker 1: to find that crisscrossed in the UK, there are lots
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  Speaker 1: of small, medium and small companies making tiny little parts
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  Speaker 1: for the car industry and for other industries as well.
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  Speaker 3: They make the car.
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  Speaker 1: Still there making precise little things. that go in cars
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  Speaker 1: all over the place.
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  Speaker 3: Yeah, and they make the car. And that's the point.
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  Speaker 2: It's the carmaker. Everyone thinks of the OEMs. They think
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  Speaker 2: of the badge that goes on the front of the car.
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  Speaker 2: They think of the seats that go inside them. This
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  Speaker 2: is a distinctive Porsche seat, or this is a distinctive
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  Speaker 2: Volvo seat. The seats aren't made by Volvo. They're made
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  Speaker 2: by one of three companies, for the most part. There's
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  Speaker 2: this kind of triopoly of companies that control the manufacture
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  Speaker 2: of car seats all around the world.
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  Speaker 3: And so, again.
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  Speaker 2: What looks on the surface, what the label is saying
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  Speaker 2: is one thing. What the reality is, is very different.
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  Speaker 2: And that is both interesting and tells you something about
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  Speaker 2: the structure of the economy around us, but also tells
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  Speaker 2: you something more about the vulnerabilities and the opportunities in
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  Speaker 2: the coming years.
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  Speaker 1: And one of the things that you talk about in
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  Speaker 1: the early part of the book is the early discussions
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  Speaker 1: around trade, free trade. Should you have free trade? Shouldn't
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  Speaker 1: you have free trade? How does it work? The development
• 17:08
  Speaker 1: of the theory of comparative advantage, the arguments in Adam
• 17:13
  Speaker 1: Smith's time about all this. And we're slightly beginning to
• 17:17
  Speaker 1: get to the bit where you look around and you say, well, okay,
• 17:20
  Speaker 1: in manufacturing, at least, where is the comparative advantage for
• 17:24
  Speaker 1: the West? which brings us back to one of my
• 17:27
  Speaker 1: favorite Adam Smith quotes that you use at the beginning,
• 17:30
  Speaker 1: defense is of more importance than opulence. It's more important
• 17:34
  Speaker 1: to have a secure nation than it is to have
• 17:39
  Speaker 1: the little luxuries that come from abroad. Because of course,
• 17:41
  Speaker 1: in Smith's time, of course, it was the luxuries that
• 17:43
  Speaker 1: came from abroad, because we'll come onto this in a minute.
• 17:46
  Speaker 1: But when the cost of transport is very high, it's
• 17:49
  Speaker 1: only super luxuries that come in from from abroad. So
• 17:52
  Speaker 1: in his day, you were talking about if you're having
• 17:54
  Speaker 1: free trade, what it meant that you were importing luxuries
• 17:56
  Speaker 1: as opposed to grain. We're in a slightly different world now, obviously.
• 17:59
  Speaker 1: But the point remains, if you lose your manufacturing base,
• 18:04
  Speaker 1: then you also effectively lose an awful lot of things.
• 18:09
  Speaker 1: You lose your tax base. You lose your ability to
• 18:11
  Speaker 1: do what, of course, we did in World War II,
• 18:13
  Speaker 1: which was convert every every car manufacturing factory into a
• 18:17
  Speaker 1: weapons factory. You lose all sorts of things when you
• 18:19
  Speaker 1: lose your manufacturing base. Have we got to a point
• 18:22
  Speaker 1: when it is irrevocably lost and it's hard to find
• 18:27
  Speaker 1: anything in the maker world that the West might have
• 18:30
  Speaker 1: a comparative advantage in? Super dangerous.
• 18:32
  Speaker 3: It's a really good question.
• 18:35
  Speaker 2: I mean, I think the UK is at the vanguard,
• 18:37
  Speaker 2: you know, for better or for worse of this, because
• 18:39
  Speaker 2: we have de-industrialized faster than anyone else and continue to.
• 18:42
  Speaker 2: You know, Since I wrote Material World a few years ago,
• 18:45
  Speaker 2: many of the plants I went to are gone. Many
• 18:48
  Speaker 2: of them have been shut down. They're not there anymore.
• 18:50
  Speaker 2: Fertilizer plants, steel plants, a lot of them are gone.
• 18:55
  Speaker 1: And a lot of that is down to high energy prices,
• 18:57
  Speaker 1: which again.
• 18:57
  Speaker 2: Is choice-related, policy-related. But it is also a long curve
• 19:04
  Speaker 2: of deindustrialization that goes back many years in the UK.
• 19:08
  Speaker 2: And Well, I mean, so back to your point about
• 19:11
  Speaker 2: Adam Smith, you know, a lot of the debate that
• 19:14
  Speaker 2: was being had back in the kind of, you know,
• 19:17
  Speaker 2: early 19th century about the corn laws. So corn laws,
• 19:21
  Speaker 2: you know, in a sense, it was the kind of
• 19:22
  Speaker 2: Brexit of its day. It was this moment where the
• 19:24
  Speaker 2: UK was having to decide between, you know, are we
• 19:26
  Speaker 2: going to have domestic production of our wheat or are
• 19:31
  Speaker 2: we going to buy them from overseas and it's going
• 19:33
  Speaker 2: to be cheaper? And it is an amazing moment, really.
• 19:35
  Speaker 2: And actually, it's kind of a lot of people look
• 19:37
  Speaker 2: back at that period and call that the moment, the
• 19:40
  Speaker 2: birth of free trade. But that debate, actually, in some ways,
• 19:44
  Speaker 2: it's still surprisingly vital because precisely as you say, it
• 19:49
  Speaker 2: was about whether security trumped economics you know and what
• 19:53
  Speaker 2: are we living through at the moment if not exactly
• 19:55
  Speaker 2: the same debate um we've got all of these economic
• 19:58
  Speaker 2: principles about wanting basically to have cheap stuff and you
• 20:01
  Speaker 2: know it's consumer raise the consumer surplus ensure that even
• 20:05
  Speaker 2: if it means kind of having our fish fingers processed
• 20:07
  Speaker 2: in china That is the logical way to make stuff
• 20:11
  Speaker 2: cheaper and people like cheap stuff. And if they have
• 20:13
  Speaker 2: cheap stuff, they can therefore have this kind of surplus
• 20:15
  Speaker 2: and go off and spend it. Is that what matters
• 20:18
  Speaker 2: the most? Or is there some residual reason to basically
• 20:24
  Speaker 2: ignore that in favour of having some form of resilience?
• 20:28
  Speaker 2: And that's kind of what Adam Smith, you know, in
• 20:30
  Speaker 2: the case of, you know, the Corn Lords, it was
• 20:32
  Speaker 2: all about, are we growing enough wheat to feed ourselves?
• 20:37
  Speaker 1: Do we have food security in the event of difficulties? Yeah.
• 20:40
  Speaker 2: And are we going to have enough bread to feed everyone?
• 20:42
  Speaker 2: These days, it may be about other things. It may
• 20:45
  Speaker 2: be more about defence. It may be more about weapons.
• 20:48
  Speaker 2: But nonetheless, it's the same principle. And we're seeing it
• 20:51
  Speaker 2: kind of litigated right now in the UK and in
• 20:54
  Speaker 2: the US. This question, this balancing act between something where
• 21:00
  Speaker 2: if you were being an absolute kind of economic fundamentalist,
• 21:02
  Speaker 2: you would say, it makes no sense to be mining
• 21:06
  Speaker 2: tungsten in the UK, even though we've got, there's a,
• 21:09
  Speaker 2: there's a perfectly good mine down in Devon. You know,
• 21:12
  Speaker 2: it's the second biggest resource of tungsten in the world. Um,
• 21:17
  Speaker 2: it has been out of action for years and years
• 21:18
  Speaker 2: and years because it is just cheaper to buy tungsten
• 21:21
  Speaker 2: from China. But tungsten is really important when it comes to,
• 21:24
  Speaker 2: you know, making weaponry, uh, and tools and all the
• 21:28
  Speaker 2: stuff you, you kind of need if you're going to,
• 21:30
  Speaker 2: to have an industrial economy or indeed a response to it,
• 21:32
  Speaker 2: to war. Um, And so then you run into this
• 21:36
  Speaker 2: other kind of question. Okay, maybe it doesn't make sense
• 21:39
  Speaker 2: to get all of this stuff in China in case
• 21:41
  Speaker 2: things go in the wrong direction in the coming years.
• 21:44
  Speaker 2: So maybe we should have our own tungsten. But that
• 21:46
  Speaker 2: means more expensive tungsten. And it means more expensive everything
• 21:50
  Speaker 2: that you want to produce here. It means more expensive
• 21:52
  Speaker 2: fish fingers if you're going to get them processed here.
• 21:54
  Speaker 2: And having that conversation about you know, the fact that
• 21:59
  Speaker 2: things will be more expensive, that we have benefited from
• 22:02
  Speaker 2: decades and decades of disinflation, which has led us into
• 22:05
  Speaker 2: this slightly bonkers world we inhabit right now, where we
• 22:08
  Speaker 2: send fish fingers to the other side of the world,
• 22:10
  Speaker 2: where we order up bread from other countries, where geography
• 22:14
  Speaker 2: seems not to matter. It does mean turning away from that.
• 22:19
  Speaker 1: A lot of people would say that it's been this
• 22:20
  Speaker 1: great period of... free trade and globalization and the building
• 22:24
  Speaker 1: up of these supply chains that has also given us
• 22:27
  Speaker 1: a period of flat real wages in the UK. And
• 22:31
  Speaker 1: so there'll come a point when you can't afford to
• 22:32
  Speaker 1: buy the cheap stuff, which of course is a very
• 22:36
  Speaker 1: Freudian way to look at it. You have to pay
• 22:37
  Speaker 1: people good wages if you want them to be able
• 22:39
  Speaker 1: to afford to buy anything. And if you're not manufacturing
• 22:42
  Speaker 1: in the UK, where does the income come from? And obviously,
• 22:45
  Speaker 1: we have a wonderful business in services in the city,
• 22:48
  Speaker 1: whatever you throw at it just keeps rolling, financial services,
• 22:51
  Speaker 1: building businesses, our legal businesses, etc. But in the end,
• 22:55
  Speaker 1: solid economies really need to make stuff.
• 22:58
  Speaker 2: I think that matters. And I think it's a really
• 23:02
  Speaker 2: unfashionable argument. And I think it's been quite a lonely
• 23:05
  Speaker 2: argument to have for the last kind of, you know,
• 23:07
  Speaker 2: five years or so. But I think it's an argument
• 23:10
  Speaker 2: that people are seeing the logic of now. But then
• 23:14
  Speaker 2: look at, history of the wars in the 20th century
• 23:19
  Speaker 2: and the fact that, well, you know, if Britain hadn't
• 23:22
  Speaker 2: have tariffs in the early 20th century, we probably would
• 23:25
  Speaker 2: never have had a car industry because America would have
• 23:27
  Speaker 2: just continued, which it did at the start, to just
• 23:30
  Speaker 2: ship in kind of knocked down Fords and sell them
• 23:32
  Speaker 2: to us. And so we wouldn't really have had the
• 23:35
  Speaker 2: car factories. You wouldn't have had Longbridge. You wouldn't have
• 23:37
  Speaker 2: had Trafford Park, all these places. If we didn't have
• 23:40
  Speaker 2: those car factories in World War I and World War II,
• 23:42
  Speaker 2: we probably wouldn't have had the wherewithal to very quickly
• 23:46
  Speaker 2: build the planes and the artillery that we needed and
• 23:49
  Speaker 2: the tanks that we needed to fight a war. And
• 23:53
  Speaker 2: one hopes that we're not going to have to go
• 23:55
  Speaker 2: through the same process all over again. But if you're
• 23:58
  Speaker 2: going to fight a war these days, it kind of
• 24:00
  Speaker 2: depends on your ability to produce artillery. Still, even old-fashioned stuff,
• 24:04
  Speaker 2: it depends on your ability to make drones and which
• 24:07
  Speaker 2: is a supply chain, which is kind of a brand
• 24:08
  Speaker 2: new supply chain that China still has extraordinary dominance and
• 24:12
  Speaker 2: depends on your ability to make relatively light batteries that
• 24:14
  Speaker 2: can go into those drones. On all of these fronts,
• 24:17
  Speaker 2: it's not like Europe and America don't have the expertise
• 24:22
  Speaker 2: because actually a lot of the patents for many of
• 24:24
  Speaker 2: these different developments, the original patents, like the patent for
• 24:28
  Speaker 2: the LFP batteries, lithium ferrophosphate batteries that China is so
• 24:33
  Speaker 2: dominant in, Those patents, you know, the invention, the stuff
• 24:35
  Speaker 2: was invented in the US. The patents were owned up
• 24:38
  Speaker 2: until recently by Johnson Matthey of all companies. They own
• 24:42
  Speaker 2: the patent for LFP batteries, which is the battery that
• 24:46
  Speaker 2: goes into pretty much every Chinese electric car these days.
• 24:49
  Speaker 2: So it's not like we don't necessarily have the expertise
• 24:51
  Speaker 2: in theory. What we don't necessarily have is industrial scale.
• 24:56
  Speaker 2: And I think that having that expertise in the same
• 25:01
  Speaker 2: way that, you know, you've got these seed banks in
• 25:04
  Speaker 2: Norway that are collecting all of the seeds of how,
• 25:08
  Speaker 2: you know, if there is some apocalypse, here's the stuff
• 25:11
  Speaker 2: that we might need to grow in the future. I
• 25:14
  Speaker 2: wonder if we ought to be kind of thinking consciously
• 25:17
  Speaker 2: about the same thing for innovations of, you know, that
• 25:20
  Speaker 2: have a security focus. But we just don't think in
• 25:25
  Speaker 2: those terms, particularly in the UK. And the reason why
• 25:27
  Speaker 2: a lot of, I've kind of rooted some of this
• 25:29
  Speaker 2: book in in the UK story, and I think the
• 25:31
  Speaker 2: reason the UK is interesting internationally, is because, as I say,
• 25:35
  Speaker 2: if there's any country in the world that has gone
• 25:37
  Speaker 2: gangbusters for both free trade and de-industrialisation, and let's just
• 25:42
  Speaker 2: focus on cheap things, it is Britain.
• 25:44
  Speaker 1: Listen, there's an important question around this whole free trade
• 25:49
  Speaker 1: and globalisation business, and I think it is the cost
• 25:52
  Speaker 1: of transport. We talked earlier about how it really was
• 25:56
  Speaker 1: the falling ease and falling price of transporting stuff around
• 26:01
  Speaker 1: the world that makes geography not matter. I mean, there's
• 26:04
  Speaker 1: politics and abolishing tariffs and GATT and most favored nation,
• 26:08
  Speaker 1: all these kinds of things that you write about in
• 26:10
  Speaker 1: the book that are very important to the development of
• 26:12
  Speaker 1: globalized free trade. But it wouldn't work if transport wasn't
• 26:17
  Speaker 1: so cheap. You open the book, for example, talking about
• 26:20
  Speaker 1: airplanes landing in obscure little airports in the UK, pre-addressed
• 26:25
  Speaker 1: packets from sheen and temu and that kind of uh
• 26:28
  Speaker 1: of company to people in the uk and so cheap
• 26:31
  Speaker 1: to fly stuff around the world that you can now
• 26:34
  Speaker 1: fly a five pound dress from from china to the
• 26:37
  Speaker 1: uk and have it delivered insane right but as we
• 26:41
  Speaker 1: move into our new world of geopolitics where possibly the
• 26:45
  Speaker 1: oil price will can maybe rise maybe not who knows
• 26:47
  Speaker 1: it hasn't gotten up nearly as much as people thought
• 26:49
  Speaker 1: it would but nonetheless it's hovering a little higher than
• 26:52
  Speaker 1: it was uh pre geopolitical difficulties. And at the same time,
• 26:57
  Speaker 1: you have free passage across the seas begins to be
• 27:00
  Speaker 1: impacted or has been for the last couple of years
• 27:02
  Speaker 1: when these things begin to kick in. And you find
• 27:06
  Speaker 1: that the price of global transport goes up, that that
• 27:09
  Speaker 1: becomes a bit of a headwind. to our underground network,
• 27:13
  Speaker 1: doesn't it?
• 27:13
  Speaker 2: I mean, if that happens, that is, it is an
• 27:16
  Speaker 2: enormous deal. In the same way that the slow, mostly
• 27:20
  Speaker 2: invisible reduction in the cost of getting something from this
• 27:23
  Speaker 2: side of the planet to the other is arguably an
• 27:27
  Speaker 2: even greater kind of contributive factor to the world we
• 27:31
  Speaker 2: live in today than the stuff that most people talk about,
• 27:33
  Speaker 2: like tariffs going down and innovation and all the rest
• 27:36
  Speaker 2: of it. It's like the containerization of Bigger ships, freedom
• 27:41
  Speaker 2: of navigation.
• 27:42
  Speaker 3: These are the foundation stones.
• 27:43
  Speaker 2: For the modern world and help explain why we think,
• 27:47
  Speaker 2: you know, we send stuff routinely off to China to
• 27:50
  Speaker 2: be processed.
• 27:50
  Speaker 3: You know, like all the.
• 27:52
  Speaker 2: Wool in the world basically goes to China to be processed.
• 27:54
  Speaker 2: So if you're shearing wool here in the UK.
• 27:56
  Speaker 1: Oh God, well that's been a shock. I have to
• 27:58
  Speaker 1: interrupt you. I had absolutely no idea about the plastic
• 28:02
  Speaker 1: coating on my jumpers.
• 28:04
  Speaker 3: Oh gosh, yes.
• 28:05
  Speaker 1: I'm sorry, Liz, this is going to shock you when
• 28:08
  Speaker 1: you get into the textile bit and you find out
• 28:10
  Speaker 1: that your 100% wool jumper is not 100% wool.
• 28:12
  Speaker 3: Yeah, I'm sorry to break that to you.
• 28:15
  Speaker 2: It's changed my appetite for merino wool jumpers, definitely. Washable
• 28:20
  Speaker 2: merino wool jumpers, when you are brushing your finger along
• 28:25
  Speaker 2: the surface of your washable, 100% supposedly, merino wool jumper,
• 28:29
  Speaker 2: you are actually touching plastic. And that's because they're coated
• 28:33
  Speaker 2: with plastic in order to make them machine washable. And
• 28:37
  Speaker 2: you only ever kind of realize these things when you
• 28:40
  Speaker 2: go down into the sausage factory of how things are
• 28:43
  Speaker 2: actually made, which is what I've tried to do. And
• 28:48
  Speaker 2: that's the case with wool. It's the case with certain
• 28:50
  Speaker 2: types of cotton. Non-iron cotton is actually kind of suffused
• 28:54
  Speaker 2: with formaldehyde. But because the point of this is to say,
• 28:59
  Speaker 2: the label on your clothing, the label on your packet
• 29:01
  Speaker 2: of fish fingers, the label on your car, it tells
• 29:04
  Speaker 2: you very little about the real story of where those
• 29:08
  Speaker 2: things come from, what was done to them on their
• 29:11
  Speaker 2: way to you. And when it comes to clothing, all
• 29:15
  Speaker 2: the label has to say is, A, where was the
• 29:18
  Speaker 2: final stage of production? So where was it cut and sewn?
• 29:21
  Speaker 2: Maybe that was Bangladesh, but actually it doesn't tell you
• 29:23
  Speaker 2: where the cotton was picked. It doesn't tell you where
• 29:25
  Speaker 2: it was spun. It doesn't tell you where it was ginned.
• 29:28
  Speaker 2: which most of the time is other countries entirely. And
• 29:32
  Speaker 2: then they have to kind of tell you.
• 29:36
  Speaker 3: What it's made of.
• 29:38
  Speaker 2: And in the case of wool, they can say it's 100%
• 29:40
  Speaker 2: wool because the fibre is wool and no extra fibres
• 29:44
  Speaker 2: have been added. But there is about 2% coating of
• 29:48
  Speaker 2: polymer on top of those follicles of wool. That means,
• 29:52
  Speaker 2: like I say, when you have a machine washable wool jumper,
• 29:55
  Speaker 2: or indeed any other item of clothing.
• 29:57
  Speaker 1: I'm wearing one right now. You're making me touch it. Yeah.
• 30:00
  Speaker 3: Well, it's smoother though, Maren. It feels great.
• 30:03
  Speaker 2: It's got a nice sheen, and that's partly because of
• 30:05
  Speaker 2: the plastic.
• 30:07
  Speaker 3: It's the polymer.
• 30:08
  Speaker 1: Sorry.
• 30:09
  Speaker 3: Sorry to ruin it for you.
• 30:10
  Speaker 1: Ed, what hope? Give me the optimistic version of the
• 30:13
  Speaker 1: next 20 years for the West, say for the UK
• 30:18
  Speaker 1: and Europe, in terms of manufacturing and supply chains.
• 30:21
  Speaker 3: Well, I mean, there's a lot of it. I think.
• 30:23
  Speaker 2: The thing that I'm struck by, and maybe it's hopeful
• 30:26
  Speaker 2: in a slightly perverse way, but I'm struck when you
• 30:29
  Speaker 2: look at the reality of how trade works by the
• 30:31
  Speaker 2: resilience of this network of middlemen, I call them, people
• 30:36
  Speaker 2: who want to connect supply and demand. I went out
• 30:41
  Speaker 2: to the border of Russia and Georgia a while back
• 30:44
  Speaker 2: because I was trying to work out whether sanctions were working.
• 30:48
  Speaker 2: One of the sanctions was to try to stop nice
• 30:51
  Speaker 2: European cars like Porsches and BMWs and Lamborghinis and things
• 30:55
  Speaker 2: to stop it from going into Russia. The statistics basically said, well,
• 30:58
  Speaker 2: they're not going to Russia anymore because the sanctions are there.
• 31:02
  Speaker 2: All the politicians were like, this is great. Sanctions are working.
• 31:04
  Speaker 3: They're so good.
• 31:05
  Speaker 2: But the cars were going into Azerbaijan and to Georgia
• 31:10
  Speaker 2: and to Kyrgyzstan and to all of these other places.
• 31:13
  Speaker 2: It seemed like that was the end of the story.
• 31:15
  Speaker 2: In reality, of course, as anyone who's got any sense
• 31:17
  Speaker 2: would see from that story, They're going into Russia. It's
• 31:20
  Speaker 2: just they're going in on the sly. And so we
• 31:22
  Speaker 2: went and we watched the process of how Land Rovers
• 31:26
  Speaker 2: and Mercedes G-Wagons and all of these different cars, how
• 31:29
  Speaker 2: they are transported across. And there was this quite Byzantine
• 31:33
  Speaker 2: process of getting the car up to the border. One
• 31:36
  Speaker 2: person did that. Another person put the plates on it,
• 31:38
  Speaker 2: the transit plates on it. Another person took it across
• 31:41
  Speaker 2: the border into Russia. Another person then picked it up
• 31:44
  Speaker 2: from another place in Russia. And what's been created there
• 31:46
  Speaker 2: is thousands of jobs in this grey market whose entire
• 31:51
  Speaker 2: existence is about this primal force in humankind to try
• 31:56
  Speaker 2: to connect supply on one side of the world with
• 32:00
  Speaker 2: demand on the other. Obviously, in this case, we don't
• 32:02
  Speaker 2: like it because it's going against the grain of sanctions,
• 32:06
  Speaker 2: but it is primal. I think that that doesn't go away.
• 32:11
  Speaker 2: I think that the fungal network of trade, or whatever
• 32:14
  Speaker 2: you want to call it, the extent to which we
• 32:16
  Speaker 2: are all interwoven with each other means the stakes are much, much,
• 32:20
  Speaker 2: much greater than in any other point in history. There
• 32:24
  Speaker 2: isn't really a precedent for having a world economy arranged
• 32:26
  Speaker 2: in this way. There's lots of history in this book,
• 32:28
  Speaker 2: but there's no precedent for this. So one hopes that
• 32:34
  Speaker 2: as people like Donald Trump, or indeed other people, try
• 32:37
  Speaker 2: and throw trade barriers into the system and realise that
• 32:40
  Speaker 2: they're not working that well, that there's some cognisance that
• 32:44
  Speaker 2: actually that's because the system is far more resilient than
• 32:48
  Speaker 2: you might have thought. And that new strands, new webs
• 32:52
  Speaker 2: kind of grow up and sprout up when you try
• 32:54
  Speaker 2: and sunder another one.
• 32:56
  Speaker 1: Well, back to Adam Smith, it's one of the things
• 32:58
  Speaker 1: that makes us human, our constant need to barter and trade, right?
• 33:02
  Speaker 1: And as long as we need to do it, we'll
• 33:03
  Speaker 1: just keep finding a way to do it. Exactly.
• 33:06
  Speaker 3: And I think, yeah, that's really important.
• 33:09
  Speaker 1: Ed, last question. Did any of this, all these trips,
• 33:12
  Speaker 1: all the traveling you've done, the many companies that you visited,
• 33:14
  Speaker 1: this is great news, by the way, for the world's
• 33:16
  Speaker 1: small cap investors. The more we talk about this kind
• 33:18
  Speaker 1: of thing, the more excited they'll be. They can go
• 33:20
  Speaker 1: and dig out these small companies and invest in them.
• 33:23
  Speaker 1: Did it give you any sense of what your children
• 33:25
  Speaker 1: should study at university?
• 33:28
  Speaker 3: Golly.
• 33:30
  Speaker 2: Well, I'm kind of thinking about that like everyone else,
• 33:32
  Speaker 2: because AI is the big thing.
• 33:36
  Speaker 3: I think, you know, like.
• 33:37
  Speaker 2: There's a lot of people right now making a lot
• 33:39
  Speaker 2: of money through crafting beautiful bits of patisserie and selling
• 33:46
  Speaker 2: it covered in sugar.
• 33:47
  Speaker 3: You really enjoyed.
• 33:48
  Speaker 1: The bakery chapter in your book, didn't you?
• 33:50
  Speaker 3: I think it was your favourite. It was very important
• 33:52
  Speaker 3: for me, Maren.
• 33:52
  Speaker 1: To go to Paris and to sample all.
• 33:55
  Speaker 3: Of the delights.
• 33:57
  Speaker 2: So I think that having some sort of a skill
• 34:02
  Speaker 2: that is artisan and human and is immediate... is probably
• 34:07
  Speaker 2: going to be a safer bet than most other careers
• 34:12
  Speaker 2: at the moment. It's a kind of enlivening time, I think,
• 34:16
  Speaker 2: right now, because I think we're all naturally scratching our
• 34:20
  Speaker 2: chins and asking questions about what we do. And I
• 34:22
  Speaker 2: think that's a good thing, because obviously everyone's scared about
• 34:25
  Speaker 2: the AI and then they've got the kind of threats.
• 34:28
  Speaker 2: But I think we are attuned to interact... And to
• 34:35
  Speaker 2: come up with new crazy ideas and products to sell
• 34:39
  Speaker 2: each other. And long may it continue because there won't
• 34:42
  Speaker 2: be a shortage of that in the future.
• 34:44
  Speaker 1: Brilliant. Ed, thank you.
• 34:46
  Speaker 3: Thank you, you.
• 34:55
  Speaker 1: Thanks for listening to this week's Merrin Talks Money. If
• 34:57
  Speaker 1: you like our show, rate, review and subscribe wherever you
• 34:59
  Speaker 1: listen to podcasts. And keep sending your questions or comments
• 35:02
  Speaker 1: to merrinmoney at bloomberg.net. We do like to get them.
• 35:05
  Speaker 1: You can also follow me and John on Twitter or X.
• 35:08
  Speaker 1: I'm at MerrinSW and John is John underscore Stepak. This
• 35:12
  Speaker 1: episode was hosted by me, Merrin Somerset Webb. It was
• 35:14
  Speaker 1: produced by Sam Asadi and Moses Andam. Sound design by
• 35:17
  Speaker 1: Blake Maples. And special thanks to Ed Conway.