The Cold War With China and The Effect On Your Supply Chain with Andrew Johnson MUIYB Podcast

How do we respond and protect our businesses?

Diversifying your supply chain. And I'm not going to be— I'm never really— this is just like a general, just a general good idea. Don't be reactive, you know, just be measured and cool in your response. And small businesses have the luxury of being able to move really fast. So we can make those knee-jerk decisions. But with things like geopolitics and your supply chain, which is really complex and complicated and expensive and risky to move, I would take a measured approach. Yeah.

Well, so when we started, give me a little bit more about that. I mean, you're not a big business guy, but you have that platform ShelfAware that specifically helps people with trade, right?

Yeah. Yeah. It's B2B last mile supply chain. So that's my new expertise. My previous expertise is where I got my Asia expertise, which is still part of my life, but my family business is a large importer of rubber and plastic goods. And I manage their overseas supply chain in a very organic—

Do you still work in that business?

What's that?

The import-export, you still work in that?

Sort of, I mean, I can't really let go of the import-export overseas travel piece because it's really hard to reestablish all those relationships. Like I can't just like sub in my brother and say, here's the new guy, get to know him. The agents just aren't cool with that, and I don't really blame them. So I still anticipate hanging on to that duty and for like the foreseeable future.

Okay.

I just— in the business, like, I don't work the day-to-day in the O-ring and seal rubber business anymore. I'm all like primarily focused on ShelfAware at this point.

Yeah, so ShelfAware came out of that though, right? I mean, so you had a— you knew import-export, you build ShelfAware, How many clients do you have now that are using your system?

On the Shelfware side, we have licensed the system to 3 other independent distributors. And of course my family business is still the largest user. And we have working on like a dozen large consumers on the consumer side of the platform. So today we're, we're tracking millions of dollars, thousands of SKUs on a real-time basis through the system.

Okay. All right, so that gives us good context. So, so, so you see people import-export, and, um, there is increasing escalating tension between the U.S. and China specifically. Yeah, around, uh, well, different economic parameters, um, but there's also other forms of hostility. So I— what's your— how's this affecting your customers? Do you see small business in particular being affected by these trade wars?

Eventually, yes. And in the short term, no. I think it's getting a lot more press because of the Trump presidency. So Trump really, because of his character and his personality, he attacked this thing head on. But this has really been welling up for a decade, more. And so like most of my family business supply chain, it's been moved, strategically moved over the years away from China into other countries like Vietnam, Taiwan. We have a large piece in India. And that was, you know, to avoid some of these things that have been developing, which really is just the Chinese system, economic system, more or less slowly crumbling. And it's really because of demographics. I mean, those are the things that they can't avoid are the demographic shifts. That are happening in their country despite their best efforts. And so we moved— the demographics play out in the manufacturing space because labor rates, basically, so you just run out of young people that are willing to work in factory settings. And we moved a lot of our more inexpensive commodity-based products to other economies that were more prone or adept, you know, to produce those cheap goods. And so I think if people are just now noticing that, especially small business owners, If they're just now noticing these effects on their business, they just haven't been paying attention or close enough attention. That happens a lot. Like people who just finally wake up and like, you know, they're going to be behind the 8-ball if they're really relying on China for cheap goods. And this is a fascinating topic. If you get into the entrepreneurial space in regards to Amazon, there's a ton of small entrepreneurial businesses growing on the Amazon marketplace. If they're hyper-focused on a Chinese-based supply chain on their backend, so they're importing goods from China and selling them on Amazon, I think this has affected them or will affect them and continue to affect them more adversely than other businesses that are importing technical goods, engineered product.

Okay, so let's, let's pull this down really simply for my mind. So historically, China creates cheap goods. And the reason they can create cheap goods, because they have a massive, massive labor force. Just so when you're talking about demographics, I'm thinking they have, you know, was it— I don't even know their population. It's billion plus, right? It's like India.

Yeah.

Okay, so massive population, um, inexpensive workforce. People were willing to work for pennies on the dollar comparatively to U.S. labor. Therefore, U.S. imports from China get the cheap plastic stuff. Cheap plastic, cheap goods comes in from China. But then I heard you say there's a shift going on in China. So what's your observations? Why? What's the shift exactly?

Well, so China's economy has always been built around import exports. I mean, they just don't have— and let me back up a little bit too. I didn't really become a student of Southeast Asia and China until I started traveling there in 2015. So I'm a fairly recent student of it. Before then, like most small businesses, my family business was just taking for granted all the stuff we bought overseas. And that was about half of our supply chain came from Southeast Asia. And so in '15, I started to look more closely at our family business back in supply chain, 'cause we were seeing some adverse effects kind of play out. And that's when we got more hands-on and I started traveling over there. So I think from an entrepreneurial perspective or a small business perspective, if you have a supply chain over there, you have to get over there. And right now with COVID probably not a real possibility, but it's something you need to go set your eyes on it. And what, what's happening now is, and these are really, again, huge giant trends that, that I personally am not identifying. I mean, I am identifying them with my own eyes when I travel there, but I have started to pay more attention to folks like geopolitical strategists who have a great grasp on things. One of my influencers that I pay attention to that if you want to study somebody much smarter than me, on all of these geopolitical topics is Peter Zeihan. He's a great geo-economist, political strategist. He really pointed me in the right direction and then I dug into it further. But what we're basically looking at is Chinese— China's economy is based on import-export. Okay. And import-export model depends on security in the ocean. And if they have America, the world police, patrolling our waterways, then China can export goods across the world freely, cheaply, securely, and they can import goods. And the big imports that they need are oil and agricultural products. So US net export agricultural products to China is huge. And then China gets most of their oil from OPEC. And so they got to have those inputs to produce all these goods. And then once they produce the goods, they got to have all the outputs to sell them. And so If there's global instability, meaning if the world stops being the world police, which I think we're well on our way to do that, there's no appetite in the US anymore for us to just go around and police the heck out of every sector of the ocean, every sector of the world. So now that that's stopping and we're pulling troops out, even of longtime posts in Europe, like Germany, we're pulling troops out of Germany and Europe and Asia and the Middle East regions. Those are all going to destabilize theoretically, and then it's going to be harder for the Chinese to really suck in the imports they need securely to produce the goods and then export the goods successfully across the ocean. This has been happening mixed with demographics in China to make it basically the writing on the wall for the last decade has been get your inexpensive labor-heavy goods out of China and move them into areas like Thailand, Taiwan, Vietnam, India. And that's what I'm—

Tell me about the demographics in China. People are getting older. What I heard maybe between the lines is that there's a demand for better labor rates, better wages. Is that what I heard?

Yeah. I mean, simply put, like the demographics, the one-child law for the past 40 years has really hosed them. So they were only able to produce one child. When you limit people to one child, and a lot of societies are going to pick male children, so then it just set them up for failure. It was a really poor attempt and limited their, their economy's, uh, you know, long-term outlooks.

Okay, so one-child law, they, they're male-oriented. There's a lot more male— yeah, youth and female.

Yeah, demographically, like in the whole world, demographics used to be a pyramid, and so you'd have always a lot of young people on the bottom, like, you know, early 20s.

Yeah.

And below, then you'd have a pretty decent chunk here in the middle of middle-aged folks, and then of course mortality rates would kick in and you'd have a pretty small set of like retired age folks, elderly individuals. So it was always like this. And then what's happened with healthcare technology and then birth rates dropping drastically in all these countries, you have an inverted pyramid happening across the world and almost every country. And so now you have demographics where you have a smaller minority, a minority of young people, and then a pretty big— in America, you call them boomers, boomers, and then headed towards retirement, which is going to equal this. And so then you have like a top-heavy society of old people, not very many young people, and the young people still are not having children at a very increasingly big rate. So think Japan, like, that's the, the biggest pyramid right now. The most incredible pyramid is an insane amount of old people, you know, a fairly handily a portion of like 40s, 50s, 60s year olds, and then not that many 30, 40 year olds.

And so I assume, you know, the old people either won't or can't or probably the work. Like, so I won't work the factory line for 12 hours. I can't, and I'm not going to take that low pay because I know there's a higher— I'm already attuned to a higher pay rate, I presume.

Yeah, like most of the old folks are going to get out of the workforce because they can't do it. So unless like technology changes that allows them to work longer in the workforce, perhaps that would— maybe the jobs get less labor-intensive if technology and automation, you know, improve on things. Japan, again, talking about Japan, they've gone to great extent to develop robotics and such in their economy that's going to allow them to continue to manufacture durable goods without young people. They have a lot of robotics, a lot of automation, and they've invested heavily in that area in the last decade because they recognize their demographics suck to continue this model.

Then you talk about the ocean. If the US isn't policing the ocean, What happens? Is there pirates effectively? Like, who's interrupting the trade then?

Yeah, effectively you'll have— I mean, I don't know. Pirates are fun to think about. I don't know that'll be the biggest—

I'm saying modern pirates. I'm not saying, you know, swinging through.

Yeah, right. I got 3 little kids and the other day they're like, Dad, do pirates really exist?

Yeah, they have machine guns now.

Yeah, they have machine guns and speedboats. But yeah, they still exist. Yeah, I guess just in general, you're going to have more unprotected trade routes. But I think the biggest issue, the bigger issue would be regional politics. And so like two countries like China and India get into a spat and the US isn't going to come in and be like, hey, hey, we're the quintessential world power. All of our economies all rely on you guys not fighting right here and right in the trade routes. Quit it. And we come in and we police it and we tell them to shut up and behave. We stop doing that and these little regional conflicts break out and it's going to disrupt our whole idea for the last 50 years is this idea of a global economy.

Gotcha.

And it's reaching to a halt.

Yeah. And China and India just went at it, right? The Chinese attacked India on the border.

Yeah. That's a crazy story. I mean, it's like, I don't think there's any video from it, but I would want to see the video because it's brutal. They didn't have any firearms there in this border conflict. India and Chinese squad just basically beat each other to death over—

Like physically?

Yeah, physically. I don't think they had any firearms. There was like a—

Oh, I didn't know that.

Yeah, they just got in like a scuffle. Not happy.

My gosh. So that's a horrible example, but it's an example of some regional conflict. Maybe not one that would interrupt trade. That's at risk. And then there's more going on. I just wanna add the fuel to the fire, but then I wanna talk about the implications of small business. We have recently TikTok, you know, there's an executive order from President Trump saying no TikTok in the US, we think it's spyware. They're fighting back. The Chinese consulate was just closed in Houston for spying on the US. They retaliated, they closed down a US consulate. Since you're familiar, far more familiar than I am with with the nature of China and its behavior. Is this just like small steps that are escalating, in your opinion? Are these one-offs that are going to go away? Why is so much happening?

Yeah. Again, I'm not like a perfect expert on this, but from my personal perspective, I see all of these little instances play out, and it does trouble me. I mean, they have a very heavy-handed central government. In China. And I, from a small business perspective, I've put a lot of time, of my own time and effort and energy to try and gather a strategic advantage by traveling to China. And now watching some of these things play out, and it does seem to be escalating. And I'm, you know, it makes me concerned about, hmm, am I personally safe going back to China?

Oh, interesting.

Yeah, so there's that aspect to it. And is my, you know, of course then my head goes like, is my supply chain safe, you know, in China? So this escalation just, I think from a small business perspective, just going to continue to push this further trust, this distrust, I'm sorry, lack of trust into American business owners and consumers in the Chinese system. And I think it should because the Chinese, when you see them, this is again my personal opinion, when you see them falling prey to some of these issues, it's just a symptom of a larger problem, which China's losing its grasp on this economic system. It's crumbling, it's falling apart. These are like their dying straws. They're using technology to manipulate their populace and trying to continue to maintain control, but I wouldn't be shocked in the next couple of years if you see the Chinese system fall apart further and you see riots and famines and more of a Okay, terrible scenario play out in their country.

Okay, so now let's talk about the small business perspective, particularly from the U.S. mindset, or importers from China. What are you— what are you doing? What do you suggest we do? What are you observing your clients using? ShelfAware, like, how do we respond and protect our businesses?

Diversifying your supply chain. And I'm not going to be I'm never really— this is just like a general, just a general good idea. Don't be reactive, you know, just be measured and cool in your response. Small businesses have the luxury of being able to move really fast so we can make those knee-jerk decisions. But with things like geopolitics and your supply chain, which is really complex and complicated and expensive and risky to move, I would take a measured approach. Sit back, look at your supply chain as a whole, decide, you know, if there are portions of it or a large chunk of it stuck in China, what portions would we want to diversify and bring to another country? There's a big effort to reshore products, which is, you know, bring them back to the US. I don't know that that's necessarily the approach I would take. I'm doing more of a— and this is a kind of a coin some of my supply chain influencers, or a term some of my supply chain influencer friends and I coined recently called sure-shoring. Basically, take the, just to play on words, but just take your supply chain, don't necessarily bring it back to North America, to Canada, you know, the US and Mexico, but bring it to a country a little closer to home with a little less risk profile and make a sure bet. And so some of those bets would be on countries like And none of these countries are perfect, but right now they look a little better than China. India, Taiwan, Vietnam's my favorite, and then Thailand to a degree.

Why is Vietnam your favorite? Well, besides their food being amazing.

That was my number one. That was what I was going to say is their food. Vietnamese food is awesome. Yeah. I mean, they have that French influence, so they have a great bread combined with— Yeah. No, that's probably my number one reason. But, uh, from, uh, being really realistic from a practical standpoint, Vietnam has a lot of things going for them. They have better demographics, they have more young people. Um, they've, they've shown that they're a fairly robust society and culture. They have a really good outlook on life. Uh, I mean, they really bounced back after the Vietnam War. Uh, everybody's got a smile on their face. They have great, pretty great infrastructure and fantastic deepwater ports. So it's a very long skinny, narrow country and the whole thing's a coastline and they have great access to ports. So that's one thing that's happening in China. The Chinese coast, a lot of manufacturing was happening up and down the coastline in China. And then in the last decade, as labor rates went up and their demographics got crappier, they moved a lot of their manufacturing inland. It's like a lot of my suppliers have moved from coastal China region to interior China. It drives up transportation costs. And of course, China's trying to combat that by putting in better railway systems between central China and the coast. Gotcha. But Vietnam really doesn't have that problem at all because it's just one long giant strip of coastline.

Interesting. So why did China move inland? Is there— there's labor, there's cheaper labor there?

They had labor pools there that were cheaper, so just follow the labor.

Okay, that's so fascinating.

Yeah, yeah. And I think the tech, just the tech space changed that because you have people like Apple and stuff moving in and making technological devices in China and like sucking up all the labor. So, um, there's like manufacturing And I think we've got a question later on that we're gonna talk about is, why is it so hard to attract tech companies to manufacturing companies? And like, why can't we automate faster? Why can't we see technology being adopted faster? And I think the simple answer is usually the correct one. Simple answer is manufacturing's not sexy. So if you had to work in a factory, you don't wanna work in any of my like rubber and plastic facilities 'cause they're hot and dirty and nasty. And you probably have to wear a respirator in some areas of the factory. It's disgusting. I'd much rather, if I'm going to work in a manufacturing setting, assemble an iPhone where it's like clean, HVAC, air-conditioned. And so you have these like interesting, just like extremely practical, like, duh, why didn't I think of that, things that hit you in the face when you're trying to figure out where to put your factory. Like, well, people, I don't, I don't want to— my labor pool can't compete against the high-tech labor pool because that environment is just nicer. So manufacturing is just not sexy. It's also hard to attract talent, I think, for that reason. American manufacturers, when they hear the term like reshoring and automation, Industry 4.0, the Internet of Things, all of these trends in American manufacturing, it's becoming this massive skills gap in an American workforce that really has the mix of high-tech skills mixed with manufacturing passion to drive innovation in American manufacturing. So that's gonna be a tough uphill battle as well.

Well, it sounds very patriotic to reshore. And then I wonder also if I can use justification saying, listen, I have total control. If I do it all here in my facility, no one can mess with me. I don't have to worry about geopolitics. But what I'm hearing from you is that isn't a safe bet or smart bet. Why shouldn't we reshore? Why should we— why should we sureshore? Sureshore.

Yeah, that's kind of a mouthful. But I think you should potentially look at moving closer to home and not necessarily coming home quite yet because the US manufacturing sector is not as ready as it should be.

Why isn't it ready? Is the labor not willing to do the work? Is it the technology?

I think it's a big part of it. I don't know. I mean, as a young— I'm 34. So as a young American individual, I don't see a lot of my generation really apt or prone. We were all told when I was a kid, Mike, that you have to go to college and you have to get a college degree.

Totally, right?

Yeah, yeah, yeah. So we all followed that pursuit. And then what's crazy now is I have a ton of friends with massive college debts and they don't really see like a manufacturing job getting them out of debt. Plus it was nothing they ever really planned on doing. So I don't know that the American labor force has a real appetite to work in a manufacturing setting as it sits today. And then I think just lack of investment for the last couple decades as we outsourced our entire supply chain, to China in the '70s, '80s, and '90s, that lack of— I mean, nobody really invested while we're outsourcing. So you're not going to send business overseas and at the same time upgrade your factory stateside. So factories stateside all suffered and the infrastructure, it's not as simple as just like throw a computer on the manufacturing floor and figure it out. There's complicated processes and a lot of like know-how that we've lost throughout the generations. To really get back to work in America in a big way quickly. And so for that reason, you can look at reshoring it, but I think you're going to find that it's a long stretch to come back right now. And you'd probably be perhaps better off picking a nearshore or a shortshore opportunity.

Yeah. There's definitely a stigma, right? So if you look back to like World War II, Rosie the Riveter, it was cool there was a positive association with, with getting out there and doing the work because you were productive, you were serving a country. Then in recent times, now there's a stigma like, oh, you have to do a manufacturing job, you can't get a real job, right? But what's funny is I even see in our own area here, there's a shortage like of skilled labor, like plumbers, electricians, can't get them, not available. When you do get them, their prices are skyrocketing now. And to your point, the educated— and I'm putting air quotes around that— labor, which went to college, can't get a job. They're lucky to make, you know, $10 or $15 an hour, um, and they're overwhelmed with debt, where the plumber's making $50 or $60 an hour. Um, but right, so that shift is going to take a long time, and I'm sure the pendulum will swing the other way. It always does at a certain point. So would you say shoring is really a way to kind of start bridging your way back Yeah, you can think of it like that.

Yeah. I mean, that's what, again, like I started this whole episode saying, like, I don't want to be overreactive here. I think a measured approach is always wise on complex issues like this. And that's where we are leaving chunks of our supply chain in China, but at the same time, we're moving chunks strategically back closer to home. And we're going to continue to encourage investment here stateside as much as I can as an influencer and educator, try and get people young people in particular interested in using technology in the manufacturing setting. So I mean, that's all what Shelfware, my little company, is all about is getting B2B suppliers and consumers hooked up on a high-tech supply chain piece where we don't have to use people and clipboards to monitor inventory consumption on a factory floor setting. So I want them to, you know, see the benefits, the instant ROI, but they have to get interested. There has to be a passion from the young people involved in that. We really have to reverse course on academia, and colleges have failed us miserably in the last 20 years and taught us a bunch of skills we'll never use. I'm not a huge proponent in college. I don't think my kids will necessarily go to college unless they want to pursue something that just demands a doctorate. I'd probably— I mean, I went to college, but I rarely use my accounting degree. It comes in handy on occasion. We know I'm looking at my P&L.

Yeah, but you could have learned it, you know, online adult education course.

Yeah.

I'm asking for a friend. How do you define supply chain?

Really, to me, it's just any movement of goods.

Okay.

Physical goods. That's what I'm focused on is any movement of physical goods. And that can, that can be from like business to business. That's my world. So it's like a manufacturer moving goods to a wholesaler, or it could be a B2C, which you hear that term thrown around all the time, which is business to consumer. But anywhere you're moving goods, physically moving goods.

So moving something from point A to point B, out the door at the Chinese manufacturer, or now Vietnamese manufacturer, to my retail store and stock on the shelves, that's considered supply chain?

Oh yeah, yeah. I mean, supply chain is a really big term. It's a huge term and it encompasses like tons of different areas of study. But yeah, that's one aspect of supply chain is your overseas supply chain.

So let's say, this Cold War becomes a warm war or hot war with China, you know, things go sour quick. And maybe some of the worst-case scenarios— there's disruption for transportation, there's political unrest, the workforce in China is not willing to work, the economy collapses— and say this happens on an expedited basis. If the worst-case scenario played out, how quickly would that happen, and what are the consequences to the US economy or Western countries?

Yeah, I guess I'm going to dodge this question by saying that I don't think a hot war is going to occur. Okay. I really don't see it. Yeah, I hope it doesn't. I don't see it escalating really beyond the point where it's at right now, which is the Chinese are desperate to try and save their economy and put it back on a steady heading. And the US is really just becoming more insular. We're more concerned as a people about our own country, of our own problems that we're trying to solve, and we're becoming less concerned with the global scheme. And so we're saying, hey, EU, you guys figure it out. You're on your own. Middle East, you're on your own. And to some extent, the American people are all cool with that. And if we keep moving that direction, I don't really see a hot war with China. I see more of just a fizzling Cold War continuing, where the Chinese are making desperate grasps to keep everything headed in the right direction, keep their kind of their train on the tracks. Yeah, yeah. So it just, it just doesn't— I don't see armor getting happening like between—

okay, but so small business, the small business guy that's not in the supply chain, I, you know, I, I— well, I actually, maybe I am. I have a pizza shop, I'm flipping pizzas. I guess the ingredients have to get to me somehow.

Everybody's in the supply chain. I mean, maybe not a Chinese-centric supply chain, but everybody's involved in the supply Everyone's in supply chain, even though I'm service-based.

Am I part of the supply chain if I'm a lawyer?

Yeah, I mean, in your, in your consumer life, I mean, you might want toilet paper.

Okay, okay, good point. Okay, so consumer life and then supplies to support the service work I'm doing. So is there stuff that we proactively can do today as small business owners to, to see if we are in a potentially compromised position or could be easily compromised? Or are there things we can do to be proactive on our front.

Yes. Now, since we're talking about China on this episode, I'll try and like start there.

Yeah.

From an overseas standpoint, if you're importing products and you're, you know, a lot of it considered is in China, then today the two things I would really encourage everybody to do would just, as soon as you can, as soon as COVID lets up and you can safely travel again, you got to get over there. You've got to travel to go see your key suppliers. I mean, if you're spending six figures plus as a small business with with somebody in Asia, you need to see that factory, you need to see those people, you need to see where their products are coming from. That's important. And it's important for a lot of reasons, but for me it's strategic. If you know these folks, then you can be out ahead of your competition and in turn, like forms of making strategic moves overseas. So I think that's really valuable. The other piece is really just finding experts in your area. Expertise in your particular niche. Like I mentioned Zihan earlier, he's just this like geostrategist, but he's real centric on manufacturing. And so, you know, that's why I kind of follow him, read his blogs, watch his videos. I've heard him speak at conferences. You got to find that dude or woman that is centric to your small business's product vertical, service vertical, and knows what they're talking about from a geopolitical strategy standpoint and be a bit of a student of it and then get messy. You got to get your hands, you got to get involved in it and to really control your own destiny on that front.

Do you think the reverse is going to present itself that we are going to, here in the US, start exporting more? Do you think that will present itself that starts flipping the other way?

Well, you've seen that happen in the oil industry. I never thought that would happen where we became oil Exporters, net exporters, and that happened in like '18 to a degree, and then a lot in '19, and you just saw the crash of the oil market recently. So yeah, I think in a lot of ways in different sectors we could become, you know, exporters again. Or just going back to like demographics and just basic principles of like your land is better than our land. Like we just have the best country, as far as like a huge country with lots of navigable waterways, lots of farmland we can feed our— we're very self-sufficient and we just got lucky. I mean, it's just a great piece of dirt on this earth.

Yeah, good piece of real estate.

Yeah, we just got lucky. I mean, we just— yeah, we're in a great position to survive some of these big changes that are happening in the globe. And there's definitely a lot of areas where we could become— again, things will shift, we'll be big exporters.

Yeah, Andrew, this has been eye-opening. I'm going to share details about Shelf Aware, but in the, in their post-edit, so to speak. But where can people learn more about what you got going on? Where's the best place to send folks?

Frankly, my YouTube channel, because I haven't spent enough time and money on my website yet. So I like my YouTube channel the best. Just go to YouTube and search for Shelf Aware. It's all one word, Shelf Aware. That's where I put my, I'm a big believer in video content, so I make a lot of my own videos, 2 or 3 minute videos that explain what we're doing, why we're doing it, uh, and where it's applicable. And that's probably their best friend. Perfect.

All right, Andrew, thank you so much for joining me today.

Yeah, you're welcome.