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. 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, you're not a big business guy, but you have that platform, shelf aware 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 organized business.

You still work in that business?

What is 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 onto that duty and for 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 shelf aware at this point.

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

On the shelfware side we have license the system to three 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 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 you see people import, export and there is increasing escalating tension between the US and China specifically around well, different economic parameters. But there's also other forms of hostility. So 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 been like, this has really been welling up for a decade or 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 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 of 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 they're going to be behind the eight 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 back end, 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 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. So when you're talking about demographics, I'm thinking they have, you know, I don't even know population. It's billion plus. Right? It's like India.

Yeah.

Okay, so massive population, inexpensive workforce. People were willing to work for pennies on the dollar comparatively to US Labor. Therefore US Imports from China get the cheap plastic stuff, or I shouldn't say 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? What's the shift exactly?

Well, so China's economy has always been built around import exports. 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 because 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, and right now with COVID it's probably not a real possibility, but it's something you need to go set your eyes on it. And what's happening now is, and these are really again, huge, giant trends that I personally am not identifying, 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 exports 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 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, you know, even if like long time posts in Europe, like Germany, we're pulling troops out of Germany and Europe and Asia and the, you know, 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. So 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've been doing something.

About the demographics in China, people are getting older. What I heard 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 housed them. So they were only able to produce one child. When you limit people to one child in a lot of societies, they're gonna pick male children. So then it just set them up for failure. It was a really poor attempt and limited their economies, long term outlooks.

Okay, so one child law, they're male oriented. So there's a lot more male youth than 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 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 retired age folks, elderly individuals. So it was always like this. And then what's happened with healthcare technology and then birth rates dropping like 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 you know, 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 biggest pyramid right now. The most incredible pyramid is an insane amount of old people, you know, a fairly handily 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 improve on things. Japan again, talking about Japan, they've gone to a 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. So they have a lot of robotics, automation, and they've invested heavily in that area in the last decade because they recognize their demographics suck to continue this model.

So you talked about the ocean. So 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.

Yeah, I know, I know. Pirates.

The Caribbean swinging through. Yeah, right.

I got three little kids and the other day they're like, dad, do pirates really exist? Yeah, yeah, they have machine guns now. Yeah, they have machine guns and, you know, 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 kind of 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 trade routes. Okay, so. 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, our whole idea for the last 50 years is this idea of a global economy.

Gotcha.

And it's reaching to a hole.

Yeah. And China, 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 like I would want to see the video because it's brutal. They didn't have any like firearms. They're in this like border conflict and it's these two 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 kind of like a scuffle. Not, not happy.

My gosh. So. 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 want to add the fuel to the fire. But then I want to talk about the implications of small business which we have recently. TikTok. There's an executive order from President Trump saying no TikTok in the U.S. we think it's spyware. They're fighting back. The Chinese consulate was disclosed in Houston for spying on the U.S. they retaliated. They closed down a U.S. 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 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 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 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, distrust, I'm sorry, lack of trust to 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 the larger problem which China's losing its grasp on this economic system. It's crumbling, it's falling apart. And so these are kind of like they're Draw dying kind of straws. They're using technology to manipulate their populace and trying to continue to maintain control. But I wouldn't be shocked like in the next couple years if you see the Chinese system fall apart further and you see riots and famines and more of a, a terrible scenario play out in their country.

Okay, so now let's talk about the small business perspective, particularly from the US mindset or importers from China. What are you doing? What do you suggest we do? What are you observing your clients using shelf aware 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 with 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, the U.S. and Mexico, but bring it to a country a little closer to home with a little less risk profile and make a surer 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 in China, India, Taiwan. Vietnam's my favorite. And then Thailand to a degree.

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

Amazing, that was my number one. That was what I was gonna say is their food. 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 from 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. They've shown that they're a fairly Robust society and culture. They have a really good outlook on life. I mean, they really bounce back. After the Vietnam War, everybody's got a smile on their face. They have pretty great infrastructure and fantastic deep water 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 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 there's like manufacturing. And I think we got a question later on that we were going to 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. The simple answer is manufacturing is not sexy. So if you had to work in a factory, you don't want to work in any of my like rubber and plastic facilities because 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 H vac, 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 want to. My labor pool can't compete against a high tech labor pool because that environment's 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 going to be a tough uphill battle as well.

Well, you know, 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?

Sure, sure, sure, sure. Yeah, 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 like, I don't see a lot of my generation like really after prone, like we were all told when I was a kid, Mike, that you have to go to college and you have to get a college.

Totally.

Right, 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, 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, you know, to China in the 70s, 80s and 90s. The, that lack of, I mean nobody, nobody really invested while we're outsourcing. So you're not going to send business overseas at the same time upgrade your factory stateside. So yeah, factory stateside all suffered. And the infrastructure, it's not as simple as just like throw a computer in 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. It's a long, it's a stretch to come back right now. And you'd probably be perhaps better off picking a near shore or sure shore opportunity.

Yeah, there's definitely a stigma. Right. So if you look back, like World War II, Rosie the Riveter, it was cool. There was a positive association 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 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 is going to college, can't get a job. They're lucky to make, you know, $10 or $15 an hour and overwhelmed with debt where the plumber's making $50 or $60 an hour.

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.

Sure.

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 so 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 particular interested in using technology in the manufacturing settings. So I mean, that's all what shelf aware my little company is all about is getting B2B suppliers, consumers hooked up on a high tech supply chain piece where you don't have to use people and clipboards to monitor inventory consumption on a factory floor setting. So I want them to 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 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 and Ls.

Yeah, 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 could be from like business to business. That's my world. So it's like manufacturer, moving goods to wholesaler. Or it could be 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.

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 stocking 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, 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 U.S. economy or Western countries?

Yeah, I guess I'm going to kind of dodge this question by saying that I don't think a hot war is going to occur. Yeah, I hope it doesn't. I don't see it escalating beyond, 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, our own country, of our own problems that we're trying to solve. And we're becoming like less concerned with the global scheme. And so we're saying, hey, eu, you guys figured 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 in that direction, I don't really see a hot war like with China. I see more of just a, you know, a fizzling cold war continuing, you know, 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. Well, 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 chain.

Everyone's in supply chain. Even if I'm service based in my part of the supply chain, if I'm a lawyer.

Yeah. I mean, in your, in your consumer life, I mean, you might want to look.

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 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, 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 got to travel to go see your key suppliers. I mean, if you're spending six figures plus as a small business with somebody in Asia, you need to see that factory and you 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, you can be out ahead of your competition and in turn, like forms of making strategic moves overseas. So I think that's, that's really valuable. The other piece is really just finding experts in your area of expertise in your particular niche. Like I mentioned Zeihan earlier, he's just this like geo strategist, 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. But you got to find that dude or woman that is centric to your small businesses, 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, 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 kind of starts flipping the other way?

Well, you're seeing that happen in the oil industry. I never thought that would happen. Where we became oil expenditure exporters, net exporters and that happened in like 18 to a degree and then a lot in 19. And you just saw the crash 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, just basic principles of like your land is better than our land. 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, it's. 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 to 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 a big believer in video content. So I make a lot of my own videos, two or three minute videos that explain what we're doing, why we're doing it and where it's applicable. And that's probably their best bet. Perfect.

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

Yeah, you're welcome.