This podcast is supported by better help. Here's has you Joe head of clinical support. somehow in our culture, we ve decided that talking to a therapists makes you weak or it makes you crazy. I'm here to tell you right now that it doesn't reaching out for help, makes you strong and tapping two vulnerabilities, means that you are taking action over your life listeners of this package get ten percent off their first month that better help dot com, slash new york times, learn more. Better h, e lp dot com, slash new york times from the new york times. I'm sabena tavern easy. and this is a daily, the gray supply chain disruption caused by the pandemic is mostly over, but led to a larger and more permanent change in the global economy. Today, my colleague Peter goodman report, from the forefront of that change and industrial park in mexico.

Companies from china or setting up shop, it's tuesday february, twenty first. Peter we all remember that during the pandemic, we couldn't get stuff mattresses, couches were all stuck out at sea, taking for ever get to us and, as you explain to us on the show in october, two thousand twenty one. That was because the supply chain was totally disrupted and specifically that the factories in china were totally disrupted, which really scrambled the entire shipping system across the pacific that feeds everything that americans want to buy. But now you've reported that there's been a big shift in all of this. So what was it should

time. We talked. We were talking about giant container vessels that were stuck floating off of large american ports for weeks and sometimes even months waiting their turn to pull up to the dock. That's largely gone, at least it is on the big if the coast, ports in los angeles and long beach, there are trucks, moving and picking up containers, a lot of the shortages are gone. Shipping prices which had spiked dramatically, have plummeted and have returned largely to pre pandemic normal, but meanwhile, something really significant as shifted. The kind of globalization that we ve all been accustomed to over decades has given way to something much more regional, and what does that mean peter? Well, you know four decades china was at the centre,

of globalization, multinational companies went pouring into china. We talked about the china price, which was code for the cheapest possible price. This assumption that china, this country of one point three and at one point four billion people essentially has a limitless supply of workers and eager for factory jobs streaming in from the countryside, and that this was just an unbeatable combination, along with investments into ports and other infrastructure by the

ever men and the build up of the supply chain. You could get everything in china to make just about any product that you can imagine from top to bottom, but since the pandemic, multinational companies have come to revisit this central faith in China. I talk not that long ago to the ceo of colombia sportswear this in a giant sportswear company of its headquarters in Oregon, who said four years as we invested in asia, we operated as if shipping was essentially free, shipping was cheap. It was reliable and we'd all feel that way, any more and now we're trying to figure out what comes next and what comes next for many companies is figuring out how to make their products closer to their largest more Right the rethinking that model, because the pandemic showed how vulnerable the shipping sis

we all relied on actually was yeah. That's exactly right. Companies are looking for alternatives to factories in china now the biggest market as the united states, and so this takes us to mexico, which is an obvious plays if you're I'm looking for lower wage production, an and easier land transportation to the united states, just glance at the map, you end up in mexico, and I had heard in fact that, as production shifts from china to mexico, a lot of goods are being moved by truck through the port of laredo texas. This is this border town that has for a long time been busy used overland port in the united states is so I go down to laredo to see how this is playing out there, and I might

first morning there, but the ears of those is dead. As thank you for joining us good. I says persepolis, others I'm invite, it is a press conference city hall just so much to be happy about for the mayor at the time, pete signs is celebrating the fact that in the most recent mine, the october, there are more goods crossing the border. Antlers then there are goods coming into the ports of l in long beach, wow incredible yeah. There was amazing and a court the expectation errors that is going to increase in international commerce for everyone. Now I have even heard the word. Tsunami covers a tray. and the mayor is talking about the need to work with governments Other side of the rio grande in mexico to make sure there's enough infrastructure to handle

of all these good, so damn Benita has been almost ones which have an keys, invited a delegation from one of those border states The state of nuevo Leon, We want to see us in those days you then again the officials from the way of allowing play this promotional, video touting the merits of investing in their state mean obviously does not mean that you say no hold off what tokonoma. Video there saying that noise alone is already getting something like half of all the foreign investment. That's coming to mexico they're talking about how their up waiting, the highways and how they are only a two hour drive from the border,

no mother me cecial, midpoint, the columbia and others, the cobbler peace between the muslim and any then mumbai after this video was over and the press conference was done. I approached this economics minister, who had made this presentation. I asked him: what do you think fit this trend, this trend where companies are shifting production from china to mexico will that last after shipping rates returned to normal after the pandemic is behind us, and he told me something that I found just astonishing said: listen, we ve got chinese companies that are setting up aggressively. We ve got a whole

industrial park where there's twenty eight different chinese companies that are now sinking billions of dollars into factories in Nueva Leon to serve the american market? And he said you, you should come down and take a look, and I I was immediately intrigued right, because for so long chinese companies have been making all of their products inside China yeah that's exactly right and I I went down there couple weeks later, what you find when you get there well, I led in Monterrey the capital of land, which is this boom town There are all these glittering new shopping malls, full of luxury goods, outlets, doors and lovely hotels with interesting, modern, orkut sure, there's, fine, dining and very clean streets. Heck d monterrey, which is known as mexico's mit, is east cure, along with some other prestigious universities that are turning out engineering graduates that are looking to boost the mexican supply chain,

but what I really want to do was Oh see what was happening out at these industrial parks. Were companies were setting of factories, and so my get in the car driver an hour nor the monterrey, the city gives way to a bunch of ranch is village, is then just unbroken desert dotted by cactus and at a fair he kind of black spot in the map. Suddenly, there's this enormous construction zone of lots of heavy equipment, there's a key marking the entrance to the hall, son industrial park, where these twenty eight chinese companies are erecting Three some are already producing most her still breaking round and I'm introduced to a guy named build chan. Who is the head of the men It goes subsidiary for chinese furniture maker called man walk, and he tells me the story of how his company

adapt to the changes in the global economy by setting up three hundred million dollar factory right there in mexico. So what is the story with this company? And how does bill can talk about thirty and to set up in mexico, so my wife is really a classic chinese exports story. founded in Hong kong and ninety. Ninety two men were has been a dedicated producer of sofas mattresses, Start with the bunch factories in china throughout the country from the southern, town of sham, jammed the northern city of tea, and they make really cheap, easy boy like reclining. So the men without one point: three: two million sets himself as a year or more Thirty six hundred sets himself as a day provide

in quality and comfortable furniture to over four thousand families they export this does all over the world, but the? U s is their most important market self online merchants, like wayfare wholesalers, various retail, in all the years ahead. We will strive to build into a top international furniture centre and steer the advancement of global furniture, have to remember that, even before the pandemic, that model was disrupted by the trade war started by president trump really from the minute he took office. I mean he starts off slapping punitive tariffs on chinese goods across the board, which makes it more expensive for americans to purchase chinese goods so long before the pandemic. Magua is already searching out all turn,

We have places to make products for the american market. This prompts the company to buy a factory in thailand, the build a new factory in vietnam near HO chi, minh city. They even purchased a factory in ukraine, though they had to abandon that once russia invaded, and they were using these factories outside of china to ship goods to the american market to get out from under the trump tariffs will then the pandemic come and disrupt shipping across the pacific. So you know whether you're in thailand or vietnam are china. No longer matters you're on the wrong side of the pacific ocean and

We decide they need to get onto the right side of the pacific ocean and that leads them to start exploring the possibility of opening a factory in mexico. So first comes the trade war, prompting them to move production to southeast asia, but then comes the pandemic which prompts them to move to. As you said, the right side of the pacific and they turn to mexico- yeah- that's right, and you know there are a bunch of factors that bring them to mexico. Proximity is the primary consideration, but you know they could set up in the united states, presumably but the u s has labor shortages and the? U s has higher wages than their customs paying in china and south east asia, mexico, the wages are much closer to prevailing wages in asia and when they factor in savings on transportation, they think they can get pretty close to the overall costs of making a sofa and delivering it to a customer. You know the same equation

looking at an asia and not east mexico is part of a free trade zone with the united states and canada right and if there are able to make their products in mexico and qualify for the maid mexico label. They can ship them to the rest of north america, duty, free and so for all. Those reasons, meanwhile, is looking very seriously at mexico build sham reaches out to one of the marketing people at this industrial park. He finds outside of Monterrey, the one on visiting their tech

being on, we share the chinese are familiar platform. He's asking your basic questions like. Can we start construction immediately? Yes, our the roads there, not that great, but they're getting better. Are there any real chinese restaurants round? Absolutely not, and then he is really feeling a sense of urgency to make this happen, because they ve got just scores of containers that are stock in these floating traffic jams. They cannot get their product from asia to the united states. So Chan has never set foot in mexico. He doesn't even visit this industrial park, but he takes some reassurance from the fact that twenty seven of the twenty eight parcel, in the first phase of this industrial park are already spoken for, and there are some company she recognized and without even setting foot in mexico key signs a letter of commitment to build a three hundred million dollar factory. Just a couple of weeks after he starts talking to the people

go, and he signed the letter of commitment at shanghais pudong airport before he boards of light san francisco on his way to monterey, leaving his wife and children behind in china. So he moves really fast to get in on this yeah. You know he just sort of shrugged. When he's telling me this, he said: look we had to move fast. Can we make our decisions and we execute- I mean they are? tat on figuring out how to continue shelling into the? U s market, never mind the pandemic disruption, the trade war, whatever the politicians are saying this large chinese company, is simply not walking away from the largest consumer market on earth. Will they re back here's what trending? Now you can defer payment of a fool, sweet implementation for six months. Thirty, three thousand:

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to really get deeper into. What's going on what I'm I do is help our readers understand what's happening. He in east africa see how it plays a role in the bigger picture near term subscribers keeper journalists reporting from across the map, to help you understand the issues shaping our world view I just subscribe. You can do that and white times dot com slush subscribe, so pure, All these chinese companies setting up shop south of the border in new civilian mexico how's it going so far, well it's too early to know how it's going because lots of stuff has to happen, but you know there's a lot of enthusiasm in mexico. There's a lot of hope that all this investments can translate

two jobs, potentially at higher wages, as there is greater demand and competition for workers for american consumers. This could be a way to get out from under these product shortages. In disruptions that we ve seen through the pandemic, the trade war. There is some talk that there could be slightly higher prices for some things, but for some goods there could actually be lower prices because a lot of people you that, after a factor in the costs of transportation, the cost of labour are more or less the same in many areas, mexico in china, and so they could be savings, but the most important reason this might be good for the? U s is because trade within the region tends to produce more job opportunities. At home, you know we ve seen a hollowing out of the industrial base, during the era of china's centric globalization in manufacturing

it is in the? U s. Well, the data shows that when we buy a good that's made in mexico, roughly forty percent of the value of that good is actually produced in the united states by american workers. The figure for china is something closer to four percent and, of course, chinese state policy is aimed driving that is close to zero is possible as china aims for self sufficiency. So again, when we trade within the region were effectively creating demand for american made goods,

You're saying that, even though these factories are not in the? U s, it could still stimulate. U S, manufacturers, because products would go to supply those factories in mexico yeah! That's right! I mean the supply change in the: u s and mexico and canada are increasingly intertwined. So if you look at you know a car that might be assembled in mexico, it draws on parts and components made across the: u s, third goods, they crossed the border multiple times back and forth, before

final product is assembled soap. In other words, things made in mexico are also kind of made in america in a way that they just wouldn't be if they were made in China. Yeah thus, well put you know the other way in which it would be good for the? U s and for mexico is all of our tensions around the border. Involving immigration could be eased somewhat if mexico develops and has more decent paying job. So, whatever your feelings are about immigration from mexico and central america, it does seem like a positive if there are more decent paying jobs in mexico right since the economy in mexico is booming. Migrants might stop in mexico incentive coming across the? U S, border yeah, that's exactly right and instead of argue,

over the border in immigration policy, we can be celebrating economic growth that ideally benefits the whole region, and what about the chinese companies I mean, we know it makes a certain kind of sense for them on paper right like that's, why they're coming to mexico, but now that the rubber is really starting to hit the road how's it going for these companies? Well, it's challenging, and there are reasons to wonder how chinese companies will adapt. The first thing, the journey companies have to deal with is the reality that the supply chain in mexico is just nowhere as abundant or sophisticated, as it is at home in china, so they're still having to bring in a lot of the key components: apparel company for bringing in fabric from China. I talk to up one of the other twenty eight companies that industrial park is a big wheel,

and your factual error they have to bring in aluminum ingots from do by me. That's not something they can buy in mexico, so that will be a long term challenge the more immediate challenge is labour. There are operating in a place where our labour unions. I mean labour unions are, are very active in mexico. Chinese companies at home are accustomed to operating in a place where you need more effectively band and there's this summer, and even if its changed over time in reality that you'll never run out of workers that, if you mistreat workers and they go somewhere else, there'll be some new people showing up from the countryside desperately in search of a job and willing to work at low pay well in mexico and take at just the

it allows, for example, where the unemployment rate is around three and a half per cent. They're gonna be in fierce competition with european companies, american companies, other latin american companies for labour and there's also a gap between the expectation. The people on the ground in their bosses in china. I had some conversations with chinese. executives in mexico. Who said look we understand we have to do things like you know, throw a barbecue for the workers, I think about offering them buses to help them get from their homes to the factory, but we're answering to bosses in china who are like why we pay for this stuff. Well, what's up with this line item were there to try to cut costs? So that's attention going forward for sure, but this isn't just about barbecues and free shuttle, buses it like given the labour dynamics you're describing here, I'm assuming that the relatively low wages, the companies were counting on when they set their sites in mexico in the first place may not last for long like the workers. Could

easily demand more knowing how much china needs them. The others, I mean union power plus low unemployment is a prescription for higher wages, and a lot of these chinese companies are simply not accustomed to having to compete, with other employers to hire workers and to retain workers and they're gonna have to distinguish themselves as good employers. Are there simply gonna have a tough time get the people they need man. Why needs six thousand workers in a place with three and a half percent unemployment to fill out? This job

and factory that now building for three hundred million dollars, so it sounds like while this could be really good for china, because this could be a way that they hang onto their giant market in the. U s. There are also profound risks, because this huge x factor you're, describing you know whether they'll be able to work with a completely different labour market or not. You that's true, but I guess I would flip that and say. The status quo has risk and the model has changed. I mean take Walmart the world's largest retailer twenty years ago. I, if you were a factory, trying to sell a product to Walmart, to put on their shelves and you were making it in China. They pretty much didn't want to talk to you, because I was an indication that you

producing at the lowest possible cost will now I'm in. I was just down and bent and veal arkansas, which is walmart headquarters just last week, and I met with a representative from a bunch of factories in china. That's now exploring alternative factories elsewhere, and you ve been going to see walmart for twenty years to pitch them on products, and he told me that now, if you're only relying on chinese factories, that's the end of the meeting with walmart. Now they are so insistent that there be greater diversity of supplies that you better have an option where, if your cell in the united states, you ve got a factory in mexico or may be central america mean regional association is now being driven by the world's largest reach.

a operations interesting so Walmart is trying to insulate itself from all of the vulnerabilities of manufacturing in china, the trade war stuff in the supply chain stuff and basically forcing these companies to embrace this model of regional evasion, because its fundamentally in moments interest exactly Peter give All of that is china going to remain the dominant manufacturer in the world that it has been for so many years near it probably will for several years for the summit Reason that there's nothing else like china on earth, I mean in terms of scale in terms of the intensity of the supply chain its, oh really, the only place where you can make a huge range of industrial goods from furniture to clothing, to higher value stuff, like electronics, where you have all the components in the raw materials right there. Any a china is the world

second largest economy, China can drive an enormous amount of economic growth simply making stuff for its own. One point four billion people in china will continue. to do that as well as continue to be an export powerhouse, and so anybody writing it. Obituary for globalization is way off we're. Gonna continue to trade. We're going to continue to look to different parts of the globe for specialities and countries will still be defined by their various competitive advantages, but it is the end of the way in which we ve conceived of globalization. Where china is the factory floor to the world, we ve come out of this experience of the pandemic, combined with the

Trade war, with the profound understanding that there are risks that we used to pretend weren't there at all, and that argues for all multinational companies, not just chinese multinational companies. All multinational companies keeping their production close to ultimate markets. We now have industrial policy in the united states designed to ensure that things like advanced computer chips can be made in the. U s that electric vehicles in batteries can be made in the? U s and this stuff involves erecting plants that cause billions of dollars in places like the? U ass, in places like me, China will still be an incredible significant place for manufacturing, but there will be others they will be driven by an emphasis

on regional ization and an appreciation of the value of making your goods closer to wear your actually selling, and that is a fundamental shift in the way the entire global economy works. yeah big time I mean it's really like the world map is being redrawn in real time. Peter, thank you thank you. The no, yeah, we'll be right back

Here's! What else you should know today was one year ago this week We spoke on the telephone it was very late at night in Washington too early in the morning here in KY. On monday, president Joe Biden made a surprise visit to kiev to meet with you union president flooding missile linsky about rotor rubber, were to show what you said, and I quote gather the leaders of the world. As before. Ukraine Biden, retainer by train from the polish border. The first time he had travel to ukraine since russia invaded go the americas stand with you and the world stay with you Key has captured a part of my heart, I must say, priests, ukraine's resilience and announced an additional five hundred million dollars in. U s military aid, any criticized. Russia's president, Vladimir Putin, who is expected to

the speech of his own on tuesday in Moscow. We know it will be very difficult days weeks in years, but russia's able to wipe ukraine off the map poodles war conquest is failing and another earthquake turkey in syria. On monday, the six point three magnitude quake struck near turkey's type province, one of the areas most devastated by the earthquake that struck earlier this month. Those quakes killed more than forty six thousand people. Finally, Over the weekend, Jimmy Carter, the thirty nine president of the united states, entered hospice care. He served from nineteen seventy seven to nineteen eighty one but lost reelection after a sour economy me an american hostage crisis in IRAN. At ninety eight quarter. the longest living precedent in american history. Today's

was produced by diana win, robs co and will read with help from stella tat. It was edited by page cow it with help from a need but it also contains original music by dan, pow, Sophia, lemon and marion lozano and was engineered by marian Lozano. Our thing music is by Jim brun, burke and Ben lance work of wonderingly that's it, for the daily aims. We need, haven't you see tomorrow.