Hello, and welcome to Stephanomics, the podcast that brings the global economy to you. World begins unprecedented third attempt on that wise crack on Twitter as the clock struck midnight on New Year's Eve captured the global mood rather well. I thought. We're stepping nervously into January, wondering whether this might be the year things finally get back to normal, trying to ignore the fact that nearly everyone we know either just recovered from COVID or recently had a positive test.
Also that many of us in the US and Europe are once again working from home. So the first question on our agenda must be how is the latest wave of omicron infection affecting the global economy so far? And especially what's happening to that great snarl up in global supply chains that so dominated this podcast. In one we have the absolute latest on that in a minute from
our supply chains are Brendon Murray. But even if COVID starts to fade from view, we know the pandemic will probably change some parts of the global economy for good, including maybe Mexico, which looks a lot more attractive to global manufacturers now than it did before COVID. Thomas Black has a report from sea quares just south of the
US border. Later on, we also have the sad tale of fishermen and divers on the island of Iki off the coast of Nagasaki, whose way of life is already threatened by climate change, but may now also be hard hit by the Japanese government's efforts to cut the country's reliance on fossil fuels. I swim here every day, but the sea is dead now. At the bottom of the sea, it really feels like, definitely set. They are only optimates in there. Not our usual fare perhaps, but a parable
of our times. That story coming up later from our japan economy reporter Yoshiaki Nohara, But first let's have that update from our supply chain group Brendan Murray. This omicron spread so dramatically in the last few weeks of twenty one, I guess many of us felt we might be coming back from our Christmas holidays and find the world ground to a halt. Again. It's early days, but what is the early evidence on the impact that the omicron wave
is having. Well, the early evidence is showing that the global economy and supply chains in particular, are sort of withstanding the initial outbreaks, whether they be in France or the UK or the US. Uh. You know, a lot of companies have built in resilience plans to deal with workers as they as they call in sick. But still there are a number of of of hotspots where all of these cases are are affecting the ability of companies to to to have enough workers to move goods through
the pipeline that they need to move through. So we were seeing some signs that uh, you know, supply chains were starting to repair themselves towards the end of the year after a very disruptive year. But then Omicron you know, came, you know with a vengeance in December and kind of
slowed whatever progress we were seeing. So we're entering two with you know, even more question marks about the health of the global trade and whether goods can continue to move as as well as they have or as poorly as they have in a lot of cases for the past two years. And I guess that the latest news has been that that even a very small number of cases in China is causing them to have quite dramatic shutdowns.
Um in a number of places. UM, we we know, even if we're going to hear later that some businesses are trying to just to change that, but currently they there is a lot of reliance on Chinese production, and you've got complete shutdowns in at least a couple of big cities talk of of barshor in towns like Sheene
where their local supply chains are breaking down. If that is the story for for several weeks, if China starts having even the more national lockdown, I mean, that's surely gonna slow down this improvement in the state of supply chains exactly. This is the real wild card this year, especially in coastal towns where where ports are big employers and you know, important for the movement of goods you know,
into China and out of China. There are you know, several hundred ships, you know, currently waiting outside of Ningbo, you know, one of the world's busiest ports, and the truck are slow to come and go from this port, and that just backs the whole system up those trying to get in to offload and then to reload and
to come back to the States or to Europe. So that is really the big question, is the supply chains are really at the mercy of the virus, and especially China, which you know kind of is the gateway to much of the world's consumer goods and raw materials for that matter. So those shut downs to the zero tolerance policy in China for for COVID cases is really going to be the thing to watch as to whether supply chains can you know, kind of rebound or or stay as as
nodded and tangled as they are. We tend to think of the impact of OMCORN as being about hospitalizations and is it you know, that the public health consequences, which obviously could be significant if enough people get COVID, particularly people who are not vaccinated. But what you're speaking to is this the sort of economic impact which comes not so much from people in hospital but just people being
at home. And I can say in the UK we're probably in the sort of front line of this at the moment, having been the first developed economy to see a big spike in in infections. The worst case scenarios that the government's working with is that of the workforce might be at home in a few weeks, in the next couple of weeks, which, obviously, if that happens, you've got some pretty important workers who are not on the border controls, or not in the supermarkets, or not in hospitals.
So it's going to be very interesting to see how that plays out. But you do get the sense Brendon that whatever happens, we're going to know quite quickly, because it really is spreading so fast through the economy. If you look past the next couple of months, um, what are the sort of structural elements of the supply chain story, um that might start to fall into place over the next year. You know, people talk, for example about just they're ramping up of production of container ships and that
potentially having an impact. How do you see those kind of more medium term forces playing out. Once we get through this wave, we should start to see the benefits of that diversification strategy that began a few years ago. Actually even before the pandemic. During the U. S. China Trade war, it dawned on people that protectionism was was it was, it was a coming trend, and that tariffs could go up at any point, and so you needed
to be geographically diverse. That it's not sustainable for them to be sourcing only from you know, a country like China, And they quickly developed different suppliers in Vietnam, Malaysia, places like Mexico, Turkey, Morocco. So later this year, perhaps maybe even next year, we should start to see the ability of companies to to get what they need when they need it, as opposed to as opposed to all these delays that we're seeing now. Some of those some of
those structural elements take a lot more time. Building of chip factories and you know, that take you know, tens of billions of dollars and decade or more. Uh, you know, those kinds of things will take longer to come online. But the diversification that the pandemic sort of unleashed, we
should start to see some of that. The capacity on the transportation side, new ships, uh, you know, newport capacity, cranes and and other you know, trucking and and these kinds of things, the infrastructure spending, those are those should be medium term things that we we see fairly soon. Three is what a lot of the experts say will be the earliest that will see any new container ships come into operations. So we're looking at, you know, at least six months to twelve months before we we see
any real relief on the structural sides. Of things well bred and Murray. Thank you very much, and I'm especially thankful because you've given me a great link into our next item, because, as Brendan was saying that the pandemic is going to leave a mark on global supply chains and also the trade boards, it's not so long ago that we were talking about trade boards. Used to be that that cheap labor was all you really needed to attract global manufacturing firms and become part of their intricate
supply chains, but not anymore. The pandemic has made businesses wary of basing key parts of their production process on the other side of the world, especially China, and for those based in the US the last year, they've also found it a lot more challenging to find any workers
at all at any price. So all of that, it turns out, has been rather good news for a country teaming with willing workers that also happens to share a two thousand mile border with the US are Dallas based manufact Cacturing reporter Thomas Black went south of the border for a closer look. We have very big plans for Mexico. In Mexico is very very important market for ours. That's Isaac Larion, the founder and CEO of mg A Entertainment,
Los Angeles based toymaker. You've probably seen or even bought some of the toys made by m g A, from dolls like Brats to the iconic Little Tykes cozy coupe. That's the bubble shaped plastic car that toddlers can climb in empower with their own feet. So what do toys have to do with Mexico. Well, mg A now makes that Little Tykes toy car. And see that what is a dust swept border city just across the Rio Grand
from El Paso, Texas. The company's set up the factory only a few miles from the US border and in just nine months, beginning operations in November. And those big plans for Mexico that Larry and just spoke about, they're part of a strategy to shorten mg a's supply chain. Last year was a wake up call for m A. The company makes most of its toys in China and also has a large US plant in Hudson, Ohio, but
both proved problematic. While the Chinese factories performed, mg A ended up with seven hundred and fifty shipping containers filled with millions of dollars of toys stuck outside the port of Los Angeles and completely missing the holiday shopping season. Adding insult to injury, the expense for sending those containers from China to the U S had skyrocketed from three thousand, two hundred dollars a container to an astonishing sixteen thousand dollars.
But back in the US, the company couldn't crank up production at its Ohio plant because it couldn't find enough workers. To hire American workers if they are even available. I don't want to work in factories or forms. So we are moving across the borders into Mexico. We just opened up our first factory in Uarez, Mexico, and we did it in the record time. M g A isn't alone in increasing production in Mexico, and it's a trend that
is only getting started. According to Jason Tolliver from real estate firm Cushman and Wakefield, the whole idea about sourcing was in the global connectivity, was to drive down production costs. A couple of things that made that more expensive. First, just to supply the Chaine disruption. So whether it's a pandemic or whether it's everything related to sustainability and and and natural disasters or anythinks of the cost transportation costs a kind of or less reliable. But labors also got up.
And how companies looking at these problems of higher labor costs in China and the risks of sending their goods across the Pacific Ocean to the US. We see production companies saying, Okay, I've got three options. I can move to other areas in Southeast Asia, Vietnam, Me and mar perhaps India, but I don't have as reliable energy, I don't have as good of infrastructure that I don't have
that it's harder to transport. I can move further inland into western China, or labor costs are a little bit lower and I can take advantage of, you know, the infrastructure that they have, but I still have all my exit one basket. Or I can become more regional shortness supply chain, come back to the America's manufacturer in Mexico at lower wage rate, and then push into the US. And that's really what's drawing people back. Mexico didn't become
a magnet for foreign factories by accident. The country started pushing for manufacturing investment back in the late nineties six teas with a program designed to entice factories to Mexico's northern border, where the unemployment rate sword and poverty was crushing. There are now almost six thousand, five hundred of the so called Miki Ladora factories throughout Mexico that employed more than three million workers. Since the pandemic, even more plants
are popping up, particularly in what Is. Excavators and bulldozers swarmed the city, carving out foundations for industrial plants from the sandy soil of the vast Chihuahuan desert. This one right here, this is a new built to suit for Warner Ladder. To your left, it's about four or fifty thousands for feet and they already half presents here, but they're bringing in lines from the USA UM and then
here to your ride. This is our newest development that we're developing for buildings a total about seven hundred thousands were feet. That's Jesse Melendus. He's the director of real estate and new business development for Intermax, a Mexican company that was a pioneer for providing industrial space for foreign companies along the border. He's driving through what is showing
off the construction boom that has taken hold here. Industrial real estate is tight in this city of space has been leased, and price per score foot has jumped more than twenty percent from a year earlier. But a lot will depend on how the economy performs in the US or Mexico sells about eight percent of its exports. We're seeing more US companies that are Indesia coming to Mexico and not the US, So instead of saying re shoring US,
it's more like reshoring North America. One of the Mexican factory workers helping to make this possible is Fraying Gonzalez. The forty nine year old earns one thousand, eight hundred paces a week, or about ninety dollars plus benefits. Had a plant recently built by the unit of China's Kiss and Technology that makes suggestible beds. Like many workers in what is, Gonzales migrated north from southern Mexico, where jobs are scarce and pay is even lower. I've been here
in Ware's for two years. Over there in Vera Cruz, there's no work for Mexico. This could be the start of a prolonged period of foreign investment from companies seeking to shortened supply lines, reduce risk and keep costs in check. Plant manager Menicio Garcia is convinced that this is Mexico's manufacturing moment. Do you think there's going to be more manufacturing coming that was done in China coming to and
see what our quid is Mexico. I'm Thomas Black. Now, whatever impact the pandemic might ultimately have on our world, it's not going to come close to the global consequences of climate change. Will surely see more extreme weather events in the coming twelve months and government actions to reduce our reliance on fossil fuels that could affect us all. And the message from the scientists is this stuff is complicated.
The forces we've unleashed are going to interact in unpredictable ways, even if we do all the right things from now on a big if we have a story now that teaches that lesson in a particularly powerful way. From a corner of Japan you've probably never heard of. Here's Yoshiaki Nohara. It's before dawn at the Japanese fish market. I'm on a remote island called iky off the Nagasaki coastline. In
a matter of seconds. Bias snap up. Japanese butterfish, yellowtail, and red snapper all needs to replaced in cases of ice. I'm overwhelmed by the vigor and speed of the auction, But every fisherman I speak to says this is nothing compared to their heyday years ago. They all signed the same corporate behind their decline higher water temperatures due to
global warming. They've all been coping with the effects of rising temperatures for years, long before Ikey became the fastest city in Japan to declare a climate emergency in two thousand nineteen. You have knows the fisher we used to find around here have been moving up north. We are getting fewer and fewer of them. They don't stay here for long anymore. Water temperatures have risen by about one degree celsius compared with the old days. That was Terataka Okubo,
head of the Katsmoto Fishery Cooperative. He's seventy five and has seen the wax and wane of the local issery. Most boys he grew up with skipped to high school to become fishermen, but now many leave the island in search of college and jobs. The city has now about twenty people, just half of its population. In climate change
isn't just twomorrow's problem here in Ikey. All generations living on the island see a needful action, but hard The reality is that in isolation, their efforts to transform the island's energy supplies to renewables won't stop temperatures from rising. Neither way they provide enough jobs to stop the exodus from the island. Generating windpower could also end up being more destructive for Ikey's fishing industry. Three small boats returned after the sun rises and all the best fish have
been sold at market. Fishermen casually offload that catches on the concrete. They don't care whether the fish are dead or alive. They cought not because they're variable, but because they eat so much seaweed. They're disrupting the food chain in the local waters. One fish code is zumi. A striped brushy fish is particularly bad and arrived in drops from more tropical waters. The seaweed is all gone. That's a roted me to the fact that something is critically wrong.
Fish used to leave their eggs on the seaweed. All of that is over. There are no sporting grounds here anymore. I approached Shinozaki, who wears a straw hat and he's chatting with his friends. Shinozuki is a fifty three year old local diver. His catch of auchens and abaloni has dwindled as the seaweed has disappeared. His days of harvesting seventy abaloni in one day a long gone. In the sixth month ending in September two thousan one, he didn't
manage to find even ten abaloni. Shinozaki tells me how he can barely sustain his lifestyle anymore. Last winter, he took a construction job in the Tokyo suburbs just to make and smat The water is complete, really different. Now. I can't tell if I'll be able to continue what I'm doing for much longer, and I can't tell my children to follow in my footsteps. My Shinozaki and others let me hop on one of their boats and off
we go. The water is emerald green. I see rocks at the bottom, clearly the scenes of pure beauty for tourists, I'm sure, but not for people like Shinzuki, who remember the water that used to be home to dark for a sub seaweed. The city of Ikey has been developing land based wind and solar power projects to prevent temperatures from rising higher. It's now aiming for offshore wind farms to make its power generation one renewable by two fifty,
up from the current thirteen percent. That's in line with the Japan's target to go carbon neutral by two fifty. The nation is aiming to boost renewable energy like wind, solar, and hydrogen to cut its reliance on fastil viewers. Ikey and other rural towns have abandoned space and natural resources to power that transition. Ikey's mayor, Hirokazu Shirokawa fully supports
the government's willingness to take on climate change. God the people may say, what's the point of this small island declaring a climate emergency, But that's helped us to raise awareness about this issue. We've got to take action otherwise nothing is going to change. Still, such a dramatic transformation will have a cost for local fishermen, Shirakawa says, they won't be able to carry on in the same way radio waves in sound from wind turbine blades will impact
our fishing. I think we need the power company to guarantee some kind of compensation for our fishermen. Okubo, the head of the local fishery cooperative, so the offshore wind farm will impact of fishing grounds, even though he's not sure what the impact will be, but sticking with the status quo will only guarantee ongoing decline for fishermen. Understand, it's untried the territory for us. We don't know what's going to happen until we go with it. It's hell for us if we do it, and it's hell for
us if we don't. If we just sit tight, things will keep going downhill and the proparation degline isn't going to stop. Okubo's predicament speaks to the price that rural communities will have to pay, even if we manage to meet global emissions targets. Both in Japan and abroad, Locals like Hisaa Takeo are fearful of what's the transition to renew Boenecy will mean for Ikey and its fishing industry.
I'm against it. Abalone and other sea creatures are very sensitive, and things like wind turbines go in the water, they will disappear. So are you not. Takeo is one of the area's famous female diverse who've been catching abalone and other sea creatures for generations. Turbines only the latest threats to marine life She's witnessed in more than fifty years of diving. Tidal currents have moved, typhoons have become worse, and without the buff of the seaweed, waves have become stronger.
Warmer waters have meant she can stay in the water longer, but there's less to catch. I swim her every day, but the sea is dead now. At the bottom of the sea, it really feels like death. Want on it? She in Aptimus And for Bloomberg News, I'm Yo shaky Nohara. Sorry, not a happy ending this week for Stephanomics. We'll try to do better next time. But for good and bad news about the global economy. Do follow at Economics on Twitter and rate this podcast, especially if you like it.
This episode was produced by the Magnis Hendrickson and Yoshi's story from Japan was edited by Paul Jackson. Special thanks also to Chester Dawson, Yoshito Kubo, to Yoshi in Ajima, Takaki Iwabu Go or mitsu Yuko Takeo and Lucy Meekin. Mike Sasso is executive producer of Stephanomics, and the head of Bloomberg Podcast is Francesco Levy.