Trade & Working Capital

James Fraser:

Welcome to Talks of the Trade. I'm your host, James Fraser. Global trade is entering a period of uncertainty as new tariffs and shifting policies test long-standing economic ties. From supply chains to growth outlooks, the ripple effects are reshaping markets. My guest today is Ian Goldin, renowned global economist, Oxford University professor and author.

Ian, great to have you here. We live in very interesting times from a trade perspective. How do you reflect on everything that we've seen and what we're looking at today?

Ian Goldin:

It's certainly been a very interesting start to the year. And I think we're in a new world, there's a real regime shift. I don't think this is a cyclical adjustment, or something that will revert back to what it was before. I think this is the new normal characterized by deliberate strategies to change things. Very much driven by the U.S. and President Trump, where the U.S. was very much part of a global scene-setting, it's now very much focused on itself, I think. And that's changing everything around the world.

James Fraser:

Clearly you can see sort of an acceleration of an existing trend. How do we think about where we are today versus maybe the last 20 or 30 years?

Ian Goldin:

Well, the U.S. has always been at the heart of building the global trade system from after the World War II. And even before that, the U.S. had been at the heart of the construction of the general agreement on trade and tariffs, which turned into the World Trade Organization, creating the most favored nation status where we treat everyone equally. Whereas I think now there's a serious commitment to saying we are not going to support those international systems, we're doing it a different way. And it's not tinkering, this is tearing up the rules book that has governed the world, not just over the last 20 years, but in the post-war era.

James Fraser:

Tariffs are not a new phenomenon. What we're seeing more recently is tariffs via executive order, and we've seen constant waves. What is your view on where we stand and what we can anticipate going forward?

Ian Goldin:

It's executive orders, and executive orders can be made and rescinded and held in abeyance for 90 days or whatever. That's new, it creates huge uncertainty, and it can be reversed very quickly. And so that is a strong bargaining chip, but it also, for investors and for people involved in trade, is very, very difficult to deal with, because one thing investors want is some predictability.

James Fraser:

When we think about what's going to change from here on out. When you look across the globe, who starts to emerge as winners from that scenario? What countries and/or sectors might be a little bit more at risk?

Ian Goldin:

I believe in the benefits of trade. So I don't think that putting sand in the wheels of trade is good for anyone. So I would say there's no winners. Global growth will slow, there'll be higher prices, higher inflation, less job creation. I think the uncertainty that's being created, and that's one of the main characteristics will reduce investment. And if jobs do go back, there'll be very different jobs to the jobs that were left. This is a different era, not only in terms of the trade regime, but in technology and in geopolitics.

I think the relative winners are likely to be in Asia. Now, they're growing on average at 5% a year, whereas Europe will be lucky to grow at 1.5% and the U.S. at 2% a year. And I think that's a virtuous circle that reinforces itself. So I'm bullish about Asia. Of course, some countries in Asia like Vietnam are very dependent on exports to the U.S., so they will take short-term hit. But in the medium-term, I think this new regime is likely to be least impactful for the Gulf and Asia, and most impactful for the Atlantic, that's North America, South America, Africa, and Europe.

James Fraser:

Ian, is globalization dead?

Ian Goldin:

I don't think globalization is dead. I think it's alive and well and living in Asia, it's transforming in the rest of the world. And by globalization, if we mean flows across national borders, flows of everything, of good things, traded things, vaccines, ideas, technologies, but also bad things, pandemics, climate disasters, then I think we're seeing it accelerate, and certainly digital flows are accelerating. So globalization is transforming rapidly, it's location and content is changing, but it is morphing into a new animal.

James Fraser:

So you mentioned before, the loss of jobs and some dull markets, obviously sensitive political topic. What are your views on what's realistic, what might we see?

Ian Goldin:

The experience globally through history is that, as countries get richer, manufacturing declines as a share of GDP? So I think a romantic attachment to the idea that you've got to have a big manufacturing center, and that unless you have that you're in a proper grown-up country, is a very old-fashioned notion. There's a lot of countries that do very well with having declining manufacturing sectors, growing service sectors, and services can be the mainstay of economic growth as they are in many, many countries. So the first thing is there's nothing particularly needed about manufacturing.

My own view is that the biggest challenge in terms of geography of jobs is mobility. In the U.S. now people are something like a third as mobile between cities, between states as they were 50 years ago. And the same is true in the U.K. people are less mobile. They can't get to where the new jobs are, which tends to be in new places. And so for me, at the heart of this, and this is true across Europe and certainly in North America, is making it easier for people to move. Affordability of housing is number one in that, or the lack of affordability. Transport systems, rapid transport systems, we're not very good at that in Britain or in the U.S. And availability of health, education for your kids, elderly care for your parents.

These things matter in terms of whether people can move to where the new jobs are, so re-skilling is also important. And it's that failure that I think lies at the heart of the politics in the U.S., the politics in Britain in many European countries as well. And you don't solve it through tariffs. You can bring manufacturing jobs back, but they will be different jobs in different places to the jobs you lost.

James Fraser:

One of the problem statements that you've identified, and your work has touched on has been slowing growth combined with aging, or lack of population growth, potentially declining population growth and developed economies. We also have obviously very significant deficits and high levels of debt to GDP in many of those same markets. What is the potential solution to that?

Ian Goldin:

AI, robotics automation is going to be part of the solution. And so what one thinks about machines taking jobs depends very much on where you are. I think if you're in Europe, in the U.S., or in China, this is great. China has 4 million less workers this year than last year. Europe's workforce is contracting rapidly as well. I think we also need to radically rethink pension ages, retirement ages, and other dimensions of this. We need to save a lot more, but we'll need to work longer. We're also going to have to accept, I think, that a lot of what we need in these aging societies is what economists call non-tradable services. We need elderly care, we need massages, we need meals, hospitality. These things can't be done remotely, they can't be done through trade, and they can't be done by machines for the most part. And that means we need people.

James Fraser:

When we look out across global trade, where's your head at? Where do you think we're going?

Ian Goldin:

I think there are two big trends that I would identify. The first is this point about, the center of gravity moving to Asia. That's where most trade will be, between Asian countries and between Asia and the rest of the world. And it's also where most of the investment flows will happen. The center of gravity moving from the Atlantic to the Asian region, and I'm including certainly the Gulf and India, South Asia in that broad direction.

And then as countries get richer, the second big trend is that we should expect that once they get over average per capita incomes of about $25,000, and that will happen over the next 20 years in many, many Asian countries, their needs increasingly dematerialize to non-tradable services. So we shouldn't judge growth by how many physical goods a country imports or exports. That is very important, but as you get richer, you consume more of these non-tradable services, elderly care, meals, hospitality, leisure. None of these things are in a container. It could be.

And so let's not get confused. If growth slows down or physical merchandise growth slows down relative to GDP, that somehow this is bad. This could be a great sign of success that we're seeing countries increasingly moving to non-tradable services. Then the question is in terms of global financial institutions is, how do you bundle the services to facilitate that? And there's lots of opportunities in it, but they are different to the merchandise trade opportunities.

James Fraser:

If you are advising governments and administrations, what's the advice that you would bring to some of these negotiations that are expected to play out over the coming months? And when we think through maybe more of a corporate lens, what's the advice that you would bring to corporate clients for this respect?

Ian Goldin:

My advice would be, diversify, diversify, diversify. Relying on trade with one country is a risky thing. Not only because they might impose tariffs, but they might go through an economic crisis. And then I think the idea of building up some resilience in your system. So don't get into too much debt, and hit the ceilings too early because then you've got no fiscal firepower left when you have a crisis.

What's true of countries is also true for corporate leaders. So ask yourself the question if you're a corporate leader, is what am I learning from my offices around the world, my people around the world that might inform my business future in terms of what people are consuming, what people are saying, what people are doing, and what the risks are? And one of the great things about great companies is they have great people in a lot of places, but that needs to be an asset, not a liability.

James Fraser:

Ian, thank you for being here.

Ian Goldin:

It's a pleasure being with you, James.

Welcome to Talks of the Trade. I'm your host, James Fraser. In a rapidly evolving global landscape, changes in manufacturing, security priorities, and emerging technologies are reshaping international trade. From our previous episode, my conversation with geopolitical strategist Peter Zeihan continues.

I have to ask about AI.

Sure.

And GenAI. What is your view on the impact of that technology?

Well, let's start with the obstacles to technology in general. Having a robust tech sector, no matter what you're doing, requires a lot of very, very smart, well-educated young people to imagine the future and then to figure out the process from the idea, to operationalization, to mass manufacture.

And that's been the environment that we've been in demographically in the United States for the last 25 years. I mean, basically, that is the millennial cadre. But then you also need a huge amount of capital because none of that makes any money until you're at the tail end of it. We've been in that environment for the last 20 years because of the baby boomers having approaching retirement but not yet retired.

Well, in the last five years, that both flipped. The older millennials are now mid-forties. They're no longer the young bucks. The next generation down, Gen Z, is very small. And the baby boomers are liquidating their savings. So the capital supply isn't there. So even if nothing else breaks, for a technology to be on the verge of mass application, it has to already be through prototyping. And maybe AI is proving right now with things like large language models that it is on that threshold. So maybe it can happen.

And if it does, the applications are nearly endless. I'd say that the big four, automation for manufacturing, which could help us in any number of ways. Digitization of agriculture, which could potentially double yields. The defense applications are massive. And then in the financial space, it's all going to be about efficiency. So those are the big four. That could work.

Problem. AI requires the most advanced semiconductor chips that we as a species are capable of making. And 90% of those chips come from one town in Taiwan. And that makes it sound better than it is. Because it takes thousands of companies to keep those fabrication facilities running, those companies are scattered around the world, and half of them only produce one product for one end user, and they have no international competition.

So you peel off any country from the globalized order, and we just can't make the chips at all. So we're going to have to do something that we really hate doing. We're going to have to choose. Do we use AI for finance, or defense, or manufacturing, or ag? Because we're going to have to basically choose one, and we're only going to have enough chips for one big application. And everything else, we're going have to find another way.

In the era of globalization, we saw a steady shift in manufacturing capacity. Within global supply chains, we saw specific countries, particularly in the last 20 years, begin to emerge with specialized manufacturing capacity. The likes of South Korea, Taiwan, China come to mind.

In the era of an increased focus on national security, what does that shift in prioritization mean for those countries?

Everyone's going to have a little bit of reshuffling they need to do. So demographics, of course, are core to this because when you have a traditional pre-industrial demographic, you've got lots of children, very few retirees, and kind built into a pyramid as you go up in age. But as you develop, it opens up into a chimney. And if you keep aging, it turns into an inverted pyramid.

Now during that process, you can have a lot of really interesting things going on. Because when you turn into a chimney, you've got a lot of people who are generating capital in their 40s and 50s. You've got a lot of young workers in their 20s and 30s. It's a dynamite combination for growth, especially industrial growth. And when it opens up more, you get workers, 40 to 60, who have decades of experience in highly productive. And that's where the Koreans are, for example.

And during these demographic moments in time, you can get incredibly productive workers with a lot of capital wired into a security environment that's pretty safe, but it's not sustainable over the long run because those advanced workers turn into retirees. And so you get a system that has basically rebuilt the culture around an industrial process that they can't sustain.

Then you add the national security component. It's like the big advantage that the Chinese have had when they belly up to the bar with their workforce is scale. We have to find a way to do that because their workforce is no longer cost competitive. It's going to look different. And if national security issues push this forward, that means we need to figure out a way to do it at scale with a workforce that's a completely different price point and completely different labor structure.

Technology can help with that. But all of this costs money. And we need to do it relatively quickly because we don't have 30 years like it took to build the industrial plant in East Asia. So we have to figure out how to do specialization at scale in dozens of subsectors within five years in an environment of shrinking capital and labor supplies. It's going to be a wild ride.

So we recognize that investment needs to be made in new markets, which may in fact be old markets. So we've seen foreign direct investment in Mexico and in the United States really have a parabolic move in the last two years, which I think links exactly to your point. What is the capacity of the United States and Mexico to absorb that shift in production?

We need to double the size of the industrial plant within North America by the end of the decade, and not everyone can play at the same scale. Mexico probably needs to triple, if not quadruple, its industrial base, and there's no way you do that on the model of NAFTA, because the NAFTA relationship, to be perfectly honest, it's the northern Mexican states and Texas. That's the reality of NAFTA.

We need to diversify that into Central Mexico and then going up into California in the Midwest. That requires a multi-trillion dollar infrastructure build out before we can start the industrial buildout. The scale of that is something we have never attempted as a country, much less a continent.

Core to your thesis, looking forward for the next 10 years, is demographics. What do the demographics look like in the United States, in Mexico, and how do we think about that on a relative basis compared to the rest of the world?

The United States is one of those open chimney economies right now, where we're aging but much more gently. We have this transition period that's going to be tight. But the millennials have made sure by their existence that we will get through it. You don't have that in most of East Asia. You certainly don't have that in most of Western Europe. And so we're looking at the end of those systems and that industrial plant. The parts that we feel that we need, we're going to have to rebuild here.

Mexico very late to the game. They really only began industrializing in 1990. And so their population structure is the youngest of the major countries in the world. If they keep aging at their current rate, they're not going to face a crisis of German proportions until at least 2080. That's a lot of time to figure out a new model. It's a lot of time to figure out how to increase your birth rate. And they will have plenty of examples of what to do and what not to do over the next 50 years. So I'm pretty bullish there.

It also means that because they fixed their educational system before they industrialized, on a productivity basis, they're arguably the most efficient workforce in the world. Their workers now are about twice as skilled as China's, and they work for one third the cost. So the potential here for expansion is immense. The challenge is infrastructure. Linking in Central Mexico into the NAFTA network. If we can do that, the rest of it will happen organically. But we have to do that first.

As we enter this new era where there's a trend of deglobalization, we've seen, particularly in the last two years, these tectonic shifts in cross-border trade, where increasingly, it looks like the East will trade with the East, and the West is trading with the West. However, there are countries which have emerged with a far more neutral stance, which seem to be positioning themselves to take advantage of that shift. India comes to mind. Saudi Arabia comes to mind. Where do you see those two countries--

Two radically different examples there. OK. Let's start with India because from my point of view, that's actually pretty straight forward. India has to do the same thing that we need to do in North America. They need to expand their industrial plant if they still want manufactured goods because the Chinese aren't going to be there all that much longer.

The difference between India and the United States is that the United States has partners in that process. We have NAFTA already. Mexico is already our number one trading partner, a position they're not going to give up in our lifetimes. And that allows us a differentiated system that we can hit the value add at multiple points of the process.

India is arguably among the most trade protectionist countries out there. So any participation in broader supply chains is going to be starkly limited and unstable. They're going to have to do it themselves, for themselves. Now this is a country with a billion and a half people. It has a differentiated labor market. Linking those parts and the subregions together is going to be an immense task.

But just like it will be here, it's a growth story. Inflationary, of course, but a growth story. And I have no doubt that 20 years from now, India will have succeeded because the alternative is just not to have finished goods. So the market is going to push this. The question is whether governments can assist it in some way. And since that's largely an infrastructure problem, I'm pretty bullish on that.

Saudi Arabia. You take all of the countries of the Persian Gulf combined, they have less of an industrial plant than the country of the Philippines. There was nothing there to work with. They've got great infrastructure. Most of the skilled labor force is imported from other continents. And the Saudis of late have decided that they don't want immigrants from certain countries. And so they've done a purge.

That's going to prevent them from being a manufacturing power in any meaningful way. So they can do oil. They can do refining. They can do chemicals. That's not nothing. But anything beyond that, they need a partnership with someone beyond. And that's probably not going to be the United States.

And since the shale revolution occurred, there's not even an energy equation that is relevant to us. We're now the world's largest processed energy exporter. So it's going to be someone else. There are some candidates. Britain, France, Turkey, maybe Japan. None of them are clean fits though. And the Saudis, one of the reasons that they're trying all these weird financial methods of selling their crude is to find a partner that they can attract in to take the place of the United States as their security guarantor and main trading support. And it's not clear that they're going to be able to figure that out in an easy process.

Peter, when we look at these shifts that need to occur in production. Which supply chains have the greatest risk of issue.

Well, the punch line is with today's technology, we can't really even try. By 2030, we need to triple the amount of copper. We need 10 times as much nickel. We need 18 times as much graphite, 20 times as much lithium, four times as much chromium. It's a list of like 20 different materials. And as a species, we've never doubled our output of an industrial material that was already in use in a 10-year period ever. We now need to double in more for 20 different materials. No, no, it can't happen. All of that has to be replaced somewhere else for us to just attempt. So again, we're going to have to make some choices.

Thank you, Peter. It's been a great conversation. Appreciate your time and look forward to seeing you again soon.

Until next time.

[MUSIC PLAYING]

Welcome to Talks of the Trade. I'm your host James Fraser. Around the world, markets and cross border trade flows are increasingly vulnerable to geopolitical risk. From emerging regional conflicts, to global health crises, to new regulatory regimes, these factors can send shock waves through markets, impacting cost and access to capital, as well as overall economic stability.

My guest today is Peter Zeihan, geopolitical strategist thinker and futurist. Peter, welcome to the show.

Thank you.

I've been a fan of your work going back to your days at Stratfor.

Oh, so you're the one.

Yes. When we look at the post World War II era, we had multi-decade run of increased globalization. We saw the industrialization of China and India. And clearly, we're now in a period of heightened geopolitical tensions. We are seeing a trend of de-globalization begin to emerge.

What was the catalyst that transitioned us out of that period of globalization to where we are today? if

You're looking for the ultimate cause, you have to go back to the beginning. When we started the globalized period, people moved off the farm and into the cities. And when you do that, kids go from being free labor to an expense.

So we had fewer of them. You play that forward 70 years, and it's not that most of the advanced world is running out of children. That happened 30, 40 years ago. This is the decade we're running out of working aged adults.

And that process didn't just happen in the rich world. It happened in the developing world, too. And it happened more quickly. So we're running out of the young people that drive consumption in labor markets.

And we're running out of the more mature adults that drive capital markets. And we flip on all those measures this decade. We no longer have the population structure that's necessary to support a global trading system. And so it all breaks down this decade.

OK, so demographics, obviously, play a key role, particularly as we look forward. What are the countries where the problem is most acute?

I would say the big four, Korea, China, Italy, and Germany. These are the places where the urbanization process was most aggressive, and happened most quickly, and most holistically. And so these are places that there's no longer even theoretically enough people under age 40 to generate the next generation.

So the process that in North America has taken us 200 years of lower birth rates to get to where we are now, Brazil did in 40. China did in 25. And that gets you huge growth as you urbanize, but you only urbanize once.

And now we're getting to the other side of that equation. And we're discovering that for all of our failings in the developed world, the developing world is aging so much faster. And so the first major country to face national oblivion will probably be the People's Republic of China.

So we've not seen this before, and the demographic situation we have never seen. When we industrialized, one of the many, many, many impacts was health care. And so lifespans doubled, which means populations doubled, even though birth rates collapsed.

And so we're now on the other side of that where populations are moving into mass retirement. And there's just nothing below to support it. We've never seen anything even remotely like that.

It's challenging to pick up a newspaper and not read about the emergence of challenges to the United States dollar. When we look at international trade data, it suggests the share of dollar-based trade has actually increased in the last two years. What's your view on that trend going forward for the next five years?

Most of the diversification in currency markets has been away from the euro for the last 20 years. People are actually looking at the yen as a store of value. And so we've got this weird obsession in the United States at the end is nigh. It's part of what drives American culture, is feeling that we're in the very edge.

But the reality is just radically different. The United States is the largest consumption-driven system in the world. It's the least involved in international trade of the major economies. And if you want to trade currency, you want one that is not going to be manipulated by its government on a regular basis.

There is no pretender to the throne. The euro is functionally gone. The Chinese yuan is not tradable, and never will be. The next country down in terms of size that is a viable option is the Canadian dollar.

When we look at some of the required production, particularly on commodities ranging from copper to lithium to support transition goals, what is your view on our capacity to meet those production targets?

The smart play would be to take the technologies we have today and look at the geographies where they work. So wind turbines in the Great Plains, solar in the Southwest, and then run high voltage lines from those production zones to where we actually live. That's not enough to hit anywhere near net zero.

But it's not nothing. And with the technology we have today, that's where we should focus in an environment of limited materials, limited labor, limited capital. Now whether the political system will allow that is another issue.

One of the things that people have missed-- it's not just that the green transition is expensive-- it's that it all has to be financed. When you have a natural gas or a coal plant, about 80% of the full cycle life is the fuel. And so it's a pay as you go subscription model.

But if you're going to do a wind farm-- the advantage of wind is there's no fuel. But 2/3 of the cost, you have to pay before you get your first electron. And so that all has to be financed. We've seen capital costs triple in the last three years.

They're going to triple again in the next three years. So the math that people have done to figure out how to finance all of this is already broken. And we're seeing projects abandoned because of it.

The only way you can get that money to go in is for the government to step in and subsidize it. If the government is subsidizing that, they're not subsidizing other things because we're in an environment of limited capital. We have to choose.

As we look out. And obviously, we now have a conflict in the Middle East, so what's old is new again. Where should we be looking next? Not necessarily the next war, but where do you see the risk?

No matter how the Ukraine war evolves, it is going to involve more players. Either Ukraine is going to fall. And the next tier of countries involves a number of NATO countries, including Poland.

Or, Russia falls, and the war goes East and crosses into Russia proper. So we're only at the very beginnings of the process here, which means that anything that straddles that zone in terms of material processing or raw material exports, of which natural gas and oil are the top two, but it also includes timber.

It also includes neon. It also includes the palladium group or the platinum group metals. It's a long list. All of that is in chronic danger. In the Middle East, the war was nudged a little bit by the Iranians because they saw normalization between the Israelis and the Saudis as being on the horizon.

And if that would have worked, the whole Arab world would have basically been in a single bloc against Iran. For Iran, that's the nightmare. We're getting very close to the point where the Iranians are going to have to pull out a more conventional military card to prevent that sort of alignment.

And that means a war in the Persian Gulf. Well, that's the world's single largest source of internationally traded crude, not a big problem for the United States. We're independent. Everyone else, that's a bit of a disaster.

You give a lot of advice to the investor community. We spend a lot of time with our corporate client base, many of which have multinational operations. Therefore, must constantly be focused on risk to their supply chain. In light of that forward view or, at least, the risks within that forward view, what would your advice be to multinational corporates?

In terms of multinational corporates, it's got to be the China angle. I mean, even if we nail relations, and we go back to a co-Dominion, if that's the right word, where Beijing and Washington agree to disagree and build a more productive economic relationship, that's a real reach, by the way.

It just still doesn't address the demographic problem, at all. So anything that you're dependent upon China for, you have to count on that disappearing over the course of the next three to 10 years. And I'm already seeing from a lot of industries how they are already on a four-year wait list for things like transformers.

Every day that China doesn't break now is a gift because it gives us a day to metabolize some of their industrial capacity for us to prepare for what's next. It's like we're doing the 1990s and the 2000 in reverse. It used to be that the Chinese would buy equipment in order to build out their industrial system. And now we're going the other direction. And the more we front load, the easier this is going to be.

We've seen the US and Mexico industrial buildup out to take production onshore, nearshore. Are there other countries, particularly in East Asia, that have the capacity to absorb some of that?

Oh, certainly. Well, let's start really close to home. So obviously, northern Mexico is already heavily integrated. Central Mexico is now the relatively low hanging fruit. There's progress being made there.

Faster would always be better, but we've started. The progress we're seeing in places like the prairies is actually really impressive in things like food processing, which doesn't sound very sexy, until you realize it's probably going to save 100 million people.

Ontario is in the process of retooling a lot of their auto sector as that sector changes. So the Canadians really are stepping up to the bar on this one. Colombia is, I think, the next one on the horizon to watch. Northern Mexican labor has become so highly skilled that they now need a low skill partner.

Columbia is the closest country that kind of matches the infrastructure, the distance, and labor force structure that Mexico needs. Mexico now needs a new Mexico. It's going to be Columbia. Southeast Asia, big fan.

Countries like Vietnam have a great demographic structure. They have an educational system that is among the best on the planet. 40% of their college grads are STEM. That doesn't happen normally. And if you combine it with one of the youngest demographic profiles, this is a country that will probably leapfrog China technologically over the course of this decade, even if China doesn't break.

So you've got this network within the region with relatively low skilled labor in places like Indonesia, mid-skilled in places like Thailand, or Malaysia. And the real high end in places like Singapore, which honestly put us to shame when it comes to technology who already have their own trading network.

We're tied on capital. Transportation, increasingly an issue. What's your view on food security? It came into focus with wheat, seed oils, Ukraine, Russia. Where are we going from here? Is this something we should be concerned about?

Pre-globalization, the bulk of the world's exportable foodstuffs came from a very small list of temperate zone arable countries. The United States, France being the top two. But others in that elevation-- I'm sorry-- others in that latitude band.

With globalization, we had two things happen. Number one, we created an environment of security that would allow lower productivity lands to come into play because they, all of a sudden, didn't have to defend their borders. And second, with industrialization, we got the industrial level inputs to take subpar land and bring it into production.

If you apply fertilizer to Iowa, you're going to double yields. If you apply fertilizer to Germany, you're going to quintuple them. They still won't be equal. Iowa will still be ahead.

But you can take places that could not grow food normally and make them do very well. That is 100% the success story of places like Brazil. If you remove the fertilizer, Brazil produces nothing. And so globalization has increased the food supply of the planet by roughly a factor of 3.

You de-globalize, and a lot of that falls away. I think if we're really, really lucky with some dietary changes, we might be able to feed 7 billion. That's still in absolute terms the greatest famine in terms of numbers and reach that humanity has ever experienced.

What are the areas where you see that today's production declining?

Brazil and China being the two big ones. Brazil's land has very little Indigenous nutrient content. They're completely dependent upon fertilizer that comes from a different continent.

And you break down the Russian system in any meaningful way, it's not just a major exporter of food. It's a major exporter of the fertilizer. So even stagnancy there is a disaster for everyone else.

OK, Peter. I want to put you in my seat. You are working for a financial institution.

Oh, do you?

I do, indeed. You have oversight of a international franchise focused on global trade. What are you focused on? What do you worry about?

Mexico. They don't have a financial market in the way we define the term. Right now, the trade relationship is largely personal based on individual companies in the United States largely Texas having personal relationships with individuals on the other side of the border, primarily the northern border. Considering the scope of the expansion we need to do, parts of our financial network need to cross the border in a way that we bring rule of law with us.

That's a model we're not used to. Right now, I'm oversimplifying here, but it's direct investment in cash. And that's not going to give us the speed that we need. Now that's not necessarily a bad thing.

In an environment where capital is constrained, the companies that have access to the capital, have the keys to the kingdom. And you will find takers who are willing to accept your terms. If not in Northern Mexico, Central Mexico.

If not in Central Mexico, Vietnam. If not in Vietnam, Thailand. There is all kinds of opportunities here. And whoever controls the limiting factor, capital, labor, they can kind of punch their own ticket.

Thank you, Peter. I want to thank you for coming on and having the conversation today. I feel certainly more enlightened coming out of it, maybe a little bit gloomier, as well. But I look forward to seeing you again, soon.

Hey, we're looking at the fastest economic expansion in the history of the United States. This is a good story. It's just kind of a stressful one.

[MUSIC PLAYING]

James Fraser:

Welcome to the show. Trade finance isn't easy. In fact, these days it can be incredibly complex. So let me break it down into something a bit more digestible. This is wool. It's been traded for thousands and thousands of years. Archeologists have found wool and other textiles dating back to the earliest civilizations, like here in Mesopotamia. In fact, they've also unearthed some of the earliest examples of trade finance. Merchants issued the very first promissory notes on clay tablets like this one. This tablet is essentially a letter of credit, a promise of payment. The entire world is your neighboring region. And sure, we've had some amazing advances in technology to make that trading easier. We also have some things that make trade finance even more complex.

So let's look at wool in recent years. A use case single-handedly dominated our lives just a few years ago, the hoodie. In the pandemic, we didn't have casual Friday. We had casual every day. Demand went through the roof. So retailers try to quickly procure large amounts of inventory, impacting their cashflow. Then what happened? Supply chain issues. They couldn't get the inventory fast enough. After all, the hoodie isn't just wool. Lots of different suppliers, lots of different timelines. And that's where trade finance can get tricky. Oftentimes the manufacturer doesn't have the cash to pay the supplier upfront. They also have no idea when they'll get paid back because items may be backordered. The price of raw goods fluctuates week after week.

One tailor-made solution to this problem is supply chain finance. It gets the supplier paid early and gives the manufacturer more time to pay, closing the working capital gap for both parties. Of course, the kicker is once the retailers got all these hoodies in stock, people started returning to the office and demand changed from this wool to this wool.

Trade finance today is challenging and always moving and that's where JP Morgan thrives. We've been doing it for more than a hundred years. We have all kinds of innovative digital solutions to help improve your working capital and cashflow, so we can help you overcome whatever the world throws at you. How do we do it? Well, simple. We get to know your business, your objectives, and together we find a solution that's right for you. Because just like this, it's not one size fits all. Hey, do I get to take this home? Oh, cool. See you guys next week.

For thousands of years, global trade has fueled our greatest advancements by allowing those who specialize in anything to exchange that for everything. Shaping societies, building economies, driving progress towards the future from close to home to far from home yesterday, today, and tomorrow. Global trade shapes how we live, what we make, and how we do business.

At J.P. Morgan, we have been leading trade for over a century. And with our new market-leading investments and alliances, our future looks even brighter. As a leading bank in global trade, we are here to advise and help you navigate the digital revolution with predictive payment behavior, credit analytics, other big data and AI insights that facilitate automation.

Solve your evolving and complex trade challenges with unmatched industry experts who help clients build strategic and tailored solutions. Optimize your working capital needs to meet your risk mitigation and cash flow objectives. And contribute to a more sustainable and equitable world by removing the paper and developing innovative ESG finance programs.

And position your business to thrive in an era of service, technology, and industry transformation all backed by security you can trust. As we enter a new era of trade, we are here to simplify the challenges you face wherever you operate at every step of your journey because this is what we specialize in so you can specialize on your anything. Welcome to the future of trade. We are Trade and Working Capital at J.P. Morgan Payments.