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Richard Helppie
Hello. Welcome to The Common Bridge. We have a very popular returning guest today, the godfather of the supply chain, Mr. Bill Michels; also now bringing AI into the world of procurement and sales, hopefully we'll hear a little bit about that. But today, because the policy orientation of The Common Bridge is why our audience comes to us, we're going to hear a little bit today about how the tariffs - whatever they may turn out to be - are impacting and may impact international trade, and what that's going to do for suppliers, consumers, manufacturers, and everybody that participates in the economy. Bill, welcome back to The Common Bridge. It's always good to see you, my friend. How have you been?
Bill Michals
I've been great, Rich. Thank you for inviting me.
Richard Helppie
What's the headline on the AI, if you don't mind starting there. What's going on?
Bill Michals
I don't mind. We've actually created a great product, and we've really made it very, very desirable. It's for teaching people how to negotiate. We built a negotiation strategy that people can either fill out some questions online or submit their strategy, then we have an AI avatar that'll sit there and critique the strategy and tell you where you're weak, where you're strong, what you should do. And then once you get your negotiation strategy done we have a series of education modules. One of the unique things about our education modules is you have interactivity with the digital mentor at any time. I know - I don't like it, I'm an old guy and I don't like e-learning modules. I think they're boring. But this one, you can stop, you can ask any questions. You can really interact with [it]; how do I apply this to this category, or really anything about procurement. So that helps. And then when you're done, you sit down with a conversational AI avatar and negotiate. You have all of the conditions of the case study; some are custom case studies and some are not. Then you sit down and you negotiate with the avatar and he continues to negotiate with you. Nothing is ever the same. When you're done, you get a score that tells you all the things that you could have done better, all the things that you did well, and then you can continue to improve your skills, which is really important when we start talking about tariffs and price increases going up. Our business is up a little bit because of that.
Richard Helppie
I would imagine. I guess I could see a world someday where your bot and their bot are negotiating with each other, and -I don't know - you're having a cup of coffee someplace.
Bill Michals
That's happening, Rich, it's happening in the low end spend, in the tail end of companies like the office supplies, the [inaudible]. There are two companies running bots out there, doing negotiations, actually, and taking care of that because if you can get it in place and then do a little bit better on the pricing, that's fine. You're not going to make or lose your company on a set office supply.
Richard Helppie
That's very, very interesting. Well, we don't have bots controlling our trade policies now. I wish, frankly, somebody would be controlling them, because they seem to change as the wind blows. Bill, one of the things I've been hearing is that container ships are not arriving in the major ports - Los Angeles, Houston, New York, San Pedro, specifically in Los Angeles area. That means that truck drivers aren't going to have loads, that the bulk container companies are going to have the containers sitting there. I can imagine this is going to affect the railroads. But ultimately, what products are not getting to our shelves? Or are they getting there but they're going to be priced dearly because of tariffs? What's going on out there right now?
Bill Michals
Tariffs are breaking the shipping model, we're not just paying more, we're seeing fewer goods ship because of the tariffs. Initially we saw some inventory shipped ahead of the tariffs, but now people are waiting to see what is the tariff, where should I move this stuff and can I get a lower tariff. The interesting thing, Rich, is that's causing one problem, but the other problem is as these goods arrive you have to pay the tariff before you get your goods. That's the way it is. And what we're seeing, one of my automotive customers said all their stuff is sitting down in customs trying to get freed up, because there is a backup in customs to get things through the regulations and through the tariffs. So you're going to not only see the the shipping problems, you're actually going to see problems where the increased documentation, regulatory changes all delay the the release of the goods.
Richard Helppie
One of the things that troubles me about this president is that he seems to do things from the seat of his pants. With something as complicated as international trade, you'd think you'd have your ducks in a line. I get the overall strategy that, look, if somebody's bringing in cheaper goods because they're paying their labor a lot less - indeed, slave labor - or they're not following our safety procedures and such, say, all right, look, if you want to make that baseball, that battery, that toy, in another country, okay, you can do that, but to sell it in our market, you're going to have to pay a tariff, which might possibly stimulate some domestic production, because that price advantage from the international company would be going away. But it takes a long time to stand up a factory. It takes a long time to put the supply chains in place. This just doesn't seem to be a very well thought out policy, or is it creating chaos for some other purpose?
Bill Michals
Well, we have the notion that the tariffs are going to bring manufacturing back into the United States. I agree with that. The thing I disagree with is that it's going to bring in jobs. It is not going to bring in jobs. Because if you own a factory over overseas, you're not going to reset your factory based on the 50's model of assembly and people on the line. If I'm going to reinvest in a factory, it's going to be lights out. It's going to be automated. It's going to be productive. I'm going to use robots that work 24/7, don't have union problems, and I'm not going to hire people. I'm not going to hire tons of people to run the business. When GE brought its factories back from Asia, it built a billion dollar factory that mostly is automated so you're not going to see [hiring]. You will see the companies come back, but you won't see the jobs. The Taiwan manufacturing company here in Arizona making chips is all automated. Everything is automated about it. So you're going to see factories - if they come back, if you can build them in two or three years - they're not going to bring the jobs back. We're starting to see more of a social problem. You and I talked about this social problem in a previous issue. Same thing with all these people that are out of the government, let's take IRS, for instance. You don't need a million people to look at the tax returns. You've got AI that has the rules, understands the rules, can spot the differences. You're going to see more AI introduction into some of these clerical jobs that are out there. So if you think tariffs are going to bring back manufacturing, you're right. If you think they're going to bring jobs into United States, I disagree with that.
Richard Helppie
Would there be any kind of job change? Take, for example, that container ship that arrives in the United States. We have longshoremen that need to offload that, and then that needs to go onto either train or it needs to go onto trucks. Those are jobs. Then they go to warehouses, distribution centers. There are some jobs there, more and more automated, and then out to store shelves and ultimately to the consumer. If I'm understanding what you're saying, we bring the manufacturing back, but it's going to be lights out, so there won't be production workers. There also won't be a need to bring those container ships into the ports, so less need for dock workers, longshoremen, but we're still going to need trains and trucks to move product around. So really it's just that very front end of the supply chain that the manufacturing that would change.
Bill Michals
But you're looking at a longer term current program to even get it back, and then some industries never come back. The example that I think of is in my early days in manufacturing, we used to use to make our own dies, tools, molds. We had a New York State license factory, a place where people could intern and become professional trade people. Well, when the tooling business left and the older people that had the skill set retired, there's no one here to do it. If you look at the things like textiles that take a lot of hand labor to do it, it's not going to happen here with high paid union wages. You couldn't afford the clothes. So I think those things will still stay outside of the US.
Richard Helppie
Perhaps they do stay outside the US, but it's almost like a value added tax, a consumption tax. It says all right, we're going to bring in that shirt from the Philippines, for example, and instead of it being $4 at the wholesale level, it's going to be $7 and that's going to pass on to the consumer, but it would be a tax collection based, again theoretically, on consumption versus on income. But if that's the idea, it's not been laid out very logically, and I think this is what causes people such consternation around this president; they don't know what he's going to do next. I think he surprises some of his advisors, a little less volatile this time, although I will say in his defense that the 70/30 issues, he's doing very, very well on the security of the southern border, stopping the abuse of the asylum system, the changes in the military in terms of transgender ideology and the like, and then going after some of the fat in the federal government. Those remain 75/25, 70/30, issues, but on the vital things about the economy, people don't know which way to turn. How could you plan if you don't know what the taxing is going to be?
Bill Michals
That's absolutely true. I took some lessons from the last... I wrote a couple of LinkedIn blogs on this, lessons from the last time Trump was president and he had the tariffs. One of the things that I noticed is that there were a lot of exemptions, companies could apply for exemptions. Apple applied for 18. I was working with a small manufacturer that had aluminum heat sinks, they were able to apply and get an exemption. So I think if you're not savvy and you don't think about these things, you're not going to be good. I know one of the questions you asked me is how has the market reacted to tariffs so far. And I know that the supply chains are shifting. Companies are moving whatever they can to a lower tier. If China is very high, even some of the Chinese are moving to a location where tariffs are a bit lower, so there's the mixing around of where should I get it. Where can I lower the tax? They're trying to increase re-shoring, but there's a long way to get to that, and I don't think that it's going to be the factories that left, the factories with the assembly lines in the 50s. I think people are not investing. They're very selective about what they'll invest in. They're not going to invest in the sectors that are hit hardest by the tariffs. I think we're going to see margin pressures on everybody. Commodities are really mixed up. I mean, particularly agriculture and bulk shipping is going to be affected by our agriculture not going to China. I think we're going to start to see inflation. But one of the things that's interesting... one of the negotiation tactics we use is called conditioning. You throw something up there and you condition someone, and then you change that. But I think if you throw it all up at the same time, and you make it as severe as we see, it's going to be very difficult to negotiate changes.
Richard Helppie
A couple of points just to react to that. First of all, it's like, okay, well, we'll get an exemption, and hackles on my back get raised because it's like, okay, now here we go - crony capitalism. If you can make campaign contributions, say the right things, you're going to get the power of - supposedly - our government behind your specific company, and here we go, you know, meet the new boss, same as the old boss. That is a bit bothersome - not a bit bothersome - that's very bothersome. And ultimately, what I don't hear is anyone speaking up for average citizens like us. It's all about is this going to be a win for the Democrats, is it going to be a win for the Republicans, how's this going to play out in the polls. Last night, Canada held an election. I was watching CBC late into the night last night - me and lots of other nerds around here - but they handled it in a very Canadian way, very unifying, and it wasn't like in your face, whatever, but they're going to look out for their interests as they should. What I think about Trump's negotiation style: I negotiate a lot of contracts in New York and that's how they start. You start off in crazy town with crazy demands, just to see what they can get and you just kind of have to let the noise go by over your head, because ultimately, if you're at the table, they want whatever it is you've got. But trying to do that around the global economy is a little crazy, isn't it?
Bill Michals
I think it's really crazy. Then the other thing that we - you and I - haven't even talked about, is we already have a labor shortage. When we start to look at certain industries, like the construction industry and the agricultural industry, these deportations are causing more of a problem because we're going to hit our GDP significantly and push up inflation if there's no one there to do these jobs. We think deporting 500,000 immigrants is going to result in a bunch of workers - probably about 40 or 50,000 - lose their jobs because they don't have the people to help get the stuff out of the field. There's a skill shortage everywhere. There are no plans to...
Richard Helppie
Look at agriculture. We've had a guest worker program for a long time, for getting the crops out of the field. I don't see that as a problem, at least what I can get out of there, because there has been a guest worker program. But when I look at things like welders and electricians and HVAC folks and people that know how to put roadway in, that becomes an issue. We need to make sensible immigration policies so that good people that want to come here to the United States of America have a job and can build a future here. Hallelujah, I personally know many immigrants that came from Mexico, Latin America, doing repair jobs, whose kids are now going to some of the best universities in the country. That's the American dream. We need to keep that going, and we need to have sensible policies to meet that labor and to provide opportunity.
Bill Michals
I work in the home building industry with some companies doing some training there, and they can't get skilled tradesmen, they can't get people to do it. As you take out drywallers and painters and the key people that do it, you don't make your closings, your earnings fall down, you start a cycle that you can't stop. Not to mention, we don't have enough affordable housing now, and these changes are only increasing the problem for affordable housing.
Richard Helppie
Indeed. Ultimately it comes down to an area that's a passion of mine; education opportunity. We need to go into the high schools and middle schools. There needs to be shop classes. We need to make that investment. We need to make sure that if you're going to graduate from high school, that you know something about physics and mathematics. Let's get out of the politicization and the victim-hood things, and let's teach people how they can earn a living. When I speak to high school students primarily, I say where can you be a contributor? Maybe you're an American Sign Language instructor; we're short on those. You might be a pastor in a church; we're short on those. Maybe you need to learn how to fix air conditioners; we're short on those. You need to learn how to do accounting; it's just right down the line. We need to be able to have our workforce educated for those opportunities, and our doors open for good people who bring those skills into the United States of America.
Bill Michals
Those jobs are becoming really, really high paid jobs. A plumber right now I think, makes 100 grand a year or more - 150.
Richard Helppie
Yeah, I won't name some of the social sciences degrees that people will disparage, say I never needed one of those, but when my toilet backed up, I sure needed a plumber who knew what they were doing.
Bill Michals
I think that you're absolutely right. The one mistake we made is not having trade schools within the high school. I mean, everybody having to go to college; not everybody wants to go to college, is successful about it, and it doesn't work for some people. The fact that they could go out and do a trade and be happy and make a good living is a good thing. It's not a negative thing I think. Getting back to the tariffs, I think the tariffs are there but I don't know how long... I think the question about the economy is going to be houses, how long will these things be sustained? How willing are the leaders of the countries to get together and solve it. I think if they don't then we will see price pressure. We will see inflation. I remember the days of Jimmy Carter - when I was lucky enough to get a 13% assumable mortgage when the mortgages were 18% - the one thing I do fear is that some of these countries, after a while, get tired of it and create their own trading block; China, Russia, Korea, they create a block. Or China and Europe create a block and it starts to really hurt us as we're isolated in the world.
Richard Helppie
Bill, when you think about what products are not made in the United States that we take for granted: pharmaceuticals, batteries - are we going to see disruptions? Like, I need amoxicillin, a very popular antibiotic, and I can't get it because we get the product from China. We're so dependent on batteries now for everything, electronic chips...
Bill Michals
They're still going to be out of China, out of Asia, because that's where the industry is. When we moved these businesses in the 90s, we thought we're doing a good thing. We thought, we're going to outsource. Outsource was the name of the game. I remember when Bo Anderson at GM said, hey, we're not going to deal with a supplier that's not in Asia. We actually moved the technology, but we also moved the know how and the knowledge. So it's hard to get those things back.
Richard Helppie
Indeed, it is, and let's just say it's the right policy to get it back here for national security purposes, or just supply chain reliability, for argument's sake. It's not something that can be affected in a matter of months in a dramatic way. It's not like we're going to slap on this tariff, and you and I are going to say great, let's throw up a battery plant someplace because now we can fulfill that need. I think there are other incentives that we could be offering to bring things on shore or near shore, and make smarter agreements with Mexico, with Canada, which they're doing with automotive. I understand that most of the things that were put in place to facilitate North American construction of cars, that those things have been given exemptions as far as the tariffs.
Bill Michals
You're going to continue to see people look for that but the other piece that you have to think about along with some of these changes, is that some of these things left for regulatory reasons, our regulatory issues. How we manage environmental waste and all that stuff that doesn't occur in some of these other countries like it does here. So can we be compliant and will we be able to make batteries. We have all the regulations and have to comply with them and they're very costly. So I think you have to think about regulations along with policy and all of it has to come together. I think right now, because of the volatility that you and I talked about at the beginning of the show, nobody's making investments right now. You're in the investment community, you know how tight the investment community is getting about which ones are good. Then I think the other thing is that people, when they do invest, are investing in those businesses that don't have tariff risk.
Richard Helppie
But who can define tariff risk? That's the place that I'm challenged; what is tariff risk? Because we don't know what they're ultimately going to be.
Bill Michals
We're going to start to see. Tariffs are, no doubt, going to start driving prices up across the board on almost everything. I think it's going to hit food, it's going to hit equipment, it's going to hit automobiles, it's going to hit everything in our life. We're going to start to see these price increases coming on, and we are going to see inflation start to come into our way of life. I think people have to be prepared for the the worst case, which is we're going to have price increases and inflation. We're going to have price increases in the next, probably, 90 days.
Richard Helppie
We know that shortages will create price increases. Let's say you need AAA batteries, for example, and the supply chain is disrupted. There are fewer AAA batteries. If I'm at my local drugstore looking for batteries, I'm going to expect that I'm going to pay more for that, and I don't know how that benefits us consumers. And this is, again, where our current administration has not laid out how this is going to come together. I think he makes a very fair point that we've had one sided trade deals. I think it's insane that we have this growing deficit. That is something we're going to hand down to our kids. That's nuts. We have to break that cycle, but I don't think we can accomplish it in the manner that we're going. It doesn't feel right.
Bill Michals
No, and it's a tax that gets passed down to consumers. It's not a tax that other companies pay, or that other people pay. I think it's the small person that owns a restaurant or small [inaudible]. Eggs for example, I had a friend of mine visit and her egg cost has quadrupled by now and it's going to continue. She's got to think about either closing her restaurants or figuring another thing to serve that people will want.
Richard Helppie
There is always the theory of substitution, whether it's AAA batteries or eggs, like, all right, if the price is too high, then I'll use less batteries and I'll eat fewer eggs. There's always a substitution theory. Basically, it's a reset of the international economy and since we don't know what the contours of that are, it's very, very difficult to invest. But I will say this, when we're talking about markets I think it's a fool that thinks that what the Dow Jones Industrial Average does, which is 30 stocks, is indicative of a successful or a not successful policy. I've seen people go, oh, it's all way up, look at what my favorite president is doing or oh, they're way down, look at what my worst president is doing. Anybody that holds that up as a barometer of policy success doesn't understand economics.
Bill Michals
That's right. I think a lot of people don't understand economics. I think tariffs are not just taxes, they're really a shift in global trade. Everything's crazy, everything's shifting now, and we want to see how that really kind of shakes out. It's very unpopular. Now people are not buying our goods, we're not exporting. I think that's a critical thing.
Richard Helppie
It's never good for business if you get people angry with you. And again, the opportunity for this president was created by the failure of prior administrations. People got tired of it. I still think people are angry. In my readings, people are still playing this Democrats versus Republicans, which is nonsense. It only benefits those that are in that game. Nobody's looking out for people in metropolitan Detroit that just want to go to work every day, that just want to be able to have that social compact; that if I work full time, I can afford housing and food and education and maybe a vacation and maybe a dignified retirement and for sure healthcare, and we're not connecting those dots. Instead, it's who can throw the biggest insult at Donald Trump, but you don't hear the Democratic side defending their policies that put us here, that created the opportunity for Trump. You're not hearing Trump articulate how this all plays out in the end. Then we have distortions, like Trump's going to cut taxes, and really it's a continuation of a tax bill.
Bill Michals
The thing that you and I talked about over these shows, is that it's really a social program going. We don't educate the right people with the right things. Now, if you think about automation coming into the factories and AI across the industry, we're not training people for that. People are still hoping to go and put bolts into machines. The unions are still hoping to drive the prices up [as if] this is a good thing. I heard today the UAW said, this is a great thing for America and everybody's going to build a car here. Well, a lot of people build the cars here already, but the more they start to raise the rates, the more automation and efficiency you're going to get because robots don't get tired. They work 24 hours a day. They never shut down. You can go [inaudible] factory or bring it up and not have a lot of healthcare costs or any concerns like that. I think we're not training people in the things that we need, the skill sets we need. We've got this major social problem coming where we don't need as many people for the work that we have if we continue to do what we're doing.
Richard Helppie
This is where the hard sciences, physics, mathematics, engineering, need to be foundational things, as does economic literacy. I don't know what jobs are going to be out there for my grandchildren, because the industries haven't been invented yet. I like to cite this data point, that around 1900, 50% of the US workforce was engaged in agriculture, and now it's 2% and we don't have 48% unemployment because those jobs that we have today could not have been imagined 125 years ago. But things that don't change are things like mathematics, astrophysics. What's beyond this solar system, metals that we maybe haven't discovered; nobody can imagine what the transportation, the energy systems are going to look like. It comes down to, can we take care of people? Can we get spending power in the hands of your average person and let humankind flourish? And when I mean flourish, I mean not only economically, but with things that make life rich; the arts and literature and wholesome entertainment and the like. Bill, as we come to the end of our talk today, what are some of the key takeaways for you as you peer into this supply chain, and how do we get product from a manufacturer to a shelf? What are some of the key takeaways you'd like the listeners, readers and viewers of The Common Bridge to hear from you today?
Bill Michals
I think one would be the tariffs are not just taxes, they're really going to impact the global economy. They're going to impact the trade routes to the future. I also think that they're going to be disruptive still in the short term. Like I said, I talked to an automotive person whose stuff is all stuck on the dock, trying to get through tariffs. It's extremely complex. And so if you're going to try and work around the tariffs, you've got to understand the tariffs, you've got to dig into them. You've got to look for the exemptions, or you've got to change where you're getting things from and minimize the impact of the tariffs. I think it's a big shift in global trade, global economy, and we're not just affected, everybody in the globe is affected so we really need to find a way through this tariff thing. I think re-shoring is real, but I think the jobs are not and that's one of the things I've said. I think that some industries have left, they're not coming back. We're not going to see some of these things come back. They're not all coming back. I think we need to look at which industries do we want to come back, and then what incentives are we going to do to bring them back. I think defense is one [that is] going to be critical. I think pharmaceutical and medical is going to be critical. I think there are a few industries that we really want to make sure we get. I think the incentives that have been invested into the electronics trade is great. And then I think we really have to plan for uncertainty. We don't know when it's going to stabilize. From a personal standpoint, you need to really understand how can you cut back. What can you do? What should you be focusing on? From a business standpoint, it's how do we get these things back in control?
Richard Helppie
We've been talking today with the godfather of the supply chain, Bill Michals, bringing AI into procurement and tariffs. With our guest,Bill Michals, this is your host, Rich Helppie, signing off on The Common Bridge.
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