This CEO Says Global Trade Is Broken. What Comes Next? - Bold Names

Wall Street Journal

23-05-2025

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Full Transcript
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Tim Higgins: Okay, Mims, we got a good one. You are the author of probably the definitive book on supply chains, and today's guest is probably the definitive guest on this topic. What's the big takeaway?
Christopher Mims: The big takeaway this week is that it feels like we're out of the woods because there's been a tariff pause, but things remain a mess, and he's going to get into all the gnarly details about why that is and why our world has changed fundamentally, we just don't know it yet.
Tim Higgins: That's next.
Christopher Mims: There are only a handful of companies in the world that have a truly global view of the world's supply chains, not to mention how they've been disrupted by the current trade war between the US and pretty much everybody. Today we've got Evan Smith, the co-founder and CEO of one of those companies called Altana. It's kind of like LinkedIn, but instead of resumes and grindset posts, it gives its customers insights into the details of their supply chains. And Smith has a pointed message for anyone who thinks that global trade is going back to normal anytime soon, or ever.
Evan Smith: I had one board member of a Fortune 50 company tell me that this is economic Pearl Harbor and the world will never be the same.
Tim Higgins: Smith can talk with such confidence because his company has a unique view into global supply chains. His customers share data with him in a way that he says is privacy protected. That means Altana can trace the supply chains for even the most complicated objects like cars and phones, all the way back to the point at which raw materials are pulled out of the ground. And for the foreseeable future. He says those supply chains are a mess.
Evan Smith: We're going to live through what's called a bullwhip effect in the world economy, in the global supply chain, for the next nine or 12 months. It's this massive shock to the system that's going to reverberate for the rest of the year easily.
Christopher Mims: From The Wall Street Journal, I'm Christopher Mims.
Tim Higgins: And I'm Tim Higgins. This is Bold Names where you'll hear from the leaders of the bold name companies featured in the pages of The Wall Street Journal. Today we ask is the era of global free trade over for good? And if so, what's going to take its place?
Christopher Mims: Evan Smith, welcome to Bold Names. A lot of CEOs have an animating thesis about the world and what their company should do, why it should exist, but you have a grand theory of history, you actually call it a manifesto. Could you briefly lay that theory out for us and why it led you to start Altana?
Evan Smith: Yeah, our point of view is that globalization broke and that our opportunity at Altana and our mission for the company is to help fix it. So how did globalization broke? So, from the World War II to the last couple of years, you had this period of more and more free trade, more and more outsourcing and efficiency-seeking across that global landscape. You had a security umbrella provided by the United States to engage in free trade and to engage in global commerce. And then you had the financialization of formerly industrialized economies. So the massive accumulation of debt, financialization of industry and production.
Christopher Mims: Right, and the rise of Japan, South Korea, China, South Asia (inaudible).
Evan Smith: Exactly. So those happened along the way. And then the big sort of tectonic moment is admitting China into the World Trade Organization. And I got an economics degree from Yale in 2007, so at the very apex of the triumphal golden arches theory of the world, like end of history, the neoliberal story is the last one that will ever be written, capitalism and free trade, democracy. So I came out, dyed in the wool with that worldview, and since then I've really seen the breakdown of that thesis. So I think it starts with China. This whole free trade paradigm works as long as people kind of play by the same set of rules and everyone kind of cheats and tries to favor their own economies. But China has unabashedly and without pause, just doubled down, doubled down, doubled down, they're building this massive mercantilist engine that has completely distorted the whole global economic fabric.
Christopher Mims: And so your prediction was that this was going to lead to the end of this global order and decoupling and countries will go their own way.
Evan Smith: Yeah, we see a bunch of things converging all at once and they all kind of take place in the supply chain. You have climate dislocation, it's not favorable to talk about these days, but it's still happening and it's getting worse and these are playing out across these economic systems. You have the rise of China as a pure competitor, as the strategic chokehold on some of the most important technologies and supply chains that exist. You have this massive financialization and debt accumulation that is coming home to roost and it's going to play out over the next 10, 15, 20 years in pretty unpredictable ways, but it's going to be a big deal. And now we're seeing artificial intelligence and automation and the promise of robotics. And I think all these things intersect and how do we make our stuff? Who do we buy and sell from? And what's that fabric of the world's physical production?
Tim Higgins: And we're recording this on May 14th, just after the weekend deal between the US and China that pauses higher tariffs between these countries. Evercore ISI calculates the effective US tariffs on China will be 39%, the highest on any major country and dramatically more than the effective rate of 8% on the UK after a deal announced earlier. A floor and a ceiling, if you will, as our colleague Greg Ip wrote the other day, at least temporarily. And so much confusion, I think, since Liberation Day, April 2nd, when President Trump announced all of these different tariffs that really in some ways surprised people, the scope of it all. So much confusion. You, in your perch, have this insight into what CEOs are talking about, has your phone just been ringing off the hook? What have those conversations been like?
Evan Smith: Probably half of our business is actually selling to government agencies and the other half is selling to the private sector. And we help both parties to understand and navigate these big supply chain network shaped problems like tariffs and trade disruption and the rest. So since then, and to some extent of the run-up to it, the phones have been ringing off the hook. And from a policy design and enforcement standpoint, you really have to know that whole fabric of production and so to understand the impacts of tariffs and hey, if I say that these metals or these semiconductors or these pharmaceutical ingredients are going to be tariffed at this level, well then you have to be able to answer the question, what in America breaks when I push that button? And we're actually in a position to answer that question with our platform. And then from a compliance standpoint, it's all the obvious questions, but they're urgent, and these are now sort of board level and C-suite level consuming issues. So tariffs are the burning hot thing, but the even bigger concept is that the entire global trading system is fundamentally breaking down.
Christopher Mims: So is that a conversation you're having with CEOs? They're like, we think the entire global trading system is breaking down.
Evan Smith: Every single conversation with a board member or a CEO or a CFO is precisely that. So I had one board member of a Fortune 50 company tell me that this is economic Pearl Harbor and the world will never be the same.
Christopher Mims: This being the current tariff regime?
Evan Smith: So Liberation Day as the event, but the event as the expression of, okay, this whole paradigm of the last 50 years is done.
Tim Higgins: Other than that, how was the play, (inaudible)?
Christopher Mims: I mean economic Pearl Harbor. How so? And then what comes next? That implies that we're about to have economic World War II?
Evan Smith: I think so, yeah. We're clearly in a second Cold War right now.
Tim Higgins: And who are the players? Is this the US versus China? Is this US versus China and Russia? How do you see the board?
Evan Smith: It kind of depends on some of the moves this administration makes, but you can clearly see the blocks forming. You've got an economic block and a security block led by China with Russia, with Iran, with some of the former Soviet states, and we'll see how these next dominoes fall over the ensuing months. Does the Trump administration really want to try to be as self-sufficient as possible, and we're going to play by our own rules and the power of our own economic and military might is going to just draw people to us or we're going to actively be in the business of coalition building? I think there's arguments on both sides playing out, we'll see how the cards turn over in the coming months and years. So something like a US-led and Chinese-led order where the competition is in the supply chain, it's in cyberspace, and then of course there's a military component and everyone's rapidly building up new capabilities. They're reconfiguring their assets and their positions on the board and getting ready for a potential event in Taiwan. That's the 2020s and into the 2030s, that's the board I see.
Christopher Mims: Are you saying that there is evidence in the data that you have that there's a realignment that anticipates this cold economic war turning hot?
Evan Smith: That's a little harder to say and it depends on humans making decisions at the end of the day. What we are seeing unambiguously is that both parties are making moves to become economically decoupled, especially on aerospace, pharmaceuticals, military, industrial, complexing, the things that you kind of need to sustain yourself in the event of a war or a conflict. And then what you're seeing is this massive buildup and mobilization of both troops and material and assets and bases in anticipation of a Pacific conflict. Our platform tells some of the story in terms of the supply chain angle there, you see the new companies being formed, you see the new autonomous systems getting built, we can see what China's doing to react to and protect against some of those vulnerabilities that they have in their own networks. So you can kind of see the whole network being refactored along these dimensions, but at the end of the day, does a war become hot? That's not something we can say.
Tim Higgins: Decoupling, that term almost sounds like something Gwyneth Paltrow and Chris Martin did a few years ago. But in the serious terms, this is the idea, I think the basis of what the Trump administration is trying to do with all of these different tariffs, it really seemed the bigger picture is to unentangle the US key industries from the China supply chain, and that's where your company has interesting insight. I think of your company almost like Facebook for supply chain or LinkedIn for supply chain. It connects the dots on how, let's say I'm Nike and where I'm getting my shoelaces from or the rubber in my soles or the cool swoosh. That's the information you have. And it seems simple, I'm getting the shoelaces from wherever but the way that these supply chains, these value chains have come up over the last 20, 30 years is super complex. What have you found? What do you see in the data there?
Evan Smith: So what we're seeing in the data is the strategic separation or decoupling and disentangling of those supply chain networks. Where do the raw materials come from? How are those transformed into intermediate components? How are those then assembled into an iPhone or a garment or whatever? The hard part is you've got these component parts where China's amassed incredible scale and incredible expertise and in a number of cases they've amassed monopoly power. So a lot of people have heard of the term critical minerals or rare earths, so these matter a lot. This matters for artificial intelligence. We can't make a missile without rare earths. We can't make an automotive product. So you go down the list and it's like all the things that really, really matter, China now has between a 60 and 99% market position on all of those critical minerals and magnets.
Christopher Mims: Yeah, can you say a few of them, I love hearing people pronounce them because everybody does it different.
Evan Smith: Yeah. Gallium, germanium.
Christopher Mims: Oh, you picked the easy ones.
Evan Smith: I know I did.
Christopher Mims: Antimony, that's my favorite.
Evan Smith: Antimony's not (inaudible).
Christopher Mims: That's a deep cut. Not so many people know you need those to make ammo.
Evan Smith: So think about that. In the event of great power competition, your competitor controls your ability to explode something.
Christopher Mims: A spokesperson for the Chinese Embassy in Washington DC told us that China will continue to honor the commitments it made when it joined the World Trade Organization and that its partnership with Russia and Iran are not directed against any third party. Taiwan's Ministry of Foreign Affairs did not respond to our request for comment.
Tim Higgins: We just heard why President Trump's Liberation Day was an economic Pearl Harbor according to one board member at a Fortune 50 company. Next up, Evan Smith will take us into the meat of the conversations he's having with members of the Trump administration, such as what do they plan to do in the coming months?
Evan Smith: It's going to be more of this big swing here, big announcement there, maybe a precision strike here. And we're in a big negotiation phase where I think the administration's hopeful that enough countries are going to come to the table, willing to make enough sweeping changes that it starts to snowball.
Tim Higgins: Stay with us.
Christopher Mims: So now it seems like we're getting a little "break" from the Liberation Day tariffs. Break, I'm putting in scare quotes. So they've been paused on nearly a hundred nations. Are things back to normal? Can we all go home now? Can we end this podcast right here?
Evan Smith: Look, even if we got to a place tomorrow where it was like, okay, we're done, let's go back to the way it was, which that won't happen but let's just imagine the scenario, we're going to live through what's called a bullwhip effect in the world economy, in the global supply chain for the next nine or 12 months. It was such a big shock to the system. So the logistics providers themselves, where do the containers go? Where are the ships? The distortion to inventories, the distortion to orders. It's this massive shock to the system that's going to reverberate for the rest of the year easily. So even if we just magically kind of went back to the way things were, we'd still be living through that shock. I think the other thing that this did, and back to my comment about economic Pearl Harbor, was this really rubbed every board and C-suite's nose in the fact that geopolitics are now primary in governing and steering global businesses. So it's not just like the market rationale, who's growing what where? What products do I need to get where? At what cost? With what distribution networks and supply chains? It's geopolitics front and center. And that's not going to change. The rules of the game just changed, and what we saw China do in response is they put this gun to our head and said, if you're going to cut off our trade, we're going to cut off your ability to access these critical minerals and magnets. We're going to shut down the most important production chains in your country.
Tim Higgins: Because those magnets are in motors and all sorts of high value production.
Evan Smith: Weapons, motors, semiconductors, advanced electronics, autonomous systems, all of our information telecommunication infrastructure. Short of selling our bonds, that was the biggest lever they could pull.
Tim Higgins: And what do you hear, half of your business comes from government, presuming a lot of it is the federal government, presuming you're talking with the Trump administration, what are you hearing from the Trump administration?
Evan Smith: Yeah, I don't want to be super specific, but we're-
Tim Higgins: We like specific here.
Evan Smith: Sure.
Christopher Mims: Please relay your last conversation with Scott Bessent.
Evan Smith: I will not. So I'm very confident that the effort to refactor the entire global trading system is in the first or second inning, not the ninth.
Tim Higgins: First or second inning. So it just escalates here. More chaos ahead?
Evan Smith: It's going to be more of this big swing here, big announcement there, maybe a precision strike here. We're in a big negotiation phase where I think the administration's hopeful that enough countries are going to come to the table, willing to make enough sweeping changes that it starts to snowball. That's the hopeful scenario. And then you can see it going other ways too, potentially.
Christopher Mims: So to put a fine point on it, you think there's going to be more big swings as these negotiations play out?
Evan Smith: I am a hundred percent convicted.
Tim Higgins: We like specifics here. Let's talk about some industries. One of the concerns in the automotive industry is the underlying risk for potential supply chain disruption. We heard just the other day from Ford Motor as it was suspending its annual guidance that part of the reason they did that was because of worries over the industry-wide disruption that could impact production. I'm curious if your data shows any signs of distress or interruption in the supply chain for autos that we should be worried about or is it still too early?
Evan Smith: The short answer is yes, and the details then really matter. We do a lot of work with the automotive OEMs and then the large tier one and tier two suppliers.
Tim Higgins: There's 10,000 parts in a car at minimum usually.
Evan Smith: So I think the auto industry has been learning since the first Trump administration, and from COVID, that they have this kind of structural vulnerability to these kinds of issues, geopolitical and just general trade disruption. So there's been a lot of progress in that industry in building up inventory buffers and dual source capabilities, not everywhere and not enough, but better than say eight years ago. So we are seeing the obvious things you would expect from this. So like semiconductors, memory chips, critical minerals, anything that was coming from China into the North American value chain fell off a cliff. And then you're seeing the reciprocal tariffs, that was the big thing and then it came down, but the tariffs persist. The Trump administration has rolled out a number of these, the most painful of which for the automotive industry is the steel and aluminum 232 tariffs, and those were not repealed. So anything with steel or aluminum that isn't made the United States is subject. And then there's one coming soon on semiconductors. So you're seeing drawdown of inventory everywhere. You are seeing a scramble to find new things that are more easily substitutable, like memory chips, away from China. And you're seeing an inevitable, pretty substantial shock to the spend profile of those supply chains at just about every level. Everything in the automotive supply chain is getting more expensive and even though we've kind of gone off the 145% total tariffs with China, there's still going to be tremendous pain in the automotive sector.
Tim Higgins: So in the practical sense for the consumer, does this mean fewer choices and higher prices at the car dealer lots here?
Evan Smith: Certainly in the near and medium term, no doubt about it.
Tim Higgins: I mean, not to pick on Ford, but just listening to that call the other day, I mean they're predicting I think one, one and a half percent increase in pricing. You're thinking maybe higher?
Evan Smith: Depends on how long this is sustained. But based on what we see in our own platform about automotive companies and their supply chains, I think one to one and a half percent is a very optimistic forecast.
Christopher Mims: So Tim got to ask you about his favorite hobbyhorse, autos, I want to ask you about mine, which is of course, AI data centers.
Tim Higgins: Not as sexy.
Christopher Mims: Yeah, I mean Tim has a garage full of autos and I have a binder full of (inaudible).
Evan Smith: Right, you have an AI data center.
Christopher Mims: (inaudible) just flip through it, sighing longingly. So my favorite thing, it seems like it's threatened by these tariffs. Frankly, I cover this and I don't understand it, so I really want to hear your insights. Your team did an analysis where you said tariffs are going to add billions to construction costs of AI data centers, but it's not like we're taxing concrete. Why is that?
Evan Smith: Well, I don't know the bill of materials for an AI data center off the top of my head, but I know enough to know that there's a tremendous amount of copper, steel, aluminum, photonics, memory chips. We all talk about the GPUs as the star of the show, but there's chips throughout a data center that are involved in memory and orchestration of those entire arrays. In any case, this is kind of the tough thing to grasp in all this tariff conversation, they accumulate like plaque. So it's not just about what the United States is doing with respect to the import of a finished iPhone or pick your product, it's anytime the goods in the value chain cross a border at any level of production, it's from raw materials to the intermediates to the finished products, they're going to be accumulating tariffs. And as the EU retaliates, as China retaliated, that just kind of stacks and stacks and stacks, and then we have these special tariffs that adds more and more and more. It's not merely about the finished product coming into the United States for say a toy or a garment at the store. Especially in these big complicated value chains like an automotive value chain or a data center value chain, those goods are crossing lots and lots and lots of borders, and every time they do that, they're building up this base of tariffs.
Tim Higgins: We reached out to Ford and the US commerce department, neither responded.
Christopher Mims: We just heard how tariffs will wallop both the automotive and the AI industries, but that's just the beginning. Evan Smith believes that golden Arch's diplomacy is dead and we're entering a completely new and tumultuous age. But who will be the winners and losers?
Evan Smith: Now you have Russia asserting itself, Iran asserting itself and most of all China asserting itself. And guess what? Now you're seeing the breakdown of the free trading system as those geopolitical interests become primary over the economic interests.
Christopher Mims: That's next.
Tim Higgins: Let's go back to where we almost began this conversation, the golden arches diplomacy that you kind of referenced. It's almost 30 years ago, globalization was very en vogue and Thomas Friedman had his Big Mac diplomacy theory, the idea that no two countries that both have a McDonald's have ever fought a war against each other. Kind of the idea that free trade would interconnect the world in a way that would prevent armed conflict. Well, in hindsight, that seems maybe idealistic. Why was Thomas Friedman wrong? Why were so many people wrong about this idea that free trade was this kind of ushering in a utopia for the world?
Evan Smith: They got it exactly wrong. Meaning they confused the causality. Look, the point is that we really came out with this very triumphalist, optimistic, cheerful view that globalization, free trade was the end state, right? And then what I've unlearned since then, what I've come to realize, is that it's literally the opposite. Free trade does not create peace. Peace creates free trade, peace gives rise to free trade. And we all sort of came of age in an era where we had a unipolar security umbrella provided by the United States policing all of the waters, maritime security, free trade. That era is over and now you have Russia asserting itself, Iran asserting itself and most of all China asserting itself. And guess what? Now you're seeing the breakdown of the free trading system as those geopolitical interests become primary over the economic interests.
Tim Higgins: You call it the end of globalization 1.0, I believe.
Evan Smith: I do.
Tim Higgins: You have a date even, that was a Thursday, February 24th, 2022.
Evan Smith: That was the day that Russia invaded Ukraine and then I think the debate was over. That was a McDonald's having nation invading another McDonald's, having nation, right?
Tim Higgins: If there ends up being rival supply chains like this Western-centric one that you're talking about, and a China-centric one, what does that change materially speaking? Is Mexico the big winner or how do you see the world? How do you see the pieces of the puzzle being reorganized?
Evan Smith: I'm very long Mexico, I think that's a pretty good bet.
Christopher Mims: You (inaudible) so tell us more. Why?
Evan Smith: They've got a lot going for it. The demographics are stellar, so young population rising into the working age, increasingly well-educated, they have obviously proximity to the largest importing economy on Earth, largest market on Earth. They have a free trade agreement that persisted through all the thrash, right? I think a lot of the point of the thrash was to migrate more and more of global businesses into the USMCA, the North American free trade agreement qualification. So you've got that going for it. And then you have an actual distribution, it's almost south to north, of labor skill and to some extent labor cost. So lower skilled labor further south at a lower cost, and then the closer it gets up to the border and the maquiladoras, those are the manufacturing facilities right on the border, it's higher and higher skilled labor and it's a little at higher cost. So in Mexico and really in the integrated North American value chain, you have the demographics, you have the economics, you have most of, but not all of, the natural resources necessary to be more or less resilient if not self-sufficient. And I see that as being sort of inevitable, just given the gears of history turning.
Tim Higgins: So you think Mexico over someplace like Vietnam, which has had a boom in manufacturing, I think something like between 2018 and 2024? The value of goods from Vietnam exported to the US something like tripled, but of course at the same time we saw in lockstep where Vietnam imports from China were also rising at the same time. So the theory being China to Vietnam to the US.
Evan Smith: And we see that in our platform, we help the US government enforce against that behavior, that's called transshipment. And then there's some gray areas where it's like if you make it in China, but you keep it in four different boxes and then you take those four different component parts and then you assemble them in Vietnam and then ship them to the US, what's the true country of origin from a trade and tariff standpoint? And as you can imagine, we're super active on solving that problem.
Tim Higgins: How much does owning Greenland help the US in becoming more independent of China?
Evan Smith: It might, there's a lot of metal and that's part of the storyline but...
Christopher Mims: Is there another country we should be trying to annex, besides Greenland?
Evan Smith: I don't think we should be in the business of annexing countries, but that's (inaudible).
Tim Higgins: Maybe Mexico, it sounds like you think Mexico.
Evan Smith: I think within a security and economic umbrella, we ought to be closely coupled.
Christopher Mims: So let's end where we began, with your manifesto. Who are going to be the winners of globalization 2.0? Or is that even a fair question? Is it just different?
Evan Smith: I would say that the shape of the winning system is going to look like a trusted network. It's good to specialize in one country, one region making this thing or that thing or that thing. The economic logic of comparative advantage makes sense. It needs to be brought into compatibility with a geopolitical reality. And so the way that we describe this is that there will be these trusted networks on the dimensions of supply chain, money, data, where there's high coordination, there's high connectivity, there's high collaboration and through that network and through those kind of rules based interactions across a network, trust can arise and trust can be maintained. So I think the winning strategy for the United States, I'm not sure we'll do it, but what I'd love to see is that the United States is engaging both from a diplomatic standpoint, a trade policy standpoint, a military standpoint with the value chain of these important products, these important industries, front and center in their design. So we know we have this critical mineral dependency on our adversary, how are we going to fix that? How are we going to do that as a team sport and not just kind of throw up barriers and hope it works out? The hopeful version of this is that you get, if not a block, you get network of cooperative rules-based, trusted geopolitical and economic activity that is the winner in this otherwise big dislocation. The other thing I would say is we're seeing in the rise of AI, the other very big once in generations dislocation. It could be the biggest one of all. So look, I think that the commanding heights of the 21st century is artificial intelligence, it's robotics and then it's the supply chains that support those and enable it. And if we're not playing to win on that space, we're destined to lose. And I'll say that China is certainly playing to win.
Christopher Mims: So is that your pitch for becoming Secretary of Commerce?
Evan Smith: I got a lot to get done before I'm... I never want to run for office, I'd love to be at some point in a position to do public service.
Christopher Mims: All right, Wes Moore, you know where to reach him.
Evan Smith: We got a lot to get done in Altana. I'm focused.
Christopher Mims: All right, it's been a pleasure talking to you about this. It can be a tough topic to wade through, but you have certainly guided us to your very distinctive point of view on this, which I certainly enjoyed learning about.
Evan Smith: I appreciate you guys having me on. This is a lot of fun.
Tim Higgins: We reached out for comment to the Mexican Embassy in New York City, the Vietnamese Embassy in Washington DC, and to Thomas Friedman, they did not respond. And that's it for this season of Bold Names. We'll be back in a few weeks with even more exciting guests. You won't want to miss it. Our producer is Danny Lewis. Michael LaValle and Jessica Fenton are our sound designers. Jessica also wrote our theme music.
Christopher Mims: Our supervising producer is Katherine Milsop. Our development producer is Aisha Al-Muslim. Scott Saloway and Chris Zinsley are the deputy editors. And Philana Patterson is The Wall Street Journal's head of news audio.
Tim Higgins: For even more. Check out our columns on wsj.com. We've linked them in the show notes.
Christopher Mims: I'm Christopher Mims.
Tim Higgins: And I'm Tim Higgins. Thanks for listening.