The hidden supply chain costs of the AI boom

AI Summary

Economist Willy Shih discusses how supply chains underpin manufacturing and the current AI infrastructure boom, including the pressure it places on computing resources. The interview also examines shifting tariffs, stalled US factory reshoring, market reactions, and China’s continued strength as a manufacturing hub.

Today, I’m talking with Willy Shih, an economist, a professor of management practice at Harvard Business School, and the author of the upcoming book, Where Does My Stuff Come From? The Powerful Economics Behind Global Supply Chains. Willy is one of my all-time favorite Decoder guests — his way of looking at the world through our supply chains is just a fascinating way of making sense of the global economy. I first met Willy in 2019, while The Verge was covering Foxconn’s promise to build an LCD fab in Wisconsin. That obviously never happened, but Willy called it right away because he could see the supply chain to support a fab simply wasn’t in place. We also had Willy on the show in 2021 to talk about what was then the pandemic-era chip shortage. Now, five years later, we’re in another manufacturing mess, as we stand in the middle of a political fight over whether globalization is coming to an end. Trumps’ tariffs keep changing, the factories that were supposed to reshore in America mostly haven’t materialized, and AI is devouring the planet’s computing resources during an unprecedented infrastructure buildout. Willy’s new book is all about the economics underlying these complex systems, which our politicians and regulators seem to insistently ignore. You’ll hear us talk about why the markets have reacted to all these disruptions the way they have, and why China remains a global manufacturing powerhouse even though every other country thinks that’s so risky. I loved this conversation — it’s in the weeds, and Willy really knows his stuff. Okay: economist Will Shih on his new book Where Does My Stuff Come From? Here we go. This interview has been lightly edited for length and clarity. Willy Shih, you’re an economist and professor of management practice at Harvard. You’re also the author of the new book, Where Does My Stuff Come From: The Powerful Economics Behind Global Supply Chains. Welcome back to Decoder. Well, thanks for having me back. I am very excited to talk to you. You and I first started talking ages ago when The Verge was covering Foxconn in Wisconsin. You are a reliable source of information on what it takes to actually build an LCD plant anywhere, not just in Wisconsin. The Foxconn in Wisconsin thing was funny because I tend to go on first principles on these things. Once I knew they weren’t going to build a glass plant across the street, it’s like there’s no way there’s going to be a factory. Now, what happened afterwards, of course, is people heard your show, and then I started getting calls from people who live in the community. They went to the zoning hearings in town, then sent me the plans and asked, “Is this going to be a panel factory?” I said, “No, I told you it’s not going to be a panel factory.” So they sent me the plans. I said, “Well, there’s not enough concrete to make this a panel factory.” For a panel factory, you need stability, so you gotta have all this structural steel, and you have to have all this concrete. Verge subscribers, don’t forget you get exclusive access to ad-free Decoder wherever you get your podcasts. Head here. Not a subscriber? You can sign up here. My favorite part of the Foxconn story — and I don’t mean to rehash it, but it’s just fun to talk to you about it again — is when you said there’s not enough concrete and steel. It’s great. We should actually talk about LCD manufacturing a little bit. There’s an entire chapter in your book about why all of it is in China and China’s investment in that. But I want to just take a big step back for a second. It seems to me that you’ve written a book about the end of globalization in one particular way. We had big global supply chains. The pandemic came and shocked the just-in-time manufacturing system to its core. And then the Trump administration, in the second round, has imposed a whole bunch of tariffs. I’ve had several guests on the show straightforwardly tell me we’re de-globalizing the economy. That’s what’s happening here. We can’t rely on it anymore. Your book, as you read it, is a little bit of a reaction to that, but you’re also pointing out how globalization is one of the smartest ways to do it based on first principles of economics. Tell me about the state of the world and the state of our supply chains right now from your point of view. Well, I think the point about first principles of economics is actually spot on. I often tell people my father was an economist, and I used to see him come home from work, and I thought, “I never want to do that. I’m going to go into science and technology.” So I went into science and technology and took all these engineering classes. And I was in product businesses only to discover, to my horror, that if you don’t get the economics right, then it doesn’t matter for science and technology. The book’s subtitle is “the powerful economics behind global supply chains.” I talk about all these principles behind global supply chains, but they’re all actually driven by econo