Ted Audio Collective.
All right, welcome to HBS after hours.
This is Mihir Desai, and I'm joined by my friend and colleague, Felix Oberhozogi.
Great to see you, Felix.
And we are sorely, sorely missing our colleague, Youngmin Moon, who will not be here.
Who's not here today.
And we will try to persevere on without her.
It'll be difficult, but she'll be back.
We promise. So what do you have on tap for today?
Felix, what can possibly be on my mind?
Of course, all I'm thinking for the last week or so, soccer.
Soccer. Oh my God. We have to talk about soccer.
We got to talk about soccer.
We got to talk about the World Cup.
All right, good. So we'll do that.
And then I similarly have something that we have got to be talking about, which is trade and escalating tariff wars and this Harley Davidson thing that happened.
So where is this going to go?
And what should CEOs be doing in terms of speaking about these issues?
We may not do it that well without Youngmin, but we'll try.
All right, so I thought we could talk a little bit about something straight out of the headlines, which is trade.
And more specifically about this recent thing that happened with Harley Davidson.
Okay. I think it's just fascinating.
So, you know, a couple of things happened, right?
Which is, first, this is in the context of escalating trade war with counter -reeling tariffs being imposed by different places.
Harley Davidson made an SEC filing, interesting way to do this, which said that because of tariffs imposed by the EU in response to American tariffs, they would now be setting up production in Europe.
To effectively, you know, jump over the tariffs, which is that old logic for setting up production abroad.
This was received as front page dramatic news, in part because Harley Davidson is Harley Davidson, in part because the president had actually used Harley Davidson as an example of great American companies and the kinds of companies who are going to be building in the United States as a result of this.
And then of course, finally, just because it is a very significant move for Harley Davidson to do this.
Interesting thing that happens next, of course, is the president now puts them in his crosshairs and tweets about why they're going to fail and why they shouldn't be doing this and implying, you know, that this is not patriotic in some sense of the word.
So, I'm curious about this in two ways.
One is, where is this escalating trade war going?
I've been resisting the idea that this is where we're going to end up for a long time because I think it's been hope over realism.
Quite unbelievable.
Where does this go?
And then the second thing is I'm curious about your reaction to this company making these announcements and then the collateral damage to them or maybe the collateral benefit to CEOs speaking out on trade, which we see more of.
We see CEOs saying, look, if you do this, it will impact my company in this way and I'll hire less.
And so I'm curious about both those questions.
On the first, what are your impressions of this escalating trade battle?
I mean, it's very surprising to me.
I would not have. If you had asked me two years ago, three years ago, will I ever experience a trade war between some of the most sophisticated countries on the planet?
There's zero probability of that happening.
And in part it's not because there's not trade friction, right?
So, washing machines is the other big example.
And do you remember the Obama administration made an argument that washing machines were being dumped?
Right. The evidence was, you know, some sort of evidence, as always in these cases completely straightforward.
And so my expectation was this is how we're going to deal with these tensions.
We will be very specific.
We will do our very best to to document that in fact, you're trying to sell below your costs in order to damage one of our industries.
And then we have very targeted responses.
And resolution mechanisms.
And resolution mechanisms.
And none of this is true here.
Right. So the tariffs are very broad.
They're spread over hundreds of different products.
And across countries that we would normally never think about retaliating against, or I mean, you know, imposing tariffs on.
Yeah. And I think the one thing that it's already done, I think, is that it started a conversation that highlights just how global supply chains are today.
Like the washing machine example I actually love.
So the Koreans get hit with Obama tariffs.
They move from Mexico and Korea where the washing machines used to come from.
They move production to China.
Right. OK. So now we're importing washing machines from China.
Of course, next thing that happens is the Trump administration has tariffs against China.
So they 20 percent up to, I think, one point two million machines and then it goes even higher.
What's the response of the Korean manufacturers?
They both are now in the process of setting up major manufacturing facilities in the United States.
The towns and the cities that compete for these manufacturing locations.
What do you think they do?
Oh, they give great, fabulous subsidies just like the Korean government and the Mexican government gave.
But there are subsidies.
There are our subsidies, which is very different.
And now the last irony is that now if Samsung and LG, the size of their facilities is in part explained because they wanted to export washing machines from the United States to Europe, which they now cannot do because Europe is protecting its own washing machine.
So this just says if you trigger any one element in this global system, it is almost impossible to predict all that.
The simple model of an exporter is just too much of that kind of trade.
But that makes it even more puzzling, right, Felix?
After creating 40 years of global supply chains, we've decided to tear it all up, right?
I mean, one would have thought that the presence of these global supply chains, you know, would have made people realize that this is a far more complex system to kind of monkey around with.
But is your sense that at the level of policymakers that there's a deep understanding of how global the supply chains are?
Well, you're right.
There probably isn't a deep understanding of that.
But I mean, it's not also that hard to figure out, right?
I mean, it's not that hard to figure out.
But where do you think this is going to go?
So one intuition that I have is that the relationships are so complicated and the responses are in the end so diffuse that I think the political cost to starting this trade war, other than the headlines and you know, claims about jobs being created, jobs being lost, I think the political costs might not actually
be that great. Washing machines are one of the few examples where we can now say prices spiked 18 % in the spring.
And that was, I think, largely a response.
And so you and I, if we go out and buy a washing machine, we will see it.
But for many other products, the effects will be so complicated to figure out.
But they will be manifest in prices.
They will be manifest.
Maybe it'll be complex mechanisms, but the end result isn't that complex, right?
It's going to be rising prices, which presumably people are sensitive to.
Is rising prices, but then offset by some of the extra jobs that we get because companies hide behind the trade.
And you and I know that if we add it all up, we're poorer than we would have been under the old system.
I mean, what's your sense?
Like when policymakers decide to use these measures, maybe they're not thinking about global supply chains all that much, but for sure they're thinking about electoral support that will come forward as a result of having started the trade war.
So is your sense that they think the response will be positive?
I think it's a winning, I think they think it's a winning strategy.
And I think it's interesting because it couples together elements on the left with elements on the right.
The question to me I think is, well, we've been living for 50, 40 years or whatever the last 30 years of globalism and the mantra we took for granted.
We never really associated it in the right way with the economic outcomes that it was providing us with, right?
And so now people are willing to ditch the global order at a remarkably rapid pace.
I mean, I confess it's like the first time I've started to just really think hard about how I've benefited in the last 30 years from in the global order that my children just may not, you know, that's literally benefited in a personal way, in an economic way, and I mean, in our professional way.
I mean, it's just astounding to think that my children won't have that benefit.
And I wouldn't have thought about that three years ago, to your point.
What changed? Why do you think it's happening?
And why do you think it's happening now?
I think in one sense, one has to relate it back to two things.
One is our failure to deal with stagnating median wages in this country.
It is still, I think, the aftermath 10 years later of the global financial crisis, where you have a lot of wealth destruction in kind of the bottom two quartiles of the population, and people are still angry as heck about that.
And finally, it is what we always know, which is during anxious times, we project onto the other.
We project the enemy to be the other, whatever the other is.
And the other is largely foreign activity or foreigners or foreign anything.
And I think that is what's happening, which is we're just projecting a lot of anxiety onto what we always project anxiety onto the other.
Now, of course, hindsight is always easy.
If you had known that this is the eventual outcome, what would you have done differently?
Well, I mean, I think we always would talk about trade assistance and we never did it.
We never really did the hard thing.
And we never made the trade off clear, which is we always talked about the gains.
We never talked about the losses and the fact that it was really an aggregation of gains that were more than the aggregation of losses.
We needed more transfers than we were willing to do.
And that I think is the central failure.
Those transfers we were unwilling to do and we still appear somewhat unwilling to do.
And so I think that's the underlying failure.
The part that I'm least sure how to think about is I don't think that's true everywhere, but in the US an increase in transfers also always creates a kind of backlash that is almost as problematic as the reason why we wanted to increase transfers in the first place.
Sort of this idea that as a person who depends on government and as a person who depends on assistance, I have personally failed in some fashion and that is very hard to deal with.
I think at an individual level, it makes people around groups that receive assistance, and suspicious, jealous, it creates some kind of animosity that is not helpful in daily life.
It's not helpful in the bigger game of politics.
So I understand when you say, OK, so, you know, globalization trade creates winners and losers and just make sure we take care of the losers, but that part is difficult as well.
Can we just go to the present and talk about the business leaders today who are speaking out on this?
Yeah, I'm curious to what your views are, which is, is it time for them to take a more aggressive stance on this and to publicly talk about why these policies don't make sense?
I mean, in a way, I'm disappointed by the fact that more people haven't strongly said, look, I'll tell you what we're going to do if you do these policies.
I mean, Harley is the first one to really say that in an aggressive way.
Is there a role for the CEO of Harley or whoever?
My instinct is they should be speaking more loudly than they are.
Is that wrong? So I have two reactions.
One is in the case of Harley, a few days before Harley, we had Daimler, right, reported or likely impact of the trade war on its.
And it was a financial it was a financial hit.
Yes, it was a financial hit.
But in a way, the disclosure Harley's disclosure in part comes from predicting what the financial impact will be if they don't move to Europe the way they have planned.
And so I think one of the ambivalence is, of course, if prices go up, that's hard for the foreign producer, because now you're less competitive and it provides a ceiling for the domestic producer.
But to your point, if there's all global supply chains, then it's too hard to then separate out domestic and foreign producers.
But if your world pool and you have 30 percent market share rising washing machine prices is that it's just all right.
Yeah, it's just all right.
And so I think part of what I interpret part of the ambivalence where people don't really speak out is that in a way, some companies at some point in time are beneficiaries of the trade barriers.
I think it's that may be true.
But I think the global supply chain point from earlier is far too dominant, right?
Which is there may be pure play winners, domestic players in things like white goods because transport costs are so high.
But if you think about global supply chains, then the puzzle to me is why firms aren't saying more and why they aren't making the case in a more powerful way.
I fear it's this general withdrawal from political dialogue or their hesitation to be involved in political dialogue.
Because you come across as partisan the moment you say that trade wars are not, and in particular on the trade arena.
In the trade arena in particular.
My instinct is there's got to be a way to be educational without being political.
This goes to conversations about lobbying as well, right?
I mean, it's like companies have a point of view that is helpful.
They should be sharing.
The question is can you do it in a way that is not politically interpreted or interpreted to be political.
And I just, my instinct is God, if people understood the way these companies were organized and the actual consequences and they heard it maybe from the companies, that would make a difference.
And it's complicated, I think, by we tend to think in consumption terms first and foremost.
And of course there's the consumption effect and there's job creation.
And I think the two.
Are just not comparable in most people's minds.
Absolutely right. Yeah.
Yeah. Yeah. Yeah. So, you hear, you know what I have been doing in the last, my work productivity has basically gone to zero.
Every four years this happens.
Yeah. And of course it's time of the World Cup.
Yeah, I confess I've caught a little bit of the bug as well.
Oh, really? It's kind of like the Mexico earthquake thing.
Like I do wonder if there's an aggregate productivity shock globally when the World Cup comes.
It's got to be the case.
There's a number of people who text me when I watch matches.
It both makes me feel better about my watching but also tells me lots of people are in it.
There's a site, it's called Greatest Sporting Nation.
And basically what they try to do is they try to aggregate across all sports who is on top.
Right. And, you know, you know the answer.
Of course, the US excels and it's very highly correlated with how rich is a country.
Right. And it's very highly correlated with how big is the country because you produce more talent.
And then we have a tournament that is without the United States.
Or China, right? Or other big countries.
But I think no one quite asks surprising given just the economic powerhouse that the United States is.
Do you have a sense of what's going on?
Well, look, I think obviously in the case of the United States there hasn't been the heritage.
Then maybe we're going to build it.
And maybe it's going to come.
Although frankly people have been saying that for like the last 30 years.
Like since Pele, I remember growing up and like Pele came to the New Jersey Cosmos or whatever they were called and Franz Beckenbauer was supposed to be the savior of US soccer.
And it hasn't happened.
My understanding at least some of it is to do with who plays.
My understanding in the US is that it's a rich kid sport.
It's a very rich kid sport.
Like basically the people who play soccer are the suburban white population.
And the key to soccer around the world is that it's actually not a rich person's sport.
And that you are actually tapping much larger populations and you're tapping people who are willing to dedicate their lives to the sport.
So I thought, I don't know, that was one explanation I had heard for thinking about this.
I think it is true that just in terms of size and the size of the sport, the US because it's a big country is now among the top nations where people pay attention to soccer.
If you look at the live audience that matches, it's now ranked number seven, globally speaking.
So the US is ranked number seven when you just look at how many people show up at matches on the weekend.
So in that sense, it has arrived.
So I want to share with you an idea that I read in Slate that I thought was very intriguing.
And so here's their argument.
Do you remember convergence in macroeconomic theory?
Yeah. Okay. So this is this idea that if a country is really poor, catching up in the very beginning is actually not that difficult to do.
Because you basically, you do sensible things.
You copy technology that you have seen elsewhere.
And so you're growing very quickly.
And then at some point, you hit this middle income trap.
And middle income trap is once you have done all the simple things, now, all of a sudden, you have to be innovative and you have to have new ideas.
And that, of course, is like a different game.
It's much harder. Totally different game.
So Slate argued soccer is exactly like this.
So if you look at the United States team, the 1950s and the 1960s, they won a little less than a third of their matches.
And so that was essentially the poor state.
They were not that successful.
And then by the 60s and 70s, they won about half their matches.
And then in the 2000s and the 2000 teens, that had shot up to almost two -thirds.
These are World Cup or these are...
These are all the tournaments that the national team plays.
And then it plateaus, just like a middle income trap.
And their story is what you learn to begin with is you learn how to defend.
So in the beginning, you lose 0 -6, these really brutal, embarrassing kinds of events.
And then learning how to defend is easy.
It's easier. And so that's the first thing.
And you literally see it in the US results.
It's like super interesting.
So it's like, you know, it goes from 0 -6 to 0 -4, 0 -2, 0 -1, and basically all the games become close.
But that is not scoring.
And then you need to learn how to score and that's the same as having true innovation.
I haven't really been able to forget the story because I think what I see in the World Cup when I watch these games is exactly this story.
So fundamental in your story is offense is different than defense.
Yep. I think that's right.
It's not clear to me why that is the case, which is your whole story is that offense is more analogous to sophisticated innovation and defense is more analogous to low -hanging fruit.
Why would one think that was right?
Well, think of a simple way of defending.
You just have every player you have is basically right in front of your keepers.
So the technologies are very basic.
Yeah, the technology is very basic.
If you think about what happened in offense in the last couple of years, we have this really sophisticated development where the same people can be really effective wing players and they also score.
Ronaldo used to be a great...
Now he's too old. He can't really do that anymore.
So he's gone to score.
But he used to be like one of the first examples where he will do amazing things on the wing.
And then at the same time, he's also a guy who can score.
And then of course, your team is spread across the entire field because you're attacking and that's much riskier.
And so you need more sophisticated defense mechanisms.
Well, let me try to give you a counter on this.
One of the striking things is that there are these players who are extraordinary.
So Messi, Ronaldo, whoever you want to pick as your favorite.
You are describing kind of general purpose technologies, right?
What we were talking about in economics is being like, yeah, you get better at doing certain things.
But it feels to me like there are all these people out on the tail who are special, who end up driving offense.
And that feels to me about talent systems, farm systems, or it doesn't feel...
Yeah. So I think that's actually super interesting what you say because in a way that points to the second big force in soccer, which is globalization.
When you look at what are the teams, these famous people that we see now in the world cup, where do they play?
Of course they play in the best teams all over the world.
So you take someone like Messi or you take someone like Mo Salah who plays for Egypt now and he basically doesn't have the support.
I think one reason why Messi cannot shine as much as maybe some people would love him to shine is because he depends on the Barcelona environment to be really great.
Now you go back, it's almost like you scrambled in almost random ways and put these players in different boxes and now they have to play in that box.
And once they don't have the right supporting field, what we perceive to be individual brilliance is actually, I think to a large extent, the outcome of sophisticated interaction between the players in the clubs.
Right. And just to be clear, the claim is sometimes made that when they're playing for their countries and they don't have that support, you're getting a true signal of quality.
That's right. And is that right?
Yeah. I mean is that right?
I mean is that right?
Because then obviously Messi, at least by the current tournament standards, doesn't do nearly as well as Ronaldo though.
So you think the best way to kind of think about talent is in this setting as opposed to in a setting that would be more organically oriented around performance on an ongoing basis, right?
I mean this is the problem with the country teams, which is they're not constructed to be.
That's right. Yes. And I think what's interesting to me is in this particular tournament, many, many of the goals occur in standard situations, so penalties and free kicks and set plays.
And so that is the moment where you least depend on everybody's around.
Interesting, right?
So that's why all of that happens because if everybody gets more sophisticated at defending over time, which I think is the story that we're telling, this is why every game I watch is basically close, which is true.
How can that be true?
Like where is like the 6 -0?
Well, there is no...
Well, there... With few exceptions.
Right. But I think it's because every team has really great players.
But I thought the opposite...
So I'm going to just challenge you on this.
My understanding is obviously 32 teams, they're thinking of going to 48.
And the concern is there's a huge gap between the top 15 -16 and then the bottom 15 -16.
So if you go to the next, you know, 16 and you go to 48, you're going to be dealing with the dregs.
I mean, I guess that's the question, which is their parity across the full kind of 32?
Or you think there's parity within that 12 or 14?
I think there's parity even further down.
Just think about who's not at the cup.
The Netherlands is not at the cup, Italy is not at the cup.
Oh, that's right. I mean, it was almost unthinkable to have a World Cup without these teams.
And of course, you could always look at, oh, maybe they had a group that was a little more difficult.
Right. But I think it's a good example of how globalization, in this case, of a labor market for soccer players has really evened out the quality across.
And so just to go back to your original analogy for this middle income track, what gets you that last piece?
In this country setting, we think about institutions or incentives to kind of create the innovation that we would need to kind of graduate to high income.
What is it going to be in soccer?
I think in soccer, it's going to be investments in the national team.
Because you can, if you're Barcelona or if you're any one of the famous clubs, then of course, these players play all the time together.
And so I may have someone from Africa who doesn't have a lot of history of being really great at soccer, except they come up through the system, and then you can build interdependencies that make them really successful, most of all being a great example.
But if you don't have those same investments at the national level, I think the U .S., you lose against Trinidad.
I think this is really fascinating.
We'll see, obviously, which one of you turns out to be right.
Just to force you on this since you're the bigger fan than me by far, do you want to make your pick public at the time, I'll just note what time it is, which is we're still finishing, just right now, finishing the first round.
Who are you picking and who are you rooting for more importantly?
So I always would love it if Brazil wins, just because the type of play is just really hard to beat.
Obviously, I was mildly partial in the Swiss -Brazil game.
But you see that combination of a team that just plays beautifully versus a team that is much more physically aggressive.
It's not clear who comes out on top.
And so that's one sense in which the cup is just really super interesting.
I'm going to go out on a limb and go for England.
I find that their team is exciting, they're fun to watch, and the World Cup should be even.
There's an interesting question about why the World Cup isn't being played in England this year.
I don't know if you followed that.
But it's interesting.
Because I kind of feel like they deserve to win maybe more than anyone else.
We will see. I'm sure you brought a recommendation for today as well?
Absolutely. So I have a little confession, which is I'm a crossword guy.
And I really love crosswords.
And I've been a long time New York Times crossword puzzle person.
And in fact, I once attended a tournament, which was the most humbling experience in my entire life.
But here's my recommendation.
The New Yorker has launched a crossword puzzle, and it is spectacular.
And they have a bunch of young, new people who are creating grids and clues that are out of this world.
So what's an example?
I have no appreciation for what's even a good clue.
So the first thing is, these people are modernizing it.
So in one puzzle by this woman, Anna Schachman, who I think is just brilliant, she's got Amazon Prime in there.
She's cluing Google Maps.
She's cluing all kinds of things.
And then they're allowing for women and minorities who never got clued to be more prominent.
So in this puzzle, it's just an amazing puzzle that Anna Schachman did.
She's got Joan Didion, Pauline Kale.
She's got Google Maps.
She's got Amazon Prime, and these really great clues, right?
So Acrobat, for example, most crossword puzzle solvers would go to circus performer or would go straight to gymnast.
And of course, the answer is PDF reader, which is really fantastic, right?
It's just so fresh and so new.
And actually, the difficulty level is really good.
It's hard, but not too...
It's doable, and that's really, really nice.
If you're at all into crossword puzzle, I think it's a great new place to look.
Fabulous. And what about you, Dylan?
Well, of course, this is the weeks of the World Cup.
And so my recommendation, not surprisingly, is related to the World Cup.
I've been watching often on the main channels that show the games, and I think they're doing a wonderful job.
I think the comments, they're interesting because they're sophisticated so that people who really know soccer and love soccer, you see something that you didn't see before.
But at the same time, they're also accessible for everyone, even if you haven't watched like a thousand games.
It's really interesting.
But my one recommendation is, and even if it's just for 10 or 15 minutes, watch a game on Telemundo.
Ah, yes. And it's just...
You can speak zero words Spanish, and you will get the passion, the enthusiasm, the drama that is soccer in ways that I think very few other stations can.
I think that's a great idea.
If you switch every now and then, and even if it's just for a little while, make sure you turn up the volume.
That's really important.
It actually really impacts the viewing experience because you get more excited because these people are so good at communicating excitement.
And by the way, I think they're also very fast.
They anticipate movements, and they're able to kind of really be quick.
I think the Telemundo ones.
So I don't know. I think that's a great recommendation.
Thank you, everyone, for listening.
This was HBS After Hours.
We'll see you next time.
