The Trump administration’s Section 232 investigation led to new steel and aluminum tariffs on China, but an even bigger trade decision is looming.
In August 2017, the Office of the U.S. Trade Representative (USTR) launched a Section 301 probe, which sought to assess unfair Chinese trade practices with respect to technology transfer and intellectual property. The office’s findings led to additional tariffs on some 1,300 Chinese products valued at $50 billion. In early July 2018, a first tranche of $34 billion in tariffs went into effect, with the remaining $16 billion being approved in August. In addition, President Donald Trump instructed USTR Robert Lighthizer to draw up a list of additional Chinese products, worth approximately $200 billion, to potentially target for duties.
The proposed product list includes exports from vaccines to nuclear reactors to numerous forms of metals used by manufacturers. With such an extensive list of potential new duties, companies have their work cut out for them identifying supply-chain risks, especially with China’s deep integration into the murky lower tiers of many supply chains.
To help assess the risks and recommended preventative strategies, MetalMiner sat down with Bindiya Vakil, CEO and founder of Resilinc, to discuss the implications of the Section 301 investigation and how supply-chain risk and resiliency solutions such as hers are helping companies prepare for impacts.
For businesses looking to navigate the tariffs and be proactive about limiting their exposure to risk, Vakil says it’s all about one thing: data.
“Our whole underlying philosophy is that the risk problem is actually a data problem,” Vakil said. “It’s a visibility problem. Because you are flying blind — or maybe not blind but in foggy conditions — therefore you don’t know what’s coming at you and you don’t know what the pitfalls are, until it is too late. Therefore, your supply chain is more vulnerable and you’re more susceptible to bad things that might be in your path.”
U.S. manufacturers are now dealing with the reality of tariffs on Chinese goods and parts — but risk, in general, extends far beyond even the now-ubiquitous tariff issue.
To illuminate the decision-making airways, so to speak, and improve visibility, data can shed light on a number of supply-chain considerations, including assessing the country-of-origin breakdown of their parts supplies. Mapping the journey of materials or parts from their country of origin is, in fact, a central component of what Resilinc’s solutions offer.
Customers can also use this type of information to assess risks associated with various suppliers, by category, including: financial risk, risk related to location, weak business continuity, or unreliability or inconsistency in supplier operations.
With that information, buyers can segment their risk using quantifiable, mapped data.
“Most companies don’t invest in mapping the supply chain and they find themselves scrambling and trying to piece this together in a very manual way, and arriving at inaccurate conclusions,” Vakil said.
Simply put, many firms are thinking reactively, rather than proactively.
By the time these companies have pieced together data on the fly, it is already too late, because the more proactive companies who have ready access to mapping data have already re-architected or made network changes to mitigate the impact of tariffs, or other risks.
Among the avenues of proactive thinking includes the aforementioned research of supply-chain composition; if tariffs do happen to affect a buyer’s supply chain, the buyer can be quick with an alternate solution.
In other words, buyers have to plan for these issues before a crisis hits, Vakil noted, and not simply in the form of retroactive damage control.
For companies, being armed with data — or, conversely, lacking proactive data — can make a big difference.
“It’s huge for stock price,” Vakil said. “It means companies may have to restate earnings two months later or two quarters later, [saying] ‘oh, I anticipated it would be a 4% hit to margins, but actually it’s an 8% hit to margins’ because of tariffs.”
Leveraging data for risk mitigation is not just limited to more singular events, like earthquakes or hurricanes, she argued. Mapping supply-chain data can also provide a competitive advantage when companies deal with the ramifications of, for example, a trade war.
Of course, every buyer is different. Some industries — automotive, life sciences and high tech — often cannot utilize multiple sources, whether due to regulatory complications or intellectual property concerns. In these cases, mapping and transparency is even more critical to proactively protect supplies of raw materials that are sole or single sourced. Mapping helps identify which sites suppliers use today, and what alternate capacity they may have. If necessary, supply chain can be reconfigured to qualify an alternate site available with the same source, thereby minimizing the risk.
Overall, the message is simple: data is a powerful guiding light in the dark for supply-chain units working in tandem with finance departments.
“The laggards are in discovery mode, Vakil said. “Leaders are in response and recovery mode.”
For more information about Resilinc and its software, visit www.resilinc.com.