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They have a complete idea, its just that the globalized option is cheaper, even fractions of pennies cheaper, and is directly measured in the profit margin, whi
by dv_dt 7y ago
They have a complete idea, its just that the globalized option is cheaper, even fractions of pennies cheaper, and is directly measured in the profit margin, while the risk, if it shows up at all, is buried in the footnote of a 10-Q or annual report.
Ideas like regionalization and flexible manufacturing are great ideas, in most cases, the capital machinery of factories are relatively easy to replicate and setup (harder than software, but much easier now than any time in the past). However, the economic and accounting system needs to balance out the global employee wage differentials for it to gain any traction.
Tariffs have been hated on economically, in part because the analysis values the generic profit creation over the risk; but it seems like one way to balance wage differentials to encourage de-risking our supply chain. I'm sure there are other maybe better methods?
- epicureanideal 7y agoThey could introduce some new GAAP rules like... Add 10% of the value of all inventory sourced outside North America as a "risk liability". Same for 10% of yearly labor that's outsourced. Basically find ways to make short term thinking visible in their financial reports, since that's what's measured and rewarded.
- Havoc 7y agoNot really an accounting issue & messing with those numbers to highlight a risk is just asking for trouble. Companies are required to disclose significant risks, but the quality of that disclosure...varies.
- epicureanideal 7y agoI suppose this is a useful way to use tariffs. Make production abroad slightly more expensive, or significantly more expensive for vital goods.
- dredmorbius 7y agoBase those premiums on verified actuarially based underwriting risk and you might be on to something.
- eru 7y agoCompanies are free to add them to their accounting already. Mostly these kinds of risk factors are mentioned verbally in their reports at the moment.
- dredmorbius 7y agoEntities tend strongly to externalise risks unless compelled to do otherwise. Insurance obligations -- auto, health, life, C&L, bonding, mortgage and title -- are generally required by or offered via third. parties. Sometimes governments, but often creditors, counterparties, employers, or other entities.
- eru 7y agoThere are true externalities in a car accident. If you have to shut down your business, that's mostly impacting your business in a very direct way.
- clairity 7y agothat's also where i've landed on the tariffs issue. theoretically a bad idea, but has practical uses beyond purely economic considerations. good tariff policy is hard to achieve in divisive political environments however. for instance, in many cases, you'd want them to go away dynamically as conditions improve, but lawmakers hate giving away their levers of power.
- Retric 7y agoI am convinced a low tariff of ~3% on all goods and services to every country is a good idea. But that’s never what happens, you get a huge mix of zero to insanity based on which industries have political power. As such a blanket ban on tariffs became a rallying cry. Food is often used as the counter example, but IMO domestic production is less valuable than a multi year stockpile.
- clairity 7y agowhy 3%? to overcome inflation? and why on everything instead of grossly disadvantaged industries? i haven't spent much time thinking about such details, so curious about the rationale.
- whatshisface 7y agogrossly disadvantaged industries = industries labeled as grossly disadvantaged = industries that managed to talk politicians in to giving them a huge advantage
- breischl 7y agoNot the person you're asking, but I could see doing it to "internalize" the risk of rare events like what we're seeing right now. Basically it applies an incentive towards regionalization over globalization, that can make the system more resilient to distant events.
- Retric 7y agoIt’s extremely expensive to grow bananas’s in Canada, so the correct response is to import them not add a huge subsidy. The point is to encourage domestic production, but not to the point of stupidity. Further, unlike a direct subsidy it’s adding tax revenue.
- eru 7y ago> Tariffs have been hated on economically, in part because the analysis values the generic profit creation over the risk; but it seems like one way to balance wage differentials to encourage de-risking our supply chain. I'm sure there are other maybe better methods? What do you mean by 'balancing wage differentials'? Global trade is on of the best ways to balance wage differentials. That's how China had crazy catch-up growth in the last few decades. (Another great way to help poor people get more productive and thus richer is open borders.) If downstream customers want to de-risk, they should pay for it. Either by setting up their supply chains differently, or by outright purchasing insurance, etc. If they choose not to engage in this expense, perhaps they are right, and just bearing the risk is overall a better trade-off? Who are we to tell other people what level of risk aversion they should have? Of course, once the calamity hits everyone wishes they would have bought prepared or bought insurance. But that doesn't mean we should all go out and make our roofs asteroid impact proof, or never ever go out because we might break a leg.
- Nasrudith 7y agoReally the risk sounds more like a job for insurance and warranties tied to product specs than tarrifs. I don't see a connection between tarrifs and risk in a supply chain. Infamously US autos which refused to adopt Tailorism or other cousin methodologies for reliability wound up being expensive crap compared to Japanese car makers. It is a peripheral variable at best or an irrelevant one at worst. Tarriffs as a solutio resemble opportunistic timing to not let a crisis go to waste rather than addressing a root cause.