4 ms·

How do you build in redundancy, though? If China makes widgets for $0.13 a unit and the US makes widgets for $0.15 a unit, how do you incentivize people to buy

How do you build in redundancy, though? If China makes widgets for $0.13 a unit and the US makes widgets for $0.15 a unit, how do you incentivize people to buy some of them from China, and some of them from the US? It seems like the logic of free trade and specialization dictates it's mostly all-or-nothing. That's a genuine question, by the way. I'm curious.

shas3 7y ago
The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail. Some industries will not learn because they will be bailed out, others like consumer electronics have probably already learned their lessons.
- enitihas 7y ago
  How will diversified companies survive till before the shock, given consumer preference for lower prices.
  - notyourday 7y ago
    Less competition. Twenty years even if a company manufactured something in China the sales channel for a product was dependent on the company giving the company ability to control/level the price. Today the supplier can not only sell to the company but to the consumers directly significantly cutting company's ability to level the price so the company is forced to drop the more expensive suppliers
- quanticle 7y ago
  The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail. There is an incentive for now. When the current supply shock goes away, the old market pressures will reassert themselves, and those companies whose supply chains are narrowly focused on the lowest-cost/highest-quality producers at the expense of diversification will outcompete those whose supply chains are diversified. The parent questioner is asking, in essence, how can we turn this incentive from a one-time shock into a continued incentive to maintain diversification? As it currently stands shocks are far too unpredictable and episodic to serve as a market incentive. In practice, people don't diversify unless there's a constant and ongoing pressure for them to do so. It's much easier and cheaper to find a good supplier and rely on them as much as possible.
- asdfman123 7y ago
  What I mean by incentive is the concrete, day-to-day purchasing decision incentives. I know why it might be a good idea, I just don't know how people could accomplish it.
  - eru 7y ago
    Perhaps it is _not_ a good idea? We don't generally make our roofs asteroid impact proof, either.
RandallBrown 7y ago
Maybe tariffs? I'm not sure if this is practical to actually implement, but if you increase tariffs based on how many of each item you're shipping, it would eventually be cheaper to manufacture some of them in the United States. Example, first million widgets have no tariff. Next 500,000 are $0.02 per widget. Next 500,000 are $0.03 per widget and now it's cheaper to make those last 500,000 in the US. And for companies with smaller runs, like 50,000 widgets, the volume savings might not make up the extra cost of dealing with Chinese manufacturing (shipping, time zones, language barriers, etc.) The biggest trouble would be setting those values at reasonable levels based on different industries. Not sure if you could actually do that in a way that scaled to EVERYTHING manufactured in China.
- seph-reed 7y ago
  This is really clever! It's like increasing taxes as a company gets bigger, or making people pay exponentially more for the second/third bottle of hand sanitizer. Reminds me of the concept of "protecting players from themselves" (https://www.youtube.com/watch?v=7L8vAGGitr8 https://www.youtube.com/watch?v=7L8vAGGitr8) Good idea.
cgearhart 7y ago
Tariffs, subsidies, legal mandates, direct government spending (the US military frets about the industrial base and does a lot of this). Take your pick. Plenty of other solutions as well. They all have different costs and benefits, but it’s at least possible theoretically.
abathur 7y ago
Like Chaos Monkey, but with import/export bans and/or tariffs?
- chillacy 7y ago
  Yea I was thinking that there is some sort of parallel to datacenters, where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working. You lose some efficiency but gain in resilience. Nowadays big internet companies have all sorts of Disaster Recovery plans.
  - DEADBEEFC0FFEE 7y ago
    BCP is the way, this is all risk management. Get financial lenders to insist on insurance, the insurance companies will figure out how to measure supply chain risk.
  - notyourday 7y ago
    > where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working. Are you keeping your own data center in addition to the AWS/GCP/Azure? Because that's the exact same premise.
- eeZah7Ux 7y ago
  Are you hinting at some politician?
  - abathur 7y ago
    No--just https://en.wikipedia.org/wiki/Chaos_engineering#Chaos_Monkey https://en.wikipedia.org/wiki/Chaos_engineering#Chaos_Monkey But I can see how you came to that reading, and it did give me a chuckle.
wangii 7y ago
Help the poor. Really. When each penny counts, the incentive can only go that far. It's not exactly what capitalism good at.
BaronSamedi 7y ago
I'm sure people have many good ideas. Two things that come to mind are: extend the Berry Amendment to the entire US Federal Government and designate certain products such as medicine as critical and require that they be manufactured in the US in order to be sold here.
Nasrudith 7y ago
What is needed is for there to be multiple competitive and diverse fungible product sources to get redundancy. It is sort of an extension of a competitive market. Production insufficient for complete demand to be supplies by one softens the blow as it becomes half needed capacity. So if say China produces half of our screws then cut off results in a shortfall by half instead of a complete cut off. The thing is that these dependencies are a feature and not a bug on several levels, both in terms of trade promoting peace and the efficency involved. Put the should we philosophical questions aside and there are a few precedents to look at and hypothetical solutions. One way is through subsidies for deliberate overproduction are the way done for food - but that is also a market where the fungibility and nutrition encourages varierty to some degree. Again it is inefficiency by definition - generally done for things where it is believed/claimed to be better to have the waste than running out. Another is in "national security" pork where it is often more an accident of the pretext than neccessity. Needing American screws for DoD gear. Some sort of international robustness treaty/trade deal could be devised per sector that say any country may subsidize or tarriff industries up to say N% of their basic demand but once it gets beyond that they need to stop or start tapering off, perhaps with varied threshholds. That would no doubt be a bed of weeds as everyone tries to privledge their own interests and plays games with classifications.

shas3 7y ago

The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail. Some industries will not learn because they will be bailed out, others like consumer electronics have probably already learned their lessons.

enitihas 7y ago
How will diversified companies survive till before the shock, given consumer preference for lower prices.
- notyourday 7y ago
  Less competition. Twenty years even if a company manufactured something in China the sales channel for a product was dependent on the company giving the company ability to control/level the price. Today the supplier can not only sell to the company but to the consumers directly significantly cutting company's ability to level the price so the company is forced to drop the more expensive suppliers
quanticle 7y ago
The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail. There is an incentive for now. When the current supply shock goes away, the old market pressures will reassert themselves, and those companies whose supply chains are narrowly focused on the lowest-cost/highest-quality producers at the expense of diversification will outcompete those whose supply chains are diversified. The parent questioner is asking, in essence, how can we turn this incentive from a one-time shock into a continued incentive to maintain diversification? As it currently stands shocks are far too unpredictable and episodic to serve as a market incentive. In practice, people don't diversify unless there's a constant and ongoing pressure for them to do so. It's much easier and cheaper to find a good supplier and rely on them as much as possible.
asdfman123 7y ago
What I mean by incentive is the concrete, day-to-day purchasing decision incentives. I know why it might be a good idea, I just don't know how people could accomplish it.
- eru 7y ago
  Perhaps it is _not_ a good idea? We don't generally make our roofs asteroid impact proof, either.

RandallBrown 7y ago

Maybe tariffs? I'm not sure if this is practical to actually implement, but if you increase tariffs based on how many of each item you're shipping, it would eventually be cheaper to manufacture some of them in the United States. Example, first million widgets have no tariff. Next 500,000 are $0.02 per widget. Next 500,000 are $0.03 per widget and now it's cheaper to make those last 500,000 in the US. And for companies with smaller runs, like 50,000 widgets, the volume savings might not make up the extra cost of dealing with Chinese manufacturing (shipping, time zones, language barriers, etc.) The biggest trouble would be setting those values at reasonable levels based on different industries. Not sure if you could actually do that in a way that scaled to EVERYTHING manufactured in China.

seph-reed 7y ago
This is really clever! It's like increasing taxes as a company gets bigger, or making people pay exponentially more for the second/third bottle of hand sanitizer. Reminds me of the concept of "protecting players from themselves" (https://www.youtube.com/watch?v=7L8vAGGitr8 https://www.youtube.com/watch?v=7L8vAGGitr8) Good idea.

cgearhart 7y ago

Tariffs, subsidies, legal mandates, direct government spending (the US military frets about the industrial base and does a lot of this). Take your pick. Plenty of other solutions as well. They all have different costs and benefits, but it’s at least possible theoretically.

abathur 7y ago

Like Chaos Monkey, but with import/export bans and/or tariffs?

chillacy 7y ago
Yea I was thinking that there is some sort of parallel to datacenters, where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working. You lose some efficiency but gain in resilience. Nowadays big internet companies have all sorts of Disaster Recovery plans.
- DEADBEEFC0FFEE 7y ago
  BCP is the way, this is all risk management. Get financial lenders to insist on insurance, the insurance companies will figure out how to measure supply chain risk.
- notyourday 7y ago
  > where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working. Are you keeping your own data center in addition to the AWS/GCP/Azure? Because that's the exact same premise.
eeZah7Ux 7y ago
Are you hinting at some politician?
- abathur 7y ago
  No--just https://en.wikipedia.org/wiki/Chaos_engineering#Chaos_Monkey https://en.wikipedia.org/wiki/Chaos_engineering#Chaos_Monkey But I can see how you came to that reading, and it did give me a chuckle.

wangii 7y ago

Help the poor. Really. When each penny counts, the incentive can only go that far. It's not exactly what capitalism good at.

BaronSamedi 7y ago

I'm sure people have many good ideas. Two things that come to mind are: extend the Berry Amendment to the entire US Federal Government and designate certain products such as medicine as critical and require that they be manufactured in the US in order to be sold here.

Nasrudith 7y ago

What is needed is for there to be multiple competitive and diverse fungible product sources to get redundancy. It is sort of an extension of a competitive market. Production insufficient for complete demand to be supplies by one softens the blow as it becomes half needed capacity. So if say China produces half of our screws then cut off results in a shortfall by half instead of a complete cut off. The thing is that these dependencies are a feature and not a bug on several levels, both in terms of trade promoting peace and the efficency involved. Put the should we philosophical questions aside and there are a few precedents to look at and hypothetical solutions. One way is through subsidies for deliberate overproduction are the way done for food - but that is also a market where the fungibility and nutrition encourages varierty to some degree. Again it is inefficiency by definition - generally done for things where it is believed/claimed to be better to have the waste than running out. Another is in "national security" pork where it is often more an accident of the pretext than neccessity. Needing American screws for DoD gear. Some sort of international robustness treaty/trade deal could be devised per sector that say any country may subsidize or tarriff industries up to say N% of their basic demand but once it gets beyond that they need to stop or start tapering off, perhaps with varied threshholds. That would no doubt be a bed of weeds as everyone tries to privledge their own interests and plays games with classifications.