The Risks and Opportunities of Tariffs: Q&A with Marcel Botha

Marcel Botha
CEO and founder
10Xbeta

As the tariff situation continues to unfold, the only thing that’s certain is that there’s going to be market turbulence. Marcel Botha, CEO and founder of 10X, spoke with Pharmaceutical Executive about the impact the tariffs could have, along with opportunities for the industry to come out the other side of these tariffs in a better situation.

Pharmaceutical Executive: How prepared is the industry for potential supply chain disruptions?
Marcel Botha: As humans, we're very good at forgetting the last pain that we were subjected to. We learned some from the pandemic response, and we learned some from what is needed to stay current and bring sort of reduced supply chain risk.

What we've seen today is no different than what we saw five years ago in terms of supply chain disruption, although the underlying cause is different. What have we learned? I think we have learned very little. We know what we need to do. Have we implemented systemic change that will allow us to absorb supply chain risk? No, we have not, but we're moving in the right direction. What the tariff situation is doing is different from just global supply chain crunches. The tariffs are penalizing our largest manufacturing partner globally.

Even if we have geopolitical and ideological differences with China, the very high tariffs on that market are making it hard for a lot of businesses that still rely for some of the sub-assemblies that come from there. To pivot and get those from other markets, the issue is exacerbated by most countries being affected by the inbound tariffs that are now levied against them. This means that strategies that we saw post-pandemic are not necessarily steering clear of those tariffs altogether.

In short, we know what we have to do, but we have not implemented the necessary changes at a systemic level, globally or at least nationally. There's a lot of opportunity over the next 5-to-10 years to do so, and to bring a very different kind of manufacturing back to the US. When we think about manufacturing at a level that enhances the industrial base across 50 states, it's not our grandparents manufacturing. It's state-of-the-art, bleeding-edge technology. It's order, trip production, automation, advanced manufacturing, robotic, and new manufacturing techniques. It's stuff that we should not have given up on, and I think that will be painful for a while. However, for us in the industry, who are solving these things in real time, there's a massive opportunity.

PE: How is the industry strategizing around uncertainty surrounding the tariffs?
Botha: There are multiple conversations going on right now. I think you're going to see an acceleration of stockpiling during this pause period that will push the supply chain disruption downstream, because an over purchasing now will diminish supply chain inventory. If those manufacturing markets don't invest to respond to that dip in inventory, you're going to see that hurdle pushed down the road. You're going to potentially see a lot of price gouging of all layers of the component, sub-assembly, and assembly process, where ultimately the customer and the end user will bear the brunt of that cost increase. You're going to see non-delivery where formerly contracted, fixed price contracts are now underwater because of tariffs. Those contracts will either be renegotiated or reneged on. Ideally, we don't see those kinds of disruptions, but I anticipate at least experiencing some of that, even with the pause. There's no there's no clarity on whether the pause will remain intact, whether there will be a reversal, or whether there will be a doubling down on these probative tasks.

PE: What are some other impacts that we might see from this situation?
Botha: You're going to see rising production costs and margin pressure across all aspects. From components to final product and in end-user services, we're going to see extended lead times and manufacturing delays downstream, These may or may not be immediate, depending on how different manufacturers respond to their both component supply chain, stockpiling, and labor sourcing. More onboarding into the US, in many cases, will require access to specialized components, locally specialized processes, and re-labeling or reshoring compliance risk. That means that if you're going to move a factory from outside of the US to inside the US, you've got to go through FDA clearance for that new facility to make sure you remain compliant while you're producing. It's not just a device level, but it's also regulatory, supply chain, and labor that are affected by these whiplash decisions that we are seeing from the government.