U.S.-China Relations, supply chain disruptions, and the startups transforming global trade

Hi, Friends —

✰ Welcome to [our digital disco]! Keep scrolling for this week’s key themes in tech. Today we’re launching into how geopolitical tension and supply chain disruptions are driving the need for increased supply chain visibility and accountability — as well as a growing market interest in advanced supply chain technologies. You can also check out the last newsletter here.

☞ Global trade tensions unveil the growing need for transparent, predictable supply chains.

Recent developments in global supply chains have highlighted the pressing need for increased transparency and predictability in international trade. The ongoing Panama Canal traffic jam, caused by a severe drought, serves as a reminder of the susceptibility of supply chains, and harkens to the consequences of the Suez Canal blockage in 2021. Moreover, ongoing tensions between the United States and China, particularly concerning technology supply chains and tech investments, underscore the necessity of control and transparency over company supply chains. And the road runs both ways — while China has relied upon the U.S. for certain advanced technologies, China maintains leverage in the global rare earths market. This dominance has exposed vulnerabilities in U.S. and global supply chains, given the criticality of these materials for high-tech products.

• Why does it matter? The limitations of contemporary supply chains underscore the potential for disruptions to ripple through supply chains. On the security front, the complexities of geopolitical dynamics highlight the risks associated with relying on single-source suppliers or undiversified supply networks. Moreover, governments and citizens are increasingly concerned with the environmental and ethical implications of supply chains. In response to these challenges, a surge in supply chain startups has emerged, leveraging advanced technologies to enhance visibility and mapping within supply chains. This wave of innovation is reshaping the landscape of supply chain logistics and responsible procurement. These startups offer real-time insights into supply chain processes, empowering companies to identify potential disruptions and regulatory concerns, proactively adjust sourcing strategies, and bolstering resilience amidst geopolitical uncertainties and trade disputes.

☞ US-China relations, security, & supply chain resiliency.

U.S. Secretary of Commerce Gina Raimondo arrived in China yesterday, marking a diplomatic effort to maintain economic relations. The visit highlights the tensions escalating between the superpowers. Earlier this month, the States announced an executive order banning U.S. investment in advanced Chinese technologies — semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems — given the technologies’ strong ties to the Chinese military. (I’ll save the impacts on global VC investments for a future deep-dive.) The decision expanded upon last year’s decision to ban U.S. export of advanced microchips, and further isolates China from U.S. technological engagement. Secretary Raimondo's mission includes clarifying the U.S. aims to safeguard national security, not hinder China's progress. While discussing expanding commercial relations, she will express concerns over China's crackdown on U.S. firms. Meanwhile, the blacklisted company Huawei is reportedly building hidden semiconductor fabrication facilities across China to evade U.S. sanctions, which is likely to result in a cascade of changes in global technology dynamics.

• Why does it matter? The evolving dynamics between the U.S. and China have the potential to reshape trade, technology, and economic relationships on a global scale. For global supply chains, the emphasis on resilient supply chains could promote diversification and risk mitigation, but restrictions on certain technologies could disrupt existing trade flows.

• Pros: Efforts to enhance diplomatic relations and stablize supply chains could contribute to economic stability and reduce the risk of disruptions in essential goods. If dialogue fosters shared understandings about technology controls, this might stabilize supply chains that rely on components from both countries.

• Cons: The restrictions on investments and the potential for China to bypass sanctions may lead to increased competition and geopolitical tensions, potentially affecting the availability and affordability of advanced technologies. The evolving investment landscape could also prompt companies to restructure supply chains to mitigate risks, which could affect efficiency and cost-effectiveness.

☞ How are startups tackling supply chain disruptions?

Supply chain startups are driving innovation and transforming traditional practices in aspects of supply chain management, logistics, and mapping — reflecting the evolving landscape of global commerce. One notable trend is the focus on supply chain compliance, particularly in industries with stringent regulations, such as pharmaceuticals. Startups like Frankfurt-based Qualifyze ($31.7M raised) are leveraging cloud-based audit data and application platforms to connect stakeholders in the pharmaceutical sector, ensuring compliance with quality and sustainability standards. Supply chain mapping has also taken hold, with innovators hoping to meet growing needs for regulatory compliance, as well as consumer expectations for ethical sourcing (i.e., mitigating vulnerabilities tied to issues like forced labor and environmental impact). New York-based startups like Altana ($122M raised) and Sourcemap ($47M raised) offer dynamic visibility into the global supply chain, utilizing a mix of publicly available and non-public supply chain data to provide comprehensive compliance, visibility, and traceability.

• Why does it matter? The growing demand for detailed supply chain information from governments, consumers, NGOs, and stakeholders reflects an understanding of the potential reputational and financial risks of failing to meet these expectations. Enhanced visibility equips companies with real-time insights into every phase of their supply chains, from raw materials to finished products. This insight has the potential to drive huge cost-savings across industries and governments, as well as quell geopolitical tensions that may arise form supply chain bottlenecks. It’s also interesting to see how startups are innovating on a industry basis. SF-based Silo Technologies ($169M raised), for example, is leading the way in agricultural supply chain innovation. The firm is driving efficient produce trade by combining supply chain inventory data with a payments platform. (Check them out in Forbes’ “Next Billion-Dollar Startups 2023” list.)

• Pros: Increased transparency can enhance compliance, mitigate risks, and boost efficiency throughout the supply chain. This could lead to more accurate risk management strategies, preventing disruptions and strengthening supply chain resilience. Furthermore, supply chain mapping technologies can help companies identify vulnerabilities and redundancies, enabling them to better navigate disruptions caused by events such as global pandemics, wars, and climate change.

• Cons: The adoption of these technologies might require substantial investments in terms of time, resources, and data sharing agreements. Many organizations are hesitant to share insight into their own procurement, either because of the huge cost and time requirements or the accountability it might mobilize from others to themselves. Moreover, Companies are likely to face initial hurdles in integrating new solutions into their existing systems, potentially leading to short-term disruptions.

✿ As always — any and all feedback is welcome! In the meantime, give someone a hug and say an ‘I love you’ this week. Make the world a little happier.