David on... Navigating Tariff Chaos

The business landscape isn’t just shifting—it’s fracturing. 

Tariffs are soaring, supply chains are unraveling, and mid-sized companies find themselves caught in a storm they never anticipated. In this eye-opening episode of the AI on Podcast, I sit down with David, an AI representation of the CEO of a Tier 1 automotive supplier deeply embedded in the heart of today's tariff turbulence. David doesn't just see the challenges; he's living them.

💬 Carry on the discussion with the AI model of David.

In this conversation, we dive into:

✅ Why today's tariffs are a permanent new normal—not a temporary blip
✅ The bold, unconventional tactics businesses must adopt now
✅ Immediate financial moves CEOs and CFOs must make to weather this storm
✅ The blunt message David delivered to his own board—no false hope here

Forget theory. David shares real-world strategies that CEOs, CFOs, and COOs urgently need. If you're leading a business today, you can't afford to miss this.

Find out more about David and the books he recommended here: aionpodcast.com/blogs/news/ep6-david

Chapters

• 0:23 Welcome to the AI On Podcast
• 1:06 Tariff Impact on Automotive Supply Chain
• 3:25 Strategic Supply Chain Adaptation
• 6:07 Financial Strategies During Tariff Volatility
• 9:41 Unconventional Solutions and Shadow Supply Bases
• 13:24 Scenario Planning for Long-Term Uncertainty
• 17:14 Must-Do Actions for Manufacturing CEOs
• 20:51 David's Favorite Reads and Conclusion

Transcript

David: 0:05

I'm telling the board to buckle up. Margins will stay compressed, cost volatile and we need to remain agile, disciplined and realistic. No wishful thinking.

Intro: 0:23

Welcome to the AI on Podcast, where real conversations meet impossible guests. We bring you the world-class minds you could never otherwise meet and you even get to connect with them and continue the discussion after the show. Remember, these guests are AI-generated personas who are entirely fictional. These guests are AI-generated personas who are entirely fictional and they are not intended to represent anything or anyone from the real world. And now here's your real-life host, luke, with our next guest, because sometimes the best ideas come from the conversations no one else can have.

Luke: 1:13

David, welcome to the show and we appreciate you taking the time when the world is as complex as it is today. As we record this, the US has imposed tariffs of up to 145% on Chinese imports, with additional fees on Chinese-built vessels entering US ports. Meanwhile, tariffs on the rest of the world are lower, but significantly up from just last year, even just last month Now. Your business Paragon Components is a mid-sized supplier to the automotive industry. So let's start with how you, as CEO, are adapting operations and response.

David: 1:46

Thanks. Glad to be here, even though I wish we had happier topics to talk about. You know, the situation right now with tariffs, especially the extreme measures on China, is unlike anything I've seen and, let's face it, we've seen a lot over these past few years. Right, the short answer is we're feeling real pain from this. We're a mid-sized business and these kinds of tariffs aren't just a cost we can easily absorb or pass along. Margins are shrinking. I've been very open about that internally and externally. It's a tough environment, no sugarcoating it, but we're not sitting still. I'll tell you one thing, though Tariffs at this scale don't just impact sourcing decisions. They're fundamentally changing the game. I'm not particularly optimistic about a quick solution or the return of stability, and we're preparing accordingly. It's about being realistic, transparent and making sure our customers understand that we're navigating these waters as proactively as possible, even if we're all getting splashed by the waves.

Luke: 2:46

When I look at the market, I see a, let's say, strategic divergence between how one manages the situation with China versus the rest of the world, and there's two different playbooks here. Given the enduring and escalating tariffs on Chinese goods and what I think we're all hoping will be lower rates elsewhere, how are you differentiating your approach between the regions and how do you create optionality without triggering internal whiplash?

David: 3:16

Yeah, you nailed it. That's exactly the situation we're wrestling with. It's genuinely two separate worlds and our teams have had to become experts at managing both. It's tough, but let's get. Our teams have had to become experts at managing both. It's tough, but let's get real. Nobody gets into automotive expecting smooth sailing these days.

David: 3:31

First, the China lane. Look, the situation there is crystal clear, but pretty unforgiving At tariffs, pushing 145% for some components. Importing directly is just untenable. So we've pivoted aggressively towards what we call a structured decoupling. It's basically a polite way of saying we've had to partially dismantle longstanding relationships and rebuild them elsewhere. For example, we've worked over recent years with several of our key Chinese suppliers to help them open or expand facilities in Vietnam and Mexico. It's not cheap, it's not quick, but it helps us maintain the engineering expertise and trust we built over years while reducing impacts.

David: 4:13

Now here's the catch Moving production isn't flipping a switch. It takes months or even years. So we've developed parallel sourcing paths. We maintain some scaled down capacity in China, but ramp up capabilities elsewhere in a phased way, letting us shift volumes depending on the business landscape. Think of it as holding two keys, one in each hand, ready to switch doors quickly if tariffs suddenly spike even higher or, who knows, ease up a bit. We call this our dual coding approach, where we've literally built dual sets of bills of materials that our supply chain software can activate almost instantly, depending on the tariff status. For the rest of the world, the dynamics are more negotiable. Tariffs are painful, but the political conversations are still happening. We're focusing on modular designs where individual components can be swapped out rapidly if one country gets hit harder than another. This gives us a flexible architecture that can adapt quickly without rebuilding the entire product, so to speak. We're also leaning into predictive analytics, modeling scenarios around potential trade outcomes, so we're never caught completely off guard.

David: 5:24

Now to your point about internal whiplash. It's a real concern. You can't ask your team to pivot weekly without burnout or confusion. This is why we've been very deliberate with how we structure responsibilities internally. We've created dedicated China crisis teams and separate teams for role flexibility. Each has clear authority and they're responsible for scenario planning and contingency actions in their own lanes. My job is to give them clear boundaries, trust their expertise and be transparent about why these complexities exist. It's not perfect, but it creates stability within uncertainty, and right now that's about the best we can ask for, and right now that's about the best we can ask for your customers.

Luke: 6:05

the automotive OEMs are under pressure to maintain cost structures despite these rising tariffs. How are they responding to the challenges and what are you doing at Paragon to manage their expectations?

David: 6:19

Yeah, the OEMs are pushing us hard to absorb costs or find savings elsewhere. They're squeezing margins all down the chain. At Paragon, we're responding by being transparent and proactive, sharing detailed tariff forecasts, offering modular contract structures and collaborating directly with OEM engineering teams to tweak designs and reduce tariff exposure. It's a tough balancing act, but communication and flexibility are our main tools right now.

Luke: 6:47

Okay, I see transparency is useful, but in reality you still have to negotiate the price increases right Now. I would expect that the tariffs not only increase the cost of imported materials, but they're also introducing volatility in some sense to your cash flow. Are you doing anything different with your financial strategies because of this?

David: 7:08

Yeah, cash flow volatility. That's been a huge headache lately. You know, one thing I've learned the hard way is that tariffs aren't just an added cost. They're actually a multiplier of uncertainty. You think you have a handle on cost. Then suddenly there's a tweet or a headline and everything shifts overnight.

David: 7:29

So let me break down how we're tackling this at Perigon. First off, on working capital, we've become a lot tighter and a lot smarter. We shifted to shorter inventory cycles, trying to avoid stockpiling expensive tariff hit materials, for instance. Instead of large monthly shipments, we're staging smaller, more frequent deliveries so we're not caught with a warehouse full of overpriced steel or aluminum. I joke with our team that inventory these days is a hot potato. You don't want to hold on to it too long, but you can't always shrink your inventory, especially when lead times stretch. So we got creative. On financing, we're negotiating extended payment terms with some suppliers while using factoring and supply chain finance programs more aggressively. That helps us free up immediate cash while managing longer payment cycles without squeezing our suppliers too hard.

David: 8:21

On contract renegotiations, honestly, it's been about getting real with our customers. We've introduced conditional tariff clauses which explicitly state that prices will adjust based on tariff rates. Oems don't love this. It adds complexity for them too, but transparency here is key. We found being upfront about the real cost impacts has actually made these conversations easier, even though they're uncomfortable. Nobody likes surprises. Look, these financial measures aren't silver bullets. We're not magically avoiding margin compression, but the goal here is resilience. If we can manage working capital well, negotiate clear terms and hedge risk smartly, we're giving ourselves a fighting chance to weather this storm. It's not ideal, but it's practical and in this environment, practical wins.

Luke: 9:12

Those seem pretty pragmatic moves, but your point on margin compression, I think, is what worries everyone today, right? So, going beyond what you just discussed, I want to talk about some of the unconventional strategies that you've considered or that you've seen others taking and that you're thinking may be worthwhile for you, and that take this management of the tariffs to the next level, even if it includes some additional risk. What can you tell me about that?

David: 9:41

Oh, absolutely. I think we're well beyond traditional at this point. Frankly, we've had to throw out some chapters of our old playbook entirely. I mentioned dual coded bombs earlier, and that's a great example. I mean, a few years ago, if you told me we'd be running parallel bills of materials, ready to switch sourcing routes on short notice, I'd have laughed you out of the room. But today it's standard operating procedure. Our ERP is practically trained to watch the nightly news at this point. But let's dive a bit deeper.

David: 10:11

Something really out there that we've been exploring and frankly experimenting with is what we call shadow supply bases. Now, that sounds a little cloak and dagger, but it's actually practical. We're identifying dormant or underutilized manufacturing capacity domestically, often at competitors or former suppliers, and we're quietly setting up flexible leaseback arrangements. This means we can ramp up local production on very short notice. It's unconventional because it puts us into partnership with some folks we'd normally consider rivals, but guess what? Under 145% tariffs, we're all suddenly friends. Another thing we're leaning into and I'll be candid here is gotten some raised eyebrows internally Modularized assembly cells that are genuinely mobile. Think about it like this Shipping containers retrofitted as ISO certified mini assembly lines that can be quickly deployed to partner factories and tariff friendly regions. We actually tried this out recently with breaking assemblies. The kicker is our own compliance teams traveling to certify bills at these remote sites, keeping us within regulatory boundaries.

David: 11:20

It's expensive and complicated, but when tariffs spike, this kind of geographic arbitrage can literally save a program's profitability. And speaking of arbitrage, that brings me to a financial tactic we adopted late last year which was kind of like channeling our inner Wall Street trader. We started treating inventory procurement almost like commodity futures. For example, when we saw steel tariffs about to jump significantly. This was around February when the administration suddenly announced new section 232 measures. We bought certain grades of steel at the old tariff rates, hedged the cost through forward contracts and locked in pricing on downstream sales at projected post-tariff margins. It's not typical behavior for a tier one, but it was a deliberate move to financially engineer our way around some of the uncertainty. Look, these moves aren't without risk and I'm well aware that some people think we're pushing too far, but I truly believe the alternative sitting still is riskier when tariffs redefine your baseline costs every other month, being unconventional is just being practical.

Luke: 12:27

So those are some really interesting spaces to explore, David the underutilized capacity and the shadow factories, but particularly this idea of modularizing your assembly lines so they're actually mobile. I can see a lot of complexities in executing that, but if you can make it work, then that provides a level of a true agility that I think many companies just don't have today. So I'm just going to switch the focus to the future, at least the next coming months. I saw that United recently presented a dual scenario for forward guidance in the latest quarterly results. I think it's probably naive of us to expect short-term resolutions to this overall situation. So if we're thinking about a prolonged situation where tariffs exist, tell me about your scenario planning and how do you prepare for these various longer-term outcomes.

David: 13:23

And I actually saw that United Airlines report you're talking about. It caught my attention too. They're essentially signaling two totally different worlds one where things stabilize and another where disruption drags on indefinitely. That's smart and that's similar to how we're approaching it here. We set up what we call a scenario management office a while back, and lately it's become our nerve center. It's a small, dedicated team that's tasked exclusively with running deep simulations every quarter, mapping out various economic and geopolitical scenarios. And you're right, this isn't just planning for the next quarter. We're looking three, five, even 10 years out now, because these tariffs and trade disruptions aren't going away soon.

David: 14:07

I've been very blunt with my board about that. In terms of specific scenarios, we've got at least three running at any time. One is our baseline scenario, where current tariff levels and volatility stay roughly as they are now, sort of a status quo. This scenario forces us to optimize around today's uncomfortable reality, locking in strategies that keep us sustainable even if nothing improves. But we don't stop there. Another scenario frankly a pretty pessimistic one models tariffs escalating further, maybe even spreading into reciprocal tariffs on autos from Europe or further retaliatory tariffs from Asia. Here we look at what it would mean if our input costs climb another 10 to 20 percent, and how rapidly we could pivot to even more aggressive regional sourcing or reshoring. In this scenario, we're planning what I'd call survival level actions everything from major production relocations to drastically increased prices, and how we'd communicate that pain to customers. Not a pleasant scenario to discuss, believe me, but necessary. Then there's a third scenario, more optimistic, where we model moderate tariff reductions or new trade deals that gradually ease the burden, though, I'll admit, this feels increasingly unlikely. But even this scenario isn't a return to the good old days. It's more like a managed easing, with selective tariffs lowered or more stable trade policies returning. It helps us identify opportunities to capture new market share or ramp up quickly if conditions improve.

David: 15:44

Here's what's interesting we don't just run these scenarios for internal forecasting. We integrate them directly into our customer contracts and negotiations. So, similar to what United is doing with their financial guidance, we've begun communicating clearly to OEMs that our pricing and delivery commitments have conditional clauses explicitly tied to different tariff and geopolitical scenarios. This approach lets everyone plan better and manages expectations up front. Look, scenario planning like this isn't perfect. It won't predict exactly what's coming, but it allows us to quickly recognize which scenario is unfolding in real time and shift gears without panicking. And I'll tell you, it's changed our company culture. Our teams now think in terms of probabilities, resilience and contingency plans, not certainties. In a weird way, the uncertainty has made us sharper, even if none of us particularly enjoy it. But, as I keep reminding my people, it's not about guessing exactly right, it's about never getting caught flat-footed again.

Luke: 16:47

I think there will be some people who listen to what you just said and think that's a huge amount of effort, but I like your point about not being exactly right and focusing on being able to be agile, and I think that idea of thinking in probabilities rather than absolutes is a significant mental shift, but actually it applies across managing a supply chain in reality. Now, you mentioned there being blunt with your board. What actually are you telling them today?

David: 17:18

Honestly. I'm telling them to buckle up. We're facing sustained headwinds from these tariffs and should not expect relief soon. Margins will stay compressed, cost volatile and we need to remain agile, disciplined and realistic. No wishful thinking. We're planning for resilience, not recovery, and everyone needs to be clear-eyed about that.

Luke: 17:40

That might be painful for them to hear, but it's sure better than sugarcoating it. And are you seeing any success engaging with policymakers or industry groups for more favorable trade conditions, given the current state? If you were getting something, what would decent even look like from these?

David: 17:58

engagements, policy makers seem dug in and industry groups are struggling to break through the noise At this point. Decent would just mean some transparency and predictability in tariff decisions, but even that's feeling like wishful thinking right now.

Luke: 18:27

Now we're getting towards the end of this discussion and I like to leave our listeners with practical, real-world options that they can take away. So if you were the CEO of any other manufacturing company in the US today, what are the things that you must be doing, regardless of industry, to survive the next few quarters and to position your company for the future?

David: 18:43

Absolutely. This applies broadly, but there are a few actions that any CEO needs to take to navigate this storm. First, double down on working capital discipline. Every CEO right now should be stress testing their liquidity scenarios. Push your teams to shorten inventory cycles aggressively. Manage receivables and rethink payment terms. For instance, negotiate extended terms with suppliers to preserve cash or leverage supply chain financing solutions to bridge gaps. Tightening your grip on cash flow right now isn't just smart, it's critical to survival. Second, accelerate geographic flexibility in your supply chain.

David: 19:25

If your company is overly reliant on a single region, especially China, start diversifying yesterday. Look at near-shoring or regional alternatives Think Mexico or Vietnam if you believe they will negotiate reasonable deals with the US or even underutilized capacity domestically. For example, establishing secondary or tertiary sources and modular production lines that allow rapid shifts based on tariff changes is no longer optional. It's fundamental. Finally, embed scenario planning into your operational DNA. Don't treat it like a once a quarter exercise. Make it continuous. Create a dedicated team whose job is running simulations, updating scenarios monthly and embedding conditional actions into your commercial contracts. Be transparent with the customers about these scenarios. It might feel uncomfortable, but clarity and proactive contingency planning build trust and resilience, which you'll need plenty of in the months ahead. These aren't easy fixes, but they are actionable and meaningful. Right now, that's what counts.

Luke: 20:34

Great recommendations, david. Thank you for those. Now, to wrap up, I usually ask guests for what they're reading about, whatever topic we're discussing on the day, but for a little bit of a change, can you share with me what your favorite reads of all time are?

David: 20:51

Now you're really putting me on the spot. All right, favorite reads of all time. Here goes, on the nonfiction side. First I'd say Thinking Fast and Slow by Daniel Kahneman. It's a classic and for me it fundamentally changed how I understand decision making, biases and human behavior Critical lessons in the current uncertainty, honestly. Next, the Hard Thing About Hard Things by Ben Horowitz. That's basically my Bible for tough leadership moments. It's brutally honest about the realities of running a business through crisis and, let's face it, that's something I've had to do a lot lately.

David: 21:31

For fiction, I'm a huge fan of storytelling that pulls me completely into another world. So I have to say, the Kite Runner by Khaled Hosseini. It was emotional, powerful and left an impression that's lasted years. The themes of friendship, redemption and the complexity of human relationships just incredibly done. Finally, I picked the Midnight Library by Matt Haig, which, besides being a gripping story, beautifully explores regrets, possibilities and the question of how the small choices we make shape our lives. Great reminder to stay thoughtful and intentional personally and professionally. Reminder to stay thoughtful and intentional personally and professionally. So there you have it A little bit of psychology, business reality, emotional storytelling and thoughtful reflection. Probably says more about me than I intended, but hey, that's the beauty of books, right.

Luke: 22:22

Well, I'd argue that it says some pretty good things about you. I need to get into the hard thing about hard things. I've not read that one yet. David, look, it's been a genuine pleasure to have you on the show today and I really appreciate your insights into, honestly, what's probably the biggest challenge in industry today that all companies are facing, at least here in the US. So thank you very much.

David: 22:45

Hey, it's been my pleasure. Really enjoyed the conversation. You're right, it's the biggest challenge out there right now, but talking openly about it matters. Next time we chat, let's hope things have settled down a bit, or at least that we've all become a little better at navigating the chaos. Until then, thanks again for having me and keep doing what you're doing. It's conversations like this that really help.

Luke: 23:10

And that was David for AI on navigating tariff chaos. If you enjoyed this episode, please like, subscribe and share, and if you want to continue discussing with David, links to his custom GPT are in the show notes. Thanks for listening and see you on the next episode of AI On.