Navigating a new global trade environment

Recent developments around global trade have been dynamic, to say the least. Business leaders must navigate geopolitical shifts, regulatory changes, rapidly changing tariffs, and evolving economic policies, all whilst mitigating short-term exposures and costs, and determining and implementing a response that promotes long-run strategic resilience in the face of these developments. 

The US has announced widespread tariffs on its trade partners, which have prompted a gamut of measures in response. The speed at which trade policies have been changing is particularly challenging for businesses, with many tariffs taking effect almost immediately after they have been announced and changing shortly after their implementation. 

There will be significant implications for Singapore, which is one of the world’s most open economies and has a trade to gross domestic product (GDP) ratio of more than 300%. Singapore will not only feel the impact from the tariff imposed by the US, but also a broader slowdown of global trade and the wider economy. 

Businesses that operate in or trade through Singapore must therefore act quickly to reassess their strategies in light of future opportunities and risks amidst the regulatory uncertainty. This includes understanding the impact to their business and industry, their operational readiness to modify supply chain configurations, as well as how to secure supply, retain market access, optimise cash flow and operations, before they plan their next steps. 

What this means for Singapore and the region
Whilst the magnitude and speed of recent developments is unprecedented, the experience over the past decade can be instructive when evaluating likely outcomes and strategic planning for supply chain resilience. 

During this time, geopolitical tensions and tariff policy changes have significantly influenced the global supply chain. The first Trump administration’s imposition of tariffs on Chinese goods, further enforced and expanded by the Biden administration, highlighted the need for resilient and flexible supply chains through diversification and regionalisation. 

Reduced bilateral trade with China was the consequence, alongside increased exports from Mexico and Southeast Asia to the United States. This trend may be expected to continue, assuming that bilateral trade between China and the US will decrease further given the magnitude of recent tariff policy changes on Chinese imports to the US. 

In addition, the growing interest in re-shoring and near-shoring is likely to continue in line with the regionalisation trend, localising supply chains in the region or in what are viewed as comparatively lower-risk jurisdictions.

With tariffs potentially lowering demand for exports to the US, overseas businesses may seek alternative markets for their products in the mid to longer term range, aiming to diversify against excessive exposure to the US market. 

In the near term, if inventories cannot be profitably sold to the US, this could possibly result in such products being sold into Southeast Asia and other growing markets. This may mean an increase in the shorter-term supply of cheaper imports and longer-term competition in the Southeast Asian market, bringing pressure to domestic producers of similar goods to maintain profit margins. 

Otherwise, the competitiveness and sustainability of multinational enterprises in the tradables sector may be affected. Timely investments by governments through incentives or trade assistance into the local industries might enable these companies to pivot towards more value-added goods and services and to ensure resilience.

How business leaders can adapt
With ongoing developments in global trade policies, businesses should reassess their supply chains to identify areas for cost optimisation. Whilst relocating manufacturing could reduce tariff costs, businesses without large-scale operations may face higher costs due to the loss of economies of scale, potentially impacting their profitability and forcing price increases. 

Additionally, the unpredictable nature of tariff rates complicates the cost-benefit analysis of such supply chain restructuring. The time required to plan and reconfigure intricate supply chains that span multiple countries adds another layer of complexity to this decision-making process. 

With these factors in mind, business leaders should have contingency plans with mitigation strategies ready, in order to stay nimble and gain a first-mover advantage.

To buffer the impact of increased costs due to tariffs, businesses may wish to consider free trade agreements (FTAs) for cost savings in their supply chains. However, navigating this landscape will not be easy, as companies will need to manage the new tariff announcements on top of the already complicated ‘noodle bowl’ of overlapping FTAs available. 

This is where trade expertise could play an important role in helping to plan an international supply chain strategy that manages the costs of manufacturing or moving goods, by considering the available FTAs and relevant customs schemes, whilst keeping a watchful eye on the latest developments in trade regulations and tariff policies to ensure compliance. 

In addition, businesses should tap on support measures offered by the government. In Singapore, the government has extended the $100,000 cap per new market under the Market Readiness Assistance grant until 31 March 2026 for companies based here. This will support SMEs in navigating the network of FTAs that Singapore is party to, with the help of advisors familiar with global trade complexities.

Furthermore, businesses should keep abreast of opportunities in new markets. For example, the Singapore government recently affirmed its commitment to an open economy, which may mean an accelerated upgrade of existing FTAs or even new FTAs, which will provide businesses with the chance to access new markets, expand operations, and enhance competitiveness. 

Stay prepared to stay ahead
With the increasingly complex and fast-changing trade environment, companies face significant risks to their bottom lines if they do not stay updated on the latest developments and plan for possible scenarios. 

To mitigate the impact of rising costs from tariffs and shifting supply chains, businesses should also leverage available opportunities, and consider strategies to manage customs duties efficiently. For example, they could implement “first-sale-for-export” programmes that allow a lower customs value to be used for tariff levying purposes when exporting to the US. 

They could even consider re-evaluating related party transfer pricing models to see if alternative methods can be deployed to lower sales pricing. This, in turn, will help reduce the impact from increased tariffs or duties, for example when converting in-country limited risk distributors to full risk distributors, amongst other scenarios. 

Finally, businesses should develop and maintain trade expertise either internally or through external trade advisors and experts, in order to stay ahead. They should work hand in hand with the business, tax, finance, and supply chain functions within the organisation to determine fit-for-purpose strategies moving forward. This will enable businesses to navigate the evolving trade landscape, maintain their competitiveness and prevent margin erosion during these uncertain times.