The tariffs are creating new trade lanes and diminishing the importance of others.
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Tariffs by the United States is not merely tweaking trade balances, it's triggering a seismic shift in the intricate architecture of global supply chains, with Asia at the epicentre of this transformation. For decades, Asia has been the undisputed engine of global manufacturing, its economies deeply intertwined through complex, cross-border supply chains. China, India, Vietnam, and the ASEAN bloc have thrived on this interconnectedness. However, the imposition of US tariffs, ranging from a baseline of 10 per cent with additional reciprocal tariffs pushing some Asian exporters to face duties as high as 49 per cent (in Cambodia), is fundamentally altering the cost calculus and risk assessment for multinational corporations.
A new era for Asian manufacturing
Consider the electronics sector, which accounts for a significant portion of Asia's exports. Prior to these tariffs, the efficiency and scale of production in hubs like China and South Korea made them indispensable. However, with tariffs adding a substantial cost burden, companies are actively exploring diversification.
A 2024 survey indicated that over 60 per cent of MNCs with significant Asian manufacturing operations were actively pursuing ‘China + 1’ or similar diversification strategies. This involves establishing parallel production capabilities in Vietnam, Thailand (36 per cent tariff), or India (27 per cent tariff), not just as a marginal adjustment, but as a strategic imperative to de-risk their supply chains.
The automotive industry, characterised by its intricate network of component suppliers across Asia, is also experiencing a profound reshaping. The added cost of tariffs on imported parts and vehicles is incentivising regionalisation. For instance, Japanese automakers, facing a 24 per cent tariff, are increasingly looking at expanding production within ASEAN countries that have more favourable tariff regimes or are part of existing free trade agreements. This trend is supported by data from industry analysts, who project a 15-20 per cent increase in intra-Asian automotive component trade over the next three years.
Sourcing shifts in textiles and apparel
The textile and apparel sector, a major employer in South and Southeast Asia, is particularly vulnerable. Bangladesh (37 per cent tariff) and Sri Lanka (44 per cent tariff), heavily reliant on exports to the US, are facing significant pressure. While some might find marginal benefits due to varying tariff levels across competitors, the overall impact is a drive towards greater sourcing diversification. Brands are exploring alternative manufacturing locations like Africa, where labour costs might be comparable, and governments are actively seeking to attract export-oriented manufacturing.
The logistical backbone of these supply chains is also undergoing a transformation. The tariffs are creating new trade lanes and diminishing the importance of others. Ports in Southeast Asia and South Asia are witnessing increased activity as companies seek alternative export routes to the US, or pivot towards other markets. The demand for freight forwarding services and warehousing in these emerging hubs is on the rise, with industry reports indicating a 10-12 per cent growth in logistics infrastructure investment in these regions.
India's strategic opportunity
Financial institutions are adapting to the evolving trade landscape by offering specialised financing solutions for companies undertaking supply chain restructuring. Trade finance is becoming increasingly sophisticated, incorporating risk mitigation tools to address the uncertainties arising from the tariff regime.
India’s large domestic market and growing manufacturing capabilities in auto components stands to become a more central hub in these evolving Asian automotive networks, potentially reducing the reliance on traditional powerhouses. Initiatives like Make in India and Production Linked Incentives (PLI) are attracting a significant chunk of Asia's electronics output. Ports in India, with ongoing modernisation efforts, are poised to handle increased volumes as the nation becomes a more significant node in global supply chains, potentially altering established shipping patterns across the Indian Ocean and beyond.
India's burgeoning digital infrastructure and growing tech talent pool make it a key player in this technological leapfrog. Its relatively young workforce, with investments in skill development, positions India as an attractive alternative for labour-intensive manufacturing, potentially shifting the demographic centre of some key Asian industries.
The reconfiguration
The US tariffs are not merely a bilateral trade dispute; they are a powerful catalyst reshaping the fabric of global supply chains, with Asia at the forefront of this transformation. Economic facts and figures underscore the tangible impact on trade flows, investment decisions, and technological adoption. While the long-term consequences are still unfolding, the immediate reality is a decisive shift towards diversification, regionalisation, and a greater emphasis on supply chain resilience, rewiring the economic landscape of Asia and beyond. And within this grand reshuffling, India's strategic location, growing economic might, and proactive policy measures are positioning it for a significant ascent.
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.
(Vishwanathan Iyer is Senior Associate Professor and Director of Accreditation, Great Lakes Institute of Management, Chennai.)