Reshaping of supply chains may not be inflationary

Analysts say that while move is costly, diversification may keep prices in check

- Chor Khieng Yuit

The move by the US to slap new tariffs on US$18 billion (S$24 billion) worth of Chinese imports has put even more pressure on businesses here and elsewhere to strengthen their supply chains.

The US tariffs on Chinese imports from electric vehicles and semiconductors to solar cells and medical products have prompted a logistical rethink as companies seek to shield themselves from geopolitical risks, said Ms Sheana Yue, an economist at Oxford Economics.

The tariffs, which come in the wake of the Covid-19 pandemic, an already turbulent time with the Russia-Ukraine war, the attacks in the Red Sea and the drought in the Panama Canal, only serve to highlight the fragility of the global supply chain.

Businesses are re-evaluating their dependence on single-supplier or single-market sourcing strategies, according to a survey from asset manager Eastspring Inestments and PwC Singapore.

It polled 150 senior executives in the automotive, electronics manufacturing and pharmaceuticals and medical equipment sectors across North America, Europe and Asia.

The survey found that while the cost of reshaping supply chains is high, the cost of not doing so is even higher.

The verdict is still out on whether consumers, including in Singapore, will bear the costs of more expensive supply chains.

The survey found that 48 per cent of the business leaders surveyed believed that these costs will be passed on to consumers, while 41 per cent were unsure and 10 per cent said they would absorb the costs.

The cooling of relations between the US and China is one of the driving forces of rebalancing, Eastspring said.

But the survey showed that businesses are not getting out of China entirely.