US tariffs put Asia’s small businesses on road to ruin: ‘ultimately some will go under’

In boardrooms and backstreets from Singapore to Hanoi, owners of Asia’s small and medium-sized enterprises had barely got over the shock of the pandemic’s economic upheaval when another disruption arrived – this time from Washington, in the form of new tariffs that risk upending cross-border commerce and livelihoods. Following a series of hard-fought trade negotiations with the Trump administration, many Southeast Asian nations now find themselves confronting US tariffs ranging from 19 to 20 per cent, alongside additional, sector-specific duties targeting industries such as steel and semiconductors. Compounding the challenge, US President Donald Trump’s government has imposed a separate 40 per cent punitive levy on transshipments – goods routed from high-tariff countries through low-tariff nations before being re-exported to the United States – in a move likely to hit Asian exporters reliant on Chinese components especially hard. “A tariff-economy shock soon after a pandemic-economy shock will be disastrous for many enterprises,” warned Henrich Greve, academic director of the Centre for Entrepreneurship at INSEAD. Economic shocks are not supposed to come so frequently and with such strength Henrich Greve, INSEAD business school “In a normal economy, economic shocks are not supposed to come so frequently and with such strength. Small and medium enterprises are much more vulnerable to tariffs than larger firms.” Unlike multinational corporations with the resources to absorb unpredictability, SMEs often operate on thin margins and require steady cash flows to survive. The whiplash of frequent policy changes can leave smaller companies in a bind. “Ultimately some will go out of business or be sold to larger enterprises,” Greve said, noting that many SMEs are now seeking loan repayment delays or state support to ride out the volatility. The uncertainty shows little sign of abating. Key questions, such as how US authorities will classify transshipments and whether any exemptions might emerge, remain unanswered, further clouding the outlook for regional exporters. ‘Forced to wind up’ Across Asia, SMEs are estimated to account for more than 90 per cent of all businesses. Their vulnerability to tariff shocks is therefore a major regional concern. Though US tariffs are essentially taxes that the government places on imports, the knock-on effect on Asian SMEs can be a higher cost of doing business – especially if they are forced to switch suppliers. “There is certainly anecdotal evidence that many smaller firms may be forced to wind up as a result of no longer being able to source key components of their supply chain from low-cost producers like China,” said Jamus Lim, an associate professor of economics at ESSEC Business School, Asia-Pacific. This would ultimately erode their competitive advantage against deep-pocketed multinational rivals, he warned. The tariffs’ early effects are beginning to ripple through the region. Industry executives report that US buyers are already demanding lower prices or seeking alternative suppliers and these pressures are expected to intensify now that Washington’s full tariff regime has taken effect. Meanwhile, American consumers are also feeling the pinch. Gallup surveys show a large proportion of US households citing inflation and the high cost of living as their top financial concern, with many reporting that rising prices, especially for groceries, are hurting their financial stability. “Tariffs have the potential to make those selling goods into the United States less competitive than producers in the United States,” said Chris Humphrey, executive director of the EU-Asean Business Council. “Therefore, it is possible that SMEs may see their market share in the United States shrink,” he added, warning of a knock-on effect across Asian supply chains. “Even for those SMEs not selling to the United States directly but who are part of a bigger supply chain, there could be an adverse impact,” Humphrey added. Some sectors, such as Southeast Asia’s semiconductor manufacturers, face particularly acute challenges. The US is preparing to impose a 100 per cent tariff on the sector, threatening to upend a regional industry in which Singapore, Malaysia and Vietnam have all invested heavily. Trump’s tariff threats have rattled technology firms, fuelling speculation that some may be forced to relocate production to the US, where the new levies would not apply. “While the tariffs have a blanket impact across sectors, the semiconductor sector is potentially one that requires quite a widespread adjustment and adapting,” said Kenneth Lee Wee Ching, CEO of Global TechSolutions, an IT and technology services provider. “This is especially so as the sector is largely reliant on the few key markets across the East and West.” Still, some SMEs are finding ways to adapt. Lee said his company was weathering the storm by diversifying operations across Singapore, Malaysia and the US, allowing it to maintain delivery schedules even amid market shifts. For Southeast Asian SMEs especially, tariffs threaten to raise costs, slow order volumes and disrupt long-term contracts, said Yew-Poh Mak, Asia-Pacific deputy area managing partner at professional services firm EY. “Costs could also rise, squeezing margins and forcing a rethink of procurement strategies,” he said. “Even where materials are not coming from the US, the US is such a significant part of the global economy that costs are rising across the board.” The US is such a significant part of the global economy that costs are rising across the board Yew-Poh Mak, EY Asia-Pacific Elsewhere, other SMEs are beginning to reorient their business models. “We have started seeing a fraying of SMEs starting to nearshore their supply chain to mitigate disruption to the trade supply chain,” said Joan Collar, chief commercial officer at Marsh McLennan Asia, a global risk advisory firm. Collar’s company is advising clients to adopt multipronged strategies, including direct or association-based procurement and robust insurance cover. “Proactive risk management, diversified supply chain strategies and insurance planning are essential to help these businesses sustain operations and adapt to ongoing trade tensions and disruptions,” she said. Collar added that companies must invest in new skills to understand how the shifting economic landscape would affect their products and markets. For early-stage start-ups, these new costs can be especially taxing, but the tariff crisis has shown the importance of organisational agility. Despite the mounting challenges, analysts say Asian firms can always pivot to other markets. “The US tariffs will certainly hamper sales and expansion into the United States. But they should have minimal impact on business expansion plans elsewhere in the world,” Humphrey said.

US tariffs put Asia’s small businesses on road to ruin: ‘ultimately some will go under’

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Analysts are urging the region’s SMEs to diversify supply chains and invest in risk management to survive this new, unstable trade landscape

Analysts are urging the region’s SMEs to diversify supply chains and invest in risk management to survive this new, unstable trade landscape