US – China geopolitics: What it means for your supply chain?

(c) Tumisu

Recent years have seen growing tensions in the trade relations between the U.S. and China. Both countries are pursuing policies to reduce dependence on the other to manufacture goods deemed to be of national importance. Legislation has also been put in place by both countries as part of efforts to gain critical intellectual property related to their critical sectors.

All of that has created a huge global ripple effect, impacting goods that do not even fall under national security protection.

This geopolitical fallout is widely agreed to have had the most significant and long-running impact on Singapore business, higher import tariffs on thousands of raw materials being just one example.

More specifically, the latest restrictions on China’s access to state-of-the-art U.S. technology will impact Singapore’s semiconductor industry as semiconductor supply chains are complex and globalised, said Singapore Minister of State for Trade and Industry, Alvin Tan, during a recent Parliamentary meeting.

American chip-manufacturing equipment maker, Applied Materials, which has manufacturing plants in Singapore, has already fallen victim to those rules. The company sliced its fourth-quarter sales forecast by $400 million citing that new export regulations will affect sales of its wafer-fabrication equipment and related parts to China.

Many global businesses have already started to move parts of their manufacturing and supply chain elements from China to Southeast Asian economies like Vietnam and India, in a bid to hedge against geopolitical risks, as well as rising labour costs in China.

The impact of geopolitics and the related restrictions on supply chains are apparent. Conflicts can constrain energy supply and disrupt transportation routes, raising costs across the board. Goods pile up in storage, access to imported products and goods are limited, and production suffer delays as manufacturers compete for limited supplies of commodities.

What supply chain operators should consider:

  • Ensure compliance with sanctions is a boardroom level issue;
  • Monitor geopolitical trends and incidents that have the potential to affect your supply locations and industries. If your risk exposure is high and budget permits, consider building or engaging a dedicated geopolitical risk monitoring capability;
  • Review risk exposure regularly by mapping out your key supply chain elements. Assess each element’s vulnerability to disruption, the likelihood of geopolitical impact and your capacity to deal with each risk;
  • Adopt careful scenario planning, evaluating options beyond a single supplier and securing backup suppliers; and
  • Invest in developing digitally integrated supply chains to manage regional production plants and supply networks to help enhance visibility to your customers.

For further information, please contact:

 

Danny Chua
Senior Partner
JTJB Singapore Office
E: dannychua@jtjb.com
T: +65 6224 1381

 

 

 

 

 

 

Nicola Loh
Partner
JTJB Singapore Office
E: nicolaloh@jtjb.com
T: 6223 3477 / 9170 7925