On April 2, 2025, the U.S. imposed sweeping reciprocal tariffs, reshaping global trade dynamics. Notably, the U.S. imposed a total tariff of 54% (comprising an existing 20% and an additional 34%) on Chinese imports, directly affecting Singaporean companies manufacturing in or sourcing from China for export to the U.S. Similarly, Vietnam - another key manufacturing hub - faces a 46% reciprocal tariff, further intensifying the impact on regional supply chains. The following is our analysis of the implications (using China-origin goods as the base case).
Cost Implications
1. Increased Export Costs
The landed cost of China-origin goods entering the U.S. will rise sharply due to the 54% tariff. Singaporean companies manufacturing in China and shipping to U.S. will have to either absorb the additional cost or pass it on to U.S. customers. If absorbed, this will erode margins, impacting profitability. If passing it on, it will reduce competitiveness in the U.S. market.
2. Supply Chain Pressures
Higher input costs will challenge companies sourcing components from China. Finding alternative suppliers requires supplier requalification, renegotiations, logistical restructuring, and potential cost increases in alternative locations.
Business Implications
1. Competitiveness in the U.S. Market
Products may become less price-competitive compared to goods from countries less impacted by these tariffs. Singaporean companies may lose market share if competitors source from non-China locations, with U.S. customers shifting to local or less-tariffed alternatives.
2. Supply Chain Diversification
Singapore companies may accelerate “China + 1” dual sourcing strategies by relocating production to Southeast Asia (Malaysia, Thailand, Indonesia), or India with lower tariffs. However, this requires significant investment and lead time to rebuild supplier networks while complying with rules of origin.
3. Origin Rules & Tariff Engineering
The U.S. – Singapore FTA (USSFTA) allows duty-free access only for goods meeting origin criteria. Singapore companies could restructure supply chains to incorporate value-added steps in Singapore or FTA partner countries to qualify for preferential treatment. Adjusting product designs or HTS classifications to fall under lower-tariff categories should be looked into, though this requires advisory expertise.
4. Strategic Pricing & Market Adjustments
Singapore companies may focus on premium or niche markets where price sensitivity is lower or explore domestic U.S. production (nearshoring) to circumvent tariffs if the market size of the prize compels this measure.
5. Currency & Financial Risks
A relatively weaker Chinese Yuan could partially offset tariff costs by lowering production expenses, though there is uncertainty caused by forex volatility.
Strategic Actions for Singapore-Based Companies
1. Diversification
Singaporean companies should reduce reliance on China by starting to expand supplier networks across ASEAN or other regions. Adopt dual sourcing policies. Assess long-term supply chain costs and leverage exemptions under Free Trade Agreements (FTAs).
2. Reshoring & Nearshoring
Explore manufacturing in Singapore (for high-value goods) or closer to the U.S. market (e.g. Mexico) to mitigate tariff risks.
3. Invest in Efficiency & Automation to Offset Higher Costs
Accelerate improvements in efficiency and automation to compensate for tariff-related cost increases.
To weather these tariff storms, it is time for businesses to remodel their supply chain and operating arrangements, re-position its manufacturing hub and restructure its organisation and investment structures. The 3Rs entail complex direct and indirect tax considerations. Both direct and indirect costs will be incurred as the change takes place. However, there may be opportunities to optimise tax efficiency, apply for tax incentives, qualify for grants and subsidies and other assistance. Strategically taking this turbulent time to perform a health check on the companies’ tax position may propel the companies to greater heights when the dust settles.
Conclusion
Singapore companies with China-based production or sourcing will face significant cost pressures and market competitiveness challenges in the U.S. unless they quickly adapt. The most strategic response would be to diversify sourcing, adjust pricing strategies and explore alternative supply chain configurations to maintain their market position.
Know that this is a long-term structural change and is not cyclical. To remain future business-viable, companies must urgently embark on supply chain optimisation, develop agile and lean operations, implement strategic and financial risk management, embrace digital transformation and automation, and strengthen customer-centric strategies through branding and strategic partnerships.
As Singapore companies navigate these significant shifts, having the right support can make all the difference. BDO Consultants and BDO Tax Advisory offer their expertise to help you assess your situation and develop proactive strategies. Reach out to us to learn more about how we can support your strategic planning.