Key Trade Risks in Asia Pacific

The announcement of new US tariffs marks a significant shift in the country’s trade policy. Businesses across APAC, particularly those with complex, export-oriented supply chains, are facing uncertainty as to the impacts of tariffs on their costs and profitability. It is critical for companies to take a proactive approach to managing these impacts and adapting their risk strategies.

Credit Risks on the Horizon

Rising tariff-related costs can place financial strain on businesses, erode profitability, and increase exposure to credit risk.

“Tariffs drive up input costs, compress margins and create cash flow pressures, which increases default risk,” says Ankit Tambe, Aon’s Regional Director, Credit Solutions, Asia. “There is a second-order effect where loan covenants are more likely to be triggered with EBITDA compression, market sentiment deteriorates, lenders demand higher risk premiums, and credit spreads widen. This can make it more expensive for companies to refinance and raise capital.”

These conditions require businesses to take a more careful approach to managing credit risk across their suppliers and other trading partners. For credit managers, the challenge is not only to assess the immediate financial stability of suppliers and partners but also to plan for potential increases in defaults and tighter credit conditions.

Regional View on Supply Chain Risks

Countries that depend heavily on exports are particularly vulnerable to the impact of tariffs. There are a number of emerging trade risk hotspots in the region:

• Vietnam is heavily export-driven, with nearly 30% of its GDP tied to US exports.[1] The electronics and textile sectors in Vietnam are the most at risk, given the tariffs on products like electronics and garments. Vietnam’s role in the “China + 1” strategy may make it especially sensitive to tariff fluctuations.
• Thailand has a $50 billion+ export relationship with the US[2], with its automotive parts sector deeply embedded in the US supply chains of carmakers like Ford and General Motors.[3] The semiconductor component industry in Thailand is also at risk, with Japan and Korea similarly reliant on these industries for exports.[4]
• Countries including Cambodia, Laos, Myanmar, and Bangladesh are heavily reliant on textile and garment exports to large US brands. As these sectors face higher tariffs, their fragile economies may be at even greater risk, with significant impacts on the workforce that depends on these industries for employment.[5], [6], [7]

The Nature of Supply Chain Risks

As businesses across APAC continue to face the consequences of US tariffs, it’s essential to recognise the broader spectrum of risks that go beyond tariff-driven cost increases. “Companies must be prepared to adjust to an increasingly fragmented trade environment – rethinking their global operations and evaluating the impact on long-term profitability,” says Adam Peckman, Head of Risk Consulting, Asia Pacific. As the trade landscape shifts, emerging risks are might prompt businesses to reconsider their supply chain structures and protection measures.

Geostrategic Tensions

As regional disputes escalate, the resulting geopolitical shifts can disrupt cross-border trade, further undermining supply chain stability and increasing uncertainty for companies operating in the region.

Regulatory Changes and Protectionism

Rising tariffs and protectionist policies across the region may force companies to reconsider their supply chain structures. Increased regulatory measures can lead to higher costs and operational bottlenecks as businesses adapt to shifting trade rules and import/export restrictions.

Reconfiguring Supply Chains

As businesses shift to new supply lines they are exposed to transition and operational risks. These changes bring the challenges that come with managing new supplier relationships, such as ensuring continuity in production.

Cybersecurity and Technology Risks

Increasing dependence on digital technologies in supply chains makes businesses more vulnerable to cyber attacks and technology failures. Disruptions caused by cyber threats or system outages can halt operations, compromise sensitive data, and increase recovery costs.

Security Risks

Supply chains in APAC might face a growing threat from piracy, theft, and political violence. Companies need to implement robust security and mitigation measures to protect goods, employees and infrastructure from these elevated risks.

Climate Change and Natural Hazards

As disruptive weather events might become more frequent and intense due to climate change, supply chain routes and infrastructure are more at risk from floods and storms. These disruptions can delay production and delivery, increasing costs and undermining the reliability of supply chains.

Strategies for Mitigating Risk

Companies can take a three-pronged approach to meeting these risks and challenges.

1. Identify Risks Across the Supply Chain

Include both internal and external supply chain operations and identify risks at varying tiers within your networks. This allows businesses to build a comprehensive risk register and prepare for “what-if” scenarios that account for changes in tariffs, supply chain disruptions, and other uncertainties.

2. Diversify Supply Chains

As companies look to make supply chains more resilient, they should consider diversifying suppliers and markets. The goal is to build a more flexible and reliable supply chain that can handle future disruptions. Exploring the cost-benefit of alternative strategies such as dual sourcing or onshoring supply chains can potentially mitigate exposures and reduce financial volatility.

3. Explore Insurance Solutions

Insurance products are a critical component of managing the risks associated with tariffs. Trade credit insurance can help mitigate non-payment risks, and support entry into new markets and assist in establishing buyer relationships.

In addition to trade credit insurance, companies may consider political risk insurance to cover events such as trade route disruptions, government interventions, and market instability.

Preparing for the Next Chapter in Global Trade

Businesses can address the challenges coming from a disrupted trading environment by revisiting risk management strategies, diversifying their operations, and taking up suitable insurance solutions. “Many of our clients in APAC are using this dynamic environment to review their FDI, in particular” says Murray Wood, Specialty Products Leader, Asia Pacific. “All of the associated risk considerations are very much part of the discussion. By staying agile and well-informed, companies can manage the risks introduced by these tariffs and continue to thrive in an uncertain global trade environment.”

New tariffs have created significant volatility and uncertainty across the globe. For organisations in Asia Pacific it is critical to plan for different scenarios, create resiliency in supply chains, analyse location strategies and more.

If you’d like to speak to an Aon specialist on how your organisation can improve your resilience strategies please contact us.

[1] Guarascio, F., Reuters, Vietnam’s US exports account for 30% of GDP, making it highly vulnerable to tariffs, 25 February 2025

[2] Reuters, Thailand says wants fair trading relationship with U.S., 20 May 2025

[4] Based on Observatory of Economic Complexity (OEC) data, accessed April 2025

[5] EuroCham Cambodia, Cambodia Garment, Footwear and Travel Goods Sector Brief, November 2022

[6] The Daily Star, Can Bangladesh navigate the US tariff trap?, 28 May 2025

[7] ASEAN, Garment Industry in CLMV Economies, 25 December 2024