Building tariff resilience: Strategies for APAC businesses

The tariff policy announced by the U.S. administration on 2 April 2025 has disrupted and destabilized APAC markets. While there are a few exceptions for certain categories at this point—such as USMCA-compliant goods, semi-conductors, pharma, energy and special metals like copper—the higher tariff rates will hit all exported goods. 

As governments in the region rush to strategize, formulate a response, and negotiate with U.S. officials, companies are simultaneously engaging with their U.S.-based customers to explore mitigation options.   

The three-month pause offered to several countries by the U.S. administration on 9 April 2025, on the application of the higher tier tariffs (beyond the 10% base), is still only a short window to determine alternative strategies. In addition, market uncertainties and dependencies on negotiations are complex.   

This article outlines the strategies and mechanisms that APAC-based corporates can adopt to effectively address tariff challenges over the long term. 

In the immediate term, corporates need to quickly drive visibility of the cost build-up across the supply chain, model scenarios, and collaborate intensely with their customers and local governments on mitigation actions. 

AlixPartners has set up a tariff war room to help our regional APAC clients work through their options in an agile manner. 

Tariff impacts on APAC markets

From our analysis of the recent policy changes, it is evident that some countries in the APAC region are far more adversely impacted than others. This is partly due to the specific tariff rates imposed on each country, but also its respective reliance on exports to the U.S.

Among the worst-hit markets are Vietnam, Cambodia, Taiwan, Thailand, Malaysia, Korea and Sri Lanka, while Australia and New Zealand face relatively less disruption. 

Our assessment and scoring is based on the net impact as % of GDP. To evolve our directional hypothesis, we also made several simplifying assumptions:

1. We use CY 2024 export and import data for each country with the U.S., and assumed the same level of business will be sustained in CY 2025 
2. We assume that the country/its business entities will absorb the full impact of tariff change, despite recognizing that there are likely situations where a portion of tariff increases can be passed on to customers 
3. Net impact is calculated by subtracting increased tariff payments to the U.S. from the estimated duty income on U.S. imports, where we assume that the country in question does not amend its duty rates.

Figure 1: Net impact % of GDP by country

Strategies for APAC corporates 

We have developed an extensive playbook that is applicable across all impacted industry sectors in APAC. The three dominant strategies include 1) Duty engineering 2) Customer pass-through and c) Footprint diversification.  We discuss each of these in further detail below. 

Figure 2: Strategies for APAC corporates to mitigate tariff impacts

1. Duty engineering 

Each product is categorized by its composition and mapped to a Harmonized System (HS) code that determines the duties on the product. Duty engineering is a strategy that involves modifying products or production processes to help classify goods under a more favorable HS code. This method can result in significant duty savings and helps reduce the overall taxes levied on exports by the U.S. 

For example, we helped one of our apparel sector clients modify their product line by increasing the mix of natural fibers, to the extent that it was viable for the company to reclassify the products under a lower duty HS code. Subtle changes can help realize as much as 40% lower duties without significantly altering a garment's appearance or performance.

2. Customer pass-through 

While supply-side adjustments and procurement strategies can mitigate the impact of shifting trade regulations, there are limits to what can be managed without addressing customer cost structures. At some point, you may ask, “Is it reasonable and prudent to pass the increased costs of tariffs on to our customers?” 

Passing tariff costs onto customers is a delicate and risky decision that can easily backfire if not deployed correctly, leading to a drop in sales or dissatisfied customers. Companies will need to evaluate this approach carefully, considering factors such as brand position, customer price sensitivity, brand loyalty, specific customer segments, purchasing behaviour, and the competitive landscape. 

Techniques such as cost-to-price modeling and price elasticity studies can help generate insights into customer flexibility, competitive differentiators, and willingness to pay.

One of our clients, an integrated circuits foundry, found relief with customer pass-through for specific product portfolios. This success was due to its single sourced high-tech product offering and transparent customer communications, including outlining a roadmap to relocate key facilities to a country with favorable or minimal tariff exposure in the future. 

3. Footprint diversification 

Footprint diversification and supply chain restructuring has become essential, not only to manage rising costs but also as a way to stand out in markets where stability, continuity, and agility are highly valued by customers. In an evolving tariff landscape, many companies are undertaking fundamental overhauls of their supply chains, comprehensively re-evaluating sourcing, production, and distribution strategies to minimize tariff impact while enhancing overall efficiency. 

Key opportunities here include:   

1. Footprint and sourcing optimization: Reduce reliance on single-country sourcing to mitigate risk and potentially benefit from lower tariffs in alternative markets. This can include nearshoring and reshoring to move production closer to end markets to reduce transportation costs and time to revenue.
2. Exploring favorable trade agreement sources: Evaluate the feasibility of splitting cost components and using a tariff-optimized country for export. Also, leverage the use of Free Trade Zones (FTZ) to reduce duties. 
3. Forming joint venture and strategic partnerships: Forge alliances with suppliers, logistics providers, and even competitors to share best practices and navigate tariff challenges collectively.

For example, a multinational high-tech client partnered with AlixPartners to combat rising tariffs. By strategically repositioning its manufacturing facilities and adopting a geographically-optimized approach to hardware and software, coupled with the necessary case rulings, tariff impacts have been minimized.  

What it takes to succeed in this volatile environment

Deep visibility into cost additions along the supply chain and a comprehensive understanding of duty/tariff optimization options is essential. Additionally, businesses must have the capability to model and run scenarios quickly while taking multiple parameters into account. There is also significant potential in leveraging AI and machine learning tools to analyze extensive trade data and forecast business implications. 

For instance, we have supported numerous clients in APAC and globally using our proprietary supply chain modeling solution, AlixPartners’ Global Trade Optimizer (GTO). The GTO enables building bottom-up cost structure for individual or grouped SKUs by using inputs from quick analysis, standard component libraries and commodity cost bases. This allows organizations to seamlessly assess the impact of various scenarios, and determine the implications of various levers at product family level.

Recent client scenarios we’ve modeled include material substitutions, changes in country of origin for supply, freight cost optimizations (due to the Red Sea crisis), and manufacturing strategy reconfigurations. We are establishing supply chain control tower functions at client organizations, helping build scenarios and conduct “what if” analyses, working in partnership with company leadership to “leave no stone unturned”.   

Conclusion

The challenges posed by the recent wave of tariffs and trade tensions for APAC markets are significant, but they also present opportunities for businesses to re-evaluate and strengthen their supply chains. As we look to the future, it's clear that the ability to quickly adapt supply chains to market conditions will be a key differentiator for companies seeking exports to the U.S.