How boards should adapt to trade risks

DIRECTORS carry the overarching responsibility of ensuring their companies perform effectively. This duty is not only a matter of good governance, but a legal one. At the heart of a director’s duty is the task of setting strategic direction, a process that must now account for the structural, persistent risks emerging from global trade dynamics.

Trade risks are no longer episodic disruptions. They have become structural forces that can redefine competitive advantage. The recent escalation in US tariffs and the uncertain direction of global trade policy highlight an uncomfortable truth: Trade risks have become a strategic concern that boards can no longer afford to treat as peripheral.

These risks now warrant direct and regular attention at the board level.

The cost of unpredictability

With unpredictable tariffs, retaliatory trade measures and an increasingly fragmented global supply system, trade policy shocks are starting to render traditional strategic plans obsolete. For example, Apple has accelerated plans to manufacture most of its iPhones in India by the end of 2026 to counteract higher tariffs in China, and Nvidia has hiked prices to offset the tariff-related costs. Contracts across industries are being renegotiated with reduced volumes, and some companies are already adjusting accruals in response to softening demand.

A survey of 200 business leaders earlier this year found that more than half of the respondents anticipate “some impact” from tariffs, while a third expect the tariffs to have a “significant impact” on their performance.

These findings by JP Wilson reflect a growing consensus that trade risks are no longer hypothetical. They are reshaping markets, supply chains and boardroom strategies. Unpredictability has already affected global markets adversely. It may yet cause the international trading system to fail, trigger a trade war, place a moratorium on investments and potentially bring growth to a standstill.

With such far-reaching impact, boards should identify ways that enable their companies to adapt to and thrive in the face of trade risks. Well-prepared boards treat external disruptions like tariffs not as one-off crises, but as recurring features of the business environment to be anticipated, managed and embedded into strategic planning.

Here are three practical actions boards could take when providing strategic direction.

Embrace scenario planning

First, boards should steer management towards robust scenario-planning, modelling a range of policy and economic outcomes. These may include different tariff levels, regional trade fragmentation, or even the collapse of key trading relationships. In encouraging management to conduct scenario planning for significant external risks, companies can pre-emptively assess their vulnerabilities, identify operational bottlenecks and prepare agile responses.

By modelling different tariff scenarios and other “what-if” situations, companies can gauge potential impacts and map out contingency plans. Stress-testing forces management to produce alternative plans based on plausible trade disruptions. Such scenario planning enables organisations to react swiftly in a logical manner rather than scramble when policy shifts or any major external shocks occur.

Diversify markets and supply chains

Second, boards should champion diversification on both the supply and demand fronts. Companies heavily dependent on a single market or supply source – whether the US, China or another jurisdiction – are most vulnerable in this volatile and politically fraught environment. This could mean sourcing from multiple suppliers based in different regions, expanding into new markets less impacted by volatility, or building in redundancy to absorb shocks.

Boards should push for a diversification roadmap to avoid over-reliance on a single source. Strategic planning should include an evaluation of exposure concentration across customers, suppliers and revenue streams.

Forge strategic partnerships

Third, companies should explore partnerships that localise production or distribution in key markets. Rather than bypassing trade barriers, companies can sidestep them. This may involve joint ventures, contract manufacturing arrangements or acquisitions that bring operations within tariff-free zones or closer to end-customers.

When assessing hurdles to cross-border trade, management should identify target geographies where localised production or distribution would create resilience in an increasingly fragmented global economy. By realigning their business models, growth enterprises can enhance their competitive advantage, attract capital and secure sustainable long-term growth even in the wake of trade tariffs.

Agile governance

Good strategy formulation is a critical component of the performance-related duty of the board. The board’s position on strategy formulation must be dynamic and should evolve in response to external changes, such as trade risks. This includes staying abreast of geopolitical developments, continually reassessing assumptions, and refreshing strategic plans to remain fit-for-purpose.

Companies led by boards that can successfully drive the evolution of their business models will be better positioned to weather the ongoing uncertainties and eventually secure sustainable performance.

Trade disruptions and policy shifts are no longer short-term nuisances – they are structural considerations with long-term implications. Boards that acknowledge this shift and act decisively will place their organisations in a stronger position to navigate uncertainty and achieve sustainable growth.

Dr Wilson Chew is a former member of the Governing Council of the Singapore Institute of Directors.