Research Note: Resilience and regulation in Australian supply chains

The recent announcement of new and wide-ranging tariffs by the US have caused more disruptions to global trade. As businesses have responded to the imposition of new tariff barriers in the world’s largest market, affected supply chains have undergone yet another round of sudden adjustment.

In a recent research report, we examined the impacts of these disruptions on Australian industry. The effects are broader than many recognise.

Exporters to the US, particularly advanced manufacturers, now have to contend with new tariff barriers in a major market. But a wide range of indirect impacts – including trade diversion, investment uncertainty, rising compliance burden and supply chain disruptions – are also being felt across Australian industrial businesses.

Supply chain disruptions are perhaps the broadest of these impacts. Global supply chains, already strained by post-pandemic recovery efforts and geopolitical tensions, are now grappling with the added pressure of US tariffs. Australia is not immune to these impacts, with around half (47%) of industrial businesses reporting disruptions in mid-2025.

In response, many industrials are re-evaluating their supply chain strategies. 44% of manufacturers intend to raise their investment in supply chain resilience in 2026, with digital technologies and AI a focus. This will not only help adjust to the US tariff shock, but gives our industries better flexibility and agility to respond to supply chain risks and opportunities as they emerge.

But regulation at home is holding these efforts back. 45% of industrial report that supply chain regulation is a barrier to their supply chain investments, with a range of policies – across trade, environment, labour and digital rules – both raising costs and limiting their options.

This research note explores how Australia’s supply chains are being impacted by the most recent US trade shock. Drawing on data from the Australian Industry Group’s 2025 Trade & Supply Chain survey, it how examines how industry is responding to these pressures, and how regulatory systems are shaping prospects for supply chain resilience.

Reforming regulatory barriers to supply chain investment should be a key plank of how Australia responds to the US trade shock. While we cannot control trade developments abroad, we can ensure our regulatory settings at home are configured to support industry to make the investments in supply chain resilience our economic security needs.

Disruptions rebound as US trade policy hits

Global supply chains have had tough few years. After confronting the difficulties of border closures and transport disruptions during the pandemic, they also had to manage the sudden economic boom unleashed as conditions returned to normal in 2023. It appears that US tariffs in 2025 have once again pushed disruption into global supply chains.

Data collected by the Australian Industry Group on supply chain performance tells the story. At the height of the disruption in 2022, 79% of Australian industrials reported active supply chain disruptions. This figure improved steadily over the next two years as pandemic restrictions were lifted and global logistics normalised.

However, the landscape shifted in 2025 following the US trade policy shock. In August this year, 47% of Australian industrials reported active disruptions – a rise of 12% compared to nine months prior. Though this rate is lower than during the pandemic, disruptions may continue to rise as the effects of US tariffs pass through global supply chains.

While the disruptions being caused by US tariffs are likely to be more subtle than those of the pandemic era, they are still significant for industry and our economy. Industrial businesses are reporting the following impacts

• Increased costs - due to rising prices for products themselves, and/or additional logistical costs associated with delayed shipping and transport.
• Reduce operational efficiency - where delays and uncertainty for inward and outward shipment negatively impact business operations and ultimately productivity. 6
• Hindered growth or scaled back projects. Higher costs and lower efficiency places pressure on businesses, which often scale back growth ambitions while attention is directed to managing disruptions.
• Increased risk - when delivery commitments are put under threat by supply delays, orders are deferred due to uncertainty, and/or pricing arrangements become more volatile.

Industry responds with a new wave of investment in resilience

With supply chain disruptions rising again, Australian industry is responding with increased investment in resilience measures.

According to data collected in our Trade & Supply Chain Survey 2025, 44% of manufacturers and 30% of other industrials indicate that they intend to raise their level of supply chain investment in the coming year. Higher uplift intentions for manufacturers reflect their greater exposure to the US trade policy shock – with the impact of tariffs falling hardest on manufacturers, they are adopting a more aggressive investment footing.

But equally interesting is where industrials intend to make these new investments, with technology solutions the leading response.

Digital logistics technology leads the way, with 32% of respondents ranking it as a top investment, followed closely by warehousing capacity at 30%. These areas dominate capital expenditure plans, signaling a strong internal operation focus.

AI-powered solutions are also emerging priority, with 27% of businesses exploring machine learning and automation. While not yet mainstream, this trend suggests growing interest in advanced technologies to enhance efficiency and resilience.

Perhaps surprisingly, non-technology solutions rank lower among uplift priorities. Only a minority intend to change broader business practices, such as: renegotiating supplier relationships, changing their transport arrangements, investing in workforce development or undertaking scenario planning.

To be sure, these are very business-specific actions that may not be appropriate for all, for example many may simply not have viable alternate transport or supplier options available. But it points to a potential gap – that we are relying more heavily on technology than business strategy solutions to deliver supply chain resilience.  

Cost, skills, and regulation block supply chain innovation

While it is welcoming to see supply chain investment intentions rising, there are still factors holding industry back. Data on the inhibitors to supply chain innovation points to where more efforts are needed.

The most commonly report barrier to innovation is cost, cited by 52% of respondents citing high cost of solution as a constraint. Technology solutions can face high upfront costs, which often exceed the financing capacity of businesses struggling with difficult market conditions.

Skill shortages are another critical obstacle, reported by 49% of businesses. Companies struggle both to implement advanced technologies and to train their workforce to use them effectively. This gap limits the ability to fully leverage innovations such as automation and AI.

However, regulation is a surprising addition to the mix. 45% of industrials cite regulatory issues – such as compliance costs and under-developed regulatory regimes – as a barrier to innovation. Emerging technologies, particularly AI and automation, face uncertainty in regulatory environments, slowing their integration into supply chains.

Given that nearly half of industrial stakeholders view regulation as a hurdle, it's essential to examine the mechanisms through which it constrains supply chains innovation.

Overcoming these barriers calls for targeted policy interventions. Strategies such as lowering compliance costs, expanding workforce training programs, and reforming regulatory frameworks can accelerate innovation and enhance supply chain resilience.

The diverse ecosystem of supply chain regulation

From where do these regulatory barriers to supply chain innovation originate? Data collected in our Trade & Supply Chains Survey points to a diverse and complex ecosystem of supply chain regulations impacting on Australian industry:

Trade policies – such as tariffs, rules of origin and other cross-border requirements are the leading source, with 72% of businesses reporting an impact on their supply chain operations. Many of these obligations stem from foreign governments or free trade agreements. However, domestic measures such as biosecurity and customs procedures also contribute to compliance complexity.

But beyond trade, non-trade regulations add significant layers of compliance:

• Product standards affect nearly half of industrial firms (48%), shaping requirements for product specifications and labelling. These standards originate from both local systems such as Australian standards, international bodies like the ISO, or foreign jurisdictions such as the US and EU.
• Environmental regulations follow closely, impacting 41% of industrials. These rules cover carbon accounting, lifecycle reporting, and broader sustainability obligations.
• Labour regulations – reported by 38% of firms – centres on ethical sourcing and transparency. In Australia these are driven by legislation such as the Modern Slavery Act, but can also originate from similar regimes in other markets to which we export.
• Digital and cybersecurity requirements impact 20% of firms. are increasingly important for businesses operating in global markets, reflecting the need to meet data governance and cybersecurity compliance standards within their supply chains.

This data shows that supply chain regulation goes well beyond trade policy. Standards, environmental, labour, and digital rules – from both local and international sources - add to the complexity of the regulatory landscape. A narrow focus on trade regulation will fail to grapple with the full suite of factors contributing to compliance burden on Australian industry.

Red tape and grey tape in industrial supply chains

The methods by which supply chain regulations are applied is equally important, as they affect how businesses manage and respond to compliance demands. Surprisingly, indirect forms of regulatory burden are just as common as direct methods.

Around half of businesses report that supply chain regulations are directly applied to their business. Requirements are formally defined in legislation or regulations, and reporting is directly to a government regulator or equivalent agency. This type of regulation is known as ‘red tape’ and corresponds to the common understanding of how regulatory relationships are structured.

However, there are also indirect regulatory relationships at the business-to-business level, as government regulations get passed along supply chains:

• Around half of industrials report they indirectly receive regulation from their local customers, whose own compliance requirements require them to extend them back along the supply chain.
• Half of manufacturers, and a quarter of other industrials, report receiving regulation from their international customers. The higher proportion for manufacturers reflects their orientation to more-regulated foreign markets such as the US and EU.
• Around a sixth report they receive regulation via their business financing, where banks and other financial institutions require that regulations are met as part of lending arrangements.

These types of indirect regulatory relationships are known as “grey tape”. It occurs where regulations are designed in a way that requires that the primary target to pass on requirements to others in the supply chain.

The practical implication of grey tape is that it magnifies the burden of regulation on industry beyond that initially countenanced. While a regulation may be developed to target a certain number of businesses or products, its ultimate burden can be several times larger as regulated entities are required to pass requirements on to suppliers. This mechanism explains why supply chain regulations are felt so broadly across Australian industry.

Regulatory reform for supply chain resilience

This analysis points to an important avenue for Australia’s response to the US trade policy shock: reform to our system of supply chain regulation.

The broad scope of these regulations – across trade and non-trade policies, propagated by both red and grey tape mechanisms – is imposing significant burden on industry. Moreover, it is one of the leading inhibitors preventing Australian industry from investing in the innovation required to improve supply chain resilience.

Australia cannot control developments beyond our borders – whether it's shifts in US trade policy, foreign supply chain regulations, or their broader impact on global markets. But we can get out own house in order to ensure we are as shock-resistant as possible. Industry is already upping its investment in supply chains in response, with digital technology and AI at the forefront. Striking a better balance in the scope and burden of our own regulations would go a long way in supporting industry to make the changes needed for our national economic resilience.