Trade Tensions: How Geopolitics Rewires Supply Chains
Looking around at the world in 2025, it’s clear why geopolitical risk is now widely recognised as a core threat to global supply chains. With increasing instability and economic fragmentation, the need for sophisticated risk management strategies has never been greater.
Geopolitical risk refers to threats of political instability, sanctions, trade wars, armed conflicts, regulatory fragmentation and more. These risks carry the potential to disrupt the flow of trade, raise operating costs, drive inflation and threaten the supply of vital goods.
Effective risk management requires strong cross-functional collaboration, threat monitoring, scenario analysis and robust contingency processes.
As CSCOs come to the end of a tricky year geopolitically, we reflect on how organisations can be better prepared for whatever unrest 2026 holds.
How do supply chains respond to geopolitical risk?
When geopolitics takes a turn for the worse, supply chain managers first watch closely for signs of trouble – checking how it may affect suppliers, shipments and materials.
Then, the team identifies the most vulnerable links in the supply chain, as well as how serious the impact may be. After that, it's time for the back-up plan; this is when supply chain professionals turn to alternate suppliers, different shipping routes or additional inventory.
Teams use AI-enabled tools to track these shipments and suppliers, enabling them to identify the best adjustments quickly, so the risk can be spread out further across regions.
Perhaps most importantly, once the risk has subsided the team then reviews how successful this response was, using it to plan better for the future.
Huawei, a leading technology giant, has had to navigate acute geopolitical risks stemming from US sanctions and global political opposition primarily driven by US-China rivalry.
In 2019, US government restrictions barred Huawei from accessing key US technologies, including Google’s Android operating system and semiconductor supplies. This geopolitical pressure dramatically shifted Huawei’s business environment and forced a comprehensive rethinking of its global strategy.
Huawei accelerated the development of its own HarmonyOS as an alternative mobile operating system, reducing reliance on US technology. This pivot enabled Huawei to sustain its domestic market leadership despite global challenges.
"HarmonyOS enables us to control more of our ecosystem and reduce vulnerability," said Founder and CEO Ren Zhengfei.
Huawei also doubled down on internal research, reshaping product development and stepping up partnerships with non-US suppliers – diversifying input sources and shielding production from external shocks.
"Sanctions are not something we expect to disappear — we operate under the assumption that self-sufficiency is the new normal," says Ren.
Huawei now embeds risk analysis into every executive move, mapping trade and regulatory risks ahead of time: "We are prioritising software because it offers autonomy... independence in software ensures the continuity of our business model."
Geopolitical predictions for 2026
Next year, supply chain leaders can expect global trade growth to slow due to ongoing trade conflicts and tariffs. The World Trade Organization projects a figure of only 0.5% growth, which will further strain supply chains dependent on cross-border trade.
Meanwhile, JP Morgan predicts rising techno-nationalism could enforce stricter controls over data, technology exports and compliance standards, fragmenting the global technology supply chain and increasing operational complexity and costs.
Regional conflicts and maritime route risks, such as in the Red Sea and South China Sea, will continue to threaten shipping lanes critical to containerised trade. One article from Forbes predicts a shift from globalised chains towards regionalisation and localisation, driven by a need to reduce exposure to such routing risks.
The Red Sea crisis of early 2024 represented a significant geopolitical risk impacting global supply chains and shipping operations.
The crisis escalated due to ongoing attacks on merchant shipping routes in the Red Sea, prompting major carriers such as Maersk, one of the world's largest container shipping companies, to significantly reduce or suspend their operations through this crucial maritime corridor.
Consequently, ships were rerouted around the Cape of Good Hope, increasing transit times by approximately 30%. This rerouting caused widespread shipping delays and elevated transportation costs, delivering a substantial blow to operational efficiency across affected supply chains.
Global retail giants including Crocs, Walmart, Home Depot and Amazon reported disruptions in product deliveries and operational delays in early 2024. These companies faced longer lead times and surging costs, which impacted inventory availability and sales performance.
Evelyn Fornes, a Home Depot spokeswoman, stated at the time: "We are collaborating with logistics carriers to find alternative routes to minimise the impact of the Red Sea conflict. We maintain a large and diverse supply chain with multiple partners, allowing us to be flexible and agile during disruptions.”
This emphasises a strategy of diversification and contingency planning to mitigate geopolitical risks impacting global supply chains.
Other concerns include cybersecurity, the militarisation of AI, market volatility, energy dependency and US-China relations. However, there are only so many risks CSCOs can predict; instead, it is important to remain agile and adaptable to any event that disrupts operations.
The future of risk management
The future of geopolitical risk management relies on advanced technologies to help firms predict and model political disruption with greater accuracy.
Scenario planning will become more dynamic, allowing organisations to test various outcomes and prepare flexible, tailored responses. Digital platforms could improve real-time supply chain monitoring and support compliance tracking, from regulatory shifts to cyber threats and sanctions.
The IMO’s recent one-year pause on its Net-Zero Framework (NZF) has revealed the effect of geopolitics in climate regulation.
With 57 votes in favour, 49 against and 21 abstentions, the outcome scraped through the required majority, stalling a framework that would impose carbon intensity targets on ships over 5,000 gross tonnes from 2028.
Singapore tabled the motion, whilst Saudi Arabia pushed it to a vote. However it was the US that dominated the diplomatic landscape. President Donald Trump branded the NZF a “Global Green New Scam Tax on Shipping” and warned the US will not comply “in any shape or form”.
Washington and Riyadh also attempted to shift the IMO’s usual consensus process into a stricter format, forcing deeper scrutiny on implementation. Though this procedural change failed, the delay achieves the same outcome: more time to influence climate proceedings.
IMO Secretary General Arsenio Dominguez told delegates: “There are no winners and losers in this session.”
For the NZF, the delay could allow more technical work, but also opens space for further international fracturing on sustainability policy.
Risk management also ties more closely to sustainability and ethical policies, as compliance becomes a competitive tool, especially amid evolving tax and environmental regulations. Recent conflicts also raise global energy and food security concerns, leading to inflation and sourcing disruption.
As regional instability grows, firms shift from reactive strategies to integrated, proactive systems that protect operational continuity and position them to manage global risk with more confidence.
Did you know?
Executives
Arsenio Dominguez
Secretary General
Evelyn Fornes
Spokeswoman
Ren Zhengfei
Founder and CEO
