Navigating increasingly complex supply chains: Five trends shaping the economic landscape

February 2025

Supply chains have undergone significant transformation since 2020, adjusting to more frequent disruptions and fracturing trade relationships. Threats of much higher tariffs by the US and retaliation from trading partners have put supply chains back into the spotlight.

This article looks at five trends that are shaping supply and illustrate the way supply chains are likely to be impacted by the shifting policy landscape in 2025:   

1. Tariffs and threats of retaliation have thrust supply chains into the spotlight:

Tariffs on China and pandemic-era disruptions prompted many firms to hedge against the risks to their supply chains. “Nearshoring” and “friend-shoring” became buzzwords. However, there is a substantial gap between those perceptions and the reality of post-pandemic supply chains.

Many producers leveraged what are known as “connector countries” to avoid tariffs on Chinese production. Goods from China were pushed to countries with more favorable US relationships and then re-exported to avoid the tariff on goods shipped directly from China. That increased the distance between suppliers and their end-use buyers.

The result is longer supply chains that are more susceptible to disruptions. Everything from bad weather to geopolitical tensions can wreak havoc on supply chains, more so than pre-pandemic. That makes supply chains a ripe target for retaliatory measures from countries aiming to be strategic in their reactions to new tariffs.

An index of global trade policy uncertainty jumped to a record high post-election as fears of tariffs and trade wars intensified. That fear is prompting firms to hunker down and stockpile ahead of tariffs going into effect. As evidence, the 42% surge in shipping rates between Shanghai and the US between December and January.

Some firms have front-run tariffs, hoping to cushion their profit margins. Prices for certain products such as steel and aluminum are already increasing as firms stock up. Anecdotally, firms are shifting their investment strategies and pressing pause on new projects.

2. Chasing cost is a fool’s errand; firms seek agility:

Supply chain managers are still emphasizing flexibility in their logistics, rather than lowest cost destinations. This is seen as a hedge against unforeseen costs like the increased number of disruptions from tariffs, labor, weather, cyber-attacks and geopolitical conflict. Firms are doing that by seeking out investments that have multiple routes to customers, including a blend of maritime, air cargo, trucks and rail.

This could be a challenge at a time when maritime companies are slowly reducing their fleets after overbuilding in the wake of the pandemic. Air and truck transportation landed in a freight recession and is now constrained.

The desire to seek agility in the face of tariffs will likely lead highly exposed firms to pursue cross-border mergers and acquisitions. That could solve some market access problems while governments wage tariff wars. High-tech manufacturing, construction, logistics and finance/insurance are extremely vulnerable to tariffs.

3. Weather-related disasters hit capacity:

There were 27 weather disasters creating more than $1 billion (inflation-adjusted) in damage in 2024. That is the second highest on record behind only 2023. The first month of 2025 showed no signs of slowing as catastrophic fires in Los Angeles coincided with record-breaking snowfall across the Southeast.

Those events hit capacity at the worst possible time, when importers were attempting to stock up ahead of tariffs and a potential (now averted) port strike. Two devastating hurricanes near the end of 2024 hit capacity, which plummeted in the trucking industry causing prices to sharply increase.

Those catastrophic shifts are unlikely to reverse in 2025. The five-year running average of disasters increased from just eight in 2010 to 23 in 2024. Even smaller weather events such as storms and high winds can be extremely disruptive. No geography is spared: Droughts, flooding, severe storms (including tornadoes) and severe winter storms have increased in frequency everywhere. 

4. United States-Mexico-Canada (USMCA) review kicks off:

The USMCA review has come into focus with the new administration. The USMCA free trade deal’s sunset review was scheduled for July 1, 2026, but preliminary negotiations will likely take place this year. If the negotiations or the official review next year were to break down, that could set off a process of accelerated expiration by 2036 or earlier.

All three countries would be negatively affected by increased costs of doing business; the US runs larger deficits with both Mexico and Canada than prior to the pandemic. The new US administration views trade deficits as weaknesses to be eliminated. The fate of some investment hangs in the balance; sectors that will be significantly impacted include motor vehicles, batteries and semiconductor production. 

5. Higher bond yields weigh on suppliers:

Bond yields have risen on all maturities in recent months even as the Federal Reserve has cut the short-term interest rate by 100 bps. That has tightened credit conditions and weighed on suppliers who were hoping for a reprieve. 

Term premia (the additional compensation investors demand for bearing the risk of holding an asset of longer maturity) have risen sharply on bonds; that increases borrowing costs. About 60% of the recent rise in bond yields is estimated to have come from the rise in the term premium alone.

Tariffs only add to that financing challenge. Tariffs require producers to write a check or provide a bond ensuring that tariffs will be paid. To add insult to injury, research on the 2018-19 tariffs reveals that banks tightened credit standards in response to tariff uncertainty. The more vulnerable a firm was to tariffs, the harder it was for them to access credit.