Biannual Supply Chain Report: Five Trends Shaping the Economic Landscape

March 2026

After several years of disruptions, US supply chains are entering a new phase in which they are no longer fixed but expected to be in constant motion. Firms are operating in an environment where trade policy, geopolitical risk and technological change have become embedded in the cost of doing business; the most recent Supreme Court decision and subsequent levying of new tariffs, combined with escalating tensions in the Middle East, underline the trend. This biannual report outlines five trends reshaping the economic outlook and what those trends mean for businesses trying to navigate the elevated levels of uncertainty.

1.     Trade policy as a standing cost

In 2026, trade policy is likely to be treated as a standing cost embedded in global supply chains, rather than a temporary disruption to wait out. Escalation of tariffs originating in the US and the uncertainty surrounding their scope, duration and enforcement are likely to alter sourcing and inventory strategies. 

The Supreme Court overturned the use of the presidential emergency powers for tariffs but left the door open for other sections of the tariff code. As expected, most of the tariffs were immediately restored via Section 122 tariffs for 150 days. Those are likely to be litigated as well, but lawsuits take time. 

Sections 301 and 232 tariff investigations related to unfair trade and national security will almost certainly be initiated. They have more staying power than the broad swath of those used thus far. In any case, uncertainty about trade policy is here to stay. 

Firms are no longer optimizing supply chain locations for lowest-cost production. Instead, they are examining their exposure to disruption along each node of their supply chains. 

Long, complex supply chains are prone to disruption. Each access point should be thought of, not just in terms of up-front costs, but risks from geopolitics, the global economy, weather and other disruptions. At the same time, inventories are likely to remain slimmer to offset additional costs. 

Weather risks are particularly notable outside of trade policy. Droughts, hurricanes and events like the most recent polar vortex drive up costs. Losses range into the billions just in the US. 

Trade policy costs are not limited to tariffs, but to trade policy uncertainty, export controls and shifting rules of origin. The evolution of origin rules and enforcement in 2025 was one of the most complex changes to navigate. Notably, steel and aluminum tariffs included long lists of “derivatives” tariffed at similar rates.

In addition, the burden of proof on steel and aluminum content was shifted to the importer, while the “content” of steel and aluminum was expanded to include labor and other associated costs, which are difficult to track. Products with meaningful content from higher-tariff countries now face heightened risk for compliance.

Indeed, official data from US Customs and Border Protection (CBP) show that last year $235 million was recovered in close to 500 audits versus $118 million in just over 400 audits the year before. In the first three months of this fiscal year, CBP had already recovered $44 million from 60 audits. The goal is to deter transshipments and the utilization of lower-tariffed third countries. The result is pushing firms farther out into unknown territory.

The largest trade policy shift to watch in 2026 for US importers will be the USMCA review. Taking place during the summer, the renegotiation process will determine whether USMCA will be renewed until 2036 (in the best-case scenario), be subject to annual reviews until 2036 or if participating countries pull out of the agreement all together (worst case scenario). 

USMCA carve-outs are the single largest mitigator of the current tariffs. Removal of those carve-outs could add up to 6 percentage points to the overall tariff rate of approximately 12% before importers reshuffle their supply chains. Some have no alternatives or are so highly integrated with producers in both countries that switching away from our closest trading partners would be extremely costly. The sectors most exposed to such shifts in trade policy are the auto sector and high-tech manufacturing. 

Some vehicle components traverse the borders of all three countries several times before becoming a fully assembled vehicle. Mexico currently plays a key role in providing inputs for data centers. Canada has lifted constraints on energy production and is trying to attract data center construction. It has discovered more aluminum, which is another key component for domestic manufactures. A fire at a major fabrication plant in the US last year left domestic producers who needed aluminum scrambling.

2. Overhang of geopolitical risk

Outside of the risks of tariffs and trade wars, supply chains are more exposed to ongoing geopolitical challenges. The geopolitical risk index moved up on average in 2025 and reached levels not seen since 2022. Those two years were the most elevated for geopolitical risk since the onset of the Afghanistan and Iraq wars. We are moving away from a period of low geopolitical tensions into one of heightened risk. 

Geopolitical risk spiked again in January due to escalation in the Middle East and the Caribbean. As of the writing of this document, the Strait of Hormuz was under threat from further escalating tensions with Iran; about 20% of the world’s oil supply traverses that choke point. That has increased the risk premia for oil prices, along with more aggressive enforcement of sanctioned oil producers. Sanctioned oil from Russia, Iran and Venezuela makes up roughly 15% of the global oil supply. 

The likelihood of additional geopolitical flare-ups and fragile ceasefires remains elevated; for businesses, that means navigating multiple pressure points. Resilience may begin to be prioritized above costs when supply chain logistics and connections appear increasingly fragile. 

That fragility matters increasingly in a world where trust is deteriorating both domestically and globally. Trust is the oil of a market economy, particularly in financial markets. The cost of transactions could rise due to a loss of trust between allies and trading partners. The costs of verifying counterparty risk rise when trust erodes.

3. Regionalization deepens

Rapidly deteriorating relationships between the US and its closest trading parters have been the most notable consequence of a loss in trust. Most of the talk about a reordering of global trade has focused on economic fragmentation; that is only true of the US and how it says it wants to interact with the rest of the world. The rest of the world is not fragmenting but forging ahead on trade agreements with or without the US. 

The rest of the world is solidifying regional ties as countries forge more trade agreements. That is particularly true in Asia. In addition, countries are navigating geopolitical risk in their strategic relationships. Mexico has positioned itself as a manufacturing destination linked to over 50 countries by free trade agreements; the EU has signed multiple trade agreements in addition to shoring up its own large trading bloc. 

So far, the result of tariffs on the North American trading bloc has been that they have deepened ties between the US, Mexico and Canada with carveouts for USMCA-eligible products. The renegotiation will be a test of how far regionalization could go for North America. The US administration would clearly prefer suppliers to move completely onshore. That would take time and is too expensive for most producers.

4. Artificial Intelligence (AI) opportunities and risk

AI has presented significant opportunities and risks for supply chain operations. AI tools are being deployed for demand forecasting, inventory optimization and route planning for faster reactions to real-time disruptions. At the same time, transformations in AI have added to the long list of risks for supply chain managers. 

It is hard to tell the depth of risk associated with advances in AI for supply chains.  In 2025, there was a record surge in ransomware attack targeting transportation and logistics firms, as well as port terminals. AI acts as a multiplier effect for cybersecurity risks, making it easier and faster for threats to break through. That ups the need to allocate more to protect supply chains from cyber threats and leaves less on the table for other investments.

5. Global capital and financial flows impact supply chains

The erosion in trust on a global scale has affected financial markets; the stunning surge in gold prices over the last year has been the most visible result. It has led to unintended consequences in exchange rates, which could become a bigger factor in 2026. 

Historically, tariffs tend to trigger an appreciation in the country that levies the tariffs. The reason is because of falling import demand; that reduces the need for foreign currencies and therefore increases the value of the domestic currency (i.e., the dollar). That would make exports more expensive and offset the impact to importers by making imports cheaper.  

This time is truly different. The dollar depreciated nearly 10% over the last year from an elevated level, moving the opposite way that theory would suggest. That is adding insult to injury to importers, as it makes imports even more expensive. The silver lining is that it should cheapen exports and make our exports more competitive. 

The problem is export prices have risen anyway. In general, shifts in the dollar tend to affect export prices more than input prices, as most imports are invoiced in dollars. The problem comes when inputs such as steel and aluminum are tariffed heavily. The result is a rise instead of a drop in export prices, which reduces our competitiveness abroad.

In addition, the basket of exchange rates is mixed. For instance, movements in the Japanese yen and Korean won against the dollar have nearly offset the cost of additional tariffs on their vehicles. That makes it less expensive to import a vehicle from those countries than to produce one in the US. In response, US vehicle producers are feeling increased competition, which is constraining their ability to pass on tariff costs. 

That leaves layoffs and other forms of cost cutting to offset the profit margin compression due to tariffs. The manufacturing sector continued to see job losses last year, even among the most protected industries, such as steel.