Biannual Supply Chain Report: Five Trends Shaping the Economic Landscape

September 2026

Supply chains are entering a phase in which they are no longer optimized solely for cost but for resilience. Heightened geopolitical risks, emerging bottlenecks for key inputs, shifting trade relationships and rapid technological change need hedging strategies. The result is more complex and duplicative supply chains. 

The conflict in the Middle East and ongoing war in Ukraine are boosting energy costs, while a trade war with Canada is testing some of the world’s most highly integrated supply chains. Old alliances are being strained, while new ones have yet to come together. Those shifts are occurring against the backdrop of a surge in investment in artificial intelligence (AI).

This biannual report outlines five trends reshaping supply chains: it focuses on geopolitical chokepoints, uncertainty over the fate of the United States-Mexico-Canada Agreement (USMCA), broader changes in trade alliances, AI and the increased role that national security concerns are playing in securing supply in critical sectors.

1.     Geopolitical chokepoints and the rising cost of shipping. 

The Middle East conflict is intensifying an existing logistics squeeze, adding to supply chain stress and costs. The Logistics Managers Index (LMI) shows that the closure of the Strait of Hormuz boosted transportation and logistics costs dramatically. The level of costs in the LMI is now in territory that historically has “led to increased levels of supply-driven inflation.”

Diesel prices rose immediately following the conflict in the strait. Diesel is running at more than a $1 premium over gasoline, up from its previous 10-year average of $0.38. That boosts long-haul and last-mile trucking, air freight and even maritime shipping costs significantly. In response, shippers are passing along fuel surcharges and facing elevated insurance premiums. 

Oil prices should ease once the conflict in the Middle East abates. However, a geopolitical risk premium could keep energy costs above prewar levels. Shippers will continue to bear the burden of new flareups, refining constraints and low oil inventories. 

The boost to defense outlays and the glut of debt flooding global capital markets are another hurdle, as they have triggered a global bond market sell-off. Bond yields rose well before central banks started to lift interest rates in response to the inflation triggered by the conflict. That has added to the costs of holding inventories, which were already elevated in response to a front-running of another round of tariffs. 

The conflict broke out at a time when US supply chains were already stressed. The trucking industry was consolidating in the wake of the surge in shipments post-pandemic, while the ranks of those working in transportation and warehousing are suffering a setback due to stricter immigration enforcement and tougher English language rules. Extreme weather adds costs and disrupts production; the predicted “super El Niño” increases risks for 2027.

2. USMCA in limbo. 

The failure to extend the USMCA at the July 2026 joint review shifted the agreement into annual reviews. Technically the agreement remains in force through 2036 unless terminated earlier, and the three countries can agree to a 16-year extension at any annual review. Trade talks with Mexico are ongoing, while talks with Canada have broken down. The result has put into question agreements that date back to the 1960s and is clouding plans for investment and supply chains. 

Official US actions impose tariffs of up to 50% on a defined set of Canadian goods, including certain motor vehicles, regardless of whether they qualify under USMCA but does not apply to all Canadian imports. The vehicle and high-tech industries are especially exposed. Production and investment plans in both the US and Canada could be disrupted because parts often cross the border multiple times before a finished vehicle rolls off the assembly line.

The tensions have already spilled over into relations with other countries. The US has threatened the European Union with additional tariffs, or restrictions on trade in some areas, if it decides the EU’s proposed closer association with Canada is a hostile act. (The unprecedented “associate member” concept has not yet been defined or approved.)

The most likely scenario is that firms face continued and greater uncertainty, rather than a full decoupling from our neighbors. That could delay investments, increase costs associated with compliance/contingency planning and reduce integration in key industries.

3. Trade reorganizes into regional blocs.

Globalization is reorganizing, not reversing. Much of the world is deepening regional economic ties and expanding preferential trade relationships, with or without the US. 

Global trade did not collapse in the wake of the April 2025 tariff announcements. Retaliation was selective and generally more limited than many initially feared. Many affected economies diversified markets, rerouted trade and strengthened domestic or regional supply chains to improve resilience and preserve market access. 

Bilateral and regional agreements are becoming more prominent. One example is the Information Technology Agreement, whose participants eliminate tariffs on covered technology products even though not all World Trade Organization (WTO) members take part. The WTO lists 388 regional trade agreements currently in force.

Canada is seeking leverage through closer trade and investment ties with Europe and Asia. It aims to double its non-US exports over the next decade. Mexico’s extensive network of bilateral, regional and what are known as plurilateral agreements now cover more than 50 countries. 

Production networks in Asia and Europe are being reconfigured, with firms placing greater emphasis on regional sourcing and diversification rather than uniformly consolidating production. They are hedging against risks involving energy security, critical minerals, rapidly changing technology standards and digital trade.

US manufacturers could be at a disadvantage if they are excluded from new preferential trade agreements. Key risks to these regional partnerships include the possibility that larger economies, including the US or China, may oppose arrangements that exclude them, and that political rivalry could increasingly displace the economic cooperation motivation behind regional integration.

4. AI investment boom drives trade.

Insatiable demand for AI is driving global trade patterns. The rapid buildout of data centers has triggered a massive investment cycle that stretches well beyond semiconductors into servers, cooling systems and power infrastructure. 

AI has been a major catalyst behind the widening US trade deficit over the last six months; much of what is needed to build data centers is not made in the US. The import-intensive investment boom has come, despite political backlash to running large and persistent trade deficits. 

Tariffs have not slowed the AI buildout: the trade deficit has expanded 18% since Liberation Day, led by capital goods including computers and semiconductors. Many of those goods carry exemptions. Data center construction has reached an all-time high; delivery times for the materials needed to build them are lengthening. That is bidding up the cost of everything from electricity to computer electronics.

The AI buildout has been remarkably impervious to higher interest rates while the Federal Reserve has held rates steady and bond yields have climbed. Tech firms are still committing substantial capital to expanding AI infrastructure, creating sustained import demand; the necessary chips and cooling equipment are also used in the auto industry and other manufacturing. Another facet of the AI buildout is that AI is an arms race, largely between the US and China (more on that below)..

5. Supply chains & national security concerns.

Supply chains are moving from being an efficiency game to a tool for national security. Lowest cost networks are becoming a thing of the past as governments look to supply chains to reinforce their geopolitical priorities. 

Tariffs are one of the most visible manifestations of that shift. After tariffs levied via emergency powers in the US were overturned by the Supreme Court, new tariffs and intensified enforcement have restored many of the restrictions. The Section 301 tariffs (previously under Section 122) cover 60 countries and more than 99% of imports at rates ranging from 10% to 12.5%. 

The number of non-tariff barriers (NTBs) is expanding. They include export controls, investment restrictions, industrial subsidies and content requirements to influence where goods are produced, providing countries with strategic cover to avoid overt retaliation. For example, new rules proposed in September would require US importers to provide more supplier data, data validation and better supply chain visibility, all of which would increase compliance costs.

New NTBs were used nearly twice as often as tariffs, even after taking last year’s jump in tariffs by the US into account. NTBs impose greater costs on exports than tariffs in nearly 90% of countries.  

Governments are increasingly looking to pick winners and losers among technologies and inputs considered essential to national strategy. Semiconductors, critical minerals, AI and energy infrastructure top the list.

In the US, the current and previous administrations view AI as the most promising driver of future economic growth and defense applications. The fear that geopolitical rivals could control supply chains critical for defense and commercial technologies continues to elevate supply chains as a top policy priority.

Protectionist policies played better on the campaign trail than they did in practice. In 2024, 59% of Americans said that the US lost more than it gained from increased trade with other nations, while 66% of Americans favor trade restrictions to protect American jobs. Those views were stoked by broken promises to retrain workers displaced by trade in the 1990s. 

Views shifted after tariffs were imposed in 2025. The Chicago Council’s July 2025 survey found 79% said trade benefited the US and 46% favored unrestricted trade, up from 31% in 2024. Pew surveys in 2026 found 60% disapproved of tariff increases and 63% lacked confidence in tariff decisions. An Ipsos survey found 57% opposed additional tariffs on Canada and 68% preferred compromise. Broad tariffs have lost support, although partisan divisions and backing for targeted restrictions remain. 

Businesses waiting for a return to the pre-pandemic trade environment of peak globalization are likely to be disappointed. While the particulars of tariffs may change over time, reducing vulnerabilities in critical supply chains is paramount. Policymakers are demonstrating a growing willingness to trade economic costs in exchange for resilience, security and leadership in the tech field.

The likely outcome is managed trade agreements with export controls, quotas and other non-tariff barriers. The risk is an expansion of sanctions and other coercive economic tools. The recently enacted sanctions on Russia by Congress give the president leeway in setting up to 100% tariffs on Russia’s top export destinations for oil and gas.