Rowan Austin, NatWest’s head of trade origination and advisory, asks why businesses are rethinking their approach to trade.
While global supply chains have received extensive media attention, direct experience within the sector confirms that significant strains persist.
In Q3 this year, the Chartered Institute of Procurement and Supply recorded high levels of concern about supply chain disruption among procurement managers caused by US tariff policies, US-China tensions and instability in the Middle East. And the World Bank’s supply chain stress index, which monitors delays at ports and in shipping cargoes, is running well above long-term trends.
Unsurprisingly, the economic toll of supply chain instability continues to rise. Swiss Re estimates that global supply chain disruptions now cost businesses US$184bn annually. This figure is driven by volatile raw materials, delays and increased logistics costs. McKinsey research reveals that a single major disruption can cause companies to lose up to 42% of their annual earnings before interest, taxes, depreciation and amortisation (EBITDA).
It’s not difficult to identify the reasons behind the disruption: the legacy of the pandemic may have subsided, but security concerns have understandably risen. While Russia’s invasion of Ukraine is in its third year the Black Sea remains one of the world’s most hazardous shipping routes, with vessels often choosing longer routes that avoid the dangers.
Despite a ceasefire between the US and the Houthi rebels in Yemen, some shipping companies are avoiding the Suez Canal and the Red Sea to take longer routes. And recent tensions between Israel and Iran nearly led to the closure of the Strait of Hormuz.
The weaponisation of trade policy?
Geopolitically, the story goes beyond armed conflict. Escalating trade tensions and shifting alliances are significantly altering the global supply chain landscape. Indeed, my colleague Scott Livingstone, international advisor at NatWest, suggested recently in an episode of NatWest Trade Links that we are seeing the weaponisation of tariff policies. Let’s not forget that the US has suggested tariffs as high as 145% on certain Chinese imports, citing concerns over overcapacity and unfair trade practices. In response, China has floated retaliatory tariffs of up to 125% on US goods, intensifying uncertainty for manufacturers and logistics providers with exposure to both markets.
Of course, a torrent of water has passed under the bridge since then.
Tensions have also escalated with traditional partners. The US made headlines again with tariffs on imports from Canada and Mexico, prompting countermeasures. Notably, Canada responded by launching a consumer boycott of US products, reflecting the political and economic fallout of strained trade relations within North America.
Modern supply chains and the just-in-time operating model were predicated on small inventories, forecastable fluctuations in supply and demand, and a peaceful world. It’s no coincidence that the growth of international supply chains coincided with a period of rapid globalisation and unusual economic and political stability from the late 1980s to 2008. However, yesterday’s attitudes were not designed for the volatility that has become the norm. Just in time has become just in case, and businesses have had to adapt rapidly – or suffer the consequences of not doing so.
De-dollarisation and the reconfiguration of supply chains
The US administration has made no secret of wanting lower domestic interest rates, no matter how inflationary its tariffs prove. The US dollar fell nearly 11% in the first half of 2025, and the prospect of de-dollarisation (the US currency ceasing to be the world’s reserve currency) is starting to make businesses think about the currencies they buy and trade in.
This trend is one of many risks businesses must manage. Elsewhere, supply chain threats have prompted some businesses to reassess the balance between efficiency and resilience. Greater volatility and risk have made security of supply a priority, often achieved through diversifying suppliers, bringing them closer to home, or increasing inventories. However, for some companies, speed of supply is equally important. A survey of 500 US companies by the Reshoring Initiative this year revealed that 43% of respondents would be willing to pay 10% to 20% more for products delivered within one week instead of six.
In response businesses are adopting ‘reshoring’, ‘nearshoring’ and ‘friendshoring’ as supply chain strategies – either in repatriating production, moving it closer to home or to friendly countries, particularly in sectors such as energy or technology, deemed to be of strategic importance. On a national scale, western governments are seeking to raise local microchip production and diversify sourcing of rare earth minerals away from China.
What next for trade?
All, of course, is not lost. Just as there are emerging threats to trade, I believe there are opportunities. The signs of these are in the UK’s recent Trade Strategy, launched in lockstep with the broader Industrial Strategy. At its core are the goals of enhancing trade resilience, diversifying partnerships and fostering economic growth.
One key opportunity lies in the diversification of supply chains. With companies reassessing reliance on traditional routes and suppliers, the UK’s focus on friendshoring and establishing ties with stable, like-minded economies can attract businesses seeking secure and reliable trade partners.
The emphasis on sustainability within the Trade Strategy aligns with global trends towards ethical sourcing and environmental compliance. This I believe could position the UK as a leader in sustainable trade, attracting investments in renewable energy, low-carbon technologies and sustainable supply chain solutions.
The UK’s strategic pivot also supports reshoring, bolstering domestic manufacturing capabilities and creating jobs, particularly in defence. And this is something that government recognises. An example is the Ministry of Defence’s Defence Supplier Capability Development Programme (DSCDP), which seeks a more productive and competitive UK defence sector through support to UK-based small- and medium-sized enterprises and mid-tier suppliers.
Among the DSCDP’s aims are to both support defence exports and growth across the UK and reduce defence supply chain disruption.
Indeed, the decision by western governments to block Huawei from working on Europe’s 5G network has created demand for other suppliers including Ericsson, Nokia and Samsung. In the UK, BAE has raised production of artillery shells, reducing the UK’s reliance on imports.
To manage risk, companies are increasingly turning to advanced technologies. According to the World Economic Forum, firms are adopting AI-driven simulations and digital twins to anticipate bottlenecks and model potential trade disruptions. These tools are proving essential in helping organisations adapt their sourcing and distribution strategies to fast-changing geopolitical realities. Are they adequate?
Whatever the answer, there is no silver (or indeed rare earth) bullet. Reconfiguring supply chains for a riskier, less connected world will take time. But whether it is possible to reconcile security of supply with traditional business models remains to be seen.
To help us navigate uncertain times, NatWest recently launched Trade Links, a podcast dedicated to helping businesses manage risks and expand into new markets by getting to grips with the geopolitical and commercial forces shaping global trade. Each episode focuses on a given topic, whether it’s the price of oil, the price of rare earths, or the cost of tariffs. Search ‘NatWest Trade Links’ on Apple Podcast or Spotify today.
