Over the last decade, the politics of isolationism has increased in popularity, which has seen governments across the globe adopting the foreign policy approach that seeks to minimise their involvement in international affairs, prioritising domestic interests over global cooperation and trade. The most notable examples perhaps, include the UK voting for Brexit in 2016, and Trump’s successfully fought “America First” campaign. As these isolationist policies gain renewed momentum in major economies, global supply chains are undergoing a fundamental transformation. The return of Donald Trump to the US presidency has added fresh urgency to this shift, with a wave of newly imposed tariffs that affect a wide range of goods and trading partners. These changes are forcing companies - and investors - to reassess how they manage geopolitical risk, economic exposure and long-term supply chain resilience.
In this context, three key strategies are becoming central to how companies respond:
| Onshoring | Relocating operations to a company’s home country to gain tighter control and reduce foreign dependency.1 |
| Friendshoring | Building supply chains in countries that share similar political and economic values, reducing exposure to geopolitical rivals.2 |
| Nearshoring | Moving production or services to neighbouring or nearby countries to improve responsiveness and lower logistical risk.3 |
Initially driven by the disruptions of the COVID-19 pandemic, these strategies are now accelerating in response to rising geopolitical pressures. The pandemic exposed the fragility of global supply chains, prompting companies to rethink the risks of far-flung operations. That early re-evaluation is now being reinforced by more permanent policy changes - most notably, the wave of tariffs introduced under the new US administration.
In response, we’ve seen companies take proactive steps to adapt - reworking supplier agreements, accelerating domestic infrastructure investment and building regional redundancies. In one example, a large US-based utility which was facing delays owing to regulations under the Uyghur Forced Labor Prevention Act (UFLPA), restructured its solar supply chain to reduce exposure to materials sourced from high-risk regions. These changes were not only driven by the need to comply with human rights standards, but also by a desire to future-proof operations against the instability created by shifting trade policy - particularly the growing use of tariffs as a political tool under the current administration.
By investing in domestic production and strengthening partnerships with allied nations, the company improved compliance, increased transparency and aligned its sourcing practices with long-term sustainability goals. This kind of strategic repositioning is increasingly viewed not as a cost, but as a hedge against future disruption - building operational stability in a more uncertain global environment.
Beyond risk response, this shift presents a broader opportunity: to build supply chains that are not only more secure, but also more sustainable. Regulation is playing a key role in accelerating this transition. In the EU, measures like the Corporate Sustainability Due Diligence Directive (CSDDD), Regulation on Deforestation-free Products (EUDR) and the Carbon Border Adjustment Mechanism (CBAM) are pushing companies to increase traceability, improve emissions reporting and ensure materials are ethically sourced. These policies - alongside similar developments in other markets, such as the US UFLPA and due diligence regulations in the UK and Australia - are prompting companies to redesign their supply chains with compliance, accountability and long-term resilience in mind.
Sourcing from politically stable regions improves oversight, strengthens transparency and supports more robust due diligence frameworks. These are areas where we, as investors, see both risk mitigation and long-term value creation.
At LGT, we actively engage with companies to support supply chain decisions that are not only commercially sound, but also responsible. Our stewardship approach focuses on helping businesses diversify sourcing to avoid over-reliance on politically sensitive regions, integrate environmental and social considerations into procurement strategies and build the agility required to navigate shifting regulatory and trade environments.
We believe that companies capable of adapting in this way are better positioned to manage risk, uphold high sustainability standards and deliver long-term value. Through active stewardship, we continue to support our portfolio companies in navigating these challenges - positioning them to thrive in an increasingly fragmented global economy.
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