Strengthening supply chain resilience amid geopolitical and trade volatility

As the Trump administration continues to negotiate new trade deals between the US and its key economic partners, including the UK, China, and Canada, the need for supply chain resilience is more crucial than ever. With global trade relations in a state of flux and market volatility further exacerbated by conflicts in the Middle East, impacted businesses face an urgent need to strategize and prepare their supply chains for new regulations, potential tariffs, and operational shifts.

This article examines the various risk domains affected by America’s changing relationships with its trade partners and the distinct challenges inherent in a stressed global supply chain. Additionally, we will explore ways risk professionals — especially those in enterprise, third-party, and operational risk — can help their organizations strengthen their supply chain risk management frameworks and processes to respond to changing risks with agility and speed.

Supply chain risks affected by heightened geopolitical volatility

Risk volatility continues to be a running theme as global supply chains ride the turbulence of recent tariff wars and shifting trade relationships. A new US-UK trade agreement known as the Economic Prosperity Deal (EPD) provides insight and a likely template for future US trade agreements, particularly for the auto industry as well as beef, agriculture, and pharmaceuticals. Ongoing trade negotiations between the US and Canada may result in new Canadian tariffs on U.S. steel and aluminum imports near the end of July. Meanwhile, the pause in US-China retaliatory tariffs from May to August offers only a temporary respite from high trade tensions between the two countries. The outcomes of these negotiations will likely alter supply chain risks in several categories, specifically: strategic, operational, financial, reputational, and compliance. Consider the following:

Strategic supply chain risks often revolve around fundamental shifts in how a business operates, its market position, and its long-term viability. Already, the US has seen small businesses forced to close or consider shuttering their doors due to tariffs on Chinese imports. A potential strategic risk related to negotiation outcomes is loss of market access and competitive disadvantage for US automotive manufacturers.

If China or the UK impose new retaliatory tariffs on U.S.-made automobiles, US manufacturers’ ability to compete in those crucial export markets would be severely hampered. Their vehicles would become more expensive for consumers in those countries, potentially leading to a sharp decline in international sales and the need to fundamentally rethink their global sales strategy.

Operational supply chain risks typically manifest as immediate, day-to-day challenges in moving goods, managing inventory, and maintaining production flow. An operational risk related to the ongoing tariff wars – that could be further impacted by negotiation outcomes – is logistical issues due to increased costs and delays.

For example, recent tariffs have made it economically unfeasible to import components from China, causing some US manufacturers to suddenly need to source parts from Vietnam or Mexico. This often means entirely new shipping routes, potentially leading to longer transit times, increased freight costs, and the need to re-negotiate with different logistics providers. These downstream effects directly impact delivery schedules and inventory levels.

Financial supply chain risks are highly intertwined with strategic and operational shifts and directly impact a company's bottom line, profitability, and access to capital. The most obvious financial risk is the direct cost of new tariffs resulting from negotiation outcomes, which can immediately turn a profitable product line into a loss leader. Businesses opting to diversify their supply chain to avoid tariffs (e.g., moving production from China to Vietnam or Mexico) also face significant financial costs, such as higher logistics costs, setup costs for new suppliers, increasing inventory holding costs, and loss of economies of scale.

Yet another example of a financial risk is yuan devaluation, potentially driven by trade tensions and US tariffs, which could create significant currency risk. While initial import costs might seem lower, sharp and unpredictable shifts can squeeze US retailer margins and make US exports to China more expensive.

Compliance-related supply chain risks are particularly dynamic and challenging in the context of shifting trade negotiations because the rules of the game are constantly changing. Non-compliance with evolving tariff regulations and country of origin rules can result in penalties, seizures, and reputational damage. The US’s ongoing trade negotiations with its major economic partners create significant compliance risks by constantly changing the legal and regulatory framework for international trade, forcing companies to invest heavily in monitoring, documentation, and real-time adaptation to avoid costly penalties and operational disruptions.

Reputational-related supply chain risks, in the context of US trade negotiations with the UK, China, and Canada, can arise from public perception shifts, ethical concerns, and the perceived "side" a company is on during trade disputes. An example of a reputational risk could be public backlash and boycotts against a company pushed to source raw materials or components from regions with documented human rights abuses (e.g., specific mining regions for rare earth minerals).

Another example of reputational risk could come from prioritizing foreign market access over domestic interests. If a company is perceived as making significant concessions to secure market access in China, for example, while seemingly doing less to support its home country's trade agenda, it could be accused of disloyalty or prioritizing profit over national values.

Thus, as negotiation deadlines approach, it is essential that organizations have the right supply chain risk management processes, frameworks, and structures in place to respond to changing risk priorities with agility and speed.

Addressing risk volatility with proactive supply chain risk management

In times of geopolitical volatility, the ability to plan ahead and react quickly is the bedrock for supply chain resilience. The following are considerations for building agility, accuracy, and speed into your risk management processes to proactively address supply chain challenges.

1. Leverage scenario planning to strategically prepare for new challenges or disruptions. This involves simulating potential disruptions to systematically identify vulnerabilities and develop robust contingency plans. Effective scenario planning requires a structured approach: identifying plausible disruptions, developing and rigorously testing detailed "what-if" scenarios, assessing the organization's current resilience capabilities, and then formulating response strategies. Regular review and updates of these scenarios are critical to their ongoing efficacy. By embedding such a technical framework, organizations can significantly strengthen their resilience, optimize decision-making under pressure, and help ensure business continuity.
2. Empower your frontline risk owners to proactively report emerging risk events and data. These individuals are uniquely positioned to observe the immediate impacts of new tariffs and trade developments, as they are closer to those impacts than your central risk management teams. Therefore, empowering these frontline risk owners to proactively report emerging risk events and data is essential for ensuring there is continuity in your organization’s risk universe. Implementing a direct reporting mechanism from the business to risk management channels helps ensure vital information is rapidly escalated to the second line. This also fosters a shared understanding of risk across the organization, promoting consistent risk management and empowering employees to make risk-aware decisions.
3. Revisit your organization's risk appetite and tolerance scores. In light of new tariffs and negotiation outcomes, it is essential to revisit your organization's risk appetite and tolerance scores. These scores are not static; instead, they must evolve to accurately reflect the "new reality" shaped by ongoing trade negotiations and geopolitical shifts. Reassessing them provides a clear, up-to-date framework for deliberate decision-making, enabling calculated trade-offs (e.g., accepting more reputational risk for critical financial stability) and optimizing resource allocation.
4. Ensure your vendor risk assessment results are up-to-date. Traditional vendor risk assessments, often conducted during selection and onboarding, typically focus on direct concerns like data privacy (e.g., GDPR compliance) and cybersecurity. However, in today's volatile global landscape, it's crucial to update these assessments to gain deeper visibility into your entire supply chain. This means going beyond your immediate vendors (3rd party) to understand the risks posed by their suppliers, and even their suppliers' suppliers (4th party to nth party). Geopolitical shifts and new tariffs can significantly impact these extended vendor networks, creating hidden vulnerabilities. By proactively reassessing these deeper relationships, you can identify critical gaps and risks, allowing you to prioritize efforts and strengthen your supply chain. The ability to perform these comprehensive vendor risk assessments with agility and efficiency is therefore paramount for maintaining supply chain resilience.
5. Implement real-time risk monitoring and alerting to keep pace with today's rapidly changing global landscape. Up-to-date monitoring of your supply chain risks is critical for swiftly acting on new information. Real-time insights are essential for informing your action plans, whether that means updating vendor risk assessments, reassessing risk appetite and tolerance scores, or escalating a high-priority strategic risk directly to the executive team for immediate attention.

Forging resilient supply chains in a turbulent environment

The escalating geopolitical tensions and the US’s ongoing trade negotiations with the UK, China, and Canada have undeniably reshaped the global trade landscape. This new reality demands an urgent and proactive approach to supply chain management, transcending traditional risk considerations. As this article has explored, volatility impacts every facet of a global supply chain – from long-term strategic positioning and day-to-day operations to financial stability, regulatory compliance, and even public perception. To thrive amidst this uncertainty, organizations must empower their frontline risk owners, continuously re-evaluate their risk appetite, update vendor assessments for deep visibility, and leverage real-time monitoring and scenario planning. By embracing these agile and data-driven risk management frameworks, businesses can not only navigate the current turbulence but also build truly resilient supply chains capable of adapting to any future disruption.

About the authors

Claire Feeney is a Senior Product Marketing Manager at AuditBoard focused on ESG and RiskOversight. In her role, she helps support organizations in transforming their enterprise risk management and sustainability programs. Prior to joining AuditBoard, Claire worked in product marketing at OneTrust, VMware, and Infor. Connect with Claire on LinkedIn.