August 29, 2025

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Weaponized Interdependence: Supply Chains Reconfigure Globally

AP Photo/Rebecca Blackwell

Interdependent economies are the hallmark of our globalized world, held together by webs of global supply chains now being reshaped amid political instability. Populist politics, renewed interest in economic protectionism, the growing Great Power Competition between the People’s Republic of China (PRC) and the United States (U.S.), as well as disruptive events such as the Russia-Ukraine war, the regional conflict in the Middle East since October 7, 2023, and the COVID-19 pandemic have uprooted the cost efficiency logic of long-established production networks. As states rush to secure the supply chains that support their critical industries, a major shift in the global political economy is underway, one in which interdependence itself has become a central arena of geopolitical contestation.

The globalization of supply chains since the end of World War II prospered in a U.S.-led liberal world order, which prioritized cost efficiency in building out production networks (e.g., producing where wages were lowest). Now, that logic of efficiency increasingly collides with the imperatives of strategic autonomy and national security, leading to rapid reconfigurations of supply chains. In tandem, non-state actors are weaponizing global supply chains, raising costs for multinational corporations. While the World Trade Organization (WTO) recently revised the 2026 growth forecast down to 1.8 percent from 2.5 percent, global trade volumes remain resilient. Nonetheless, the politicization of production networks presents new challenges, from balancing security with cost efficiency to managing the fragmentation of trade into rival blocs, all in a world that relies less on multilateral institutions to settle disputes.

The ongoing regionalization of supply chains, shifting global supply chains to more regionally clustered networks, stems from multiple factors, but U.S.-PRC strategic competition is the main geopolitical catalyst. According to a survey conducted by the World Economic Forum and Kearney from November to December 2023, roughly 92 percent of global executives surveyed are regionalizing their manufacturing footprint, and 28 percent aim to have nearly all in-region-for-region operations by 2030.

In addition to regionalizing, the U.S. has sought to move critical supply chains to nations it perceives as within its sphere of influence or politically aligned, a strategy known as friend-shoring. In the first half of 2025, Mexico overtook the PRC as the largest trading partner of the U.S., while Mexico’s advanced technology exports to the U.S. rose by about 35 percent in 2024. Suppliers to major U.S. technology companies, including Nvidia, Apple, and Dell, are expanding production in Mexico, building semiconductor plants and AI servers that are essential in the ongoing technological competition between the PRC and the U.S. The PRC, through its Belt and Roads Initiative — a massive global infrastructure development strategy that spans land corridors and maritime transport infrastructure in Asia, Africa, and Europe — has also brought many supply chains sphere of influence, and importantly, has made coveted materials in Africa, such as lithium, cobalt, copper, and rare earth elements, easier to access and transport to facilities for processing.

The overarching aim of much of the ongoing reconfiguration of U.S. supply chains is strategic derisking, that is, reducing dependence on the PRC for critical sectors without fully severing trade ties. Much of this effort is centered on protecting three key sectors: technology, defense, and critical resources. In the ongoing strategic competition between the PRC and the U.S., technologies with dual-use applications — viewed as both essential for economic competitiveness and militarily advantageous — have increasingly been treated as political assets.

States are investing substantial subsidies in the development of these critical domains. For example, the 2022 CHIPS and Science Act authorized approximately $52.7 billion for U.S. semiconductor manufacturing, along with a 25 percent investment tax credit, to bolster domestic capacity and Research and Development (R&D). At the same time, governments are instituting quid pro quo schemes in which companies receive funding in return for U.S. government shareholding, as the Trump Administration has done with Intel. More broadly, economic policy has become framed through the lens of security. This is further corroborated by the Trump Administration’s discourse on tariff decisions, which continuously leverages economic decisions to coerce certain concessions deemed in the interest of national security, such as greater security at its borders.

As decisions around production and trade have become increasingly politicized, supply chains are more frequently used as tools of geopolitical coercion. Export controls, sanctions, and investment screenings have become routine elements of statecraft. The PRC moved to restrict exports of critical minerals like rare earths, gallium, and germanium in 2023 and 2024, in retaliation against the U.S. expanding its controls on semiconductor exports to the PRC. Indeed, the United States has imposed sweeping controls on advanced semiconductors, alongside outbound investment screening measures designed to curtail Beijing’s access to sensitive technologies. Russia has long weaponized its natural gas exports to Europe, leveraging energy dependence to extract political concessions. Iran has repeatedly threatened maritime disruption in the Strait of Hormuz, using its control over this critical chokepoint, which sees one-fifth of daily global oil production pass through it, to deter pressure. Reliable energy supplies have become one of the linchpins of the AI race, with electricity consumption surging as demand grows and advanced models are trained. This broader weaponization of interdependence has compelled multinational firms to construct operational firewalls, reconfiguring their supply chains to navigate all of these hurdles.

Non-state actors, too, have shown the fragility of globalized supply chains. Piracy off the coast of Somalia, and more recently, the relentless Houthi attacks on commercial vessels in the Red Sea, have shown that non-state actors can significantly disrupt global supply chains. According to the International Monetary Fund (IMF), trade passing through the Suez Canal dropped by 50 percent in the first two months of 2024 due to insecurity related to the Red Sea Crisis. This traffic had to be rerouted around the Cape of Good Hope in South Africa. Compounding the complexity, states and enterprises must navigate the setup of production networks, and climate change has also impacted some of the most important routes for global trade. Drought and low water levels, from the Panama Canal to the Rhine, have disrupted supply chains in recent years, with commercial vessels being blocked and rerouted.

Even as companies seek to build redundancy to avoid overexposure to risky supply chains, the overarching tone of economic policy suggests that autonomy and security concerns will increasingly shape how global trade is conducted. In addition, the Trump Administration's use of bilateral agreements with countries to settle disputes about new tariffs, which are removed from multilateral institutions like the WTO, denotes that the institution established to deal with global trade and tariff rules, as well as violations thereof, is becoming increasingly tangential to the great powers. In March 2025, the U.S. suspended its contributions to the WTO budget. Nonetheless, there is also a more opportunistic leitmotif in recent economic decisions that show security may not always be prioritized: the Trump administration recently proposed that Nvidia and AMD can export semiconductors to the PRC on the condition that they pay 15 percent of the revenue made in the PRC to the U.S. government.