What is friendshoring? Why Ernst & Young says it will reshape global supply chains in 2026

Globalisation isn’t ending, it’s being selectively redesigned. As tariffs, export controls and geopolitical risk rise, Ernst & Young predicts that friendshoring and mini-lateral trade deals will dominate supply chains in 2026, favouring trusted partners over the cheapest producers.

In its 2026 Geostrategic Outlook report, EY argues that world trade growth is expected to slow sharply next year, with North America likely to make a negative contribution for the second consecutive year. Rather than a sudden collapse in trade, the firm foresees a recalibration: governments privileging resilience, security and domestic capacity over efficiency and openness.

This projection aligns with real-world data from 2025. According to WTO estimates, global merchandise trade volume growth slowed to around 2.6% in 2025, down from the post-pandemic rebound, amid rising tariffs, sanctions and industrial policy interventions. The OECD similarly warned last year that trade policy uncertainty had reached its highest level since the 2018–19 US-China trade war.

Tariffs as a permanent feature, not a temporary shock

EY’s analysis suggests that tariffs will remain a core instrument of economic statecraft in 2026. The report states: “The US is expected to continue to use historically high tariffs as a tool to seek to reduce bilateral trade deficits and incentivise domestic production in strategic sectors.”

In 2025, the US already raised effective tariff rates to their highest levels in decades, particularly on steel, aluminium, electric vehicles and advanced manufacturing inputs. Even if courts overturn the legal basis for some measures, EY notes that Washington is likely to re-impose similar duties under alternative authorities.

The report adds that: “If the legal basis for some of the tariffs is overturned by the courts, the Trump administration is expected to implement similar tariffs via alternative authorities, and it will likely announce additional tariffs on products, such as critical minerals and truck parts, that are identified as essential to economic security.”

While most countries are unlikely to match US tariff increases one-for-one, uncertainty will persist. The renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to heighten volatility, as will the use of country-specific tariffs in response to geopolitical disputes. EY points to the precedent of the 50% tariffs imposed on Brazil in August 2025 as a template for future action.

Export controls and industrial policy reshape supply chains

Beyond tariffs, export controls are becoming a structural feature of the trade landscape. EY highlights the growing use of controls justified on national security and competitiveness grounds, particularly in areas such as artificial intelligence, semiconductors and advanced manufacturing.

China is expected to remain central to this trend, especially through restrictions on rare earths and critical minerals, materials that accounted for more than 60% of global production in China in 2025. At the same time, the US, Japan and the Netherlands have expanded controls on advanced chipmaking equipment, deepening technological bifurcation.

In Europe, the European Commission is likely to further centralise authority over export controls, while emerging economies such as Indonesia are using raw-material export bans to move up the value chain. Indonesia’s nickel export restrictions, for instance, helped it capture over 50% of global refined nickel supply by 2025, reshaping battery supply chains.

EY also anticipates a rise in local content requirements and non-tariff barriers, particularly in the EU. These measures are often framed as responses to perceived Chinese overcapacity, particularly in the automotive, steel, and aluminium sectors. If Chinese exports are diverted away from the US market, pressure on European and emerging-market industries is expected to intensify, potentially triggering a new wave of anti-dumping actions.

Trade liberalisation, but without the superpowers

Despite these headwinds, EY does not predict a wholesale retreat from trade liberalisation. Instead, it sees a partial counterbalance in the form of smaller, like-minded groupings advancing trade deals that exclude either the US, China, or both.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) expanded in 2025 with the UK’s accession and several economies in Asia and Latin America have since expressed interest in joining. Meanwhile, the EU and Mercosur concluded their long-delayed free trade agreement after 25 years of negotiations, though ratification remains uncertain amid political resistance in Europe.

These developments, EY argues, are early markers of a new trade geometry: pragmatic, selective and politically filtered.

What is ‘friendshoring’ or ‘mini-lateralism’ in global trade?

At its simplest, friendshoring is trade based on trust, not just cost.

Instead of sourcing goods and components from the cheapest or most efficient global supplier, governments and companies prioritise countries that are politically aligned, strategically reliable or geopolitically “safe”. Economic logic is no longer separated from foreign policy; it is filtered through it.

Mini-lateralism is the institutional expression of this shift. Rather than relying on large, universal trade frameworks such as the WTO, countries form small, flexible trade groupings, bilateral, regional, or plurilateral, that allow for faster deals, tighter rules, and greater political control.

An analogy is often helpful. If traditional globalisation was an open marketplace where anyone could trade as long as the price was right, friendshoring resembles a members’ club: access depends not only on competitiveness, but on alignment with shared rules, values and strategic interests.

EY argues that this system will define trade in 2026 because it reflects the new reality of geopolitics. Persistent US-China rivalry, national security concerns around technology and energy, and voter pressure to protect domestic industries have made politically neutral supply chains increasingly untenable.

In this emerging model, trade does not disappear; it becomes selective, conditional and regionalised.

How companies are already adapting to friendshoring

Friendshoring is no longer a theoretical construct. By 2025, major multinational companies had already begun restructuring their supply chains in line with geopolitical risks, industrial policy incentives and tariff exposure.

Apple: “China plus many” becomes policy

Apple provides one of the clearest examples of friendshoring in practice. While China remains central to its manufacturing ecosystem, company filings and supply-chain data show that Apple sharply expanded iPhone and component assembly in India and Vietnam during 2024–25, driven less by labour costs than by exposure to US–China tariffs, export controls and growing geopolitical risk (Apple Form 10-K 2024; Counterpoint Research, Global Smartphone Manufacturing Tracker 2025; Bank of America Global Research, January 2025).

By early 2025, India accounted for an estimated 12–14% of global iPhone production, according to Counterpoint and Indian government data, reflecting rapid scaling under New Delhi’s production-linked incentive scheme and Apple’s deliberate supplier migration strategy.

EY’s 2026 Geostrategic Outlook describes the result as a textbook friendshoring outcome: reduced reliance on a single geopolitical jurisdiction while preserving access to major consumer markets.

Semiconductor localisation in the US and Europe

In advanced manufacturing, friendshoring has been most visible in semiconductors. Intel, TSMC and Samsung Electronics have collectively committed tens of billions of dollars to new fabrication plants in the US and Europe, according to company filings and government funding announcements between 2023 and 2025.

These investments are closely tied to subsidies under the US CHIPS and Science Act and the EU Chips Act, as well as to export control regimes that restrict advanced chip technology transfers to China, as outlined by the US Department of Commerce and the European Commission.

The aim, as noted by policy institutions including the OECD and IMF, is not wholesale decoupling from Asia, but rather the strategic duplication of manufacturing capacity in allied economies to reduce systemic risk from geopolitical disruption.

Automotive supply chains move closer to home

Friendshoring is also reshaping automotive and electric vehicle supply chains. In 2025, Tesla expanded its regional sourcing in North America and Europe to qualify for subsidies linked to local content rules under the US Inflation Reduction Act, in line with guidance from the US Treasury and the company’s own 2025 Impact Report.

Battery supply chains have increasingly prioritised suppliers in the US, Canada and allied free-trade partners for critical minerals such as lithium and nickel, a shift highlighted in the International Energy Agency’s Global EV Outlook 2025.

Legacy manufacturers, including Volkswagen and Ford, have followed a similar path. Their recent annual disclosures and European Commission trade defence briefings show a concerted effort to reduce reliance on Chinese inputs that are vulnerable to tariffs, sanctions, and export controls, particularly in electronics, power modules and battery components.

Vietnam and Mexico as “connector economies”

According to the World Bank’s 2025 Global Value Chain Development Report, Vietnam and Mexico have positioned themselves as “connector economies”—politically acceptable to both the US and EU while remaining cost-competitive and deeply embedded in global value chains.

Trade data from the US Census Bureau show that Mexico overtook China in 2025 as the United States’ largest goods exporter by value, driven by nearshoring in autos, electronics and industrial manufacturing. Vietnam has followed a parallel path in Asia, with UN Comtrade and Vietnamese government data indicating sustained inflows of manufacturing foreign direct investment into electronics, apparel and consumer goods during 2024–25, as firms sought production bases outside direct US–China trade tensions.

What this means for businesses, investors and policymakers

For business leaders, the key takeaway is that supply chain resilience has become a core determinant of competitiveness. As Janet Yellen, former US Treasury Secretary, put it when outlining Washington’s trade strategy, friendshoring involves “deepening economic integration with partners that we know we can count on”.

Yellen's argument was that supply chains optimised purely for cost had become a source of systemic vulnerability rather than strength.

For investors, friendshoring reshapes how long-term risk and return should be assessed. International Monetary Fund (IMF) Managing Director Kristalina Georgieva has repeatedly warned that geopolitical fragmentation is altering capital flows and could lower global output if left unaddressed. At the same time, she has noted that industrial policy-backed investment in trusted jurisdictions can enjoy greater policy certainty and downside protection than globally footloose capital.

In practical terms, this means that capital spending aligned with government priorities—such as semiconductors, clean energy, defence manufacturing and critical minerals—may benefit from subsidies, regulatory support and durable demand, even if upfront costs are higher.

For policymakers and trade officials, the lesson is that competitiveness in 2026 will be defined less by tariff schedules and more by network position. Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation, has cautioned that unchecked fragmentation could erode global growth, but she has also acknowledged that countries are increasingly prioritising resilience and security alongside openness.

Read the complete EY report