2026 Global Trade: The Rise of Friend-Shoring
The 2026 Global Trade Shift: How Nearshoring and Friend-Shoring Are Reshaping Supply Chains
Key Takeaways
- Global trade hit a record $35 trillion in 2025, but growth is slowing in 2026 due to economic uncertainty and rising tariffs.s
- Friend-shoring and nearshoring are becoming essential strategies as companies move away from distant suppliers to trusted allies.
- Political relationships now matter as much as cost when businesses decide where to manufacture productscts
- Countries like Mexico, India, and Vietnam are emerging as manufacturing winners as companies diversify from China.
- Technology and sustainability are driving major changes in how goods move around the world.
Introduction: A New Era in Global Commerce
Imagine waking up one morning and discovering that the entire way the world does business has changed. That's essentially what's happening right now in global trade. For decades, companies chased the lowest costs, often manufacturing products thousands of miles away. But 2026 marks a turning point – a year when relationships matter more than rock-bottom prices, and resilience trumps simple cost-cutting.
The numbers tell a remarkable story. Global trade reached an eye-watering $35 trillion in 2025, setting a new record. Yet beneath this impressive figure lies a dramatic transformation. Companies have moved beyond the question, “Where can we make this at the lowest cost?” Instead, they're asking, "Where can we make this safely, reliably, and with partners we trust?"
This shift didn't happen overnight. The COVID-19 pandemic showed us how fragile long supply chains could be when factories shut down on the other side of the world. Then came geopolitical tensions between major powers, making businesses nervous about putting all their eggs in one basket. Add in rising shipping costs, concerns about climate change, and governments pushing for more local production, and you've got a perfect storm forcing companies to completely rethink their strategies.
Welcome to the era of nearshoring and friend-shoring – two terms that might sound like jargon but represent one of the biggest changes in how goods move around our planet. Nearshoring means bringing production closer to home, whilst friend-shoring means choosing manufacturing partners based on shared values and stable political relationships, not just the lowest price tag. Whether you're running a company, working in supply chain management, or simply curious about how products you buy end up in your hands, understanding the 2026 global trade shift is crucial.
The Current State of Global Trade
According to the United Nations Conference on Trade and Development (UNCTAD), global trade experienced impressive growth of about 7% in 2025, pushing total trade values above $35 trillion for the first time ever. However, experts predict this momentum will slow significantly in 2026. Economic growth worldwide is expected to remain subdued at around 2.6% in 2026, with major trading partners including the United States, China, and Europe all losing steam.
The World Trade Organization (WTO) has revised its forecasts sharply downward. Whilst merchandise trade grew faster than expected in early 2025, the WTO now predicts merchandise trade growth will slow to just 0.5% in 2026. Services trade is holding up better but is also cooling off, with export growth expected to ease to around 4.4% in 2026.
Several powerful forces are reshaping global trade patterns. Ongoing conflicts between major powers have made companies nervous about relying on suppliers in countries that might become politically unstable. The Russia-Ukraine war continues to disrupt trade routes and push up transportation costs. Meanwhile, governments increasingly use tariffs as strategic tools, creating uncertainty that discourages long-term investment.
Climate commitments are also shaping trade decisions. With 113 countries making enhanced climate pledges that could cut global emissions by about 12% by 2035, businesses face growing pressure to reduce their carbon footprints. The European Union's carbon border mechanism, taking effect in 2026, will charge importers based on the carbon emissions involved in producing goods, making distant, high-emission supply chains more expensive.
Nearshoring: Bringing Production Closer to Home
Nearshoring is straightforward in concept but revolutionary in practice. It means moving manufacturing or services to countries that are geographically closer to your main markets. For American companies, this often means shifting production from China to Mexico or other Latin American countries. For European businesses, it means moving operations from Asia to Southern or Eastern Europe.
The strategy offers a sweet spot: lower costs than bringing everything back home, but greater proximity and reliability than distant offshore production. When your factory is in a neighbouring country rather than across an ocean, shipping times drop from weeks to days. Less time in transit means lower inventory costs, faster response to market changes, and fewer opportunities for things to go wrong.
Working across fewer time zones makes communication easier. Similar business hours mean you can actually call your supplier during your workday rather than setting alarms for midnight conference calls. Proximity also enables more frequent site visits, better quality control, and stronger relationships with suppliers.
Regional trade agreements often eliminate or reduce tariffs between neighbouring countries. The United States-Mexico-Canada Agreement (USMCA), for instance, allows certain goods to move tariff-free between these countries, provided they meet origin requirements.
At the beginning of 2023, Mexico replaced China as the United States' top trading partner – a historic shift. Mexico's advantages include geographic proximity to the massive American market, a strong manufacturing-based economy, skilled workers, and favourable free-trade agreements. Industries from automotive to electronics are expanding rapidly in Mexican manufacturing hubs.
In Europe, volumes are gradually shifting toward Eastern Europe, particularly Poland, as companies seek proximity to European Union markets whilst maintaining cost efficiency. Poland offers EU membership benefits, a skilled workforce, and significantly lower labour costs than Western Europe.
Southeast Asian countries like Vietnam, Thailand, and Malaysia are becoming manufacturing alternatives for companies implementing "China-plus-one" strategies. These nations offer competitive labour costs, improving infrastructure, and strategic geographical locations within Asian supply chains.
Friend-Shoring: When Politics Meets Business
Friend-shoring represents an even more fundamental shift. It means sourcing from and manufacturing in countries that share your home nation's political values, economic systems, and strategic interests – regardless of distance or even cost. The concept emerged prominently in 2022 when US Treasury Secretary Janet Yellen explained: "Rather than being highly reliant on countries where we have geopolitical tensions and can't count on ongoing, we need to truly diversify our supplier base.
By partnering with politically aligned countries, businesses mitigate risks of sudden disruptions from sanctions, export bans, or political conflicts. Countries with similar values often have similar regulations around labour standards, environmental protection, intellectual property rights, and product safety, making compliance easier and reducing legal complications.
Tech giant Apple has been steadily relocating iPhone production from China to India, a democratic ally of Western nations. Currently, about 5% of Apple products are made outside China, but analysis suggests this could rise to 25% or more inthe coming years. India offers political alignment with Western democracies, a massive domestic market, government incentives, and an increasingly skilled workforce.
The global chip shortage exposed dangerous dependencies in semiconductor supply chains. The United States' CHIPS and Science Act provides $52 billion to subsidize chip design and manufacturing domestically and in allied countries. This represents a massive friend-shoring initiative to reduce reliance on production concentrated in Taiwan and China.
European countries are aggressively friend-shoring energy supplies following disruptions to Russian gas imports. They're striking long-term deals with allies like the United States, Canada, Norway, and Australia for liquefied natural gas and other energy resources, even though these supplies often cost more than previous Russian imports.
However, friend-shoring isn't without critics. Political alignment doesn't automatically mean economic efficiency. Manufacturing in allied countries often costs significantly more than sourcing from the cheapest global suppliers. According to the IMF, friend-shoring risks are slowing global growth, with trade barriers possibly cutting global output by about 2%.
Despite these concerns, friend-shoring is gaining momentum. A recent International Institute for Strategic Studies report notes that 62% of companies have adopted friend-shoring strategies in the past year. The European Central Bank recently found that companies using friend-shoring reduced supply chain disruptions by 27% – a compelling argument despite the costs.
Winners and Losers in the New Trade Order
No country benefits more from nearshoring trends than Mexico. Its proximity to the enormous American market, USMCA membership, established manufacturing infrastructure, and competitive labour costs make it the natural destination for companies leaving Asia. Trade with the United States has reached an all-time high.
India is emerging as a major friend-shoring destination. With its massive population, democratic governance, improving business environment, and growing technological capabilities, India is attracting investment in pharmaceuticals, textiles, automotive parts, and increasingly sophisticated electronics manufacturing beyond Apple's iPhone production.
Vietnam has become the poster child for companies implementing "China-plus-one" strategies. Vietnam offers competitive labour costs, a strategic location in Asian supply chains, numerous trade agreements, and a government eager to attract foreign investment. Manufacturing exports have surged, particularly in electronics, textiles, and footwear.
China, the world's manufacturing powerhouse, faces the most significant adjustment. Whilst China remains essential to global supply chains and won't disappear from them, its share is declining as companies diversify. The 7.2% decline in China's import share to the United States between 2017 and late 2023 tells the story. However, China is responding strategically – Chinese manufacturers themselves are moving late-stage production to neighbouring nations, maintaining control whilst adapting to new realities.
Case Study: John Deere's Strategic Response
To understand how these trends play out in practice, consider John Deere, the iconic American agricultural equipment manufacturer. Facing supply chain challenges, rising trade tensions, and pressure to bolster domestic production, Deere has recently announced plans to significantly expand its US manufacturing footprint.
The company is investing in a new distribution hub in the United States while simultaneously doubling down on domestic manufacturing capabilities. This represents a clear nearshoring and friend-shoring strategy – bringing production closer to home markets and reducing dependence on distant, potentially unreliable suppliers.
For Deere, the calculation goes beyond simple costs. Agricultural equipment is highly sophisticated, requiring skilled labour and precision manufacturing. Customers demand reliability – a broken harvester during harvest season can cost farmers huge amounts. By producing closer to customers, Deere can respond faster to quality issues, provide better service, and insulate itself from international shipping disruptions.
Deere's experience illustrates the complex calculations companies face. Yes, some production might cost more in the United States than in Asia. But when you factor in reduced shipping costs, faster response times, lower inventory requirements, tariff avoidance, political goodwill, and reduced risk of disruptions, the total cost calculation tips toward nearshoring.
The Role of Technology and Sustainability
Technology is fundamentally changing how global trade operates. Artificial intelligence helps companies optimize logistics, predict demand, manage compliance requirements, and identify risks in real-time. Among firms currently using AI, nearly 90% report tangible benefits in trade-related activities, with 56% saying AI has enhanced their ability to manage trade risks.
According to a World Trade Organization report, AI could boost the value of trade in goods and services by nearly 40% by 2040, helping businesses reduce costs related to logistics, regulatory compliance, and communications. Digital transformation enables unprecedented transparency in supply chains, allowing companies and consumers to track products from raw materials through delivery.
Environmental considerations are reshaping international commerce. The European Union's carbon border mechanism charges importers based on emissions in producing goods, making high-emission, long-distance supply chains economically less attractive. Markets for clean-energy technology could reach $640 billion annually by 2030, accelerating trade in green goods and services.
Shipping companies are investing in cleaner fuels, more efficient vessels, and optimized routing to reduce emissions. Some companies prioritize suppliers with lower carbon footprints, even at higher costs. Trade patterns are shifting toward recyclable materials, reusable components, and products designed for longer lifecycles.
What This Means for You
For businesses navigating this new landscape, diversification is essential. The days of single-source supply chains are over. Successful companies are building redundancy through multiple suppliers across different regions. This costs more upfront but provides insurance against disruptions.
In a friend-shoring world, political and strategic relationships between countries affect business operations directly. Companies need to monitor geopolitics alongside markets. The lowest initial price no longer determines the best supplier – businesses must calculate total costs, including shipping, tariffs, inventory carrying costs, quality issues, and risk premiums.
For consumers, expect higher prices in the short term as companies restructure supply chains. Products that were artificially cheap due to ultra-long supply chains may become more expensive. However, more resilient supply chains should mean fewer shortages and disruptions. The pandemic-era experience of empty shelves should become rarer.
Enhanced technology and consumer demand for ethical sourcing will provide more information about where products come from and how they're made. These shifts take years to fully implement – don't expect overnight transformation, but steady evolution over time.
Conclusion: Adapting to the New Reality
The 2026 global trade shift represents far more than companies shuffling factories around the map. It's a fundamental rethinking of how nations and businesses engage economically. For seventy years, the dominant model was ever-increasingglobalization – longer supply chains, more interconnection, and competition based primarily on cost. That era is ending.
The new model prioritizes resilience over pure efficiency, relationships over transactions, and strategic considerations alongside economic ones. Nearshoring and friend-shoring aren't just buzzwords – they're the practical responses of businesses trying to thrive in a more complex, uncertain world.
This transition will be neither quick nor painless. Companies will spend billions restructuring supply chains. Workers in some countries will gain opportunities, whilst others face displacement. Consumers will pay more for some goods but benefit from greater reliability.
Yet amidst the challenges lie opportunities. Countries that position themselves as reliable partners in resilient supply chains can attract massive investment and create quality jobs. Businesses that thoughtfully navigate these shifts can gain competitive advantages. Consumers may ultimately benefit from more transparent, sustainable, and resilient systems.
The 2026 global trade shift isn't something that will happen to us – it's something we're collectively creating through millions of individual decisions about where to invest, whom to partner with, and what we value beyond the lowest price.
Frequently Asked Questions
Will friend-shoring and nearshoring make products more expensive?
Yes, in many cases, at least initially. Moving production from the lowest-cost locations to nearer or politically aligned countries typically increases manufacturing costs. However, companies may offset some increases through reduced shipping costs and fewer disruptions.
Does this mean the end of globalization?
Not exactly. Global trade continues, but the nature is changing. Rather than ever-increasing global interconnection, we're seeing regionalization – strong trade within regions and blocs rather than everything coming from the single cheapest global source.
Which industries are most affected?
Industries with complex supply chains, like semiconductors, automotive, pharmaceuticals, and electronics, are most impacted. Labour-intensive manufacturing like textiles and footwear also sees significant shifts.
How long will this transition take?
Restructuring global supply chains is a multi-year, even decade-long process. Major shifts began around 2020 and will likely continue through the 2030s.
What role will China play in future global trade?
China remains essential to global supply chains and the world's largest manufacturer. However, its dominance is moderating as companies diversify. China is adapting by moving up the value chain into higher-tech production.
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