Who friendshores and why?

Ever since Donald Trump's arrival on the political stage a decade ago, the US has shifted its focus away from China and other trade partners. Friendshoring – relocating supply chains to source goods from friendly nations – has become a thing. But a new study shows that friendshoring doesn’t happen everywhere at a similar speed or with similar urgency.

The study examined the number of US firms that added or dropped suppliers from countries with which the US has geopolitical adversarial relations between 2007 and 2020. To do this, they used elections and changes in governments in the US's export and import markets. If a regime change in, say, Myanmar or India puts a government in power that was more antagonistic to the US government at the time, one would expect US businesses to become more cautious in their dealings with these countries. After all, if the relationship deteriorates significantly, these countries could become the target of US sanctions as happened with Myanmar, Syria, Libya and others. Indeed, the chart below shows that if a government change in a trade partner leads to a more geopolitically aligned government, trade with that country increases. If the country moves away from the US geopolitically, trade declines.

Import volumes around foreign elections with regime changes

Source: Ayyagari et al. (2025)

However, interestingly, it depends significantly on the political affiliation of the CEO of a US company whether there will be accelerated friendshoring or not. If the CEO is aligned with the prevailing US government at the time, they follow the government’s lead and start to drop suppliers in countries that become geopolitically more distant, replacing them with geopolitically closer suppliers. If the CEO of a US company is aligned with the opposition party, this effect is about half as strong.

The decision to friendshore is largely a political one in the US, and, unfortunately, as is the case with investments in general, politics and investment returns don’t mix. In the case of companies that increase friendshoring efforts, there is no evidence in the data that these changes to supply chains add any shareholder value. The study finds that companies that change their supply chains have share price developments that are not statistically different from companies that stay put. The benefits of friendshoring are typically offset by the investments needed to find new suppliers or by the higher prices that need to be paid to suppliers in geopolitically closer countries.

The challenge today is whether these findings from a period of relatively low tariffs and geopolitical tensions still hold in 2025. Still, for now, this is the only data we have, and that data isn’t particularly flattering to CEOs and businesses that have tried to reduce ties with geopolitically adversarial trade partners in the past.