Balancing growth, resilience and compliance across North America

In the wake of Donald Trump's re-election as president of the United States, North American businesses face a shifting trade landscape. With renewed interest in renegotiating the United States-Mexico-Canada Agreement (USMCA) and an increased emphasis on nearshoring and reshoring, companies must navigate a complex and uncertain environment. Amid rising protectionism, North American firms are focusing on enhancing regional resilience, growth and compliance to adapt to evolving trade policies.

Diversification is a growth engine, not just a safety net

Geographical diversification is now a priority for North American businesses: of the executives we surveyed from the region, 50% stated that this was their main approach to supply-chain reconfiguration, compared with the global average of 46%.. American firms have different motivations than those in other regions, largely viewing diversification as a growth strategy rather than a risk mitigation technique. However, with America increasingly leaning towards protectionist trade policies, Canadian and Mexican businesses, which are heavily reliant on the American market, are especially vulnerable. For these countries, diversification doesn’t just aid growth but also safeguards against proposed trade restrictions during Mr Trump's second term. Companies focused solely on the US market risk severe disruption if barriers are imposed, making it crucial to explore new markets and spread risk across regions.¹

North American companies are also diversifying by increasing the number of supplier relationships. Nearly three-quarters prefer this approach over working with fewer suppliers. This strategy is primarily driven by a desire to enhance supply-chain flexibility and responsiveness, with cost savings being the secondary motivation.

Both methods of diversification—by expanding the supplier base or relocating production to different regions—come with challenges. Edward Brzytwa, the vice president of trade at the Consumer Technology Association, explained that diversification efforts often raise administrative costs and complicate supply chain management. However, it can also mitigate risks from supply-chain disruptions and foster new growth opportunities. By investing in diversification, companies create more adaptable supply chains, which are essential for navigating economic and geopolitical uncertainties and maintaining competitiveness. A key part of this strategy involves building redundant supply-chain capabilities across regions, increasing stability and reducing reliance on high-risk areas. This dual approach allows firms to pursue growth while minimising disruptions, ensuring long-term resilience in a complex trade landscape.

Although diversification remains the primary supply-chain strategy for the region, many firms are turning to nearshoring and reshoring. About 38% of American businesses we surveyed are prioritising these strategies, supported by the USMCA. This agreement streamlines cross-border logistics with enhanced customs procedures and digital trade provisions, speeding up the movement of goods.² Stricter rules of origin should encourage firms to source from within the region, boosting intra-regional trade and North American production. Together, these factors make the USMCA a cornerstone of regional supply-chain integration, helping firms to reduce reliance on global suppliers.

Mr Brzytwa notes that Mexico, in particular, is seeing significant manufacturing investment as companies consider costs, skilled labour and geopolitical stability. The country is undertaking a significant expansion of the Port of Manzanillo on its Pacific coast, aiming to more than double its capacity and position it among the top 20 container ports globally.³ However, the specifics of the future of USMCA are uncertain; a review clause requires the three parties to confirm continuation by July 1st 2026.⁴ The renegotiation process will be closely watched as an indication of American trade policy shifts, especially regarding China.

Businesses should heed the political forces shaping North American trade. The premier of Ontario, Canada’s largest province, has noted a bilateral trade deal with the United States might better serve both countries’ interests, unless Mexico aligns more closely with North American partners on its handling of Chinese imports.⁵ Meanwhile, Mr Trump has announced plans to renegotiate the USMCA to encourage reshoring to America. The former US Ambassador to Mexico stated “Two things are going to come up before we ever get to trade negotiations. One is how migration is handled and two is related to how the border is handled”.⁶ Although the agreement is likely to continue, it will undergo changes, particularly regarding reducing Chinese involvement in North American supply chains, which adds further uncertainty for businesses.⁷

The focus on rules of origin and other trade tensions, such as digital services taxes and energy disputes, highlight the challenges of maintaining a stable trade environment.⁸ Any dilution of commitments would hurt the region. As Leila Afas, director of global public policy at Toyota, notes, “If the local content rules are tightened further, it could make compliance nearly impossible for companies like Toyota that have worked hard to follow the existing agreement.” Mexico remains central to nearshoring and reshoring strategies, offering a robust manufacturing base in industries such as automotive, aerospace and medical devices.⁹ The country’s lower labour and shipping costs, trade agreements, high-quality production, shorter lead times and supply-chain visibility make it an attractive nearshoring option for North American firms. However, businesses should proceed with caution. As Ms Afas comments “While Mexico remains critical to our supply chain, it should have benefited far more from nearshoring trends, but policies like energy nationalisation have spooked investors. Labour shortages are also a growing concern.” Additionally, Mexico proposes legislative plans to boost wages, which may decrease the labour cost differential.

The automotive sector, in particular, faces risks. Mr Trump’s proposed tariffs on car imports from Mexico have created economic uncertainty, particularly for Mexican factories who rely on supplying major brands.¹⁰ These tariffs could raise production costs, disrupt supply chains and encourage reshoring to America, underlining the geopolitical forces pushing firms towards self-sufficiency. Changes in company strategies are already taking place: John Deere, an agricultural machinery manufacturer, is reconsidering its plans to move some production to Mexico after Mr Trump proposed a 200% tariff on its products if such a move occurred.¹¹ Some automotive companies are also reconsidering operations in Mexico after Mr Trump warned of repercussions for carmakers importing vehicles from Mexico to America.¹²

The direction of the USMCA renegotiation is likely to involve moderate adjustments, with a slight shift towards protectionism. More significant changes are unlikely given the stances of Mr Trump’s advisers, familiar from his first term in office. Jamieson Greer, formerly chief of staff to Robert Lighthizer, the head of the United States Trade Representative, has been picked to lead the agency. Mr Lighthizer has described Mr Greer as an excellent choice.¹³ Although Mr Greer’s approach to trade policy leans more towards protectionism, he is likely to adhere to established procedures, which are likely to restrain him.

Howard Lutnick, Mr Trump’s nominee for commerce secretary, is also expected to take a restrained approach. Although he supports tariffs to address the American trade deficit, he has indicated that these will be more targeted, avoiding the sweeping 10-20% rates floated in earlier rhetoric.¹⁴

Overall, the USMCA is expected to remain largely intact. However, changes couldinclude adjustments to the automotive sector’s rules of origin (supported by both Mr Lighthizer and the previous administration); new mechanisms to block Chinese firms from entering the North American market; measures to encourage nearshoring and investment protection; and initiatives to promote the development of critical minerals.

The push for self-sufficiency

Geopolitical dynamics are reshaping North American supply chains. America’s increasingly inward trade stance, marked by rising tariffs and import restrictions, poses risks for its trading partners. In response, North American firms are prioritising self-sufficiency more than the global average (27% versus 20%). However, “friendshoring”,developing dual supply chains and expanding into stable markets remain top priorities.¹⁵ Firms are reducing their dependence on foreign suppliers, particularly from China, as reflected in the sharp decline in China’s share of US-manufactured imports since 2018 and the rise in imports from Mexico and the European Union.¹⁶ Mexico has benefited from this shift, closing in on China’s market share by 2023. This transition is evident across various categories, with the US diversifying its supply of labour-intensive, low-skill and technology-intensive goods away from China and toward other partners like Vietnam and Mexico.¹⁷ These changes reflect broader efforts to build stronger, more resilient regional supply chains within North America and its trade allies.

Companies should carefully consider how to restructure supply chains away from China. Trade routes are becoming more complex, with intermediary countries like India and Vietnam acting as alternatives. This approach is known as the "China Plus One" strategy.¹⁸ However, it has so far failed to substantially reduce Western dependence on China, as firms remain reliant on a few important suppliers there.¹⁹ One notable example is Chinese solar firms, who are building new plants in Indonesia and Laos, where American firms will be sourcing from.²⁰ As such, true diversification away from China remains elusive.

Companies with large physical investments in China, such as manufacturing facilities, are unlikely to reroute supply chains quickly owing to the complexity and costs involved. Instead, they are more likely to build redundancy by establishing secondary supply chains elsewhere, gradually reshoring rather than abruptly withdrawing from China. This strategy has been adopted by American automotive firm General Motors, according to Sulaiman Pallak, general manager for Africa and the Middle East at the firm. They have reshored some operations (such as electric vehicle battery production) to the United States to serve the domestic market, but have increased sourcing from China to serve plants in other parts of the world. As geopolitical disruptions will continue for the foreseeable future, companies should consider establishing redundancy capabilities to ensure continuity of supply.

A tight market squeeze

Labour shortages are another hurdle to reconfiguring supply chains. The tight labour market in North America, especially in advanced manufacturing, complicates reshoring efforts. In this context, 51% of the North American executives we surveyed believe that technology advancements are crucial in offsetting labour shortages.

According to Mr Brzytwa, finding skilled labour remains a major constraint, particularly in sectors like semiconductor manufacturing. Immigration restrictions further limit the workforce pool, pushing companies towards automation and advanced technologies, (although adoption varies by industry).²¹ New labour-saving technologies offer potential solutions, but also highlight the need for workforce upskilling. Businesses and governments must balance labour market policies, education, training, social protection and immigration to address these challenges. Ms Afas noted that Toyota is adopting a co-bot (humans working with robots) approach, ensuring that workers are trained to work with advanced technology.

With rising labour costs and reported worker shortages in China, North American firms with high labour costs and low capital intensity should consider shifting production to regions or countries where production is cheaper. Businesses can also adopt artificial intelligence and machine-learning tools to address labour constraints. These technologies allow businesses to make decisions in real time and proactively anticipate supply-chain issues, rather than just reacting. This would improve productivity, reduce reliance on manual work and help firms to manage labour shortages more effectively.

Tech-driven efficiency

A competitive, adaptable private sector is the best hedge against inward-turning US trade policy. This requires investments in technology, automation and workforce skills to boost productivity and adapt to unpredictable US market access. Automation helps offset certain labour shortages, but often generates opportunities for additional jobs with higher value, so balancing technology adoption with employee development is crucial.

North American trade and supply chains are evolving due to economic pressures, geopolitical shifts and regulatory changes. Reshoring, regionalisation and diversification are important resilience strategies, supported by the USMCA. Success lies in balancing growth, compliance and resilience through automation, navigating regulations and seizing regional opportunities. By adapting to these trends, companies can turn challenges into opportunities for long-term growth.