August2025

Mcsey

&company

GeopoliticsPractice

HowCEOsarerespondingtogeopoliticaluncertainty

Whentherulesofglobaltradecouldchangeanyday,howdoyoumakedecisions?McKinseyexpertsreportfromthebusinessfrontlinesof

geopoliticalturmoil.

Therecentwaveoftariffs,tradenegotiations,andgeopoliticaltensionsgroundtheworld’s

businessestoahalt—butonlyforawhile.Businessleaderscannotgiveintoparalysis;they

needtoanalyze,plan,and,insomecases,acturgently.WeinvitedsevenMcKinseyleaders

whoseprofilesspandiversegeographiesandindustriestosharethetacticalorstrategicmovestheirclientsaremaking,whatthey’remostworriedabout—andwhattheymaynotbeworried

aboutenough.

QuestionskeepingCEOsupatnight

ShubhamSinghal:Uncertaintyabouttradepolicyisobviouslyhighonthelist.More

fundamentally,CEOsarefeelinguncomfortable.Theseindividualsaregenerallydriventopushaheadandmakedecisions,sothey’reasking,“HowdoIleadduringthistime?”O(jiān)neCEOuseda

sportsanalogy:Ifyou’reatrackathlete,youhavefixedpointsandfirmground.Ifyou’reasurfer,therearenofixedpointsorfirmground.Hewonderediftherewereanyfixedpointsinthe

currentuncertaintytowardwhichhecouldnavigate.However,thisismoreofasurfingscenario:Businessleadershavetolearnhowtoridethewaves.

SvenSmit:CEOsneedtoabsorbandmakesenseoflargeamountsofchange—whatisnoise,whatissignal,whatyoushouldactonnow,whatyoushouldwaittoacton.Willnew

governmentsreversecourseinafewyears,orarewefacingsomethingstructuraland

fundamental?Then,ofcourse,theyneedtoanalyzeeachgeography,eachsupplychain,eachproductcategory.Wehaven’tseenthesetypesofdevelopmentsfor35years,soCEOsdon’t

havetheexperiencethroughwhichtofilterthisreality.Andthesignalsarenotclear:Expertsdisagreeaboutfundamentalthings,suchaswhetherlargetradedeficitsaregoodorbad.

CindyLevy:ThefirstquestionIgetwhenIspeaktoCEOsis,“HowdoIgetmyownintellectualhandleonwhat’sgoingon?”Whereasoncetheyengagedonthesetopicsatasteadybutlowlevel,theynowrealizetheyneedastronggrasponallthedevelopmentsanda“houseview”onwhicheventualitiestheyneedtoplanaround,atleastonacontingencybasis.

ShivanshuGupta:Asiancompaniesworryabouttheconcentrationandvulnerabilityoftheir

supplychains.Forexample,rareearthmaterialssupplychainsarebecomingconstrainedduetogeopoliticaltensionbetweentheUnitedStatesandChina,affectingindustriessuchas

automotiveandelectricalequipment.SomeautomakersinJapan,Korea,andIndiaarealreadysoseverelyaffectedthattheyareconsideringscalingdownproduction.Businessleadersareadditionallyconcernedthatthemanydisputesintheregioncouldflareup.

Modelsofresponse:Theshorttermandthelongterm

AsutoshPadhi:Iseetwocategoriesofbusinessleaders.Onegroupviewsthismomentasanopportunitytorepositionthecompanyforvaluecreationforthenextdecadeandareweighingstrategicmovestheycouldstarttomake.Theyrealizethatanykeyassumptionsdeveloped

morethansixmonthsagohavetoberevalidated.They’rethinkingabouthowthechangesin

HowCEOsarerespondingtogeopoliticaluncertainty2

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globaltradewillaffecttheirsupplychains,customerfootprints,operations,andthebackoffice.

Theothergroupiswaitingforthefogtoclear.Theywanttradeagreementstobeinplacebeforetheymakeanymoves.

Whichgroupyoufallintodependsinpartonyourindustryandstartingpositionrelativetoyourpeers.Forexample,whenwelookedattheUSautomotivesector,wefoundthatthe

manufacturingandsupplychainfootprintslookdramaticallydifferentacrossalltheoriginal

equipmentmanufacturers.Thosethatarerelativelymoreexposedfromariskstandpointorthathavesignificantopportunitiesmaybewisetostartmakingchangesnow,whereasthosethatarecomparativelywellbalancedcanaffordtowait.

ZiadHaider:There’sariskofoverindexingonthenear-termvolatilityandnotthinking

strategicallyaboutthelongterm.Tariffsmaybethecurrentfocus,butleadersshouldthinkabouthowmultipledrivers—includingbroadergeopolitics,globaltradeflows,technologicaladvances,theenergytransition,anddemographics—areevolving,andtheinterplaybetweenthem.Theyneedtodevelopmultiplescenariosfactoringinthesedriversandunderstandtheeffectofeachscenarioontheirindustriesfromariskandopportunitylens,thenassesstheirchoicesintermsofstrategy,capabilities,andtalent.

ShubhamSinghal:Somebusinessleadersareactingdespiteuncertainty.Forexample,an

electronicscompanyhastomakedecisionsaboutpricingfortheholidayseason.Theymay

decidetoadjustpricingonproductsinthewaningpartoftheirlifecyclesbecausethey’rewillingtotakesomevolumelossesonthose.Withnewleadproducts,however,theyaretakingtheir

timetodeterminetheprices.

Ultimately,CEOsneedtounderstandwhichgeopoliticalfactorstoprioritize.Ifyou’rein

semiconductors,exportcontrolsmatter,butifyoumakeT-shirts,probablynot.Second,they

needanalyticstohelpthemdecidewhetheraparticularscenariorelatedtothoseimportant

factorscouldaffectthemsignificantly.Ifnot,don’tclutteryourthinking;focusonwhatcan

meaningfullymoveyourbusinessintermsofdirecteconomicsandrelativecompetitive

advantage.Third,they’reputtinginplaceeventboardsthathelpthemtracktradenegotiations,taxlegislation,interestrates,expeditedapprovals,orincentivesthatmatter.Whenoneofthoseeventstranspires,theyhaveplansinplace.

SvenSmit:Inthemicroscopeview,ourclientsaredealingwithtariffsinthehereandnow.At

thetelescopelevel,theworldisinvestingtrillionsofdollarsinthefutureofAI,modular

construction,e-commerce,robotics,andenergy.Whileyou’redealingwiththeshort-termissuesinthemicroscope,areyoulookingenoughintothetelescope?Becausethefutureinthat

telescopeisgoingtobeprettybright,inmyview,anditmakessensetoinvestinsomeareasnow.Canyoudothatwhileyou’redealingwiththeissuesinthemicroscope?That’sthe

balancingactthatbusinessleadersmustmanage.

CindyLevy:ManyCEOsareintensifyingtheirengagementonpublicpolicyandbringingin

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governmentrelationsspecialiststogivethemamoresophisticatedviewonhowtohavethe

rightconversations.Forexample,companiesthatareconsideringputtingcapitalintotheUSarenotwaitingfortheircountriestonegotiatetradedealsbutareengagingdirectlywith

Washingtontomakethecasefortheirinvestments’economicimpact.Theyarealso

investigatingindustrial-policyincentives.Therearemanymoregovernmentincentivesavailablearoundtheworld,sothere’smoreatstake.

Meanwhile,businessleadersareplanningtheiroperationalresponses.Somehaveshifted

suppliersorsetup

nervecenters

;somehavefocusedonmanagingtariffexpenses,ensuringtheirproductsareappropriatelyclassifiedwithdocumentationinplace.Someofmyclientsarestartingstrategicpivots,diversifyingsupplychainstobemoreresilient,onshoring

manufacturingiftheUSmarketiscriticaltothem,orstakingclaimsin

growingtradecorridors

,suchasbetweenEuropeandASEAN[AssociationofSoutheastAsianNations]orbetweentheMiddleEastandEurope.They’retreatingstrategicoptionstheymayhaveviewedasbeing

furtheroutasimmediateopportunitiesormitigations.

ShivanshuGupta:MostAsiancompanieshaveshiftedfromimmediatereactiontothetariffstoaddressinglonger-termcompetitiveness.Theirresponsehasvariedbasedontheextentoftheirexposuretotrade-relatedshiftsandthe“rigidity”oftheirfootprints.Forinstance,Asian

automakersthathavealargeUSpresencehavestartedredirectingnewcapacitytotheUnitedStates,andmanypharmacompaniesareextendingR&Dinternationallywhilelargelymaintainingtheirmanufacturingfootprint,fornow.Companiesthathavemore“movable”supplychains,suchasconsumerdurables,arealsothinkingthroughlong-termreorganizationsofsupplychains.

Opportunitiesandrisksintraderealignments

NelsonFerreira:InLatinAmerica,businessleadersexpectthatasChina–UStradeflow

changes,China’sovercapacitycouldflowintolargeLatinAmericanmarketslikeBrazil.Inthepast,thishappenedprimarilyincommodities,butwe’restartingtoseeitmorewithcars,

electronics,andotheradvanced-industrialproducts.Thatexcesscapacitytypicallycomesat

muchlowerprices,withwhichlocalproducerscannotcompete.Myclientsarewonderinghowthatwillaffecttheirvaluechains:“Willmyproductgetreplacedbyimports?Willtheproductofmyclientortheclientofmyclientgetreplacedbyimports?”

Ontheopportunityside,companies,particularlyinMexicoandCentralAmerica,arewonderingiftheycanreplacesomeoftheChinaimportstotheUSwiththeirownmanufacturing.Some

medicaldevicesandelectronicequipmentfortheUSmarketarecheapertoproduceinCentralAmericathaninChina,andCostaRicaisalreadyalargeproducerfortheUSmarket.

Consequently,somecompaniesareconsideringcapacityexpansionandgrowth.

Therearemanysuchrealignments.Forexample,theUShasbeenabigexporterofsoybeanstoChina,butChinaincreasedsoybeanimportsfromBrazilaftertheUSgovernmentimposed

tariffs.CountriessuchasCostaRica,Guatemala,andMexicoarestartingtoreplaceChina’s

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industrialcapacity.LatinAmericangovernmentsarealsohopingtodevelopnewtradecorridorswithIndiaandJapan.

Theimpactofalltheseshiftswilldependonacompany’scompetitiveposition.EnterpriseshopingtoreplaceUSimportsfromChinawillhavebetteroddsofstrikingdealsiftheyactquickly.Itcomeswithsomerisk,butthere’svalueinbeingproactive.

SvenSmit:Withtheshiftsinglobaltrade,businessleadershavefocusedoninventory

management:prestocking,destocking,andreflowingstocksacrosstheplanettocreatebuffersagainstshocks.Theyarealsocontemplatingorimplementingpricechanges.Someleadershavealreadymadeprofoundchoicesaboutwheretoinvest—insomecases,toinvestbehindtheUSshiftsawayfromChina;inothers,toinvestintoChina.Someoftheseopposingdecisionscannotbothendupbeingright,butatthispoint,wedon’tknowwhichonewillbe.

CindyLevy:Severaltradecorridorshavestrongtailwinds,suchasSouth?Southtradeor

China?ASEANtrade.Globalcompaniesshouldbelookingatgettingaccesstosomeofthese“surebets”inglobaltrade.There’sapropensitytofocusonthemajoreconomieswhereyouneedtoplaydefense,butIthinkwe’llsoonseethatpivottomoreoffensivemoves.

ZiadHaider:Theuncertaintyaroundtrademakesmanycompaniesunsurewhatandhowmuchtoshift.If,forexample,thesupplychaindiversificationstrategyinAsialedtoashifttoVietnam,andVietnamnowfacesa20percentUStariffrate,thecompanyneedstofactorina40percenttransshipmentrateifproductsmanufacturedinVietnamhaveChinesecontent.Yetthetermsofthat40percentrateandtheshareofChinese-madecomponentsthatwouldtriggerithavenotbeendefined,whichcloudsthecalculusaroundVietnam.

ShubhamSinghal:Businessleadersneedtomanagerisk,buttheyshouldalsobealertto

opportunitiesopeningup.TheCEOofaconsumerproductscompanyIrecentlyspokewith

mentionedthattherisingcostswillmakeitdifficulttomanagemargin.Inthesubsequent

discussion,wecametotheconclusionthat,howeverthecompanyisaffected,itscompetitors

willbehitharder.Smallerplayershadbeengainingshareinrecentyears,buttariffsandother

tradecomplicationsmaketheburdenofmanagingdiversifiedglobalsupplychainsharderfor

themthanforlargecompanies.Asaresult,theteamisdiscussingpotentiallyacquiringasmallercompetitor.

ShivanshuGupta:ThecurrenttraderealignmentiscreatingopportunitiesforAsiancompaniesinindustriessuchassemiconductors,automotive,andchemicalstoscaleup.Atthesametime,someAsiancountriesarelikelytobearthehighestUStariff,sobusinessleadersarebracingforthatandforsecond-orderchallengessuchasrawmaterialshortagesthatmaymakefulfilling

evendomesticdemanddifficult.

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Multinationalsatacrossroads

ShubhamSinghal:Forabout70or80years,thedirectionoftravelformultinationalcompanies,withgoodresults,wastobemoreintegratedgloballyinfunctionsandcapabilities.Now,ina

geopoliticallychallengedworld,

multinationalenterprisesareweighingchangestheyshould

maketothatmodel

.HowcanIexitfastifIneedto?Ontheflipside,ifopportunitiesopenup,howcanIcapturethemquickly?HowdoIcomplywiththerulesthatareincreasinglymore

locallyorregionallydriven?Arealltheshared-servicesfunctions,suchasdataandHR,stillviable?Whatdoesmyorganizationneedtolooklikeinfiveyears?

ZiadHaider:

“Canmycompanyremainglobalandifso,how?”

remainsacorequestionIhear

fromboardsandCEOs.Multinationalshavebeenadjustingtheirbusinessmodelsforsometimeinresponsetovolatilitybutarenowmakingadditionalmovestobuildgeopoliticalresilience.Forexample,manycompanieshavealreadyexecutedasetofmoveswecall“structural

segmentation”aroundtheirsupplychains,R&D,data,andentityownershipandstructures,suchassettingupaseparatetechstackinChinaorring-fencingorrelocatingtheirR&Dcapabilitiesinorfromgeopoliticallysensitivemarkets.However,todaywe’reseeinganaccelerationof

investmentintheUnitedStatesorexpansionofproductionactivitiesthere.Forstate-linked

entitiesorsovereignwealthfunds,thisisnotonlycommerciallydrivenbutalsoadiplomaticandstrategicimperative.

ShivanshuGupta:Asianmultinationalsarealreadypursuingadaptationstotheirglobal

footprints.Forexample,automakersaredirectlyinvestinginUSmanufacturingratherthaninplantsinMexico,Indianpharmaceuticalcompaniesarerecalibratingtheirresearchand

productionfootprintbetweentheUnitedStatedandIndia,andITservicescompaniesare

increasingtheirlocalhiringinhigh-demandmarkets.Asianmultinationalsgenerallyseethechangesintheglobaltradeorderasanopportunitytoexpandtheirglobalpresencewhilemaintainingsupplychainoriginsintheirhomecountries.

NelsonFerreira:ManyglobalLatinAmericancompanieshaveadoptedthe“glocalization”

model:IndianfactoriesproducingforIndia,ChinesefactoriesproducingforChina,USfactoriesproducingfortheUS,andsoon.Producinglocallyforeachregionalmarketshieldsyoutosomeextentfromtariffsandcreatesaglobalcompanythatisverticallyintegratedineachcountry

ratherthanhavingonemanufacturinghubfortheentireworld.OnecompanythatmanufactureselectricalengineeringequipmentexpandedquiteaggressivelyintoMexico,theUS,India,and

China,butunderthisglocalizationmodelofregionalverticalintegration.Thisapproachmay

becomemorepopularbecauseofmyriadgeopoliticalconsiderations,suchasArabcountriesbuyingornotbuyingfromyoudependingonyourrelationshiptoIsraelandviceversa,or

EasternEuropeancountriesdoingbusinesswithyouornotdependingonyourstancetowardRussia.

AsutoshPadhi:FormultinationalsbasedintheUnitedStates,nomattertheindustry,theUSwillcontinuetobeacriticalmarket.Thesebusinesseshaveunparalleledaccesstocapitaland

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innovation.ThebiggestuncertaintyiswhatposturetoadoptrelativetoChina.CantheycontinuetomeaningfullycompeteinChinaasmultinationalcompanies?Second,cantheycapitalizeon

someofthebiggestgrowthopportunities,particularlyinIndiaandASEANcountries?Clients

oftenask,forexample,whethertheIndianmarketcouldreplaceChina.It’sunlikely,butIndia

plustheASEANregionmightamounttoaround50percentoftheChinesemarketoverthenextdecade.

Concernsflyingundertheradar

NelsonFerreira:Throughouthistory,wavesofprotectionismwerealwaysfollowedbyinflationandlowergrowth.Thistypicallycausesinstability,particularlyinemergingmarkets.InflationisalreadyabigissueinsomeLatinAmericancountries,andfoodinflationisrisingrapidlybecauseofextremeweatherevents.

SvenSmit:We’reheadingintoaneraofapoliticaleconomy.Businessleadersalwayspreferforpoliticsandtheeconomytobeseparate,butthat’slessandlessthecase.Theabilitytodeal

withthepoliticalandeconomicsidesofthesystemsimultaneouslyisaskillthateveryCEOhastodevelopmorefully.Businessleadersneedtomaintainclosercontactwithgovernmentsto

betterpredictandeveninfluencewhathappens.

ZiadHaider:Iseesomemyopiaaroundbothgeopoliticsandgeoeconomics.Ongeopolitics,

businessleaderstendtofocusonwhatIcallthethree“grayrhinos,”orknownriskswithmediumtohighimpact:US–Chinastrategiccompetition,Russia’sinvasionofUkraine,andongoing

conflictsintheMiddleEast.However,morelocalizedtensionscanflareupthatquicklyand

disproportionatelyaffectthecompany’soperationsiftheeventsoccurinlocationswhereyouhavesignificantcapitalinvestment.

Ongeoeconomics,thefocusontariffsmaybeobscuringothercriticalissues.Exportcontrols,

forexample,affectaccesstochipsandotherhigh-endtechnologiescriticalformanycompaniesandcountries’economic-developmentagendas.ThetrajectoryoftheUSdollar,energysecurity,andtensionsaroundcontrolofcriticalinfrastructureareotherkeyelementsofthegeoeconomicchessboard.It’simportantforboardsandcorporateleaderstohaveframeworksandprocessestooverseethetoprisksandaninstitutionalabilitytomonitorandrespondtoflashpoints.

CindyLevy:Theimpactofrecentgeopoliticaleventsisnotjustthecostoftariffs.Other

economicforcescouldrocktheglobaleconomy.Willconsumerdemandfall?Willbusiness-to-businessdemandfall?Willtherebeabroadereconomicslowdowninducedbytariffs?Anotherbigquestionistheimpactofthelong-termfiscaltrajectoryoft