After several years of intense geopolitical volatility, it’s clear that multinational corporations (MNCs) have entered a new era. Growing regional realignments and shifting trade dynamics are forcing CEOs across industries to rethink their global strategies.
In 2025, many MNCs focused on defensive risk management, delaying decisions and protecting their balance sheets as new tariffs and export controls, regulatory fragmentation, and political uncertainty raised costs, complicated compliance, and undermined long-term planning. However, the same forces creating challenges are also forging new opportunities.
While geopolitical shifts are changing the economics of where to build, source, and sell, they haven’t slowed global trade—just shifted its flows. CEOs who wait for the uncertainty to clear risk falling behind peers who seize opportunities emerging in new markets or trade corridors and build new sources of competitive advantage. Doug Beck, former director of the US Defense Innovation Unit and now a member of McKinsey’s Geopolitics Advisory Council (GAC), stresses urgency: “The one thing every CEO needs to do right now is to get their top teams together and fundamentally rethink strategy under this level of uncertainty.”
In a series of recent interviews with leaders of global companies, we found that many are reframing their approaches to the current environment. “We’re rethinking our value creation theses,” says the CEO of a North American electronics manufacturer, adding that “we have found a competitive advantage in others’ paralysis.” Leaders are responding to the proliferation of industrial incentives and deepening integration among trading partners by aligning investments with national industrial priorities and redesigning operations to reflect regional trade rearrangements. Some are already seeing material benefits—from TSMC receiving more than $6 billion in government funding to expand US-based manufacturing1 to Rheinmetall reporting a record €63.8-billion order backlog last year amid surging European defense spending.2
Much hangs in the balance. The McKinsey Global Institute (MGI) has modeled trade corridor growth patterns and found that the value at stake—the difference between minimum and maximum values of corridor trade across various scenarios—could equal 31 percent of total projected trade in 2035, or about $14 trillion. Companies that gain access to growing corridors by revamping their production footprints and operating models will be best positioned to capture future opportunities. As Charles Darwin argued, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”3 In this article, we present a five-part agenda for CEOs to understand the changes underway and to identify the most effective ways to respond.
Understanding the new global trade order
“The trading system as we knew it for at least a couple of generations no longer exists,” concludes Robert Lighthizer, former US trade representative and a member of McKinsey’s GAC. For decades, protocols established by the World Trade Organization and various conventions governed tariff negotiations, dispute resolution, and other aspects of global trade. These norms have started to unravel in recent years, however, as governments increasingly pursue independent policies to support economic growth, technological advances, and security priorities. The 2025 US National Security Strategy, for example, reinforces economic and supply chain security, industrial capacity, technological leadership, and capital market strength as national priorities.4 China’s latest five-year plan, meanwhile, includes technological self-reliance, economic stability, and the modernization of core industries among its key pillars.5 In this environment, value creation is increasingly shaped by new trade corridors, growing defense spending, expansion of export controls and industrial policies, and shifting flows of foreign investment.
Growth focused on trade corridors
Despite rising trade tensions and costs, global trade expanded in 2025 roughly in line with economic growth,6 with preliminary data from the UN Trade and Development (UNCTAD) showing an increase of 7 percent.7 The concentration of trade growth, however, is shifting to new corridors connecting geopolitically aligned partners. The China–US relationship illustrates this change: Trade between the two countries fell by around 30 percent between 2024 and 2025, and the United States has offset about two-thirds of that amount by increasing trade with geopolitical allies, particularly in Europe and Asia.8 Meanwhile, the EU–India trade agreement, reached early this year, combines broader mutual market access with industrial investment to help EU companies diversify their supply chains and seize opportunities in growing trade corridors.
Resurgence of the defense sector
National-security imperatives are spurring higher government spending on defense, leading to strong growth in the sector (see sidebar “The resurgence in defense spending”). Honeywell International’s defense and space business, for example, grew 13 percent year over year in the second quarter of 2025,9 while pan-European missile systems group MBDA reported a €44.4 billion order backlog for 2025 and a doubling of missile production between 2023 and the end of 2025.10 Several Korean manufacturers are also expanding their defense business in Europe. For example, Hyundai Rotem signed a $6.5 billion contract to supply Poland with K2 tanks and support vehicles.11
The benefits are also flowing to adjacent industries. A European medical-products company expects an increase in government procurement as hospitals build larger inventories and surge capacity. “Governments want to have systems of key university hospitals and [medical supplies] that create buffers in case of a crisis,” says the company’s CEO.
Broadening definition of dual-use items
Many countries (especially China and the United States) are expanding the scope of items classified as dual use (that is, having both military and civilian uses) and subject to export controls. New technologies in advanced manufacturing, AI, and energy, among other areas, may be reclassified as dual use because of potential future applications not known today (as was the case with ultraviolet lithography, now a critical element of semiconductors and weapons systems). In January 2025, for example, the US Bureau of Industry and Security expanded export controls on certain advanced AI models,12 and the following April the Justice Department placed restrictions on some transactions involving personal and government-related data.13 In Europe, meanwhile, the EU AI Act expanded obligations regarding transparency, risk management, and cybersecurity for AI models deemed to pose “systemic risk.”14 In fact, AI products are increasingly governed as an integrated system of computing power, data, infrastructure, and security.
Proliferation of industrial-policy interventions
Complementing the shift toward tighter regulation of advanced technologies is a rise in industrial-policy interventions designed to support critical industries. Between 2017 and 2023, global industrial-policy actions, such as subsidies and tax incentives, increased by approximately 390 percent. Notably, 96 percent of the global subsidy value between 2023 and 2024 targeted only 13 product categories, including high-end equipment, defense, and semiconductors.15
Shifts in foreign-investment flows
Since 2022, three-quarters of announced new cross-border foreign direct investment (FDI) has gone to strategic industries such as advanced manufacturing and AI infrastructure.16 FDI serves as a leading indicator of where MNCs can find the partner ecosystems, economies of scale, and talent to support production and logistics. Many companies are already reconfiguring their manufacturing footprints to capture benefits from these shifts. According to McKinsey analysis, electronics, machinery, and semiconductor sectors face some of the strongest pressure to reconfigure production.17 The upside of thoughtfully redesigning sourcing and production capacity is material: An analysis of one advanced-industries manufacturer found that up to 20 percent of its production costs could increase due to potential supply chain disruptions. However, by restructuring its supply chain network, the company could address up to 15 percent of those increases.18
Five pillars of success in the current trade era
As geopolitics transforms the business environment, MNCs that understand the dynamics and reshape their production footprints, capital allocation, and operating models will be best positioned to thrive (see sidebar “McKinsey’s geopolitics assets”). While each company’s moves will depend on its circumstances, five actions offer opportunity for value creation.
Identify priority trade corridors and growth pockets
Trade realignments present numerous opportunities for companies to enter new markets and tap into growing trade routes. CEOs can take the following steps:
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Prioritize trade corridors. Leaders can categorize corridors based on those corridors’ resilience in different trade scenarios—from safe bets (for example, India-linked corridors are projected to grow the fastest in all trade scenarios19) to cautious bets (corridors linking emerging markets to advanced economies, such as between the Association of Southeast Asian Nations [ASEAN] and the United States or between Europe and Latin America, for example) to uncertain bets (China- or Russia-linked corridors).
It’s important to assess not only each corridor’s growth but also its trade focus, as much of today’s growth is tied to product-specific flows. AI-related goods, for example, accounted for about one-third of the global trade increase in 2025, led by Asian hubs supplying semiconductors and data center equipment to the United States. The shifts in corridors are leading to realignments in some value chains. China has deepened its role as a supplier of intermediate inputs, especially to ASEAN, and ASEAN countries are importing more equipment and inputs while increasing exports of finished goods.20 Some organizations are seizing the resulting opportunities. For example, DHL has committed to invest €1 billion in India by 2030, with the goal of increasing the company’s presence in high-growth corridors.21
- Tap pockets of geopolitically driven growth. As government procurement and industrial-policy incentives concentrate in relatively few strategic categories, becoming suppliers to (or investors in) those sectors can enable companies in adjacent industries to enter ecosystems experiencing high demand. Additionally, as definitions of dual use expand, value is shifting across the technology stack—from chips, computing power, and data storage to cybersecurity and capabilities in sovereign cloud environments. One technology company CEO, for example, notes that surging AI demand is creating opportunities to help clients comply with sovereign data requirements.
- Reduce revenue concentration in risky corridors and markets. CEOs can make their balance sheets more resilient by managing revenue exposure to corridors or markets at high risk of shrinking materially under downside geopolitical scenarios. “Our strategy is to find where [demand] is structurally shifting and build there,” says the CEO of a global consumer products company. Rémy Cointreau is already implementing such a shift by planning to move away from the Chinese market and focus instead on Latin America, the Middle East, and India.22
- Create playbooks for rapid market entry. Successful entries into new markets are multiyear transformations rather than launches, with leaders setting clear ambitions on where and how to win, ring-fencing resources to support the entries, and ensuring that decisions about pricing, footprints, and partnerships can be made quickly as on-the-ground conditions evolve. Additionally, creating localized portfolios with unique product specifications, service levels, financing terms, packaging, and price architecture can strengthen the chances of success. Leaders should also adapt the operating and business models—including cost structure, service delivery, and channel economics—to local conditions.
Deploy capital strategically
In the past, organizations established manufacturing footprints largely to ensure just-in-time supply. Today, preserving optionality and leveraging industrial incentives are more important considerations. Leading companies are taking the following steps:
- Place manufacturing in resilient locations or maintain agility. Flexibility in production networks matters as much as cost in today’s volatile trade environment.23 For companies with few manufacturing plants, selecting locations with low risk of geopolitical disruptions is paramount. For MNCs with widely distributed manufacturing footprints, remaining global can be a material advantage so long as they have the agility to shift product flows from manufacturing sites to end markets when the need arises. For example, Lindt & Sprüngli rerouted chocolate production from its US factories to Europe in response to Canada’s retaliatory tariffs on US goods, thus fulfilling Canadian orders via non-US sources.24 Given the changes in global trade flows, leaders can benefit from spreading production across different regions, prioritizing sites based on corridor growth and ensuring that their supply networks allow for rerouting and rebalancing of production volumes.
- Access relevant industrial incentives. Strategic sectors such as steel and electric vehicles are receiving substantial shares of subsidies and tax incentives. Other industries, however, may also have opportunities to tap incentives such as federal, state, and local tax exemptions. Most geopolitically motivated industrial-policy interventions take the form of financial incentives, but fiscal tools such as tax relief can also materially improve the economics of capital-intensive projects.25 The US One Big Beautiful Bill Act, for example, restored first-year bonus depreciation for eligible properties and created temporary deductions for qualified manufacturing facilities.26
Strengthen operational resilience
Maintaining global operations can be a considerable competitive advantage, enabling organizations to swiftly reconfigure supply and product volumes when disruptions occur. However, a global footprint also exposes companies to geopolitical risks. The following actions can help leaders develop operational resilience:
- Assess and diversify supplier networks. “The biggest things CEOs can do is know their suppliers,” says Mark Sedwill, former UK national-security adviser and a member of McKinsey’s GAC. Yet only 42 percent of global supply chain executives say they understand the operations of suppliers below the first tier—a smaller share than in 2022.27 Leading companies ensure that they understand risks at all supplier tiers, especially for critical inputs and processing steps. Diversifying supply chains to avoid concentration risk and monitoring the potential impact of geopolitical developments on access to key inputs are further important steps.28 Mercedes-Benz, for example, struck a €1.5-billion deal with Canadian–German firm Rock Tech Lithium to secure access to lithium, a key material in battery production.29
- Build flexibility into workforce models. Since geopolitical events often require fast employee relocations, leaders should prepare trained replacements for critical talent and roles, cross-train employees so they can step into different roles if needed, and establish processes for moving employees into new roles or locations as priorities shift. Leading organizations are also leveraging their global workforces to train employees at new facilities. For example, as TSMC expanded its manufacturing presence in Arizona, it brought experienced Taiwanese employees to the United States to train new hires.30
- Optimize data and technology stacks regionally. Product and technology designs increasingly determine operational resilience—through not only the capabilities they include but also the component, vendor, and cross-border dependencies they avoid. One automotive manufacturer, for example, is shifting to standard hardware while seeking long-term differentiation in software, which has lower exposure to tariffs and greater supply flexibility. Some organizations are also localizing their technology stacks to reduce the likelihood of future regulatory constraints.
Expand organizational agility and foresight
Agility can boost a company’s ability to capture growth opportunities while reducing risk from exposure to geopolitically distant markets. By planning, thinking through contingencies, and exploring scenarios, businesses can develop strategic foresight that can enhance their agility. Leaders can start by making the following moves:
- Institutionalize measurement of geopolitical exposure. Leading organizations are assessing their geopolitical exposure, monitoring the potential impact of geopolitical shifts on their operations and capital bases, and communicating to stakeholders how geopolitical risks can affect the financial value at stake. The assessments should cover not only geopolitical vulnerabilities but also opportunities, with thresholds that trigger actions such as inventory or sourcing shifts. Bloomberg, for example, uses geopolitical-risk scores to identify country-level risks and quantify the risks’ effect on investments.31
- Refine legal entity structures. Separate local entities or joint ventures with local partners can improve operational clarity (by establishing clear governance for in-market activities), regulatory compliance, and cash mobility. An agriculture MNC, for example, has created separate entities in its markets to reduce the cost and complexity of cross-border operations and enable local teams to quickly respond to challenges or opportunities. Legal structures can apply to specific assets (such as joint manufacturing ventures) or regional operations.
- Rethink the role of the corporate center. Geopolitical volatility is leading many CEOs to adapt the role of headquarters. Some MNCs are decentralizing previously shared services or creating networks of global capability centers to enable regional leaders to respond quickly to developments and to meet localization requirements around data and technology capabilities. Others are maintaining centralization but introducing more streamlined decision-making processes. Others still have established enterprise-level crisis management capabilities.
- Clarify decision rights. It’s critical for the right executives to have the authority to make quick decisions in response to geopolitical developments. These decision rights can include when and how to shift production volumes, change sourcing, reroute trade flows, adjust customer terms, or rebalance capital. Organizations can create guardrails around exceptions (for example, when tariffs apply to critical products or inputs for which there are no viable alternative sources) and set rules for resolving conflicts between commercial, supply chain, and finance priorities.
- Train leaders on the business impact of geopolitics. Equipping leaders with role-specific geopolitical capabilities can empower them to make better-informed decisions and democratize the gathering of geopolitical intelligence. Scenario exercises that simulate quick decisions such as pricing resets or volume shifts, structured curricula for business unit leaders on the implications of tariffs and trade corridor shifts, and regular engagement with local partners and regulators are some of the initiatives MNCs are implementing.
- Establish internal geopolitical units. Many organizations have launched dedicated geopolitics units that monitor events and support decisions across the enterprise. Long present in extractive industries, aerospace, and defense, such units are increasingly common in other sectors, including technology, transportation, and consumer goods. The cross-functional units typically coordinate analytical inputs from teams across the organization and escalate decisions when developments require quick action.
- Create crisis playbooks and triggers for risk mitigation actions. Leading MNCs are defining strategies to address tariff changes affecting important trade corridors, major foreign exchange shifts, and other geopolitical shocks. By preapproving mitigation actions—such as automatic rerouting of supply chains, securing alternative sources, or instituting contractual clauses that adjust pricing if new tariffs emerge—organizations can react quickly to new developments.
Manage near-term earnings exposure to geopolitics
New tariffs, pricing disruptions, or increases in cross-border transaction costs usually require quick action to protect quarterly earnings. Strong balance sheets and access to capital are also necessary for companies to absorb geopolitical shocks and seize opportunities—shifting supply, establishing inventory buffers, or reallocating capital as needed. The following actions can help businesses achieve those goals:
- Mitigate tariff costs. Tariff mitigation is an essential lever for protecting earnings. Organizations could explore legal and compliance options to lower tariff costs, changes to operating locations, adjustments to where they source materials and how they ship products, and commercial actions such as raising prices, renegotiating supplier agreements, or changing product designs.
- Align pricing with geopolitical impact relative to peers. Pricing strategies should be informed by SKU-, corridor-, and segment-level considerations and reflect exposure to tariff, logistics, or currency disruptions relative to competitors. Leaders can quantify delivered costs by product and market and selectively pass through costs or include escalation clauses in contracts to protect margins.
- Strengthen currency management. With geopolitical shifts increasing volatility in foreign currency markets, hedging or swap tools may not be sufficient to protect against fluctuations. Some organizations are augmenting those measures with natural hedges,32 diversified currency holdings, and selective use of alternative settlement arrangements. They are also developing treasury capabilities to manage the effects of divergent central bank monetary policies and rising currency diversification across key corridors.
Geopolitical disruption is no longer transitory—it is structural. As Iván Duque Márquez, former president of Colombia and a member of McKinsey’s GAC, advises, “CEOs should now challenge their assumptions on a permanent basis.” And while global trade is not slowing, its growth is volatile and concentrated in specific trade corridors. CEOs who recognize the opportunities in today’s geopolitical realignment—and adapt their capital allocation, growth strategies, supply chains, financial and legal structures, and operating and technology models accordingly—can create leading global institutions in the new trade era.
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