The Effects of Government Change and Political Instability on Supply Chain Management: How Political Instability and Government Change Disrupt Global Supply Chains (Part I)

In 2022, Russia’s invasion of Ukraine triggered a cascade of supply chain disruptions – energy shortages, restricted grain exports, and sweeping sanctions. But the lesson wasn’t just about Russia or war. It was about how quickly political decisions can send shockwaves through global commerce and how they can upend supply chains.

Today, government change and political instability are among the most disruptive forces in supply chain management. Further, the United States itself has become one of the most unpredictable actors. Once seen as a stabilizing force in global trade, the U.S. government increasingly has used tariffs, export controls, economic sanctions, and aggressive regulatory enforcement as tools of foreign policy. Under recent administrations, especially during the first months of the second Trump administration, supply chains have faced rapid shifts in legal regimes, abrupt trade restrictions, rapidly changing tariffs, and aggressive enforcement initiatives, all with little warning and wide-reaching impact.

Thus, traditional assumptions that volatility arises in hotspots or emerging markets are no longer true. From Brexit to tariffs to new supply chain integrity measures such as the Uyghur Forced Labor Prevention Act (UFLPA), supply chains must now adapt to political and legal disruptions coming from every direction, including Washington.

In this environment, businesses that operate or source abroad have to plan for unanticipated changes in regulatory environments and trade policies. To navigate this new normal, companies must adopt proactive legal, contractual, and operational strategies that account for rapid regulatory change and geopolitical risk. This two-part series article explores how political transitions impact supply chains, examines contractual and compliance strategies to manage exposure, and outlines steps companies can take to build resilience in an increasingly unpredictable world. Part I covers the many ways in which political uncertainty has to be taken as a constant in the new international trade environment. And Part II provides coping strategies for companies coping with this new international trade normal.

I. Understanding How Political Instability Impacts Supply Chain

Political instability is no longer an edge case – it’s a persistent and evolving risk to global operations. For companies operating across borders or reliant on imported goods or parts and components, political instability introduces uncertainty at every level of the supply chain, from sourcing and production to shipping and compliance. These disruptions can emerge suddenly, like a military coup or a trade war, or creep in more subtly through regulatory shifts or public unrest.

Political instability affects supply chains in several key ways:

Sudden Regime Changes and Policy Reversals. Changes in government, whether through elections, coups, or internal crises, can result in abrupt reversals of existing policies. These shifts can have the following impacts:

• Tariff and customs changes can create immediate cost increases and compliance hurdles, threatening the viability of long-standing supply arrangements.
• Investment and ownership rules, including nationalization threats or new requirements for local ownership, have long been an issue in certain areas of the world and can impose issues relating to reliability of supply.
• Export and import controls, especially for sectors deemed critical to national security, are increasingly an issue that can disrupt supply chains (and sales opportunities), as shown by the tit-for-tat export control restrictions imposed by the U.S. and Chinese governments.
• New supply chain transparency requirements, particularly relating to forced labor, human trafficking, and other issues relating to ethical sourcing, are an increasing fixture in numerous countries, bringing new compliance requirements into play.

Regulatory Volatility and Enforcement Surges. Political transitions often bring regulatory whiplash. Governments may:

• Strengthen or relax environmental or safety compliance requirements, forcing companies to alter sourcing or manufacturing processes.
• Increase labor protections, raise minimum wage thresholds, or alter worker classification laws, affecting cost structures and vendor relationships.
• Expand customs enforcement, scrutinizing transshipment, valuation, and origin claims, or the purported application of safety or other regulatory requirements, as a means of throttling imports.
• Impose measures relating to requirements to include local ownership, thereby potentially disrupting supply arrangements.

Human Rights Scrutiny and Forced Labor Enforcement. Increasing international requirements that companies take ownership of their supply chains create heightened risks of detained goods. International norms increasingly require due diligence around modern slavery, child labor, and workplace safety, with enforcement by regulators and increasing levels of consumer concern. Failure to proactively identify and mitigate these risks can result in shipment seizures, reputational harm, and civil or criminal penalties.

Infrastructure Risks and Local Disruption. In regions experiencing political turmoil, the physical movement of goods may be compromised. This includes:

• Port closures, customs slowdowns, or strikes at key logistics hubs.
• Cyberattacks, which are increasingly used in geopolitical conflicts to target supply chain systems.
• Civil unrest, which may block roads, damage facilities, or disrupt telecommunications and power supplies.

These events may not originate from government action, but political instability often impairs the ability of authorities to respond effectively.

Geopolitical Tensions Creating Supply Chain Fragmentation. Beyond specific countries, larger geopolitical shifts, such as growing tension between Western countries and China, are creating long-term structural fragmentation in global supply chains. Companies are increasingly being forced to choose between compliance with U.S. export controls and access to the Chinese market, for example. Political alliances are now shaping sourcing decisions and manufacturing footprints in ways that previously were driven purely by cost and efficiency.

In short, political instability doesn’t just create headline risk – it can unravel entire sourcing strategies, invalidate long-term contracts, and expose companies to significant legal and operational exposure. Understanding where and how these risks arise is the first step in building a resilient, adaptable, and compliant supply chain.

II. The New-Found Instability Source: The U.S. Government as a Political Risk Factor

Political risk is no longer confined to unstable regimes or emerging markets. In recent years, the United States has emerged as a significant and often unpredictable source of trade disruption and supply chain upheaval. This shift has injected a level of regulatory volatility and uncertainty into global commerce that rivals traditional political risk hotspots. Companies that once viewed U.S. regulatory systems as a foundation of global stability are now recalibrating their risk models to account for abrupt policy swings, aggressive enforcement, and the erosion of long-term trade norms.

Examples of U.S. contributions to supply chain uncertainty include:

Sweeping and Sudden Tariff Regimes. Perhaps the most visible example of U.S.-driven instability has been the imposition of massive, often unilateral tariffs:

• Section 232 Tariffs (national security rationale) placed duties on imported steel and aluminum, disrupting supply chains in construction, manufacturing, and automotive industries.
• Section 301 Tariffs (targeting China’s trade practices) affected thousands of products across electronics, consumer goods, industrial components, and agricultural commodities.
• Global and reciprocal tariffs have increased the cost of importing into the United States, while introducing sharply varying tariff rates for different countries, which changes the calculus of where it is most cost-efficient to source from international supply chains.

The use of newly imposed tariffs by the U.S. government to create negotiating leverage has increased unpredictability in sourcing decisions.

These measures were often enacted with little notice, further increasing importing uncertainty. They forced importers to restructure sourcing strategies, renegotiate contracts, absorb steep cost increases, or pass along suddenly increased sourcing costs, virtually overnight. In many cases, suppliers that did not build in pricing or sourcing flexibility into their supply chains found themselves locked into pricing or delivery terms that no longer reflect legal or economic realities.

Customs Enforcement as Foreign Policy. Customs acts as the gatekeeper to the U.S. market, which means that Customs enforcement has impacts beyond tariffs. Under the first Trump administration and continuing into the Biden era, Customs has dramatically expanded its enforcement toolkit, especially on supply chain integrity and human rights grounds:

• The UFLPA creates a rebuttable presumption that goods linked to China’s Xinjiang region are made with forced labor. This presumption shifts the burden to importers, who must provide detailed proof of supply chain cleanliness down to the raw material level.
• CBP has also issued an increasing number of Withhold Release Orders (WROs), which allow border agents to detain or seize goods suspected of violating labor or origin requirements.

This form of enforcement turns compliance from a documentation function into an operational imperative, requiring companies to map their supply chains far beyond Tier 1 suppliers and implement traceability systems capable of withstanding government scrutiny.

Export Controls and Geopolitical Targeting. U.S. export control policy has also become more aggressive, particularly in strategic sectors like semiconductors, artificial intelligence, aerospace, and telecommunications. New rules now:

• Restrict the export of sensitive technologies to China and other adversarial states.
• Expand the definition of “U.S. person” involvement, capturing foreign subsidiaries and third-party entities that handle U.S.-origin goods or software.
• Target entities (particularly in China) involved in dual military and civil activities, even if they are purchasing for commercial purposes.

The Bureau of Industry and Security (BIS) has increased its focus on dual-use items and foreign reexports, broadening the scope of required licensing and end-use certifications. This creates uncertainty for global supply chains that involve any U.S.-origin components or software, even in minimal quantities.

Strategic Decoupling and “Onshoring” Pressure. Beyond specific rules and enforcement, U.S. industrial policy now encourages companies to move operations away from perceived adversaries (particularly China) toward “friendly” nations or domestic facilities. Incentives under laws like the CHIPS Act and the Inflation Reduction Act reward domestic sourcing, but also introduce:

• Regulatory pressure to decouple from suppliers linked to strategic competitors.
• Uncertainty about future eligibility for government funding if supply chains remain too globalized.

This politicization of sourcing adds a layer of strategic uncertainty to long-term supplier relationships and capital investment planning.

In sum, international sourcing has become markedly less predictable. From tariffs and forced labor enforcement to export controls, companies that depend on international supply chains need to plan for unexpected and potentially major changes. Supply chain resilience today means planning not just for foreign upheaval but for the next policy shift or tariff announcement from Washington. In Part II of this series, we provide advice on how companies with international supply chains can cope with these new risks.

We will be posting a weekly article exploring different facets of Navigating Legal Challenges in Global Supply Chain Management. Subscribe to the series to receive article updates.

Si vous souhaitez obtenir de plus amples informations, veuillez contacter les auteurs ou votre partenaire Foley.

The Foley International Government Enforcement Defense & Investigations Team and Supply Chain Teams are monitoring all international trade developments, including any modifications, clarifications/guidance, or additional measures introduced by the Trump administration, which we are posting as they occur on our Tariff & International Trade Resources blog. Our white paper on “Managing Supply Chain Integrity Risks” provides practical advice to deal with heightened supply chain risks pertaining to goods imported into the United States, including the increasing use of detentions by Customs. In addition, our “Managing Import and Tariff Risks During a Trade War” outlines a 12-step plan to provide practical steps to help importers navigate the tariff and international trade risks in the current tariff and trade environment.