VoxEU Column International trade Politics and economics

Partisan politics and global supply chains: How CEO political alignment shapes trade decisions

12 Apr 2025

Against a backdrop of escalating geopolitical tensions and rapidly shifting global alliances, policymakers are advocating strategies such as ‘friendshoring’ to safeguard supply chain resilience. This column uses data on 700 US firms importing from 96 countries between 2007 and 2020 to show that US firms reduce imports from countries that become ideologically distant from the US, while increasing imports from countries that have become friendly. This effect is strongest for firms led by CEOs politically aligned with the US administration, prompting the question of whether firms are optimising for economic efficiency, or being guided by political loyalty.

Authors

Meghana Ayyagari

Janet Gao

Pengfei Ma

Recent years have witnessed escalating geopolitical tensions and rapidly shifting global alliances, which pose significant challenges to global supply chain operations. Against this backdrop, policymakers are advocating strategies to safeguard supply chain resilience. US Treasury Secretary Janet Yellen, for example, has promoted ‘friendshoring’ – shifting trade and production towards allied nations – to reduce dependence on geopolitical rivals.

Consistent with this strategy, research shows that geopolitical tensions do indeed weaken international trade flows (Aiyar et al. 2023, Campos et al. 2023, Goes and Bekker 2022, Mityakov et al. 2013). However, friendshoring is no panacea, as political allies may not be able to offer inputs at competitive prices (Rajan 2024). How do firms adjust their supply chains in response to these shifts? More critically, how do corporate leaders’ political beliefs shape these decisions?

In a new paper (Ayyagari et al. 2025), we present new evidence showing that US firms alter their sourcing decisions in response to heightening geopolitical tensions, reducing imports from countries that become ideologically distant from the US, while increasing imports from countries that have become friendly. Strikingly, this effect is strongest for firms led by CEOs politically aligned with the US administration, while weakened among firms whose CEOs are politically misaligned. Ultimately, these politically influenced import reductions significantly reduce firm value and operating margins, revealing important costs of the ‘friendshoring’ strategy.

CEO partisanship and global sourcing decisions

Our analysis examines over 700 US firms importing from 96 countries between 2007 and 2020, using data from multiple sources. First, we measure US public firms’ import decisions based on their Bill of Lading records. Second, we classify CEOs’ political leanings based on voter registrations. We define CEOs to be politically aligned if they registered with the same party as the US president and misaligned otherwise. Third, we gauge the ideological distance between the US and its trading partners based on their voting patterns in the UN General Assembly.

Putting these granular databases together, we find that firms who are aligned with the US administration are significantly more likely to reduce imports from countries that become ideologically distant from the US. A one standard deviation increase in ideological distance between a foreign country and the US is associated with a 9% greater decline in the import volume from that country by firms with aligned CEOs than by firms with misaligned CEOs. Aligned CEOs are also 2 percentage points more likely to stop importing from the country compared to misaligned CEOs.

Notably, the impact we observe is not driven by CEO party affiliation (Democrat or Republican) but rather by their alignment with the sitting administration. This suggests that the partisan dimension of friendshoring, is not about ideology in the abstract, but likely about alignment with US views and foreign policies.

Establishing causality: Natural experiments with foreign elections

One might argue that our findings stem from alternative explanations, such as international trade driving ideological distance rather than the reverse. To isolate the causal impact of CEO partisan alignment, we exploit close presidential elections in source countries that alter their ideological alignment with the US. Each foreign election is classified as either ‘distance-increasing’, where the source country becomes more adversarial toward the US, or ‘distance-decreasing’, where the country becomes friendlier with the US. Using close elections allow us to focus on ‘surprising changes’ in ideological distances rather than shifts that were well-anticipated.

Following narrowly won elections that increase a country's ideological distance from the US, aligned CEOs reduce imports by 40-50% more than misaligned CEOs, relative to elections that bring the country ideologically closer. It is worth noting that imports do not change prior to the elections. This means that the election results are not well-anticipated or driven by slow-moving economic conditions.

Figure 1 separately examines the dynamic impacts of distance-increasing and distance decreasing elections on firm import decisions. The blue (dashed) line represents the differential effects of distance-increasing elections on aligned firms relative to misaligned firms; the red line represents the effects of distance-decreasing elections on aligned firms compared to misaligned ones. Compared to misaligned firms, politically aligned firms shrink import volume more than misaligned firms following distance-increasing elections and raise import volume more following distance-decreasing elections. These findings confirm that CEOs’ political alignment actively shapes how firms respond to geopolitical changes.

Figure 1

Why do aligned CEOs respond more strongly?

Our analysis identifies two key mechanisms driving this behaviour:

Heightened risk perception. Aligned CEOs express greater concerns about geopolitical risks in corporate communications when their source countries become more adversarial to the US. This could happen if politically aligned individuals agree with the administration more strongly regarding their foreign policies and their views on US global alliances.
Nationalistic preferences. CEOs who donate to veteran causes – a proxy for nationalistic sentiment – are even more likely to reduce imports from adversarial nations when aligned with the administration. This suggests that some executives engage in friendshoring as an expression of political or nationalistic identity, rather than for purely economic reasons.

Interestingly, we find no evidence that aligned firms receiving government procurement contracts adjust their supply chains differently from others. This suggests that economic benefits from government ties do not primarily drive these decisions.

The economic cost of politically motivated supply chain shifts

Our findings indicate that politically driven friendshoring comes at a cost to shareholders, since distance-increasing elections lead to greater declines in equity value for aligned firms than misaligned firms. When a country experiences a distance-increasing election, we study firms with at least 1% of their imports from that country and find that firms with aligned CEOs experience a 1.6 percentage point larger decline in stock price compared to those with misaligned CEOs. Among firms with greater import exposure (>5% of imports), the incremental decline in equity value between aligned and misaligned firms reaches 2.6 percentage points. These patterns suggest that investors view politically motivated supply chain adjustments as value-destroying, either because they disagree with CEOs’ risk assessments or because friendshoring is seen as economically inefficient.

Interestingly, we find that the effect of CEO partisanship no longer drives friendshoring decisions when the vast majority of board members are affiliated with the opposite political party. Under such scenarios, distance-increasing elections no longer push down the value of aligned firms more than misaligned firms either. These results underscore the dangers of partisan echo chambers in corporate leadership and demonstrate how boards with sufficient partisan counterbalance can effectively discipline potentially value-destroying supply chain decisions.

Policy and business implications

Our findings have two key implications. First, they highlight how growing political polarisation among corporate executives may amplify economic fragmentation, accelerating the breakdown of global supply chains. As executives make trade decisions based on political beliefs rather than purely economic considerations, the efficiency and resilience of global trade networks could be compromised.

Second, our research suggests that while policymakers may advocate for reshoring and friendshoring for national security reasons, such strategies carry economic trade-offs. Firms that realign their supply chains based on political motivations rather than cost-effectiveness risk harming their competitive position and shareholder value.

Ultimately, as geopolitical tensions rise, businesses must weigh the costs and benefits of supply chain realignment carefully. While risk mitigation is a legitimate concern, the role of partisanship in corporate decision-making raises critical questions: Are firms optimising for economic efficiency, or are they being guided by political loyalty?