Defensive Sectors and Supply Chain Resilience: Navigating Trump's Trade Wars

The Trump Trade War: A Stress Test for Defensive Sectors

The 2018–2020 trade war under President Donald Trump exposed vulnerabilities in global supply chains while underscoring the resilience of defensive sectors. Tariffs on steel, aluminum, and electronics disrupted industries reliant on cross-border trade, forcing companies to rethink sourcing strategies and operational models. Defensive sectors-defense, healthcare, and utilities-emerged as critical players in navigating this turbulence, leveraging their inelastic demand and essential services to stabilize markets. This analysis explores how these sectors adapted, the supply chain strategies they employed, and the investment implications for a world increasingly shaped by geopolitical risk.

Defense Sector: Tariffs as a Double-Edged Sword

The defense industry, a major consumer of steel and aluminum, faced immediate headwinds when Trump imposed 25% and 10% tariffs on these materials in 2018. A PLOS ONE study found these tariffs led to negative abnormal stock returns for U.S. defense companies, particularly around key tariff announcements, as noted by Supply Chain Today. The sector's reliance on imported materials for military systems-such as aircraft carriers and fighter jets-created bottlenecks, with procurement delays and cost overruns becoming commonplace, according to a MarketsandMarkets outlook.

However, the trade war also catalyzed a strategic shift toward domestic production. The Trump administration incentivized reshoring through tax breaks and federal grants, pushing defense manufacturers to localize critical component production. For example, a mid-sized defense contractor specializing in unmanned aerial vehicles (UAVs) reduced procurement costs by 20% and improved on-time delivery rates by 15% through strategic sourcing and supplier diversification, a change documented in the PLOS ONE analysis. This pivot highlights the sector's ability to balance cost efficiency with geopolitical risk mitigation.

Healthcare: Resilience Amid Dual Crises

The healthcare sector demonstrated remarkable adaptability during the trade war, particularly as the pandemic overlapped with trade tensions. A 2025 study in Nature emphasized that healthcare systems with redundant supply chains, collaboration frameworks, and robust monitoring systems fared better during disruptions; a CNBC report also highlighted how some U.S. firms sat on more cash and reduced inventory to manage volatility. Tariffs on medical equipment and pharmaceuticals, however, introduced new challenges. For instance, 88% of healthcare executives predicted an 18% increase in medical equipment costs by Q4 2025 due to tariffs on Chinese and EU imports, according to a Thomson Reuters analysis.

To counteract these pressures, health systems adopted contingency planning strategies, including centralized "Control Tower" teams to manage supply backorders and reorganized operations to bypass double tariffs (e.g., importing goods directly into Canada), as noted in the Thomson Reuters piece. The American Hospital Association (AHA) also lobbied for tariff exemptions on essential medical devices, illustrating how policy engagement became a key component of supply chain resilience; the PLOS ONE study similarly documented policy and procurement responses across sectors.

Utilities: The Steady Anchor

While defense and healthcare grappled with direct trade war impacts, the utilities sector maintained its role as a stable, low-volatility investment. During the 2018–2020 period, the SPDR Utilities ETF (XLU) outperformed the SPDR Healthcare ETF (XLV), posting a 4% year-to-date gain compared to XLV's flat performance, as shown in the PLOS ONE analysis. This resilience stemmed from the sector's inelastic demand and consistent dividend yields (2.92% for utilities versus 1.73% for healthcare), which the PLOS ONE piece also highlighted.

Utilities' supply chain strategies focused on localized infrastructure investments and long-term contracts for energy production, minimizing exposure to trade-related disruptions. Their performance underscores the sector's value as a counterbalance to cyclical industries during economic uncertainty.

Supply Chain Strategies: Lessons from the Trade War

The trade war accelerated the adoption of resilient supply chain practices across defensive sectors:
1. Reshoring and Diversification: Companies shifted production from China to Vietnam, Indonesia, and Mexico to avoid tariff penalties and reduce single-source dependency, a trend reported by Supply Chain Today.
2. Supply Chain Financing: Importers used financing programs to stretch payment terms, reducing inventory costs and preserving liquidity amid tariff volatility, a tactic also discussed in the CNBC coverage.
3. Vendor-Managed Inventory: Outsourcing inventory management to third parties helped firms offload balance sheet risk and maintain cash flow flexibility, as outlined in the Thomson Reuters analysis.

These strategies reflect a broader industry shift from efficiency-driven globalization to localized, diversified models prioritizing flexibility and transparency.

Investment Implications

For investors, the 2018–2020 trade war offers critical lessons:
- Defensive sectors with essential services and stable cash flows (e.g., utilities, healthcare) are better positioned to withstand geopolitical shocks.
- Supply chain resilience is no longer optional-it is a competitive advantage. Companies that invested in reshoring, diversification, and financial flexibility outperformed peers during the trade war.
- Policy risk remains a wildcard. Tariffs and trade policies can disproportionately impact sectors like defense, where material costs are tied to global markets, a point underscored by the MarketsandMarkets outlook.

As the U.S. faces renewed trade tensions and geopolitical volatility, defensive sectors will likely remain key pillars of portfolio stability. However, investors must prioritize companies that have proactively adapted their supply chains to mitigate risks-a trait increasingly rewarded in today's market.