‘Designed in California, assembled in the Gulf’: Region gains traction as a friendshoring destination

Multinational businesses are recalibrating their global supply chains , with one eye focused firmly on Washington. As the Donald Trump administration reignites the use of tariffs as a blunt instrument of economic leverage, so-called “friendshoring” is gaining traction as multinationals re-evaluate the geography of their supply chains. Friendshoring, the practice of moving production or final assembly to countries with favourable trade relations , is not new. But with US-China trade tensions and unpredictable tariff regimes, it is becoming more of a core consideration in companies’ global manufacturing strategies. Among the options for final-stage manufacturing, the Middle East – particularly the UAE and Saudi Arabia – stands out for its combination of low trade friction with the US and a broader ecosystem that facilitates the fast establishment of manufacturing operations. Mexico remains the most common US nearshoring destination, while Vietnam, Thailand and Malaysia are among the top choices for so-called “China+1” strategies, where companies shift some production out of China to reduce geopolitical and tariff risk. However, the US’s strong and consistent trade surplus with the UAE – reaching approximately $19.5 billion in 2024 – and a recently improved trade balance with Saudi Arabia, which recorded a modest surplus last year after a deficit in 2023, make both countries relatively low-risk from a tariff standpoint. While trade surpluses do not guarantee immunity, they reduce the likelihood of politically motivated levies compared to countries with persistent deficits. While still far behind more established friendshoring destinations like Mexico and South-East Asia, the Middle East is beginning to attract interest. Continuing economic reforms and significant investments in manufacturing infrastructure are among the factors prompting a selective set of companies to take a closer look, especially for final-stage assembly and packaging. Although activity remains limited, the strategic posture of both the UAE and Saudi Arabia suggests that interest is likely to grow. For instance, Saudi Arabia recently signed nine investment agreements worth more than $9.3 billion with foreign companies – including India’s Vedanta and China’s Zijin Group – as part of a broader push to anchor supply chain infrastructure and industrial capacity within the kingdom. Additionally, Gulf states are pouring investment into critical mineral extraction, to embed themselves earlier in the global industrial supply chain, where mineral access is fast becoming a chokepoint. However, for companies facing steep and lingering tariffs on Chinese-origin goods, countries such as the UAE and Saudi Arabia offer a relatively low-risk location for final-stage manufacturing. While not covered by a formal free trade agreement, their exports have largely avoided punitive US tariffs, making them a potential workaround for companies seeking to reclassify the country of origin through assembly or packaging. But this strategy is legally viable only if the process results in what US customs defines as a “substantial transformation”. For instance, assembling a laptop from imported components – integrating the motherboard, installing software and calibrating the system – may qualify. By contrast, simply packaging a Chinese-made circuit board in a new case or attaching accessories to a nearly finished vehicle would not suffice. Still, the UAE and Saudi Arabia are actively courting this type of investment as part of broader economic diversification plans – Vision 2030 in Riyadh and Operation 300bn in the Emirates. Both initiatives aim to reduce reliance on hydrocarbons. While labour costs in the UAE and Saudi Arabia remain significantly higher than in traditional manufacturing hubs such as Vietnam or Bangladesh, both countries are investing heavily in workforce development to attract advanced manufacturing. Saudi Arabia, in particular, is leveraging its young and growing population through national training initiatives such as the Human Capability Development Programme, aimed at aligning skills with industrial needs. However, reconfiguring supply chains is a multi-year endeavour. Factories, even final assembly sites, take time and capital. A company betting on friendshoring now must do so under the assumption that Mr Trump’s tariff policies – or similar measures by a future administration – are more than a passing phase. The Trump administration has shown a proclivity for sweeping actions, including targeting shipping lanes, re-evaluating trade classifications and tying tariffs to broader diplomatic concerns. Then there is the ecosystem factor. Manufacturing thrives not in isolation but in networks – of parts suppliers, logistics companies and quality control specialists. Rebuilding even a slice of this in a new geography requires co-ordination not just between private firms, but often between companies and host governments. For now, companies face a stark choice: absorb rising tariffs or re-architect the back end of their supply chains. While such shifts are complex and capital-intensive, a growing number of companies are weighing long-term bets on geopolitical stability and tariff insulation. And for many, the Middle East is starting to look less like an outpost and more like a pivot point. So, a new kind of label may soon become more familiar to American consumers: “Designed in California, assembled in the Gulf”. Carlos Cordon is IMD professor of strategy and supply chain