In the tariff era, circularity is the new competitive edge

At IDEO, we’re seeing this anxiety reflected in the briefs landing on our desks. Leaders from multinational organizations are no longer just asking us to help them optimize existing systems—they’re seeking fundamental resilience against mounting global pressures. They sense, correctly, that future success demands a shift toward systems that can weather disruption by design.

This shift isn’t just about “being green;” it’s about strategic necessity. It’s time to embrace the circular economy—not merely as an environmental initiative, but as a core strategy for building resource independence and business resilience in volatile times.

Closing the loop

By prioritizing strategies like reuse, repair, refurbishment, and remanufacturing (restoring products to their factory settings), businesses keep resources cycling within their control, dramatically reducing dependence on virgin raw materials and volatile global commodity markets.

Recent analysis from the Ellen MacArthur Foundation reveals something telling: companies with higher circularity performance exhibit lower financial risk profiles and superior risk-adjusted returns. The numbers tell a compelling story—circular businesses are simply more resilient.

Furthermore, substituting imported virgin materials with secondary resources recovered closer to home directly reduces exposure to international trade disputes and supply chain disruptions. As the EU’s Critical Raw Materials Act demonstrates, policy is increasingly focused on boosting domestic recycling and processing, creating new market opportunities for businesses ready to capitalize on this shift.

Embedding advantage by design

This isn’t just an operational pivot—companies must embed circularity into the very design of their products and services. As a European Parliament report highlights, design choices determine more than 80 percent of a product’s lifecycle impact and, crucially, its potential for profitable circularity.

On a recent client project exploring circularity in healthcare, we discovered a steep shift to single-use everything. Everything, everything. Not just the obvious, but complex items like endoscopes, which combine plastics and electronics, and often rely on imported components. Disposable tools may be convenient, but it’s easy to see how incinerating tens of millions of endoscopes leads to waste generation and supply chain vulnerabilities.

By redesigning these devices differently—creating a single-use-like experience that is hygienic and maintains practitioner confidence while enabling refurbishment and reuse—we discovered a path to cut dependency on virgin materials and volatile overseas electronics supply lines. Thoughtful designs like these can directly support business models resilient to external shocks.

The most effective circular strategies focus on:

• Designing for durability, repairability, and modularity: Creating longer-lasting, easily fixable products with interchangeable parts extends asset life, enables component harvesting for remanufacturing, and reduces total cost of ownership.
  
  
• Designing for disassembly and material selection: Ensuring products can be easily taken apart into constituent materials chosen for safe reuse or high-quality upcycling becomes fundamental for efficient recovery processes.
  ‍

‍New business models

Even the most circular design requires innovative business models to unlock its economic potential. As identified by the World Economic Forum and others, key models driving this shift include:

Product-as-a-service (PaaS): Retaining asset ownership incentivizes providers to maximize product lifespans and facilitates efficient takebacks for high-value recovery. PaaS shifts the profit focus from unit sales to lifetime asset value—a profound transformation in how businesses create and capture value.

Reverse logistics systems: Building efficient capabilities to collect, sort, and reintegrate used products and materials is the operational backbone of circularity. Innovation here involves interconnected software platforms, Internet of Things (IoT) tracking, and collaborative partnerships to manage complexity and cost.

Data management and collaboration: Successfully managing circular flows demands advanced data systems for tracking and traceability across multiple use cycles and partners. Digital product passports are becoming essential tools for managing these complex material networks.

Strengthening operational stability

The strategic logic of circularity aligns powerfully with the growing trend toward nearshoring and onshoring. Bringing production closer to end markets makes circular models like take-back and local refurbishment far more economically viable, reducing logistical complexity and cost. These localized material loops are inherently more resilient to global disruptions by mitigating exposure to geopolitical hotspots, international shipping crises, and tariffs. Building shorter, more adaptable value chains is a key priority for forward-thinking organizations, and we’ve been seeing it more and more with our clients.  

However, effective local loops require more than just relocation. They demand a fundamental rethinking of product design, supply chain infrastructure, and consumer engagement. To achieve this, organizations should consider:

• Evolving product ownership into a seamless user journey: What if user experience could be a continuous flow of value, with products that adapt to a consumer’s changing needs, can be effortlessly upgraded locally, and seamlessly returned for responsible renewal, creating a sense of ongoing connection and trust?
  
  
• Making reverse logistics effortless and rewarding: What if, instead of a chore, returning used products was as easy and satisfying as receiving new ones, integrated into local community hubs with engaging digital interfaces and personalized incentives, fostering a sense of participation and satisfaction?
  
  
• Creating thriving ecosystems of shared value with local collaboration: What if businesses, local artisans, and communities co-created circular products tailored to their unique context, with local makerspaces, repair cafes, and material marketplaces empowering people, generating local wealth, reigniting a strong sense of place and belonging, and attracting new forms of tourism?

By embracing design and innovation, businesses can create resilient and circular local economies, mitigating the increasing risks of long supply chains and unlocking local growth and innovation opportunities.

The new competitive edge: resource independence

Shifting a company’s focus to circularity does require investment in new capabilities, particularly in design, reverse logistics, and data management. It requires cultivating new collaborative ecosystems and partnerships.

But the rewards are substantial. Businesses that successfully integrate circular strategies build operational resilience by reducing reliance on volatile inputs, mitigating geopolitical and tariff risks through greater resource independence, ensuring greater supply security, and forging stronger long-term customer relationships.

As we navigate this uncertain landscape, one thing becomes clear: building circular capacity isn’t just adaptation; it’s the deliberate choice to forge a competitive edge in an unpredictable world. The future belongs to those organizations bold enough to design it.