The Friend-Shoring Fallacy – Why Rebuilding Factories in Allied Nations is a Logistical Nightmare

There’s a certain kind of political optimism that seems reasonable until you put it into practice. That includes friend-shoring, which is the notion that the US and its allies can easily reroute international supply chains away from China and Russia and toward “friendly” countries. The name itself sounds almost suspiciously upbeat. friend-shoring. similar to helpful neighbors who assist one another in moving furniture. Anyone who has spent time observing the actual workings of manufacturing will tell you that the reality is far less wholesome.

Around 2021, the idea entered the lexicon of US trade policy, gaining traction as supply shocks during the COVID-19 pandemic, Russia’s invasion of Ukraine, and a bitter trade war with Beijing suddenly made globalization seem precarious. The most well-known advocate for it was US Treasury Secretary Janet Yellen, who outlined a future in which the US would strengthen its commercial ties with nations that shared its values—reliable partners who wouldn’t hold supply chains hostage. It was clearly appealing. Politicians needed something to say after witnessing ventilator shortages and semiconductor droughts reveal how concentrated global manufacturing had become. Friend-shoring was simple, straightforward, and patriotic.

What it lacked—and continues to lack—was a cogent industrial policy. The Hinrich Foundation’s detractors put it succinctly: those who support friend-shoring have wished for supply chain resilience without outlining the methods. Senior US officials haven’t always agreed on what friend-shoring actually entails; they’ve alternated between urging businesses to move their sourcing to allies and just providing full subsidies for manufacturing to take place in the United States. Gina Raimondo, the secretary of commerce, once declared that chips should only be produced in the United States. Yellen, on the other hand, talked about a larger network of allies. The two visions are not exactly the same. This ambiguity is important because the companies that are being asked to reorganize their entire supply chains require more than a catchphrase to support capital decisions worth billions of dollars.

Think about Apple. The company has made it clear for years that it wants to become less reliant on China. In India, it began manufacturing a few iPhone 14 models. Its biggest manufacturing partner, Foxconn, increased the size of its Vietnamese facilities. These are not merely press releases; they are actual actions. However, according to Bloomberg Intelligence, it would take about eight years to move just 10% of Apple’s production capacity out of China. Eight years. That’s ten percent. Approximately 98% of iPhones are still produced in China today. Regardless of the flag flying over the factory, none of the infrastructure, workforce density, close proximity to component suppliers, or institutional knowledge developed over two decades can be swiftly or affordably replicated.

Beneath the amiable branding is this logistical nightmare. A government’s announcement of a subsidy program does not cause manufacturing clusters to come together on their own. They evolve over time, influenced by particular labor, infrastructure, and geographic factors. Yellen herself mentioned India’s potential during a visit last year, and Vietnam is actually growing in importance as a center for electronics production. However, the kind of wholesale supply chain relocation that friend-shoring rhetoric suggests is not the same as organic industrial growth. According to Allianz Group, the US still relies on China for 276 categories of essential goods. Chemicals, metals, textiles, semiconductors—the list is extensive, and there aren’t any substitutes with excess capacity.

With over €43 billion in funding, the European Union, observing all of this from across the Atlantic, introduced its own version through the European Chips Act. Micron was given a $320 million incentive by Japan to increase semiconductor production in Japan. It would be incorrect to disregard these important commitments. However, it’s still unclear whether the financial incentives are significant enough to genuinely alter the long-term investment decisions made by multinational corporations or whether the political will to support them endures into the following budget cycle.

The unsettling calculation of the global costs of fragmentation is another. According to estimates from the World Trade Organization, dividing the global economy into distinct geopolitical trade blocs could eventually result in a 5% decline in GDP. It’s not a rounding error. With trade levels returning to roughly where they were prior to China’s 2001 WTO membership, that is a much poorer world. China and Russia wouldn’t necessarily be the nations that would feel that the most. These would be the developing countries that are torn between the two camps.

At its best, friend-shoring acknowledges that excessive concentration in international supply chains poses a genuine risk. At its worst, it’s a costly political signaling exercise that forces businesses to make structurally challenging choices based on shifting geopolitical commitments with each election cycle. Just because Washington wants the factories to move doesn’t mean they will. Additionally, the allies being courted, such as South Korea, Vietnam, Indonesia, and India, have their own timelines, relationships with Beijing, and economic interests. Diplomatic cues do not cause the world to reorganize itself. That is evident to anyone who has ever witnessed a major manufacturing company attempt to move a single production line. Doing it for ideological reasons across a whole world economy in a matter of years? It’s not a policy. It’s a wish.