Supply Chain Economics: Nearshoring, Reshoring, and Friendshoring Explained

In 2023, something happened that had not occurred in over two decades: Mexico overtook China as the largest source of US imports. It was not a statistical anomaly. It was the most visible signal of a tectonic shift in global trade, one that is rewriting the economic geography of the world.

For thirty years, the dominant logic of globalisation was straightforward: produce where costs are lowest, ship to where demand is highest, and let comparative advantage sort out the rest. This logic gave us the hyper-efficient, continent-spanning supply chains that delivered smartphones assembled in China from components made in South Korea, Japan, and Taiwan, all shipped through the Suez Canal or the Strait of Malacca, arriving in American and European homes within weeks.

Then a pandemic shut down factories, a war in Ukraine disrupted energy markets, tariffs rewrote trade rules, and a conflict in Iran threatened to choke the world’s most critical oil shipping lane. In the space of five years, the assumptions underpinning global supply chains were stress-tested to breaking point, and many of them broke.

The response has been a historic restructuring of where and how goods are produced. Three strategies have emerged at the centre of this transformation: reshoring, the return of production to the home country; nearshoring, the relocation of production to nearby countries; and friendshoring, the shift of sourcing toward geopolitically aligned nations. Together, these strategies represent the most significant reorganisation of international trade since the era of offshoring began in the 1990s.

Why Supply Chains Are Being Restructured

The current supply chain transformation did not result from a single event. It is the cumulative response to five interconnected shocks that, together, have fundamentally altered how businesses assess the trade-off between cost efficiency and supply security.

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Shock 1: The COVID-19 Pandemic (2020-2022)

The pandemic exposed the fragility of just-in-time global supply chains in ways that no economic model had predicted. When Chinese factories shut down in early 2020, the ripple effects cascaded through every industry on Earth. Automobile manufacturers could not get semiconductor chips. Hospitals could not get protective equipment. Retailers could not get goods on shelves. A Forbes survey found that 85% of manufacturers stockpiled goods and materials in response to these disruptions, abandoning the lean inventory model that had defined supply chain management for decades.

Shock 2: The Russia-Ukraine War (2022-present)

Russia’s invasion of Ukraine in February 2022 disrupted energy supply chains, wheat exports, and fertiliser markets simultaneously. It demonstrated that geopolitical conflict could weaponise economic interdependence, turning trade relationships into strategic vulnerabilities. European manufacturers that depended on Russian natural gas faced an existential crisis, forcing an emergency pivot to alternative suppliers.

Shock 3: The US-China Trade War (2018-present)

Escalating tariffs and trade barriers between the world’s two largest economies have made China-dependent supply chains increasingly expensive and risky. US effective tariff rates on Chinese goods have reached levels not seen since the 1930s. Over 3,000 new trade policy measures were introduced globally in 2025 alone, triple the level a decade earlier. Businesses that once optimised purely for cost now must factor in tariff uncertainty, export controls, and the risk of sudden policy changes.

Shock 4: The Iran War and Strait of Hormuz Crisis (2026)

The most recent shock demonstrated that even the brief closure of a single chokepoint, the Strait of Hormuz, through which 20% of global oil and LNG transits, could send oil prices past $100 per barrel and force every major central bank to freeze its monetary policy. The April 7 ceasefire has brought temporary relief, but the episode reinforced the lesson that geographic concentration of supply routes is itself a form of supply chain risk.

Shock 5: The Semiconductor Supply Crisis

The global chip shortage that began in 2020 and persisted through 2023 revealed that the entire world economy depended on a handful of fabrication facilities, most of them in Taiwan and South Korea. When production faltered, industries from automotive to consumer electronics to medical devices ground to a halt. This single vulnerability catalysed the most ambitious industrial policy response in decades: the US CHIPS Act, the EU Chips Act, and similar programs in Japan, South Korea, and India.

The Three Strategies Explained

Reshoring

Reshoring is the most politically visible of the three strategies. It involves returning manufacturing and production operations to the company’s home country, reversing decades of offshoring. The economic rationale is straightforward: reshoring eliminates dependence on foreign suppliers, reduces transportation costs and lead times, creates domestic jobs, and strengthens national security.

The scale of reshoring activity, particularly in the United States, has been remarkable. According to a Forbes survey, 82% of US manufacturers have moved factories back to the US or are in the process of doing so, up from 55% in January 2023. A Chief Executive survey found that 58% of CEOs with overseas operations are now considering reshoring. And only 7% of manufacturers report not discussing reshoring at all, meaning virtually every American manufacturer is at least evaluating the option.

The US CHIPS and Science Act of 2022 has been the most powerful policy catalyst. The legislation provides $50 billion in federal funding for domestic semiconductor manufacturing, research, and workforce development. As of July 2025, Commerce had awarded $30.9 billion across 40 projects. TSMC alone has committed $165 billion to its Arizona manufacturing complex. In total, private investments exceeding $540 billion have been announced since the Act’s introduction.

However, reshoring faces significant economic constraints. Labour costs in the US are substantially higher than in China, Vietnam, or Mexico. A critical shortage of skilled manufacturing workers limits the pace of factory construction. And for many products, the complete domestic supply chain simply does not exist. Building it from scratch takes years and billions of dollars. Bank of America research found that only 20% of survey respondents expect significant reshoring, while 40% anticipate mild relocation to the US in select sectors, primarily capital-intensive industries like electronics, biotechnology, and metals.

Nearshoring

Nearshoring offers a middle path between the cost savings of offshoring and the security of reshoring. By relocating production to nearby countries, companies can shorten supply chains, reduce transportation times from weeks to days, operate in similar time zones, and maintain lower labour costs than domestic production would allow.

Mexico has been the single largest beneficiary of the nearshoring wave. Its geographic proximity to the United States, the USMCA trade agreement that ensures preferential market access, competitive labour costs, and existing manufacturing infrastructure have made it the default nearshoring destination for North American companies. QIMA’s 2025 sourcing survey found that 33% of US businesses were planning to increase nearshoring volumes, with Latin America as the primary target region. BCG projects that US-Mexico trade will grow by an additional $315 billion in the coming years.

In Europe, the nearshoring pattern is different but equally pronounced. European buyers have shifted procurement toward Mediterranean and Eastern European suppliers. QIMA data for Q2 2025 showed inspection demand surging in Morocco (+53% year-over-year), Egypt (+73%), and Tunisia (+35%). Turkey has emerged as a major nearshore hub for European companies, with audit and inspection demand rising 27% in 2024. Poland hosted 61 new business services centres between 2024 and Q1 2025, adding 5,400 jobs, with IT accounting for 43% of new centres.

The economics of nearshoring are compelling because they address the primary weakness of reshoring, high labour costs, while still delivering most of the supply chain resilience benefits. However, nearshoring is not without challenges. Infrastructure gaps in some nearshore destinations, energy grid constraints in Mexico, bureaucratic hurdles, and the need to develop new supplier relationships all slow implementation.

Friendshoring

Friendshoring, a term coined by US Treasury Secretary Janet Yellen in a 2022 speech, refers to the deliberate shift of supply chains toward countries that share similar political values, governance standards, and strategic interests. Unlike nearshoring, which is primarily driven by geographic proximity, friendshoring is driven by geopolitical alignment.

The logic is rooted in the lessons of the past five years: economic interdependence with geopolitical adversaries creates vulnerabilities that can be exploited during conflicts. When Russia weaponised energy exports in 2022, European countries that depended on Russian gas faced economic blackmail. When US-China tensions escalated, companies with concentrated Chinese supply chains faced sudden tariff exposure and export control restrictions.

The beneficiaries of friendshoring are countries that are not only low-cost but also politically stable and aligned with major trading blocs. Vietnam has emerged as the most prominent winner, absorbing manufacturing that has moved out of China. India, with its massive labour force and growing manufacturing capability, is positioning itself as a friendshoring destination through initiatives like “Make in India.” In North Africa, Morocco, Egypt, and Tunisia are capturing European supply chain investment as companies diversify away from Asian dependence.

An important nuance identified by Stanford’s SCCEI research is that friendshoring does not necessarily reduce China’s role in global supply chains as much as it appears. China has deepened its own trade ties with “friendshore” nations like Vietnam and Mexico. Chinese companies have invested heavily in manufacturing facilities in these countries, meaning that goods labelled “Made in Vietnam” or “Made in Mexico” may still contain substantial Chinese content. The researchers describe this as the “Great Reallocation” rather than deglobalisation, noting that global trade has remained around 60% of world GDP despite all the disruptions.

The chart captures the restructuring in stark terms. China’s share of US imports has dropped from 22% in 2017, its pre-trade-war peak, to approximately 13.5% in 2025. Meanwhile, Mexico has risen from 13% to nearly 16%, overtaking China as the largest single source of US imports. Vietnam has doubled its share. India has grown by more than 50%. This is not a theory or a forecast. It is a transformation already underway in the data.

Strategy	Key Driver	Cost Impact	Top Beneficiaries	Biggest Policy Example
Reshoring	National security, supply control	+20-40% vs offshoring	United States, EU members	US CHIPS Act ($50B federal + $540B private)
Nearshoring	Proximity, speed, moderate cost	+5-15% vs offshoring	Mexico, Poland, Turkey, Central America	USMCA trade agreement
Friendshoring	Geopolitical risk reduction	Variable (often neutral)	Vietnam, India, Morocco, Egypt	EU-Mediterranean sourcing expansion

The Economics of Resilience vs. Efficiency

The supply chain restructuring represents a fundamental shift in how businesses think about trade. For three decades, the guiding principle was cost efficiency: minimise production costs, optimise logistics, and accept the risks of geographic concentration in exchange for lower prices. This was the gains-from-trade argument applied to corporate strategy.

The new principle is resilience: diversify supply sources, build redundancy into supply chains, and accept higher costs in exchange for reduced vulnerability to disruption. A World Economic Forum analysis found that 74% of business leaders now prioritise resilience over pure efficiency when designing supply chains.

This shift has real economic consequences. More resilient supply chains are more expensive supply chains. Consumers ultimately pay for supply chain restructuring through modestly higher prices. Economists estimate that full reshoring of critical manufacturing would add 1 to 3 percentage points to consumer prices in affected sectors. Nearshoring and friendshoring impose smaller cost premiums but still represent a departure from the lowest-cost-at-all-costs model.

The question facing every economy is: how much resilience is worth paying for? The answer depends on how frequently and severely supply chains are disrupted. If the five shocks of 2020 to 2026 are aberrations, then the restructuring may prove to have been an overreaction that permanently raised costs. If they are the new normal, as many analysts believe, then the investment in resilience will prove to have been prudent and, over the long run, cost-effective.

Who Wins and Who Loses?

Winners

Mexico is the single largest winner. Its transformation from a nearshoring aspiration to America’s top trade partner is the defining supply chain story of the decade. Mexican manufacturing employment is surging, foreign direct investment is at record levels, and the country’s role as a bridge between Asian production networks and the US consumer market gives it a structural advantage that tariffs and trade wars have only strengthened.

Vietnam and India are the primary friendshoring beneficiaries. Vietnam’s share of US imports has doubled since 2017 and continues to grow. India’s “Make in India” initiative, combined with its massive and young labour force, positions it as a long-term manufacturing alternative to China. Apple’s decision to manufacture iPhones in India is perhaps the most symbolically significant friendshoring decision of the decade.

Mediterranean North Africa is emerging as Europe’s nearshore manufacturing hub. Morocco, Egypt, and Tunisia are capturing European supply chain investment with double-digit growth rates in sourcing activity.

Losers

China has seen its share of US imports decline by nearly 40% from its peak, though it remains the world’s largest manufacturer and exporter. The Stanford SCCEI research notes that China is partially compensating by deepening its trade ties with the very countries that are benefiting from nearshoring and friendshoring, embedding itself further into global supply chains through indirect channels.

Small developing economies that lack the infrastructure, workforce, or geopolitical alignment to attract supply chain investment risk being left behind. The restructuring favours countries with existing manufacturing capability and strategic relationships, which means that the poorest nations may see the gap between themselves and middle-income competitors widen further.

What This Means for Consumers and the Global Economy

For consumers in the US, UK, Canada, and the EU, supply chain restructuring means a modest but persistent increase in the cost of manufactured goods. Products that were once made in China at the lowest possible cost are increasingly being made in Mexico, Vietnam, or domestically at slightly higher cost. The trade-off is that these products are less likely to be suddenly unavailable due to a pandemic, a war, or a shipping chokepoint closure.

For the global economy, the restructuring represents a partial reversal of the hyper-globalisation that characterised the 1990s and 2000s. Global trade as a share of GDP has plateaued rather than grown. Regional trade blocs (North America, the EU, and an emerging Asian bloc centred on ASEAN plus Japan, South Korea, and India) are strengthening relative to cross-regional trade. Some economists describe this as “slowbalisation” or “regionalisation” rather than deglobalisation, noting that trade is being reorganised rather than reduced.

For multinational corporations, the era of single-source supply chains is over. The new operating model is what consultants call “multi-shoring” or “China plus one” (or “China plus many”): maintaining some Chinese manufacturing capacity while building parallel supply lines in nearshore and friendshore locations. This is more expensive and more complex to manage, but it reduces the catastrophic risk of a single-point-of-failure supply chain.

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Key Takeaway and Conclusion

The restructuring of global supply chains is not a temporary reaction to a series of crises. It is a structural transformation driven by the realisation that the hyper-efficient, geographically concentrated supply chains of the globalisation era carried hidden risks that only became visible under extreme stress. The pandemic, the Ukraine war, the US-China trade war, the semiconductor shortage, and the Iran war have each reinforced the same lesson: resilience matters, and it has a price that most businesses and governments are now willing to pay.

The three strategies at the heart of this transformation, reshoring, nearshoring, and friendshoring, are not mutually exclusive. Most companies are deploying all three simultaneously, creating layered supply chain architectures that trade some cost efficiency for dramatically reduced vulnerability. The data shows that this shift is real and accelerating: Mexico has overtaken China as the top US trade partner, over $540 billion in domestic semiconductor investment has been committed under the CHIPS Act, and European sourcing from Mediterranean and Eastern European nearshore hubs is growing at double-digit rates.

For the global economy, this means a new era in which the dynamics of international trade are shaped as much by geopolitics and resilience calculations as by comparative advantage and cost optimisation. The countries that position themselves at the intersection of these forces, offering both competitive costs and strategic reliability, will be the winners of the next decade of global trade.

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