Reshoring, Nearshoring and Friendshoring

Why some companies and governments want to move production closer to home or to allied countries, and what it would cost.

For decades, companies moved production to wherever it was cheapest, often to China and other Asian countries. After the pandemic, the chip shortage and rising tensions between major powers, many are reconsidering. New words describe the options.

The options

Reshoring: bringing production back to a company’s home country.
Nearshoring: moving production to a nearby country, such as a U.S. company shifting from Asia to Mexico.
Friendshoring: moving production to politically allied countries, reducing the risk of disruption from conflict or sanctions.
China plus one: keeping production in China but adding a second supplier country, such as Vietnam or India, to spread risk.

Why it is happening

Several forces push in this direction:

Resilience: relying on one distant country proved risky during the pandemic.
Geopolitics: tariffs, export controls and fears of conflict raise the risk of depending on rival countries.
Government incentives: subsidies for domestic production of chips, batteries and clean energy.
Rising costs in China: wages there have risen substantially.

Is it actually happening?

Evidence is mixed. U.S. imports from China have fallen as a share of total imports, while imports from Mexico, Vietnam and other countries have grown. Mexico overtook China as the largest source of U.S. goods imports in 2023. But studies suggest some of this shift is indirect: Chinese components are increasingly assembled in other countries before reaching the United States.

India's opportunity

India has tried to attract companies adopting a China plus one strategy through its Production Linked Incentive schemes. Apple's suppliers have greatly expanded iPhone assembly in India, and India has become a major exporter of smartphones. Many components, however, are still imported, showing how hard it is to move an entire supply chain.

The costs

Moving production is expensive. New factories must be built, workers trained and suppliers developed. Goods produced in higher-cost countries are more expensive. Economists at the IMF and elsewhere have warned that fragmenting global trade into rival blocs could reduce global output, with poorer countries losing the most.

Thinking supply chains can be moved quickly

A product's supply chain may involve hundreds of suppliers built up over decades. Moving final assembly is easier than moving the whole chain of components, skills and infrastructure. Real shifts happen gradually over many years.

Key takeaways

Reshoring, nearshoring, friendshoring and China plus one describe moves away from concentrated supply chains.
Resilience, geopolitics, subsidies and rising Chinese wages drive the shift.
Mexico overtook China as the top source of U.S. imports in 2023, though Chinese parts often still flow indirectly.
Moving supply chains is slow and costly, and fragmenting trade could reduce global output.