Autor: Nermin Sefić
Three decades after the fall of the Berlin Wall and China's entry into the World Trade Organization marked the beginning of the hyperglobalization era, the world is witnessing the opposite trend. The…
Three decades after the fall of the Berlin Wall and China's entry into the World Trade Organization marked the beginning of the hyperglobalization era, the world is witnessing the opposite trend. The pandemic, the war in Ukraine, rising geopolitical tensions between the United States and China, and repeated supply shocks for key goods have prompted companies and governments to reconsider the decades-dominant logic of globally optimized, purely cost-driven supply chains.
The dominant supply-chain management philosophy of prior decades, known as "just-in-time," minimized inventory and relied on precisely coordinated, globally distributed supply networks delivering components exactly when needed, minimizing storage costs and tied-up capital. This approach, while extremely efficient under stable conditions, proved highly vulnerable to disruption — a single shutdown at one factory on the other side of the world could halt production lines across the global supply chain.
The pandemic dramatically exposed this vulnerability, with shortages ranging from personal protective equipment to semiconductor chips, the latter causing months of delays in automobile and electronics production worldwide. These experiences prompted a widespread shift toward "just-in-case" philosophy, accepting higher storage and redundancy costs in exchange for greater resilience against future disruptions.
Alongside operational resilience, geopolitics has become an increasingly significant factor in production-location decisions, in ways that go beyond traditional labor and transport cost-minimization logic. Rising tensions between the United States and China, including trade tariffs, export restrictions on advanced technologies, and broader concerns about dependence on suppliers in potentially hostile jurisdictions, have driven a strategy known as "friend-shoring" — relocating production toward politically close countries, even when this means higher production costs than the cheapest available alternative.
This dynamic is particularly pronounced in sectors considered strategically sensitive — semiconductors, advanced batteries, pharmaceutical ingredients, and military equipment — where governments actively subsidize domestic or regional production through industrial policy, recognizing that purely market-based cost-minimization logic isn't sufficient when national security and strategic autonomy are at stake.
Despite strong rhetoric about "the end of globalization" dominating political debates, the actual scope of relocating production back to developed economies remains considerably more modest than public perception suggests. Most companies, facing the real costs of full reshoring, choose hybrid strategies — diversifying sources instead of fully returning to domestic production, relocating more sensitive components of the production process while leaving less critical parts at existing, cheaper locations, or "nearshoring" toward geographically close but still cheaper countries instead of fully returning to the country of origin.
Mexico is one of the most significant beneficiaries of this dynamic, with American companies increasingly relocating production from China toward Mexico, combining geographic proximity to the American market with production costs that remain significantly lower than American ones, though higher than Chinese ones. This dynamic illustrates a broader point — reshoring isn't a simple return of production home, but a complex reshuffling of global supply chains toward new patterns balancing cost, resilience, and geopolitical security.
Every supply-chain diversification and redundancy strategy carries a clear price — higher production costs ultimately passed on to consumers through higher prices. This dynamic represents one of the structural factors contributing to long-term inflationary pressure, contrasting with decades of deflationary pressure that globalization generated through continuous relocation of production toward the cheapest available locations.
Companies and governments face a fundamental trade-off between efficiency and resilience that isn't new, but has become considerably more visible and politically relevant following a series of disruptions in recent years. Finding the right balance between these two goals — enough diversification to reduce catastrophic-disruption risk, without fully sacrificing the cost efficiency that enabled decades of global economic growth — remains a central question of supply-chain strategic planning in the coming decade.
The semiconductor chip industry illustrates nearly every dimension of the broader supply-chain reshuffling story in concentrated form. Production of the most advanced chips is concentrated in a dramatically small number of facilities, mostly in Taiwan, creating what analysts call the "silicon shield" — a situation where global dependence on Taiwanese chip production acts as a kind of deterrent factor against military escalation, given that any conflict disrupting that production would have catastrophic global economic consequences for all sides involved in the conflict, including China itself.
This concentration has spurred massive government subsidies in the United States, European Union, Japan, and South Korea aimed at building domestic chip-production capacity, but these efforts face significant time and technical challenges. Building a chip factory requires not just billions of dollars in capital but also highly specialized workforce and decades of accumulated technical knowledge that can't simply be replicated through rapid capital investment, making actual diversification of this specific supply chain a particularly slow process even with strong political will and financial support.
While supply-chain diversification is justified from a national-security and operational-resilience perspective, its cost ultimately falls on consumers through higher product prices. Economists estimate that relocating production from the cheapest available locations toward politically more desirable but more expensive alternatives adds a measurable percentage to the production cost of many consumer goods, a contribution that accumulates through the broader economy and acts as a persistent, structural factor of inflationary pressure supplementing cyclical factors like monetary policy.
A new generation of trade agreements increasingly includes elements going beyond the traditional focus on tariff reduction, including provisions on supply-chain security, common standards for critical sectors, and mechanisms for coordinating responses to future supply disruptions.
While discussion of reshoring and supply-chain diversification often focuses on large multinational corporations with resources for significant capital investment in new production, small and medium enterprises face their own specific challenges in this transition.
Mexico recorded a record $36.87 billion in foreign direct investment in 2024, a figure that at first glance confirms the narrative of Mexico as a major winner of supply-chain reshuffling. But closer analysis of that figure, conducted by Dallas Federal Reserve researchers, reveals a considerably more complicated picture. About 78% of that total ($28.71 billion) was reinvestment of profits by existing companies already operating in Mexico, not the arrival of new investors. Actual new investment — capital from companies entering the Mexican market for the first time — totaled just $3.17 billion, a 34% decline from the prior year and the lowest level since 1993.
This nuance significantly changes the interpretation of Mexico's "nearshoring boom." Instead of a wave of entirely new factories and investors massively leaving China for Mexico, the actual picture more closely resembles existing companies deepening already-existing investments, while the wave of entirely new investors, despite wide media attention devoted to the nearshoring topic, remains considerably more modest than would be expected. The automotive industry, which attracts the largest single segment of Mexican FDI (close to $6.9 billion in 2024), best illustrates Mexico's long-standing, already-existing integration into North American supply chains, rather than an entirely new phenomenon.
Chinese investment in Mexico, despite the political attention it draws in Washington due to concerns about Mexico potentially being used as a backdoor to circumvent US tariffs on Chinese products, remains relatively modest in absolute figures — just 10-13% of total US investment into Mexico according to Dallas Fed analyses, though the structure of that investment has shifted from acquiring existing companies toward "greenfield" investments in new production, with nearly 70 new Chinese investments in the 2020-2024 period, compared to just 16 acquisitions in the prior five-year period.
The American CHIPS and Science Act of 2022 allocated $52.7 billion for manufacturing, research, and workforce development in the semiconductor industry, plus an additional $24 billion in tax credits — of which $39 billion was earmarked for direct grants and loans. Intel was approved for the largest single amount, $8.5 billion in grants and $11 billion in loans, while TSMC was approved for $6.6 billion in grants for three facilities in Arizona. A May 2024 analysis by the Semiconductor Industry Association and Boston Consulting Group projects that with CHIPS Act support, US chip-manufacturing capacity will grow by 203% by 2032, raising the US share of global capacity from 10% to 14% — the first growth after several decades of continuous decline.
The European Union responded with its own Chips Act, which entered into force in September 2023, aiming to mobilize €43 billion in public and private investment by 2030, with the goal of doubling Europe's share of the global semiconductor market from 10% to at least 20%. By December 2024, seven state-aid decisions had been approved, worth over €31.5 billion in combined public and private investment, while a dedicated EU Chips Fund supported 76 startups from 18 countries.
Still, critics like the Information Technology and Innovation Foundation warn these figures, however impressive, don't resolve the fundamental manufacturing cost gap between the United States and Asia, which remains between 30% and 50% — explaining why even with significant subsidies, covering roughly 30-35% of total investment costs, building new capacity in the US and Europe remains a more expensive option than production in Taiwan, South Korea, or Japan, where an estimated 83% of global manufacturing capacity, according to Norton Rose Fulbright, remains concentrated.
Vietnam is often cited as the biggest success of the "China Plus One" strategy — relocating production outside China to reduce geopolitical risk. Vietnam's total exports grew 14.3% in 2024 to $405.5 billion, with the US as the largest single market ($142.48 billion in exports). But a closer look at trade flows reveals an ironic pattern that raises questions about how much this diversification actually reduces Chinese supply-chain dominance.
Chinese exports to Vietnam grew 18% in 2024 to a record $163 billion — for the first time exceeding Chinese exports to Japan. According to Bloomberg analysis, eight of the top ten products with the highest growth in Chinese exports to Vietnam were electronic components, and intermediate goods (semi-finished products intended for further processing) accounted for 69.8% of total trade in the first 11 months of 2023. In other words: a large share of "Vietnamese" exports actually represent Chinese components assembled in Vietnam and then re-exported, often to the United States — a dynamic explaining why the US trade deficit with Vietnam reached a record $113.1 billion in the first 11 months of 2024.
This pattern illustrates a fundamental limitation of the "China Plus One" strategy often insufficiently recognized in broader supply-chain diversification discussions: relocating mere assembly and final product assembly outside China doesn't necessarily reduce actual dependence on Chinese components and intermediate products along the supply chain. Foxconn subsidiary Hon Hai, for instance, began manufacturing Nvidia AI graphics cards in Vietnam using key components sourced from China — a geographic relocation of final production that doesn't change actual structural dependence on the Chinese intermediate-goods supply chain.
Alongside semiconductor chips, active pharmaceutical ingredients (APIs) represent an equally, if not strategically more dangerous, category of concentrated dependence on China — a risk that remains considerably less visible to the broader public despite its direct connection to population health. China controls an estimated 80% of the global generic active pharmaceutical ingredient supply chain, according to a 2026 analysis, while India — known as the "pharmacy of the world" for exporting 20% of global generic drugs and over 60% of global vaccine demand — itself imports 70-72% of its own API needs precisely from China.
This dependency becomes particularly acute for specific, critical drugs — an Indian parliamentary committee found India is entirely (100%) dependent on Chinese imports for 45 critical bulk drugs, while heavily dependent on China for an additional 58 APIs. Antibiotics represent a particularly sensitive category within this broader dependency — 87% of all Indian antibiotic imports come from China, creating a direct link to the antimicrobial resistance topic covered earlier in this series, given that any disruption to that supply chain would directly threaten global capacity to treat bacterial infections.
The 2020 COVID-19 pandemic served as a brutal stress test of this system's resilience, when Chinese factory shutdowns directly disrupted Indian pharmaceutical supply chains despite India's status as the world's largest generic-drug supplier. According to data released in March 2026, Chinese imports still account for 70% or more of India's total imports for a wide range of critical APIs in fiscal years 2023-24 and 2024-25, with limited reduction between periods despite government incentive programs aimed at domestic production.
Bain & Company analysts project China's share of the global outsourced pharmaceutical market could decline by roughly 10 percentage points by 2030, stabilizing around 15%, with India expected to capture 20-30% of that lost share thanks to a combination of lower labor costs and regulatory compliance with Western standards like the US FDA. Still, even that optimistic scenario leaves China the dominant player in this critical, health-sensitive segment of the global supply chain for the foreseeable future.
The reshuffling of global supply chains represents one of the most significant structural changes in the global economy since China's entry into the WTO. While rhetoric about the complete end of globalization remains exaggerated, the actual shift toward more diversified, geopolitically aware, and resilient supply chains represents a lasting change that will shape global trade, investment, and prices over the coming decade.
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Autor i urednička odgovornost: Nermin Sefić. Izdavač: GNK ASG d.o.o..
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