Is US Friend-Shoring in Reverse?

America is moving its foreign supply-chain dependence away from its allies and toward China.

Factful Friday by Richard Baldwin, Professor, IMD Business School, 4 December 2025.

Introduction.

“Bring manufacturing home” has been part of America’s political soundtrack for more than a century. It was heard when wartime planners in the 1940s fretted about self-sufficiency, when Japan’s rapid postwar industrialisation slashed American firms’ market shares in cars, electronics, and semiconductors, and when US firms offshored manufacturing jobs to Mexico, China, and other low-wage nations.

It got a new twist when then-Treasury Secretary Yellen introduced the idea of “friend-shoring,” which meant shifting foreign supply-chain dependence toward countries that were allies rather than adversaries.

The Trump administration, characteristically, has dropped the “friend” part. Now the jobs should be inside the US, and he believes his tariffs will make that happen:

“Jobs and factories will come roaring back into our country.”

- President Trump, 2 April 2025.

Many announcements were shared by the White House.[i] These included TSMC’s announcement of a $100 billion investment in US-based semiconductor manufacturing; Apple’s announcement of a $500 billion investment that will create 20,000 new US-based jobs; a $20 billion investment by DAMAC Properties to build new US-based data centres; and Eli Lilly and Company’s announcement of a $27 billion investment in its US-based manufacturing.

Such announcements created the impression that US exposure to foreign production, China in particular, was falling fast.

The Facts.

It was not. Not at the aggregate level. As the chart below shows, US manufacturing’s exposure to Chinese industrial inputs at the aggregate level has risen steadily since the 1990s. In particular, it did not fall after President Trump started placing large tariffs on China in 2018. The line climbs from near-zero in 1995 to roughly 2% by 2008, then to around 2.5–2.7% in the late 2010s, and still sits at 2.5% in 2022.

What is the FPEM measure of foreign supply-change exposure?

A word or two about the specific measure used in this chart, namely FPEM which I introduced in 2023 along with Rebecca Freeman and Angelos Theodorakopoulos.[ii] It is one of the many measures of complete supply-chain dependencies that look beyond bilateral imports (see Borin, Mancini & Taglioni 2025). Our indictor, which has been adopted by the OECD, is call FPEM (Foreign Production Exposure, iMport side).

FPEM is a “look-through” measure of supply-chain exposure in the sense that it tells us how much of the industrial inputs used in US manufacturing ultimately come from a given foreign economy once we account for the entire complex web of countries selling parts to make parts to make final goods. Instead of just looking at US imports of inputs from China, it includes, for example, Chinese inputs in German brakes that America imports from Germany.

Specifically, FPEM is share of industrial inputs used by US industry that is ultimately sourced in a particular country like China. So 2% means, 2% of all the inputs used by US manufacturers comes from China once you take account of all the Chinese inputs that go into inputs US firms buy from third nations.

Calculating the FPEM indicator requires an input–output table that covers the whole world, and that, in turn, means the data is delayed by years. The OECD is perhaps the most reliable source of this type of global input-output matrix, and it is the one on which the charts in this Factful Friday are based.

Turning back to the chart, a couple of caveats are needed. To be fair, these are not big numbers – topping out at something like 2.6%. The US is, and always has been, the dominant supplier of industrial inputs to itself. And note that the data only runs to 2022, so it does not yet capture the full effect of the new US subsidies under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, or the Inflation Reduction Act (IRA), nor the impact of the 2025 Trumpian tariffs. Lastly, it is a broad average, spanning all manufacturing. This means it masks trends in the handful of strategic industries that were the focus of the Biden Administration.

But no matter what the level is, one thing is clear. The US is not decreasing its overall dependence on China. US manufacturing remains at least as exposed to Chinese inputs as before.

That raises the question. Is the whole reshoring thing just a myth based on a handful of high-profile examples?

Reshoring is real, decoupling from China is not.

Aggregate exposure to all foreign industrial inputs actually fell after the Global Financial Crisis. The black line in the chart drops from almost 16% of total inputs in 2008 to around 13–14% in the years after. This is an important fact. At the broadest level, US manufacturing did become less dependent on foreigners – at least up to the 2010s.

But if US exposure to China was rising yet overall foreign exposure was falling, who did US manufacturers switch away from?

The blue line in the chart tracks exposure to the sum of exposure to the other G7, six major emerging economies, and China. Note that the sum does not fall after 2008. Pure logic tells us that China was displacing others. But who?

The chart below provides the answer. Since the 1990s, US manufacturers have steadily reduced their reliance on G7 allies (Canada, Japan, Germany, the UK, France, and Italy). At the same time, they increased sourcing from China and six rapidly industrialising emerging economies (Mexico, Korea, India, Brazil, Taiwan, and Vietnam). The trend is unmistakable: the G7 line drifts down; the China and EM lines climb up. China rises the most, from near-zero in 1995 to nearly 3% by 2022.

This is friend-shoring in reverse. US manufacturing supply chain became less global, but it did so by shifting away from traditional allies and shifting toward rising rivals. American manufacturing did not diversify away from China; it diversified away from the G7 allies.

Summary and Concluding Remarks.

This pattern of reverse friend-shoring matters. It means that even if reshoring is happening in high-profile sectors, US manufacturing is becoming ever more entwined with Chinese manufacturing.

This simple fact raises a difficult question for policymakers and executives. If reshoring reduces dependence on the world but increases dependence on China, what does “resilience” really mean? Sourcing is now far more concentrated geographically than it was two decades ago.

It also shows that even if the United States succeeds in reshoring specific technologies, or building domestic redundancy in strategic arenas, unwinding its broader industrial interdependence with China is unlikely to happen any time soon. This is the ‘Omelette Problem.’ Having cooked the ‘eggs’ of America’s industrial base in an international supply-chain ‘omelette,’ there is no getting back the individual eggs.

Closing remarks.

So where does that leave us? It leaves us with a simple but uncomfortable conclusion: the United States has reduced its dependence on the world, but not on China. Just the opposite. In aggregate, manufacturing is more exposed, not less.

Recognising that reality is the first step toward designing any sensible policy response, whether that is a ‘real’ decoupling policy, or a ‘modus vivendi’ policy that puts guardrails on international supply chains.

References.

Baldwin, R. E., Freeman, R., & Theodorakopoulos, A. (2023b). Hidden exposure: Measuring US supply chain reliance. Brookings Papers on Economic Activity, 54(2), 79–167.

Baldwin, R., Freeman, R., & Theodorakopoulos, A. (2022). Horses for courses: Measuring foreign supply-chain exposure (NBER Working Paper No. 30525).

Borin, A., Mancini, M., & Taglioni, D. (2025). Economic consequences of trade and global value chain integration: A measurement perspective. World Bank Economic Review. https://doi.org/10.1093/wber/lhaf017

OECD & WTO. (2023). Guide to OECD’s Trade in Value Added (TiVA) indicators (2023 edition). OECD Publishing.

OECD. (2021). Trade policy implications of global value chains: Preliminary observations from the 2021 TiVA database. OECD Publishing.

OECD. (2022). Global value chain dependencies under the magnifying glass. OECD Publishing.

The White House. (2025, March 18). President Trump is putting American workers first — and bringing back American manufacturing. https://www.whitehouse.gov/articles/2025/03/president-trump-is-putting-american-workers-first-and-bringing-back-american-manufacturing/

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[i] The White House. (2025, March 18).

[ii] Baldwin, Freeman, and Theodorakopoulos (2022, 2023).