The big re-shoring puzzle

Since 2020, governments across the US, Europe and the UK have promoted re-shoring, near-shoring and friend-shoring as ways to strengthen supply chains, create jobs and reduce strategic dependence on China.
 
But how much of this shift is genuinely bringing industry home, and how much is simply reorganising global trade?
 
In this episode of Trade Links, Tim Phillips is joined by Aastha Gupta and Scott Livingstone to separate the headlines from the underlying data.
 
In this episode:
 
Is re-shoring really happening?
 
Aastha explains how industrial policies such as the US CHIPS Act and Inflation Reduction Act have channelled hundreds of billions of dollars into semiconductors, electric vehicles and clean technology.
 
However, the evidence suggests that the re-shoring story is more complicated than political messaging implies:
 
* Many supply chains remain heavily dependent on imported components.
* Production is often being rerouted through intermediary countries such as Vietnam and Mexico rather than returning home.
* New investment frequently represents additional capacity rather than relocation of existing manufacturing.
* Foreign firms are increasingly establishing local operations in Europe and North America.
 
The result is less a wholesale return of manufacturing and more a gradual reconfiguration of global supply chains.
 
The jobs question
 
Large investment announcements often promise tens of thousands of jobs, but the panel highlights an important distinction between construction employment and long-term operational jobs.
 
Capital-intensive sectors such as semiconductor fabrication, battery production and clean technology require enormous upfront investment but relatively modest permanent workforces.
 
The discussion asks whether today’s industrial policy is delivering broad-based reindustrialisation or simply targeted support for strategically important sectors.
 
Friend-shoring: Trading with trusted partners
 
Scott explores the rise of friend-shoring, where countries prioritise reliability, integrity and political dependability over lowest-cost suppliers.
 
Examples include:
 
* US–Vietnam trade ties
* Europe’s engagement with Saudi Arabia
* UK partnerships focused on critical minerals
 
The conversation examines how governments increasingly define “friends” through commercial resilience and strategic interests rather than shared political systems.
 
The costs of resilience
 
Re-shoring and friend-shoring may strengthen supply security, but they also come with trade-offs.
 
Economic costs include:
 
* Higher production costs
* Significant public subsidies
* Potential inflationary pressures
* Reduced efficiency from fragmented supply chains
 
Political challenges include:
 
* Greater fragmentation of the global trading system
* Managing increasingly transactional international relationships
* Questions over credibility when values-based foreign policy collides with commercial interests
 
US–China relations: Spin versus substance
 
The panel also revisits recent US–China engagement following President Trump’s visit to Beijing and ahead of a planned follow-up meeting in September.
 
Key questions include:
 
* Was the visit a diplomatic success for both sides?
* Did any meaningful structural agreements emerge?
* Could September bring progress on tariffs, rare earths or technology controls?
 
The panel concludes that recent engagement has largely focused on stabilising tensions rather than resolving fundamental disputes.
 
What to watch
 
Aastha’s radar: The growing use of “shadow fleets” transporting sanctioned oil from Russia and Iran is creating an increasingly opaque parallel trading system, raising questions about sanctions effectiveness and transparency in global commerce.
 
Scott’s radar: Military exercises around Taiwan and in the Baltic Sea this summer warrant close attention. Demonstrations of capability by Taiwan, China, NATO and Russia all carry the risk of misinterpretation and unintended escalation.
 
Speakers
 
Host: Tim Phillips
Guests: Aastha Gupta (European Economist)
Scott Livingstone (International Advisor)
 
Subscribe, leave a review, and join us for future episodes as we continue to unpack the world’s evolving trade landscape.
 
All details correct at time of recording.
 
For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html
Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html
 
Subtitles automatically generated.
 
Please check out and subscribe to our channels on Apple and Spotify.
 
This episode was recorded on 17 June 2026.

All details correct at time of recording.

For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html

Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html

Transcript

SPEAKER_01 0:13

Welcome back to TradeLinks brought to you by NatWest. My name's Tim Phillips. And welcome back to our regular panel, Asta Gupta, European Economist, Economics and Market Strategy for NatWest Markets. Hello, Asta.

SPEAKER_00 0:25

Hi, Tim.

SPEAKER_01 0:27

And hello to Scott Livingston, International Advisor for NatWest Group. Hello, Scott. Good afternoon, Tim. And I love your background, Scott. You are in a very, very busy room.

SPEAKER_02 0:40

I I am, Tim. I'm borrowing a location today, and I hope it doesn't distract.

SPEAKER_01 0:45

It will not. We are all in different locations today. Things, so many things are happening that we can't often be together, but thank you very much for sparing the time. Now, since 2020, reshoring has been industrial policy consensus across the US, the UK, Europe as well. Politicians promise shorter supply chains, strategic autonomy, reduced exposure to China. They promise jobs as well. What does the data tell us? Well, today we're investigating the reshoring dividend. Is it a myth or reality? So, Asta, let's compare the optics on reshoring to the reality. What announcements have we seen that have been positioned as reshoring and what economic benefits have been promised as a result?

SPEAKER_00 1:40

I think to understand that, Tim, we have to look at how industrial policy has completely shaped global capital flows since 2020. So reshoring has basically become the default political and investment framework across the West, especially UK, US, and Europe. So if you look at the headline examples, in the US alone, the CHIPS Act and the Inflation Reduction Act together are over about $400 to $500 billion in incentives. And they've driven this wave of headline announcements around semiconductor fabrication plants, electrical vehicle plants, and battery uh giga factories. In Europe and UK, uh, we see the same exact pattern with capital channeled into uh net zero supply chains, defense, and clean tech. So economically, the framing uh is always the same with these investment uh announcements uh promising broadly three things. First, massive employment figures, often thousands of uh tens of thousands of jobs per project headline. Second, supply chain security with supply chains coming back home. And third, a strategic reduction in import dependence on China. So on paper, it looks like a rapid rebalancing of global capacity, and the optics are about a broad manufacturing revival.

SPEAKER_01 3:10

Well, those are great optics, but what's actually being delivered, is this actually reshoring and is it delivering all those tens of thousands of jobs?

SPEAKER_00 3:18

So the reality on the ground is a little a lot more nuanced. Because if you look at the data, we aren't really seeing this massive wave of pure reshoring. Instead, what's actually being delivered is a mix of import substitution and a lot of friends shoring or near shoring through intermediary countries. So if you trace the supply chains of these new domestic factories, the underlying component pieces are still heavily imported. For example, we might assemble an EV battery or a sonar panel locally now. But the defined critical material or components are still coming from the exact same global hub. So rather than eliminating dependencies, we've often just removed, just moved the final or the capital intensive step of assembly closer to home. So if you take the US for as an example, imports are still a share as a share of GDP, are still close to around 14 to 15%, which is basically unchanged from pre-pandemic levels. And if you look at Europe, it's still a very similar story. Trade intensity hasn't collapsed. So what we are seeing instead is what people call slower slow ballarization. Supply chains are shifted, but they are not coming back home. And in fact, a lot of uh what's labeled as reshoring is actually two things. One, new capacity rather than relocation, or the second one is that foreign firms are building locally. For example, Asian battery companies are setting up in Europe now. So then if you look at China specifically, direct imports from China in the US have fallen, down from about 22% of imports in 2017 to close to around 14-15% now. But that's also been offset by rising imports from these connector countries like Vietnam and Mexico. So the supply chain hasn't shortened, it's just been rerouted. And that's why I'd say that we aren't really seeing reshoring. What we're seeing is more of a reconfiguration. On the jobs front, the delivery has been a lot more secure. Because I think the key thing here to note is that these announcements are very concentrated and are very capital intensive. For example, a single semiconductor fab can cost about 10 to 15 billion dollars, but it only employs maybe around 1500 to 3,000 workers. So the long-term operational employment footprint is often much smaller than the initial construction phase estimates that we keep hearing about. So what's really been delivered here is a modest bump in local high-tech assembly and a lot of supply chain rerouting rather than a wholesale return of industrial manufacturing and a large-scale reshoring.

SPEAKER_01 6:24

From what you're saying, Astor, it sounds like this is really concentrated in a few sectors. Does it does it matter if it is?

SPEAKER_00 6:32

It is very highly set uh concentrated. And I think this is very crucial because most of the activity is concentrated in three sectors. One, semiconductors, second is cleantech, especially batteries and electric vehicles, and thirdly, to some extent, in defense and critical minerals. And all of these sectors are first strategically important, second, they are highly capital intensive, and third, they're highly uh subsidized by the government, and they're not labor-intensive, also, and that is why they're not representative of the wider manufacturing base. So even though the investment numbers are big, but the employment effect is a lot smaller, and that's why it matters because it's not a broad reindustrialization story, it's a targeted industrial policy story with fairly limited spillovers to the rest of the economy.

SPEAKER_01 7:29

Scott, we also hear about this policy called friendshoring. What does friend shoring imply?

SPEAKER_02 7:38

So we're we're in the same the same ballpark of reshoring of or near shoring and bringing bringing manufacturing and supply chains closer to home. French friendshoring is a variation there. If if reshoring is about domestic politics and and getting some of those benefits that politicians promise with reshoring, and near shoring is is bringing geographically, but bringing it more proximate to the home, then friendshoring is about trust. Friendshoring is the is the policy of finding and selecting and prioritizing supply chains which provide, which offer reliability and integrity over the low cost. And I make that point about integrity as well as reliability, because we have seen, particularly in the national security space, anxieties about um what is called supply chain attack, where the supply chain itself is deliberately uh made vulnerable, a sort of Trojan horse type effect. So integrity is as important as reliability. And and and this friend shoring policy aims to find a supply chain that offers both reliability and integrity and prioritize those two criteria above above um cost.

SPEAKER_01 8:55

I don't need to tell you, Scott, that trust is in pretty short supply these days. Who counts as a friend?

SPEAKER_02 9:01

Yeah, great question. I mean, formerly, you know, geopolitical friends had matching values, um and um, but now we've got, like I say, friends who have got um who have got um uh a reliable sense of reliability or integrity. You know, there is an old saying in geopolitics that nations have no permanent friends, only permanent interests, a much more pragmatic, transactional approach to geopolitical relations. And in some ways, Tim, we've fallen back into that space or we've we've moved back into that space. We're in a pragmatic, transactional uh geopolitical world. And the idea of friends is is is quite hard-nosed. It is about who will remain commercially and politically dependable in a crisis. And many, many countries, you know, to pick up on Asta's comment on recalibration, they are recalibrating their relationships. Um, and they're coming at it, as I say, from this pragmatic position. So you do see some interesting combinations. You know, America and Vietnam, for example, um not much overlap in terms of political um organization and political system, but um very, very um um um uh robust trade links. Um the Europe and and and uh Saudi Arabia, for example, similar place, or the UK. If you want something closer to home, the UK and Kazakhstan, where there's a there's a narrow and but um transactional relationship on on critical minerals, for example. Um I think we'll see more of this, and this is the type of um um this the type of selection that countries are going through when they define when they define friends.

SPEAKER_01 10:39

When you hear about them, both reshoring and friends shoring sound great. When we look closely at them, well, you know, economists say there's no such thing as a free lunch. So what are the economic political costs of these policies? Economic, first of all, last year.

SPEAKER_00 10:56

As you rightly said, there are no free lunches there, and at the same time, there are no free supply chains either. So what we're essentially doing is trading efficiency for resilience. So on the economic side, there are basically three costs that I that I could I can consider. I think the immediate cost is a higher insurance premium on global trade, as it means because you're moving away from the lowest cost production source country. Second, there's a huge fiscal cost as all of these reshoring activities are highly subsidized. So the subsidies packages for sectors like chips and EVs run in hundreds of billions of dollars. And potentially there is an inflationary effect, especially in certain sectors like energy and manufacturing. So, yes, at one side, we might just be gaining a more secure supply chain, but of course, we are paying for it with a more fragmented and a more expensive supply chain.

SPEAKER_01 11:52

Scott, I imagine there's no free lunches in geopolitics either.

SPEAKER_02 11:56

No, there are downsides to this policy of um of shifting supply chains into the idea of trust and integrity. Um I would say that there are downsides when it comes to the system, the geopolitical system, there's downsides when it comes to managing relationships, and there's downsides to do with credibility. The first one, Tim, on the system, then many people observe that taking these trade policies, what we're doing is we're we're increasing and calcifying the sort of polarization of the world. We're fragmenting the world into them and us, those, those who are considered trustworthy and those who are not. Um and that's that's moving away from an idea of a global trade system. So the the first one is this systemic fragmentation. The second ones are to do with the the how does one manage these relationships? And there are two issues here that countries will face. The first one is that there comes a point when some suppliers demand a them or us relationship. Now, as in Europe, we've we've we've seen this before with Huawei and and uh the Chinese using 10-inch technology in 5G systems, where the America, uh the United States virtually demanded that it must be removed if there is if there are to be other trade relationships. So we could countries can find themselves in a position where their um their suppliers in one area are demanding um universal rights and using coercive tactics to gain to gain that those rights. The the other one is handling how you know handling these relationships which are transactional and pragmatic. Um what do you do when the friend, as you say, the friend asks for other relationships benefits? Um how do we how how does one handle it? How does one maintain that transactional channel and resist broadening of the of the relationship? So friends shoring, but between friends, not friends with benefits, I think is a challenge for some governments. And then finally, finally, there's a question of credibility. On the international stage, this narrow, pragmatic transactional approach to supply chains can can uh generate um criticism, can generate um uh challenges of hypocrisy. And really asking, is your foreign policy driven by values, or is it driven by these narrow um transactional um uh uh benefits? And finally, on the credibility front, another challenge that governments will face is really explaining to domestic audiences why they're paying more for some of these uh essential commodities or services, um, uh, whereas there are cheaper options available. And that's a challenge for domestic governments, a very busy and distracted population, um, that maybe not having the bandwidth to understand why um why the country should be buying um, I don't know, um uh telephone uh equipment or or or um or renewable energy um equipment from a much um more expensive supplier and from the cheapest supplier, which could be in China. And that's the challenge for government. So there are political costs from uh uh all the way from um shifting the state of the system uh um to managing the relationships and then to maintaining national credibility.

SPEAKER_01 15:14

Friendshoring with benefits, you heard it here first. So in May, it's easy to forget, among all the other international news, there has been quite a lot of it, that Donald Trump visited China. And I would also just point out that on TradeLinks, we were discussing this before everyone else was. So let's keep up that tradition because there is a return visit in September. We're in a halfway point between the meetings, more or less. It's worth asking the same question. What's the difference between spin and reality in the US-China dialogue? So, Scott, was the Trump visit earlier this year, and I note the very rapid arrangement of the return visit, was that considered a political success in each country?

SPEAKER_02 16:10

Broadly, yes, Tim. I think I I think in a more wholehearted way, in in certainly in Chinese commentators in a more um um um wholehearted way have seen the visit of Trump to Beijing as as a as a success. And uh, President Xi was able to present himself as a global superpower statesman and had some of some respect reflected back at him by Trump in Trump's language in some of the speeches. And and don't forget that President Xi, by the time Trump arrived in Beijing, uh Xi had already met a whole raft of world leaders from Britain, from Germany, Canada, Spain, Pakistan, Brazil, Vietnam, and then Trump. And then immediately after Trump, she hosted Putin and then he himself visited uh Pyongyang. So the this idea of President Xi positioning himself as this stable and responsible, respected global leader, then this Trump visit fitted perfectly. And at the same time, uh uh the Chinese commentators observe that she was able to put Taiwan on the agenda, but not in a way that disrupted the the overall relationship and got in the way of the trade relationship, um, which by the way, she and Trump wanted the trade relationship to continue. So finding stability, extending the truths in the tr in tariffs was a common objective for both world leaders. Um and so the Chinese the Chinese view is yes, successful. Similarly, in America, that for that point of stability it was seen as successful. There were some questions about the substance of the meeting over the presentation, but nevertheless, it was seen as, and as you say, uh arranging the follow-on meeting until end of September in Washington was seen as a success.

SPEAKER_01 17:53

Well, let's talk about that economic substance, Asta. Was there any kind of structural agreement or were there just transactions and promises?

SPEAKER_00 18:04

I think it was overwhelming overwhelmingly transactional. Because if you look past the headlines, there were no fundamental progress on the structural issues like uh technology export controls or industrial capac overcapacity or any rollback of tariffs. Instead, it was a classic managed trade package which was designed to buy tactical stability, as Scott also mentioned. So we saw big headline grabbing purchase commitments, specifically China's first uh major order of 200 Boeing aircraft in almost a decade, and a pledge to buy 17 billion uh dollars per year in US agricultural goods over the next three years. I think the only structural development uh was purely institutional, where they talked about uh creation of two new boards, one US China Board of Trade and the second US China Board of Investment, which is basically to manage non-sensitive trade. So no structural agreement or a grand reset, but to Scott's point earlier, just this temporary transactional floor built under the relationship to stabilize volatility ahead of the next meeting in September.

SPEAKER_01 19:20

Scott, should we be arguing that the process was the achievement and it's quite an achievement at the moment, rather than any particular deal?

SPEAKER_02 19:29

Yeah, I I think that's fair enough. And also I think I think you're right to to suggest that that is worth recognizing, actually, in this day and age. We're we're into a fragmented competitive world, and it's important that there is a um a stable process of engagement. We mustn't forget that a few years ago there was very little engagement between the Biden administration and the Xi administration. And I think this is a good thing. In in in we're heading into choppy waters and in terms of the global system, and on the horizon is Taiwan, and she made sure Taiwan was on the horizon. So it is it is it is a good thing to have a process that is stable, has a has a calendar of events coming up. So I think you're right though, that was the outcome of this meeting.

SPEAKER_01 20:10

But, Asta, but we might all be looking for something a bit more substantial in September. What could be uh an agreement? What topics, rare earths, tariffs, chips, the sorts of things we talk about all the time, could have an agreement attached to them in September?

SPEAKER_00 20:29

So if we have to think about what real progress would look like, I would break that into three areas. First would be rare earths and critical minerals. Something like binding commitments on export volumes or supply guarantees would be meaningful. Second would be on tariffs. Even a partial rollback or a freeze on escalation could be significant, but that still feels quite unlikely at this stage. And third would be uh chips and tech controls, which is probably the hardest one. So any easing of export restrictions would be substantive, substantive, but again, that's not the direction of travel right now. So my baseline would be if we get anything, it would be narrow and tactical, not anything systematic.

SPEAKER_01 21:19

Scott, I'm gonna do that thing where I ask you for the good and the bad scenarios. I I I always regret it when we get to the bad scenario. Let's hope it's not too bad this time for September's return visit and the the consequences of that, if it goes well or if it goes badly.

SPEAKER_02 21:35

So, well, I think anything in in Asta's uh list of sort of um um, you know, um economic, um uh formal economic agreements, rare earths, tariffs or chips, any of those would be seen as as very successful, actually. So long as there was a degree of of of of of um of of balance between the two sides in terms of who who benefited from. But I I agree with Asa, I think that's that is quite. Ambitious given where we are at the moment. I think a good scenario would even just be a further extension. So the formal trade truce expires on November the 10th. I think anything that pushes that back into 2027 would be seen as successful. Anything that avoids heading towards a confrontation on Taiwan would be seen as successful. But I think we should brace ourselves, and I think the Trump administration will be braced now, that Taiwan will feature. The chances of Xi visiting Washington and not mentioning Taiwan, I think are slim. So I think that's that is there's a difference between mentioning it and moving into a conf confrontational posture. And uh for for President Trump, I think a successful uh scenario in September, uh, the consequences would be um and uh to to to position him well as an international statesman ahead of the midterms. Um and and I think that will be part of his his um pitch for the midterms in terms of of his achievements so far in his administration. I think he would want to position his relationship with Xi as one of those upsides. So there are positive consequences um if we see that that up upside scenario, a poor scenario, uh Tim, where we where we see disagreement, harsh disagreement on any of those topics Asta mentioned, um, or if we see external influences in the environment to the meeting raising tensions. So um uh tensions with Taiwan and um or the Philippines and the South China Sea, um or or we see American language um hardening up on Taiwanese domestic politics, then I think that could lead to a more awkward meeting in September. And the consequences um are principally a sense of anxiety in the South China Sea and Taiwan about about American resolve to be present, to be defense, to assist with the defense and pushing back against Chinese assertiveness in in that region.

SPEAKER_01 23:56

Yeah, yeah. Your advice to brace yourselves, that is generally good advice for about more or less anything that we discuss at the moment. Thank you very much, both of you. Okay, so we come to the part of the show where I ask our panel what is something on their agenda that the rest of us might have missed? Asta, you go first.

SPEAKER_00 24:20

So one thing slightly under the radar for me is the rise of shadow fleets, which are basically the older opaque vessels being used to move uh sanctioned oil, particularly from Russia and Iran. They're effectively creating this parallel trading system outside the regulated market, which keeps flows going despite uh sanctions that weakens enforcement and adds risk. But more importantly, it goes on to show that trade isn't really stopping, it's just becoming less transparent.

SPEAKER_01 24:52

That sounds like something we ought to cover in more detail. Thank you very much. It it is literally under the radar. Scott, what's on your agenda?

SPEAKER_02 25:00

Uh well, I'm keeping my eye on two two. Um we're into the summer season, Tim, and and and uh sometimes that means um apart from transporting events, then national militaries or alliances very often have large-scale exercises going on. And there are two sets happening in areas of of conflict that or near conflict that um that we that I'll be paying attention to. There's one that we're in Taiwan at the beginning of July, an annual exercise. But that there are anxieties this year that the Taiwanese, because of domestic politics, will put on a particularly um um um um uh uh uh significant demonstration of Taiwanese defensive capabilities. Um we saw a glimmer of it recently um um when they used uh they used long-range missiles in a way that was directly facing China. So there's a sense of it could be seen as provocative in Beijing and China would respond in a in a similar way. And the second set of exercises are in the Baltics and in the NATO exercises in the Baltic Sea. And again, the the the the the issue there is how will this be response, how will this be received in Moscow, and what, if anything, could could we expect from from from from the Russians um in response to this demonstration of NATO prowess in the Baltics? So two sets of military exercises, each of them in in areas of contestation or conflict, and each of them have the potential to be misinterpreted in some way.

SPEAKER_01 26:27

I had no idea that there was a military exercise season. Thank you very much. Thank you very much, Aster, and thank you very much, Scott.

SPEAKER_00 26:35

Thank you, Jim.

SPEAKER_01 26:37

Thank you, Tim. And thank you to all of you for listening and watching. Remember to follow us. Tell someone else about us if you like trade links. Leave us a review as well. But uh there's plenty of trade links still to cover this year, so we will see you soon.