Friendshoring: Who is Replacing China in Manufacturing?

The COVID-19 outbreak exposed the fragility of global trade and identified supply chains as a critical factor in economic stability and national security. Lockdowns kept people out of factories and assembly lines, air and seaports were paralyzed, and customs and logistic infrastructure operated with limited staff, but demand for commodities and services persisted. Through trial and error, countries progressively opened essential productive sectors by prioritizing domestic markets. However, the fear of shortages resulting from reliance on foreign supply chains persisted and became a significant concern for policymakers worldwide. In this context, reshoring – moving manufacturing back to the home country – gained global momentum.

The China Story: From Trade to Trade War

Since China’s admission to the World Trade Organization in 2001, it has emerged as one of the premier export markets for U.S. products and services, while the United States became – and remains – the top market for China. Between 2001 and 2023, U.S. imports of goods from China increased from $100 billion to over $400 billion. This high volume of trade is due to Western companies moving their manufacturing to China. Economic advantages such as cheap labor, skilled workers, robust infrastructure, low corporate taxes, and the availability of raw materials and energy sources have motivated corporations to move manufacturing there.

The U.S.-China commercial relationship has benefits (higher profits for companies and cheaper products for consumers) and costs (increases unemployment, dependency on China, and trade deficit) for the United States. The annual purchasing power of average U.S. households increased by $1,500 during the first decade of the China-U.S. economic relationship. While much attention is paid to the manufacturing jobs lost to China, what does not get much attention is that more than 1 million jobs in the United States depend on U.S. exports to China, which total around $150 billion.

But since the Pivot to Asia policy, initiated by U.S. President Barack Obama, China has gone from being the number one investment and outsourcing destination for Western businesses to a geopolitical rival that is threatening U.S. primacy. The U.S. economy still depends on trade with China, but U.S. presidents are now looking to reduce dependence on Chinese supply chains. Both President Joe Biden and President Donald Trump have levied heavy tariffs on Chinese green energy exports and are actively looking to diversify the supply chain using strategies like China plus one and friendshoring.

Reshoring by Friendshoring?

Mexico was the first country to experience the relocalization of U.S. corporations for competitive advantages abroad. When Mexico joined the General Agreement on Tariffs and Trade in 1986, it was already the United States’ fourth-largest trading partner and third-largest oil supplier. The 1994 North American Free Trade Agreement further integrated both economies. Mexico quickly became the main assembly line for U.S. exports. By 2001, manufacturing in Mexico was such that the country temporarily became the main exporter to the United States. That year, China joined the WTO, leading corporations to reshore there, neglecting friendshoring with Mexico.

Two decades later, Mexico received nearshoring projections from its bicentennial ally and neighbor with enthusiasm. Even after signing a new regional agreement, President Trump’s anti-Mexican rhetoric continued to be a source of instability. Nearshoring represented a beacon of hope.

Mexico has the potential to become the manufacturing hub of North America due to its privileged geographical position, sectorial integration, reduced labor costs, and the experience gained from successful automotive industrial integration. By 2022, Mexico’s foreign direct investment grew 48%, and by 2023, Mexico surpassed China as the United States’ largest trading partner. Nevertheless, firms already running in the country are expanding their operations, with only a small number of large manufacturing companies, primarily from the automotive sector, relocating to Mexico. In 2024, even Tesla postponed the construction of its giant North American factory in the country.

Friendshoring basically refers to articulating strategic supply chains with stable and reliable economic partners in low-tension regions. Nowadays, this kind of friendshoring is focused on highly value-added chains. The contemporary economy places crucial value on strategic materials and components. China’s affordable manufacturing will continue to satisfy global markets in the near future. What is at stake for the United States is reshoring semiconductor production, strategic access to lithium, and revitalizing innovation. Mexico is the closest ally and partner in these areas, so friendshoring will remain a factor in bilateral negotiations. Nevertheless, based on shared history, Mexico recognizes that the United States prioritizes interests over friends.

Steering wheel manufacturing at Delphi Delco Electronics de Mexico, a maquiladora plant across the U.S. border. The company makes parts for General Motors cars and employs about 11,000 Mexican workers near Matamoros. (Photo by Robert Daemmrich Photography Inc/Corbis via Getty Images)