The Economist Who Watched America's Supply Chain Turn Inward—And Counted the Cost

On a Tuesday morning in March 2024, Caroline Freund sat in her office at the Peterson Institute for International Economics in Washington, staring at a spreadsheet that didn't make sense. The numbers tracking U.S. manufacturing investment showed a surge—factory construction spending had tripled since 2020. Reshoring announcements from Fortune 500 companies filled business pages weekly. Politicians in both parties celebrated the return of American production. But when Freund cross-referenced these investments against import data, productivity metrics, and consumer prices, she found something unexpected: the supply chains weren't getting more resilient. They were getting more expensive.

The thing is, Freund had spent two decades studying global trade patterns—first at the World Bank, then at the U.S. International Trade Commission. She knew what efficient supply chains looked like. And what she was seeing in 2024 looked nothing like them. "We kept hearing about 'friend-shoring' and 'near-shoring' as if they were the same thing as making supply chains safer," she told me last month. "But the data showed companies were just moving production to higher-cost locations and calling it security."

What Freund discovered sits at the heart of the most significant restructuring of global trade since the creation of the World Trade Organization in 1995. Between 2020 and 2026, American companies announced $683 billion in reshoring and nearshoring investments, according to the Reshoring Initiative. The Biden administration's CHIPS Act allocated $52 billion to bring semiconductor manufacturing home. The Inflation Reduction Act earmarked $369 billion for domestic clean energy production. Mexico overtook China as America's largest trading partner in 2023 for the first time in two decades.

But here is what this means: the architecture of global trade is fragmenting, and the costs are landing on consumers and businesses in ways policymakers didn't predict and economists are only now beginning to measure.

What the Investment Data Revealed

Freund's analysis, published by the Peterson Institute in January 2026, traced what happened when U.S. companies moved production out of China. The short version: most didn't bring it home. They moved it to Vietnam, Mexico, or India—countries with their own dependencies on Chinese inputs. A semiconductor fabrication plant might relocate from Shenzhen to Phoenix, but the specialized chemicals, gases, and components it required still originated in Asia. The supply chain hadn't shortened; it had just added steps.

Take automotive production. When Ford announced in 2022 that it would invest $3.5 billion in a Michigan battery plant, the decision was hailed as a reshoring triumph. But the lithium, cobalt, and cathode materials for those batteries still came from China-controlled supply chains in Chile, the Democratic Republic of Congo, and Indonesia. The battery cells were assembled in Michigan, but 60 percent of their value originated overseas—often at higher cost than the integrated Chinese facilities Ford had previously used.

Brad Setser, a senior fellow at the Council on Foreign Relations and former U.S. Treasury official, had been tracking similar patterns in trade finance data. What struck him wasn't just the reshuffling of supply chains—it was how little actual diversification occurred. "If you look at trade flows to Vietnam or Mexico, you see imports from China rising in lockstep with exports to the United States," he explained. "These countries are becoming assembly platforms, not alternative suppliers. The dependencies haven't disappeared. They've just become less visible."

The Political Promise Versus the Economic Reality

The reshoring push emerged from a genuine vulnerability exposed by COVID-19. When Chinese factories shut down in early 2020, American manufacturers couldn't source everything from semiconductors to surgical masks. The lesson seemed clear: strategic independence required domestic production. President Biden's June 2021 executive order on supply chain resilience identified four critical sectors—semiconductors, rare earths, pharmaceuticals, and large-capacity batteries—where foreign dependence posed national security risks.

But the political appeal of reshoring—factory ribbon-cuttings, job announcements in swing states—ran ahead of the economic arithmetic. Mary Lovely, a trade economist at Syracuse University who advised the U.S. International Trade Commission, watched with growing concern as subsidies flowed to industries without addressing underlying cost structures. "We were essentially paying companies to be less efficient," she said. "A semiconductor fab in Arizona costs 40 percent more to build than one in Taiwan, and that's before you account for the skilled labor shortage or the higher operating costs. The CHIPS Act subsidizes construction, but who pays the ongoing cost disadvantage?"

The answer, increasingly, is consumers. A February 2026 analysis by the National Bureau of Economic Research examined price changes in product categories with high reshoring activity. Laptops, smartphones, and home appliances—all subject to significant supply chain restructuring—saw price increases 8 to 12 percentage points above inflation between 2022 and 2025. The researchers attributed roughly two-thirds of the premium to higher production costs in reshored or nearshored facilities.

What the WTO Data Shows

The fragmentation Freund documented in U.S. data appears globally. World Trade Organization figures show the steepest decline in trade-to-GDP ratios since 1945, excluding wartime periods. Global trade grew just 2.1 percent in 2025, well below the 3.2 percent GDP growth rate—a reversal of the pattern that defined globalization from 1990 to 2008, when trade grew twice as fast as output.

Part of the slowdown reflects the end of China's rapid industrialization. But trade economists point to a more fundamental shift: the proliferation of bilateral and regional trade agreements that bypass the WTO's multilateral framework. The WTO's Appellate Body—the final arbiter of trade disputes—has been non-functional since December 2019, when the United States blocked appointments to protest what it called judicial overreach. Without a working dispute resolution system, countries have turned to direct negotiations and retaliatory tariffs.

Ngozi Okonjo-Iweala, the WTO's Director-General since 2021, has described the situation as a slow-motion collapse of the postwar trade order. In a January 2026 speech in Davos, she warned that the shift from multilateral rules to bilateral deals disadvantages smaller economies that lack negotiating leverage. "When trade becomes a series of bilateral arrangements between powerful countries, the rest of the world gets whatever terms are left over," she said. "That's not a rules-based system. That's a power-based system."

The Economists Who Disagree

Not everyone views reshoring as economically irrational. Robert Lighthizer, who served as U.S. Trade Representative under President Trump and advised multiple candidates in the 2024 election, argues that decades of trade deficits hollowed out American manufacturing and that short-term cost increases are worth long-term strategic autonomy. "We spent 30 years optimizing for efficiency and ended up dependent on an adversary for everything from antibiotics to chips," he told a Senate committee in March 2025. "Paying more to reduce that dependency isn't a bug. It's the whole point."

This view has gained traction among both conservatives skeptical of China and progressives focused on labor rights. Lori Wallach, who directs the Rethink Trade program at the American Economic Liberties Project, points out that trade economics has long ignored social costs—wage suppression, environmental damage, community disruption—that don't appear in GDP calculations. "If you only measure efficiency and miss everything else, you'll get the world we got: cheap goods and destroyed towns," she said.

But even advocates of reshoring acknowledge the policy has underperformed expectations. A December 2025 report from the Information Technology and Innovation Foundation, a think tank generally supportive of industrial policy, found that of 3,800 manufacturing jobs announced through reshoring initiatives in 2023, only 1,400 had materialized by mid-2025. Many projects stalled when companies realized the full cost of U.S. production or couldn't find workers with required skills.

What Supply Chain Resilience Actually Requires

The gap between rhetoric and reality has researchers rethinking what resilience means. Willy Shih, a professor at Harvard Business School who studies manufacturing competitiveness, argues that geographic diversification matters less than redundancy and transparency. "The question isn't where you make something," he explained. "It's whether you can see the whole supply chain and whether you have alternatives if any link breaks."

His research team at Harvard tracked supply chain disruptions from 2020 to 2025 and found that the most resilient companies weren't those that reshored, but those that maintained multiple qualified suppliers and invested in supply chain visibility software. During the 2024 semiconductor shortage, for instance, Apple experienced minimal disruption not because it manufactured chips in the United States—it didn't—but because it had contractual relationships with five foundries across three continents and real-time data on each facility's inventory and capacity.

The thing is, building that kind of resilience requires different policies than the ones currently in place. Subsidizing construction gets factories built. But resilience requires ongoing investment in supplier relationships, logistics flexibility, and inventory buffers—none of which generate ribbon-cutting ceremonies or job announcements.

The Cost No One Wants to Discuss

Back in her Washington office, Caroline Freund pulled up a final data series that troubled her most: the correlation between reshoring activity and inflation persistence. In sectors with heavy reshoring—semiconductors, batteries, solar panels—prices remained elevated even after pandemic-era supply shocks faded. The pattern suggested that higher costs weren't temporary disruptions but permanent features of the new supply chain geography.

The Federal Reserve noticed too. In its February 2026 Monetary Policy Report, the central bank identified "structural shifts in global supply chains" as a contributor to inflation's persistence above the 2 percent target. The report noted that traditional monetary policy tools—raising interest rates to cool demand—work poorly against inflation driven by supply-side cost increases. If reshoring permanently raises the cost of production, the Fed faces a choice: tolerate higher inflation or accept lower growth.

This is the conversation Washington hasn't had: whether Americans will accept structurally higher prices for manufactured goods in exchange for supply chain security that may be more symbolic than real. Political leaders in both parties have sold reshoring as cost-free—more jobs, more security, no tradeoffs. The economic data suggests otherwise.

Some economists argue the comparison is unfair—that the pre-2020 trade system relied on artificially low prices enabled by Chinese labor conditions, environmental externalities, and currency manipulation that amounted to hidden subsidies. "Maybe the real question," Brad Setser suggested, "is whether the old prices were ever real, or whether we just exported the costs to people we didn't have to look at."

What We Still Don't Know

The reshoring experiment is still too young for definitive conclusions. The CHIPS Act factories won't reach full production until 2027 or 2028. The automotive battery plants coming online in 2026 have yet to prove they can compete on cost with Asian facilities. And the geopolitical tensions driving the push for supply chain independence—U.S.-China competition, the war in Ukraine, instability in the Middle East—show no sign of easing, which may make strategic considerations outweigh economic efficiency regardless of what the data says.

What researchers like Freund want to understand is whether there's a middle path—policies that enhance genuine resilience without abandoning the efficiency gains that lifted billions out of poverty over the past three decades. "The global trading system had real flaws," she said. "But so does what we're building to replace it. The question is whether we can design something better than either extreme."

For now, the data shows an unmistakable trend: the world is fragmenting into competing trade blocs, supply chains are reorganizing around political borders rather than economic logic, and the WTO's multilateral framework is collapsing without a clear successor. Whether this produces the security policymakers promise or just more expensive insecurity is the question Caroline Freund is still trying to answer—one spreadsheet, one supply chain, one unexpected number at a time.