AI’s supply-chain boom exposes the limits of reshoring

In an interview with The Verge’s Decoder, Shih, author of the upcoming book Where Does My Stuff Come From? The Powerful Economics Behind Global Supply Chains, argued that supply networks are shaped by economics as much as by policy. When tariffs raise the cost of importing from China, manufacturers may shift assembly to Vietnam or Mexico, or find other ways to avoid the duties. Chinese components can be sent to Mexico for assembly and then exported to the United States under the USMCA, he said.

Shih said trade barriers can ultimately push prices higher, while unpredictable policy makes companies wary of investing in factories that need years to pay off. He cited semiconductor plants, which require confidence in demand over a 10-to-20-year period. In autos, he said, tariffs can disrupt established production strategies in which factories make particular models for export and import others to complete a company’s lineup.

He described China’s manufacturing strength as the result of investment, competition among regional governments and companies, and the ability to mobilize large workforces. Apple’s supply chain illustrates the challenge of relocating production: iPhones combine advanced chips from Taiwan Semiconductor Manufacturing Company, equipment from suppliers in the Netherlands and United States, and labor-intensive assembly. Shih said the scale of that manual work remains difficult to replicate elsewhere, though India is making some progress.

The interview also distinguished AI-related memory shortages from tariff disruption. Shih said demand for memory chips has outstripped capacity, unlike other shocks that markets have partly absorbed through rerouted trade and production. He argued that efforts to rebuild US manufacturing would be more effective if they focused on strategic products the country can make with high productivity or specialized expertise, while taking account of how existing supply chains work.