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Long before the COVID-19 pandemic made “supply chain” into a notorious household term, Leavey School of Business Professor Andy Tsay was conducting critical research about the evolving strengths and vulnerabilities of global supply chains. As President Trump’s tariffs dominate today’s headlines, with the stated goal of bringing manufacturing jobs back to the U.S., Professor Tsay’s work provides invaluable insight into our shifting economic landscape.

“A supply chain is the manifestation of a company’s decisions regarding what inputs go into its products, where those inputs should come from, where to turn those inputs into the final product, and who should do which steps of that work. Any company that sells a physical product must make these decisions, and even for seemingly simple products the result can be surprisingly complex,” explains Tsay.

Across the last two decades, for many product categories, China has achieved primacy in the supply chains, earning it the nickname “the world’s factory.” Meanwhile, the manufacturing portion of the U.S. economy has been shrinking for decades, which has been devastating for swaths of American workers.

In the mid 2010’s, aggregated and anecdotal data suggested what seemed to be a reshoring of U.S. manufacturing jobs – bringing them back to their “home” country. The excitement around the prospect of a new American competitiveness made the issue a major one in the 2016 presidential election, and each one since then. Tsay’s research on why companies manufacture where they do, suggested that increases in U.S. manufacturing in that time frame were due not to significant levels of reshoring by American companies, but because of foreign companies seeking proximity to the U.S. market.

The research surveyed 85 companies, identified a specific supply chain location decision made by each, and captured their explicit motivations for location changes. Tsay and his co-authors affirmed that location decisions reflect a consideration of dozens of major factors, not just differences in labor costs. Other factors include proximity to customers, proximity to suppliers, logistics costs, availability of appropriately-skilled labor, infrastructure, regulatory environment, and political stability.

“China was, and continues to be, strong on many of the factors, especially the supporting capabilities that are collectively called the (industrial) ecosystem. This helps us understand that tariffs alone are unlikely to make reshoring the economically correct decision for most American companies. And even if those companies could be pressured to build factories in the U.S., absent a solution to the ecosystem problem these factories cannot be world class in cost, quality, or innovation,” Tsay observes. “Let’s not let any day-to-day drama distract from two basic questions about reshoring: Can we? Should we?”

Can we reshore? “In principle we can, with a coordinated industrial policy and massive government co-investment sustained over years, which is how China did it. We can argue about the right blend of carrots vs. sticks to direct at individual companies, but creating the ecosystem is more than any one company can pull off,” Tsay explains.

Should we reshore? “Given the heaviness of the lift, these efforts should prioritize products where domestic production has some strategic benefit. In terms of job creation, we must realize that the factory opened in the U.S. will have a lot fewer direct manufacturing line employees than the Chinese factory it replaces. The reality is that other countries did not take away most of those American manufacturing jobs in the first place; automation did. As labor costs in China go up and automation becomes cheaper and better, automation is destroying line manufacturing jobs there as well.”

“As for tariffs, they can play a role. But in light of the complexity of modern supply chains and location decisions, an ill-conceived tariff policy may well lead to increased prices faced by American consumers, performative displays of reshoring of manufacturing at best, recategorizing or redesigning products to get through any available loopholes, and all manners of other unintended consequences and activity that does not create value.”

Tsay’s latest research observes that supply chain disruptions, or at least their impacts, have increased in recent years. Geopolitical risk, due to wars, terrorist acts, and tensions between states, in particular has become a major concern. This has made scenario planning, a classic best-practice, increase in both importance and difficulty. Resilience will come not necessarily from new tactics, but from a reorientation of thinking via a prepare-anticipate-react framework, customized to supply chain type.

Tsay agrees that the current environment for global trade is one of unprecedented uncertainty, which has real costs for individuals and businesses. He draws equanimity from the parable of the farmer who lost a horse, which conveys the message “An event that seems bad right now might turn out to be good in the long run, because of all that can happen next.” For businesses, the path forward will require foresight where possible, and adaptability and resilience for dealing with the unexpected.