Something significant happened to the structure of global trade between 2020 and 2023, and we are still working out the implications. Supply chains that had been optimised over decades for cost efficiency were suddenly exposed as brittle. Firms scrambled. Inventories were rebuilt. Shipping routes shifted. And now, as the acute crisis fades from memory, a quieter transformation continues — one that has lasting consequences for prices, productivity and the geography of manufacturing.
The headline narrative — that globalisation is reversing — is too crude. What the data actually shows is more interesting: a selective, partial, and strategically motivated restructuring, concentrated in specific sectors and specific bilateral trade relationships.
The reshoring that isn't
Political rhetoric about bringing manufacturing home has outpaced the reality by a considerable margin. The United States has seen a genuine surge in semiconductor and battery plant announcements — driven largely by the CHIPS Act and Inflation Reduction Act subsidies — but the broader manufacturing revival has been slower to materialise. Construction of new facilities has soared; actual production has not kept pace.
"The gap between announced investment and delivered capacity is the single most important variable for the medium-term inflation outlook."
Europe tells a similar story. Nearshoring to Eastern European and North African countries has accelerated, particularly in automotive supply chains. But this is less a retreat from globalisation than a reconfiguration of its geography — trading distant fragility for closer, somewhat costlier resilience.
What this means for prices
The inflationary implications depend on two things: the speed of the transition, and how permanently higher the costs of the new equilibrium are. On both counts, the picture is uncomfortable for those hoping inflation fully retreats to pre-pandemic norms.
Transition costs are real and ongoing. Building new supplier relationships, qualifying new factories, and maintaining larger buffer stocks all add cost. A recent survey of procurement managers found that 63% had permanently increased minimum inventory targets. That represents a structural shift in working capital requirements — and working capital costs money, especially at current interest rates.
The GIF that explains it simply
Sometimes the clearest way to show how a process works over time is a short animation. Below is a placeholder for an animated GIF — for example, showing how inventories rebuilt across sectors between 2020 and 2024.
Video: the full picture in three minutes
For a more detailed walkthrough, the short video below covers the key data and the three scenarios for where supply chain costs go from here.
Outlook
The structural inflation premium from supply chain restructuring is real but modest — our estimate sits around 0.3–0.5 percentage points on the long-run price level. That is not enormous in absolute terms, but it matters for central bank targets, for wage bargaining, and for the fiscal arithmetic of governments that locked in spending plans during the low-inflation era.
The more significant risk is not the steady-state cost but the transition: a period of elevated volatility as new supply relationships are tested, and as the gap between announced capacity and deliverable output becomes clear. On current trends, that window runs through at least 2027.
Policymakers who declare victory on inflation prematurely — and there is political pressure to do exactly that — may find themselves wrong-footed when the next supply shock arrives into a system that has not yet finished its structural adjustment.