Harvard Professor: Tariffs Cannot Block Supply Chains — They Only Force Them to Detour

Willy Shih is a Professor of Management Practice at Harvard Business School, and his new book is titled Where Does My Stuff Come From? The Powerful Economics Behind Global Supply Chains. His approach to supply chains is straightforward: he breaks down the math from first economic principles.

Back in 2019 when The Verge reported on Foxconn’s planned factory in Wisconsin, Shih already predicted the project would never succeed. He reviewed the construction blueprints and pointed out there was no supporting glass factory, and the projected consumption of concrete and steel was far too low. A panel fabrication plant requires extreme structural stability, and none of the project’s numbers added up. Later, local residents sent him the zoning hearing documents, and he gave the same verdict: this would never become a functional panel plant.

Several years on, Foxconn’s Wisconsin plant was never completed, and globalization did not come to an end as many people claimed. Trump rolled out round after round of tariffs, but the much-hyped reshoring of manufacturing delivered very little real results, while AI is now voraciously consuming computing resources. In his new book, Shih explains one core fact: the global supply chain evolved into its current shape almost entirely for economic reasons, not because of political rhetoric.

When Tariffs Hit, the First Reaction is to Detour

Shih says that after U.S. tariffs on Chinese goods took effect, manufacturers did not immediately move their production lines back to the United States. Their first move was to find ways to bypass the tariffs: shifting assembly operations to Vietnam or Mexico, and applying new origin labels to their products.

In the first quarter of 2025, U.S. imports from Ireland hit an all-time record. The reason is simple: companies rushed to stock up on goods before new tariffs came into force. By the first half of 2026, imports from Ireland slowed down as companies worked through their excess inventory.

There is another even more telling signal: over the past two years, multiple new direct container shipping routes have been launched between China and Mexico. Components are shipped from China to Mexico for assembly, then enter the U.S. duty-free under the USMCA framework. Shih notes that you can read these shifts directly from trade shipping routes: the market always finds the path of least resistance.

No One Has Done the Math on Deindustrialization Carefully

The U.S. enjoyed two decades of cheap consumer goods. A $300 50-inch TV at Costco is a miracle of modern supply chain and manufacturing capabilities. But Shih points out that no one ever accounted for the other side of this equation: furniture workers in North Carolina, casting and forging workers in Kentucky, never received retraining or transition support after their jobs moved overseas. Everyone got the cheap TVs, but the communities left behind were abandoned.

Another unresolved issue is the U.S. trade deficit. Normally exchange rates would adjust to correct this imbalance, but the last major devaluation of the U.S. dollar was in the 1980s — the last year the U.S. ran a trade surplus. Now that China holds a massive trade surplus with the U.S., it effectively exports its domestic economic pressures to the U.S., and European countries are starting to realize this as well.

China’s Manufacturing Advantage Goes Far Beyond Subsidies

Shih rejects the narrative that China’s industrial capabilities were "stolen". His take is far more accurate: many of these technologies were mastered by local suppliers while they worked on contracts for Apple and Tesla. Apple is notoriously strict with its vendors, pushing them constantly to improve production yields, cut costs and refine their processes — and once those capabilities are built, they stay local. When Tesla built its Shanghai Gigafactory, it raised the bar for all local component suppliers, and the entire Chinese electric vehicle market reaped the benefits.

Assembling an iPhone requires 100,000 to 200,000 workers doing manual labor. China can mobilize a workforce at this scale thanks to a "work unit" model that dates back to the revolutionary era: the factory complex is a self-contained small city, complete with dormitories, canteens, warehouses, and all supporting facilities. Ford-style assembly lines combined with this mobilization capability created the giant mega-factories in Zhengzhou and Shenzhen. India has tried to replicate this model, but it has proven extremely difficult to pull off.

Even more critical is the intense internal competition across China. The central government sets broad strategic directions, and provinces and cities compete fiercely with each other to outperform. Shih once visited the factory run by his student’s father in Shanghai, and the owner’s way to stay competitive was to ramp up capital expenditure to buy the latest production equipment. A few months earlier he visited another plant where the production lines were only two to three years old, but workers were already tearing them out to replace them with the newest generation of equipment. The owner told Shih: if we don’t do this, we won’t stay in business.

China also pursues long-term planning. The 863 Program was proposed to the Chinese government in March 1986 by four senior scientists, listing priority areas including information technology, biotechnology, telecommunications, software, and robotics. When Shih first saw the plan in the 1990s he thought it was well drafted, and later he realized that almost every target in it was fully implemented. He once attended a dinner with officials from the economic department of a third-tier Chinese city, and asked everyone at the table what they had studied in college — the answers were mechanical engineering, industrial engineering, electrical engineering, metallurgy, metallurgy, mechanical engineering. If you sat at an equivalent table of U.S. officials in Washington D.C., the degrees would all be political science, economics, and public administration.

U.S. Trade Policy Is Like Shooting a Shotgun at a Wall

Shih’s critique of current U.S. trade policy is very specific: it is overly transactional, and dangerously unstable. If you mark all the tariff moves between 2025 and 2026 on a map, they look like shotgun pellets scattered randomly across a wall.

Building a semiconductor fab has a 10 to 20 year return on investment. When policies change every two weeks, companies simply refuse to invest. He has spoken to multiple foreign firms that were considering entering the U.S. market, and their universal reaction is: should I go to Mexico, or the U.S.? Which U.S. state should I pick? If they can’t do the math reliably, they put their investment plans on hold indefinitely.

Auto tariffs have disrupted the existing global division of labor. BMW builds its X-series SUVs in South Carolina, Mercedes builds SUVs in Alabama, Toyota builds Camrys in Kentucky — each planned around the 200,000 to 250,000 unit threshold for cost efficiency, with brands swapping finished vehicles across markets. New tariffs have thrown this entire carefully calibrated system into chaos.

The Chicken Tax is another classic example. The U.S. imposes tariffs on imported light trucks, which led Detroit automakers to shift their full focus to SUVs and pickup trucks for higher profit margins. Toyota and Nissan eventually also built their trucks in the U.S. which created a small amount of reshoring, but American consumers end up paying far more for pickups and SUVs than they would have without the tariffs.

Supply Chains Are Resilient, But Memory Chips Are a Special Case

Shih notes that global supply chains have survived the COVID-19 pandemic, the Suez Canal blockage, the Iran conflict, and this latest wave of chaotic tariffs. When the Strait of Hormuz faced disruptions, Brent crude prices never spiked to $150 a barrel, because the market adjusted on its own.

But AI’s insatiable demand for memory chips is a different kind of problem. Demand vastly outstrips current production capacity, and prices are skyrocketing. Shih says he used to stock up on memory cards every Black Friday, but he won’t be buying any this year. The host adds a pointed observation: when GTA VI launches, and customers go to buy a PS5 only to find that the price of the console at the end of its lifecycle is higher than it was at launch, that will be the real political wake-up call for the AI industry.

There is another example that shows just how little policymakers understand about how supply chains work. Oil refineries on the U.S. East Coast pay more to buy oil from Texas than they do to import it from Algeria. This is because the Jones Act requires all domestic U.S. shipping to use U.S.-built vessels crewed by U.S. citizens, and the U.S. no longer builds very large crude carriers. The government later temporarily suspended the Jones Act, finally recognizing the root of the problem.

The Path Forward for U.S. Manufacturing: Be Extremely Efficient, or Be One of a Kind

Shih’s assessment is unflinchingly realistic: the U.S. is a high-cost economy. The manufacturing sectors that can stay or return to the U.S. are either industries with exceptionally high labor productivity, or sectors that produce specialized goods no other country can replicate.

The superalloys used in the hot sections of jet engines are only cast by three companies globally: two based in the U.S., and one in the UK. Even China still has to buy these jet engine components from Western suppliers. These are high-end capabilities the U.S. never lost. The real problem is that politicians keep promising to bring back ordinary blue-collar manufacturing jobs — but those jobs have either been automated away, or require extremely high levels of specialized skill that most workers do not have.

His recommendation is not to shut off from the world, but to adopt a new model of open trade. The U.S. has the largest consumer market on Earth, and that is a huge bargaining chip. Instead of imposing unilateral tariffs, the U.S. should build aligned trade blocs with like-minded partners: North America, Europe, Japan, Southeast Asia, Australia, New Zealand, and select countries in Latin America and Africa. This collective bloc has access to low-cost labor, critical mineral reserves, and technical expertise, and can satisfy the vast majority of consumer demand within the group.

On U.S. trade relations with China, Shih’s take is blunt: China wants other countries to be dependent on its goods, but it refuses to import equivalent volumes of foreign products. This imbalance is unsustainable. But the solution is not to build higher and higher tariff walls — it is to first understand exactly why the global supply chain is structured the way it is, then make targeted, strategic decisions to keep the truly critical high-value capabilities on U.S. soil.

He closes with the iPhone example. Apple sources titanium from Perryman, Pennsylvania, ships it to China for assembly, then sends the finished product back to the U.S. The chips are made by TSMC, whose Arizona fab represents only a tiny fraction of TSMC’s total production capacity in Taiwan. EUV lithography machines are built by ASML in the Netherlands, and production equipment comes from U.S. firms Lam Research and Applied Materials. This single product condenses the entire complexity of the global supply chain into a single piece of glass and metal. If you try to pull it apart with tariffs, you will first have to do the math down to every single tiny screw.

Shih does not offer any rousing empty slogans in the interview. His core message is simple: first understand how the system works, then take action.