Emerging markets are jockeying for a place in global supply chains

The rush is on to reshore and secure national economic sovereignty

Companies also are reshoring production to developed markets while others are investing there to improve market access and de-risk geopolitical tensions. A so-called Battery Belt is running through the American South as foreign companies make large investments in cities such as Greenville and Savannah. American, Korean, and Taiwanese semiconductor players have invested in Austin, Phoenix, and Dallas, attracted by their talent pools and business-friendly policies.

Other US cities are growing strategic sectors. Boston’s biotech corridor has seen a boom in biopharmaceutical manufacturing investments, while Greensboro’s expanding aerospace and defense clusters benefit from both public and private-sector spending. Overcoming talent shortages and complex regulations remains a challenge in non-strategic sectors, with only a handful of cities, such as Fort Worth and Charlotte, seeing growth in areas where policy subsidies are lower and competition with emerging markets is greater.

Business leaders also should consider their options in Europe given the continent’s similar worries about economic sovereignty and its surge in defense spending. Here, the data is less conclusive relative to the United States. The European Restructuring Monitor suggests that reshoring has slowed during the past year and was outpaced by offshoring. More important is foreign investment, including by Chinese players, in areas ranging from batteries to electric vehicles, usually in an effort to gain access to the local market.

New industrial investments vary by geography. The rapid increase in defense spending will spur investments in cities with related military or aerospace industries, such as Bordeaux, Lyon, Munich, and Oslo. Belgium’s Ghent and Spain’s Barcelona have received sizable investments in the automotive, chemicals, and renewables sectors. Hungary’s Debrecen and Bulgaria’s Plovdiv have captured investments in electronic component parts. Germany’s Berlin, Dusseldorf, and Frankfurt are also popular targets.

China's industrial hubs are responding with advanced manufacturing and AI

Government leaders need to act, as Chinese cities are not standing still. From lithium batteries in Ningde and drones in Shenzhen to electrical vehicles in Hefei, Chinese cities are adopting more advanced manufacturing. It helps that many of the country’s top-ranking supply hubs specialize in both hardware and software, creating the right conditions for new industries to emerge. Industrial clusters are also key, with major players such as Shenzhen, Dongguan, and Guangzhou just 50 kilometers from each other.

The question is how the rise of artificial intelligence might change the global manufacturing footprint. China’s strategy of application-focused AI aims to embed artificial intelligence across all parts of the economy, including manufacturing. If AI is used to improve production efficiency or to produce more AI-enabled products, there is a chance that China’s more advanced industrial cities will continue to outperform, creating challenges for the other contenders, even under high tariff conditions.

The priority for CEOs, investors, and city leaders globally is how to both compete and engage with this change. Leading companies are investing alongside Chinese peers to ensure they remain at the forefront of technological change. Leading cities should consider building similar bridges with Chinese peers. Middle Eastern sovereign wealth funds, for instance, are engaging with Chinese city officials and investing in technologies that can help future-proof the urban environment at home.