It has been started. It is happening. But it will take a very, very long time before the West will be able to rely on themselves and not China for important manufacturing.
There's a little bit here and there. There were some federal laws to incentivize microchip manufacturing in the U.S., but it's not really an overall thing.
There has always been a push to manufacture in the states. The first buy American law dates back to 1933 (or at least the first I found with a quick search - feel free to correct me if you know more). George Washington wore a suit from New England at his inauguration to encourage American manufacturing. Things have been moving elsewhere for a long time, but there is still a push to build in the US, and new manufacturing in the Us is created all the time.
I imagine that it will somehow turn out to be a "private company" in China that's cooperating, rather than an official gov't organ. Already the gov't is saying it's unaware of this project, so..
So yes sanctions will apply to the "companies" that are involved (which are basically fly by night, or spring up once to do this and then fold themselves). More usefully, some individuals might get named and sanctioned. And finally there'll be a new talking point in negotiations with China in getting greater cooperation to reign in some of these private companies.
Not saying we shouldn't try to sanction them. But it's also worth being mindful of the challenges ahead.
I like how people are like 'just build factories here' as if many of the raw materials for those factories arent also from China, or processed in China.
This will force the hand of US and EU to sanction China one way or another. Of course diplomatic solutions can be worked out. What it will be has yet to be seen. As you're aware, China has tried to avoid supplying arms directly to Russia until this move. It maybe that Chinese will manufacture the drones in Russia to avoid being seen as exporting arms.