Friendhoring: what is it and can it solve our supply problems? | International exchange
Orelocation has been followed by relocation – and now the latest wheeze from US officials to deal with the massive global supply chain disruption is “friendshoring”. The tumultuous events of recent years – including Donald Trump’s trade wars, the Covid-19 crisis and Russia’s invasion of Ukraine – have challenged the vision of a globalized economy.
Many Western companies that have embraced offshoring — cutting costs by moving manufacturing to countries with cheaper labor — have been emboldened by tariffs and the pandemic supply chain disruption to bring back the production in their country of origin, in a trend known as offshoring or relocation.
However, in a report on US supply chains earlier this year, the Biden administration warned, “The United States cannot manufacture, operate, or manufacture everything ourselves. We must work with our allies and partners to foster and promote collective supply chain resilience.
This is the heart of US Treasury Secretary Janet Yellen’s proposal to move towards friendhoring, or allyshoring – manufacturing and sourcing components and raw materials within a group of countries with shared values. “Fostering the friendly relocation of supply chains to … trusted countries, so that we can continue to safely expand market access, will reduce risks to our economy as well as to our trusted trading partners,” said she said in a speech to the Atlantic Council in April. .
The United States and its allies aim to protect supply chains by reducing its dependence on authoritarian regimes for materials such as rare earths and other minerals, and on Russia for products such as gas, foodstuffs and fertilizers.
The United States depends for semiconductors on Taiwan, which has been under threat from China since the visit last week of US House Speaker Nancy Pelosi, so it has stepped up its engagement with South Korea. On a recent trip to Seoul, Joe Biden visited a South Korean chip factory that will serve as a model for another factory in Texas. Human rights and national security concerns could lead Western countries to move production and jobs from China to “friendly” countries such as Indonesia, Malaysia and Vietnam.
However, economists say there is a price to pay. Friendhoring is part of a process of “de-globalisation”, which could lead to further supply shocks and higher prices in the short term and lower growth in the long term.
“While moving supply chains away from East Asia could increase long-term security, a poorly designed implementation of this friendship strategy could lead to higher prices and a stronger China. over time,” William Reinsch, Emily Benson and Aidan Arasasingham of the Center for Strategic & International Studies wrote in a report on securing semiconductor supply chains last week.
Unsurprisingly, Yellen expressed a desire to “preserve the benefits of deep economic integration with China, without moving towards a bipolar world”, as long as China responds to Western concerns about human rights and national security. .