As war and the pandemic expose the fragility of supply chains, the U.S. and its allies are pursuing a new kind of global trade, one that confines commerce to a circle of trusted nations. The shift, writes The Wall Street Journal (May 16, 2022), is called “friend-shoring.” The new strategy is a departure from economic globalization of recent decades, when businesses bought and made products where costs were low and free-trade policies made moving goods around the world cheaper and faster.
Now, the U.S. and allies in Europe, Asia and the Pacific are promoting and funding new production and trading channels for essential goods that run though friendly nations. This trend comes after a series of disruptions, including the pandemic, Russia’s invasion of Ukraine, and a trade war between the U.S. and China.
Promoters of friend-shoring see it as a chance to revamp global supply chains to reduce their reliance on countries such as China and Russia. They say it is a compromise between full-fledged globalization and isolationism, and between offshoring and domestic production. Such arrangements, says U.S. Treasury Secretary Janet Yellen, “would allow the U.S. to deepen ties with a group of countries sharing a set of norms and values about how to operate in the global economy.”
Efforts are already under way in industries including semiconductors and rare-earth metals, a crucial input for EVs and missiles. Private companies are joining the fray as well, moving to increase production in countries they see as carrying relatively low political and logistical risk. U.S. Trade Representative Katherine Tai said “it is essential to diversify supply sources for key goods to make sure that the next time there is a crisis, we don’t have the panic and the sense of desperation.”
Some businesses have already moved ahead in their friend-shoring practices. Apparel companies had to grapple with U.S. policies clamping down on cotton products from China’s Xinjiang region linked to forced labor. Then came the pandemic-induced congestion that resulted in skyrocketing of the time and cost of shipping from Asia. Apparel businesses’ favorite destinations are Central American countries such as Honduras, Guatemala and El Salvador. Gap is doubling the region’s share of its global production to 10% within the next year and eventually wants to raise it to 25%.
Classroom discussion questions:
- What are the disadvantages of “friend-shoring”?
- The advantages?