Offshoring was followed by reshoring – and now “friendshoring” is the latest gasp from US officials in dealing with massive global supply chain disruptions. The turbulent events of recent years – including Donald Trump’s trade war, the COVID-19 crisis and Russia’s invasion of Ukraine – have challenged the vision of a globalized economy.
Many Western companies embracing offshoring – cutting costs by moving production to countries with cheaper labor – have been encouraged by tariffs and pandemic-related supply chain disruptions to shift production back to their home countries, known as onshoring or reshoring. goes.
However, in a report on America’s supply chains earlier this year, the Biden administration warned, “The United States cannot manufacture, mine, or manufacture everything. We must work with our allies and partners to promote and promote resilience throughout the supply chain.”
Executing this friend-shoring strategy incorrectly could send prices skyrocketing and strengthen China over time.
Think tank report
This is at the heart of US Treasury Secretary Janet Yellen’s proposal to move to friendshoring, or all-shoring – the manufacturing and sourcing of components and raw materials within a group of countries with shared values. Speaking at the Atlantic Council in April, she said, “In favor of supply chain friendliness…to trusted countries, so that we can safely continue to expand market access, our economies as well as our trusted trading partners will be de-risked.”
The US and its allies aim to protect supply chains by reducing dependence on authoritarian regimes for materials like rare earths and other minerals, and on Russia for commodities like gas, food and fertilizer.
The US has relied on Taiwan for semiconductors, which has been under threat from China since US House Speaker Nancy Pelosi visited last week, and has therefore stepped up its involvement with South Korea. On a recent visit to Seoul, Joe Biden visited a South Korean chip factory that would serve as a model for another factory in Texas. Human rights and national security concerns can lead Western countries to shift production and jobs from China to “friendly” countries like Indonesia, Malaysia and Vietnam.
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However, economists say there is a price to pay. Friendshoring is part of a “deglobalization process” that could lead to further supply shocks and higher prices in the short term and lower growth in the long term.
“While shifting supply chains out of East Asia can increase security in the long term, misguided implementation of this friendly strategy can lead to price increases and a stronger China over time,” said William Rensch, Emily Benson and Written by Aidan Arrasingham. The Center for Strategic and International Studies issued a report last week on securing the semiconductor supply chain.
Unsurprisingly, Yellen expressed a desire to “retain the benefits of deeper economic integration with China and avoid falling into a bipolar world” as long as China addresses Western concerns about human rights and national security.