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BusinessSeptember 14, 2022by Research Team0

Friendshoring – the Future of Trade or a Fad?

After shifting to reshoring from offshoring, ‘friendshoring’ seems to be the buzzword for the trade world, especially the United States. The world’s largest economy is planning to do business only with its ‘trusted allies’ or countries with ‘shared values’ amid the shift from an interconnected to a multi-polar world faced with disrupted supply chains, energy and food crises while struggling to balance the economic priorities of national security and low costs.

Not only the US but also its allies around the world are looking to establish friendly supply routes for key goods amid a war and global pandemic while promoting and funding new production and trading channels for essential goods that run through affable nations.



The phrase caught up after US Treasury secretary Janet Yellen in an April 13th Atlantic Council speech asked like-minded countries to follow friendshoring to insulate their supply chain from threats. Two months later, she stressed the strategy once again with a focus on friendshoring their investments and insulating their supply chains.

“Friendshoring is about deepening relationships and diversifying our supply chain with a greater number of trusted partners to lower risks for our economy and theirs.”

This more inclusive terminology, however, is only a year or so old. Last year, Elaine Dezenski and John Austin wrote an article for Newsweek that credited Bonnie Glick, who served in 2019-20 as deputy administrator of the US Agency for International Development, with privately using the term “allied-shoring.”

Even before the pandemic and war on European soil, the World Economic Forum (WEF) published an article entitled “A Brief History of Globalization” in January 2019, in which several lines struck a prescient note as it stated that ‘globalism’, or the idea that one should take a global perspective, is on the wane, as a political ideology.

This new lingo, also known as ally-shoring, soon made it to the business rulebook amid US’s geopolitical tension with China and was affirmed following the sanctions and trade blockades as Russia invaded Ukraine.

The COVID-19 pandemic followed by hard lockdowns in China led to global shipping and manufacturing delays while Russia-Ukraine war meant wheat shortages and the need for Europe to suddenly reorganize its energy supply lines. With the threat of Chinese ‘cognitive warfare’ hovering over Taiwan, the US and the EU are both investing in semiconductor manufacturing plants at home.



Friendshoring is now being touted as an affordable alternative to reshoring—bringing manufacturing back from overseas— to reduce disruptions, delays, increased production and transportation costs. Shorter supply chains and friendlier conditions should allow firms more security, transparency, and control over their supply chains.

This time-tested business strategy involves moving businesses from hostile countries to friendlier ones and then confining commerce to a limited circle of trusted partners.

If Europe buys gas and rare earth from the US and in turn, supplies Australia and Canada with semiconductor chips, surely these supply chains will weather the ongoing political storms better.

A departure from the economic globalization of recent decades governed by the ruthless logic of economic efficiency, the question now is can friendshoring change the world order and the rules of global conduct?



In the last few years, companies have been building up their inventories with an eye to producing a more resilient world.

According to the Economist, 3,000 biggest companies in the world have increased their holdings by the equivalent of 1 per cent of GDP since 2019. Depending on a single supplier, however low cost it maybe, has become a passé. Instead, structural changes have been made to their supply networks by implementing dual or multiple sourcing strategies for critical materials and moving from global to regional networks.

A survey by McKinsey & Company found that 81 per cent of supply-chain managers now source raw materials from two suppliers rather than depending on one, up from 55 per cent in 2020. Car companies are building their own battery plants and even investing in mines to counteract the dominant position Chinese firms enjoy in producing batteries and processing the minerals that go into them, a Bloomberg report said.

Companies including Samsung Electronics Co. and Gap Inc. are already tapping into this trend. Two of the largest greenfield FDI projects announced by the US in the past year, Intel’s USD 17 billion chip factory in Magdeburg, Germany, and Samsung’s USD 17 billion chip factory in Taylor, Texas, are examples of friendshoring. It is also trying to rally allies South Korea, Taiwan and Japan behind a “Fab 4 chip alliance” designed to coordinate policy on research and development, subsidies and supply chains, the report added.



Economists, however, warn about the price one has to pay by adopting this practice. This ‘deglobalisation’ process could see further supply shocks and higher prices in the short term and lower growth in the long run. “While moving supply chains away from East Asia could increase security in the long run, an ill-conceived implementation of this friendshoring strategy could result in price hikes and a stronger China over time,” wrote William Reinsch, Emily Benson and Aidan Arasasingham of the Center for Strategic & International Studies in a report on securing semiconductor supply chains last week.

A report in Quartz has termed this concept as regressive while drawing a parallel with the three decades after the end of the Cold War when the US and the USSR forced countries to align with one bloc or another.

According to a World Trade Organization (WTO) study, which was published after the Ukraine war began, if the global economy decouples into ‘Western’ and ‘Eastern’ blocs, it will lose nearly 5 per cent in output, the equivalent of more than USD 4 trillion.

Friendshoring will also harm poor countries. “It will increase the risks that these countries become failed states, fertile grounds to nurture and export terrorism,” economist Raghuram Rajan recently wrote.

In the WTO’s model of the decoupled economy, the US loses 1 per cent in economic output, but India loses 9 per cent and other developing countries lose 7 per cent, the report further said, adding that redoing the supply chains will be a difficult and costly proposition and push up prices as materials and components sourced from the US’s closest Western partners would involve higher costs of labour and production. And the soaring prices after having become accustomed to cheap devices, clothing and household goods, will lead to social discontent.

Once the ongoing geo-political skirmishes and post-pandemic logistical log-jams clear off, the phenomenon of friendshoring should reveal its relevance and longevity.


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