The Devil in Friendshoring Details
The Joe Biden administration must determine whether friendshoring represents a significant change or just a rebranded version of the past.
The Devil in Friendshoring Details
The Joe Biden administration is challenging long-standing global trade norms and is forging a new direction that seeks to reshape the values and goals of U.S. trade policy. A central part of this new approach is the “friendshoring” strategy, initially introduced by Secretary of the Treasury Janet Yellen.
Last year, Yellen announced that the United States would shift its supply chains away from competitors and toward its allies. She emphasized that the United States cannot afford to let certain countries, particularly China, disrupt the global economy or wield geopolitical influence solely because they dominate critical materials, technologies, or products.
To mitigate this risk, the administration would enhance economic cooperation only with countries it trusts. In essence, the United States would practice friendshoring.
While friendshoring holds promise as a global strategy in today’s geopolitical landscape, it presents practical challenges. Key aspects, such as how to identify trustworthy partners, the benefits of friendshoring for these partners, and whether friendshoring has broader implications beyond trade (such as in defense and diplomacy), remain uncertain.
Why the United States Is Friendshoring
At first glance, friendshoring appears to be a prudent strategy for three geopolitical reasons. Firstly, we have transitioned from the post-Cold War era, during which the United States unequivocally held the position of the sole superpower, to a developing multipolar era in which the United States holds preeminence rather than absolute dominance. This shift implies that influential players like China or Russia have the capacity to instigate both minor and major disruptions to the international order.
Secondly, the era of multipolarity brings about a scenario where other actors and alliances, even those aligned with or neutral towards the United States, hold more substantial influence in geoeconomic considerations.
Nations like India or groups like the Quad (comprising the United States, Australia, India, and Japan) and organizations like the African Union have become increasingly intertwined with the global order. However, they also harbor beliefs and values that may clash with established norms. This can complicate the process of setting global standards, leading to the fragmentation of rules and the emergence of competing economic blocs, particularly in the realm of trade.
Thirdly, the COVID-19 pandemic laid bare vulnerabilities in supply chains, primarily as a result of the concentration of specific products and pent-up demand. While supply chains demonstrated adaptability during the pandemic, many companies became more conscious of their production and distribution strategies.
Consequently, governments began to assess supply chain disruptions and susceptibilities, identifying areas where international cooperation could offer assistance, especially in sectors critical to both trade and defense.
Friendshoring appears to consider all these factors; the United States requires its allies to fortify or potentially adjust the current international order in response to potential crises and emerging challengers.
The Need to Clarify Friendshoring
The challenges with the friendshoring paradigm lie in its intricate details. First and foremost, there’s often a conflation between friendshoring as a strategy and friendshoring as a tactic. Friendshoring encompasses both the enhancement of relationships with partners who share similar values and the reinforcement of trade and global supply chains. It involves identifying low-risk partners and relocating manufacturing to these partners.
However, this confusion aside, when viewed as a strategy, Secretary Yellen’s definition of friendshoring, which involves deepening ties with countries that align with U.S. norms and values concerning the global economy, serves as a starting point. Yet, this definition raises more questions than answers.
For instance, China shares many, if not all, of the United States’ values regarding the global economy, as seen in initiatives like the Belt and Road Initiative and the Asian Infrastructure Investment Bank, which are based on the acceptance of multilateral institutional norms, the core of the liberal international order. In contrast, India diverges on many of the United States’ key global trade norms and has been historically hesitant to sign trade agreements.
However, it is presumed that the Biden administration aims to friendshore with India but not with China.
The ambiguity surrounding the values required in a potential friendshoring partner has led to interpretations ranging from “countries where the risk of disruption from political chaos is low” to “economically low-risk countries” and “(non-)strategic competitors.” Some, like Canada’s Deputy Prime Minister Chrystia Freeland, have used the term “democracy,” which Secretary Yellen has avoided.
However, this definition would exclude certain “trusted partners” the United States wishes to friendshore with (e.g., Saudi Arabia and Vietnam) and raise questions about others (e.g., India).
The actual impact of friendshoring remains uncertain. In other words, what does friendshoring offer that simply strengthening trade relations with friendly countries does not? The distinction between friendshoring and a robust trade relationship only becomes evident if it extends beyond economic integration to encompass strategic issues. However, which strategic issues and why?
Does the United States intend to friendshore critical technologies, such as advanced semiconductors, by shifting trade away from China to trusted countries, but not when it comes to sharing intelligence or nuclear technology with them? This begins to resemble more of an “America-shoring” approach rather than true friendshoring.
If friendshoring is embodied in the model of the Biden administration’s signature trade initiative, the Indo-Pacific Economic Framework, it raises questions about how it will function in practice when there’s little incentive for trusted partners in terms of market access.
This leads to a broader question about the benefits of friendshoring for U.S. partners. If friendshoring is a strategy to bolster the United States’ trusted partnerships, what if it’s not advantageous for partners to engage in friendshoring with the United States?
Friendshoring could potentially have negative consequences or compel a partner to make politically costly decisions. This may be particularly relevant for Global South nations. Economist Raghuram Rajan has noted that the advantages of a global supply chain stem from involving countries at all levels of economic development and income.
Friendshoring, based on a selective number of partnerships, could disrupt this model, increase production costs, raise consumer prices, and exclude a diverse array of countries from the benefits of belonging to an exclusive club.
Moreover, many Asian and African countries may not align with the political interests of the United States. They have demonstrated ambivalence about events like the Russian invasion of Ukraine, refraining from joining sanctions or devising ways to bypass them. If friendshoring, without a well-defined definition, begins to encompass alignment with similar political interests, these countries may be cautious about participating.
Moving Beyond Rhetoric
It is undeniably crucial for the Biden administration to acknowledge and adapt to the current geopolitical realities. Prioritizing friendshoring offers several advantages: it aligns with the demands of a shifting geopolitical landscape and has the potential to engage a broader spectrum of partners compared to other cooperation models, such as alliances, ideological blocs, or minilateral groupings.
However, formulating a global strategy that has implications for the international order entails a two-fold process. First, it requires a well-defined vision—a set of “organizing principles, shared expectations, functioning roles,” as described by John Ikenberry in the context of international order norms.
Consequently, there should be a clearly outlined framework that precisely defines what friendshoring entails, which shared values are pertinent and why, and what strategies are encompassed by this approach. This framework should extend beyond trade matters because friendshoring evidently has diplomatic and defense aspects.
Second, this vision must gain the endorsement of partner nations. The international order is never shaped by a single country, regardless of its power. To amend an existing order or establish a new one, a great power, even a hegemon, necessitates support from a coalition of friendly states.
This is one of the reasons China has faced difficulties in presenting a vision for a new international order; numerous countries, even those receiving substantial investments from China, remain uncertain about its values and objectives. Therefore, any normative framework for friendshoring should consider seriously what advantages it can offer not only to the United States but also to its trusted partners.
Without taking such factors into account, friendshoring runs the risk of becoming a term that symbolizes old ideas presented in a new and attractive packaging.