Offshoring, onshoring, restoring, nearshoring — now friend-shoring?

US Treasury Secretary Janet Yellen has proposed friend-shoring as a way to support other nations with shared values. The idea is that U.S. manufacturers will build facilities in nations that have shared values with the United States, and those nations will be less likely to cause supply chain disruptions than countries like China or Bangladesh which have different worldviews.

With less reliance on Russia and China for rare earth, batteries, food and energy supplies, and other key elements of U.S. supply chains, American companies will be less vulnerable to disruption. Our friends, we figure, will support us and we will support them. They will not have destructive agendas that could lead to intentional problems or conflicts.

Greater diversity

At the same time, friend-shoring could increase the diversity of our supply chains. Nations like Vietnam and Indonesia could help mean the U.S. from excessive dependence on China, India, and the Arab world.

The result could be greater resilience when we face the next pandemic, climate disaster, or war.

But some experts consider this a form of protectionism, which can have negative consequences. They point out the cost of changing horses in midstream — though disruptions have been significant enough that it may not really be midstream any more.

And friend-shoring wouldn’t provide jobs for the United States the way reshoring could.

Yellen, however, was very clear that her definition for he concept is not about protectionism or rejection of globalization. “Working with allies and partners through friend-shoring is an important element of strengthening economic resilience while sustaining the dynamism and productivity growth that comes with economic integration,” she said in a speech this summer.

The Atlantic Council lists industries where friend-shoring could help prevent problems that have already reared their heads in the past:

  • semiconductors
  • active pharmaceuticals
  • green energy technology
  • telecommunications
  • strategic minerals

If you’ve been following the headlines fort the past few years, you already know that these are areas where unfriendly disruptions, as well as unavoidable ones, have affected U.S. supply chains in serious ways.

At the same time, The Economist, a European news source, suggests that the United States may be using its negotiating power too aggressively for friend-shoring to be truly friendly.

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