Friendshoring and Global Supply Chains
The phrase, which is a close relative of “reshoring,” “onshoring,” and “nearshoring,” is a shorthand for the practice of moving supply chains to nations where there is little chance of an interruption due to political unrest.
At the beginning of the COVID-19 epidemic, Bonnie Glick, the U.S. Agency for International Development’s deputy administrator, was having trouble navigating the convoluted sourcing process for necessities like HIV drugs and malaria immunizations.
Her emphasis was drawn to the vulnerability of global supply chains and how to protect them as a result of the event. U.S. businesses by concentrating on producing goods domestically (“reshoring” or “onshoring”), regionally (“nearshoring”), or in nations that share their interests – a notion without an official name that she dubbed “allied shoring.”
The terminology changed as the concept gained popularity. Two economists from the Brookings Institution wrote about “ally shoring” in June of last year and gave Glick credit for coining the phrase. In a report on creating resiliency in supply chains, the White House mentioned “ally and friendshoring” in June of last year.
Status Quo of Friendshoring
Friendshoring is difficult. For starters, moving to countries with good governments might raise the price of goods. Another question is: Exactly who are your friends? President Joe Biden has changed his stance on Saudi Arabia over the last few years, from labelling it a “pariah” to praising Crown Prince Mohammed bin Salman and threatening the country with “consequences” for working with Russia to drive up oil prices.
Additionally, not everyone believes that friendshoring would be beneficial to the economy. The World Trade Organization forecasted that if the world split into Eastern and Western trading blocs, global GDP would decrease by 5%, with emerging economies bearing the majority of the burden. This prediction was made in a report on the trade implications of the conflict in Ukraine.
US Secretary of the Treasury Janet Yellen reaffirmed her nation’s position in support of “friendshoring” to diversify away from nations that pose a geopolitical risk during her visit to India last week. According to her, efforts are being made to reduce supply chain risks.
Friendshoring refers to a method where a nation purchases components, manufactured goods, and even raw materials from nations that share its ideals. The supply chains’ reliance on the nations deemed a “threat” to their stability is being diminished. In this instance, according to Yellen, Vladimir Putin has weaponized gas “against the people of Europe” in the Ukraine war despite Russia’s longstanding reputation as a trustworthy energy supplier.
China was a different nation that Yellen brought up in her remarks. She claimed that at the moment, it oversees more than 80% of the world’s solar panel production. However, some rumours that forced labour is used to produce panels in several regions of the nation, including Xinjiang.
She also cited instances like Apple’s declaration that it will move its iPhone production from China to India.
Aside from geopolitical and security problems, the US will lessen its reliance on businesses whose views on human rights conflict with its own.
Conclusion
According to some experts, friendshoring could make the world a less connected place for trade and undo the benefits of globalisation. It is a step in the process of “deglobalization.” According to The Guardian, experts also warn that friendshoring is a deglobalization process that might lead to more price increases, supply surprises, and less long-term growth in the short term.
