Free trade has never looked so sickly. Geopolitical tensions, including the US-China trade war and Russia’s invasion of Ukraine, have infected global trade relations. Coupled with the lingering disruption of Brexit and Covid-19, these rows threaten to severely disrupt global supply chains.
The cure? Well, recognising that trade and geopolitics are inextricably linked, the Biden administration has created a new policy to treat the supply chain risk. The diktat, which it has named friendshoring, involves only trading with trusted allies.
But the strategy raises several concerns. Firstly, how does the US propose to differentiate a ‘friendly country’ from an ‘unfriendly’ one? In addition to its traditional allies, the Biden administration has identified Brazil, India, South Korea, Japan, Indonesia, Vietnam, and Malaysia as trustworthy nations.
But there are grey areas. Hungary, for example, is part of the EU, which is regarded as a friendly trading bloc in the US administration’s eyes. Yet US think-tank Freedom House only classes Hungary as being “partly free”, given Viktor Orban and his government’s frequent attacks on democracy, the rule of law, press freedoms and LGBTQ+ rights. What does it mean, then, for the US to indirectly call Hungary a ‘trusted ally’, then?
Even if the US can fine-tune who it considers a trusted ally, and if its companies embrace the concept of friendshoring, can the emerging industrial powerhouses on the US list prove to be a viable substitute for Chinese manufacturing bases?
Jose Arturo Garza-Reyes, professor of operations management at the University of Derby, says that the aforementioned countries “are rapidly becoming part of the top 15 most competitive nations for labour-intensive commodity products”. In the short- to medium-term, he believes that “supply chain agreements formed with China can be replaced with agreements with these countries”.
But in the long term he worries that friendshoring could create a world divided between free-market democracies and authoritarian regimes. Garza-Reyes is particularly concerned that friendshoring could take the world back to similar trading characteristics last seen during the Cold War, creating ‘trade blocs’ where some countries are aligned to autocratic states such as China and Russia, and others to Western nations.
“This could exacerbate the already high friction between these blocs,” he says, “making the friendshoring policy a dangerous one. From an operational point of view, this would limit the partnerships and relationships that companies can develop, preventing them from being able to procure the best products, services and raw materials at the lowest cost. Once again, from an operational perspective, this makes friendshoring an undesired, but currently politically necessary policy.”