Assessment found America lacked “sufficient capacity” to produce semiconductors and relied primarily on Taiwan, South Korea and China for leading-edge logic and mature node chips. The review identified China and European Union (EU) had “developed and deployed” ambitious government-led industrial policies to support their success through battery supply chain.
It noted US drug manufacturing, particularly for generic and common drugs, was “often undercut” by foreign competition from China and India. Only after realizing America “cannot” manufacture all products at home or address its supply chain susceptibilities alone, Biden administration dropped pursuing onshoring and mooted "friend-shoring" to strengthen US resilience.
Ever since, US officials have been trying to put flesh on the concept. Once Biden made it clear to allies he wasn’t interested in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, his Commerce Secretary Gina Raimondo said Washington was “very interested” to increase the domestic supply of semiconductors through the friend-shoring.
America desperately wanted to bring manufacturing at home; it couldn’t make, mine or manufacture everything over high labor prices. The domestic pitfalls led to US promotion of friend-shoring to bolster the country's resilience. In recent months, US Treasury Secretary Janet Yellen acknowledged America’s supply chains were “very efficient and excellent at reducing business costs” and backed friend-shoring in South Korea to develop strong supply chains for key components like electric vehicle (EV) batteries and semiconductors.
Washington also counted on New Delhi to friend-shore semiconductor production. But India is reluctant to restrict trade with Russia and has opted against signing up the trade pillar of Biden’s Indo-Pacific Economic Framework. While Indian stubborn attitude weakens the Quad position vis-à-vis Europe, her stand thins out its attractiveness as a trusted partner for friend-shoring.
Meanwhile, world leaders are taking the liberty to call out the US proposal. In May, Singaporean Prime Minister Lee Hsien Loong openly criticized friend-shoring and described it as an action to “shut off avenues for regional growth and cooperation” and drive a wedge between other states. More recently, German Chancellor Olaf Scholz said deglobalization wasn't an option and dubbed such efforts as protectionism.
Friend-shoring enshrouds some serious implications for globalization and multilateral trading system. Experts warn it’s part of a deglobalization process that will bring further supply chocks, higher prices and lower growth.
Cecilia Malmström – nonresident fellow at Peterson Institute for International Economics and former member of the European Commission and European Parliament – reckons EU and Indo-Pacific account for 70% of global trade and 60% of direct investment flows. Emphasizing further integration between the economies of the regions could strengthen stability, security, prosperity and sustainable development, she described friend-shoring as "more protectionist."
Ngozi Okonjo-Iweala, WTO Director-General warned against relying too heavily on friend-shoring and hypothesized breaking the world into two trading blocs would slash global GDP by 5%. After meeting with Scholz, she and Kristalina Georgieva, MD IMF, recalled protectionism, decoupling and fragmentation could negatively impact global economy as well as developing and emerging markets whose economies could contract by double-digit.
In a new report, the UNCTAD warned friend-shoring could weigh on global trading system with US and EU plans potentially fragmenting the international commerce. “If you try to get away from one part of the world, you create a huge disruption to the system. Everything changes,” said Secretary General Rebeca Grynspan.
After reshoring and onshoring, friend-shoring is the latest wheeze of the Biden administration; in practice, it’s a de facto and defunct American protectionist approach, which is launched under the veil of the new symbolism with support of the controversial legislation to steal away major allies' high-tech production facilities and quality jobs. Cracking the tail end of the concept is as easy as winking: rip up existing global supply chains and build a whole new, US-dominated manufacturing and trading system.
*My opinion piece (unedited), first appeared in "The Express Tribune."