To globalise or not: Everything you need to know about friendshoring

In her visit to India last week, treasury secretary Janet Yellen said that the US is pursuing an approach called "friendshoring"

In her visit to India last week, US secretary of treasury Janet Yellen reiterated her country's stance of pushing for "friendshoring" to diversify away from countries that present geopolitical risk. She said that it was being done to minimise the supply chain vulnerabilities.

"For too long, countries around the world have been overly dependent on risky countries or a single source for critical inputs," Yellen said at a Microsoft event on November 11.

"The United States is pursuing an approach called 'friendshoring' to diversify away from countries that present geopolitical and security risks to our supply chain. To do so, we are proactively deepening economic integration with trusted trading partners like India.," she added.

What is "friendshoring"?

Friendshoring is a strategy where a country sources the raw materials, components and even manufactured goods from countries that share its values. The dependence on the countries considered a "threat" to the stability of the supply chains is slowly reduced.

It is also called "allyshoring".

In the current case, Yellen said that Russia has long presented itself as a reliable energy partner, but in the Ukraine war, Vladimir Putin has weaponised the gas "against the people of Europe".

"It's an example of how malicious actors can use their market positions to try to gain geopolitical leverage or disrupt trade for their own gain," she added.  

Another country Yellen mentioned in her speech was China. She said it currently controls over 80 per cent of global solar panel production. However, there are reports that in parts of the country, like Xinjiang, the production of panels takes place through forced labour.

So, "our development finance institution is providing America's largest solar manufacturer with up to $500 million in debt financing to build a facility in Tamil Nadu in India," she said.

She also gave examples of Apple's announcement to shift its iPhone manufacturing facilities from China to India.

Apart from geopolitical and security risks, the US will also reduce the reliance on manufacturers whose human rights values clash with America's.

Is this the first time Yellen mentioned friendshoring?

Yellen mentioned the term in a speech at the Atlantic Council in April. She said the US would continue "favouring the friendshoring of supply chains" to "securely extend market access".

It was later visible in the case of semiconductors. In May, US president Joe Biden toured a semiconductor factory in South Korea. It was seen as a step to move away from Taiwan, a major US semiconductor partner and is under threat from China.

What are the problems with friendshoring?

Some experts believe that friendshoring may push the world towards a more isolated place for trade and reverse the gains of globalisation. It is a part of the "deglobalisation" process.

In a report on securing semiconductor supply chains released in July, William Reinsch, Emily Benson and Aidan Arasasingham of the Center for Strategic & International Studies said, "While moving supply chains away from east Asia could increase security in the long run, an ill-conceived implementation of this friendshoring strategy could result in price hikes and a stronger China over time."

Yellen, however, said that friendshoring was "not limited to an exclusive club of countries" and that the US believes in "economic integration".