Forgetting Friendshoring
Remember friendshoring?
Back in the days of COVID-19, when manufacturers and retailers suddenly paid attention to supply-chain risks they had previously ignored, the notion that they could reduce risk by “reshoring” manufacturing from abroad to U.S. locations came into vogue. The concept has some obvious limitations: it doesn’t eliminate the risks of relying on a single source of critical inputs or finished products, and costs make it impractical to produce many things domestically. “Nearshoring” was advanced as an alternative: perhaps some production could be moved from Asia to lower-wage U.S. neighbors. “Friendshoring” emerged during the Biden Administration — former Treasury Secretary Janet Yellen is often credited for coining the term — as another option, the idea being that national security risks could be controlled by sourcing sensitive goods from countries that are aligned with U.S. interests as well as from the United States.
Since he took office on January 20, President Trump has taken or threatened unfriendly actions against some of those friends, including several countries — Panama, Colombia, Mexico, Canada — with which the United States has signed agreements to eliminate tariffs and other trade barriers. The announced tariffs on imports from China would also strike at many firms that draw on important inputs from China but are based in other friendly countries, such as Japan, South Korea, and Taiwan.
The Trump Administration hasn’t had much to say about friendshoring, but its actions, whatever their other purposes, undermine the rationale for it. Companies that shift important links in their supply chains to “friendly” countries can no longer assume unfettered access to the U.S. market. That uncertainty may be enough to convince some firms to leave their Asia-based supply chains intact: If moving supplier locations doesn’t lower the firm’s costs or reduce the risk that trade barriers will interrupt its supply chains, why should it bother?
The danger, of course, is that a decision that seems sensible for a firm may not be so sensible from a national security perspective. By being unfriendly toward friends, the United States may be increasing the very risks in critical supply chains that it has sought to minimize.
Tags: Manufacturing, supply chains