What is “friend-shoring”
Last April, U.S. Treasury Secretary Janet Yellen gave a talk at the Atlantic Council on the future role of cooperation in the global economy. She argued for the need to modernize the multilateral approach to trade integration especially to ensure against countries which use their exports to disrupt the global economy or exercise unwanted geopolitical leverage. Yellen put forth the idea of “friend-shoring” which will result in free but also secure trade:
Let’s build on and deepen economic integration and the efficiencies it brings—on terms that work better for American workers. And let’s do it with the countries we know we can count on. Favoring the “friend-shoring” of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners. We should also consider building a network of plurilateral trade arrangements to incorporate elements of the modern economy that are growing in economic importance, especially digital services. We should harmonize our approaches to protecting the privacy of data. And a modernized trade system will also require the ability to effectively enforce trade policies and practices, both multilateral and bilateral.
Remarks by Secretary of the Treasury Janet L. Yellen on Way Forward for the Global Economy
Branko Milanovic is not a fan of “friend-shoring”
We are now told that we need to go back to the drawing board. But we are not allowed to call these reversals by their real names. Their real name is trade blocs. They have existed before: there were called UK imperial preferences, Japan’s co-prosperity zone, Grosse Deutschland’s Central European area, Soviet Council for Mutual Economic Assistance. They also responded to geopolitical interests of the countries that introduced them. For some eighty years they were held to have been ideologically retrograde, part of “beggar-they-neighbor” quasi autarkic policies. Now, we are to believe that “friend-shoring” is somehow different. It is not. It just mercantilism under a new name and trade blocs in a different costume.
Let’s go back to mercantilism and trade blocs!
By: Branko Milanovic – Graduate Center of the City University of New York
…neither is Raghuram Rajan!
In this commentary, Raghuram Rajan argues that “friend-shoring” will negatively affect efforts towards decarbonization as well. For example, in a fragmented economically world climate agreements will become ever more difficult to achieve.; or new technologies needed to replace carbon-intensive production processes will be hindered if raw materials can be procured only through “friend-shoring.”
Deglobalization is being accelerated through a combination of old-fashioned protectionism, newfangled “friend-shoring” (limiting trade to countries with shared values), and geo-strategically motivated bans and sanctions. To see why this trend will frustrate global responses to climate change, consider the three categories of climate action: mitigation (emissions reduction), adaptation, and migration to better conditions. The sequence here is important, because the challenges implied by each category will become more difficult if less is done in the category preceding it. If we do too little on mitigation, we will need more adaptation, and if we do too little on adaptation, we will see more climate refugees fleeing their increasingly uninhabitable homelands.
Deglobalization Is a Climate Threat
By: Raghuram Rajan – University of Chicago
