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The pandemic inflicted a huge shock on supply chains, but there is another force at work remapping global trade flows too: the deepening ideological divide between the US and China, framed in Washington as a broader competition between democracies and autocracies.
The so-called “de-coupling” between the world’s two largest economies began during the presidency of Donald Trump, who slapped tariffs on China in a largely unsuccessful attempt to address the real harms that offshoring has done to some US workers.
But now, as global trade reorients itself in the wake of the pandemic, Washington is making a broader push for US companies to source their goods from factories in friendly democracies rather than authoritarian countries — China, Russia, and the gang — that could use their control over key materials or products to inflict pain on the West. Russia’s use of oil and gas to pressure Europe is one clear example, of course, but there are others: China’s monopoly on the production of rare earths used for electronics, or the precarious concentration of global microchip production in Taiwan, which lives under the constant threat of Chinese invasion.
US Treasury Secretary Janet Yellen recently touted the benefits of so-called “friendshoring” on a visit to South Korea, which is trying to lure American supply chains away from China and to start making more microchips itself. Southeast Asian manufacturing powerhouses like Malaysia, Vietnam, Thailand, and Indonesia are also keen to continue capitalizing as “friends” of the US.
Friendshoring may offer certain protections in a world of deepening ideological competition, but there are tradeoffs: “friendly” countries may not always produce goods as cheaply or efficiently, meaning that consumers may have to accept higher prices, particularly in the short term. Is the tradeoff of greater security in exchange for less efficiency worth it? More to the point, is it now unavoidable?