The end of hyperglobalization, spurred by the 2017 trade war, has given way to fragmented global trade, with U.S. trade with Mexico and Canada surpassing that with China by 2022. Amidst rising political risks and inflation, a new trend, “friendshoring“, emphasizes trading with allies for national security and supply chain reliability. US-China trade has notably declined, with a nearly 18% drop by the third quarter of 2023, as firms realign global supply chains towards more reliable partners like the euro area and Japan.
This shift is partly due to geopolitical tensions and the pandemic, highlighting the risks of dependence on authoritarian regimes like China. The pandemic’s challenges and China’s solitary vaccine approach underscored the benefits of diversifying supply sources. Additionally, soaring shipping costs and energy prices have made shorter, more reliable supply routes and friendshoring more attractive.
Friendshoring aims to secure supply chains by leveraging trade with trusted allies, enhancing both corporate and national security. U.S. Treasury Secretary Janet Yellen advocates for friendshoring, linking it to economic efficiency and security. The move towards regional trade, driven by security and political risks, is reshaping global economic practices.
In summary, the transition towards friendshoring reflects a strategic pivot in global trade, prioritizing reliability, security, and economic integration with allies. This approach is expected to define future economic competition and collaboration, with firms adapting to manage supply chain challenges and political uncertainties in a geopolitically fragmented world.
