Composing Friends: What Is It and Can It Solve Our Supply Problems? | world Trade

aThe ffshoring of re-supply followed – and now the latest cry of US officials to deal with the massive disruption in the global supply chain is to “make friends”. The turbulent events of recent years – including Donald Trump’s trade wars, the COVID-19 crisis, and Russia’s invasion of Ukraine – have called into question the vision of a globalized economy.

Many Western companies that have embraced offshoring — lowering costs by shifting manufacturing to countries with cheaper labor — have been encouraged by tariffs and pandemic supply chain disruptions to bring production back home, in a trend known as sourcing or re-supply.

However, in a report on US supply chains earlier this year, the Biden administration warned: “The United States cannot manufacture, manufacture, or manufacture everything ourselves. We must cooperate with our allies and partners to strengthen and enhance collective supply chain resilience.”

That is the gist of US Treasury Secretary Janet Yellen’s proposal to move toward a friendship of friends, or alliance — the manufacture and supply of components and raw materials within a group of countries with shared values. “Favoring supply chains to … trusted countries, so that we can continue to expand market access securely, will reduce risks to our economy as well as to our trusted trading partners,” she said in a speech at the Atlantic Council in April. .

The United States and its allies aim to protect supply chains by reducing their dependence on authoritarian regimes for materials such as rare earth and other minerals, and on Russia for goods such as gas, food, and fertilizer.

The United States relies on semiconductors in Taiwan, which has been under threat from China since US House Speaker Nancy Pelosi’s visit last week, so it has stepped up its engagement with South Korea. On his recent trip to Seoul, Joe Biden toured a South Korean chip factory that will serve as a model for another in Texas. Human rights and national security concerns could lead Western countries to move production and jobs away from China to “friendly” countries such as Indonesia, Malaysia, and Vietnam.

However, economists say there is a price to be paid. Making friends is part of the process of “deglobalization,” which can see more supply shocks, higher prices in the short term, and lower growth in the long term.

William Reinsch, Emily Benson and Aidan Arasingham of the Center for Strategic and International Studies wrote in a report last week on securing semiconductor supply chains.

Not surprisingly, Yellen expressed a desire to “preserve the benefits of deep economic integration with China, not go into a bipolar world,” as long as China addresses Western concerns about human rights and national security.