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Advocates of Friendshoring Have Not Reckoned with Digital Trade

 |  February 13, 2023

By: Hector Torres (Center for International Governance Innovation)

Geopolitical tensions have exposed the risk of over-reliance on certain markets. Liberal democracies are reassessing whether free trade should be replaced by what US Treasury Secretary Janet Yellen has called “resilient trade.” This is defined as a form of trade where international value chains rely on “friendly” suppliers (read: not China). 

Champions of this new trade architecture are not questioning David Ricardo’s comparative advantage theory. They continue to believe in the benefits of trade liberalization, but more so if it takes place among “friends.” 

In their world, free trade is good but “friendshoring” is safer. Comparative advantages still count, but rather than chasing the cheapest suppliers, companies should factor in longer-term risks such as geopolitics, security and overconcentration in supply chains.

Governments, friendshoring advocates say, should play a critical role in strengthening national economic resilience by guiding private companies toward reliable comparative advantages. How can they do that?

Friendshoring proponents are not very specific on how governments should choose friends and whether friends can trade with other friends’ foes. But biases toward friends must be embodied in preferential trade agreements. Nor do advocates of the approach see a conflict with trade’s multilateral architecture. According to them, moving supply chains to like-minded countries can be done through a broad array of “multilateral engagements.” 

This is peculiar. Friendshoring is not a multilateral engagement, as this is commonly understood, since only friends are invited to sit at the negotiating table…