What is friendshoring? Janet Yellen’s new strategy for fixing the supply chain crisis

Its new favored strategy? ‘Friendshoring’—or the restricting of trade to friendly partner countries, according to U.S. Treasury Secretary Janet Yellen. During a Tuesday speech in South Korea, Yellen called on “trusted” allies to bolster their U.S. trade relationships amid a global supply chain crunch that began during the COVID-19 pandemic and as part of a larger effort to reduce its dependency on China. The U.S. is aiming to alleviate shortages in goods, from consumer products to semiconductor chips that are used in everything from kitchen appliances to mobile phones and vehicles.  

The Treasury Secretary touted ‘friendshoring’ as a tool that will deepen relationships and “diversify our supply chains with a greater number of trusted partners.” It will also protect households from inflation and disruptions caused by geopolitical and economic risks, she said. 

“We do not want a retreat from the world, causing us to forgo the benefits it brings to the American people and the markets for businesses and exports. [Rather], we can continue to strengthen the international system we’ve all benefited from, while also protecting ourselves from the fragilities in the global trade networks,” Yellen argued.

From ‘onshoring’ to ‘friendshoring’

First came the pandemic, which severely disrupted the movement of goods worldwide. Then came China’s continued, harsh lockdowns—part of its strict ‘zero-COVID’ strategy—which closed factories and stranded goods at ports. Russia’s war on Ukraine, which began on Feb. 24, worsened the supply chain crunch and led to added problems like a wheat shortage and surging prices across the globe. 

The pandemic convinced the Biden administration that it must pursue ‘friendshoring’ as a  means to strengthen U.S. supply chains. The U.S. has advocated for ‘onshoring’ (also known as ‘reshoring’)—or shifting manufacturing closer to, or on, American soil. Some in Washington for instance, are now pushing for a $52 billion legislative package intended to incentivize chipmakers to open semiconductor plants in the U.S., which advocates say will help mitigate the chip crunch and boost American competitiveness. But ‘onshoring’ isn’t enough, the White House said last year in its national plan to boost supply chain resilience. 

“It would be neither feasible nor advisable for us to reshore all supply chains to the United States. So… [we have] a much more dedicated focus on working with partners and allies around the world to make sure that we have access to the products and access to the products from countries that share our values and share our economic systems,” Brian Deese, director of the National Economic Council at the White House, told NPR in June 2021. 

Friends and foreign adversaries

The Treasury Secretary’s Tuesday remarks also supported the push by the U.S. to increase trade and cooperation with South Korea—America’s sixth-largest goods trading partner and a strategic ally—particularly in advanced tech and goods. 

LG Energy Solution and LG Chem—the battery and chemical subsidiaries of the South Korean conglomerate—will invest at least $11 billion in the U.S. in the next three years, Shin Hak-Cheol, CEO of LG Chem, said during the joint Tuesday press conference with Yellen. The package will include funding for five new electric vehicle battery plants in the U.S. Such investments will help the U.S. reduce its supply chain vulnerabilities that increased during the pandemic and Russia’s war on Ukraine, Yellen said.

Plus, “South Korea and the U.S. are in an ideal spot [for] friendshoring,” James Kim, chair of the American Chamber of Commerce in South Korea, told CNBC on Tuesday. The business group conducted a recent survey showing that for the first-time, South Korea is the second-most attractive country for regional headquarters in Asia following Singapore, with U.S. interests in the country growing, Kim said. 

Yellen on Tuesday, also emphasized that China—which many in Washington have branded a ‘foreign adversary’—shouldn’t be allowed to “use their market positions in key raw materials, technologies or products” to disrupt the American economy or to use as geopolitical leverage. 

China “has directed significant resources… [and] unfair trade practices to seek” dominance in manufacturing advanced technologies, she said. The U.S. hopes that friendshoring will counteract Beijing’s influence over U.S. and global supply chains.