The resounding success of American ‘friendshoring’

Jorge Costa Oliveira

Following a 2021 executive order from the U.S. President, instructing his administration to conduct a review of the country’s key supply chains, the U.S. Treasury Secretary, speaking at the Atlantic Council in April 2022, announced a new approach by the Biden administration to navigate a global economy that is more adverse to American interests, calling it “friendshoring.” In the words of Janet Yellen: “We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage. Let’s do it with the countries we know we can count on.  Favoring the “friend-shoring” of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners.”

This new U.S. policy of seeking more resilient supply chains among trusted partners through friendshoring has a primary target – China and Chinese companies. It has translated into initiatives such as the adoption of the CHIPS and Science Act, complemented by others like the US-EU Trade and Technology Council (TTC), the Minerals Security Partnership (MSP), the Indo-Pacific Economic Framework for Prosperity (IPEF), and the Americas Partnership for Economic Prosperity, all aimed at “engaging with trusted partners” and “reducing dependencies on unreliable sources of strategic supply.”

To reinforce this policy, the U.S. government has been identifying several countries (e.g., India, Vietnam) as being included in the concept of friendshoring, signaling them as better locations for American companies to set up operations. With a keen eye on the deepening U.S. decoupling from China and the growing tensions between the U.S. and China, various American companies have been relocating [part of] their production from China to “friendly” countries.

In terms of foreign trade, friendshoring appears to be a resounding success. In less than two years, Mexico and Canada (friendshoring + nearshoring) have surpassed China as the main suppliers of goods to the U.S. amid diversified supply chains. U.S. imports from China fell by 25% in the first half of 2023, and since 2019, Mexico’s bilateral trade surplus with the U.S. has increased by 40%. China is now only the third-largest supplier to the U.S.. According to some, the increase in imports from neighboring countries and NAFTA partners reflects changes in consumer demand and supply chain diversification driven by the pandemic.

Statistics also show that Chinese exports to countries rising in the ranking of U.S. import sources are increasing. This phenomenon is not unprecedented. We have witnessed a trade diversion of Western products to Russia through Central Asia. The remarkable coincidence of increased export flows from China to Mexico and Canada and from these two countries to the U.S. leads a Bloomberg columnist to suggest that Chinese companies are redirecting a significant portion of their exports.

When it becomes clear in Washington that the luminous friendshoring plan is causing a redirection of products exported by Chinese companies to the U.S. via Mexico (and Canada), it is quite possible that this will generate a new wave of American protectionism.