According to the New York Times, ‘friendshoring/allyshoring’ is a term for the practice of relocating supply chains to countries where the risk of disruption from political chaos is low. This word was not an actual word until recently. During the COVUD-19 pandemic, the then deputy administrator of the Agency for International Development (US), Bonnie Glick, mentioned how focusing on production at home or in countries closer to the home country or in friendly countries that are aligned with the US would be helpful and safeguard the US interests. She termed this concept as ‘allied shoring’. Thus, it can be said that this new term ‘friendshoring/allyshoring’ or allied shoring is a cousin of ‘reshoring/onshoring.’ (i.e., the practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated.)
The term ‘allied shoring’ or ‘allyshoring’ is increasingly welcomed by countries, especially the US, as dependence on the countries which could be a threat in the future is being slowly avoided to avoid major blows in the future just as happened due to Russia-Ukraine crisis. Russia was a major energy source for most of Europe. But, restricted supply of oil and increased oil rates caused severe damage to the economies dependent on Russian oil. Consequently, countries are trying to find alternatives that may not have future political chaos and countries that are aligned with the interests of the home country.
Implications of the Concept
There are both positive and negative implications of ‘friendshoring/ allyshoring’. Assuring a safe and sufficient supply of commodities to an allied country is one of the major reasons and implications of this term. Due to the COVID-19 pandemic and the Russia-Ukraine War, many products were short in supply, and countries had to face a surge in prices. The idea is that if a country had few friendly nations worthy of trust, the supply may not face constraints. Moreover, if the production is shifted to the home country, there would be almost negligible problems in transport or supply.
However, shifting the production to the home country or a nearby country or a friendly country does not align with globalisation as trade is an important part of the economy of any country. Therefore, friend- shoring is not a good solution in the interdependent world as friend- shoring could lead to the isolation of countries and also result in inefficiencies in costs, prices, and, employment. Allyshoring will not only affect trade or pricing but also the political relations among countries. It could also lead to retaliations among nations for withdrawing their trade or production centres that would affect the economy.
Conclusion
Friendshoring is not completely supported by many economists due to a few possible outcomes which may not be favourable in the long run. According to Raghuram Rajan, former RBI governor, friendshoring is understandable if it is strictly limited to specific products which are directly affecting national security. The concept may benefit a country in terms of costs and supply only when the products or services produced are of national importance because relocating to a home country or a friendly nation may not be practically easy. It is difficult to strictly cut out friendly nations in an ever-changing world, also the politics in the countries that are friendly play an important role while relocating. If the relocating is a major cause of the hurdles in supply, there are many examples of supply shortages even in products produced by domestic companies. For example, four domestic companies supply most of the baby formula in the US, yet shortages occurred.
In the end, firendshoring will typically mean trading with countries with similar values and institutions, i.e., transacting only with those countries that have similar level of development. On the contrary, global supply chain benefits stem from the fact that it involves countries with very different income levels.
In a WTO report regarding the trade implication of the Russia-Ukraine War, it was predicted that the global GDP would fall by 5 per cent if the world trading is split into Eastern and Western blocks. If the loss is 5 per cent just by dividing into two halves, the loss could be even much more when the countries divide themselves into different groups based on their geopolitical relations. So, the countries looking to adopt such a policy should study the costs and benefits not only for the short run but also in the long run.
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