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Inside Out | Why the US ‘friend-shoring’ plan to contain China will run into trouble
- Given China’s strong and highly valued economic relations with a large part of the world, where can the US go to find a big enough group of trusted countries to friend-shore with?
- Moreover, is it worth risking a multilateral trading system built up over 75 years?
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I want to return to “friend-shoring”, preposterous and economically costly as it may be, not because the policy will lead anywhere, but because it has deep roots in US geopolitics, and is likely to sit at the heart of US diplomacy in the next year or two.
Three weeks ago, I drew on the Kearney Reshoring Index to show that US efforts to “reshore”, “near-shore” or friend-shore had over the past three years achieved nothing. Canada and Mexico, its most natural reshoring destinations, account for a smaller share of US exports than three years ago.
China’s share of US imports has indeed slipped (from 24.3 per cent in 2018 to 20.1 per cent last year), but when combined with the exports from 14 of Asia’s leading low-cost countries (up from 12.6 per cent to 17.4 per cent), the share has remained steadily close to 37 per cent.
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Rather than reshoring, near-shoring or friend-shoring, exporters across Asia appear to have adopted a China+ diversification strategy. Often, Chinese companies themselves diversify into nearby economies such as Vietnam, Bangladesh and Indonesia.
While companies have responded rationally, they have done nothing to assuage the (economically non-rational) political pressure for friend-shoring, which has roots going back to 1946 and the “long telegram” by US diplomat George Kennan framing the United States’ containment strategy against Russia that underpinned decades of Cold War.
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This time, it is all about the containment of China, and a rational anxiety about security, both economic and military, that has been aggravated by the glaring vulnerabilities that emerged during the Covid-19 pandemic, the net-zero targets driven by global warming, and the economic and supply chain disruption from Russia’s invasion of Ukraine.
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