The hot new trend in global trade: “Friendshoring,” which means shrinking economic ties with countries you disagree with, and increasing them with nations you’d grab a beer with.
Driving the news: Friendshoring is on the rise as Western countries start shifting trade to friendly partners to cut dependence on totalitarian regimes, most notably China and Russia.
- Recent examples of friendshoring include the US’ measures to cut China out of electric vehicle supply and the EU’s proposed ban on slave labour imports.
Why it’s happening: Amidst frosty geopolitical relations, Canada wants to strengthen its supply chains against vulnerability caused by relying on (potentially) unpredictable partners.
Why it matters: The rise of friendshoring marks a retreat from globalization and offshoring —the practice of shiting manufacturing to countries with cheap labour (read: China).
- The WTO predicts global trade will increase by only 1% next year, a drastic drop from previous estimates. Friendshoring could drive down this number even further.
Friendshoring could also help supply chains long-term by creating more reliable suppliers, while partnerships with Indo-Pacific countries could fill the cheap labour gap.
- But in terms of your wallet, it could mean short-term supply shocks and costlier goods, as companies are forced to source items from countries with pricier labour.
Zoom out: Canada won’t abruptly stop trading with China (though exports have steadily decreased this year) but embracing friendshoring is a marked shift in relations with its second-biggest trade partner.