Yellen Pitches ‘Friendshoring’ to Protect Supply Chains From ‘Risky’ Countries Like China

Secretary of the Treasury Janet Yellen at the Center for Global Development in Washington, on Oct. 6, 2022. Alex Wong/Getty Images

Janet Yellen, secretary of the U.S. Treasury, was in India to promote “friendshoring” to protect supply chains from unreliable countries like China and Russia.

The pandemic, supply chain problems, and rapidly changing geopolitical allegiances over the past two years have accelerated a redrawing of trade and economic relations around the world.

She promoted her vision of a new form of globalized trade relations and investment that aligns with potential allies like India, at the Microsoft facility in New Delhi on Nov. 11.

Yellen delivered her comments before her meeting with India’s Finance Minister Nirmala Sitharaman, to discuss furthering economic and financial relations between Washington and New Delhi.

The old system of globalization, which has been a driver for much of the economic growth over the last 30 years, has been shocked by severe global supply disruptions.

“We are dealing with a confluence of headwinds,” Yellen said, referring to the economic chaos caused by the pandemic, souring relations with Russia, and skyrocketing inflation worldwide.

‘Friendshoring’ Approach to Trade

The practice of offshoring that allowed western companies to cut costs by shifting manufacturing to countries with cheaper labor has been disrupted by a wave of tariffs and supply chain disruption, which brought some production back home in what is known as onshoring or reshoring.

The Biden administration warned in a report earlier this year: “The United States cannot make, mine, or manufacture everything ourselves. We must cooperate with our allies and partners to foster and promote collective supply chain resilience.”

The administration has instead pursued what it calls “friendshoring” or “allyshoring,” the policy of investing in manufacturing, component sourcing, and raw materials extraction between a group of like-minded countries.

It is an alternative to former President Donald Trump’s plan to protect domestic production and bring manufacturing back to the United States.

Yellen views the new “friendshoring” strategy as a way to pull away from countries that are geopolitical threats to the U.S. supply chain, towards friendlier countries like India and Vietnam.

Some economists view this process of deglobalization as leading to higher prices in the short term and weakening corporate growth in the long run.

Stronger US-India Trade Ties

The Treasury chief has hailed the potential for deeper ties between the United States and India, with bilateral trade and investments as among the main topics of discussion.

She said that the United States and India are natural allies due to their shared democratic traditions.

“We are proactively deepening economic integration with trusted trading partners like India,” said Yellen.

Yellen said that a major realignment is already taking shape, as Western companies have been diversifying supply chains and becoming less heavily dependent on certain nations for their needs.

“For too long, countries around the world have been overly dependent on risky countries or a single source for critical inputs,” said Yellen, referring to a dependency on nations like China and Russia.

“Our strategy will also create redundancies in our supply chain to mitigate over-concentration risks. And we are also addressing our reliance on manufacturers whose approaches clash with our human rights values.”

“Our investments are also consistent with our values like certain solar panel materials produced in China, like those from the Xinjiang region, are known to be produced with forced labor, ” she said.

“To be very clear, friendshoring is not limited to an exclusive club of countries. We seek integration with the large group of countries that we can count on—developing countries and advanced economies alike,” she added.

She also spoke highly of the plan by First Solar, an American firm, to build a manufacturing facility in the southern Indian state of Tamil Nadu, as well as Apple’s move to shift some of its iPhone manufacturing operations to the South Asian republic from China.

Foreign investment in India has long been hampered for years over concerns regarding poor infrastructure, bureaucratic red tape, and archaic labor laws.

New Delhi sees this as an opportunity to bring in more investment and pull business away from China, a major geopolitical and economic rival, and which also happens to be the chief backer of its longtime adversary, Pakistan.

Yellen still said that the United States wishes to “preserve the benefits of deep economic integration with China, not going to a bipolar world,” as long as China does not threaten its vital interests.

‘Trade as a Geopolitical Weapon’

The Treasury Secretary accused Russia, one of India’s closest allies, of weaponizing gas supplies to Europe after the invasion of Ukraine, despite the United States and its Western allies placing sanctions on Moscow’s energy exports.

The Biden administration views India as being an important mediator in pressuring its Russian ally to end the conflict over Ukraine.

Yellen said that the two republics share a common interest in strengthening their supply chains in a world where certain governments use trade as a geopolitical weapon, in a reference to Russia.

“The United States and India share an interest in strengthening our supply chains in a world where certain governments wield trade as a geopolitical weapon,” Yellen said, added that the United States “will continue to deepen our business and commercial ties with India as we pursue our friendshoring agenda.”

China has a global monopoly on raw materials such as rare earth and other minerals, while Russia is a key exporter of commodities like natural gas, grain, and fertilizer.

India has long maintained ties with Moscow and has been resistant to pressure from Western nations to economically cut ties with Russia after the invasion.

Yellen said that President Vladimir Putin’s reluctance to export gas to hostile neighbors in Europe serves as “an example of how malicious actors can use their market positions to try to gain geopolitical leverage or disrupt trade for their own gain.”

“Recent disruptions have contributed to higher prices in both of our countries and sapped economic output,” she said, referring to the spike in energy and commodity prices caused by the war in Ukraine and the sanctions on Russia.

The Treasury secretary added that ending the war in Ukraine is “the single best thing we can do to help the global economy” in the short term, which is now facing a “pivotal moment.”

Yellen Courts India

Meanwhile, Yellen delivered a list of objectives that the United States and India could work on at the G-20 summit, as the South Asian nation will hold the presidency of the economic conference next year.

She called for the need for wealthier nations to better coordinate debt relief for less developed countries through a G-20 program known as the Common Framework.

The Treasury secretary said that the United States welcomes “India’s leadership in this area, whether through an expansion of the Common Framework or another multilateral framework.”

“The Common Framework has not delivered on its promise, largely because of lack of cooperation from China,” said Yellen, criticizing the Chinese for their lack of participation in the program.

“All major bilateral creditors, including China, must cooperate constructively to deliver on their G20 commitment to provide meaningful debt relief. We must also improve the speed and predictability of the Common Framework itself,” she said.