Friend-Shoring

Friend-shoring describes an economic policy strategy: states and companies relocate their supply chains — that is, the chains of suppliers, manufacturers, and transport routes a product passes through — preferably to countries with which they are politically closely aligned. The idea behind it is simple. Anyone who sources their components, raw materials, or goods from a friendly country is less vulnerable if a difficult trading partner turns off the tap. Friend-shoring is thus a direct response to experiences from the early 2020s, when global supply chains were severely disrupted by the COVID-19 pandemic and political conflicts. The term was particularly coined by then-US Treasury Secretary Janet Yellen, who used it publicly in 2022.

Why disrupted supply chains can become so costly

For decades, the principle was: buy wherever it’s cheapest. Many industrialized countries outsourced production massively to Asia, especially to China. This significantly lowered costs. At the same time, however, enormous dependencies emerged.

When computer chips became scarce in 2021 and 2022, car factories in Germany came to a standstill — even though the actual problem lay thousands of kilometers away. A single missing chip can prevent a finished car from being delivered. Such experiences made clear how vulnerable globally distributed supply chains are. Governments began to take supply security just as seriously as cost efficiency.

Added to this is the political dimension. When a country uses raw materials or technologies as leverage, it can have economic consequences reminiscent of a lever being pulled. Friend-shoring is meant to take this lever out of their hands before it is used.

What friend-shoring looks like in practice

In concrete terms, friend-shoring means that when building new production facilities or selecting new suppliers, companies no longer ask only about the lowest price, but also about the political reliability of the country. A US corporation would then not build its chip plant in a country considered geopolitically risky, but rather in Japan, Germany, or South Korea.

Governments often actively support this. The US has provided billions in subsidies through the CHIPS Act to attract semiconductor plants domestically or to allied countries. The European Union is attempting something similar with the European Chips Act. Here, friend-shoring blends with a related term: nearshoring, i.e., relocation to geographically nearby countries. Nearshoring is thought of geographically, friend-shoring politically — the two can overlap, but don’t have to.

Friend-shoring is not an automatic process, but a deliberate trade-off. It makes supply chains more stable, but also more expensive. If a product could be manufactured cheaply in a low-wage country, relocating it to a friendly high-wage country costs more. Proponents view this premium as an insurance payment against geopolitical risks.

Friend-shoring in current news and economic debates

The term regularly comes up in discussions about relations between Western countries and China. Friend-shoring is a central topic especially in the semiconductor industry, in the mining of rare earths — certain metals needed for batteries and electronics — and in the pharmaceutical industry.

When news outlets report that Apple is relocating part of its iPhone production from China to India or Vietnam, friend-shoring logic is often behind it. India and Vietnam are considered politically less risky for Western companies than China, which is embroiled in conflicts over Taiwan. Even when the EU accelerates new trade agreements with Canada or Mexico, friend-shoring is cited as a rationale.

Critics warn that friend-shoring damages free world trade and disadvantages poorer countries that suddenly fall out of supply chains because they don’t politically fit the picture. The debate about how closely economics and geopolitics should be intertwined is thus far from settled.