Friend-shoring: what Biden wants to achieve by trading with allies rather than rivals

By Karen Jackson, University of Westminster, Oleksandr Shepotylo, Aston University

The tendency to move production and trade away from countries considered to be political rivals or national security risks and towards allies, so-called “friend-shoring”, is a hot topic among economists. The term popped up during the COVID pandemic, a time of significant disruption to supply chains, and gained further traction when Russia invaded Ukraine.

One of the most high-profile results of a friend-shoring policy is that Canada and Mexico have recently replaced China as America’s largest trading partners by total trade, while Mexico has overtaken China as America’s top importer (see figures below). This followed the introduction of Donald Trump’s trade strategy, which aimed to reduce US dependence on Chinese goods – partly for political reasons and partly because of Trump’s perception of China as a rival power.

Joe Biden has also placed restrictions on trade with China in an attempt to strengthen US competitiveness with China and grow the US tech industry.

The US raised tariffs on imports from China significantly during the Trump administration. These levels remain high, making the costs of importing goods from China to the US more expensive.

In addition, the International Labor Organization Global Wage Report 2022-23 shows that China has experienced the highest rate of real wage growth among all G20 countries over the period 2008-22, also pushing up the price of Chinese goods.

The Biden administration continues to champion friend-shoring, which has further encouraged companies to shift production from China to Mexico as they weigh up geopolitical risks against differences in the costs of production.

While data on the number of firms relocating production is not available, the latest trade data (see Figures 1 and 2) suggests Mexico has managed to capitalise on the US-China rivalry.

Closer relationships with allies can be created by forming new trade agreements, for example, the US, Mexico, Canada Agreement (USMCA), which is more about geopolitics and friend-shoring than lowering tariff barriers as was the case of its predecessor, the North America Free Trade Agreement (Nafta).

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