U.S. Treasury Secretary Janet Yellen has reiterated the need for the United States and its trusted trading partners to boost supply chain resilience through “friend-shoring,” but has stated that this does not mean the United States is withdrawing from the rest of the world.
Yellen urged US allies to work together to build more resilient supply chains among trusted partners through “friend-shoring” in a speech delivered Tuesday at South Korean conglomerate LG’s Science Park in Seoul.
The term is derived from the concepts of “onshoring” and “nearshoring,” which refer to the transfer of supply chains back home or closer to home, as opposed to having them in foreign countries. “Friend-shoring” goes beyond that, but it restricts supply chain networks to allies and friendly countries.
Since the beginning of the Covid pandemic, the United States has advocated for increased security in its supply chains. In early 2021, US President Joe Biden issued an order to review American supply chains to reduce reliance on foreign suppliers.
“The Biden-Harris administration has prioritized supply chain resilience. And the importance of this work has been highlighted by events over the last two years, first by Covid-19 and our efforts to combat the pandemic, and now by Russia’s brutal war of aggression in Ukraine, “Yellen said.
“They have redrawn the contours of global supply chains and trade.”
“Friend-shoring with allies and partners is an important component of strengthening economic resilience while sustaining the dynamism and productivity growth that comes with economic integration.”
These initiatives, however, have raised concerns about a possible global economic decoupling, particularly as the United States and other countries seek to avoid overreliance on China.
Yellen stated that these actions do not indicate that the United States is withdrawing from global trade. Rather, she claims, they demonstrate that friendly countries are taking a longer-term approach to vulnerabilities to boost economic productivity.
“We do not want a retreat from the world that causes us to miss out on the benefits it brings to the American people and markets for businesses and exports,” Yellen said, referring to strengthening ties with South Korea.
“By doing so, we can help to protect both American and Korean households from price increases and disruptions caused by geopolitical and economic risks… In this way, we can continue to strengthen the international system from which we have all benefited while also protecting ourselves from the vulnerabilities in global trade networks.”
This leg of Yellen’s visit to Asia followed her trip to Bali, Indonesia, for the Group of 20 meetings last week.
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LG of South Korea also reaffirmed its latest US collaboration, a $1.7 billion lithium-ion battery manufacturing expansion in Michigan, while Yellen detailed Hyundai’s electric vehicle and battery manufacturing facilities in Georgia and Samsung’s semiconductor chip plant in Texas.
Other initiatives that support supply chain resilience efforts include the recently announced Indo-Pacific Economic Framework, according to Yellen.
“With ‘friend-shoring,’ South Korea and the United States are in an ideal position,” James Kim, chair of AmCham in South Korea, told CNBC’s “Capital Connection” on Tuesday.
“This is the most exciting phase I have witnessed in the last 18 years.”
While there are more direct South Korean investments in the United States than vice versa, American interest in the Asian country is growing, according to Kim.
