Economic costs of friendshoring

Abstract

Geo-political tensions and disruptions to global value chains have led policymakers to re-evaluate their approach to globalisation. Many countries are considering friendshoring - trading primarily with countries sharing similar values - as a way of minimising exposure to weaponisation of trade and securing access to critical inputs. If followed through, this process has the potential to reverse global economic integration of recent decades. This article estimates the economic costs of friendshoring using a quantitative model incorporating inter-country inter-industry linkages. The results suggest that friendshoring may lead to real GDP losses of up to 4.7% of GDP in some economies. Thus, although friendshoring may provide insurance against extreme disruptions and increase the security of supply of vital inputs, it would come at a substantial cost.