“Friend-Shoring” To “Next-Dooring”
16 Nov 2022
U.S. Treasury Secretary Janet Yellen and the Deputy Prime Minister of Canada and Minister of Finance Chrystia Freeland convened on June 20, 2022, where the pair championed a new era of “friend-shoring” as a way to transform global supply chains in the post-pandemic world. In contrast to the predominant current purchasing strategy that attempts to meet quality standards at the lowest cost possible, “friend-shoring” (aka “ally-shoring”), according to Secretary Yellen, “is the idea that countries that espouse a common set of values about international trade [and] conduct in the global economy should trade and get the benefits of trade so we have multiple sources of supply and are not reliant excessively on sourcing critical goods from countries where especially we have geopolitical concerns.”
The U.S. is pursuing this policy in practice. For example, the recent Inflation Reduction Act of 2022 (IRA) signed by President Biden provides preferential tax treatment for electric vehicles and renewable energy (e.g., solar, wind, and hydrogen) produced in North America and restricts using critical minerals or key components from designated countries such as China and Russia. This follows a series of executive and legislative actions ranging from the Section 301 (China) and Section 232 (steel and aluminum) tariffs imposed under the prior U.S. administration; new trade agreements such as the United States-Mexico-Canada Agreement (USMCA) that include stricter content requirements and labor enforcement measures; the Build America, Buy America Act (BABA) as part of the bipartisan infrastructure package; and the Uyghur Forced Labor Prevention Act (UFLPA) that entered into force in summer 2022, among others. These transformative U.S. actions, coupled with Canada’s longstanding trade, talent, and transportation investments, strategically position Canada as the ideal “next door” friendly shore for global investment and sourcing.