A New Economic Term Enters the Lingo

In a speech in South Korea on Tuesday, Treasury Secretary Janet Yellen pushed the idea of "friend-shoring" as economic policy. Broadly speaking, the new-ish term refers to the idea of trading more closely with allies instead of "geopolitical rivals," as the Wall Street Journal puts it. For the latter camp, think China especially, but also Russia. The Journal sees this "proposed paradigm shift" as a "reorientation of the world's trading practices." Coverage:

• Her words: “Friend-shoring is about deepening relationships and diversifying our supply chains with a greater number of trusted trading partners," said Yellen. "The purpose is to lower risks for our economy and theirs." She added: “We cannot allow countries like China to use their market position in key raw materials, technologies, or products to disrupt our economy or exercise unwanted geopolitical leverage."
• The term: CNBC explains that "friend-shoring" is an offshoot of "on-shoring" and "near-shoring," both of which "refer to the transferring of supply chains back home or closer to home, as opposed to having them in foreign countries." Friend-shoring "goes beyond that but limits supply chain networks to allies and friendly countries." They're all twists on the older concept of "off-shoring," in which companies moved operations to cheaper locales abroad, writes Bryce Baschuk in an analysis in the Washington Post.

• The risk: Some economists fear the concept could "undo decades of gains from globalization," according to a Journal story on this last month. “This to me rings alarm bells,” Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, tells the newspaper. “I worry that we may be on a path to a world that is split into blocs.” Specifically, two blocs—one centered on the US, the other on China.
• What to watch: To some degree, friend-shoring already is happening as nations favor "less risky" partners, Deborah Elms of the Asian Trade Center in Singapore tells al Jazeera. “At the moment, governments don’t seem to be doing more than encouraging firms to think about friend-shoring," she says. "If that switched to become an active set of policies to clearly give preferences to some markets over others, it could become much more problematic.”
• An example: The US currently relies heavily on Taiwan for semiconductors, but with Taiwan under China's sway, the US has begun ramping up deals with South Korea instead. (Yellen visited a plant belonging to the South Korean conglomerate LG on Tuesday, per the AP.) Other potential "winners" under friend-shoring are Malaysia, Indonesia, and Vietnam, writes Baschuk.
• The risk, II: Short-term risks under a pronounced shift to friend-shoring include "supply shocks and higher prices," writes Baschuk. Longer term, "the outcome is likely to be lower economic growth due to lost efficiencies, higher costs and supply bottlenecks." But it's not certain these will come to pass—Yellen made a point to say this "bipolar world" could be avoided if China takes the West's concerns about human rights and national security seriously. “We do not want a retreat from the world, causing us to forgo the benefits it brings to the American people and the markets for businesses and exports,” she said, per CNBC.

(More Janet Yellen stories.)