In a speech before the Atlantic Council in April, United States Treasury Secretary Janet Yellen used the term friend-shoring to describe America’s interest “in working with countries that “have strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system….”
She went on to say, “Our objective should be to achieve free but secure trade. We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage….Let’s do it with the countries we know we can count on. Favoring the friend-shoring of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy as well as to our trusted trade partners….We need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials.” Her speech was given only a few weeks after the Russian invasion of Ukraine and amid immediate concerns over the war’s effect on shortages and sharp price increases for oil and gas, fertiliser and wheat among other commodities. It was also in the context of the supply chain issues related to Covid-19 that have fueled worldwide inflation this year. But this American aspiration for economic security has roots going back some time and is intertwined with Rust Belt politics and the loss of manufacturing jobs upon which Trump successfully won in 2016.
While much of this had previously been rhetoric it was Trump which weaponised it with his imposition of tariffs on imports from China and other countries including Western allies and in turn it was a wake-up call to China that American foreign and trade policy is not reliable and often quixotic. Alternatively for those in the West who have deep thoughts about American interests it is China – rather than Russia – which is of the most concern as the economic and political rivalry grows.
Take for example the matter of Taiwan and microchips that are in essence a form of commodity and essential to all modern manufacturing economies. Taiwan produces most of these, including 92% of the advanced microchips which go into among other products, military hardware. Were China to invade the island, these factories would come under Chinese control and that could mean they decide which countries get access to them. It explains the inordinate interest in the island by the US government including a high-risk visit by then House Speaker Nancy Pelosi in August. Meanwhile many big tech companies, with tax concessions from the US government, are building plants in the US, to start manufacturing chips domestically. There are other commodities and critical infrastructure in the hands of countries that the US perceives as unfriendly including: strategic metals such as rare earth elements used in high capacity batteries almost completely controlled by Russia and China; solar panels (80% of production from Chinese companies), wind turbines, and high-capacity batteries with China controlling 60% of the world lithium refining; and pharmaceutical ingredients such as antibiotics. It is no wonder that the US is now embracing friend-shoring and other measures to safeguard its economic supremacy. But every action has a reaction and a fascinating article “Non-alignment: The BRICS’ New Bargaining Chip” by author Tim Sahay argues that “As the world splits into new Cold War blocs — which look strikingly like old Cold War blocs… developing countries are adopting a stance of nonalignment to secure the same key technologies – fighter jets, green technology, chips, submarines, nuclear, pharma, 5G – that could power their catch-up growth….Developing countries such as India, Indonesia, Brazil, South Africa, Mexico, Saudi Arabia, and the UAE will “use this decade’s violently shifting geoeconomic conditions to build on growth models pioneered last century, including industrial policy and developmental state capitalism.”
This is in their long term interests but it is also a sharp and fearful reaction to the West’s sanctions on Russia. Many have remained neutral while wondering if this weaponisation of trade and finance might one day be inflicted upon them. Unlike the original Non Alignment Movement “these countries are far wealthier accounting for three-fourths of the world’s population and 60 percent of the world economy by 2030. They have aspirations for regional dominance and believe a non-aligned position better serves their national interests.” So where does this leave Guyana, soon to be a significant producer of one of the most sought after commodities on the planet? First we have to ask ourselves if we are in America’s “circle of trust” and if so then how much we might want to be? The ruling PPP/C has a mixed history with America and one senses that it is not comfortable with the current verbal proddings by Ambassador Lynch, and indeed the Secretary of State, when it comes to internal issues such as economic and political inclusivity. The Ambassador’s recent meeting with The International Decade for People of African Descent Assembly – Guyana (IDPADA-G) and her statement of support was clearly deliberate in light of the government’s cutting off of funds. The administration’s silence was also palpable. We also saw last year how quickly the hammer can come down on both sides with the government’s 24 hour u-turn on opening a Taiwan trade office here. It will also be of interest how the government’s embrace of the Gulf States which, filled with money and influence, are asserting their independence of the United States, will add to the equation. Who wins in the auction of the three ultra deep blocks may give a clue. With ExxonMobil and Hess as large players in the Stabroek Block (ironically with China’s CNOOC as partner) and American investments onshore it is inevitable that over time we will be drawn more into America’s economic orbit. And in the context of friend-shoring Guyana and its low cost, high quality oil make for an ideal candidate being small enough to control and close to Gulf Coast refineries. Some have gone further to say that along with Venezuela and to some extent Suriname the north east coast of South America could become a major oil producing block that might serve as a counterbalance or even displace OPEC as a pivotal mover of oil markets. This would require at a minimum a rapprochement with Venezuela, but stranger things have happened and we are already seeing easing of sanctions with Chevron resuming production in a country with the world’s largest reserves.
In a paper subsequent to Yellen’s speech, the Atlantic Council concluded “it is clear that friend-shoring and China’s countermeasures will deepen the division of the world into two economic spheres. Decoupling will impose a cost in terms of lost efficiency due to fragmentation and the fact that economic activities are increasingly being decided on national security and geopolitical grounds, and not purely on commercial calculations. This will slow the potential growth rate of the global economy, to the detriment of everyone but mostly the poor segments of society.” We are increasingly living in interesting times, as the Chinese like to say.
