\nArticle content<\/h2>\n \u201cI consider Canada to be a very friendly country, because we share so many values,\u201d said Franz Fayot, economy minister of Luxembourg. \u201cWe share democracy, we share a strong attachment to human rights. We share pro-environmental policies.\u201d<\/p>\n
Fayot and other officials from the Luxembourgish government visited Montreal and Toronto in mid-June in an effort to encourage Canadians to do more business with their small\u00a0nation. Not so long ago, representatives of a country with fewer inhabitants than New Brunswick might have struggled to get much attention. But the current geopolitical environment provided Fayot with an advantage: Luxembourg and Canada are friends<\/em>.<\/p>\nAt a time when Russia brazenly invades an independent neighbour and China repeatedly demonstrates that it has no issue using its economic clout to get its way, trading with \u201ccountries with shared values as well as economic sectors makes a lot of sense,\u201d Fayot said.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Since the time of David Ricardo, the early 19th century thinker who pioneered the theory of comparative advantage, it\u2019s been generally understood that trade works best when its guided by who makes the best stuff for the lowest prices, and that all other considerations should be set aside in the name of maximizing prosperity.<\/p>\n The headquarters of the World Trade Organization in Geneva.<\/span> Photo by Fabrice Coffrini\/AFP via Getty Images<\/span> <\/figcaption><\/figure>\nThe world seemed to approach the Ricardian ideal in the late 1990s, when the United States and its allies agreed to let China join the World Trade Organization. But that turned out to be the peak of globalization; from then on, it\u2019s been in decline. Chinese President Xi Jinping\u2019s nine years in power have signalled an authoritarian turn, reigniting a Great Power rivalry with the United States and enabling other like-minded regimes to test norms established by the winners of the Second World War. Meanwhile, the U.S.\u2019s commitment to freer trade has wavered, as President Joe Biden has only partially stepped back from his predecessor\u2019s use of punitive import tariffs and trade sanctions.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n So maybe it shouldn\u2019t be a surprise that countries such as Luxembourg are embracing a policy of \u201cfriend-shoring,\u201d a play on the term \u201cnear-shoring,\u201d which refers to trading with countries that are near to you, geographically. It recognizes that China has become the primary source of an inordinate amount of important inputs in the production of telecommunications gear, vehicles, and other goods.<\/p>\n
Friend-shoring, however, refers to trading only with countries you think you can count on, regardless of where they are located. So, in such a world, you might source iron blocks from Luxembourg (one of the country\u2019s main exports) not because they are the cheapest, or the best, but because Luxembourg is a member of NATO.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Critics of the policy argue that friend-shoring can easily become exclusionary and elitist. Countries run the risk of taking friend-shoring to the extreme, assuming a protectionist stance when it comes to choosing where to channel foreign investment and source imports. <\/strong>The notion runs counter to the free trade principles that underpin the current liberal international world order. According to Chrystia Freeland, Canada\u2019s deputy prime minister and finance minister, such criticism is beside the point: the game has changed, and Canada needs to change with it.<\/p>\n\u201cThe world has not started to grapple with how big a deal this is,\u201d Freeland said at an event hosted by Canada 2020 in Toronto on June 20.<\/p>\n
The beginning of history<\/h2>\n<\/section>\n\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Luxembourg wants to strengthen its trade relationship with Canada, primarily \u201cbecause we see that we are living in a world that has changed dramatically as far as Europe is concerned,\u201d Fayot said.<\/p>\n
Trade between Canada and Luxembourg \u2014 a\u00a0 landlocked European nation with a population of roughly 600,000 people \u2014 is not significant, but the two countries have a shared history. During the Second World War, Luxembourgish heads of government and members of the ruling party fled the Nazi invasion and took refuge in Quebec for a number of years, making Montreal the de facto headquarters of the Luxembourg government.<\/p>\n
\u201cIt shows how like-minded we were already in the past, and this hasn\u2019t really changed,\u201d said the Crown Prince of Luxembourg Guillaume Jean Joseph Marie. \u201cWe have common values. We have a similar way of looking at business, but also of looking at our history and our past.\u201d<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Fayot is all for friend-shoring. \u201cI don\u2019t see any cons in this approach,\u201d he said, adding that the world appears to be reverting to various blocs. \u201cEurope needs to do more with like-minded countries, and Canada is definitely one of them.\u201d<\/p>\n
Luxembourg knows how painful it is to be overly dependent on unfriendly trading partners, as the country is indirectly dependent on Russian gas. (Luxembourg does not get its gas directly from Russia, but from Belgium, which sources its energy from Germany, which is heavily dependent on Russian imports.)<\/p>\n U.S. Treasury Secretary Janet Yellen.<\/span> Photo by Al Drago\/Bloomberg<\/span> <\/figcaption><\/figure>\nThis is precisely the sort of dependency that friend-shoring seeks to address, according to U.S. Treasury Secretary Janet Yellen, who introduced the idea in a speech in April.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n \u201cFriend-shoring is the idea that countries that espouse a common set of values on international trade \u2026 should trade and get the benefits of trade,\u201d Yellen said alongside Freeland at the Canada 2020 event. The idea is to ensure the U.S. and its allies have \u201cmultiple sources of supply and are not reliant excessively on sourcing critical goods from countries, especially where we have geopolitical concerns.\u201d<\/p>\n
Yellen, who previously led the U.S. Federal Reserve and is widely recognized as one of her country\u2019s top economists, makes no attempt to describe her idea as optimal. However, according to Freeland, a former financial journalist who spent time in Central Europe at the end of the Cold War, the assumption that the world\u2019s countries could come together and \u201call get rich together\u201d through free trade proved to be overly optimistic.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n With the fall of the Berlin Wall in 1989, the world heaved a collective sigh of relief; the battle between the two competing world systems \u2014 communism and capitalism \u2014 had finally been settled. Capitalism and subsequently, liberal internationalism, had emerged as the victor.<\/p>\n
This view was cemented by political scientist Francis Fukayama\u2019s book The End of History, which argues that the decades-long squabble between great powers over which system was best had finally come to an end, and henceforth government by liberal institutions steeped in a tradition of democracy and co-operation would become the norm.<\/p>\n Russian President Vladimir Putin.<\/span> Photo by Sputnik\/Aleksey Nikolskyi\/Kremlin via REUTERS<\/span> <\/figcaption><\/figure>\nLeaders such as China\u2019s Xi and Russian President Vladimir Putin apparently saw things differently.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n \u201cI really believe that Putin\u2019s illegal invasion of Ukraine has shown us all: it didn\u2019t work,\u201d Freeland said of the world\u2019s attempt to embrace free trade. \u201cThat era is over. We need to figure out what replaces it.\u201d<\/p>\n
\nI really believe that Putin\u2019s illegal invasion of Ukraine has shown us all: it didn\u2019t work<\/p>\n
Chrystia Freeland<\/p>\n<\/blockquote>\n
Freeland said that friend-shoring must become the new norm. Canada should \u201cdeepen ties between the countries that share values,\u201d she said. \u201cThe countries that really can trust each other to not throw citizens in jail when we get mad at each other, as a kind of diplomatic hostage taking. Can trust each other not to invade another country and commit war crimes in that country. It sounds kind of basic, but we need that.\u201d<\/p>\n
For years, countries have been turning inward. Friend-shoring is the culmination of that process; the interdependence that was once prized at globalization\u2019s apex at the beginning of the millennium has proven detrimental in a world rocked by war and pandemics. Russia\u2019s invasion of Ukraine was the tipping point, but the global order was already teetering due to widespread pessimism about the merits of freer trade and distrust between China, the U.S., and the EU.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Finance Minister Chrystia Freeland during a news conference in Ottawa.<\/span> Photo by REUTERS\/Blair Gable\/File Photo<\/span> <\/figcaption><\/figure>\n\u201cWe\u2019re still going to have a relationship with countries outside this closest circle, but it\u2019s going to be a different sort of relationship,\u201d said Freeland. \u201cIt\u2019s going to be a relationship that has less trust at its heart, that is more careful, where we\u2019re careful not to have as much of a dependency.\u201d<\/p>\n
Then she made a comment that showed that friend-shoring was no longer just an idea, but a real thing: \u201cI think it may require some new institutions, some new relationships, but I think this is where we really need to go.\u201d<\/p>\n
\u2018We should not draw the wrong conclusions\u2019<\/h2>\n Bessma Momani, senior fellow at the Centre for International Governance Innovation (CIGI), cautioned against taking Freeland\u2019s comment too literally. \u201cI don\u2019t think anybody has any appetite to create yet another institution, or secretariat, or club,\u201d she said. \u201cPerhaps the intention there is a new framework, a new thinking,\u201d said Momani.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n While friend-shoring won\u2019t get rid of existing institutions like the WTO, it certainly runs counter to its mandate.<\/p>\n
\u201cThere are moves to support re-shoring, near-shoring and friend-shoring,\u201d Ngozi Okonjo-Iweala, the WTO\u2019s director general, said in a speech in April. The war in Ukraine \u201chas led many to conclude that global trade and multilateralism \u2014 two pillars of the WTO \u2014 are more threat than opportunity,\u201d she continued. \u201cBut I believe we should not draw the wrong conclusions from these stresses.\u201d<\/p>\n Ngozi Okonjo-Iweala, the WTO\u2019s director general.<\/span> Photo by Martial Trezzini\/Pool via Reuters files<\/span> <\/figcaption><\/figure>\nOkonjo-Iweala personifies how quickly friend-shoring can get complicated. She\u2019s the former finance minister of Nigeria, Canada\u2019s largest bilateral trading partner in Africa in 2021, with Canadian imports from the country totalling $2.1 billion. Nigeria provides Canada with mineral fuels and oils, rubber, cocoa, and lead; however, under a friend-shoring policy that prioritizes values like human rights, it\u2019s not a guarantee that Nigeria would make its list of \u201cfriends,\u201d given Nigeria\u2019s political instability and inconsistent commitment to human rights.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n That\u2019s why critics such as Okonjo-Iweala say countries should resist the urge to tear up the trade blueprint they\u2019ve so carefully crafted over the past few decades. Instead of choosing to \u201cretreat into ourselves, make as much as we can ourselves, grow as much as we can ourselves, we should reform the WTO that underpins it and upgrade its rules to deal with 21st century challenges,\u201d she said.<\/p>\n
Yellen also cautioned against the impulse for a country to become entirely self-sufficient. In fact, she characterized friend-shoring as a trade-friendly response to those who argue that the best way to counter China\u2019s dominance in manufacturing is to make more things at home. She said that an effective friend-shoring group need not be small, or even overly restrictive.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Still, smaller economies such as Canada do better in bigger groups, because larger countries such as the U.S. have a harder time using their heft to dictate the terms.<\/p>\n
\u201cEfficiency is still paramount,\u201d said Peter Hall, a former chief economist at Export Development Canada. \u201cTo be sustainable, friend-shoring must pay. Not necessarily in the short run, but critically in the medium-to-long run. Failure to recognize and plan for this could ultimately be commercially fatal.\u201d<\/p>\n
\nTo be sustainable, friend-shoring must pay<\/p>\n
Peter Hall<\/p>\n<\/blockquote>\n
\u200b\u200bCarolyn Rogers, senior deputy governor of the Bank of Canada, said at an event hosted by the Globe and Mail in Toronto on June 22 that Canada would need to resist the impulse to take a \u201cprotectionist stance,\u201d adding, \u201cthat would not be a good outcome for a small economy like Canada.\u201d<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\nThe elitism trap<\/h2>\n Whatever the flaws, the period of globalization that followed the Cold War lifted hundreds of millions of people out of poverty by giving poorer countries an opportunity to access wealthier markets. Friend-shoring would probably lift fewer boats.<\/p>\n
\u201cFriend-shoring would tend to exclude the poor countries that most need global trade in order to become richer and more democratic,\u201d Raghuram Rajan, the former chief economist of the International Monetary Fund and former governor of India\u2019s central bank, said in a recent commentary published by Project Syndicate.<\/p>\n
In other words, instead of promoting democracy, friend-shoring might only serve to further entrench the unfriendly<\/em> qualities showcased by some countries. \u201cIt will increase the risks that these countries become failed states, fertile grounds to nurture and export terrorism,\u201d Rajan wrote. \u201cThe tragedy of mass emigration will become more likely as chaotic violence increases.\u201d<\/p>\n<\/section>\n\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Raghuram Rajan, the former chief economist of the International Monetary Fund and former governor of India\u2019s central bank.<\/span> Photo by David Paul Morris\/Bloomberg files<\/span> <\/figcaption><\/figure>\nRegardless of who is admitted to the group, friend-shoring will come with a price tag, said Momani. If Canada plans to trade only with other developed economies, Canadians will need to pay the price for higher labour standards, and subsequently, higher-priced products. \u201cIt\u2019s going to be a more expensive product in the long run,\u201d she said.<\/p>\n
The stricter the friend-shoring policy, the fewer goods we will be able to trade. Some things, like minerals, are mainly provided by \u201cunfriendly\u201d countries. \u201cCan we do it? Can we solely depend on friends, and friends only?\u201d Momani asked. \u201cProbably not. Not for everything.\u201d<\/p>\n
Regardless of how carefully group members are selected, \u201cthorny\u201d ethical questions will inevitably arise, Momani said. India is a democracy, but the country\u2019s ruling party has a history of inciting religious violence, and Prime Minister Narendra Modi so far has resisted becoming a full member of U.S.-led efforts to isolate Russia. Viktor Orb\u00e1n leads a repressive regime in Hungary, and far-right parties have emerged as legitimate contenders for power in Italy and France.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n \u201cFriends today may be foes tomorrow,\u201d Momani said, noting that even Canada\u2019s closest ally has an unfriendly side. \u201cWhat happens if you have the return of a populist, Trumpian leader?\u201d Momani asked. \u201cIs the United States still a friend?\u201d<\/p>\n
Who makes the cut?<\/h2>\n How will countries go about determining who is friendly and who is unfriendly? Former Canadian finance minister Paul Martin and his U.S. counterpart, Lawrence Summers, famously decided the membership for the G20 in a chat amongst themselves. Designing a new trading bloc won\u2019t be so simple.<\/p>\n
If it\u2019s like choosing friends in real life, you\u2019d want countries with similar \u201cvalues\u201d to yours, allies you can trust to stick by your side when times get tough. But countries are not human beings, said Carlo Dade, who studies trade policy at the Canada West Foundation, a think-tank.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n \u201cThis friend-shoring thing is kind of worrisome, Dade said. \u201cYou\u2019re using the word \u2018friend.\u2019 You\u2019re anthropomorphizing the institutional relationship,\u201d he added. \u201cSo you\u2019re giving human qualities to a political relationship. The U.S. ain\u2019t our friend. We\u2019re interest aligned. We\u2019re allies.\u201d<\/p>\n <\/p>\n\n Yellen urges less dependence on other nations for key supplies during Canada trip <\/span> <\/h3>\n<\/li>\n