Won’t You Be My Friend?
The world is an uncertain place. It reveals itself in shades of gray more often than in black and white. Sometimes there is clarity. For example, Russia, thanks to its invasion of Ukraine as well as its repression of its own people, is clearly a country whose principles and behavior are very different from ours. But more often we find ourselves dealing with countries that do things we like and at the same time do things that run counter to our principles. Similarly, we also deal with countries that we don’t like but which we need because of their strategic location or their possession of critical resources.
An example of the first is India, where a number of U.S. administrations have worked hard to improve the relationship. In economic terms, it is a large potential market with a rapidly growing middle class. Strategically, we both have similar concerns with China, and on the whole, we welcome India playing a larger role in the Indo-Pacific region. At the same time, India has long pursued protectionist economic policies to the detriment of foreign companies, and they have long been the main obstacle to accomplishing anything at the World Trade Organization. Politically, they have been the world’s largest democracy, but there are growing signs the current government is moving away from that and becoming more repressive. In short, they’re complicated, which, in turn, makes our relationship complicated.
An example of the second is Saudi Arabia, which is not, and never has been, a democracy. It clearly has a poor human rights record and has pursued oil and gas policies that more often than not have made life difficult for the United States. At the same time, they have been a ready market for U.S. manufactures and technology and inevitably play a key role in Middle East, which is particularly important right now. We have many issues with the Saudis, but we need them. That’s complicated too.
Foreign policy experts have argued for years on how we should relate to complicated countries, and the question is usually the same: Do we put principles, like human rights and democracy, above our security or economic interests (some would call that expediency)? Our history has been that we have frequently preached the former but ended up doing the latter. The debate has now come round again with the issue of friendshoring. Regular readers of this column should be familiar with the concept. Western companies are reassessing the risk of doing business in complicated locations, primarily China. That has led them to identify chokepoints—reliance on single suppliers that renders them vulnerable to political coercion by hostile governments or to disasters like earthquake, floods, or pandemics—and a search for redundancy or resilience in order to reduce that dependence. That means the rise of friendshoring—rebuilding supply chains in friendly countries as opposed to hostile or unreliable ones.
That, of course, leads to a deceptively simple question: Who is a friend? It turns out that is not a simple question at all. Sometimes it is easy. Canada is a friend. So is the United Kingdom, but most of the time companies find themselves dealing with governments and local suppliers that present both advantages and disadvantages. Governments will usually welcome foreign investment and manufacturing and will sometimes provide financial incentives, but companies that take the bait may end up having to deal with tax and regulatory policies, intellectual property theft, or local animosity that make their new supply chain partners less attractive or less efficient than they seemed initially.
In relocating their supply chains, companies want to get out of the frying pan but avoid going into the fire. The Scholl Chair looked at this problem in 2020 with respect to the pharmaceutical sector, and we recommended that governments pursue a “trusted partnership” model, in which governments would make reciprocal commitments on how to treat relocating companies. You should read the full paper to really understand the concept, but in brief, it involves maintaining rule of law that is transparent and objective along with efficient dispute settlement procedures, protecting intellectual property, maintaining robust investment guarantees, agreeing on regulatory cooperation, including through mutual recognition agreements, lowering tariffs, joining multilateral agreements relevant to the sector in question, opening government procurement and exempting trusted partners from buy national policies. In addition, trusted partners will have a positive security relationship with the United States and commit to reciprocal support and supply chain security during crises.
The trusted partnership concept is essentially an effort to define both “friend” and “trust,” but to do it with criteria that are specific and measurable in order to build confidence between governments and among companies. The criteria focus on security and economic commitments, so those who think principles are paramount may be disappointed, but I would argue that those who meet the trusted partnership criteria are most likely going to pass a test of principle as well.
This is not an idle exercise in semantics. We have a globally integrated economy, and, while it has its speed bumps, it is not going away. The United States needs friends, and it needs trusted partners. The sooner we can be clear about what that means, the better off we, and our supply chains, will be.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.