Reshoring and friend-shoring: from CHIPS to Made in Europe

The International Monetary Fund (IMF) described some of the most relevant trends related to reshoring and friend-shoring processes in the world.

Increasingly, companies and policymakers are looking for strategies to relocate production processes to trusted countries with like-minded policy preferences to make supply chains less vulnerable to geopolitical tensions.

An analysis released by the IMF of earnings call reports from a large sample of multinational companies reveals a sharp increase in corporate interest in reshoring and friend-shoring, occurring at the same time that the average geopolitical distance between country pairs is beginning to increase.

Recently, U.S. Treasury Secretary Janet Yellen argued that, rather than relying heavily on countries with which the U.S. has geopolitical tensions, U.S. companies should move toward friend-shoring supply chains to a large number of trusted countries.

The IMF also makes reference to Europe. The French government has been urging the European Union to accelerate production targets, weaken state aid rules and develop a «Made in Europe» strategy to counter the subsidies to domestic production provided for in the US Inflation Reduction Act.

Meanwhile, in China, government directives aim to replace imported technology with local alternatives to reduce dependence on geopolitical rivals.

Reshoring and friend-shoring

The growing interest in offshoring is a significant reversal of the division of production pursued through offshoring, driven predominantly by differences in labor and input costs.

The importance of friend-shoring goes beyond mere advertisements and translates into investment targeting measures motivated by national security reasons.

In the IMF’s view, recent large-scale policies implemented by major countries to strengthen domestic strategic manufacturing sectors suggest that a shift in cross-border capital flows is about to take place.

Most notable is a series of bills recently passed in the context of rising trade tensions between the United States and China-such as the Creating Helpful Incentives for Semiconductor Production (CHIPS) Act and the Science Act and the Inflation Reduction Act in the United States and the European Chip Act-that could affect the production and sourcing strategies of multinational companies, prompting efforts to reconfigure their supply chain networks.


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