When I’m driving with my wife, I hate making a wrong turn.
It’s embarrassing to admit my mistake, turn around, and go the correct way.
I try to avoid doing so until the last possible minute. And even then, I try to make it look like I meant to go that way.
It never works because I didn’t marry an idiot.
Still, she’s nice about it sometimes. Sometimes, she’ll let me turn without saying a word… if she’s in a good mood.
Or, if I’m really lucky, she’ll be on her iPhone and won’t have noticed at all!
It seems our government does the same things regarding its stupid policies and accompanying U-turns.
The latest such U-turn our government would like to undertake is “friend-shoring.”
My goodness, if there’s a dumb idea with a dumb name on it, it’s this one.
Like most ideas that come out of socialistic tendencies, this one sounds cute.
We can… friend-shore. That’s better than offshoring, reshoring, or onshoring.
Yellen About Friendshoring
You can always rely on Janet Yellen for bad ideas.
It’s the one thing that makes her such a consistent performer.
On April 13, 2022, Secretary Yellen gave a speech to the Atlantic Council, that bastion of peace lovers.
In it, she outlined a set of propositions to deal with the new global reality.
I’ll only show the first one, as that’s the one that’s germane to our conversation (bolds mine):
First, we need to modernize the multilateral approach we have used to build trade integration. 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 build on and deepen economic integration and the efficiencies it brings—on terms that work better for American workers. And 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 should also consider building a network of plurilateral trade arrangements to incorporate elements of the modern economy that are growing in economic importance, especially digital services. We should harmonize our approaches to protecting the privacy of data. And a modernized trade system will also require the ability to effectively enforce trade policies and practices, both multilateral and bilateral.
There are so many things wrongheaded about her idea, but let’s instead “steelman” her argument.
What’s Supposed to Be Good About It
“Steel manning” is a term Peter Thiel invented that means to argue against your opponent’s strongest arguments. (“Straw manning” is when you score easy points against their weakest arguments.)
Yellen said, “Our objective should be to achieve free but secure trade.”
I couldn’t agree more.
Free trade between individuals within different countries is imperative. And the US Navy’s job these many years has been to ensure its security.
Yellen went on to say, “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.”
You mean like America and its arms? Or Russia and its potash? Or the Saudis and their oil?
Here, we get murkier.
Countries will play the hand they’re given. And if oil is their only card, you can rest assured they’ll play that.
America plays its military technology card all the live-long day. How else can America have been at war 226 out of the last 244 years? That’s right. There has only been 18 years of peace in America’s history.
Of course, Yellen wasn’t talking about that.
She was talking about the potash, natural gas, vanadium, cobalt, and titanium America so desperately needs from Russia.
But if America needs that stuff so badly, why doesn’t it just open trade talks with Russia? Well, that’s because America wants to control Ukraine more than it wants to deal peacefully with Russia.
And if you’re going to do it, do it right. We’ve seen first-hand how fist bumps damage relationships.
The Saudis cut production instead of increasing it after Biden’s visit.
So, Yellen’s position is one backing “friend-shoring.”
In his paper, “Just Say No to ‘Friend-Shoring’” on Project Syndicate, Raghuram G. Rajan, former Governor of India’s central bank and now a University of Chicago professor, defined “friend-shoring” as limiting the trade of key inputs to trusted countries in order to reduce risks to the supply chains on which the United States and its partners rely.
From its title, you can tell he’s not a fan.
More on that later.
Yellen alleges the benefits of friend-shoring are extended market access, lower risks to our and our partners’ economies.
Maybe political risks will be lower, but friend-shoring is a supply constriction, all the same.
And that leads us to…
Why It’s Actually Bad
Of course, it sounds great. But once you start to peel back the layers, it’s evident that friend-shoring isn’t the panacea Secretary Yellen claims it to be.
Let me list some of the ways friend-shoring could prove disastrous.
1. What if your friends turn into enemies?
Exhibit A: Saudi Arabia. If you don’t think they’ve already switched sides and will be a part of the Shanghai Cooperation Organization shortly, you’ve been watching too much NBC.
There are no such things as friends, only allies. And those sands constantly shift. You need to be especially supple if you’re going to keep altering your supply chain to keep up with your Christmas card list.
2. What if your friends don’t like when you choose other friends?
Congratulations! You’ve just agreed to build a plant in Canada to build semiconductors. Why not Europe? Or Japan? Or South Korea? Or Mexico?
You may think, “I’m doing the best I can for America, and that’s that.” But your allies’ heads will get turned and they’ll start dealing outside your circle.
Don’t think so? Japan has never stopped importing Russian LNG and oil. It’s just too important to them not to do it. And there’s not a damn thing the US can do about it.
3. Are you ignoring poorer would-be friends for older, more established relationships?
South Africa, Egypt, Algeria, Angola, Congo. All African countries with bright futures. But you’re too busy dealing with the ancient Japanese and Europeans. The poor countries will always lose out on deals like these.
4. Prices will increase. After all, you’re constraining your own supply.
No matter how you slice this, you’ve tightened your own supply and driven prices up for yourself. Prices will go up. Even if it’s brilliantly executed, there are some supplies you’ll have to deal with “the bad guys” for. Cobalt, vanadium, potash, titanium? It’s Russia or bust.
Wrap Up
Janet Yellen tries. She really does.
Like her global minimum corporate tax plan, it’s doomed to fail.
But like her inflation call, let’s make this idea of hers “transitory.”
Kind regards,
Freedom Financial News
