At a time of heightened US-China trade rivalry, the US has been pushing for a friendshoring strategy among like-minded nations, including India and Vietnam, to reduce risks to the supply chains on which they rely by not allowing the dragon to use its dominance in key raw materials, technologies and products to exert geopolitical advantage. But this strategy has the unintended consequence of ensuring a continued rather than diminishing dependence on China. Friendshoring has been welcome in India as it also seeks to reduce dependence on the dragon and it is actively encouraging leading foreign companies like Apple to shift some of its iPhone manufacturing from the mainland to the country. The US, for its part, is also supporting the relocation of supply chains in solar manufacturing with $500 million in debt financing for the largest US firm to open a plant in India.
But the US’ efforts to promote expansion of India’s solar power industry may have unwittingly opened a backdoor for components made in the mainland. India’s largest solar producer, Waaree Energies, has sent millions of panels to the US with components like solar cells made by a Chinese company whose products were repeatedly denied entry into the US over concerns about forced labour, according to Bloomberg. Indian solar producers led by Waaree exported almost $2 billion in the first 11 months of last year. As China produces more than four-fifths of the world’s polysilicon, which is used to make solar panels, the global supply chain’s dependence on the mainland has not reduced. The concerns regarding forced labour are because one-thirds of its polysilicon capacity is in Xinjiang province, where the minority Uyghur community is forced to work in factories.
Even in the case of Vietnam, the friendshoring strategy has generated outcomes which have not run according to the script. Vietnam is the preferred location of supply chains that are diversifying away from China, including local companies from the mainland. But this nation is also China’s largest trading partner in ASEAN. China is also the largest foreign investor. Vietnam has comprehensive strategic partnerships with both China and the US. While China’s share of US goods imported declined from 21.6% in 2017 to 16.5% in 2022, Vietnam’s share increased from 2% to 4%. While nearly a quarter of Vietnam’s exports were shipped to the US, Vietnam was also importing more from China like integrated circuits, telephone sets and textiles for processing and re-export according to National Bureau of Economic Research academics Laura Alfaro and Davin Chor.
The friendshoring strategy for greater alignment of trade among like-minded nations thus has far from diminished dependence on China. This obviously raises doubts about the efficacy of a strategy to even partially decouple or de-risk supply chains away from the mainland. This may not be feasible as the dragon is the world’s second largest economy and retains a dominance of key raw materials like rare earths with which it can exert considerable geopolitical influence. A far more desirable strategy to manage US-China relations is “competitive coexistence” with one another as advocated by Joseph Nye, emeritus professor at Harvard University. The old template for the US’ containment of the erstwhile Soviet Union is no longer valid given the massive economic interdependencies between the US and China with half of a trillion dollars in trade. The perverse outcomes of friendshoring exemplify the imperative of coexistence.