Economic Costs of Friend-Shoring

By Beata S. Javorcik, Lucas Kitzmueller, Helena Schweiger and Muhammed A. Yıldırım

Geo-political tensions and disruptions to global value chains have led policy makers to re-evaluate their approach to globalisation. Many countries are considering regionalisation and friend-shoring – trading primarily with countries sharing similar values – as a way of minimising exposure to weaponisation of trade and securing access to critical inputs. If followed through, this process has the potential to reverse the global economic integration of recent decades. This paper estimates the economic costs of friend-shoring using a quantitative model that incorporates inter-country inter-industry linkages. The results suggest that friend-shoring may lead to real GDP losses of up to 4.6% of global GDP. Thus, although friend-shoring may provide insurance against extreme disruptions and increase the security of the supply of vital inputs, it would come at a significant cost.