The rise of ‘friendshoring’ has sparked a new kind of trade war

But that top-line take-away belies new trading patterns that show just how far countries are going to do business with allies.

Behold the rise of so-called “friendshoring.” Countries that were geopolitically aligned traded over 6% more with each other, regardless of their physical distance, UNCTAD found. Conversely, countries that were geopolitically “distant” or “very distant” traded significantly less with each other.

In practice, it means a trade trench war has set in.

Ukraine, for instance, became more dependent on the EU in 2023 (+10%), while Russia became more dependent on China (+8%). Taiwan became less dependent on China (-2.2%) and more dependent on the U.S. (+1.3%) and Europe (+1.5%). And perhaps most significantly, the U.S. And China both became less dependent on each other (-1.8% and -1%, respectively).

According to Richard Kozul-Wright, a director at UNCTAD, “it doesn’t look like there is going to be a shift in attitude” in those frosty trade relations any time soon. “A lot of Western businesses are not happy with the Cold War attitude the governments have taken towards China,” he said. “But there’s not been a real significant shift from either side, despite recent high-level meetings.”

Amid the rise in “friendshoring,” another trade-related buzzword, “nearshoring”—or trading with geographical neighbors—declined year-over-year. As a result, “trade concentration” increased: countries relied on a smaller number of trade partners, which were not necessarily nearby.

Combine those trends with the recent news of trade disruptions in the Red Sea, where almost a third of global container traffic passes, and you can bet supply chain resilience will be a major concern in 2024.  

Finally, UNCTAD noted, climate regulation tops the bill of new trade barriers. UNCTAD counted 2,366 climate-related non-tariff measures that restricted trade this past year, covering a quarter of global trade. Those regulations may help combat climate change in the long-term, but today the greatest victims are developing countries that are disproportionately shouldering the measures’ disruptive effects, the agency said.

More news below.

Peter Vanham
[email protected]
@petervanham

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