Publication：2023.12

Principal Investigator：顏慧欣Yen, Huai-Shing

Researchers：蘇怡文Su, Yi-Wen、許裕佳Hsu, Yu-Chia、聶廷榛、黃禾田、林卓元、羅婉甄、蔡晴雯

1. The U.S. is collaborating with Vietnam and Mexico to bolster supply chains in the fields of semiconductors, critical mineral deposits, clean energy, and healthcare.

On September 10th of this year, the United States officially elevated its relationship with Vietnam to a “comprehensive strategic partnership,” while initiating the “North American Leaders’ Summit” and the “U.S.-Mexico High-Level Economic Dialogue” with Mexico. The United States plans to enhance supply chain cooperation with Vietnam and Mexico in semiconductors, critical minerals, clean energy, and healthcare. Vietnam was chosen by the United States for friendshoring primarily due to due to considerations such as its geostrategic importance, low cost of living, abundant labor force and natural resources, as well as Vietnam’s participation in many important FTAs. Additionally, the Vietnamese government provides several investment incentives, such as tax exemptions, subsidies on loan interest, budget allocations for mineral development, and assistance in obtaining international financing to support Vietnam’s green transformation. Mexico was chosen by the United States for friendshoring due to the market access under the bilateral FTA, which contribute to expanding U.S. influence in Central and South America, as well as Mexico’s abundant natural resources and labor force. Furthermore, the Mexican government invests in developing industrial parks, establishing railway connections to industrial parks and seaports, and providing favorable tax incentives. The U.S.’s cooperation with Vietnam and Mexico involves investment in constructing factories, talent training, technical cooperation, and forming expert groups. The collaboration is often initiated by the United States by providing funding or expertise to assist in local resource development and talent training, thus fulfilling the needs of both parties.

2. South Korea’s Recent Embrace of Diversification in Overseas Expansion: Positive Response to U.S. Friendshoring Policy, Limited Impact on Relocation Decisions from China.

In recent years, South Korea has diversified its approach to overseas expansion. Key strategies include: (1) shifting labor-intensive industries to Southeast Asia and India, where costs are more competitive than in China; (2) for businesses targeting the Chinese market, adopting an "in China, for China" strategy; (3) for high-tech industries like advanced semiconductors, reducing or withdrawing operations in China, or halting investments in compliance with U.S. sanctions; and (4) implementing a “China+1” or “China+N” strategy in areas with strong production and sales in China.

Despite the U.S. friendshoring policy has already influenced South Korean companies’ outbound investments, it is still too early to assess its effectiveness. To mitigate the impact of the U.S. friendshoring policy on corporate interests, South Korea communicates with the U.S. through channels such as bilateral summits, sending delegations to the U.S., and individual companies directly negotiating with the U.S. Due to their significant influence over domestic economic and trade policies, South Korean companies are highly involved in the negotiations. Although friend-shoring has had an impact on South Korean companies’ withdrawal from China, the effect is likely limited. Currently, South Korean companies’ strategies are to comply with U.S. policy requirements while maintaining their existing scale and promoting technological advancement. Unless the U.S. continues to intensify restrictions on corporate activities in China, it is expected that South Korean semiconductor companies will continue to adopt the “China+1” or “China+N” strategy.

3. Considering that friendshoring has become a factor influencing business operations, it’s important to keep an eye on its progress.

Regardless of friendshoring, nearshoring, or reshoring policies, it is widely observed that these policies have become a priority strategy for enterprises to mitigate risks, even surpassing considerations of cost efficiency and budget reduction. Friendshoring and trade concentration reflect a shift in countries' trade preferences towards those with similar geopolitical stances, rather than prioritizing specialization and comparative advantage. The ongoing Russia-Ukraine conflict and deteriorating US-China relations are significant factors driving bilateral trade relationships towards such political alliances. The World Trade Organization(WTO) has also warned of increasing fragmentation in global trade in the future, leading to the emergence of new regional trade blocs.

4. Although the U.S. friend-shoring policy has led to some changes for supply chains, it is still in its early stage of development.

Observing the implementation effects of the U.S. friendshoring policy in Vietnam and Mexico, it’s noted that US imports from Vietnam have rapidly increased since 2018. Among them, the proportion of electrical machinery and equipment and parts (HS85) has significantly risen. Additionally, US investments in Vietnam saw a significant growth in 2022. Furthermore, Vietnam's exports of semiconductors and energy to the US have been noticeably growing since 2018. Key mineral resources also experienced slight growth. Simultaneously, Vietnam's overall foreign investments have increasingly concentrated on manufacturing, electricity, gas, and air conditioning supply sectors since 2021. As the US diversifies its sources away from China for products and expands investments into Vietnam, including in certain electrical machinery and equipment, semiconductors, and critical mineral resources, changes in trade structures and foreign investments indeed indicate a correlation between supply chain relocation and export growth.

The overall proportion of U.S. imports from Mexico experienced a significant increase in 2021. Subsequently, in 2023, Mexico supplanted China as the United States' largest trading partner. Mexico's exports to the U.S., spanning semiconductors, critical minerals, and pharmaceuticals, have continued their upward trajectory. Energy exports to the U.S. also saw a resurgence after 2020. However, over the past two years, foreign investment in Mexico has not shown a substantial increase in proportion compared to the pre-friendshoring period. While manufacturing remains the primary focus of foreign investment in Mexico, there has been a noticeable uptick in investment across mining, information technology, transportation, warehousing, as well as financial and insurance services. Given that transportation, warehousing, and financial sectors are auxiliary service industries that typically support local manufacturing activities, particularly in the post-pandemic era where companies have transitioned from “just in time” production to “just in case” production and inventory management, there has been an expansion in the scale of warehousing, logistics, and transportation. This can be interpreted as both a risk management strategy for enterprises in the post-pandemic era and an indirect indication of increased manufacturing activities in Mexico, leading to a heightened demand for auxiliary services. Nonetheless, further observation is required to validate this trend.

It is widely believed that countries with competitive labor costs, a geopolitically favorable stance towards developed countries like the U.S. and Europe, and geostrategic locations or advantages would be the primary beneficiaries under friendshoring policies. Presently, countries such as Malaysia, Thailand, Vietnam, India, and Mexico are regarded among them. However, these countries may not necessarily possess adequate manpower and technical capabilities. Therefore, the ability of these countries to address manpower and technical issues through automation and mechanization equipment upgrades is crucial for the successful implementation of friendshoring policies. This aspect warrants ongoing observation.

5. Chinese companies’ export to the United States through countries engaged in U.S. friendshoring policy, serves as a factor affecting the effectiveness of friendshoring.

Given that "de-risking" towards China has become the consensus among Western countries and the G7, it’s observable that the level of trade dependency on China is beginning to decline across various nations. However, the relocation of global supply chains out of China at this juncture may also involve Chinese companies’ strategic repositioning in countries participating in “friendshoring.” It’s conceivable that Chinese firms, through investments in these nations, might reroute their exports to the United States via Southeast Asian countries. In recent times, Chinese companies has often engaged in minor processing and assembly activities in third countries such as Cambodia, Malaysia, Thailand, and Vietnam to circumvent the trade remedy measures implemented by the United States against China, including anti-dumping duties, countervailing duties, Section 301 tariffs, or Section 232 tariffs on aluminum and steel. Therefore, it’s expected that China will continue to seek alternative avenues to enter the markets of the United States and Europe through investments in third countries. Following this, besides closely monitoring and analyzing such investment activities, Taiwanese businesses should also exercise caution when investing in third countries. Due to a perception that Taiwan’s economic ties with China are relatively close, Taiwan faces the risk of being implicated.

Chinese：https://web.wtocenter.org.tw/Page/91/401734