Can “Friendshoring” Replace the G-20?

The new world order just came into sharp focus last week amid glitzy European summits and a brief news flash from Moscow. G-7 and NATO leaders demonstrated more unity and momentum than they have shown in years, while Vladimir Putin’s intention to participate in November’s G-20 summit essentially tanked the last best hope for truly global economic coordination.

In fact, the world’s richest countries look set to commit political capital—and actual capital—to the disparate challenges of active Russian aggression and evolving Chinese rivalry. If they persist, their efforts will underpin an era of deeper economic integration, albeit under a fuzzy new slogan. Without any real process to shape global economic policy, however, the much harder task ahead will be the effort to rally support from emerging economies that now struggle to stay out of the crossfire.

The G-7 communique issued from the Bavarian Alps capped four months of breathtaking diplomacy to deploy sanctions likely to consign Russia to decades of isolation. The assembled leaders added a largely symbolic ban on Moscow’s gold exports, but also announced a complex scheme to cap Russian oil prices. The mechanism may yet fail, but it demonstrated that efforts to isolate the Putin regime are far from flagging. The group also advanced a nascent infrastructure initiative in response to China’s Belt and Road network and denounced Beijing’s “expansive military claims” in the South China Sea. 

The NATO gathering in Madrid built on this momentum with the endorsement of two new alliance members and the promise of new deployments in Eastern Europe. Much of the focus was naturally on the continuing fighting in Ukraine, but with leaders of Japan, Korea, Australia, and New Zealand in attendance, the final declaration called out “systemic competition” from China.

Amid grinding war, looming recession, and rising populism, this was a good week of what NATO leaders called the “rules-based international order.” Decades after the last Cold War peace dividends were paid out, European and Asian partners seem certain to deepen their reliance on U.S. security guarantees, arms sales, and defense cooperation.

That doesn’t mean disputes over digital taxes and rice exports will magically evaporate, but they may be more contained. What it portends for the global economy beyond any current recession fears is a sustained and coordinated expansion of military spending and a significant reorientation of trade relationships.

This, at least, seems to be the vision behind what the Biden administration calls “friendshoring,” a word that neither Webster’s nor the administration has fully defined. In Treasury Secretary Janet Yellen’s exposition of the term, “free but fair” trade has become “free but secure” trade. Carried to the extreme, this can be a dangerous path that justifies narrow protectionism and injects even more volatile politics into trade among the so-called friends. How does this vision look, for example, under the leadership of a future isolationist American president or when confronting an illiberal east European government?

For now, Yellen seems to focus efforts on reinforcing critical supply chains for arms, semiconductors, and medical supplies in countries where diplomatic, economic and, yes, military alignment looks reliable. Apparently, the vision does not include an immediate repeal of European steel tariffs, but it does seem to promise political support for building a factory or signing a supply contract in a country where there is geopolitical alignment.

None of this will be easy as these leaders return home to dwindling approval ratings and fractious political systems, but advancing coordination among allies will be much simpler than the task of engaging emerging economies who are neither entirely friends nor altogether rivals. The key will be to show flexibility and patience for countries that don’t fully trust U.S. leadership, but don’t trust the alternatives, either.

For all its flaws, the G-20 has been the best available mechanism to advance conversations on financial stability, climate change, and debt relief, but the process now looks fatally wounded. Even if Indonesian president and summit host Joko Widodo manages to somehow pull a rabbit from his hat and Putin “participates” by video, at least half the attendees will likely walk out when he appears on screen.

Crucial for the ultimate success of future global economic cooperation, however, will be efforts to win over those who won’t bail on a Putin appearance. On June 23, for example, the leaders of India, Brazil, and South Africa joined him at the 14th iteration of the “BRICS Summit,” hosted virtually by China’s Xi Jinping. But their vapid conclusions showed just how reluctant they were to get too close or do anything that looked like an endorsement of Russia’s invasion.

The United States, Europe, and their partners will need to engage directly and flexibly with these emerging economies. This means including them in the most expansive possible vision of “friendshoring” so that they too feel like they have a stake in the economic alignment of global rules, even if they don’t want to side too closely with Washington or its allies.

This will involve the distasteful diplomatic tasks like a visit to Saudi Arabia that President Biden will undertake later this month. It will mean understanding why India may need time to reduce its trade relationship with Russia. Engaging these countries will be much harder than anything G-7 and NATO leaders achieved among themselves last week, but with the G-20 on its deathbed, it will be more important than ever.

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