Friend-shoring and bracing for a resource war

The United States has beckoned Korea to join so-called “friend-shoring,” a term to describe the U.S.-movement to create supply chains among “friendlier” or reliable nations in place of “unfriendly” countries to tackle production disruptions, delays and increased costs amid supply bottlenecks. Upon arriving in Korea, U.S. Treasury Secretary Janet Yellen made a visit to LG Science Park, the R&D hub for LG Group’s power in electronics, batteries, and chemical materials. Yellen spoke of friend-shoring to strengthen supply chains and economic cooperation among allies, and how Korea should be included.

The global supply chain is in a transitional period after the Covid-19 pandemic. The world has witnessed how unstable the supply chain can be when a country relies too much on another like China. Since the end of the Cold War and globalization, global manufacturing prioritized efficiency by chasing cheap costs over the last 30 years. The shift is moving toward reliable production and supply in spite of higher costs.

The U.S. strategy has become clear. The Joe Biden administration seeks to realign the global supply order through friend-shoring to contain less reliable nations like China and Russia. The launch of the Indo-Pacific Economic Framework (IPEF) is based on the same concept. The strategy differs with the previous Donald Trump administration that emphasized reshoring, or bringing back American enterprises back to the U.S.

Korea Inc. with global competitiveness has come under greater spotlight. During his visit to Korea in May, Biden headed first to a Samsung Electronics chip complex and Yellen to a LG Chem site upon her arrival in Korea. Korean companies have become that important to the U.S. Korean enterprises need stronger ties with the world’s biggest consumer market and technologically advanced country.

Still, Korea cannot neglect ties with China, its biggest trade partner. Korea heavily relies on China for resources and shakes on its trade barrier in material shipments, as the urea solution debacle had manifested. Korea must not provoke China without any readiness.

Korea must be thoroughly prepared for a global resource war. China is the primary supplier of rare earth materials that go into chips and batteries. Lithium and nickel are essential to battery production. The energy resource supply disruption from the Russia-Ukraine war has hardened the global economy. When key resources are weaponized by producers through export curbs, resource-poor countries like Korea can suffer. The government and the corporate sector must stock rare resources in preparation for supply shortages during the transitional period.