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Vietnam’s Economic Policy and adaptation to COVID-19

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Vietnam which was seen as a success story in terms of countering COVID-19 is facing challenges with regard to re-invigorating its economy given the fact that the constraints related to international travel, trade and investment are still looming large on the horizon. As part of the initiative to provide the necessary support to the economy, Vietnam is opening its borders for international travel from the January 1st of next year. The primary aim is to showcase that Vietnam is a safe country and is willing to support its economy through tourism and travel. Invariably, Vietnam is also hard pressed to promote it exports while at the same time protecting its citizens from the newer variants of COVID-19. Under the new economic policy, the unnecessary expenditures have been curtailed by the government while provisions have been made for emergency expenditures. The top leadership of Vietnam has been visiting countries in Asia, Europe, Latin America, and North America. In most of these visits the common agenda is to procure vaccines for the Vietnamese people, and seek agreements to promote trade and investment opportunities with the other country. Vietnam is slowly emerging as an alternate destination and manufacturing hub for those companies which want to shift base from China. Countries like Japan have already given stimulus and support packages to companies which want to move out of China.

Vietnam is preparing itself for Industrial Revolution 4.0 and for that it has made structural changes in terms of productivity, efficiency, quality controls and promoting competitiveness of the economy. The 35 years of reforms which has been undertaken under the Doi Moi reform process have gained momentum. Vietnam is increasingly seen as a modern middle-income country which is sustaining innovation and research in futuristic technologies. Increasing globalisation and interconnectedness with the global supply chain has also exposed Vietnam to the vagaries of global geopolitics and economic pressures. Vietnam is aspiring to be a upper middle income country by the year 2035 with the per capita GDP of more than US dollars 10,000. In terms of average per capita GDP, it has always aspired for an annual GDP growth of 6 to 7 per cent.

Right since the year 2018 it has embarked on ambitious programme of economic reforms. This includes multiple facets of economic modernisation and promotion of private equity in development of infrastructure. Other aspects related to promotion of innovation, organisation and geospatial planning, environmental sustenance and resilience towards climate change, social equity and inclusiveness along with development of modern institutions and better integrated market.

In terms of economic modernisation and liberalisation process, it has proposed structural reforms in the state-owned enterprises (SOEs) and promotion of private sector in the larger economics. It has also been working with regard to promotion of scientific acumen and skill sets among labour force which can help in promotion of its services sector and building technology capital within the country. This required mobilisation of resources for experts and scientific community. In certain urban spaces there is a lack of development initiative and also land resources. As a result of which there is an effective plan to bring about development of smart cities and interconnected satellite cities along with marked improvement in public services which includes transportation and maintenance of good road networks.

Along with all of these there has been effective controls with regard to green production facilities and developing mechanisms for adaptation to climate change. The problem of equal distribution of financial and economic resources is also one of the challenges for growing countries such as Vietnam. In such a context it has become imperative for the Vietnamese government to efficiently utilise state institutions and distribution of public services.
Vietnam has been working with regard to lifting restrictions and removal of government oversight for promotion of businesses, providing land rights and intellectual property rights to private sector, provision of resources such as land and capital to private sector and effective promotion of FDI in sectors which are promising. In terms of state-owned enterprises, the remarkable progress that the Vietnam has made is in terms of liquidity of 137 state-owned enterprises and now the government will hold equity 100 per cent equity in about 103 state-owned enterprises only. This will promote good governance and market liberalisation in a time bound manner.

Few of the sectors which the Vietnamese government is effectively looking for international support includes space, cyber, high-tech and artificial intelligence. In pursuit of building capital and human skill sets, Vietnam has been promoting to send its students and scientist abroad for training and developing necessary knowledge in that field.
For the purpose of developing human capital it has already embarked on a programme for national innovation networks, smart agriculture, green cities and promoting tourism in certain promises. For promoting education in English language, it has brought about structural reforms in the field of knowledge and education in higher educational institutions. Taking cue from other developing economies, Vietnam has already embarked on collecting start of proposals and supported nearly hundred joint-venture start-ups. The institutionalising of national innovation and Start-up Centre is one of the manifestations of a serious approach for promoting new Economy.
In terms of developing necessary infrastructure it is already upgrading highway projects such as North-South highway, new airports such as Long Thanh airport, developing network of smaller ports and upgrading transport systems in major cities. The power supply and uninterrupted power to the new manufacturing hubs is the core concern for the government and is also making efforts that the energy requirements for the country will be met by renewable energy up to the level of 10% of total energy requirements. Vietnam government have also taken efforts to develop the information technology draw structure and innovation centres to promote IT innovation and set up for the government systems.

In the context of coronavirus there is increased concerns that all these objectives will be met by the year 2035 when will be celebrating 90 years of its existence as a free and independent country. From the point of view of Vietnam’s Ministry of Planning and Investment, it has already date taken serious look into engaging the international community and developing a more modern and internationally integrated market economy. The discussions within the ASEAN organisation is with regard to integrating old manufacturing practises with a new digital revolution and the industrial revolution 4.0 which requires development of acumen, skill set and new entrepreneurial qualities. The coronavirus and the increase in cases have pushed the government for make structural reforms so that provisions could be met with regard to healthcare, research in medicines and general drugs, and developing alternate medicine with collaboration with international partners. 

 Vietnam’s economic policies has been manifesting in its approach regarding reinvigorating its economy, looking for possible trade destinations and promoting investment in those areas which have suffered the most during the corona pandemic. It has been also seen that given the fact that Vietnam economy has performed relatively well during the pandemic therefore it needs a new infusion of foreign direct investment and possible re-invigoration of important sectors which are lucrative for long term investments. It has been seen that because of the impact of the COVID-19, the Vietnam’s economic growth will be moderate of about 2.3% in the year 2021 which will be marginally lesser than the growth which was achieved closer to 3% in the year 2020. As it has been witnessed that in the year 2020, Vietnam was one of the most formidable and resilient economies and was a bright spot in Asia. There have been expressions from various multilateral organisations that Vietnam might be surging ahead in the first half of 2021 with an expected economic growth of 6.6% over the previous year. However, the resurgence of COVID-19 infections has led to slight decrease in the expected GDP growth. However, many of these international institutions have expressed that the manufacturing sector how shown promise in the third quarter of the year 2021. Much of the anticipated economic support was expected to come from the European market but given the fact that the Delta variant has also wrecked the European market and livelihoods so the exports from Vietnam are not going to get that kind of support which was expected.

If one evaluates the total foreign direct investment in Vietnam which came in the year 2019 it was U.S. dollars 20.4 billion which showed an increase of nearly 7% on a year-to-year basis. One of the primary companies which have been majorly investing in Vietnam has been Samsung and which has invested nearly $17 billion between the year 2008 to 2018. Many of the Samsung products particularly smartphones and tablets have been manufactured in Vietnam and even the company has built its largest research and development centre in Hanoi. In this context it has been seen that weather Vietnam will be able to regain the economic growth which was there during the pre-COVID times or it will have to make strong policy decisions so as to improve performance in industrial manufacturing as well as exports. The bright spot in the overall FDI inflows to Vietnam has been the fact that in half yearly analysis the Vietnam has received the foreign direct investment to the tune of U.S. dollars 9.2 billion.

Vietnam been showing signs of improvement with the decreasing impact of pandemic. However, the government authorities are trying to reduce unnecessary expenditure and boost funding for medical assistance and health care. There have been also apprehensions that in case there is a surge in the infections then the government might have to impose lock down restrictions in few select provinces. As a result of which there can be certain constraints in manufacturing because of limited supply of raw materials at industrial centres. As it has been seen that with sizable improvement in the pandemic infections and great efforts made by the government for vaccinating the people the supply side disruptions are taken care of. The efforts have been made with regard to restoring the supply lines and transportation networks all throughout Vietnam so that manufacturing doesn’t suffer. Because of supply side disruptions there has been increased in input costs and given the slowdown in the shipping industry, the freight rates have also been impacted. China has been also increasing the cost of the raw materials that it has been supplying to many of the manufacturing centres in Southeast Asia and also freight costs escalated in proportionality.

The Vietnamese government has made extra measures so that labour disruptions should not happen which could impede manufacturing sector. As a result of government efforts migrant workers have returned back to the city centres and manufacturing hubs, thereby protecting the economy from lockdown or factory closures because of shortage of labour. The government has also made efforts so that unemployment doesn’t increase do a certain level and the poor and marginalized sections of the society have been provided with monetary support so that they can take care of their families and livelihood. One of the major elements of Vietnam’s export is seafood and despite compelling situation the sectors such as seafood, textiles and garments which were temporarily closed in August and September, has been opened once again.

There has been a lot of talk with regard to supply side disruptions and the need for resilient supply chains across the globe. Companies such as Samsung, Apple and many others have tried to shift their production and increase their production capacities in those countries which were unaffected by the pandemic. Vietnam has done remarkably well in terms of exports because it has risen to more than 21% on a year-to-year basis analysis in the last quarter of 2021.

Vietnam is trying to provide support to its tourism services which have suffered a lot during the pandemic. The tourism economy requires the infusion of international tourists and that’s one of theirs in the year 2019 before the pandemic nearly 18 million people have visited Vietnam. Even during the pandemic despite the reduced number of international tourist arrivals, the domestic tourism has supported the hotel and hospitality industry as well also one of the important measures that the government has taken is that it has procured vaccines from more than seven different countries so as to protect its citizens from infections and severe health complications.

The total vaccination which has been conducted in Vietnam by the end of November 2021 husband showing remarkable progress and it’s nearing 70% in terms of those people who have been vaccinated at least once. Government is looking into long term strategy against the COVID-19 pandemic and therefore is seeking licensed production of few of the international vaccines such as Sputnik V. Countries such as Russia have supported Vietnam in endeavour and have given license to produce Sputnik V and Sputnik Light in Vietnam itself. Japanese government have also started to support Vietnam in terms of raw relocating Japanese companies to Vietnam which were earlier located in China. Vietnam being one of the preferred destinations for the Japanese multinational companies would benefit from the Japanese stimulus package of 220 billion yen for supply chain reassuring program earned additional 23.5 billion yen of the supply chains.

In terms of free trade agreements that the Vietnam has signed the Regional Comprehensive Economic Partnership would come into being from the 1st of January 2022 while the European treated agreement which is seen as an important boost for Vietnam’s export sector with the reduction of 79% of tariff between the two sides would provide impetus to the manufacturing sector. The European Vietnam free trade agreement which came into being on 1st of August 2020 is expected to provide support to Vietnam creating services, investment flows and government procurement. The bilateral investment protection agreement is also seen as a reassurance from Vietnam to protect the investment coming from European foreign direct investors and institutions.

It is expected that with decrease in COVID-19 cases Vietnam will be one bright spot in Asia showing community resilience and economic growth even during Covid times.

Pankaj Jha is faculty with Jindal School of International Affairs, O P Jindal Global University, Sonepat. He can be reached at pankajstrategic[at]gmail.com

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The Crippled Economy

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Lack of money is the root of all evils. Facts do not seize to exist because they’re ignored.

Lack of money is what Pakistan is experiencing and dealing with every now and then for the major part, since it came into existence either due to incompetence of our political leaders, their corruption, fighting wars of someone else or due to lack of long-term vision. Pakistan is currently in the middle of a turmoil trying to recover from devastating floods of 2022, facing the after effects of the withdrawal of USA from Afghanistan in the form of resurgence of terrorism, dealing with the political chaos created by the politicians who claim to be leaders of the state. Another yet most important, severe and devastating challenge that Pakistan is facing is its economic downfall. In one sense the lack of money is the root cause of all the problems mentioned above except the political chaos.

The economy of Pakistan, like a battle-hardened warrior has built resilience battling several challenges over the course of seventy years and is trained to survive but the recent political turmoil and the difficulty caused by nature (Floods), the burden of debts repayment, the threat of resurgence of terrorism and international indicators pointing towards an economic recession in 2023 has almost crushed the backbone of Pakistan’s economy.  

World bank has recently released its latest report forecasting Pakistan’s Gross domestic product (GDP) to grow at only 1.7% for the fiscal year (FY) 2023 that is less than the half of what it predicted to during last June (4%). It has also predicted a near to recession economic situation of the world economy characterized with high inflation, increasing interest rates and the circumstances caused by the Russian Invasion of Ukraine.

Pakistan must reportedly payback 73$ Billion in the next three years till the end of FY2025 and central bank of the country also known as State Bank of Pakistan currently has Foreign exchange reserves of about only 5.6$ billion. This debt repayment is the key challenge for Pakistan’s economic survival and other challenges such as ever-increasing inflation, high interest rate, the growing unemployment, the decrease in imports are all byproducts of the main challenge. The threat of a possible default is becoming evident and is looming over fiscal horizon.

Monsoon on Steroids, a phenomenon directly linked with climate change played havoc with Pakistan. These floods added a profound risk to the country’s economic outlook. The country lost infrastructure worth of billions of dollars and floods effected 33$ million people and 1700 people lost their lives. According to Ministry of Planning and development of Pakistan, Pakistan has faed the loses of more than an estimation of 10$ billion. The catastrophe of floods also played with agroeconomics as crops were destroyed causing destruction of agriculture sector which makes up to 24% of country’s GDP. A comprehensive recovery policy is needed and with the helped promised by international community at Geneva, government has passed one hurdle but to make the sustainable recovery abundance of resources, capacity and transparency is needed.

The policy uncertainty has been a major cause in creating a mistrust among investors and has almost ceased foreign direct investment in Pakistan. This policy uncertainty is due to lack of will of national leaders to take tough decisions. For Example, former prime minister of Pakistan rolled out of International Monetary Fund’s (IMF) program fearing his ousting and to gain public support he reduced prices of commodities such as Petrol & Gas and took country almost on the verge of default.

The policy uncertainty is caused by Political uncertainty which in turn lead towards economic uncertainty. Economic stability can only be achieved by political stability and there’s no other way around. Political stability can be achieved through free and fair elections and elimination of the role of establishment in political process of Pakistan. And if a government takes long-term policy goals into account while formulating a policy rather than short-term goals to gain public support and trying to keep hold on the reins of Government. The selfish politicians have to play selfless and put Pakistan’s benefit before their own benefit to get Pakistan out of this political and economic turmoil.

The only solution in sight for Pakistan is to carry on with the 6$ billion IMF program and to try for rescheduling of depts repayment as it owes more than 70$ billion to be paid by the end of 2025 that is currently not possible. Another step from international community can also help Pakistan that is if a country makes an investment of 10-20$ billion directly rather than in the form of loans as happened in CPEC. Moreover, help from rich friendly Muslim countries can also provide an array of hope for Pakistan.

But these steps won’t address the clear underlying malaise of the economy and the fact that something fundamentally will need to change, in terms of how much the economy produces versus how much it spends, to avoid default down the road. But none of Pakistan’s political parties seem to have the political will or ability to bring about such change. Priorities needs to be shifted from personal interest of political elite to national interest. They must be ready to sacrifice their political image and interest for the greater good and to save the country from default down the road.

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From unidimensional to 3D: the contours of the post-Bretton Woods world

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The start of the year 2023 was marked by a series of statements coming from representatives of BRICS countries concerning plans to create new currencies. In particular, Brazil’s President Lula called for the creation of common currencies among BRICS and MERCOSUR countries, while Russia’s Foreign Minister Sergey Lavrov stated that the creation of the BRICS common currency would feature in the discussions at the BRICS summit to be held in South Africa this year. And even as a lot of these changes in the international monetary system will take time, the vector of this transformation is becoming increasingly clear. The new international monetary system will be increasingly geared towards the creation of new regional currencies that will aspire to take on a global reserve status alongside the current pantheon of the select currencies of advanced economies. A multi-regional international monetary system in which the key regions of the developing world form their regional currencies may offer greater optionality to the global financial markets and will reduce the dependency on the few select reserve currencies.

A fragmented global financial system consisting almost exclusively of national currencies leaves scope for excessive dependency on the currency of the dominant economy. This in turn creates sizeable vulnerabilities in the form of a “moral hazard” and “too big to fail” considerations – the debt ceiling in the US is duly elevated to avoid default, while the “exorbitant privilege” of the US dollar as the global reserve currency is feeding “moral hazard” patterns in the form of greater fiscal profligacy and the emergence of related theories such as MMT.

As stated in the recent IMF report, “despite the weaknesses of the current reserve system (the “New Triffin dilemma”) any significant shifts away from the status quo are only possible if and when there are viable alternatives to the dominant currencies.”[1] . This recognition by the Fund of the fundamental weakness of the current monetary system (while conditional on the emergence of alternatives) is an important testament to the rising doubts regarding the “infallibility” of the current monetary system. One way to look at some these deficiencies is to realize that high inflation in advanced economies is currently undermining the value of these countries’ state debt – the ratio of US state debt to GDP by the end of 2022 declined by nearly 9% of GDP compared to Q1 2021 on the back of an inflated (due to price growth) nominal GDP. This depreciation in the value of US public debt is adversely affecting the reserve holdings of those countries that have opted to invest heavily in US dollar-denominated assets. At the same time, along with the inflation-related reduction in the debt-to-GDP ratio the nominal stock of US debt continued to grow and forced repetitive increases in the US debt ceiling over the past years. This time around in 2023 the risk of a US default due to the fragilities in the balance of power in US legislature came as yet another scare to emerging markets and a reminder of the perils of high dependency on one sole center of “gravity” in the global economy.

To overcome this high dependency and the fragmentation of the currency space in the Global South developing countries can form larger currency blocks – whether regional (as in the case of the proposed currency for MERCOSUR economies) or transregional (as is the case with the proposed R5 BRICS currency basket). This process of aggregation in currency unions across the Global South if continued may lead eventually to the formation of currencies with sufficient economic weight in terms of the underlying GDP and reserve size of members to merit their inclusion into the group of global reserve currencies.

The international monetary system formed on the basis of macro-regional currency unions will present greater opportunities for advancing new candidates for the position of global reserve currencies. Across the Global South there may be at least three regional currencies with sufficient economic weight to be potentially included into the set of global reserve currencies:

  • A Latin America common reserve currency
  • An African common reserve currency
  • An Asian common reserve currency

The Latin American track has already been promulgated by Lula da Silva in Brazil. In Africa the formation of the AfCFTA as well as the rising global prominence of the African Union (likely to become a full-fledged member of the G20 in the coming years) bode well for gradually moving towards greater coordination in the economic policies of not only the national economies of the African continent, but also its regional integration and currency arrangements. In Asia, several proposals have already been unveiled in the past several years, including the possible creation of a Pan-Asian single currency as well as a common currency for the members of the Shanghai Cooperation Organization.

All these regional currencies have the potential to carry enough economic weight and scale in the form of their respective integrated regional blocks to enable them to attain the global reserve currency status. The potential for regional currencies to become integral parts of the global financial system is expanded by the optionality in the modalities of regional currencies/regional agreements in the monetary sphere that may include:

  • Regional baskets
  • Regional currencies that replace existing national currencies
  • Regional swap lines
  • Digital regional currencies/currency baskets
  • Regional accounting units 

The new currencies, whether regional or trans-regional, will need an anchor or a reference point, a role that has thus far been primarily filled by the US dollar and the euro. The rise of China as the main trading partner of the economies of the Global South implies that it may be time for the developing economies to change the reference point away from the dollar and the euro towards the yuan and/or the BRICS reserve currency (in which the yuan would likely take a sizeable share). In particular, those developing economies with fixed/pegged exchange rate regimes could consider the possibility to shift towards pegging their currencies to the BRICS basket and/or employing this new currency increasingly as an accounting unit. This would accord well with the trends of the past decade characterized by growing importance of South-South trade; it would also provide more favourable conditions for further expediting the diversification of foreign trade and investment towards the South-South track after decades of under-trading among the developing economies (including among the regional partners in the developing world).

The latter point may need some elaboration – for decades the trading patterns of the developing economies were largely characterized by high shares of trade with the leading advanced economies such as the US and the EU and lower-than-potential trade shares accorded to the regional neighbours of these economies. The indications of the gravity model that traces trade intensity to distance among countries and their economic weight (as measures by GDP) suggest that there is tremendous potential to boosting regional trade given the lower gravity of distance. Regional economic integration and the creation of regional currencies, like the planned launching of the regional currency SUR in Latin America, would serve to realize this potential for South-South regional trade for the benefit of global economic growth. 

The three key pillars of a revitalized international monetary system will need to include the following Post-Bretton Woods principles, or 3D principles as per below:

  • Demonopolization (Poly-centricity): a system that is predicated on a set of reserve currencies that include a number of regional currencies as well as possibly trans-regional baskets of currencies – the resulting pattern is that of a co-existence of reserve currencies from EM and DM without a “core-periphery” pattern setting in the global monetary system
  • Depoliticization: the new international monetary system will also need to contain a “de-politicization clause” as one of its key foundations – the reserve currencies will need to carry a legal affirmation of the non-use of these currencies in imposing sanctions and other restrictions
  • Dis-inflation: with the “exorbitant privileges” of the DM currencies dissipating, inflationary fragilities in the global monetary system may be attenuated; at the same time the competitive edge in the global monetary system will start to gravitate towards those currencies that are credibly backed up with reserves/resources.

Compared to the unidimensional paradigm of the current monetary system, these 3D principles are meant to render the vision of the international monetary system more objective and real – the new system needs to reflect the changing realities and dynamics in the world economy, including the emergence of new regional economic centers; it also needs to address the growing demand on the part of the international community for currencies to be real, i.e. duly supported by countries’/regions’ reserves/resources.

Another way to picture the 3D vision for the international monetary system is to introduce a regional layer into the monetary system that is represented by the regional integration blocks, their currencies and development institutions. This regional layer would complement the layers of national economies at the bottom and the global economic institutions (such as the IMF and the World Bank) at the top. The main ingredients for the regional layer of the international monetary system are largely in place and consist of the following three key elements:

  • Regional financing arrangements (RFAs)
  • Regional development banks (RDBs)
  • Regional currency mechanisms

For the financial markets an international monetary system characterized by the emergence of regional economic and currency blocks may result in a decoupling of emerging markets (EM) from developed economies (DM) – contrary to the current paradigm whereby the dominance of US and EU financial markets determine to a large degree the overall direction of market dynamics in the developing world.

In the end, the international monetary system is not out of the woods just yet – the fragilities that resulted in the rising frequency of global downturns throughout the past several decades are yet to be addressed. One of the key pathways out of the limitations of the current Bretton Woods setup is to expand the array of reserve currencies with the new regional currencies that could emerge in the Global South. The evolving international monetary system cannot be disassociated from the future progression of the global economy, including its trade structure and patterns of investment flows. In this respect the regionalization of the global economy and the rise in the prominence of trading blocks and their regional development institutions (regional development banks and regional financing arrangements) will increasingly call for greater regionalization of the international monetary system.  


[1] Aiyar, Shekhar, Ilyina, Anna, and others (2023). Geoeconomic Fragmentation and the Future of Multilateralism. Staff Discussion Note SDN/2023/001. International Monetary Fund, Washington, DC.

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Friend-shoring: India’s rising attractiveness for an emerging partnership

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There are numerous forces currently affecting investment flows in the global climate for foreign investment. Investor concern has been caused by the many geopolitical issues, which had repercussions even as countries were recovering from the pandemic. Businesses are being forced to re-evaluate the global business environment and potential fault lines as a result of these disruptions. India has constantly improved the business environment (EoDB). It may now advance by utilising the advantages to strengthen its place in the global economy and fulfil the ambitions of its sizable, primarily young population. The country’s business and investment climate has significantly improved as a result of the fast and steady pace at which reforms have been implemented.

Apart from the fact that India is one of the largest economies in the world with the quickest rate of growth, the government’s emphasis on infrastructure and manufacturing, strong consumption patterns, digitization, and a burgeoning services sector all contribute to this optimism. The persistent efforts of the Indian government to lower regulatory hurdles are also fuelling MNCs’ favourable opinion of India. However, India’s expanding domestic consumer base and digital economy are the greater draws. After the US and China, the estimated actual growth in consumption is the third-highest. Given that all of these markets are sizable but relatively saturated and growing at a slower rate, India presents a particularly good opportunity for MNCs seeking growth opportunities in the ensuing ten years.This has acquired more traction in the US context as it has become clear that the nation cannot overcome all production issues on its own and that cooperation with friendly or ally nations is essential for all-around development. The term “friend-shoring,” a hybrid of the terms “onshoring” and “near shoring,” refers to forming business alliances with people who have similar principles and interests.

In a world driven extensively by globalisation, it is inevitable to not just make ally’s or create partnerships that are not only strategic and synergistic, but also facilitate a purpose driven iterative connection between two nations. A strategy used by the US to persuade companies to relocate their sourcing and manufacturing operations to friendly shores—often back to the same shores in the case of the US—is known as friend-shoring or ally-shoring. And the goal is to protect their supply networks against countries with less compatible policies, like China. But is it the best course of action? Global supply chains have changed production by enabling businesses to produce things wherever it is most affordable, thanks to decreased tariffs, lower transportation, and communication costs. This typically means that low-end production shifts to emerging markets and developing countries, while high-value-added inputs (such as research and development, design, advertising, and finance) are provided from established economies.

A commitment to cooperate with nations that “have a strong adherence to a set of norms and values about how to function in the global economy and about how to govern the global economic system” was described as “friend-shoring” in Secretary Yellen’s statements of April 13, 2022. But is it the best course of action? Any type of protectionism will worsen the already shaky global supply chain after the years-long Covid-19 shutdown has had an impact on the world economy. Despite its political unrest, China has been devoting its resources to manufacturing since the 1990s, and many businesses have already established manufacturing operations there since their suppliers are all nearby.

Even though Vietnam, India, and Thailand are also known for their low-cost manufacturing, moving the manufacturing sites could be expensive and risky for businesses because they would need to reorganise their entire supply chain for all materials required. In addition, other Asian countries might not have the full infrastructure needed to support manufacturing in some sectors. The world of today is at its best because of international cooperation. Each country’s disadvantage is made up for by having it use its greatest asset to boost global economic growth. Although there are many differences and even disagreements between nations and we are still far from full globalisation, offshoring does not seem like a good answer for a better future for the global supply.

USA is believed to pursue the “friend-shoring” strategy of deepening economic integration with dependable trading partners like India to diversify away from nations that pose geopolitical and security risks to supply chains. This is in response to an “extremely challenging” global economic outlook and geopolitical instability. She claimed that some economies’ debt loads were becoming unmanageable due to the Russia-Ukraine war-related spike in food and energy costs, and that steps to reduce these debt loads would need to be explored. Countries that already have well-established production and business service networks are those that are seen as friendly partners in the US context. India is attempting to draw MNCs that are moving their subsidiary supply chain networks and activities in this wave of supply chain restructuring and diversification of their specialised ecosystems.

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