Commentary: Derisking, friendshoring no replacement for fixing your own economic problems

A goal that may come at a price.

The pursuit of security within the supply chain is understandable, especially with geopolitical tensions, particularly the rivalry with China, and international supply chain disruptions stemming from the COVID-19 pandemic and the war in Ukraine.

The key is how it’s done. There’s a right way, and a wrong way—and most countries are choosing the latter.

The U.S.–and imminently Europe’s–decision to use tech export controls on China is clearly on the wrong path. They are self-defeating, perversely accelerating the development of China’s own technological capacity, starkly evident in the cutting-edge Kirin semiconductor used in Huawei’s latest smartphone. Such controls also deny U.S. firms, like Intel, the opportunity of growing through exports to China. And they force countries such as Indonesia, Thailand, and Vietnam to make the invidious choice between U.S.- and China-centric supply chains.

Massive state subsidies are just as problematic, distorting international competition at the expense of poorer developing countries. They disrupt the international trading system while running the risk of regulatory capture as the companies that benefit from subsidies become dependent on them.

Nor is friend-shoring a clear path forward. The ultimate logic of trading with friends, however defined, would split the world into rival trade blocs. Recent research from the International Monetary Fund and the World Trade Organization highlights that such a split would entail serious financial fragmentation and major losses in GDP, as high as 12% in…