As Britain has been focused on local elections, two significant developments have been unfolding in international economic affairs.
First, Donald Trump is currently in Beijing for talks with China’s President Xi Jinping, a meeting that will inevitably gloss over the still significant economic tensions between the two superpowers.
But second, and a development that may seem less consequential at first chance, Norway is joining the US-led Pax Silica, becoming its fifteenth signatory. Pax Silica is the initiative focused on creating secure supply chains for the new technological age. Oslo’s entry exemplifies an important trend in Western geoeconomics that is likely to become even more significant as tensions intensify between the West and the emerging axis of autocracies: friendshoring.
It is no secret that the global trading system that underpinned decades of prosperity over the last few decades has been in decline for years. The World Trade Organisation exists largely in name only, protectionism has become the norm and globalised supply chains have become strategic vulnerabilities. Many of the West’s critical supply chains remain deeply tied to, and in some cases dominated by, geopolitical adversaries, creating significant risks to national security.
No country has recognised this more clearly than the United States. In 2022, Janet Yellen, then the Treasury Secretary under President Biden, argued that America’s objective should be to “achieve free but secure trade” by “favoring the friendshoring of supply chains to a larger number of trusted countries.” In many respects, Pax Silica represents the next stage in a strategy that began under the Democrats. Both Biden’s Democrats and Trump’s Republican Party have sought to reduce China’s ability to exploit its dominance in raw materials and advanced technology.
The declaration of the Pax Silica itself reads almost exactly like remarks made by Yellen just three years before, outlining that “true economic security requires reducing excessive dependencies and forging new connections with reliable partners and suppliers” across critical technology supply chains. In plain words, those are semiconductors, advanced manufacturing and mineral refining and processing.
Overdependence on China is far from an America-only problem. The European Union relies on China for 97% of its magnesium, 71% of its gallium and China supplies 85% of the bloc’s permanent magnets used in industry: all minerals which are essential in particular for the manufacturing of defence apparel. In the UK, in addition, IPPR estimates that some 90,000 jobs are vulnerable due to dependence on Chinese supply chains, particularly in the automotive industry and battery sector. With demand for critical minerals projected to rise by 350% over the next three decades, continued Western dependence on China is a crisis waiting to unfold.
Fortunately, the West is not without alternatives, and this is where there is value in friendshoring. Many like-minded nations possess both substantial mineral reserves and advanced technological capabilities. Australia, for example, is the world’s largest producer of lithium, a resource vital to high-performance batteries in electric vehicles, electronics and unmanned systems, like drones. Its production of the mineral is more than double that of China, which is the third-largest producer. Canada, meanwhile, possesses abundant reserves of copper, nickel and graphite, all of which have valuable strategic applications. Norway, the newest member of Pax Silica, holds Europe’s largest known reserves of rare earths, a type of material largely found in China.
The problem is that much of what is extracted is then sent to China for processing. This allows Beijing not only to capture valuable parts of supply chains, but to threaten to restrict the supply chains of Western nations, or in some cases actually doing so. Although Australia leads in global lithium production, processing almost exclusively takes place in China.
As the world enters a more competitive era, one where the West needs to strengthen industrial capacity, secure its own supply chains and guarantee reliable access to materials and technologies essential for defence and economic resilience, this dependence on China represents one of our greatest weaknesses.
Friendshoring cannot be achieved at the drop of a hat, but initiatives like Pax Silica are a good place to start. That does not mean that it is perfect, however. The initiative at the moment consists of only 15 countries — Australia, Finland, Greece, India, Israel, Japan, Norway, Qatar, South Korea, Singapore, Sweden, The Philippines, the UAE, the UK and the US. That means that key like-minded players in the technology game are not involved, including France and Germany.
Likewise, many countries across the developing world that host vast reserves of minerals are also not included. They should, of course, be involved in some way, both to ensure that extracted minerals are less likely to be shipped straight to China and to allow those nations to retain more of the economic value generated by their own resources. Yellen understood that secure trade needed a global approach, and soon after her speech on friendshoring visited both India and Vietnam.
Friendshoring will be a costly endeavour. Indeed, it is estimated that Canada will need critical mineral investment of $65 billion over the next 15 years to meet the growth in global demand. If we are to increase friendly processing, that will also be expensive, with a combination of both state and private sector financing needed. The alternative, however, is to accept the costs and risks of dependence on a country that is already a threat to our security.
There are naturally legitimate questions surrounding friendshoring, particularly regarding the extent to which the United States can be regarded as a reliable friend. Nonetheless, the US, Europe and like-minded partners in the Indo-Pacific face very similar supply chain vulnerabilities. Without a coordinated effort to address them, those weaknesses risk steadily eroding the West’s economic strength, global position and national security. The success or failure of friendshoring may ultimately determine how secure the West is in the decades ahead. Initiatives like Pax Silica ought to be embraced for just this reason.
Original photo by Greg Rosenke.