Ottawa is increasing its ‘friendshoring’ focus to improve supply chains: analysts

This year’s budget reveals the federal Liberals envision Canada relying more on its allies for trade in the future, economists and geopolitical experts say — even if that could result in higher prices or missed opportunities.

“It’s a reframing,” University of British Columbia professor Vina Nadjibulla said after the budget’s release last week. “It’s essentially saying what we’ve been doing for the last 30 years of engagement is over.”

U.S. Treasury Secretary Janet Yellen coined the term “friendshoring” a year ago, saying allies should rely on each other to make supply chains more resilient, and defang hostile actors from taxing or withholding goods.

The Liberals have sent mixed messages in the past year on the extent to which they agree with that approach. Last October, Industry Minister Francois-Philippe Champagne said Canada was “decoupling” from China, but days later Foreign Affairs Minister Melanie Joly said she wanted to “re-establish ties” with Beijing.

The language in the federal budget paints a clearer picture. But some experts warn that the us-versus-them language means Canadian businesses will need to adjust in order to avoid losing out on opportunities with the developing world.

Nadjibulla, speaking at a panel held by the Canadian Global Affairs Institute in Ottawa, said the budget contains the government’s clearest articulation yet of where the world is now.

“The language there is that it is a more dangerous world and a more competitive world. And in that world, Canada needs to deepen its connections with its allies,” she said.

Specifically, the document says trading with other democracies prevents “economic extortion” and being “vulnerable to exploitation” by “hostile foreign powers” who are buying up Canada’s natural resources.

The automotive and textile sectors have asked him how much material they can use from China before Washington labels a product made in Canada, Mexico or Guatemala as including Chinese content, he warned.

He said that question is coming up for electronics and will likely affect pharmaceuticals, too.

“The question of how much Chinese content gets called Canadian is coming,” he said. “If we’re seen as being the back door for China, or whatever, that’s going to be more problematic.”

Warner said Canada’s geography means it will always make sense to rely on Washington, even if Ottawa needs to tweak how it treats other countries under a “friendshoring” policy.

“If the Americans are serious about this, then we really have to figure out our way to be in that (space) in a way that’s coherent. And that’s how we’ll protect our manufacturers,” he said.

Canada is already setting the stage for a cross-border salvo with Washington, announcing in the budget that Ottawa is considering retaliatory policies if the U.S. doesn’t stop blocking Canadian companies from certain government contracts and green-tech programs.

Still, Washington has successfully been wedging countries against China, such as with language in the United States-Mexico-Canada free-trade agreement that forbids Canada from signing a trade deal with Beijing without U.S. consent. The same language has appeared in recent agreements with Japan and Taiwan.

Nadir Patel, a senior strategic advisor with Norton Rose Fulbright Canada, said Ottawa’s simultaneous rhetoric around shoring up trade with allies and developing deeper ties with regions such as Southeast Asia will only come to fruition if corporate Canada follows suit.

“Canadian business needs to step up and do more in other parts of Asia, where we’re not active,” said Patel, a former Canadian high commissioner to India, during the panel.