Western countries already embracing ‘friend-shoring’ to reduce trade with authoritarian regimes, Freeland says

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Deputy Prime Minister Chrystia Freeland says leading Western countries are setting an example by embracing “friend-shoring,” or shifting trade to friendly partners and liked-minded democracies: an approach that would curb some commercial relations with countries such as Russia and China.

On Monday during a news conference in Gatineau, Ms. Freeland noted that the European Union is proposing to bar imports of products made with forced labour in response to pressure from human rights activists concerned about modern slavery in China’s Xinjiang region.

She also noted the U.S. Congress passed legislation in August with tax incentives for electric vehicles that apply only if they are assembled in North America and the critical minerals in their batteries come from countries with which the U.S. has a free trade agreement. That means carmakers will have to end any reliance on Chinese sources for the battery materials.

“I think friend-shoring is here,” she said.

Asked what friend-shoring, a portmanteau of “friend” and “offshoring,” means for relations with non-democratic countries, Ms. Freeland said: “I think it means tread with care. We need to be very careful not to have strategic vulnerability to authoritarian regimes.”

Elaborating, she said any trade dependencies Canada has should be with a friendly partner, not an illiberal country. “We also need to be realistic and be sure that where our economies are vulnerable to decisions of another country, where we are dependent. In the first instance, we should aim to have that dependency be with a fellow democracy.”

She said Brussels, with its proposed ban on slave labour imports, and Washington’s effort to cut China out of the electric-vehicle supply chain are leading the way.

“From the two biggest economic, democratic blocs in the world – the U.S. and the EU – we’re seeing clear moves in that direction,” she said.

The Deputy Prime Minister was asked what this means for Canada’s upcoming Indo-Pacific strategy, a blueprint for relations with Asia and India that Foreign Affairs Minister Mélanie Joly has been crafting, Ms. Freeland was circumspect.

“I am not going to steal her thunder. She’s going have a lot more to say about the Indo-Pacific strategy in the weeks to come.”

However, Ms. Freeland already sketched out an assertive approach to China in a speech she gave last week in Washington to the Brookings Institution, in which she also said Canada must embrace friend-shoring. “We should design our government procurement and incentive programs with friend-shoring in mind.”

There, she said Canada needs to stand up for fellow democracies being bullied, naming three countries that suffered mistreatment from China after they ran afoul of Beijing.

“We must then be prepared to spend some domestic political capital in the name of economic security for our democratic partners,” Ms. Freeland said.

“We cannot allow Lithuania to be coerced over its policy towards Taiwan, or South Korean companies to be harassed and boycotted in retaliation against legitimate national security decisions taken by Seoul,” she said. “A commitment to support each other in the face of such economic strong-arming is the best way to ensure it doesn’t happen again.”

Russia has wielded energy as a weapon in recent years.

“It is not just Russia,” Ms. Freeland said in her Brookings speech. “China is likewise adept and intentional in using its economic ties with us as leverage to achieve its geopolitical objectives. That is what Norway learned in 2010, when the Nobel Prize was awarded to [human rights activist] Liu Xiaobo, and Norwegian exports of fish to China were halted as punishment,” Ms. Freeland said.

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Similarly, “much of Australia’s trade with China was frozen in 2020 when Canberra called for an independent inquiry into the origins of COVID-19.”

Canada itself came under pressure from China after it arrested a Chinese tech executive on a request from the United States.

“Canadian exports of pork and canola were banned – as two Canadian citizens were wrongly imprisoned – when Canada honoured its extradition treaty with the U.S. and detained the chief financial officer of Huawei.”

Ms. Freeland said that despite the need to reduce dependency on authoritarian countries, it will still be necessary to co-operate with them to fight climate change, tackle worldwide health problems and address imbalances in the global financial system.

“There is a global commons and we need to work together to maintain the global commons,” she said.

Akshay Singh, a research associate for the University of Ottawa’s Centre for International Policy Studies, said it’s notable that Ms. Freeland’s Oct. 11 speech specifically highlights China’s coercive behaviour and how this conduct has expanded.

He said her speech indicates Canada is increasingly interested in building closer ties with other democracies in the Indo-Pacific region, such as Japan and South Korea, to offset the chances of future trade disruptions.

Mr. Singh said friend-shoring will not end China’s role as a Canadian trade partner nor diminish its status as a major global economic player. But, he said, shifting crucial supply chains to friendly countries would protect Canada from any coercion by Beijing, and doing so in concert with a network of democracies would frustrate efforts to pressure Canadians.

“A grouping of like-minded countries that can resist future economic coercion very likely significantly concerns the Politburo,” Mr. Singh said, referring to Chinese leadership.

U.S. Treasury Secretary Janet Yellen has popularized friend-shoring. In a July, 2022, speech in South Korea, she cited the need to reduce reliance on China for vital commodities or goods.

“We cannot allow countries like China to use their market position in key raw materials, technologies or products to disrupt our economy and exercise unwanted geopolitical leverage,” Ms. Yellen said in July.