The United States' evolving trade and investment policies have remained under global scrutiny since Donald Trump’s first presidency, requiring foreign governments and businesses to continuously adapt to new realities. The White House frequently introduces policies, either revoking Joe Biden’s measures or implementing new directives aligned with Trump’s campaign promises and emerging priorities.

Among these policies, friend-shoring has endured through Trump’s first term, Biden’s presidency, and now Trump's second term. This approach prioritizes economic partnerships with allied or like-minded nations, aiming to reduce reliance on geopolitical rivals, particularly China, and secure supply chains by shifting production and investment to trusted partners. The strategy aligns with broader US economic and security objectives, including minimizing supply chain vulnerabilities, ensuring national security, and fostering economic resilience among allies.

Friend-shoring encourages US companies to relocate production and sourcing away from adversarial nations toward allies such as Mexico, India, and Southeast Asian countries. It represents a middle ground between full globalization and protectionism, fostering economic cooperation within a selective network of trusted nations.

Opportunities and Challenges for Developing Countries
Developing nations must strategically position themselves to benefit from this shift while mitigating risks. Countries in Southeast Asia, Latin America, and South Asia can market themselves as reliable partners by enhancing business environments, infrastructure, and regulatory frameworks. This may require domestic reforms to align trade and investment policies with US fair trade principles.

In parallel, developing nations should strengthen regional partnerships to build integrated supply chains, making themselves more attractive to multinational firms. For instance, ASEAN countries can deepen economic cooperation under the Regional Comprehensive Economic Partnership (RCEP) to enhance connectivity and trade facilitation.

To align with US priorities, countries should develop industries in sectors such as semiconductors, clean energy, and pharmaceuticals. India has already moved in this direction, offering incentives for semiconductor production to support the US goal of reducing dependence on China.

However, while friend-shoring presents opportunities, developing nations must diversify their trade partnerships to mitigate geopolitical risks. Maintaining balanced trade relations with the US, EU, China, and regional partners is crucial for long-term economic resilience. Nations should leverage trade agreements such as ASEAN, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and bilateral FTAs to broaden market access under the friend-shoring framework.

What Defines a ‘Friend’ in Friend-Shoring?
The friend-shoring policy is centered on reducing dependence on geopolitical rivals -- mainly China -- by shifting trade and production to trusted allies. However, the definition of a "friend" in this context is not always straightforward. Some nations with strong trade and investment ties to China may still be considered US allies if they meet key criteria:

First, strategic alignment plays a crucial role. Countries politically aligned with the US on security, economic, and geopolitical matters may still be included in friend-shoring efforts, even if they maintain economic ties with China.

Second, supply chain reliability is a determining factor. The US assesses whether a partner country can provide critical materials or manufacturing capabilities without excessive reliance on China. Nations demonstrating supply chain independence in key sectors—such as semiconductors, rare earths, and pharmaceuticals—are more likely to be considered viable partners.

Third, trade agreements matter. Countries with Free Trade Agreements (FTAs) or strong economic ties with the US, such as those under USMCA, hold an advantage in friend-shoring partnerships, even if they continue trade with China. However, the US may pressure these nations to gradually reduce reliance on China, diversify trade ties, and increase engagement with American firms to strengthen their status as "trusted" partners.

Navigating the Friend-Shoring Landscape
Many nations, especially in Southeast Asia -- including Vietnam, Indonesia, and Malaysia -- maintain deep economic ties with China while also relying on the US for trade, investment, and security. These countries must carefully navigate their positions to avoid taking sides in an intensifying US-China rivalry.

If a country leans too heavily toward the US, China may respond with trade restrictions or investment pullbacks. Conversely, if the US tightens friend-shoring criteria, nations with significant trade dependence on China may face difficult choices in sustaining their export-driven economies.

A strong personal relationship between a developing country’s leader and President Trump may help shield against abrupt trade or investment disruptions. However, Trump has a history of weaponizing trade policies to serve broader political objectives. A nation closely aligned with the US on containing China’s economic expansion could still face tensions if it opposes Trump’s foreign policy on issues like Gaza.

For the US, the definition of a "friend" extends beyond economic ties—it is shaped by broader strategic and political interests. The true nature of US partnerships will ultimately depend on how well a country aligns with Washington’s shifting priorities.

In short, countries that can ingeniously balance their relationships with both the US and China, while strategically positioning themselves as reliable yet neutral economic partners, will be the ones to benefit the most from the friend-shoring trend.

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Iman Pambagyo is the Trade Ministry’s Director General of International Trade Negotiations (2012-2014, 2016-2020) and Indonesia’s Ambassador to the WTO (2014-2015).

The views expressed in this article are those of the author.