EAST AND SOUTHEAST ASIA — Researchers at United Nations University released an analysis showing that between 2017 and 2023, American imports of industrial machinery, computers and computer parts, and electronic equipment such as monitors from China declined most sharply relative to other product categories. The analysis found that East and Southeast Asia, including Vietnam, Thailand, Malaysia and Indonesia, captured the largest share of friendshoring opportunities, particularly in high-tech sectors such as computers.

The United States and China are the world's two largest economies, and trade between the two countries risks pulling apart. The two countries invest less in each other than they did a few years ago. International trade is slowing and economic uncertainty is rising, while the reconfiguration of global value chains is accelerating.

The current U.S. administration has stated that reshoring production is a priority, with semiconductors the focus of major reshoring efforts. The analysis identified two broad clusters of products based on decoupling patterns in U.S.-China trade.

In the first cluster, which includes consumer electronics, vehicle components, chemicals and machinery, the U.S. is diversifying its imports quickly and is already producing these goods competitively. While the U.S. has reduced imports of these products from China, other developing regions have not experienced a similar decline.

In the second cluster, the U.S. is diversifying imports but is not competitive enough to reshore production. That cluster accounted for just over 6% of finished products the U.S. imported in 2023, approximately $181 billion. Technologically complex goods such as electrical equipment, computers and car parts offer potential for middle-income economies with manufacturing experience to win contracts and investments.

Exports from Vietnam, Thailand, Malaysia and Indonesia to China have risen. Friendshoring can result in goods being made in different countries with prices remaining broadly stable compared to reshoring or tariffs, and consumer goods labels might change while prices remain broadly stable before tariffs are applied.

If advanced economies reshore a substantial share of production, developing countries could suffer losses of investment and jobs. Automation and digitization have made it more convenient for advanced countries to produce goods at home, increasing risk to poorer countries compared to a decade ago. Reshoring production could lead to higher short-term prices for everyday goods due to higher manufacturing costs in advanced economies.

Friendshoring could offset or exceed potential production losses for developing economies, offering new pathways for industrialization and allowing them to leapfrog into more sophisticated activities faster than traditional development paths. Supportive government policies such as investment incentives or technology upgrades can increase domestic production and lead to technology spillovers and learning. Governments need to negotiate investments to add local value, support skills development and avoid social or environmental harm.