Friendshoring: Contradicting Capitalism with Detrimental Regional Consequences

Over a two-day interview, former IDB head Enrique Iglesias expressed concern over how the United States is turning toward protectionism, near-shoring and friend-shoring, and trade blocs.

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Enrique Iglesias is a Uruguayan economist who led the Inter-American Development Bank and UN Economic Commission for Latin America (CEPAL for its initials in Spanish and ECLAC in English). Iglesias was born in Spain and emigrated to Uruguay as a young child, presided over the Uruguay round of GATT, the trade talks where the World Trade Organization (WTO) was created.

Over a two-day interview, Iglesias expressed concern over how the United States is turning toward protectionism, near-shoring and friend-shoring, and trade blocs. He believes that Washington’s current bipartisan turn away from the free trade system it helped create amounts to a failure to act as a global leader and has prompted deep pessimism about the future of the global rules-based trade regime. 

How do you see the current economic environment?

We are entering a new phase that marks the end of the seventy-five-year period between 1945 to 2020 which is one of the most brilliant in all of humanity. The reconstruction process which began in 1945 laid the groundwork for the Pax Americana: This era witnessed a global population increase from 2.5 billion to almost 8 billion while the number of sovereign countries more than tripled. Technological advancements during this period have been remarkable.

The current period is characterized by fierce competition between China and the United States. The fact that there are nuclear weapons with enormous destructive capacity on either side provides some sense of stability but also of potential dangers. However, I do think that competition will intensify in space. This is the next frontier, and it will be driven by the public and private sector’s technological innovation and military policies.

In Latin America, the United States is most concerned with the advancement of China in the information systems industry. What matters most from a security perspective is technological competition and political influence.

Let us pivot towards the creation of the World Trade Organization (1986-1994), what was the role of Uruguay?

I had the privilege to collaborate with visionaries like Arthur Dunkel who was then Director-General of GATT in building the international trade system as I presided over the Uruguay round of GATT which took place in Punta del Este, Uruguay, in 1986 and led to the creation of the WTO in 1994. These initial meetings were highly stressful and difficult to organize as the number of delegates from around the world was unprecedented.

With the WTO, we were not building the roads for trade as it is sometimes said, as these are determined by the markets, we simply accompanied and facilitated trade. And we never could have foreseen trade’s incredible growth over the past few decades. It exceeded our expectations. The private sector proved more dynamic and better at advancing technology.

Nowadays, would you say there is there too much or too little government involvement in the economy in Latin America?

I would say in Latin America the state is still very strong, especially from a regulatory standpoint. I believe Latin America should deregulate and be more open to competition at the same time we ensure that the governments have the technical capacity to control and have oversight of the private sector behavior.

I also believe that Latin American entrepreneurs have lacked the risk-taking drive that we observe in other regions. I would have expected greater growth in Latin American multinationals and trade integration like that of Southeast Asia. We need more market drive in the Latin American economies.

Are there any downsides to globalization?

Globalization, while supporting growth and reducing poverty, has not eliminated inequality. Young people with increased access to information have greater expectations. Additionally, longer lives and technology are posing challenges such as unemployment that require the consideration of reduced working hours to balance the workforce.

I am now more concerned with social troubles like unwanted loneliness in adulthood, this is the cause that I am devoting the last years of my life to, as I want to help my generation, particularly in non-wanted loneliness. I thrive in action and activity, and I am concerned with social isolation. The job market pushes people out very young, while at the same time, life expectancies are increasing.

How was the experience of presiding over the InterAmerican Development Bank (IDB, 1988 to 2008)?

Felipe Herrera was the Chilean economist who gave life to the IDB. We expanded the scope and got involved in many different areas from infrastructure and technology to social programs. We became a critical lender and partner for Latin American governments. Eugene Black, then President of the World Bank, called Felipe Herrera and told him “you must have a very liquid institution” because we were lending money to fund drinkable water. I always remember this anecdote because it shows how we were changing how people in Washington DC understood economic development.

I also led the development of the Inter-American Investment Corporation (now BID INVEST, 1989), the arm of the IDB that lends and invests in small and medium-sized enterprises in Latin America to further foster private sector dynamism in the region. It is the most important instrument of cooperation of the IDB with the Latin American countries.

What are your views on how the international trading system has evolved in recent years?

WTO has been made inoperative in recent years. As part of the negotiations at the creation of the WTO, the US kept the ability to reject appellate body judges that manage dispute settlement mechanisms. The US has been taking advantage of this and blocking the WTO, the institution that it helped create.

What surprises me today is the United States’ push to onshore production and manufacturing jobs, not only in sensitive industries but across all sectors, using substantial subsidies. The United States holds a strong position over trade, industry, and technology, and plays a crucial role in the international financial system, and it has the advantage of the US dollar as the global currency.

Some may criticize US fiscal deficits, as the US is using the machine to print money putting China and others at a disadvantage. This leads me to believe that it is a misstep for the US, as a global leader, to restrict market openness.

This concept of “friendshoring” goes against markets, delving into ideological control. It seems like the leading superpower is acting from a position of fear, almost akin to that of a smaller nation. What underpins this fear of competition within the United States?

I no longer have the illusions we had back when we created the WTO. We thought we had reached a foundational world agreement and now I wonder if it was too good to be true.

What are your concerns regarding the future?

Climate change concerns highlight humanity’s collective responsibility. Discussions on climate change only began in 1979, leading to the first environmental conference in Geneva. Before then only dreamers and poets cared about the environment. I was the Secretary General of the first Renewables Conference sponsored by the United Nations in Nairobi in 1982. During those first few meetings, it was the developing countries – Brazil, Nigeria, and India – that were opposed to the joint resolution. They argued Europeans had taken advantage of their natural resources and now they seem to want to block the use of our material resources. We managed to agree on a document that acknowledged the importance of balancing environmental needs with poverty, that is what we were able to accomplish diplomatically. 

Today we are seeing climate change occurring faster than we could have anticipated. Addressing climate change requires international cooperation in addition to innovative technological advancements. The rising global environmental crisis will trigger survival instincts and collective global action. There is no reason for me to believe that planet Earth will not end like every other planet, but we can manage it in time. I believe it is necessary to create (a cost-conscious) international organization to which countries yield power, but which can manage and mitigate climate change effectively.

Because of climate change, humanity is condemned to cooperate.

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