## 2.  De-risking: Definitions and Calibration

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---

### Terminology and conceptual framing
- ‘De-risking’ defined as the pursuit of the reshoring and friend-shoring of supply chains.
- Reshoring dimension: change in reliance on domestic sourcing versus total foreign sourcing.
- Friend-shoring dimension: change between different foreign sources while minimizing change to overall dependence on foreign sourcing.
- Assumptions on actors:
  - China and OECD members are assumed to seek to reshore and friend-shore.
  - Other economies do not actively seek to reshore or friend-shore.
- Interaction with GVCs:
  - GVC production is an integrated, multi-sector and often multi-country process (example: automobile industry).
  - Reshoring and friend-shoring could reverse efficiency gains from specialization and be especially detrimental given the rise of GVCs and China's insertion in GVCs.

### Empirical calibration and stylized facts (based on Eora MRIO data)
- Anchor period: changes since the year 2000 through 2021.
- Sectoral breakdown: GVC tradable intermediates, non-GVC tradable intermediates, and final demand goods (consumption and investment).
- Reshoring (foreign sourcing as share of total sourcing; OECD aggregate):
  - GVC sectors: OECD sourced around 25 percent from foreign sources in 2000 and 28 percent in 2021.
  - Increases in foreign sourcing were of roughly similar magnitudes for non-GVC tradable intermediates and for investment goods, and somewhat smaller for consumption goods.
- Friend-shoring (sourcing from China as share of foreign sourcing; OECD aggregate):
  - In 2000 OECD purchased less than 5 percent of their GVC and non-GVC tradable intermediates and investment goods from China; by 2021 these ratios were at or above 10 percent.
  - Consumption goods: purchases from China as a share of total foreign purchases rose from just under 10 percent to nearly 20 percent between 2000 and 2021.

### Assumed long-term redistributions implemented in the model (Figure 2 assumptions)
- Reshoring shocks (permanent percentage point increases in domestic sourcing by China and OECD economies):
  - GVC tradable intermediates: increase domestic sourcing by 3 percentage points.
  - Non-GVC tradable intermediates: increase domestic sourcing by 3 percentage points.
  - Investment goods: increase domestic sourcing by 3 percentage points.
  - Consumption goods: increase domestic sourcing by 1 percentage points.
  - Aggregate translation: this reshoring shock "translates into 2.7 percent of global GDP."
- Friend-shoring shocks (percentage point shifts away from China–OECD bilateral sourcing toward other foreign sources):
  - Tradable intermediates (GVC and non-GVC): shift by 5 percentage points.
  - Final demand goods (investment and consumption): shift by 10 percentage points.
  - Aggregate translation: this friend-shoring shock is "equivalent to almost 1 percent of global GDP."
- Implementation timing: shocks are implemented over a period of five years, with households and firms fully understanding magnitudes and timespans as the process begins.

### Model overview and calibration
- Model: IMF’s multi-region dynamic stochastic general equilibrium model, GIMF, with GVCs.
- Regional aggregation (10 regions): United States; European Union plus (EU+); other advanced economies; China; India; Indonesia; Japan; Korea; other Southeast Asia; rest of the world.
- Household types:
  - Saving households: finitely lived, choose consumption, savings, and labor supply.
  - Liquidity constrained households: consume all income every period; share varies by region.
- Firms: profit-maximizing, monopolistic competition; produce non-tradable, non-GVC tradable, and GVC tradable intermediate sectors.
- GVC sector features:
  - Round-about production: GVC goods used as inputs in production of other GVC goods and final goods.
  - Production combines capital and labor (Cobb-Douglas) with imported and domestically sourced GVC goods.
  - GVC goods both input to final goods and cycled back as inputs into other GVC goods domestically and abroad.
- Trade: regions trade final goods and both non-GVC and GVC tradable intermediate goods; bilateral flows tracked; barriers captured via NTBs that generate deadweight losses but no import fiscal revenues.
- Policy reactions: monetary policy follows inflation targeting; fiscal policy follows debt-GDP ratio targeting via lumpsum transfers.
- Steady-state calibration:
  - Each region calibrated using OECD Inter-Country Input-Output Database for 2018.
  - Steady-state global real growth rate: 2 percent.
  - Steady-state global real interest rate: 2.5 percent.
  - All regions assumed to have net foreign asset positions of zero (current account zero; exports equal imports after adjustment).
- Openness and trade pattern highlights:
  - Trade openness (imports or exports as percent of GDP): other southeast Asia 61.9 percent; Korea 42.5 percent; United States 11.6 percent is the least open.
  - Share of global GDP (selected): United States 24.4; European Union + 18.9; China 16.7; other southeast Asia 2.3; Korea 2.0.
  - GVC tradable shares of global GDP (selected): United States 0.93; European Union + 1.33; China 1.25; other southeast Asia 0.53; rest of the world 2.10.
- Household liquidity-constrained shares:
  - United States, EU+, other advanced economies, China: 25 percent liquidity constrained.
  - Remaining regions: 50 percent liquidity constrained.
- Key elasticities:
  - Intertemporal elasticity of substitution for consumption: 0.5.
  - Demand elasticity for GVC tradable sector: 0.8.
  - Demand and trade elasticities for final consumption and investment goods and tradable intermediate goods: 1.5.
  - Elasticity combining non-tradable and tradable bundle in final goods: 0.5.
  - Elasticity assembling tradable goods bundle from GVC and non-GVC tradable intermediates: 0.95.
- Implication: lower elasticities in GVC tradable goods imply larger price and real exchange rate movements for regions dependent on GVC goods.

### Reshoring scenario simulation results (section 3.2)
- Shock magnitude:
  - Reshoring redistributes 13.3 percent of baseline global imports toward domestic sources.
  - Equivalent to 2.7 percent of baseline global GDP.
- Global outcomes (long-term, steady-state):
  - Global GDP loss: about 4.5 percent (real GDP, percent deviation from baseline).
  - Global imports decline by about 13.7 percent.
- Regional GDP impacts (long-term, steady-state, selected exact figures):
  - China: 6.9 percent GDP loss.
  - OECD regions: losses range from 3.8 percent to 10.2 percent of GDP.
  - Other southeast Asia: over 9 percent GDP loss.
  - Indonesia and India: significant but smaller losses compared with other southeast Asia.
- Mechanisms and sectoral restructuring:
  - NTBs introduce distortions that reduce allocative efficiency and raise input costs; GVC linkages amplify these effects.
  - The GVC tradable sector contracts disproportionately relative to non-GVC tradable and non-tradable sectors.
    - Initial GVC tradable sector shares of gross output and contribution to decline in gross output following reshoring:
      - China: initial share 53.3 percent; contribution 82.0 percent.
      - United States: initial share 27.2 percent; contribution 46.9 percent.
      - Other southeast Asia: initial share 51.8 percent; contribution 63.8 percent.
  - Result: GVC tradable sectors are relatively smaller in the new steady states across regions.
- Summary conclusion:
  - Reverting the reshoring margin to 2000 levels (shock equal to 2.7 percent of global GDP) implies permanent global GDP losses of 4.5 percent.
  - Losses are concentrated in more open and strongly linked economies and are amplified by GVC sector linkages.
  - De-risking via reshoring presents a nontrivial drag on growth in Asia and beyond, with structural shifts away from GVC tradable production.

### Appendix Table 2 — Redistributions for Reshoring (selected figures)
- Percent of Domestic and Foreign Sourcing by Sector (percentage point changes)
  - Consumption (domestic sourcing changes shown as integers): United States: -1; European Union +: -1; Japan: -1; Korea: -1; Other Advanced Economies: -1; China: -1.
  - Investment: United States: -3; European Union +: -3; Japan: -3; Korea: -3; Other Advanced Economies: -3; China: -3.
  - Non-GVC Tradables: United States: -3; European Union +: -3; Japan: -3; Korea: -3; Other Advanced Economies: -3; China: -3.
  - GVC Tradables: United States: -3; European Union +: -3; Japan: -3; Korea: -3; Other Advanced Economies: -3; China: -3.
- Percent of Foreign Sourcing (Imports) by Sector (percent changes)
  - Consumption: United States: -20.7; European Union +: -9.2; Japan: -12.3; Korea: -7.1; Other Advanced Economies: -5.6; China: -13.2.
  - Investment: United States: -43.6; European Union +: -30.0; Japan: -43.5; Korea: -12.6; Other Advanced Economies: -35.2; China: -57.5.
  - Non-GVC Tradables: United States: -25.7; European Union +: -20.4; Japan: -17.8; Korea: -7.0; Other Advanced Economies: -14.4; China: -26.3.
  - GVC Tradables: United States: -16.8; European Union +: -31.0; Japan: -24.3; Korea: -5.5; Other Advanced Economies: -11.5; China: -15.0.
- Percent Share of Global GDP (contribution to global GDP change)
  - Consumption: United States: -0.15; European Union +: -0.11; Japan: -0.03; Korea: -0.01; Other Advanced Economies: -0.05; China: -0.09; Global: -0.4.
  - Investment: United States: -0.15; European Union +: -0.15; Japan: -0.05; Korea: -0.01; Other Advanced Economies: -0.09; China: -0.15; Global: -0.6.
  - Non-GVC Tradables: United States: -0.11; European Union +: -0.15; Japan: -0.03; Korea: -0.01; Other Advanced Economies: -0.07; China: -0.12; Global: -0.5.
  - GVC Tradables: United States: -0.22; European Union +: -0.41; Japan: -0.13; Korea: -0.02; Other Advanced Economies: -0.11; China: -0.23; Global: -1.1.
  - Gross: United States: -0.64; European Union +: -0.82; Japan: -0.24; Korea: -0.06; Other Advanced Economies: -0.31; China: -0.59; Global: -2.7.
- Percent Share of Global Imports (contribution to global import change)
  - Consumption: United States: -2.8; European Union +: -2.0; Japan: -0.6; Korea: -0.2; Other Advanced Economies: -0.9; China: -1.6; Global: -8.0.
  - Investment: United States: -5.7; European Union +: -5.8; Japan: -2.0; Korea: -0.5; Other Advanced Economies: -3.3; China: -5.7; Global: -23.0.
  - Non-GVC Tradables: United States: -3.3; European Union +: -4.6; Japan: -1.0; Korea: -0.3; Other Advanced Economies: -2.0; China: -3.6; Global: -14.7.
  - GVC Tradables: United States: -2.6; European Union +: -4.8; Japan: -1.5; Korea: -0.3; Other Advanced Economies: -1.3; China: -2.7; Global: -13.1.
  - Gross: United States: -3.2; European Union +: -4.1; Japan: -1.2; Korea: -0.3; Other Advanced Economies: -1.5; China: -2.9; Global: -13.3.

*Italic: Source: wpiea2024122-print-pdf - 2.  De-risking: Definitions and Calibration*

### 3.3 Friend-Shoring

### Scenario description
- Friend-shoring diverts 4.9 percent of global imports toward “friendly” foreign sources.
- This diversion represents 1 percent of baseline global GDP:
  - 0.8 percent of global GDP from China (4.7 percent of its domestic GDP).
  - 0.2 percent of global GDP from the OECD regions (0.3 percent of their domestic GDP).
- Two implementation approaches:
  - NTB approach: OECD members and China impose NTBs on each other but do not restrict trade with other countries.
  - Tax-and-subsidy approach: OECD and China tax one another’s exports and then subsidize the rest of the regions’ exports using accumulated tax revenues to replace lost goods.
- Subsidy targeting:
  - China subsidizes India, Indonesia, other southeast Asia and the rest of the world.
  - Any OECD region subsidizes all other regions outside of China.

### The NTB approach: macroeconomic and sectoral impacts
- Global impacts:
  - Global GDP declines by 1.8 percent.
  - Global imports decrease by 6.2 percent.
- Regional impacts:
  - China: GDP loss of 6.8 percent relative to the baseline (equivalent to a 1.2 percent decrease in global GDP).
  - OECD countries: smaller losses than China; vary with dependence on Chinese inputs.
    - Korea: losses close to 4 percent of GDP.
    - United States: losses of about 1 percent of GDP.
  - Rest of the world: marginal long-term declines in GDP and exports in the range of –0.2 to -0.7 percent relative to the baseline.
- Mechanisms:
  - Reduced demand for Chinese goods by key trading partners and amplification through GVCs as higher input costs cascade through supply chains.
  - Short-term trade diversion partly offsets but long-term contractions in China and OECD members dampen benefits.
- Structural change:
  - GVC tradable sector shrinks in each economy relative to the non-GVC tradable and non-tradable sectors.
  - Restructuring is less than under reshoring because the shock and consequent GDP loss are smaller.

### The Tax-and-Subsidy approach: macroeconomic and sectoral impacts
- Global impacts:
  - Global GDP declines by 0.4 percent.
  - Global imports decline by 1.1 percent.
- Regional impacts:
  - China: GDP loss of 4.2 percent relative to the baseline (equivalent to a 0.7 percent decrease in global GDP).
  - OECD regions: most suffer small GDP losses because of cross-subsidization; United States gains marginally by 0.1 percent of GDP.
    - U.S. gain arises because other OECD economies subsidize U.S. exports and larger economies can affect terms of trade via the optimal tariff.
  - Rest of the world: subsidies encourage trade diversion; gains range from:
    - Other southeast Asia: 1.5 percent of GDP.
    - Indonesia: 0.6 percent of GDP.
- Structural change:
  - OECD regions and China: GVC sector contracts relative to other sectors.
  - Recipient regions of subsidies: GVC tradable sectors expand because demand for GVC goods grows faster than real GDP.
    - Indonesia: real GDP 0.6 percent higher, GVC sector 1.4 percent higher.
    - Other southeast Asia: real GDP 1.4 percent higher, GVC sector 2.7 percent higher.
  - Overall restructuring is less than under reshoring.

### Summary of friend-shoring effects and comparative context
- Moving back to 2000 levels associated with friend-shoring equates to a shock of almost 1 percent of global GDP.
- Long-term global GDP losses:
  - NTB approach: 1.8 percent.
  - Tax-and-subsidy approach: 0.4 percent.
- Relative damage:
  - Friend-shoring is less damaging than reshoring (reshoring yields long-term global GDP losses of 4.5 percent), but still imposes significant negative impacts, especially in China and the OECD regions.
- Benefits to third countries are limited:
  - Best-case third-country gain: other southeast Asia up to 1.5 percent of baseline real GDP (equivalent to 0.2 percent of global GDP) long term under the tax-and-subsidy approach.
- Sectoral note:
  - In some regions the GVC sector can expand when friend-shoring is expansionary under the tax-and-subsidy approach.
- Overall conclusion:
  - Friend-shoring policies remain highly distortionary, produce notable global and regional losses, and do not generate significant net gains for third countries once contractions in China and OECD members are accounted for.

*Source: IMF authors’ calculations in "3.3 Friend-Shoring" from the supplied PDF content.*

### 2.  De-risking: Definitions and Calibration

### 2.  De-risking: Definitions and Calibration

### Terminology and conceptual framing
- The term ‘de-risking’ is used as policymakers use it here: the pursuit of the reshoring and friend-shoring of supply chains.
- Reshoring dimension: how much countries seek to increase reliance on domestic sourcing versus total foreign sourcing.
- Friend-shoring dimension: how much countries seek to change between different foreign sources while minimizing change to overall dependence on foreign sourcing.
- Assumptions on actors:
  - China and OECD members are assumed to seek to reshore and friend-shore.
  - Other economies do not actively seek to reshore or friend-shore.
- Interaction with global value chains (GVCs):
  - GVC production is an integrated, multi-sector and often multi-country process (example: automobile industry).
  - Reshoring and friend-shoring could reverse efficiency gains from specialization and be especially detrimental given the rise of GVCs and China's insertion in GVCs.

### Empirical calibration and stylized facts (based on Eora MRIO data)
- Anchor period: changes since the year 2000 (just before China acceded to the WTO) through 2021.
- Sectoral breakdown used in analysis and simulations: GVC tradable intermediates, non-GVC tradable intermediates, and final demand goods (consumption and investment).
- Reshoring (foreign sourcing as share of total sourcing; OECD aggregate):
  - For GVC sectors: OECD sourced around 25 percent from foreign sources in 2000 and 28 percent in 2021.
  - Increases in foreign sourcing were of roughly similar magnitudes for non-GVC tradable intermediates and for investment goods, and somewhat smaller for consumption goods.
- Friend-shoring (sourcing from China as share of foreign sourcing; OECD aggregate):
  - In 2000 OECD purchased less than 5 percent of their GVC and non-GVC tradable intermediates and investment goods from China; by 2021 these ratios were at or above 10 percent.
  - Consumption goods: purchases from China as a share of total foreign purchases rose from just under 10 percent to nearly 20 percent between 2000 and 2021.

### Assumed long-term redistributions implemented in the model (Figure 2 assumptions)
- Reshoring shocks (permanent percentage point increases in domestic sourcing by China and OECD economies):
  - GVC tradable intermediates: increase domestic sourcing by 3 percentage points.
  - Non-GVC tradable intermediates: increase domestic sourcing by 3 percentage points.
  - Investment goods: increase domestic sourcing by 3 percentage points.
  - Consumption goods: increase domestic sourcing by 1 percentage points.
  - Aggregate translation: this reshoring shock "translates into 2.7 percent of global GDP."
- Friend-shoring shocks (percentage point shifts away from China–OECD bilateral sourcing toward other foreign sources):
  - Tradable intermediates (GVC and non-GVC): shift by 5 percentage points.
  - Final demand goods (investment and consumption): shift by 10 percentage points.
  - Aggregate translation: this friend-shoring shock is "equivalent to almost 1 percent of global GDP."
- Implementation timing: shocks are implemented in the simulations over a period of five years, with households and firms fully understanding magnitudes and timespans as the process begins.

### Model overview and calibration
- Model: IMF’s multi-region dynamic stochastic general equilibrium model, GIMF, with GVCs.
- Regional aggregation (10 regions): United States; European Union plus (EU+); other advanced economies; China; India; Indonesia; Japan; Korea; other Southeast Asia; rest of the world.
- Household types:
  - Saving households: finitely lived, choose consumption, savings, and labor supply.
  - Liquidity constrained households: consume all income every period; share varies by region.
- Firms: profit-maximizing, monopolistic competition; produce non-tradable, non-GVC tradable, and GVC tradable intermediate sectors.
- GVC sector features:
  - Round-about production: GVC goods used as inputs in production of other GVC goods and final goods.
  - Production combines capital and labor (Cobb-Douglas) with imported and domestically sourced GVC goods.
  - GVC goods both input to final goods and cycled back as inputs into other GVC goods domestically and abroad.
- Trade: regions trade final goods and both non-GVC and GVC tradable intermediate goods; bilateral flows tracked; barriers captured via NTBs (non-tariff barriers) that generate deadweight losses but no import fiscal revenues.
- Policy reactions: monetary policy follows inflation targeting; fiscal policy follows debt-GDP ratio targeting via lumpsum transfers.
- Steady-state calibration:
  - Each region calibrated using OECD Inter-Country Input-Output Database for 2018.
  - Steady-state global real growth rate: 2 percent.
  - Steady-state global real interest rate: 2.5 percent.
  - All regions assumed to have net foreign asset positions of zero (current account zero; exports equal imports after adjustment).
- Openness and trade pattern highlights (steady-state calibration):
  - Most open regions by trade openness (imports or exports as percent of GDP): other southeast Asia 61.9 percent; Korea 42.5 percent; United States 11.6 percent is the least open.
  - Share of global GDP (selected): United States 24.4; European Union + 18.9; China 16.7; other southeast Asia 2.3; Korea 2.0.
  - GVC tradable shares of global GDP (selected): United States 0.93; European Union + 1.33; China 1.25; other southeast Asia 0.53; rest of the world 2.10.
- Household liquidity-constrained shares:
  - United States, EU+, other advanced economies, China: 25 percent liquidity constrained.
  - Remaining regions: 50 percent liquidity constrained.
- Key elasticities (preserved exact values):
  - Intertemporal elasticity of substitution for consumption: 0.5 (common across regions).
  - Demand elasticity for GVC tradable sector: 0.8.
  - Demand and trade elasticities for final consumption and investment goods and tradable intermediate goods: 1.5.
  - Elasticity combining non-tradable and tradable bundle in final goods: 0.5.
  - Elasticity assembling tradable goods bundle from GVC and non-GVC tradable intermediates: 0.95.
- Implication: lower elasticities in GVC tradable goods imply larger price and real exchange rate movements for regions dependent on GVC goods.

### Reshoring scenario simulation results (section 3.2)
- Shock magnitude:
  - Reshoring redistributes 13.3 percent of baseline global imports toward domestic sources.
  - Equivalent to 2.7 percent of baseline global GDP (as noted above).
- Global outcomes (long-term, steady-state):
  - Global GDP loss: about 4.5 percent (real GDP, percent deviation from baseline).
  - Global imports decline by about 13.7 percent (aligned with shock magnitude).
- Regional GDP impacts (long-term, steady-state, selected exact figures):
  - China: 6.9 percent GDP loss.
  - OECD regions: losses range from 3.8 percent to 10.2 percent of GDP (larger losses for more open economies with stronger China linkages; example: Korea among larger losses).
  - Other southeast Asia: over 9 percent GDP loss.
  - Indonesia and India: significant but smaller losses compared with other southeast Asia.
- Mechanisms and sectoral restructuring:
  - NTBs introduce distortions that reduce allocative efficiency and raise input costs; GVC linkages amplify these effects.
  - The GVC tradable sector contracts disproportionately relative to non-GVC tradable and non-tradable sectors.
    - In China and the United States:
      - Initial GVC tradable sector shares of gross output: China 53.3 percent; United States 27.2 percent.
      - Contribution to decline in gross output following the reshoring shock: China 82.0 percent; United States 46.9 percent.
    - Example for other southeast Asia:
      - Initial GVC sector share of gross output: 51.8 percent.
      - Contribution to fall in gross output post-shock: 63.8 percent.
  - Result: GVC tradable sectors are relatively smaller in the new steady states across regions.
- Summary conclusion from simulations:
  - Reverting the reshoring margin to 2000 levels (shock equal to 2.7 percent of global GDP) implies permanent global GDP losses of 4.5 percent.
  - Losses are concentrated in more open and strongly linked economies and are amplified by GVC sector linkages.
  - De-risking via reshoring presents a nontrivial drag on growth in Asia and beyond, with structural shifts away from GVC tradable production.

*Italic: Source: wpiea2024122-print-pdf - 2.  De-risking: Definitions and Calibration*

### 3.3 Friend-Shoring

### 3.3 Friend-Shoring

### Scenario description
- The friend-shoring scenario attempts to divert 4.9 percent of global imports (using the shocks in Figure 2) towards “friendly” foreign sources.
- This diversion represents 1 percent of baseline global GDP:
  - 0.8 percent of global GDP from China (4.7 percent of its domestic GDP).
  - 0.2 percent of global GDP from the OECD regions (0.3 percent of their domestic GDP).
- Two implementation approaches are considered:
  - NTB approach: OECD members and China impose NTBs on each other to reduce mutual interdependence but do not restrict trade with other countries.
  - Tax-and-subsidy approach: the OECD and China tax one another’s exports (using tariffs, for example) and then subsidize the rest of the regions’ exports (based on their baseline export shares) using the accumulated tax revenues to encourage their exports to replace the goods lost from the restrictions.
- Subsidy targeting described:
  - China subsidizes India, Indonesia, other southeast Asia and the rest of the world.
  - Any OECD region subsidizes all other regions in the world outside of China.

### The NTB approach: macroeconomic and sectoral impacts
- Global impacts:
  - Global GDP declines by 1.8 percent under the NTB approach.
  - Global imports decrease by 6.2 percent.
- Regional and country impacts:
  - China: GDP loss of 6.8 percent relative to the baseline in the long term (equivalent to a 1.2 percent decrease in global GDP).
  - OECD countries: GDP losses smaller than China’s but varying with dependence on Chinese inputs.
    - Korea observes losses close to 4 percent of GDP.
    - United States sees losses of about 1 percent of GDP.
  - Rest of the world: marginal long-term declines in GDP and exports in the range of –0.2 to -0.7 percent relative to the baseline.
- Mechanisms:
  - Reduced demand for Chinese goods by key trading partners and amplification through GVCs as higher input costs cascade through supply chains drive the largest losses.
  - Trade diversion increases demand for other countries’ exports in the short term, but contractions in China and OECD members dampen these benefits in the long term.
- Structural change:
  - GVC tradable sector shrinks in each economy relative to the non-GVC tradable and non-tradable sectors.
  - Overall restructuring is less than under reshoring because the shock and consequent GDP loss are smaller.

### The Tax-and-Subsidy approach: macroeconomic and sectoral impacts
- Global impacts:
  - Global GDP declines by 0.4 percent under the tax-and-subsidy approach.
  - Global imports decline by 1.1 percent.
- Regional and country impacts:
  - China: GDP loss of 4.2 percent relative to the baseline in the long term (equivalent to a 0.7 percent decrease in global GDP).
  - OECD regions: most suffer small GDP losses because of cross-subsidization among OECD members; the United States gains marginally by 0.1 percent of GDP in the long term.
    - The U.S. gain arises because other OECD economies subsidize U.S. exports and because the optimal tariff tends to be larger in larger economies, allowing them to affect terms of trade.
  - Rest of the world: subsidies encourage trade diversion more than taxing rivals alone; gains range from:
    - 1.5 percent of GDP for other southeast Asia (relative to the baseline).
    - 0.6 percent of GDP for Indonesia (relative to the baseline).
- Structural change:
  - OECD regions and China still see the GVC sector contracting relative to the other two sectors.
  - Other regions (recipients of subsidies) see their GVC tradable sectors expand because demand for GVC goods grows faster than real GDP.
    - Example: Indonesia — real GDP is 0.6 percent higher, but the GVC sector is 1.4 percent higher.
    - Example: other southeast Asia — real GDP is 1.4 percent higher, but the GVC sector is 2.7 percent higher.
  - Overall restructuring is less than under reshoring.

### Summary of friend-shoring effects and comparative context
- Moving back to 2000 levels of trade associated with friend-shoring equates to a shock of almost 1 percent of global GDP.
- Long-term global GDP losses:
  - NTB approach: 1.8 percent.
  - Tax-and-subsidy approach: 0.4 percent.
- Relative damage:
  - Friend-shoring is less damaging than reshoring (reshoring yields long-term global GDP losses of 4.5 percent), but still imposes significant negative impacts, especially in China and the OECD regions.
- Benefits to third countries are limited:
  - Best-case third-country gain is other southeast Asia with up to 1.5 percent of baseline real GDP (equivalent to 0.2 percent of global GDP) in the long term under the tax-and-subsidy approach.
- Sectoral note:
  - In some regions the GVC sector can expand when friend-shoring is expansionary under the tax-and-subsidy approach.
- Overall conclusion:
  - Friend-shoring policies remain highly distortionary, produce notable global and regional losses, and do not generate significant net gains for third countries once contractions in China and OECD members are accounted for.

*Source: IMF authors’ calculations in "3.3 Friend-Shoring" from the supplied PDF content.*

### Appendix Table 2. Redistributions for Reshoring

### Appendix Table 2. Redistributions for Reshoring

### Percent of Domestic and Foreign Sourcing by Sector
- Consumption:
  - United States: -1
  - European Union + *: -1
  - Japan: -1
  - Korea: -1
  - Other Advanced Economies: -1
  - China: -1
  - Global: ...
- Investment:
  - United States: -3
  - European Union + *: -3
  - Japan: -3
  - Korea: -3
  - Other Advanced Economies: -3
  - China: -3
  - Global: ...
- Non-GVC Tradables:
  - United States: -3
  - European Union + *: -3
  - Japan: -3
  - Korea: -3
  - Other Advanced Economies: -3
  - China: -3
  - Global: ...
- GVC Tradables:
  - United States: -3
  - European Union + *: -3
  - Japan: -3
  - Korea: -3
  - Other Advanced Economies: -3
  - China: -3
  - Global: ...

### Percent of Foreign Sourcing (Imports) by Sector
- Consumption:
  - United States: -20.7
  - European Union + *: -9.2
  - Japan: -12.3
  - Korea: -7.1
  - Other Advanced Economies: -5.6
  - China: -13.2
  - Global: ...
- Investment:
  - United States: -43.6
  - European Union + *: -30.0
  - Japan: -43.5
  - Korea: -12.6
  - Other Advanced Economies: -35.2
  - China: -57.5
  - Global: ...
- Non-GVC Tradables:
  - United States: -25.7
  - European Union + *: -20.4
  - Japan: -17.8
  - Korea: -7.0
  - Other Advanced Economies: -14.4
  - China: -26.3
  - Global: ...
- GVC Tradables:
  - United States: -16.8
  - European Union + *: -31.0
  - Japan: -24.3
  - Korea: -5.5
  - Other Advanced Economies: -11.5
  - China: -15.0
  - Global: ...

### Percent Share of Global GDP
- Consumption:
  - United States: -0.15
  - European Union + *: -0.11
  - Japan: -0.03
  - Korea: -0.01
  - Other Advanced Economies: -0.05
  - China: -0.09
  - Global: -0.4
- Investment:
  - United States: -0.15
  - European Union + *: -0.15
  - Japan: -0.05
  - Korea: -0.01
  - Other Advanced Economies: -0.09
  - China: -0.15
  - Global: -0.6
- Non-GVC Tradables:
  - United States: -0.11
  - European Union + *: -0.15
  - Japan: -0.03
  - Korea: -0.01
  - Other Advanced Economies: -0.07
  - China: -0.12
  - Global: -0.5
- GVC Tradables:
  - United States: -0.22
  - European Union + *: -0.41
  - Japan: -0.13
  - Korea: -0.02
  - Other Advanced Economies: -0.11
  - China: -0.23
  - Global: -1.1
- Gross:
  - United States: -0.64
  - European Union + *: -0.82
  - Japan: -0.24
  - Korea: -0.06
  - Other Advanced Economies: -0.31
  - China: -0.59
  - Global: -2.7

### Percent Share of Global Imports
- Consumption:
  - United States: -2.8
  - European Union + *: -2.0
  - Japan: -0.6
  - Korea: -0.2
  - Other Advanced Economies: -0.9
  - China: -1.6
  - Global: -8.0
- Investment:
  - United States: -5.7
  - European Union + *: -5.8
  - Japan: -2.0
  - Korea: -0.5
  - Other Advanced Economies: -3.3
  - China: -5.7
  - Global: -23.0
- Non-GVC Tradables:
  - United States: -3.3
  - European Union + *: -4.6
  - Japan: -1.0
  - Korea: -0.3
  - Other Advanced Economies: -2.0
  - China: -3.6
  - Global: -14.7
- GVC Tradables:
  - United States: -2.6
  - European Union + *: -4.8
  - Japan: -1.5
  - Korea: -0.3
  - Other Advanced Economies: -1.3
  - China: -2.7
  - Global: -13.1
- Gross:
  - United States: -3.2
  - European Union + *: -4.1
  - Japan: -1.2
  - Korea: -0.3
  - Other Advanced Economies: -1.5
  - China: -2.9
  - Global: -13.3

### Sources and Notes
- Sources: Eora Global Supply Chain Database, OECD (2021), and authors' calculations.
- Note: * "European Union +" comprises the European Union and Switzerland

*The Price of De‑Risking: Reshoring, Friend‑Shoring, and Quality Downgrading — Working Paper No. WP/2024/122*

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_Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024122-print-pdf.pdf_