From rhetoric to reality: Nearshoring in the Americas
Executive summary
Over the past five years, global shifts have reshaped the world. China’s rise, US-China tensions, COVID-19, and Russia’s 2022 invasion of Ukraine exposed supply chain vulnerabilities, pushing resilience to the top of the agenda. Latin America and the Caribbean (LAC) can seize the opportunity to provide solutions for US companies through nearshoring. With the most US bilateral free trade agreements, geographic proximity, and abundant critical minerals and forms of renewable energy, LAC is perfectly positioned to support the “China+1” strategy while also meeting environmental, social, and governance (ESG) standards. Estimates suggest nearshoring could add an annual US$78 billion in additional exports of goods and services in Latin America and the Caribbean in the near and medium term.1IDB, 2022. Similarly, nearshoring could allow the US government and US companies to diversify supply sources and build resilient supply chains, while boosting inclusive economic growth in the region.
How can nearshoring be transformed from rhetoric to action?
How can the United States and regional governments work together to materialize nearshoring opportunities? How can the private sector be included in this endeavor? To answer these questions, the Atlantic Council created the Nearshoring Working Group, a multisectoral group of practitioners and experts from the United States and the region to help advance actionable policies to accelerate economic engagement across the hemisphere.2The report will focus exclusively on the countries nearest to the United States: Mexico, those in northern Central America (Guatemala, El Salvador, and Honduras), and the original Alliance for Development in Democracy (ADD) countries (Dominican Republic, Costa Rica, and Panama). Through numerous consultations with Nearshoring Working Group members and conversations with officials in the United States and across the region, this report identifies three overarching conditions that need to be met to materialize nearshoring, and suggests ten opportunities to achieve the three conditions.
Improving domestic “pull” factors
- Modernizing port and telecommunications infrastructure: Pursue modernization of port infrastructure to reduce transportation costs associated with nearshoring, and expand internet access.
- Improving “soft” infrastructure at border crossings: Leverage regulatory modernization and harmonization of customs processes to improve intraregional trade and coproduction.
- Offering reliable, clean energy sources: Create regulatory frameworks for renewable energies to reduce share of fossil fuel dependency, and update transmission lines to achieve reliable electricity.
- Providing legal certainty and fostering strong institutions: Offer predictable “rules of the game” for investors by strengthening independent regulatory agencies and pursuing digitalization of public services.
Unlocking US “push” factors
- Leveraging existing US trade policy toward the region: Work with partner countries to ensure provisions of current free trade agreements (FTAs) are best utilized in promoting nearshoring and supply chain resilience and sustainability.
- Tailoring development and investment policies to US strategic goals: Investment development policy must be tailored to US strategic goals, by lifting institutional constraints to International Development Finance Corporation (DFC) lending to LAC.
- Leveraging the existing toolbox across the US government: Include the breadth of US government programs and agencies as a tool of intragovernmental, bilateral engagements to catalyze nearshoring.
Enhancing public-private sector collaboration
- Strengthening workforce development: Closer collaboration between the public and private sectors is essential to close the skills gap between jobseekers and employers and improve the region’s human capital.
- Enhancing trade and investment promotion through multisectoral collaboration: Incorporate private-sector input in the decision-making process of investment promotion schemes such as investment promotion agencies (IPAs) and free trade zones (FTZs) to render both tools more effective.
- Supporting industries by following winners: Governments should provide incentives for winning industries to further grow, avoiding the draining of fiscal resources for industries that have yet to prove their yield.
Nearshoring will allow the United States to produce shared prosperity and reinvigorate partnerships across the Americas. Failing to seize today’s opportunities means ceding ground to China in our own hemisphere. Our success requires a new set of tools to better leverage investment opportunities.”
Senator Michael Bennet (D-CO)
Nearshoring and reshoring is about increasing opportunity for the American worker. The relative growth of our economy and our ability to fund and support our world vision compared to the Chinese Communist Party (CCP). The economic and cultural hegemony that the CCP wishes to have would set the whole world back. This is the opportunity for US leadership.”
Senator Bill Cassidy (R-LA)
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The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.
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