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. 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. 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.

To read the report as it was published on the Atlantic Council webpage, click here.

To read the full report, click here.

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However, there are some goods or materials we simply cannot produce here. Americans love coffee, but the nation’s climate prohibits us from growing enough to satisfy our habit. Devoting all of Hawaii’s land to coffee cultivation wouldn’t come close.

Further, trade gives the US economy flexibility—in what we consume, produce, and prioritize in the sectors and skills at which we are comparatively skilled. Our workforce has exceptionally skilled scientists, engineers, and managers, which allows many Americans to focus on those jobs while other countries focus on different parts of the production process. The value chain demonstrates how these indirectly related fields contribute to trade-supported jobs, as they provide some of the value that makes trade efficient enough to employ longshoremen, truck drivers, and factory workers.

Policymakers must also recognize how trade can sometimes lead to job loss for domestic workers. Programs like Trade Adjustment Assistance are key aspects of trade policy that support the entire US workforce, and even more can be done to help workers with job and skill training before economic change happens. 

Friend/Near shoring

In the debate over where to make things, there is a push by some to do more “friend-shoring” and “nearshoring.” These phrases refer to prioritizing trade with neighboring countries (nearshoring) or our formal or informal allies (friend-shoring). Both efforts are responses to some of the vulnerabilities found in international trade—from COVID-induced shipping snarls to war.

Friend-shoring helps our supply/value chains be more transparent and, hopefully, reliable. The United States’ existing relationship with friendly nations enables better communication on trade issues and lets investors from both nations feel comfortable financing new ventures. Further, friend-shoring ensures that the value chain rewards our allies instead of our geopolitical and economic competitors.

Alternatively, nearshoring can spur bilateral trade that will employ Americans in both import- and export-heavy sectors. The proximity lowers transportation costs and potential disruptions while simultaneously encouraging cooperation in border regions. For example, Texas exports more than any other state, with Mexico being its primary recipient. Both border regions invest billions in each other’s productive capacity and pursue complementary parts of the value chain (aircraft parts, computer parts, and semiconductors in Texas, and trucks, automotive parts, and finished computers in Mexico).

Of course, policies that change existing supply chains have some tradeoffs along with their benefits. Our friends and neighbors have the capacity to satisfy much of our demands, but they do not have the same competitive advantages as others. A YETI tumbler made in Sweden or Canada would be much more expensive than one made in Thailand.

Trade Policy in Action

The best example of both friend-shoring and nearshoring is the United States-Mexico-Canada Agreement (USMCA). The policy has been largely successful as the two nations are our biggest trading partners—doubling US-Chinese trade—and are our largest export markets.

Beyond the numeric volume of North American trade, what we import and export between each country illustrates the value chain’s symbiotic nature. Looking at US-Mexico trade numbers, we often trade the same products back and forth (machinery, fuel, vehicles, etc.). However, each partner imports and exports specific kinds of goods, enabling each economy to specialize in how they add value. We export machinery like integrated circuits, office machinery, and engines, while we import machinery such as computers, video screens, and broadcasting equipment. American intermediate manufacturers, designers, and raw material extractors contribute their expertise to the products we export to Mexico, and the more finished goods we import enable our workforce to utilize their skills. Put simply, we export materials to Mexico, who builds them into productive products, which lets us add value and create more materials we can export.

To read the full report, click here

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