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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Introduction

The United States is currently seeking to source the supplies of minerals and metals that are “critical” to support its clean energy transition and diversify the attendant supply chains away from geopolitical competitors. African countries have many of these critical minerals in abundance and already supply some of these resources to the United States. These countries also seek to attract investments in value addition for these commodities to support their industrialization objectives. There is scope to increase the aggregate minerals and metals trade between the United States and Africa both in terms of volume and composition by investing in the processing and refining of these commodities on the African continent, which will also reduce U.S. dependence on China. The African Growth and Opportunity Act (AGOA) provides an opening to achieve these objectives. Since September 2023, discussions have been underway—the AGOA midterm review at the African Union, the AGOA Forum in Johannesburg, as well as multiple briefings and symposia in Washington, DC—on the future of the trade program: the prospects of the legislation’s reauthorization before its expiry in 2025, enhancements around the program’s scope, and how to make it better attuned to the geopolitical realities of the 2020s.

The ongoing AGOA reauthorization process could facilitate the expansion of U.S.-Africa trade in critical minerals, which would be mutually beneficial for all parties. Such trade expansion could serve both the strategic interests of the United States, by diversifying the sources of critical minerals, as well as the economic interests of African countries by attracting investments in value chain development of these commodities. It could also demonstrate the U.S. commitment to shifting the U.S.-Africa relationship from one premised on aid arrangements to a twenty-first-century economic partnership.

As the reauthorization process proceeds, we draw on recommendations outlined in a recent Carnegie paper on how African countries can participate in U.S. clean energy supply chains to consider three options: (1) exempt eligible African mineral producers from Inflation Reduction Act (IRA) restrictions in order to diversify U.S. supply chains and advance African value-addition objectives, (2) reframe the U.S.-Africa trade relationship into a strategic economic partnership for a new era, and (3) negotiate a new critical minerals agreement (CMA).

I. Exempt eligible African Mineral Producers from IRA Restrictions

It is clear that the United States and Africa share mutual interests regarding minerals critical for the clean energy transition. Therefore, the AGOA reauthorization could provide an opening for bringing African mineral producing countries into the orbit of emerging U.S. clean energy supply chains. AGOA already covers trade in minerals. However, because it is not a reciprocal free trade agreement (FTA), the language of the IRA risks excluding African-sourced minerals used in electric vehicle (EV) batteries from qualifying for the Section 30D tax credits. In general, Section 30D of the IRA offers a total incentive of $7,500 in tax credits—broken down into two equal ($3,750) components—for the purchase of EVs by consumers. This was designed to encourage producers to retain the entirety of the clean energy value chain within the U.S. ecosystem, subject to several requirements. The main relevant component here relates to requirements around the percentage of the value of critical minerals used in EV batteries that were extracted and processed in the United States or a country with which the United States has an FTA, or recycled in North America. These sourcing requirements begin at 50 percent in 2024 and scale up each year to 80 percent by 2027. The Section 30D tax credit is set to expire after December 31, 2032.

This impending exclusion of African countries from Section 30D tax credits would inadvertently undermine U.S. interests of supporting domestic clean energy industries and strengthening the U.S.-Africa relationship. The United States will not reduce its import dependence on “foreign entities of concern” by excluding African countries.

During this AGOA reauthorization process, if Congress were to include African countries in Section 30D tax credits, it would allow relevant upstream mineral producers in Africa to benefit from the additional demand for EVs resulting from the Section 30D tax credit and incentivize U.S. manufacturers to integrate these African producers into their supply chains. Cultivation of African suppliers of critical minerals would also have the direct effect of reducing the United States’ reliance on Chinese imports. Furthermore, African suppliers are unlikely to compete with U.S. private sector interests, because, at least at the onset, African suppliers will generally occupy relatively lower segments of the value chain—such as refining, processing, and manufacturing of precursors—than the higher segments where U.S. companies are likely to maintain a comparative advantage—in research and development, advanced manufacturing of battery cells, and final assembly of battery packs. There will also be cases where the United States has no direct domestic mining or refining interests, in which African suppliers should eventually position themselves further up the value chain. Take manganese, for example. Manganese is used in both steelmaking and for batteries, and so is closely tied to U.S. strategic interests. The United States does not have any endowments of the mineral, but it is found in abundance in several African countries.

II. Reframe the U.S.-Africa Trade Relationship into a Strategic Economic Partnership for a New Era

If the United States were to reframe the trade relationship with Africa, to a strategic economic partnership with Africa, this rebranding would convey the shift from a quasi-aid instrument to a strategic trade partnership fit for today’s geopolitical realities. In some quarters in both U.S. and African policy circles, there are very strong negative perceptions around AGOA’s underperformance. Africa’s share of U.S. global commerce was less than 2 percent in 2022, not that different from 2000 when AGOA was enacted. Total U.S.-Africa trade peaked at $142 billion in 2008 and has declined steadily since then to a trough of $72 billion in 2022. Consequently, there are arguments being put forward that AGOA should be left to expire since it has met neither U.S. nor African expectations and should be replaced by a few bilateral trade agreements with anchor countries such as Kenya and South Africa. Yet, a revitalized AGOA could advance both U.S. strategic interests and African development priorities. In particular, as African countries seek to become increasingly interconnected through the African Continental Free Trade Area (AfCFTA), there is a risk that bilateral arrangements could undermine regional economic integration. Rebranding the trade partnership to a strategic economic partnership with Africa, similar to when NAFTA became the U.S.-Mexico-Canada Agreement, could help disentangle AGOA from its perceived letdowns and galvanize powerful new supporters of a revitalized and strategic trade relationship with Africa.

III. AGOA Could Help Spur a New Critical Minerals Agreement

The United States Trade Representative (USTR) and AfCFTA Secretariat can negotiate a separate CMA following the reauthorization of AGOA. If Congress reauthorizes AGOA, it could become the basis for negotiating the novel agreement. There is precedence for this: the U.S.-Japan CMA. The first ever CMA was concluded with Japan on March 28, 2023, building on a 2020 limited trade deal, the U.S.-Japan Trade Agreement. There are also negotiations underway on CMAs with the European Union, the United Kingdom, Indonesia, and the Philippines.

AGOA could provide an even stronger rationale for such a CMA for at least three reasons. First, AGOA already includes strong governance provisions that make access to the U.S. market conditional on meeting specific governance and human rights criteria. A CMA need not be automatically extended to all AfCFTA member states, as preferential treatment could be retained for those countries that pass an additional layer of screening criteria. Furthermore, a separate CMA arrangement may also ensure that countries that do succeed by becoming high-income are not graduated out of the program but retained as mature trade partners, thus guaranteeing the sustainability of these new supply chains.

Second, the fact that AGOA, at present, already establishes a trade preference program between the United States and eligible African countries means there is a foundation for Africa-specific CMAs without requiring entirely novel frameworks. This existing foundation to build upon for a CMA is crucial within the current policy environment in which new FTAs are highly unlikely to materialize.

And third, an Africa-specific CMA building on AGOA could assuage concerns within the United States about displacing U.S. jobs and creating supply chains free of foreign entities of concern. There are legitimate concerns about the negative externalities of mineral extraction, particularly environmental devastation, as well as the involvement of geopolitical competitors, like China, in mineral production in many African countries. The CMA model’s flexibility can mitigate these concerns because it covers only a specific set of critical minerals. The U.S.-Japan CMA only applies to five minerals for example. Therefore, an AGOA-specific CMA may exclude particularly troubled country-mineral sectors as is politically expedient. Other concerns about a CMA undermining U.S. domestic mineral extraction and refining industries may also be addressed by the specificity of the agreement. The risk of African countries displacing U.S. domestic refining industries and jobs is highly unlikely for minerals with which the United States is not endowed, which is the case for a number of relevant minerals that are found in abundance within certain African countries.

Zainab Usman is a senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace. Alexander Csanadi is a research analyst in the Africa Program at the Carnegie Endowment for International Peace.

Usman_Csanadi_Outlook_final_3

To read the full policy outlook as it was published by the Carnegie Endowment for International Peace, click here. 

To read the full policy outlook, click here.

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It is taking steps to rebalance its position in the global economy. While seeking to preserve the benefits of interdependence with the rest of the world, the European Union is contemplating policies that would induce change. One change seeks to alter the footprint of global production for certain goods, affecting whom it sources imports from and whom it sells exports to. It wants to decrease certain trade dependencies (which could be weaponized) and increase others (to encourage diversification). A second change is the enactment of new contingent policy instruments intended to allow the European Union to respond more quickly when policymakers in other countries act badly (or to establish a credible threat sufficient to deter them from doing so in the first place).

This paper describes how the European Union is seeking to use trade and industrial policy to achieve its economic security objectives. It identifies some of the economic costs and tradeoffs of using such policies. Because the issues it examines—many of which are noneconomic, for which reasonable estimates of costs and benefits are lacking—are evolving, the paper shies away from normative recommendations. Instead, it explores the political economy of what is emerging and why. The paper focuses on EU efforts to “de-risk” vis-à-vis China especially, given the emphasis EU policymakers now place on doing so.

The paper is organized as follows. Section 2 defines the concept of economic security and the events that led it to play such a sudden and prominent role in modern policy. It provides some early evidence to motivate the new policy interventions but emphasizes that much remains unknown, especially concerning their design.

Section 3 explores a case study that highlights the difficult choices the European Union faces in responding to threats to its economic security. The case study involves the electric vehicle (EV) industry, the European Union’s potential use of trade defense instruments (TDIs) to address unfairly subsidized imports from China, and China’s potential retaliatory response of placing export restrictions on graphite, a critical material needed to manufacture EV batteries. It also identifies unknowns facing policymakers seeking “a clear-eyed picture on what the risks are,” in the words of European Commission President Ursula von der Leyen. The section also explores empirically whether the European Union’s trade interdependence with China may be deepening—despite stated goals to de-risk—in part because of the third-country effects arising from the US– China trade war.

Section 4 introduces the policy instruments the European Union, its member states, and other governments are pursuing to address concerns about their economic security. They include stockpiling and inventory management, investment or production subsidies, various forms of tariffs, export controls, and regulations on foreign investment. This section also highlights proposals for new policy instruments, analyzes the associated tradeoffs, and briefly describes basic World Trade Organization (WTO) rules that might discipline such instruments.

Section 5 turns to the potential for selective international cooperation over the use of such policy instruments. It explores how countries facing common concerns over economic security have been acting in coordinated fashion— implicitly or explicitly—and the difficulties of doing so.

Section 6 concludes with some caveats and lessons from history.

Chad P. Bown is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics.

To read the abstract published by the Peterson Institute for International Economics, click here.

To read the full working paper, click here.

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Supply chain activity has normalized in operational terms during 2023, but there are significant risks across the industrial policy, labor action and environmental policy implementation spheres heading into 2024.

Supply chains need to be more resilient, but questions remain over whether corporations and their investors are willing to make the investments necessary to fortify them.

The Take

Global supply chains largely normalized in 2023 after years of disruption, and the need for resilience is clear. The willingness of corporations to build that resiliency is not.

Falling operating margins and higher interest rates may be leading companies to cut their inventory balances and reverse recent supplier diversification increases.

There is no shortage of technology available to enable supply chain resilience, with generative AI as the latest example. Most companies need to see short-term returns on investment, and recent experiences with blockchain, for instance, are leaving some hesitant.

Organizational alignments are necessary to ensure continuing supply chain resilience. Tools for success include increased engagement with labor unions, geographic diversification with an eye to mitigating operational risk, closer tracking of environment profiles, reshoring and enhanced supplier engagement to manage tariff and geopolitical risk.

Paying for Resilience in a High-Cost Environment

S&P Global Market Intelligence data indicates that gross operating profit margins for manufacturers globally are expected to fall to 10.4% of sales in 2024 from 10.7% in 2022. The decline is expected to be particularly stark for the computing and electronics sector and domestic appliance manufacturing. At the same time, capital expenditures are forecast to exceed gross operating profits by 5% in 2024 after being equal to them in 2022. Reinvesting in capital stock may take priority over spending on supply chains.

Empty shelves were one of the most tangible signs of supply chain challenges during the pandemic era. The shortage of inventories, whether of toilet paper or computer chips, led many companies to over-order and subsequently cut stock levels in late 2022 and into 2023.

Data from the S&P Global Purchasing Managers’ Index (PMI) indicates that manufacturing stocks of finished goods were in retreat for eight of the first nine months of 2023. Destocking has been particularly notable in computing, which has been going on for 27 months while the downturn in consumer goods has been more sporadic.

The evidence from corporate financial data is mixed. The inventory-to-sales ratio for the Russell 3000 group of manufacturers and retailers of goods was 54.1% on a trailing three-month basis as of Sept. 30 compared to 50.1% on average for the 2016 to 2019 period. The elevated level is not necessarily evidence of a change in inventory patterns, as it is below the 54.8% peak reached in March.

The increase is also caused by just a handful of sectors. The apparel sector has an inventory-to-sales ratio of 74.7% versus 68.6% historically, while electronics excluding semiconductors stands at 39.1% versus its historical average of 29.9%. 

Sectors with longer sales cycles are closer to balance. In the case of household durable goods, the inventory-to-sales ratio of 55.0% in September is well below the 64.7% peak of a 2022 and in line with the 54.9% historic average.

Diversification of suppliers and reshoring are not the same thing. Both can reduce the inherent risk of a supply chain, and they often go hand-in-hand. However, diversification of suppliers can come in and out of fashion depending on the need for cost reductions.

With a focus on cost cutting in 2024, there may be less diversification as companies seek to shorten their supplier lists by pushing more orders to fewer suppliers to get better prices.

The number of suppliers per ultimate consignee for US seaborne imports for all industrial companies — nonfinancial, logistics or services — among the top 500 US importers increased by 13% in 2021 compared to 2019, indicating the use of more suppliers to deal with disruptions.

That increase in suppliers broadly started to reverse in 2022 and fell below pre-pandemic levels in the 12 months through Sept. 30, 2023. At a sector level, consumer goods companies registered one of the steepest drop-offs in suppliers. Similarly, the pool of suppliers for consumer durables companies — including furniture, appliances and leisure goods — expanded through 2021 but has contracted since then, dropping below pre-pandemic levels.

The auto industry’s supplier pool has crested but remained elevated, potentially reflecting the secular shift to electric auto production while maintaining internal combustion engine production. Electronics has also remained elevated after a drop in 2022.

Chris Rogers is the Head of Supply Chain Research at S&P Global Market Intelligence.

Mark Fontecchio is a Research Analyst, covering the Internet of Things, 451 Research at S&P Global Market Intelligence.

Amy Chang is the Lead Analyst at Panjiva, S&P Global Market Intelligence.

Emilee Nason is a Data Scientist at Panjiva, S&P Global Market Intelligence.

To read the full report, click here.

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Since the onset of the COVID-19 pandemic, however, supply chains once seen as exemplars of economic efficiency are increasingly portrayed as unacceptable sources of collective risk. Concerns about their resilience deepened as a series of external shocks continued to disrupt trade in the pandemic’s wake. Fragmentation has made GSCs long and thus subject to shocks emanating anywhere along the chain, while geographic concentration has made them heavily dependent on certain locations (and thus to shocks hitting specific parts of the world). In contrast to idiosyncratic shocks like the 2011 Tōhoku earthquake and tsunami, headline supply shocks since 2020 have been global and cross-sectional—hitting many countries and industries simultaneously. Adding to concerns about exogenous shocks, the weaponization of trade by China and Russia has raised the geopolitical risks of overdependence on unfriendly countries. In concert, public demands have grown louder for both government and private-sector actions to reduce supply vulnerabilities.

In the United States, the federal government has responded to widespread demands for domestic government action with new industrial and trade policies that promise a more resilient economy, defined as one that can better adapt to shocks and withstand geopolitical turmoil. Since taking office in 2020, President Joe Biden has prioritized efforts to enhance supply resilience. His administration has pursued policies designed to move some production onshore, expand commerce with “likeminded” countries, and reduce reliance on unfriendly states. This paper focuses on the administration’s efforts to “reshore, friendshore, and derisk” the supply chains that serve American businesses and households. Now that two major federal statutes promoting reshoring have passed a divided Congress, and the administration is deeply engaged in forming new partnerships, we may ask how effective these efforts are likely to be at reducing the risk of supply disruptions; what this new insurance will cost American taxpayers, businesses, and consumers; and how compatible they are with other US commitments. My early assessment suggests that supply chains are malleable and can be shifted in limited ways but that doing so is costly and often in conflict with other US objectives.

The US is in the early stages of efforts to boost supply resilience, and policies related to supply chains are taking shape in real time through the promulgation of implementation rules, ongoing international negotiations, and review of existing trade and investment policies. In this paper, I describe efforts to reorder the global supply chains that serve US importers, omitting discussion of export controls and investment restrictions. This omission does not imply that such efforts are unrelated to economic resilience, only that they are grounded in national security concerns and, thus, more appropriate for discussion in that context.

To read the executive summary, click here.

To access the full paper PDF, click here.

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Concurrently, the United States is revamping its relationship with Africa, as demonstrated most saliently by the recently unveiled strategy document focusing on the continent, as well as commitments made during the U.S.-Africa Leaders Summit in December 2022. These commitments aim to facilitate two-way trade and investment, and, crucially, seek to reorient the relationship between the United States and Africa away from the historical aid donor-recipient paradigm.

There are significant areas of synergy between these twin objectives of developing new clean energy supply chains and reorienting the U.S. economic and strategic relationship with Africa. Many African countries are endowed with the natural resources that the United States needs to produce clean energy technologies, and in certain cases they boast some of the largest reserves of these minerals in the world. This combination of key mineral endowments in African countries and U.S. objectives to reorient supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship. Importantly, this new partnership can be markedly different from African countries’ historic relationships with foreign powers, in which these powers merely regarded Africa as a source from which to extract unprocessed raw materials. Many African countries have long made it a priority to ensure value addition for their natural resources, and honoring this intent will be key to realizing the second major U.S. objective: revamping its relationship with the continent.

Zainab Usman is a senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace in Washington, D.C. Her fields of expertise include institutions, economic policy, energy policy, and emerging economies in Africa.

To read the full paper as it was originally published by Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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Tension exists, over the short-term, between resilient and efficient supply chains. Investments to build resilient supply chains marginally reduce their efficiency just as policies to make supply chains more efficient can undermine their resilience. The challenge for policymakers is to navigate this trade-off to find a balance which promotes societal well-being. In service of that end, this project intends to be a guide for policymakers.

It begins with a theoretical framework for supply chain resilience arguing for an approach centered on supply chain vulnerabilities. Policymakers can identify, and even quantify, various supply chain vulnerabilities, such as overreliance on China for critical minerals or excessive import reliance for personal protective equipment (PPE). Vulnerabilities, by themselves, do not cause harm. However, shocks—wars, pandemics, or natural disasters—exploit these vulnerabilities to reduce societal well-being. Policymakers can mitigate the impact of shocks by building resilience against those vulnerabilities. Since not all vulnerabilities threaten critical functions like national security or the life and health of citizens (e.g. New Zealand is heavily import dependent on furniture), policymakers should prioritize building resilience against the most critical vulnerabilities.

To build resilience, policymakers have three types of interventions available. Transparency interventions, like stress tests and supply chain reviews, help companies help themselves by improving the flow of supply chain intervention in the market. Diversification policies, such as different trade arrangements, promote resilience by spreading risk widely. And industrial interventions bring subsidies or public procurement to bear to drive investment in domestic manufacturing. However, policymakers must be attuned to the costs of deploying these interventions since, over the short-term, marginal investments in resilience mean marginal decreases in market efficiency. Just as optimizing for efficiency sees the entire production of a good produced by a foreign adversary, over-optimizing for resilience might result in crippling autarky.

To navigate these trade-offs, and identify the most effective interventions, this project proposes the Supply Chain Resilience Checklist. The Checklist is a five-step process to help policymakers ask the right questions to effectively identify vulnerabilities, winnow those to the most critical, assess what steps the private market has already taken to build resilience, and tailor an intervention to effectively seal the vulnerability. Although the economic contours of vi each open society will be different, the Checklist is designed to apply broadly, giving policymakers flexibility to focus their efforts on their own country.

Having built a conceptual foundation, this project then explores the variety of recent supply chain resilience policies as they have been practiced by open societies. It selects a basket of ten countries—Australia, the European Union, India, Israel, Japan, New Zealand, Singapore, South Korea, United Kingdom, United States—from which to discuss and analyze their different transparency, diversification, and industrial interventions. In doing so it draws lessons from the positives and negatives of these interventions to further guide future policymaking in an effective direction.

Combining theory and practice, this project concludes with action. It proposes the Security and Trade Agreement for Resilience (STAR), a new plurilateral agreement for supply chain resilience. The STAR would unite open societies to deploy all three types of interventions to build resilience comprehensively. It would liberalize trade in the most critical goods, require parties to make minimum investments in domestic manufacturing, promote trade facilitation and short-supply cooperation, and include provisions targeted at the unfair practices used by non-market autocracies to undermine supply chain resilience. In proposing the STAR, this project also offers a case study for how policymakers would use the Supply Chain Resilience Checklist to effectively deploy interventions in response to supply chain vulnerabilities.

To read the full paper, 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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As America steadily builds momentum to become an electric vehicle (EV) powerhouse in the next decade, outdated and rigorous supply chain constraints will see the country falling further behind China and the European Union by 2025, according to a report by the Coalition for a Prosperous America (CPA).

Countless supply chain issues are further dampening legacy car makers and the Biden Administration’s efforts to make 50% of all cars on American roads fully electric by 2030.

Last year marked a 65% jump or two-thirds increase in new EV passenger vehicles sold compared to 2021. Overall, electric cars accounted for 5.8% of all new cars sold across the country in 2022, a steady build-up from 3.1% the year before.

Considering how much the EV market has expanded, determining where it could lead in the coming years is a question of how industry leaders can resolve internal and widespread issues with native innovation and technology.

OVERCOMING THE LACK OF ACCESS TO ADEQUATE MATERIALS

At present, four key materials make up the majority of materials needed to compile lithium-ion batteries — lithium, nickel, cobalt, and copper. Overall these four ingredients make up roughly 50% of a battery’s cost.

These raw materials or raw earth make up several crucial components of electric car operations, including cathode chemistries across several levels, windings, and rotors in motors.

For successful rollout, essential materials would need to be more widely available, in higher volumes and at lower prices if automakers want to meet the industry’s and the government’s ambitious EV targets.

Matthew Hart, the spokesperson for the automotive advice site, Axlewise, comments how America’s newfound love and interest for electric vehicles have only further highlighted how far behind we have fallen in the EV race.

“However, as electric cars continue to become more affordable and accessible, new players are entering the market daily. This is creating both challenges and opportunities for existing manufacturers and consumers alike. Overall, it is clear that electric car prices will continue to rise over the next decade as demand continues to increase,” says Matthew.

To overcome the lack of access to materials, legacy automakers are considering venture deals with foreign manufacturers to help answer their need for supply and demand.

America’s biggest car producer, Ford, announced that it will enter a deal with China’s leading battery maker, CATL, for a $3.5 billion plant it wants to build in Michigan.

This would increase Ford’s footprint on the local EV market, but it allows them to leverage advanced battery makers through partnership, allowing them more adequate access to the components they need to electrify their vehicle lineups.

Instead of looking elsewhere for solutions, EV makers could further their partnership with one another, sharing available resources coming from domestic producers, increasing spending and support with countries that already have a Fair Trade Agreement with the U.S., and help build a more sustainable supply chain within the American EV industry.

Finding adequate materials, within the U.S. and the wider North American ecosystem could open up new possibilities for automakers. This might come with increased competition, as other local automakers begin to electrify their production lines, but it’s a solution that could be more sustainable in the long term for existing players in the supply chain.

THE BOTTOM LINE

It’s hard to conclude whether America’s longstanding love for legislation and politics could be its demise in the race to electrification. Changing supply chains requires adequate investment, but existing models of business and trade that could ensure long-term relationships, without disruption. American EV manufacturers will need to learn how to become more dependent on local sources from start to finish.

Walid Al-Hajj is the CEO of technium.ca and is passionate about starting and scaling businesses in Fintech, PropTech, Blockchain, and AI.

To read the full article, click here.

To read the full policy paper by Coalition for a Prosperous America, click here.

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