A recent report from the Atlantic Council details a number of measures that may be used to accelerate nearshoring, a term typically used to mean the movement of production away from China and toward countries closer to the U.S.
Over the past five years developments like U.S.-China tensions, the COVID-19 pandemic, and Russia’s invasion of Ukraine “exposed supply chain vulnerabilities,” the report states. The Latin America and Caribbean region is “perfectly positioned to support a ‘China+1’ strategy” due to factors like free trade agreements with the U.S., geographic proximity, and abundant critical minerals and forms of renewable energy. Such nearshoring would benefit regional economies, which could add an estimated $78 billion in exports of goods and services in the near and medium terms, as well as the U.S., by helping companies diversify their supply sources and build resilient supply chains.
The report focuses on ways the U.S. and regional governments can work together to make these nearshoring opportunities a reality. Within Latin American countries, steps include (1) pursuing modernization of port infrastructure to reduce transportation costs associated with nearshoring, (2) leveraging regulatory modernization and harmonization of customs processes to improve intraregional trade and coproduction, (3) creating regulatory frameworks for renewable energies to reduce the share of fossil fuel dependency and updating transmission lines to achieve reliable electricity, and (4) offering predictable rules for investors by strengthening independent regulatory agencies and pursuing digitalization of public services.
On the U.S. side, the report recommends (1) working with partner countries to ensure that provisions of current free trade agreements are best utilized in promoting nearshoring and supply chain resilience and sustainability, (2) tailoring development and investment policies to strategic goals by lifting institutional constraints to International Development Finance Corporation lending to the region, and (3) including the breadth of U.S. government programs and agencies as a tool of intragovernmental, bilateral engagements to catalyze nearshoring.
Other suggested measures include incorporating private-sector input in the decision-making process of investment promotion agencies and free trade zones to render both tools more effective and providing well-targeted incentives for winning industries to further grow (thus “avoiding the unnecessary draining of fiscal resources for industries that have yet to prove their yield”).
Reps. Maria Elvira Salazar, R-Fla., and Adriano Espaillat, D-N.Y., said in a foreword to the report that its “real, practical proposals” can help move nearshoring “from rhetoric to reality.” They noted that the report shares the same goals of renewing critical U.S. partnerships and diminishing China’s economic influence as the Americas Act, bipartisan legislation (S. 3878 and H.R. 7571) introduced earlier this year that among other things would (1) provide up to $70 billion in loans and grants to help companies reshore and nearshore industry from China, (2) establish a pathway for countries in the region to join the U.S.-Mexico-Canada Agreement, (3) solidify regional textile and apparel supply chains, (4) tighten enforcement of the Uyghur Forced Labor Prevention Act, and (5) help ensure trade compliance and protect against criminal activity in regional ports.
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