Will U.S. ‘Nearshoring’ Go From Buzzword to Trend?
Washington says it wants to relocate supply chains to the Americas but has offered few concrete incentives to do so.
Welcome back to Foreign Policy’s Latin America Brief.
Welcome back to Foreign Policy’s Latin America Brief.
The highlights this week: Mexican President Andrés Manuel López Obrador’s visit to Washington shines a spotlight on supply chains, a check-in with Cuban activists on the anniversary of last year’s historic demonstrations, and how the travails of Peru’s squid industry tell a bigger geopolitical story.
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The ‘Nearshoring’ Promise
Mexican President Andrés Manuel López Obrador was in Washington for talks this week after snubbing U.S. President Joe Biden at the Summit of the Americas in Los Angeles last month. And although his White House visit drew the most headlines, López Obrador’s trip also included a meeting with U.S. and Mexican business executives where he said U.S. companies plan to invest $40 billion in Mexico in the next two years.
While López Obrador did not provide specifics, his estimate appears to include previously planned projects in the energy sector. Two attendees at the meeting told Reuters that it made them optimistic about future U.S. investments in industrial capacity as well.
The fact that the industrial sector was on the agenda—but was accompanied by few tangible announcements—speaks to the yet-unfulfilled status of a prospect known as “nearshoring.” When the United States began layering tariffs on China during Donald Trump’s administration, and again when the COVID-19 pandemic revealed the importance of reliable supply chains, some U.S. and Mexican policymakers began to argue that the United States should source more of its imported products from nearby Mexico and other friendly Latin American countries rather than from China.
Nearshoring the manufacturing of goods sold in the United States would insulate them from being impacted by trade tensions with China and boost Latin American countries’ economies in the process, its advocates said. Maurício Claver-Carone, Trump’s Latin America advisor at the time, said in September 2020 that he hoped U.S. Development Finance Corporation funds could be made available to help fund U.S. companies’ relocation costs from China to the Western Hemisphere. He called the proposal “Back to the Americas.”
But Claver-Carone’s plan was not put in motion, and, the Financial Times reported this week, the López Obrador administration’s heavy-handed and “capricious” management of Mexico’s economy since taking office in 2018 has scared off some companies considering setting up shop in the country. Rather than relocating to Mexico, many firms worried about U.S.-China tensions have moved their facilities to other Asian countries, such as Vietnam.
If this trend continues, it will amount to a big missed opportunity for Mexico. The Inter-American Development Bank (IDB) estimated last month that nearshoring could boost the country’s exports by $35.3 billion annually.
Still, the Mexican government is not the only one standing in the way of nearshoring. “All kinds of political obstacles” in the United States blocked Claver-Carone’s plan in 2020, he later told the Center for Strategic and International Studies. Policymakers wanted incentives for companies to relocate directly to the United States rather than to Mexico. And the Biden administration has now moved toward implementing those incentives—announcing planned tax benefits for U.S.-based manufacturing and raising the portion of government-bought goods that are required to be made in the United States—while rebuffing efforts by Ecuador and Uruguay to broker free trade deals.
Against this backdrop, the construction of new manufacturing facilities in the United States rose 116 percent over the past year, according to Dodge Construction Network.
Claver-Carone, for his part, is now president of the IDB, which announced last week that it will provide up to $2.25 billion in financing related to nearshoring in Mexico over the next three years. Some in Mexico’s private sector argue that there is already nearshoring momentum in the country, with real estate group CBRE estimating that over 7 million square feet of nearshoring projects had been built in Mexico in 2021. The U.S. government has yet to announce any major concrete incentives to support nearshoring in the hemisphere, though Biden suggested openness to doing so at the Summit of the Americas by touting a framework he dubbed the Americas Partnership for Economic Prosperity.
While the Biden adminsitration’s incentives for boosting trade with Latin America have been slow to materialize, several countries in the region have worked to increase their trade relations elsewhere. Both Ecuador and Uruguay have sought to negotiate free trade agreements with China. Montevideo’s exploratory talks with Beijing hit a new milestone on Wednesday with the successful completion of a feasibility study, Uruguayan President Luis Lacalle Pou announced. Ecuador is also moving forward in trade talks with South Korea, while Uruguay is doing so with Turkey.
Meanwhile, Uruguay and Brazil have also agreed to give tax incentives to products made in the other country’s free trade zone, while Colombian President-elect Gustavo Petro said he will normalize relations with Venezuela in order to unfreeze bilateral trade across their border. Even the slow-to-evolve South American customs union Mercosur is finalizing a new free trade agreement with Singapore that is set to be announced at next week’s leaders’ summit in Paraguay.
These moves from South American countries are far from a full-scale embrace of free trade, but they still represent momentum and agency on an economic agenda at a time when Washington is not putting its own into motion.
Wednesday, July 20: Colombia’s newly elected Congress takes office.
Thursday, July 21: Paraguay hosts a Mercosur summit.
Sunday, Aug. 7: Colombian President-elect Gustavo Petro takes office.
What We’re Following
Brazil’s political violence. A man killed a local official from the opposition Workers’ Party last week, yelling a cry of support for Bolsonaro while he ran into the official’s birthday party with a gun. The crime comes after a man at a rally for Workers’ Party candidate Luiz Inácio Lula da Silva threw a small explosive toward the stage last week. Lula, who was not onstage at the time, wore a bulletproof vest at the rally as a safety precaution.
The events have prompted calls for calm ahead of elections in October. Bolsonaro, who called for Workers’ Party supporters to be “shot with a rifle” in his 2018 election campaign, grew irritated when a reporter asked him this week whether his rhetoric could be connected to the killing. He said he was using a “figure of speech.”
Coup comments. Latin American political observers have widely shared comments made on Tuesday by former Trump administration National Security Advisor John Bolton, who told CNN’s Jake Tapper that he had “helped plan coups d’état” in foreign countries. Bolton said he would not get into specifics but then mentioned Venezuela, saying “it turned out not to be successful.”
Bolton’s admissions were made during a discussion about whether Trump was capable of planning a coup in the United States following new revelations from the U.S. House Select Committee investigating the Jan. 6, 2021, insurrection at the U.S. Capitol. “The notion that Donald Trump was half as competent as the Venezuelan opposition is laughable,” Bolton said.
The U.S. government’s support for Venezuelan opposition figure Juan Guaidó in his effort to pressure his country’s government out of power in 2019 is well documented; it was the casual nature of Bolton’s comments that resonated with listeners. They showed “the arrogance of total power,” Chilean economist and pollster Marta Lagos tweeted.
Squid, serialized. Before the 2000s, the Peruvian diet was not giant squid-heavy, and grouper, sea bass, and mackerel were more common local seafoods. But that changed after an El Niño event reduced anchovy and mackerel stocks, and Peruvian fisherman embraced techniques to target the cephalopod, economist Juan Carlos Sueiro told Foreign Policy podcast The Catch. The Peruvians had seen South Korean and Japanese fishing ships targeting the giant squid; today they fish for it alongside industrial-scale ships from several countries, including China.
In The Catch, which published its sixth and final episode this week, journalist Ruxandra Guidi dives into the local Peruvian and broader geopolitical efforts to try to prevent overfishing of the giant squid. Those attempts have met different obstacles over the years, but an international treaty that the United Nations may finalize in August under its Convention on the Law of the Sea could offer a breakthrough.
Question of the Week
A new U.N. population report says that Nigeria’s population will overtake Brazil’s this year. At the start of 2022, what was the rank of Brazil’s population size?
The U.N. projects that Brazil will have 215.3 million residents by the end of 2022, while Nigeria will have 218.5 million.
In Focus: Cuba’s Protest Anniversary
One year after Cubans staged the largest anti-government demonstrations since the 1990s, hundreds of protesters remain jailed—and Cubans are leaving the country in what the Washington Post calls one of the largest exoduses from the island since its 1959 revolution.
Those jailed include prominent artists who were figureheads in the protest movement. Rapper Maykel “El Osorbo” Castillo Pérez and artist Luis Manuel Otero Alcántara were given nine- and five-year sentences, respectively. Both were charged with contempt and disrespecting national symbols; Castillo Pérez was also charged with attacking a police officer.
But a disproportionate number of those jailed in Havana province come from the poor neighborhood of La Güinera, local advocacy group Justicia 11J reported. In Foreign Policy, journalist Lillian Perlmutter wrote on Sunday that even though Havana’s poorer neighborhoods had smaller demonstrations than those in the city’s tourist zone, they have faced the strictest government retaliation.
Meanwhile, Cuba’s government issued a new penal code in May that consolidates several decrees issued since the demonstrations. It amounts to a sweeping criminalization of dissent, with any written or spoken critique of the “social order” earning sentences of four to 10 years in prison, writes University of Florida historian Lillian Guerra in Letras Libres.
The crackdown and exodus have created a new brain drain for Cuba. While its government has long invested in the arts—and since 2018 has allowed increased levels of mobile internet access in the country—it was precisely artists and internet-savvy communicators who chose to protest and are now being targeted. Many fled to Miami, which is struggling with its own economic challenges such as high housing costs. Still, they are safer from Cuban government arrest there.
Guerra argued that based on Cuba’s new legal code, the act of speaking and “creating the basis for a democratic change in their lifetimes” already positions the majority of Cubans in an undeclared rebellion against the government. “Maybe meeting up at a table to speak, more than to eat, has never been so important for the future of freedom in Cuba.”
Catherine Osborn is the writer of Foreign Policy’s weekly Latin America Brief. She is a print and radio journalist based in Rio de Janeiro. Twitter: @cculbertosborn
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