Make ‘friend-shoring’ of supply chains the centerpiece of upcoming Summit of the Americas
Successful summits of national leaders deliver an exciting centerpiece. The first Summit of the Americas birthed the landmark Free Trade Area of the Americas (FTAA). Hosted by President Clinton, the 1994 Miami gathering of 34 presidents and prime ministers fired the imagination of the Western Hemisphere with a vision of liberal democracies bound together by close commercial ties and shared prosperity.
Ultimately, that vision of unified markets from Alaska to Argentina proved too ambitious for an immense, diverse hemisphere. Yet the FTAA blueprint propelled a series of smaller but still powerful trade accords that bolstered regional commerce and generated millions of good jobs in the United States and in neighboring countries. The FTAA vision gave high purpose to a generation of energetic diplomats, idealistic policy innovators and enthusiastic business investors.
Next month, President Biden will host the Ninth Summit of the Americas in Los Angeles, the first time it will take place in the United States since the Miami gathering. The assembled leaders will sign high-minded declarations on the many pressing issues of the day, including public health and pandemic recovery, climate change and renewable energy, democratic governance and fighting corruption, and immigration management.
However, the administration has yet to identify a compelling centerpiece for the summit — one that fits the intellectual zeitgeist and geopolitical realities of our times. Here’s a worthy candidate for that rallying cry: a hemispheric vision for shared value chains that would knit together the regional production of goods and services, drive economic prosperity and create common cause among the region’s democracies.
Global value chains that efficiently disperse the procurement of inputs and the production of goods account for up to half of worldwide trade. But under pressure from the partial decoupling of U.S. firms from China, and now Russia’s isolation from the West, globalization is rapidly giving way to a more fractured regionalism. Even before the severe disruptions of Russia’s war against Ukraine, the COVID-19 pandemic had disclosed the downsides of fragile, overly stretched global supply chains, which had privileged cost-reduction over security, reliability and proximity. Now the vulnerability of supply chains linked to repressive governments is also on display.
Already, large U.S.-based firms locate some of their supply chains in the Americas. “Nearshoring” is especially prevalent around the Caribbean Basin, including in Central America and the Caribbean, and along the border with Mexico. These countries not only offer geographic convenience; as they generally share liberal U.S. values, they also qualify for what Secretary of Commerce Gina Raimondo has felicitously labeled “friend-shoring.”
So far, nearshoring in the Americas is still small potatoes compared to the dense supply chains stretching from the United States to Asia. But as global brands rethink their supply chain strategies, they are looking more closely at the nearby Caribbean Basin. Even if wages and other costs are modestly higher than in Asia, nearshoring competes on reliability and security, and offers shorter and cheaper transportation to market. Moreover, shared democratic values among most of the Western Hemisphere nations sharply reduce the reputational risk and the dangers of geopolitical disruptions.
Nevertheless, the process of nearshoring and friend-shoring is not happening fast enough. It needs a nudge, and the June Summit of the Americas is the right time to give it one.
Much of the action must take place in Latin America and the Caribbean, where governments are already examining legal and regulatory reforms to improve the investment climate for manufacturing. Leaders are also recognizing the importance of improving workforce training for more complex production processes. The same is true for off-shore services; well-paid service-sector jobs can range from back-office administrative tasks and remote computer coding to multi-language call centers and internet-based financial services.
Investment capital is also needed for upgrading infrastructure, including for transportation, from roads to airports to seaports, to reduce the costs of bringing products to market. Modern commerce also requires high-speed digitalization. Multinational companies increasingly demand ample and affordable sources of clean energy.
For these urgent, big-ticket items, the region needs partnerships among governments, business and international lending institutions — all of which will be present in Los Angeles. Public-private partnerships are not new to the region. The task is to take them to scale, to meet the burgeoning opportunities opened by shifting geopolitics.
In a landmark statement of Biden administration geo-economic policy on April 13 at the Atlantic Council, Treasury Secretary Janet Yellen called for “favoring the friend-shoring of supply chains to a large number of trusted countries.” She added that “We should also consider building a network of plurilateral trade arrangements” to create the necessary policy framework.
The Los Angeles Summit offers the right venue to advance her vision, to begin to define specific public policies that would best favor friend-shoring. How best to structure public subsidies to foster effective public-private partnerships to raise the skills of local labor? What official incentives will drive long-term capital, private and public, to finance massive infrastructure and logistics projects? Which remaining trade barriers must be lifted to facilitate efficient trade flows and make nearshoring and friend-shoring a reality?
If the Los Angeles summit can help fashion a shared vision among trusted, reliable geographically proximate partners, it will go down in history as an engine of regional integration that helped to create a more prosperous zone of democracies prepared to compete globally in the 21st century.
Richard E. Feinberg was a principal architect of the 1994 Miami Summit of the Americas and has attended all but one of the subsequent summits.
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