Nearshoring is as much a geopolitical issue as an economic one

A few weeks ago, the head of the U.S. National Security Council – not a State Department official, as would normally be the protocol – introduced the Western Hemisphere Strategic Framework, Washington’s new economic strategy for its half of the world, while in Miami.

Then, for the first time ever, Washington successfully lobbied the Inter-American Development Bank to take on a U.S. official as its head – a position typically reserved for nonU.S. and non-Brazilian members who have less voting power in the bank. Later still, Secretary of State Mike Pompeo made history as the first secretary to visit Suriname and Guyana.

Developments such as these belie the ordinarily passive approach the U.S. takes to managing relations with its southern neighbours. Washington has long held the upper hand and so has rarely needed to tinker with a system that works in its favour.

But as it debuts its new economic strategy for the region, it will resurrect memories for countries that have been hurt by these kinds of initiatives in the past. The U.S. may see new-found potential in its relationship with Latin America, but the same cannot necessarily be said for Latin America.

A National Security Issue

The increase in the United States’ commercial interest in Latin America owes largely to a shift in focus from military conflict in the Middle East to economic conflict with China (and, to a lesser extent, Russia).

The U.S.-China trade war has changed supply chain security from a purely economic issue to a national security issue. In short, China’s role as a global manufacturing hub – especially for medical equipment, pharmaceuticals, microchips and other electronics – is now considered a threat. Consequently, Washington has begun to consider new locations for U.S. companies whose factories are currently in China. With its geographic proximity, relatively cheap labour force and firmly established ties, Latin America is an obvious candidate.

The potential relocation of factories is as much a geopolitical question as it is an economic one. Companies generally go where it makes the most economic sense, but when there are geopolitical interests at stake, it is up to the governments to create incentives and frameworks that compel other actors to produce the desired results.

Washington’s latest hemisphere-wide economic initiative, Back to the Americas, means to address mutual economicsecurity needs, most notably by relocating U.S. manufacturing companies to Latin America. The relocation would be supported by U.S. investments in infrastructure in host countries that would, in theory, drive economic growth. At the end of July, Mauricio Claver-Carone, then the White House senior director for Western Hemisphere affairs and now the IDB president, said that up to $50 billion in investments could enter the region through Back to the Americas through the participation of four U.S. government departments as well as the U.S. Agency for International Development, the U.S. Trade and Development Agency, the U.S. International Development Finance Corporation and the Export-Import Bank. It builds on the Growth in the Americas initiative, which launched in 2018 and expanded its scope in December 2019 to focus largely on using private sector investment in infrastructure projects to create new jobs and increase economic growth. A key component to achieving these goals is the reduction of regulatory, legal, procurement and market barriers to investment by host country governments.

The timing is hardly coincidental: China has steadily enlarged its economic footprint in Latin America over the past two decades. Beijing used the region to help meet its demand for hydrocarbons, metals and food supplies. From 2000 to 2019, Chinese trade with the region grew from $12 billion to nearly $315 billion.

It is currently the top trade partner of Brazil, Chile, Uruguay, Peru and Argentina. (In every country except Argentina, China replaced the U.S.) According to the InterAmerican Dialogue, Chinese state loans to the region exceeded $140 billion from 2005 to 2019, though the amounts have significantly dropped since 2015. China has also made substantial investments in mining and agriculture, power generation, utilities and infrastructure, though again the pace has slowed over the past three years.

The Back to the Americas initiative aims to preserve the U.S. foothold in the region and keep foreign competition at bay. The recently announced Western Hemisphere Strategic Framework, however, rests on five pillars: securing the homeland, advancing economic growth, promoting democracy and the rule of law, countering foreign influence and strengthening alliances with like-minded partners. Relocating manufacturing to the Americas not only takes the supply chain out of China’s hands but also helps diversify it. The finished products made for U.S. consumption may also allow the U.S. to regain some of the space it has lost to China in Latin America.

If Washington can encourage Latin American countries to create environments conducive to U.S. interests by giving