Latin American nations should be luring factories from China, but most are asleep at the wheel
Amid all the gloom and doom about its current economic crisis, Latin America has a golden opportunity to grow — thanks to several potentially favorable world trends. But the big question is whether the region will take advantage of them, instead of getting distracted by stupid issues.
First, growing numbers of U.S. and European factories are moving from China to other manufacturing countries. That could be a godsend to Mexico, Colombia and other Latin American countries.
U.S. multinationals, including makers of ventilators needed for hospitals during the coronavirus pandemic, found themselves paralyzed when their factories in China were closed down at the outset of the virus’ spread. They now want to diversify their supply chains to prevent similar interruptions in case of future pandemics.
Also, many U.S. companies with plants in China fear that the U.S.-China trade war will continue and are worried about rising labor costs in China. They don’t want to keep relying exclusively on their Chinabased factories. While most of them are moving to other Asian countries, some are beginning to move to countries closer to home. Economists refer to this latter trend as “nearshoring.”
According to internal studies by the Inter-American Development Bank (IADB,) there are up to $80 billion in annual U.S. imports from China that could be replaced by Latin American exports. Even if Latin America replaced a fraction of those Chinese exports, it would be a significant boon to those economies.
“Near-shoring is huge,” IADB President Mauricio Claver-Carone told me in an interview. “When global borders were shut down because of COVID-19, the best experience that companies had were right here in the Western Hemisphere.”
Mexico could replace many Asian exports of electric equipment and appliances to the United States. Central America would export more textiles and precision-made medical equipment. Colombia and Argentina could export more architecture and other professional services, IADB studies show.
Second, President-elect Joe Biden has promised to pass a $3 trillion stimulus package for the United States, which, alongside the COVID-19 vaccine, would help speed up America’s economy and global economic growth.
Even if Congress fails to approve such a big economic package, the U.S. economy is likely to grow by up to 4 percent next year, following a 4 percent downturn this year. That would result in more U.S. imports from Latin America, plus more family remittances sent by Latin American immigrants to their home countries.
Third, Biden has promised to pass immigration reform during his first 100 days in office. His administration is likely to give legal status to up to 800,000 DREAMers in the United States — young people who were brought to this country as children by their undocumented parents — and could seek to legalize up to 11 million undocumented immigrants. That would mean better jobs for them and, again, more remittances to their native countries.
Fourth, the COVID-19 pandemic has accelerated the global move toward online working. Digitalization will make it much easier for accountants, data engineers, web designers, artists and other knowledge workers in Argentina, Chile and Colombia among others in the region to export their services around the world.
It’s already happening. Global freelance work platforms such as Upwork.com, Toptal.com and Designhill.com are booming.
Upwork.com, which connects freelance workers with employers in 180 countries, has 18 million registered freelancers and more than 5 million online employers. In 2014, it had only 8 million registered freelancers and 2.5 million employers.
But it’s up to Latin American countries to take advantage of these megatrends. Unfortunately, most of them — with the exception of Colombia and a few others — are not actively trying to woo multinationals or encouraging knowledge-related and cultural exports.
Mexico is a case in point. Instead of spending his energies to turn his country into the factory of the Americas, President
Andres Manuel Lopez Obrador seems obsessed with things like recovering emperor Moctezuma’s headdress from Austria and demanding an apology from Spain for crimes committed during the conquest five centuries ago.
Latin America must wake up and start creating better business climates to attract factories from Asia, and improve its education standards to export more professional and cultural services in the new digital economy.
Amid the crisis, there are new opportunities that should go to waste.