The Nearshoring phenomenon consists of the relocation of supply chains to be closer to their final consumer. In the case of Latin America, it consists of the relocation of companies – generally manufacturing – from Asia to Latin America to be closer to the United States. 

The beginning of nearshoring in Latin America

This phenomenon began in 2021 when President Joe Biden decided to “reduce high dependence on China ” as one of his main economic objectives. An example of this is the Chips Law, which consists of the construction and expansion of semiconductor factories in the United States.  

Among the countries that could benefit the most from this phenomenon are: Mexico, Canada, Brazil, Colombia, the Dominican Republic and Argentina. The good news for these countries is this phenomenon is already happening. According to data from the United States Department of Commerce, US imports from China have been reduced by 25% from January to June 2023, compared to the previous year. Mexico is the country that has replaced China the most in imports from the USA in this same period, followed by Canada. 

IDB estimates show that Latin America’s global exports can increase by nearly US$78 billion annually, of which Mexico, Brazil and Colombia would take the largest shares. The industries with the most impact would be: automotive, textile, pharmaceutical, renewable energy and the IT sector. 

However, it is not all encouraging news. The beneficiary countries have deficiencies in the environment for doing business, political uncertainty, volatile currencies and a precarious commercial infrastructure; key elements to attract investment and make Nearshoring possible. 

In addition to these structural challenges of the countries in Latin America, the United States has once again generated communication channels with China, as evidenced by the recent visit between leaders Xi Jinping and Biden during the month of November 2023. This visit is rated by the analysts as an open door that wants to maintain the United States of economic stability and global security.  

It is likely that the current US government’s strategies will not change and will continue to diversify its supply chain in Latin America, which requires significant investments in several of these countries. The above will continue to be a pillar to reduce the exposure and dependence that the United States has had on China for more than 20 years.  

It is then expected that the strengthening of Nearshoring, which until now was incipient, will have a more accelerated development in the coming years and that the United States strategy will remain unchanged for at least several more years. This will not conflict with the gradual reopening of trade ties with China.