Latin America, the best option to replace imports from China

October 7, 2022

The current international landscape and the growing tension in China-U.S. relations could bring new opportunities for Latin American countries, as U.S. companies look to the region to replace imports from China.

For the United States, one of the long-term consequences of the 2020 pandemic is undoubtedly the change in the pace of international trade flows, as two years later a few products are still hard to find, and many manufacturers are having trouble maintaining sufficient supplies to meet demand for all types of products. Many of these problems are the effect of producing parts or all the product outside the country.

The short- and medium-term solution seems to be to return production to the country or, failing that, to countries closer to home.

H2 China is no longer the manufacturing favorite 

Some time ago China became a major supplier of components for a wide variety of industries, not only in the US but also around the world. Recently, however, rising labor costs in the Asian country, as well as high logistics costs, have been eroding China’s manufacturing advantages.

In addition, the growing tension in the political and economic relations between China and the United States has diminished the security of companies importing or manufacturing from the Asian country.

H2 Latin America becomes an option

The disruption in the supply chain has led some companies to look to local producers or companies in Latin America for the components they were importing from the Asian giant.

In fact, in a survey conducted in production plants by ABB, 37% of the companies said they would be willing to return their production to the country, while another 33% have no objection to take it to a nearby country, such as a country in Latin America.

Undoubtedly, the countries in the region offer clear advantages, as they have a skilled labor force and infrastructure ready for exporting to the United States. For many companies, moving their manufacturing to any country in the region can translate into cost and time savings.

H2 The Role of the Inter-American Development Bank

The Inter-American Development Bank (IDB) appears to have been supporting these measures for several years now, having invested more than $4 billion to bring back to Latin America manufacturing that for whatever reason cannot return to the United States.

The president of the Inter-American Development Bank (IDB), Mauricio Claver Carone, affirmed that Latin American companies are a better option than Chinese companies, not only because of their proximity to the United States, but also because they have higher transparency standards than companies in China.

In addition, he said that it is part of the IDB’s work to promote the region, so they are financing the relocation of American or European companies that want to take their production to a Latin American country.

H2 Opportunities for Mexico

Mexico is the most attractive country in the region to attract production or part of the manufacturing from China, as it already has a strong industry integrated with the United States. This means less time and cost to move production from China to the United States.

Moving production to Mexico avoids an investment from scratch, since the country has an infrastructure specialized in exporting and manufacturing in the United States. There are even initiatives by the Mexican Government and the IDB to promote the relocation of companies in the country.

IDB Invest (the private business arm of the Inter-American Bank) announced that it will grant between 1.8 billion and 2.8 billion dollars in private financing for companies that want to locate in the Isthmus of Tehuantepec.

For its part, the Mexican government, through the Ministry of Economy and the Ministry of Finance, has launched several programs to encourage the growth of the Interoceanic Corridor of the Isthmus of Tehuantepec, through financing to private companies and tax incentives.

 

While it is true that Mexico offers a competitive advantage as the immediate neighbor of the United States, the collapse of local currencies in Latin America gives it an advantage for exporting to all countries in the region.