Make supply chain friend-shoring the centerpiece of the upcoming Summit of the Americas

Successful summits of national leaders provide an exciting centerpiece. The first Summit of the Americas gave birth to the historic Free Trade Area of ​​the Americas (FTAA). Hosted by President Clinton, the gathering of 34 presidents and prime ministers in Miami in 1994 fired the imagination of the Western Hemisphere with a vision of liberal democracies bound by close trade ties and shared prosperity.

Ultimately, this vision of unified markets from Alaska to Argentina proved too ambitious for a huge and diverse hemisphere. Yet the FTAA plan propelled a series of smaller but still powerful trade deals that bolstered regional trade and generated millions of good jobs in the United States and neighboring countries. The vision of the FTAA has set a high goal for 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 has been held in the United States since the Miami gathering. The assembled leaders will sign ambitious declarations on the many pressing issues of the day, including public health and pandemic recovery, climate change and renewable energy, democratic governance and the fight against corruption, and the management of immigration.

However, the administration has yet to identify a compelling centerpiece for the summit — one that fits the intellectual zeitgeist and geopolitical realities of our time. Here is a candidate worthy of that rallying cry: a hemispheric vision for shared value chains that would unite regional production of goods and services, drive economic prosperity, and create common cause among the region’s democracies.

Global value chains that efficiently distribute the supply of inputs and the production of goods account for up to half of global trade. But under the pressure of the partial decoupling of American business 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 exposed the downsides of fragile and overstretched global supply chains, which had prioritized cost-cutting over safety, reliability and proximity. Now, the vulnerability of supply chains linked to repressive governments is also highlighted.

Already, large US-based companies are locating some of their supply chains in the Americas. Nearshoring is particularly prevalent around the Caribbean Basin, including Central America and the Caribbean, and along the border with Mexico. These countries not only offer geographic convenience; since they generally share the liberal values ​​of the United States, they also qualify for what Commerce Secretary Gina Raimondo happily called “friend shoring.”

So far, nearshoring in the Americas is still a small potato compared to the dense supply chains that stretch from the United States to Asia. But as global brands rethink their supply chain strategies, they are taking a closer look at the neighboring Caribbean basin. Even though wages and other costs are slightly higher than in Asia, nearshoring competes on reliability and security, and offers shorter and cheaper transportation to market. Moreover, the democratic values ​​shared by most countries in the Western Hemisphere greatly reduce reputational risk and the dangers of geopolitical disruption.

However, the process of nearshoring and friend-shoring does not happen quickly enough. It needs a boost, and June’s Summit of the Americas is the right time to give it a boost.

Much of the action needs to take place in Latin America and the Caribbean, where governments are already considering legal and regulatory reforms to improve the investment climate in manufacturing. Leaders also recognize the importance of improving workforce training for more complex production processes. The same goes for off-shore services; High-paying service industry jobs can range from back-office administrative tasks and remote computer coding to multilingual call centers and internet-based financial services.

Investment capital is also needed to upgrade infrastructure, including transport, from roads to airports and seaports, to reduce the costs of getting products to market. Modern commerce also requires high-speed digitization. Multinational companies are increasingly demanding abundant and affordable sources of clean energy.

For these urgent and expensive items, the region needs partnerships between governments, businesses and international lending institutions – all of which will have a presence in Los Angeles. Public-private partnerships are not new to the region. The task is to bring them to scale, to respond to the emerging opportunities opened up by changing geopolitics.

In a landmark statement on the Biden administration’s geo-economic policy on April 13 to the Atlantic Council, Treasury Secretary Janet Yellen called for “fostering the friendly relocation of supply chains to a large number of trusted countries “. She added that “we should also consider building a network of plurilateral trade agreements” to create the necessary policy framework.

The Los Angeles summit provides the perfect venue to advance his vision, to begin defining specific public policies that would best support the relocation of friends. How best to structure public subsidies to promote effective public-private partnerships to build the skills of the local workforce? What official incentives will induce long-term capital, private and public, to fund massive infrastructure and logistics projects? What remaining trade barriers need to be removed to facilitate efficient trade flows and make nearshoring and friend-shoring a reality?

If the Los Angeles Summit can help shape a shared vision between trusted and reliable geographically close partners, it will go down in history as a driver of regional integration that has helped create a more prosperous zone of ready-to-be democracies. globally competitive in the 21st century.

Richard E. Feinberg was one of the main architects of the Summit of the Americas in Miami in 1994 and has attended all but one of the subsequent summits.

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