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Report: Puerto Rico needs economic plan to benefit from US nearshoring policy

Puerto Rico must take urgent measures to increase its competitiveness to take advantage of the United States’ policy of “reshoring” and “nearshoring,” which moves commercial and manufacturing operations of critical goods and services from China to the United States territory itself or to nearby countries.

In its “Impacto del nearshoring” (“The impact of nearshoring”) report from Estudios Técnicos Inc. (ETI), economists suggest that when the “reshoring” program was announced in Puerto Rico, the reaction was very positive because compared to the states, Puerto Rico has competitive advantages that could make it a very attractive place for companies that return their manufacturing processes to the United States.

ETI explains that since the COVID epidemic, the conflict between China and the United States and the invasion of Ukraine by Russia, the global economy has undergone major transformations.

One is that the economy responds more to geopolitical considerations than before, like the geopolitical conflict between the United States and China, that has led to a trade war between the two, with global consequences as it is an important supplier of Western economies.

China’s zero COVID-19 policy has additionally contributed to the process or mechanism that has been called “reshoring” and to which was added “nearshoring” and, more recently, the concept of “friendshoring,” a concept introduced by the Secretary of the U.S. Treasury, Janet Yellen, in a recent speech to the Atlantic Council.

The countries with the greatest potential are Mexico, Colombia, Costa Rica, Guatemala, and El Salvador.

The sectors or industries that are benefiting the most are transportation, pharmaceuticals, computers, scientific and professional equipment, as explained by factors, such as geographic proximity to the United States, lower labor costs, and lower ocean transportation costs, compared to transportation from China to the United States.

According to recent data, so far as September 2022, exports from the 10 Mexican states with the highest number of exports to the United States grew at an average annual rate of 20.6%, because of their US-Mexico-Canada Free Trade Agreement.

Most are states bordering the United States, and the first place was occupied by the state of Chihuahua.

Nearshoring has become “vitally important” for Latin America and the Caribbean, ETI stated.

According to estimates by the Inter-American Development Bank in 2022, it could bring with it an additional $78.0 billion to its exports in the coming years, both of goods ($64.1 billion) and services ($14.0 billion), particularly for Mexico, Colombia, Brazil, Argentina, and the Dominican Republic.

Several of the countries are party to free trade agreements with the United States (USMCA and CAFTA-DR), which adds an advantage, and several of them in the Caribbean (Costa Rica, Jamaica, Dominican Republic).

“Changes in the global environment are not limited to this aspect of “reshoring” and nearshoring,” states the ETI report.

“By 2027, Apple will have moved much of its production in China to India and, closer to us, Costa Rica has become a producer and exporter of “chips” and medical equipment, something totally unexpected a few years ago,” the report stated.

“As we have indicated many times, Puerto Rico has to insert itself into the global economy and has to have the mechanisms for our companies to understand it, and the risks that come with this changing and volatile environment,” according to the report.

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This story was written by our staff based on a press release.

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