In designing its economic recovery strategy amid the pandemic, President Biden and his administration has trapped itself between conflicting policy goals: relocating industrial supply chains back to the United States and reducing migration from Central America, where many of these factories are located.
The two issues are rarely linked in policy debates. But the factories in Central America employ over 500,000 workers, including 160,000 in Honduras and over 55,000 in El Salvador, producing everything from T-shirts to electronic components and advanced medical devices. These jobs provide sustenance to 2.5 million family members. Without these opportunities, they might join the young mothers and children already streaming toward our southern border.
If just another backdoor version of economic protectionism, Biden’s “American Jobs Plan” could hurt Central American economies heavily dependent upon foreign investment and trade and worsen the migration crisis. Happily, there is a way to strengthen U.S. manufacturing while boosting economic development in Central America.
Biden has asked for $20 billion to build ten manufacturing innovation hubs. Separately, the president’s infrastructure plan allocates $50 billion to strengthen supply chains for critical goods. Imagine if some of these production hubs were placed in Central America and the Caribbean, another major source of migrants, in places such as El Salvador, Honduras or Guatemala, or the turbulent, high unemployment border region between Haiti and the Dominican Republic. Other promising options include Jamaica, which already hosts call centers and information technology services, and Barranquilla, a Colombian seaport.
To establish each overseas hub, the United States could assemble $1 billion in infrastructure investment, drawing upon the resources and expertise of the Export-Import Bank and the Development Finance Corporation, as well as private investors and the Inter-American Development Bank.
American firms partnering with these technology hubs could be eligible for some of the same incentives the administration plans to make available to manufacturers moving factories back to the United States. For example, components made in the hubs under existing free trade agreements would count toward domestic content requirements.
Though these overseas hubs would greatly support local economies and slow migration, they would also produce significant economic benefits for the United States. An integrated regional network of world-class production complexes would build U.S.-centric supply chains with greater resiliency, redundancy, and flexibility. Their dispersed locations would provide insurance against natural disasters, political instability, and disease, helping to avoid the type of costly and chaotic disruptions brought about by the coronavirus.
This network of regional manufacturing hubs would correct the serious disadvantages of existing Asia-based supply chains. For one, near-shore hubs would incorporate more U.S.-made components. Their proximity would also make them less vulnerable to disruptions in transportation. In another benefit, U.S. authorities could more easily guard against theft, cyberwarfare, and terrorist threats. Finally, nearshore value chains would be far more cost efficient than full onshoring, given the competitive wages in Central America and the Caribbean.
Ideally, these hubs would not replicate the below-par industrial practices of some existing factories in the region, which have faced criticism, including for their treatment of workers. Instead, the appeal of U.S. investment could persuade leaders to sign bilateral agreements, or even a regional compact, that would assure high labor and environmental standards, monitored by independent auditors. The agreements could also address longstanding challenges in the Central American and Caribbean investment climate, including systemic corruption.
Given the resources Biden has proposed, these regional investments could be transformative. The hubs could easily generate 100,000 jobs apiece after five years, and three times as many after a decade in operation. By purchasing inputs from local suppliers, including small businesses, the job creation would be even greater.
To guarantee the competitiveness of these regional hubs – and improve the price and quality of the goods produced for U.S. firms and consumers – the United States could redirect a portion of its foreign assistance to build local infrastructure, increase broadband access, and improve public education and job training. In addition, the administration could broaden the scope of its ambitious infrastructure and jobs initiatives to promote development around the Greater Caribbean Basin. Biden’s bold climate change and energy plans already extend to our “near abroad.”
The result would be a powerful demonstration that regional economic cooperation helps our neighbors while also strengthening U.S. security and prosperity. Already, the extraordinary U.S. interconnectedness with Canada and Mexico has improved the competitiveness of U.S. manufacturers. Now, it is time to forge mutually beneficial ties with Central America and the Caribbean, long-suffering neighbors with significant economic potential.
Richard Feinberg is a professor at the University of California in San Diego who served as a former senior director with the National Security Council.