China’s troubles are Latin America’s biggest opportunity, but the region is missing it | Opinion

The leaders of Latin America’s biggest countries — Mexico, Brazil and Argentina — deserve a gold medal for incompetence: They are missing their countries’ biggest opportunity in generations to dramatically grow their economies and reduce poverty.

China’s mounting economic and perhaps political troubles could be a godsend to Latin America, because growing numbers of multinational companies are seeking to relocate their China-based manufacturing plants to other countries.

Just a few weeks ago, Apple announced it is moving manufacturing of its iPhone 14 away from China. However, the company didn’t move these operations to America, but to India.

In recent days, highly unusual street protests in China against the government’s stringent COVID-19 lockdowns have drawn new attention to China’s escalating problems.

Many Chinese forced to abide by the country’s stringent zero-COVID policy lockdowns are angered about being forced to live in confinement, especially after having watched images of the World Cup stadiums in Qatar filled with fans who weren’t wearing face masks.

While the anti-government demonstrations in China are small in relation to the population and are not likely to topple China’s regime, they are the largest anti-government protests since the Tiananmen Square protests in 1989, foreign observers say.

The protests come following a string of bad news for President Xi Jinping’s regime. Consider:

▪ China’s economy, which used to grow at 10% annual rates in recent decades, is projected to grow by only 3.2% this year, and by 4.4% in 2023 and 2014, according to new International Monetary Fund projections. The Chine’s regime’s severe lockdowns have paralyzed much of the country’s economy.

▪ China’s 20th Communist Party’s Congress in October, which granted even greater powers to Xi, strengthened ruling party bureaucrats at the expense of technocrats. That will most likely result in greater state controls over the economy, stifle innovation, and perhaps further depress China’s economy.

▪ Many multinational firms were already seeking to diversify their supply chains away from China since U.S.-China trade tensions started escalating during the Trump administration. U.S. companies fear that a potential U.S.- China trade war could leave them without essential parts for their U.S. assembly plants.

▪ U.S. companies also want to diversify their production plants for fears that possible pandemic lockdowns in China in the future could paralyze their supply lines.

▪ In addition, China’s labor costs have more than tripled over the past decade. The average Chinese factory worker was paid about $6 an hour in 2020, which was more than the average hourly pay in Mexico, according to a recent Bank of America report.

These and other incentives for multinational firms to move some of their factories closer to the U.S. market — a trend that economists refer to as “near-shoring” — could be a “lifetime opportunity” for Mexico, Bank of America researcher Carlos Capistrán wrote.

According to an Inter-American Development Bank study, near-shoring could increase Mexico’s annual exports by $35.2 billion, Brazil’s by $7.8 billion, and Argentina’s by $3.9 billion. Overall, if multinational firms moved only 10% of their China-based factories to Latin America, the region’s exports would grow by a staggering $78 billion a year, the report says.

But, amazingly, the governments of Latin America’s biggest countries are shrugging off this opportunity.

Mauricio Claver-Carone, who served as IADB president until September, told me that he spent much of his nearly two years at the helm of the regional financial institution trying to get these countries to take advantage of the near-shoring momentum, but found himself preaching in the desert.

“Mexico, Brazil and Argentina didn’t care,” Claver-Carone told me. “They always argued that near-shoring does not promote development. The only thing they care about is getting more money to finance their political priorities.”

Indeed, Latin America had a unique opportunity at the Summit of the Americas held in Los Angeles in June to present a regional plan to attract U.S. manufacturing firms interested in bringing their China-based factories closer to home.

But Mexico’s president boycotted the summit because Cuba was not invited, and Argentina and other countries used most of their time at the meeting complaining about Cuba’s exclusion.

Now, U.S. multinational firms are moving some of their China-based factories to India, Vietnam and other Asian countries. Latin America is missing its biggest opportunity in generations, and the leaders of the region’s biggest countries are asleep at the wheel.

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