Blocking ships in the Suez Canal has disrupted the global trade industry

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The bizarre case of the cargo ship that got stuck in Egypt’s Suez Canal, crippling some global business activity, has drawn new attention to the fragility of global supply chains. But it could end up pushing many American companies to move their factories closer to home, becoming a boon for Latin America.

Many trade pundits I’ve spoken to in recent days say the mishap of the giant container ship Ever Given, freed by a flotilla of tugboats on March 29 after choking the Suez Canal for nearly a week, will push many multinationals to diversify their supply chains.

Instead of sourcing nearly all of their components from China, many US companies will look for alternative suppliers closer to their home market, they say.

This trend, which economists call “nearshoring,” could be the best chance in decades for Latin American countries to become much bigger exporters. Mexico, Brazil, Argentina and Colombia could be the main beneficiaries, provided they seize this opportunity.

According to the Washington-based Inter-American Development Bank, Latin America could generate an additional $70 billion a year in exports if it managed to replace 10% of Chinese shipments to the United States.

That’s an achievable goal, as many of China’s exports — including cars, televisions and textiles — are products that Latin America has been producing and exporting for many years, according to the bank.

“The Suez Canal bottleneck is ‘Exhibit A’ of the opportunity that exists for local global value chains,” Mauricio Claver-Carone, president of the Inter-American Development Bank, told me in an interview.

He added, “We have a unique opportunity for the region to finally realize its potential with the integration of global value chains. This may never happen again in our lifetime.

Fears about disruptions to global supply chains have grown in recent years.

A 2020 survey of 260 global companies by consulting firm Gartner found that 33% of companies had already moved factories out of China or planned to do so by 2023.

Alarm bells over America’s overreliance on Chinese exports began when the United States and China escalated trade war threats to each other early in the Trump administration. More recently, they hit new heights during the COVID-19 pandemic, when Americans were left without Chinese-made face masks and medical equipment in early 2020.

The Ever Given accident reignited concerns in the global trading community as more than 350 container ships were unable to cross the canal for several days. Between 12 and 15% of world trade, from cars to oil, passes through the Suez Canal.

International trade experts tell me that some Latin American countries, such as Colombia, Costa Rica, Uruguay, Panama and the Dominican Republic, are actively trying to attract American companies looking for nearby locations. And Miami would be a big winner if they were successful, as a large portion of these countries’ exports pass through PortMiami.

Unfortunately, Mexico – by far the largest exporter of manufactured and assembled goods from Latin America to the US market – completely misses the mark.

Mexico, by far, could be the biggest regional beneficiary of offshoring. But populist President Andres Manuel Lopez Obrador often gives the impression that he is trying to scare away rather than attract foreign investors. Argentine President Alberto Fernandez is in the same league, clinging to outdated anti-capitalist ideas that even communist China has long since abandoned.

Certainly, there are many things that Latin America needs to do to attract foreign companies and seek to replace China as a major manufacturing hub, including reducing bureaucracy, reducing corruption, strengthening of the rule of law and the improvement of its obsolete ports, airports and Internet connections.

Many multinational companies are reluctant to move their factories to the region due to its exorbitant transportation costs.

Moving a cargo of soybeans from northern Argentina to the port of Rosario in central Argentina often costs more than shipping that same cargo across the world, from Argentina to China, according to a report from the Rosario Stock Exchange.

But Latin American countries have a huge opportunity to emerge from their economic slump by attracting companies considering leaving China. If they miss it, they will have only themselves to blame.

Don’t miss the “Oppenheimer Presenta” TV show at 8 p.m. ET Sunday on CNN en Español. Twitter: @oppenheimera

This story was originally published March 31, 2021 9:26 p.m.

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