by Elaine Dezenski and John Austin *
The pandemic exposed a lot of truths, including how interdependent and vulnerable to disruption our global supply and production networks really are. In response to supply chain disruptions, including overreliance on China and potentially others for critical supplies like medical equipment, there have been calls in the United States, Europe and elsewhere to pull in these scattered global supply chains, both to bring jobs back home, and ensure sources of critical supplies and components are protected and readily available.
Certainly, sourcing a greater share of some products and components of products domestically in both the U.S. and Mexico has a place in building more redundant and resilient supply chains that can survive an interruption as happened when Covid-19 first emerged. But it would be unrealistic and incredibly costly to business and consumers to unwind too much what has grown to be a tightly knit, efficient and interdependent global production system.
Much better is to acknowledge the benefits of our closely entangled trade regimes—really a co-production system here in North America— and lean in to expand economic partnerships with our friends and neighbors. The U.S. and Mexico can best rebuild our own and our allies’ economies’ through what we call “ally-shoring”. Ally-shoring as we wrote previously describes a program of sourcing essential materials, goods, and services more with trusted friends and neighbors, while disengaging China and any other state actors we don’t want to have to rely on, or who may in some cases seek to undermine Western interests — as with IP theft, or embedding surveillance mechanisms in IT components.
Partnering more, not less in production and distribution of critical goods and services between the U.S. and Mexico makes sense on many levels. It creates more good-paying jobs on both sides of the border as we recover form Covid-19, and provides a reliable, predictable and transparent trading partner for the U.S.. Ally-shoring can contribute to a more stable and predictable job and employment base in Mexico (which can ease US security and immigration concerns), as well as contributing to additional U.S. current economic, national security and foreign policy goals and concerns: ally-shoring frees the U.S. from over-dependence on any country for critical supplies like rare earth metals and medical gear. Ally-shoring makes critical supply chains more reliable and resilient, and less susceptible to breaks or political blackmail. Ally-shoring protects against potential theft of IP, data or penetration or critical information systems. Ally-shoring can support rapid containment, treatment, vaccine and therapeutics delivery and speedy economic and health recovery from the Covid-19 crisis, as we are already seeing. Early in the pandemic the U.S. turned next door to Mexico for much needed medical supplies; which has served to enhance the U.S.-Mexico production base in the critical area of medical equipment.
Ally-shoring also supports the economic recovery and ongoing political health of the U.S. and Mexican democracies, and democracies around the world—where angst and anger over diminished good job opportunities has fueled populist uprising. Many countries, Mexico among them, and businesses would prefer doing business and being an economic development partner with the U.S. vs. what is coming to be seen more clearly, as with its Belt and Road Initiative —China’s corrupting, dependency-building model—if that offer were an option. Finally, ally-shoring can enhance institutions, reduce corruption and strengthen rule of law in Mexico (a priority for the U.S. and Mexico), which will serve to encourage still greater FDI and U.S.-Mexico economic integration.
Ally-shoring in general—leaning into economic partnerships with Western democracies that share our values – is good for the US politically, and in terms of economic growth and Covid-19 recovery. Ally-shoring with Mexico in particular also provides some unique advantages to U.S. businesses and governments:
- Geographically proximate, Mexican-made parts and products cost-less to ship and are predictable in their supply. Doing business for U.S. companies is close-by, convenient and familiar.
- “Imports” and “trade” with Mexico, (along with Canada) is transparent; key components aren’t buried in the opaque supply chains of far-flung suppliers.
- Mexico can offer a comparable cost-profile in many sectors to countries in Asia and the developing world, but with all the advantages of proximity, reliability and predictability.
- Co-producing items for the U.S. market for some time, Mexico has developed competencies in the low-volume, high-mix products, and quick turnaround and customization now demanded by consumers and US business customers.
- Mexico also has competencies in a number of the U.S. -identified critical supply chains where it is seeking greater security and reliability –from food systems to advanced manufacturing – as well as emerging industries and technologies that both countries’ view as targets for high value job and business growth and enhanced export opportunities including medical devices/PPE; auto/autonomous mobility/software/engineering products and components; non-national security sensitive IT technologies; communications equipment for high speed internet; water security and management systems; clean and sustainable energy and industrial production models and agricultural control systems.
It is in the interests of both the U.S. and Mexico to purposefully plan together and collaborate on supply chain redesign and enhanced North American sourcing and production. Ally-shoring makes so much more sense and is much more economically powerful than trying to domestic-source critical supplies, and what we’ve seen over history as failed efforts by countries at import substitution. An ally-shoring strategy recognizes the interdependent nature of the global economy and trade and especially “trade” with Mexico, which in reality is dominated by “intermediate goods” — component parts of a final product that comes together from a supply chain involving the US, Mexico, and often Canada and other countries.
A purposeful U.S. re-centering of production, distribution, and business services networks with our friends in Mexico and the Americas can drive a more powerful collective recovery, and facilitate larger scale economic activity across the American heartland and within Mexico and other Western democracies.
*Elaine Dezenski is a Senior Advisor at the Foundation for Defense of Democracies and CEO of LumiRisk LLC. Twitter: @ElaineDezenski
**John Austin directs the Michigan Economic Center, and is a Nonresident Senior Fellow with the Brookings Institution and the Chicago Council on Global Affairs. Twitter: @John_C_Austin
*** The U.S.-Mexico Foundation is a binational non-profit organization dedicated to fostering bilateral cooperation and improving the understanding between the United States and Mexico by activating key people in the relationship that once were dormant. Twitter: @usmexicofound