In creating an economic strategy, President Biden and his administration are stuck between conflicting policy goals of relocating industrial supply chains back to the United States and of reducing migration from Central America, where so 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 clothes to electronic parts and medical devices. These jobs provide sustenance to more than two million family members. Without these opportunities, they might join all the mothers and children who are streaming toward our southern border in high numbers.
If just another veiled version of economic protectionism, the American Jobs Plan may hurt Central American economies heavily dependent on trade and foreign investment, and it could worsen the migration crisis. However, there is a way to strengthen our manufacturing sector while bolstering economic development for Central America.
Biden has asked for $20 billion to build manufacturing innovation hubs. Meanwhile, his infrastructure agenda allocates $50 billion to strengthen supply chains for critical products. Imagine if some of these hubs were located in Central America and the Caribbean, another major source of migrants in countries such as Honduras and Guatemala, or the turbulent border region between Haiti and the Dominican Republic. Other options could include Jamaica, which already hosts call centers and information technology services, and the northern coast of Colombia.
To build each of these hubs, the United States could assemble $1 billion in infrastructure investment by drawing on those resources and expertise of the Export Import Bank and the Development Finance Corporation, as well as private investors. American firms partnering with these new technology hubs could be eligible for some of the same incentives the administration desires to make available to manufacturers moving factories back to the United States. Components made in these hubs under current free trade deals can also count toward domestic content mandates.
Although these overseas hubs would support local economies and slow migration, they would also produce significant economic benefits for the United States. The integrated regional network of world class production hubs would build supply chains with more resilience and flexibility. Their scattered locations would provide an insurance against natural disasters, political instability, and even disease, helping to avoid the type of costly and chaotic disruptions from the coronavirus pandemic.
This network of regional manufacturing hubs would correct such serious disadvantages of existing supply chains based in Asia. Closer hubs would incorporate more components made in the United States. Their proximity would also make them less vulnerable to disruptions in transportation. In another benefit, United States authorities could more easily guard against cyberwarfare and terrorist threats. Finally, nearshore value chains would be far more cost efficient than full onshore supply chains, given the more competitive wages in Central America and the Caribbean.
Ideally, these hubs would not replicate the subpar industrial practices of some existing factories in the region, which have faced criticism for their treatment of workers. Instead, the appeal of investment from the United States could persuade leaders to sign bilateral deals, or even a regional compact, to ensure better labor and environmental standards monitored by independent auditors. The deals could also address corruption in the investment climate in Central America and the Caribbean.
Given the resources Biden has proposed, these investments in the region could be transformative. These hubs could easily generate 100,000 jobs each after five years and three times as many after a decade in operation. By purchasing manufacturing inputs from local suppliers, including small business, the creation of new jobs would be even greater.
To ensure these hubs are competitive, and to improve the items produced for American firms and consumers, the United States could redirect a key portion of its foreign assistance to build out local infrastructure, increase broadband access, and bolster public education and jobs training in the region. The administration could also broaden the scope of its ambitious domestic infrastructure and jobs initiatives to include new development around the greater Caribbean basin. The bold climate change and energy plans proposed from Biden in fact extend to these areas.
The result of these hubs would be a very powerful demonstration that economic collaboration helps our neighbors while strengthening our security and prosperity. Our connection with Canada and Mexico has bolstered American manufacturers. Now is the time to forge mutually beneficial ties with Central America and the Caribbean, our suffering southern neighbors that hold critical 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.