The economic competition between US and China increases with time. United States companies are looking for to depend less in China for its production and are setting up operations in other countries. One trend is to bring production close to home, in what is known as “nearshoring”. The advantage to this is that as their operation are near home, the time and cost of bringing the goods to the US market is lower than bringing them from China. This article will examine what are the opportunities that nearshoring can present for Peru, if Peru is prepared for that or has a plan for it, and if US government is approaching Peru government for that effect.

1. China-US competition and nearshoring: Opportunities for Peru?
The economic competition between US and China increases with time.
United States companies are looking for to depend less in China for its
production and are setting up operations in other countries. One trend is
to bring production close to home, in what is known as “nearshoring”. The
advantage to this is that as their operation are near home, the time and
cost of bringing the goods to the US market is lower than bringing them
from China.
This article will examine what are the opportunities that nearshoring can
present for Peru, if Peru is prepared for that or has a plan for it, and if US
government is approaching Peru government for that effect.
I. What are the opportunities for Peru that nearshoring can offer?
The nearshoring of some production from China by US companies has
raised interest in Latin America that perhaps some production could be set
up in the region. This will represent a good opportunity for countries like
Peru to diversify its production and exports, now concentrated in the
commodity sector, and could help to create more employment.
Peru economy depend in the exports of natural resources, which are
prone to sudden price changes. Nearshoring manufacturing production in
Peru could allow a more stable source of foreign exchange for the country,
and, as these industries are labour intensive, this could help to alleviate
the lack of employment.
But for that to happen, countries need to have some conditions, so
companies move on and produce. What can be those conditions?
First, the country has to offer facilities like good and stable
macroeconomic conditions, like low inflation rate, government finances in
order, easy entrance for foreign investors, and social and political stability.
Second, in an era of increasing trade agreements that allow countries to
access other markets at advantageous conditions, to have a free trade
agreement among them is a must, then to have an FTA with US is a
necessary condition.

2. Third, the country should offer good physical infrastructure, like roads,
ports, airports, so goods and persons can move easily and cheaply. Besides
this, cheap and skilled labour force are needed.
If we take into account those three conditions, not many countries in the
Latin America region fulfil those conditions. Perhaps the best positioned is
Mexico, that already has a strong economic and trade relationship with US
thanks to the USMCA agreement. This United States Mexico Canada
Agreement has created the North America free trade area, one of the
biggest in the world. And already Mexico is benefiting from US companies
moving from China to its soil even before the decoupling of US economy
form China gained much attention. As Mexico labour cost is now lower
than in China, some companies have already moved to Mexico. Also the
restrictions imposed by the strict COVID-19 policy in China made some
companies take decision to move to Mexico. The “nearshoring”
movement means for Mexico more possibilities of receiving US companies
moving from China1
.
But what about Peru? Looking at the above three reasons, it can be said
that Peru could fulfil the first condition in the sense that is one of the
countries in Latin America with the best macroeconomic conditions,
together with Mexico and Chile. That is why in the qualifications given by
credit rating agencies like Standard and Poor´s (S&P), Moody´s Investors
Services, and Fitch Group, Peru is among the best placed in the region,
together with Chile and Mexico2
. But recent events in Peru, like the
ousting of the President Pedro Castillo last December by the Congress,
have made some foreign investors aware of the political instability in the
country. Since 2018 Peru has seen 6 Presidents in power, and it seems
that new elections will be held in 2024 again (or before, Castillo was
elected for a 5-year period and took power in July 2021).
Regarding the second condition, Peru has an FTA in force with US since
2009. US is the second biggest trade partner of Peru, only behind China,
and Peru has a very good political and economic relationship with the US.
1
See IVEMSA: Why manufacturers consider nearshoring to Mexico a competitive advantage?
https://www.ivemsa.com/why-manufacturers-consider-nearshoring-to-mexico-a-competitive-
advantage/
2
See for example Trading Economics: Credit Rating/ America https://tradingeconomics.com/country-
list/rating?continent=america

3. As for the third condition, Peru infrastructure requires modernization. In
this aspect, a big seaport is being built north of Peru capital Lima, in
Chancay city, by a Chinese company, Cosco Shipping Ports, with an
investment of around 3 billion dollars3
. This will become the biggest and
more modern port in the Pacific of South America. But, still roads and
railroads connecting to the port will be needed. And also, the country
needs to have more skilled labour, and its cost is still cheap compared to
other countries in the region4
.
II. Is Peru prepared for US nearshoring, does the country has a
plan?
Peru has not a consistent industrial policy that could attract investing in
the manufacturing sector, like let’s say Mexico or countries like Argentine
and Brazil. Peru is an open economy, one of the most open in the world,
with a tariff rate for imported goods of an average 0.7%, compared with a
figure of 6.9% for Argentina and 8.4% for Brazil for example5
. And is one of
the countries with the most numbers of FTA in force6
.
In 2014 the government published a National Plan for Production
Diversification, with the aim to promote Peru integration into global value
chains and diversify the country production and exports7
. Peru mostly
exports commodities (minerals, energy, and fishery products accounts for
70% of Peru exports). But the following governments did not implement
this Plan.
As was said, one of the problem in Peru is the not consistent industrial
policy as it changes from administration to administration. Each
government have priorities that can be different from the former
government, and this is most acutely seen in the industrial field. The
3
See Silk Road Briefing: Cosco to invest US$3 billion in Peru´s Chancay Port
https://www.silkroadbriefing.com/news/2022/05/18/cosco-to-invest-us3-billion-in-perus-chancay-port/
4
See Bloomberg Linea: https://www.bloomberglinea.com/english/which-latin-american-countries-
minimum-wage-hikes-outpace-inflation/
5
According to World Bank data: Tariff rate, applied, weighted mean, all products (%)
https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS
6
See WTO: Regional Trade Agreements Database
https://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
7
See OECD STIP COMPASS: Peru´s National Plan for Production Diversification
https://stip.oecd.org/stip/interactive-dashboards/policy-
initiatives/2021%2Fdata%2FpolicyInitiatives%2F4788

4. ousted President Castillo in the election campaign and when was elected
announced a new industrial policy, but later he failed to formulate a
concrete one. And its administration will be remembered as one that saw
many changes in government officers, from Ministers to low ranking
officers and with people considered not competent ones.
III. Does US administration have approached Peru administration
for a possible nearshoring consideration?
It is known that US administration is very interested in increasing its
relationship with Latin American countries, as it consider that China is
increasing its presence in the region and competing there with US.
Nearshoring could help increase US presence in the region.
The Biden administration is seen as keen in increasing US relations with
the region, and it is interesting to see that, previous to the Ninth Summit
of the Americas held in US last June 2022, in April that year there was a
Pre-Meeting on the issue of nearshoring organized by a US think tank. In
that meeting officers from US government meet with officials from 13
Latin American countries to discuss about nearshoring8
.
Also, in a meeting in June 2022 before the Summit of the Americas, the
President of the Inter-American Development Bank told Ministers of Trade
and Foreign Affairs, and CEOs present there, that nearshoring offer
countries in the region huge opportunities. Even he mentioned
estimations of increasing exports that countries in the region could
achieve if they participate in nearshoring. He mentioned that nearshoring
could add annually 78 billion dollars in additional exports in the short and
medium term for the region9
.
US President Biden meet with then Peru President Pedro Castillo in
September 2022 during the UN general assembly meeting and reiterated
US government support for Peru economic development10
. But there is no
evidence that US government has approached Peru government to
specifically talk about nearshoring.
8
See Wilson Center: Summit of the Americas Pre-Meeting on Nearshoring and Renewable Energy
Investment in Latin America https://www.wilsoncenter.org/article/summit-americas-pre-meeting-
nearshoring-and-renewable-energy-investment-latin-america
9
See IDB: https://www.iadb.org/en/news/nearshoring-can-add-annual-78-bln-exports-latin-america-
and-caribbean
10
Se Andina: https://andina.pe/agencia/noticia-perus-president-democratic-governance-is-essential-
for-coexistence-of-nations-911122.aspx

5. As said before, the recent political instability of the country and the lack of
a concrete industrial policy designed to attract investment in the
manufacturing sector probably dose not put Peru in an attractive position
as a candidate for nearshoring. It would be a good opportunity for Peru
but nearshoring would need a different government eager to provide the
conditions for that to happen.
January 16th
, 2023