Nearshoring is the latest test of whether Latin America can turn proximity to value into a durable increase in productivity.

Oct. 8 (UPI) -- Latin America's economic history is a long argument with geography. The region has always been close to something valuable: first European demand for silver and sugar, later U.S. industry, and more recently China's appetite for copper, soybeans and oil. What it has rarely managed to do is turn that proximity into a durable increase in productivity.

Nearshoring is the latest test of whether it can, and the terms changed on July 1. At the first mandatory review of the United States-Mexico-Canada Agreement, Washington declined to renew the pact in its current form, replacing a 16-year horizon with annual reviews.

Mexico and the United States have since held a third bilateral negotiating round and are preparing a fourth in Washington, with automotive rules of origin still unresolved. For companies choosing where to build, the region's greatest geographic advantage now carries a policy question mark.

The prize remains large. The Inter-American Development Bank estimated in 2022 that nearshoring could add as much as $78 billion a year in exports of goods and services from Latin America and the Caribbean.

Mexico alone could gain about $35.3 billion in additional goods exports, followed by Brazil at roughly $7.8 billion. Those figures describe export potential, not guaranteed investment.

As earlier installments of this series have traced, past external booms failed to produce lasting structural change, and the U.N. Economic Commission for Latin America and the Caribbean projects growth of just 2.2% in 2026.

Nearshoring differs from another commodity cycle because it could draw the region into manufacturing, services and global production networks. The IDB has estimated that a 10% increase in a country's participation in global value chains is associated with an 11% to 14% rise in per capita GDP.

Mexico leads, but not alone

Mexico is best positioned. It borders the world's largest consumer market and already participates in sophisticated automotive and electronics supply chains. Foreign direct investment reached a record $40.9 billion in 2025, according to Mexico's Economy Ministry.

About two-thirds of that was reinvested earnings from companies already in the country, although new investment more than doubled from 2024. The question is no longer whether Mexico can benefit. It is whether electricity, water, customs infrastructure and public security can keep pace.

Beyond Mexico, Costa Rica has spent more than two decades building a quieter but highly successful version of the model around medical devices and corporate services. Colombia has ports on two oceans and a growing services economy. Brazil faces a different equation. Its distance from the United States reduces its geographic edge, but its industrial base and increasingly renewable electricity give it openings in energy-intensive manufacturing.

The critical-minerals opportunity

South America also holds a strategic advantage in geology. Chile remains one of the world's dominant copper producers and a major source of lithium; Argentina is rapidly expanding lithium production, and Peru ranks among the largest copper producers.

The International Energy Agency's Global Critical Minerals Outlook 2026, released in July, finds that the region could capture about $185 billion in economic value from critical minerals by 2035.

The decisive question is how much of that value remains in the region. In 2025, Latin American countries refined only about 20% of the key energy minerals they extracted, excluding lithium.

The IEA expects only one-fifth of the $185 billion to come from refining, and calculates that a scenario with far more local processing would lift the total to about $220 billion. If the region merely exports concentrates for processing elsewhere, the energy transition risks becoming another commodity boom.

That is where nearshoring and critical minerals become one story: Latin America needs more sophisticated exports, not simply more of them.

What could hold the region back

The obstacles are familiar, and infrastructure comes first. Ports, transmission lines and reliable power often determine whether an investment announcement becomes an operating factory. The IDB estimates that every dollar devoted to investment promotion can generate nearly $42 in foreign direct investment, but promotion achieves little without that groundwork.

Security is another constraint. Private-sector economists surveyed by Banco de México have repeatedly ranked public insecurity among the main factors that could hold back Mexico's growth. Regulatory stability matters as well.

Nearshoring investments are long-term bets, and companies must believe that taxes, permits and contracts will remain predictable after political transitions and, now, after each annual trade review.

Nor is Latin America competing alone. India, Vietnam, Eastern Europe and the United States itself are pursuing the same factories, and proximity is an advantage, not an exemption.

Beyond the next boom

The outlook, therefore, is conditional. Mexico is likely to capture a large share of the gains from reorganized North American supply chains if the trade review ends in stable rules. Costa Rica and its Central American and Caribbean neighbors can keep winning specialized niches if they maintain legal certainty.

South America's mineral producers face a harder test, since copper and lithium alone will not transform their economies without processing capacity, reliable energy and fiscal policies that treat commodity revenues as temporary.

Otherwise, the $78 billion nearshoring opportunity risks remaining a figure in a presentation. Growth will fall back toward 2%, and the region will begin the same debate again.

Nearshoring and critical minerals do not have to become another commodity boom. They offer Latin America an opportunity to move beyond one, and the difference will be visible in the factories that get built and in export baskets that carry more value added.

Latin America is already close to the markets and resources that matter. Closeness has never been the scarce ingredient.

Execution has.

César Addario Soljancic (www.cesaraddario.com) is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.