Nearshoring textiles has been a success: Here’s how we can do even better

The sounds of construction projects are echoing throughout the countries of Central America. Indeed, historic levels of private sector investment and sourcing commitments going into Central America have accelerated the two-way textile and apparel trade with the United States, reshaped global sourcing and simultaneously created more jobs and bolstered the region’s economies.

The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) already helps to support more than 1 million jobs. Vice President Kamala Harris’ announcement this month highlighting $585 million in additional textile and apparel investments and sourcing commitments in Central America underscores the ongoing expansion of textile and apparel co-production chains that are building upon the extraordinary success of CAFTA-DR.

The Biden administration’s leadership has helped drive more private sector investment in northern Central America. Further, the administration’s commitment to strengthening the economic partnership between the United States and the region has positioned local industries as the logical and robust manufacturing solution to risky, contorted and polluting Asian supply chains.

 Because of the soaring two-way trade in textiles and apparel under CAFTA-DR — which grew to a record $15.1 billion in 2022 — investment in new plants and equipment either planned or underway is now approaching $2 billion, according to an ad hoc survey conducted by the global consulting firm Gherzi Textile Organization. Nearly $1 billion of new facilities are under construction in Guatemala and Honduras alone.

 Moreover, several members of the National Council of Textile Organizations (where I am president and CEO) have announced significant investments and sourcing commitments in the United States and CAFTA-DR region, including Parkdale Mills, Unifi and Gildan — a win for this strong and essential co-production chain and its workers.

 The global sourcing scene is changing as old paradigms shattered during the pandemic when Asia-centric supply chains seized up. Many brands and retailers were caught short-handed with inventory backed up across the Pacific. However, not all companies were caught in the lurch, as adept players quickly realigned their sourcing to tap the capabilities and duty-free benefits of sourcing closer to home.

In response, regional industries attracted new investment while traditional suppliers like China showed signs of struggle. Apparel imports from CAFTA-DR surpassed their 2019 pre-pandemic level by 23 percent last year, while apparel imports from China are down 12 percent relative to 2019. And while globally everyone is facing economic headwinds as a result of combined factors of inflation and pent-up inventory — the long-term trends show that this strategic realignment in global supply chains is here to stay and nearshoring is providing massive new opportunities and benefits.

It’s reasonable and achievable to double the trade out of CAFTA-DR to the U.S. in the coming years. Imagine if that happened. It would equate to additional investments totaling $6 billion, creating 180,000 jobs in the U.S. textile industry and 2.17 million jobs in the CAFTA-DR region creating even more resilient supply chains, based on a study conducted by Werner International last year.

 More so, new investments would occur in the apparel, spinning, weaving and knitting industries in Central America and the United States. Further, there would also be benefits in reducing greenhouse gas emissions, as shipping products to the U.S. from Central America versus China cuts greenhouse gases by 80 percent. In addition, the CAFTA-DR supply chain utilizes traceable U.S. cotton instead of forced labor-tainted Xinjiang cotton.

Perhaps most critical for our collective industries is the administration’s strong support for the CAFTA-DR “yarn-forward” rule of origin, which has facilitated trade, investment and economic development in the United States and the region. This provision ensures that the agreement’s benefits accrue to the signatory partners by driving massive investment and providing business certainty.

 The CAFTA-DR trade agreement is an enormous success. The latest U.S. government trade statistics are compelling: U.S. apparel imports from the region were up 22 percent, following their 39 percent growth rate in 2021. Similarly, U.S. exports, mainly consisting of textile inputs used by regional manufacturers to make their products, were up 15 percent in 2022, following 2021’s increase of 39 percent.

 By any measure, the trade agreement has successfully fulfilled its goal of promoting sustained, two-way trade mutually beneficial to regional countries and their economies.

 The new investments and sourcing commitments combined with solid growth in the two-way textile and apparel trade indicate that the scenario of doubling exports from the region projected by Werner’s estimates is achievable if brands and retailers provide long-term commitments to sourcing in the region.

 As such, the CAFTA-DR agreement represents the intersection of trade policy and ethical sourcing and provides a blueprint for future trade agreements that promote human rights and environmental stewardship.

 Doubling the amount of apparel produced in this hemisphere is a realistic goal that can and should be achieved. Even more, with the disruptions of Asian supply chains witnessed during the pandemic and the ensuing investment in the CAFTA-DR region as sourcing companies look to offset their exposure to Asian supply chains, a doubling of apparel made in the region is already underway.

 The benefits are undeniable: New jobs will be created in the U.S. and the region, along with increased prosperity and deepening ties with our Western Hemisphere partners. This success is the definition of a genuine win-win relationship.

Kim Glas is the president and CEO of the National Council of Textile Organizations and is the former Deputy Assistant Secretary for Textiles and Apparel at the U.S. Department of Commerce.