Extract B states that if other Latin American economies were to replicate Mexico's nearshoring model, the global economy would see a "major realignment of international trade flows and manufacturing supply chains".

To what extent, if at all, should developed countries such as the UK be concerned about a significant rise in the economic influence of Pacific Alliance countries in the global economy? Justify your answer, using the data and your economic knowledge.

Extract B

Nearshoring, Supply Chain Diversification, and the Pacific Alliance

Over the last decade, Latin America's Pacific Alliance (comprising Chile, Colombia, Mexico, and Peru) has experienced rapid economic realignment, shaking off past vulnerabilities such as volatile commodity cycles and institutional hurdles.

The Inter-American Development Bank (IDB) identifies two distinct economic paths within the trade bloc. While Chile and Peru remain heavyweight primary commodity exporters—pivotal to the green transition through copper and lithium extraction—Mexico and Colombia have emerged as advanced manufacturing and nearshoring powerhouses. For both groups, despite tight global monetary policy and domestic fiscal challenges, the IDB projects robust medium-term growth.

The IDB attributes this momentum to the massive wave of global supply chain "nearshoring"—the relocation of manufacturing and service operations closer to major consumer markets. As Western companies seek to build resilience against geopolitical fragmentation and reduce transport emissions, the Pacific Alliance is absorbing substantial capital. While mature service economies like the UK maintain comparative advantages in financial services, insurance, and research, Alliance nations are successfully scaling up high-tech auto parts, aerospace assembly, and clean-energy infrastructure.

However, the IDB notes structural bottlenecks that could stall this trajectory. Overcoming localized labor productivity gaps and upskilling technicians in advanced automation are critical. Massive foreign direct investment (FDI) in deepwater ports, decarbonized energy grids, and water purification is urgently needed. This presents highly lucrative joint-venture and investment channels for financial centers like London. High urban underemployment and regional income inequality, however, persist.

Mexico has been the primary beneficiary of this nearshoring shift. Backed by USMCA and a network of over 40 free trade agreements—including bilateral agreements and its membership in the CPTPP (which the UK has also joined)—Mexico has seen record-high foreign investment. This manufacturing competitiveness has driven sustained GDP growth, alongside substantial public-sector investments in regional logistical corridors.

A key outcome of this sustained growth has been a steady rise in living standards. The Human Development Index (HDI) serves as a metric for socio-economic progress. The average HDI for Pacific Alliance nations rose from roughly 0.630 in 1990 to 0.790 in 2021. For comparison, the UK's HDI was 0.929 in the same period.

As living standards rise—reflected in expanding real wages, higher enrollment in tertiary education, and improved public sanitation—a massive middle class is emerging. Developed economies must recognize that the rising economic prominence of the Pacific Alliance represents a major opportunity for high-value services and premium luxury exports.

Ultimately, while structural reforms remain incomplete, the Mexican model of trade integration and nearshoring demonstrates a clear path forward. If other Latin American nations replicate this high-value, nearshored model, the global economy will see a major realignment of international trade flows and manufacturing supply chains.