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US companies are scrambling to move supply chains. This small island could be the answer

World Emblem production in Aguascalientes, Mexico, in 2021. Courtesy World Emblem

World Emblem production in Aguascalientes, Mexico, in 2021. Courtesy World Emblem

New York (CNN) — At the start of February, Randy Carr, the CEO of World Emblem, booked a plane ticket to the Caribbean.

President Donald Trump had just announced a 25% duty on Mexico and Canada – what would be the first of many tariffs on other countries. World Emblem, the world’s largest producer of clothing patches which counts the Department of Homeland Security, UPS, NHL, and Levi’s as customers, produces 65% of its patches in Aguascalientes, Mexico.

“It just came really fast and a lot harder than I expected,” said Carr of the tariffs. “The 25% tariffs were enough to say, this is nuts. We need to change this right now.”

While President Trump eventually limited his 25% tariff to goods that don’t comply with the US’s current free trade agreement with Mexico and Canada, USMCA, the uncertainty around trade was motivation enough to start moving his supply chain.

“The following week we were on a plane to… the Dominican Republic,” said Carr.

World Emblem, like many other US companies, is scrambling to move manufacturing out of highly tariffed nations like Mexico and China. (World Emblem produces up to 30% of its products in China, which currently faces a 30% tariff.) While many businesses are shifting manufacturing to southeast Asian countries like Vietnam and Malaysia, Carr looked a bit closer to home: the Dominican Republic.

Manufacturing in the Dominican Republic has grown exponentially in recent years, with nearly 20% of foreign investment funneling into the sector, just behind tourism, according to the Innovation Technology and Information Foundation. Foreign direct investment (FDI) into the Dominican Republic last year increased by 7.1% from the year prior, capturing 41% of all FDI into Central America, according to the United Nations Conference on Trade and Development.

 

An aerial drone photo taken on May 21, 2024 shows the coastline in Santo Domingo, the Dominican Republic.
An aerial drone photo taken on May 21, 2024 shows the coastline in Santo Domingo, the Dominican Republic. Li Mengxin/Xinhua/Getty Images
 

The country has several key factors attractive to companies: a stable government, a skilled workforce, proximity to the United States, and the so-called free zones, where 60% of the country’s manufacturing is located. Free zones, which operate relatively tax-free, can save company’s millions of dollars.

“The country is well-known for its beaches, but it’s not as well known for the manufacturing sector,” said Marino Auffant, founder of Auffant Global Advisory, which focuses on building public-private strategies in the country to expand manufacturing investment. “We have seen, especially from China, some US companies moving or announcing operations shifting to the Dominican Republic over the past few months.”

Apparel maker Hanes, footwear brand Timberland, aerospace companies like the Eaton Corporation, IT companies like Rockwell Automation, and medical device companies like Cardinal Health all have manufacturing facilities in the Dominican Republic.

World Emblem says it will save seven figures a year by moving to the Caribbean island. This month, it plans to break ground on a 100,000 square foot plant set to open next year. The company plans to eventually move 30-35% of its manufacturing capacity to the Dominican Republic.

“We moved super quick on this one. It was every day we were on the phone trying to get this done,” said Carr.

Free zones and proximity

There are 92 free zones (FZs) in the Dominican Republic that house over 850 companies, according to the National Free Zone Council. These zones have been around for nearly 50 years. And while not exempt from tariffs, they do allow companies to avoid 100% of taxes on things like income, export, local, and some import taxes on machinery and intellectual property.

“Essentially, the DR’s free zones operate a ‘turnkey’ suite of services that ease and streamline doing business in the country,” said Stephen Ezell, the vice president of global innovation policy at the Information Technology and Innovation Foundation.

A free zone is not exclusive to the Dominican Republic – there are 135 countries with free zones, according to the World Free Zones Organization. But what is unique to the island is its proximity to the United States.

It takes just three days for a cargo vessel to sail from the Dominican Republic to Miami, and five days to New York. There are even plans to expand a port in the north of the country, which could cut transit time to the US by one day. By comparison, it takes cargo vessels from Asia three to four weeks to reach the West Coast, and four to six weeks to hit the East Coast.

“The FZs present a very attractive environment for near-shored manufacturing, particularly of goods intended for export to North American markets,” Ezell wrote in a 2024 report about the country’s role in semiconductor manufacturing.

The Dominican Republic’s free zones also house technical training schools, which the country has invested in to help train and recruit employees for companies.

Wages are also about 30% lower in the Dominican Republic compared to Mexico, a country known for its cheap labor, according to Carr.

The United States has a trade surplus of $5.4 billion with the Dominican Republic, one of the largest of any country. Until the Trump Administration applied its 10% universal tariff to goods from the country, the Dominican Republic–Central America Free Trade Agreement had allowed free trade between the two countries since 2004.

“The manufacturing boom of the Dominican Republic has been accompanied by a growing US trade surplus because most inputs that come to the Dominican Republic for the free zones come from the United States,” said Auffant.

 

People work sewing in one of the companies in the Free Zone located on the border between the Dominican Republic and Haiti, on September 29, 2018.
People work sewing in one of the companies in the Free Zone located on the border between the Dominican Republic and Haiti, on September 29, 2018. Erika Santelices/AFP/Getty Images/File
 

‘Small island’

There is one big hurdle for businesses looking to shift manufacturing to the Dominican Republic: space. The country is half the size of South Carolina, so land for the free zones is limited.

In fact, the government has struggled to secure enough space for free zones, according to Ezell.

“I think it’ll be a bigger leap for the Dominican Republic to become a base for manufacturing that services the Asian market at scale. It’s a small island,” said Ezell.

And with that smaller footprint comes a smaller workforce available for technical training needed for manufacturing. The entire labor force on the island is 5.41 million people, according to the CIA World Factbook.

“I think (there’s a) need to grow the workforce, especially at the engineer level. And I know that’s a priority for the government,” said Auffant.

But the biggest obstacle to growth is simply knowledge. People may not know about the country’s manufacturing capabilities.

“I think that leads many companies to default to other places more because of lack of knowledge of the manufacturing success story,” said Auffant.

Carr, who said the Dominican Republic wasn’t initially on his radar as a viable country to manufacture his products, revealed the less conventional way he discovered the place where he’d eventually invest millions of dollars.

“ChatGPT,” he said.

Author: Vanessa Yurkevich, CNN

Source: CNN:::

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