Reshaping Central America - U.S. Trade Relations

🇺🇸 U.S. – Northern Triangle Tariff Deal: Likely Features

Although there is still a great deal of uncertainty we like to take a glass half full look at what we see the landscape evolving into:

1. Sectoral Tariff Preferences

• Textiles & Apparel:

  • Reduced or zero tariffs for garments and yarns made with U.S. inputs (already partially covered under CAFTA-DR). Worst case Guatemala/Honduras/El Salvador will be at 10% (same tariff rate as the majority of the rest of the world). Best case they will be 0% (for certain products, with specific raw materials).

  • Encouragement of full-package production (from fabric to finished product) to deepen supply chain roots.

• Agriculture:

  • Expanded quotas for key exports (e.g., coffee, fruits, vegetables) with technical assistance on sanitary/phytosanitary standards.

  • Preference for seasonal imports to complement U.S. growing cycles.

• Light Manufacturing & Electronics Assembly:

  • Tariff reductions for electronics and appliance assembly using U.S.-origin parts.

  • Incentives for regional production hubs serving U.S. nearshoring strategy.

2. Tariff Conditionality

• 10% Baseline Tariff Exemption (Selective):

  • Countries could earn exemptions from the 10% global baseline tariff by meeting labor, governance, raw material and investment criteria.

  • Tariff benefits linked to rule-of-law reforms, anti-corruption benchmarks, and migration cooperation.

3. Nearshoring Incentives

• Duty-Free Zones for U.S. Companies:

  • Special trade zones for U.S. firms investing in the region, offering duty-free inputs and reexport privileges.

  • Co-located U.S. Customs pre-clearance facilities to streamline trade.

4. Digital Trade Provisions

• Limited but growing importance; the U.S. may push for:

  • Open data flows.

  • E-commerce facilitation.

  • Digital infrastructure investment support (e.g., fiber optics, fintech regulation).

🔍 Contextual Considerations

✔ Why the U.S. Would Pursue This

• Migration Management: Economic development in Central America is tied directly to U.S. goals of reducing irregular migration.

• Supply Chain Diversification: Nearshoring from Asia to Latin America aligns with U.S. goals of shortening and securing supply chains.

• Political Leverage: U.S. can use tariff access as a tool to influence governance and reform agendas in the region.

❌ Challenges to a Comprehensive Deal

• Institutional Weakness: Corruption, weak judicial systems, and security issues limit trade predictability.

• CAFTA-DR Complexity: These countries are already part of the CAFTA-DR trade agreement, so new bilateral provisions must be structured carefully to avoid treaty conflicts.

• Limited Domestic Industrial Base: Their economies are not highly diversified, which limits the scope of sectors that could benefit from new tariff preferences.

🧭 Strategic Outlook

• Short-Term: Expect memoranda of understanding (MOUs), targeted tariff reductions, or investment agreements—not a new full-scale FTA.

• Medium-Term: U.S. could pursue a "CAFTA 2.0" framework that deepens integration while introducing stronger governance and labor standards.

• Long-Term: With institutional improvements and deeper investment, these countries could evolve into critical low-cost manufacturing partners for U.S. supply chains—especially in textiles, agro-processing, and light electronics. 

Useful Links for Further Reading

• https://www.reuters.com/world/china/us-china-talks-defuse-trade-row-resume-geneva-2025-05-11/

• https://www.dw.com/en/trump-tariffs-50-nations-seek-new-us-trade-talks/live-72156081