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Rewriting the Trade Script: What the August 1 U.S. Tariffs Mean for Central America

The United States’ August 1 tariff realignment has redrawn the map for regional trade dynamics. Central America, long operating on the assumption of proximity-driven advantage, now faces a more selective and structured trade environment. Under the latest executive order, a 10% baseline tariff now applies to most imports from Guatemala, El Salvador, Honduras, and Nicaragua. Meanwhile, Costa Rica and Panama have avoided the new penalties, buoyed by their investment ties and sectoral cooperation with the U.S. Belize’s status remains unresolved, leaving investors hesitant and policymakers uncertain.


Where things stand:

  • Guatemala: Maintains a 10% tariff; no change under the July 31 announcement.

  • El Salvador, Honduras, Nicaragua: Also at 10%, unchanged.

  • Costa Rica: Exempted, thanks to its green tech partnerships and bilateral investment track record.

  • Panama: Largely spared due to its logistics and financial services alignment with U.S. interests.

  • Belize: Currently under review, contributing to market hesitation.


For foreign direct investment (FDI), the implications are immediate. Costa Rica and Panama have become even more attractive to firms seeking tariff efficiency and supply chain resilience.


By contrast, Guatemala and its northern neighbors face growing pressure to signal stability, strengthen investment frameworks, and articulate a clearer value proposition in a newly tiered system.


Proximity Alone Won’t Carry the Region Forward

The end of de minimis exemptions and the introduction of uniform baseline tariffs eliminate long-standing assumptions about market access. Every shipment into the U.S. now incurs a cost. For exporters reliant on low-volume transactions or regional consolidation, this increases not only the financial burden, but also the complexity of planning and fulfillment.


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Guatemala sits at a strategic crossroads. Investors increasingly cite concerns about judicial independence, administrative consistency, and bureaucratic inefficiencies as barriers to long-term commitments. As tariff structures sharpen investor scrutiny, Guatemala’s competitiveness will hinge on demonstrating not just openness to investment but a durable institutional environment that protects it. Guatemala’s broader growth story remains tempered by infrastructure gaps, high poverty and inequality, and the absence of signature multi-billion‑dollar inward investments seen in neighbouring countries, a gap that may disadvantage it in the newly tiered, tariff‑aware investor calculus.


El Salvador is managing impact through reform and momentum. Like Guatemala and most of Central America, it now faces the 10% baseline tariff under the U.S.’s April–August tariff restructuring. Yet in Q1 2025, FDI surged 64% to USD 322 million, driven by projects in digital services, housing, and logistics, sent by investors from Panama, Spain, the U.S., and Honduras. Strategic infrastructure initiatives, including the Pacific Airport and major port concessions, are signaling confidence and helping offset tariff exposure by offering high-value investment anchors. With clear reform signals and visible public‑private coordination, El Salvador is translating tariff risk into a competitive differentiation narrative.


Honduras is bearing the tariff burden amid growing uncertainty. Its economy remains deeply tied to U.S. markets, with more than half of all Honduran exports directed to the United States as of late 2024. Subject to the same 10% baseline duty, its apparel and agribusiness exports, including coffee and bananas, are now exposed to shrinking margins. While Chinese firms are reportedly using Honduras as a supply base to access U.S. markets, Honduras has not secured tariff relief or clear policy advantages. Moreover, legal uncertainty around its development zones, such as the now-invalidated Próspera charter-city framework, has raised concerns over contractual security and institutional reliability. As a result, investors comparing regional options see Honduras as carrying tariff exposure without the signaling credibility that nearby reform leaders like El Salvador now offer.


Diplomacy and Execution Must Move in Tandem

Recent diplomatic overtures, such as Guatemala’s Washington trade mission, are necessary but not sufficient. The current tariff environment has made performance-based trust the currency of trade. Operational integrity, policy consistency, and data transparency will increasingly shape the region’s economic narrative.


At ALD, we emphasize that market resilience starts at the intersection of policy strategy and enterprise capability. Neither can stand alone. Tariff relief negotiations, export promotion strategies, and FDI outreach efforts all hinge on one foundational truth: the ability to deliver under pressure.


Strategic Takeaways for Decision-Makers

ALD Strategic Advisory works with governments, businesses, and ecosystem partners to interpret policy signals and respond with precision. In this case:

  • Export models must be adapted to a tariff-constrained playing field.

  • Policy dialogue should elevate trade equity, not just access.

  • Investment promotion must shift from broad messaging to evidence-based outreach, tailored to shifting investor priorities.


The new U.S. structure has created a bifurcated regional trade landscape. The question is no longer who is included, but who is prepared. Costa Rica and Panama have demonstrated that targeted reforms and bilateral cooperation matter. Guatemala and its peers have the opportunity to do the same, but must move decisively.



Let’s talk.


 
 
 

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