Home Features How Central America Is Winning the US Trade War
Author: Thomas Monteiro | Photos: Shutterstock
A succession of tariff exemptions has handed the region a windfall trade advantage over its Asian rivals.
A string of exemptions carved out of successive U.S. tariff impositions has made Central America an unexpected winner in the global trade war. The region’s garment makers now hold a significant duty advantage over Asian rivals, its sugar exporters face a U.S. market where Brazilian competitors pay 25%, and some of its farm exports enter free of the new levies.
This marks a sharp reversal from just a year ago, when blanket 10% duties on the region’s exports overrode the preferential access provided by the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), its two-decade-old trade agreement with the U.S.
Relief has come gradually, with each successive tariff regime expanding the region’s exemptions. Last November , Washington reached agreements with Guatemala and El Salvador that restored duty-free treatment for qualifying apparel and exempted 237 agricultural product categories, including coffee, bananas and other tropical fruit from the new tariffs.
In February, the U.S. Supreme Court struck down the original tariff regime, and the replacement 15% surcharge exempted qualifying textiles and apparel from all six CAFTA-DR countries. In July, that surcharge was replaced by new Section 301 tariffs targeting 60 economies over forced-labor concerns.
Yet the exemption for qualifying CAFTA-DR textiles and apparel remained in place, preserving a substantial tariff advantage for suppliers based in Central America.
While duties vary by product category, Vietnamese apparel now faces a combined tariff of roughly 29%, compared with zero for qualifying Central American garments. Apparel from other Southeast Asian countries also faces additional tariffs. Chinese makers, meanwhile, must pay their existing 7.5% Section 301 tariff, plus other fees, bringing the average rate to about 36.5%.
That leaves qualifying Central American apparel with a tariff advantage of roughly 25 to 35 percentage points over its major Asian competitors.
“If the tariff gap between U.S. apparel imports from CAFTA-DR and United States-Mexico-Canada Agreement members and those from Asian countries continues through the rest of 2026, it may further incentivize U.S. fashion companies to explore additional man-made fiber apparel sourcing opportunities in the Western Hemisphere,” said Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware, referencing the United States-Mexico-Canada Agreement, a trade pact that went into effect in 2020.
The manufacturers best positioned to absorb additional orders are long-established. Gildan Activewear and Fruit of the Loom operate plants in Honduras, while local suppliers Elcatex Group and Kattan Group supply Calvin Klein and IZOD.
Washington’s 25% tariff on Brazilian goods, which spares that country’s coffee but not its sugar, gives Central American producers another advantage over the world’s largest sugar exporter, although U.S. quotas limit how much additional sugar can enter the market. Costa Rica ’s exports to the U.S. include significant volumes of coffee, bananas and pineapples alongside its much larger medical device industry.
Thomas Monteiro is a contributing writer based in Spain.