Potential End to trade Benefits and Looming Tariffs Threaten Nicaraguan Economy
The United States is considering significant trade actions against Nicaragua, perhaps ending its benefits under the CAFTA-DR (Dominican Republic-Central America Free Trade Agreement) and imposing tariffs of up to 100% on Nicaraguan imports. This move stems from a United states Trade Representative (USTR) report concluding that labor rights abuses, human rights violations, and the erosion of the rule of law in Nicaragua “constitute a burden on United States commerce” and are thus subject to unilateral response measures under Section 301 of US trade law.
The USTR inquiry, initiated in december 2024 and concluding with over 160 testimonies and public comments – some forwarded to the State Department due to evidence of serious human rights violations – found that the Nicaraguan government engages in “unjustifiable, unreasonable and discriminatory practices” that negatively impact US trade.These actions,the report states,”not only violate fundamental rights,but also undermine fair competition and destabilize the Central American region.”
Four potential courses of action are being considered: complete suspension of Nicaragua’s CAFTA-DR benefits, partial limitation of those advantages, a blanket imposition of tariffs up to 100% on all imports, or selective application of tariffs by sector. A public consultation period is open until November 19, 2025, before a final decision is made, likely by President Donald Trump.
Sources within Washington’s trade circles indicate recent negotiations have been held with other Central American countries party to CAFTA-DR without nicaraguan participation, suggesting a potential move towards isolating the country within the trade bloc.
The United States is nicaragua’s primary trading partner, accounting for approximately 55% of its exports, which include textiles, coffee, sugar, meat, and tobacco. The benefits afforded by CAFTA-DR have been crucial to Nicaragua’s economy as the agreement’s implementation in 2006. Economists predict that any of the proposed measures would lead to an immediate contraction of nicaragua’s trade balance and a significant loss of formal employment.
This USTR determination marks a shift in the US approach to Managua, escalating pressure beyond diplomatic and human rights concerns and into the realm of international trade. Secretary of State Marco Rubio previously announced the possibility of removing Nicaragua from CAFTA-DR earlier this year, stating the agreement was “designed to reward democracy” and questioning Nicaragua’s role within a treaty benefiting a dictatorship.
