Washington’s Trade Shadow Over Central America

Dear all,

We welcome you to the Greater Caribbean Monitor (GCaM).

In this issue, you will find:

•Washington’s Trade Shadow Over Central America

•Maduro, the Enemy Trump Does Not Wish to Defeat

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The GCaM Team

Months before Trump’s return to the Oval Office was confirmed, concerns were growing from Europe to Mexico over the potential decline of free trade as the guiding principle in global trade relations. Trump, they surmised, had made no secret of his economic nationalism; he was likely to return with renewed vigor.

• For Trump, who during his campaign declared tariff “the most beautiful word in the dictionary,” a world in which countries like China—and even U.S. allies—expand their industrial base at the expense of American workers is an unfair world in which the U.S. acts as a “sucker.”

• In this context, the region closest to the southern border of the United States finds itself in an uneasy, ambiguous position.

• While Washington’s bold trade policy has not significantly impacted Central American countries—so far—it serves as a powerful deterrent to ensure they fulfill their commitments to the U.S.: curbing migration, combating drug trafficking, and reducing China’s influence in the region. 
  
  

Overview: The United States is, by a significant margin, the most important economic partner for Central American countries. In nearly all of them, trade with the U.S. accounted for over 30% of their global trade, reaching approximately $42.3 billion in 2023. In addition, in Central America’s Northern Triangle, remittances from the U.S. made up close to or more than 20% of their GDP. 

• The region’s heavy reliance on the U.S. has left its governments with little room to maneuver in negotiations with the Trump administration. 

• However, considering the significant power imbalance between the parties, the current arrangement, reached after Secretary of State Marco Rubio’s regional tour, appears to be satisfactory for most. 
  
  

Between the lines: The agro-export and textile-driven nature of Central American economies, which benefit from duty-free access to the U.S. thanks to CAFTA-DR, has shielded the region from the brunt of Trump’s tariff policies. In countries like Guatemala, Honduras, and Belize, these industries account for over 50% of their exportable goods. 

• For the U.S., these products are not a priority in its reindustrialization strategy, unlike the manufacturing sector or the steel and automotive industries. 

• However, it cannot be ruled out that Washington may take measures that negatively impact Central American countries if they fail to address its most pressing interests. 

• The clearest example is Panama, where Trump warned, as a bargaining chip, that he could “reclaim the canal” if the country did not limit the activity of Chinese operators in its ports. Additionally, though not directly, he pressured President Raúl Mulino to move forward on his promise to restrict migrant crossings through the Darién Gap, a crucial point in the northward migration route from South America. 
  
  

On the radar: With the partial exception of Panama, Rubio’s first trip left a largely positive impression among U.S.-aligned states in Latin America. This is particularly true of El Salvador and Guatemala. The same cannot be said for Nicaragua and Honduras, countries the Secretary omitted during his visit to the region.

• The MAGA movement’s sympathy for Nayib Bukele and his “iron-fist” approach to organized crime seems to have curried favor in Washington, which is eager to collaborate with El Salvador on deportation issues. Additionally, the country may see increased U.S. investments.

• Similarly, Guatemala committed to receiving 40% more repatriation flights and to redouble its efforts in combating drug trafficking. In exchange, Rubio acknowledged Bernardo Arévalo as a key ally—who needs Washington’s support to ensure the stability of his government—and announced that the U.S. will back the country in developing its port infrastructure.

• In the case of Nicaragua, the Ortega-Murillo regime’s hostility to Washington, coupled with its close ties to Beijing, has led the Trump administration to consider expelling the country from CAFTA-DR. As for Honduras, Xiomara Castro’s confrontational stance has resulted in tensions; however, the recent reinstatement of the extradition treaty, a crucial tool in the fight against drug trafficking, offers glimpses of a more positive outlook. 
  
  

Balance: Further north, the 25% tariff announced, and then suspended, for imports from Mexico and Canada shows that the U.S. will manage its bilateral relationships in, at best, a transactional manner. It will eschew multilateralism, preferring to negotiate directly to maximize its leverage.

• Even with the imposition of tariffs on Mexico, Central America’s position is likely to remain ambiguous. While the measures could slow economic growth by reducing demand for regional inputs, they may also create mixed supply chain prospects. Potential gains in sectors like apparel or agriculture could be triggered by Mexico’s reduced competitiveness.

• For now, Central American countries can rest easy.

• However, this is just the beginning, and all signs suggest that with limited bargaining power, the wisest course of action is not to test Washington’s patience. The U.S. will closely monitor its southern neighbors’ cooperation on issues it deems a priority.
  
  

Earlier this month, two flights operated by Conviasa, Venezuela’s state-owned flag carrier, left El Paso, Texas, bound for Caracas. The flight carried the Trump administration’s first deportees to Venezuela.

• Last week, 177 Venezuelan migrants held at Guantánamo Bay were repatriated via Honduras, which has, despite its government ideological flair, been willing to act as intermediary between Washington and Caracas.

• Of the 177 Venezuelans, 80 are reportedly members of Tren de Aragua, a notorious gang. Nicolás Maduro’s regime nonetheless claimed it had “rescued” its nationals at the U.S. government’s “direct request.”
  
  

Perspective: The earlier Conviasa flights came less than two weeks after discreet talks between the United States and Maduro. It is generally understood that Richard Grenell, the presidential envoy for special missions, struck a deal: Maduro agreed to accept deportation flights in exchange for the easing of certain restrictions on Venezuelan oil.

• Maduro hopes that accepting deportees will pave the way for partial or full relief from the 2019 sanctions on PDVSA, Venezuela’s state-owned oil company. For the U.S., continued support for Venezuela’s energy sector comes with what some have called a “moral cost,” but it nonetheless depresses energy prices and reduces migration pressure.

• Though the U.S. denies the existence of a quid pro quo, the Treasury Department automatically renewed Chevron’s oil license in Venezuela the very next day, despite the White House scrutinizing the oil giant’s Venezuelan operations.

• Indeed, Chevron had gone on a brief lobbying drive. Claiming to “stay out of politics,” it warned that its withdrawal from Venezuela would allow U.S. rivals, chiefly Russia and China, to take its place in the industry.
  
  

Why it matters: Since 2015, over 8 million Venezuelans have fled the country. Hyperinflation, food shortages, political repression, and rampant crime have fueled this exodus. Now, with Trump’s arrival, roughly 500,000 Venezuelans have lost their Temporary Protected Status (TPS) granted in 2023. Formally, they will lose their status in April. 

• An additional cohort of Venezuelans, roughly 300,000 in number, remain under the 2021 TPS, set to expire in September. These, too, will have to leave the U.S., procure another visa, or remain illegally.

• With almost 1 million Venezuelans facing deportation, negotiations with the regime are critical to U.S. objectives.  

• Though President Donald Trump recognized Edmundo González as Venezuela’s legitimate president before taking office, his policy toward Venezuela is shifting.
  
  

Between the lines: One man is largely behind this diplomatic pivot: Florida shipping magnate Harry Sargeant III. A major Republican donor and Trump confidant, the businessman has been instrumental in persuading the president to soften his stance on Maduro.  

• The equation is straightforward: fewer sanctions mean more cooperation from the regime in accepting deportees and stemming the flow of migrants.

• Despite tightened sanctions, the U.S. accounted for 24% of Venezuela’s crude oil exports in 2024.  

• Easing sanctions could bolster Venezuela’s economy, potentially reducing some of the drivers pushing Venezuelans to migrate to the U.S. 
  
  

Background: Since 2017, Sargeant’s business interests have made him meet regularly with Maduro and PDVSA executives. His company, Global Oil Management, relies heavily on Venezuelan crude for asphalt production. His ties to Maduro have deepened over the years, despite the 2019 sanctions.  

• In January 2024, he inked a 570,000-barrel deal with PDVSA to produce asphalt for U.S. infrastructure projects.  

• Some have accused Sargeant, previously deemed a “mysterious” figure by Florida media, of excessive Machiavellianism. He is unlikely to be bothered by these allegations. 

• In fact, a small group of U.S. businessmen, most of them either holding Venezuelan bonds or involved in the Venezuelan energy sector, claim that the previous strategy of “maximum pressure” did not produce appreciable gains for the U.S.
  
  

On the radar: The U.S. has long been a key supporter of Venezuela’s opposition. Despite widespread public backing, the opposition’s democratic efforts will remain utterly fruitless without stronger U.S. diplomatic pressure, something Trump is very unlikely to pursue if Caracas agrees to mass deportations.

• Trump sees some value in retaining Maduro. This may cause consternation in Latin America, but the White House has made it clear that it will not pursue a “moralizing” foreign policy.

• In both Ukraine and with Venezuela’s opposition, the Trump administration is mirroring Kennedy’s Bay of Pigs playbook, stepping back from allies deemed excessively reliant on U.S. support.

• While this approach aligns with prioritizing resources and hitting migration targets, it comes at the cost of temporarily boosting strongmen’s hold on power in the region.