Central America-China Trade Grows Despite 3 Nations’ Continued Allegiance to Taiwan

China is the fifth-largest recipient of Central American exports, and the second-largest supplier of the region’s imports

In 2020, 20.2% of Central American exports to Asia went to China, compared to 8.8% to Taiwan.
January 18, 2023 | 07:03 PM

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Bloomberg Línea — Central America is a region that is highly dependent on the United States for trade, but its trade exchange with China has accelerated and expanded rapidly in recent years.

However, the eight countries that make up the so-called Central American Integration System (SICA) are polarized over the diplomatic recognition of the People’s Republic of China and Taiwan.

The first Central American country to establish diplomatic relations with China was Nicaragua in 1986, during Daniel Ortega’s first term in office. However, in 1990, when Violeta Chamorro came to power, she reestablished diplomatic relations with Taiwan, and, for many years, all SICA countries maintained relations with the island, until 2007 when Costa Rica broke ties and pledged allegiance to China.

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“For about 10 years, Costa Rica was the only country that recognized the People’s Republic of China, but a sort of domino effect has been occurring, in which subsequently Panama (2017), Dominican Republic (2018), El Salvador (2018) and Nicaragua (2021) have established diplomatic relations with China,” said Sergio Rivero, associate researcher in China Affairs at the General Secretariat of the Latin American Faculty of Social Sciences (FLACSO).

Founded in 1957, FLACSO is made up of 18 member states and carries out academic activities in 13 countries in Latin America and the Caribbean, and is headquartered in Costa Rica.

Rivero recalled that in the mid-1990s, the Dominican Republic and Panama signed a series of agreements with Beijing to establish reciprocal trade representation offices, which had the function of promoting trade and tourism activities with China, as well as consular services, and which led to the two countries eventually breaking off relations with Taiwan.

Meanwhile, Honduras, Guatemala and Belize remain diplomatic allies of Taiwan, and are three of the only 14 states worldwide that maintain relations with Taipei, along with Haiti, Paraguay, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Swaziland, Vatican City, Marshall Islands, Nauru, Palau and Tuvalu.

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China as a Central American trading partner

China is occupying a more important role in the region’s trade exchange. In 2020, 20.2% of SICA countries’ exports to Asia went to China, compared to 8.8% to Taiwan, while 58% of imports from Asia came from China and 3% from Taiwan, according to the Central American Trade Statistics System.

China is now the fifth-largest destination for Central American exports, after the United States, the Netherlands, Belgium and Mexico, and is positioned above Spain, Japan, Germany, the Dominican Republic and the United Kingdom, to complete the list of the region’s 10 largest trading partners.

On the import side, China is the region’s second-largest merchandise trading partner, with Central America acquiring petroleum oils, medicines, cellular telephones and wireless network equipment, corn, data processing machines and their units, petroleum gas, vehicles for transporting people and goods, surgical instruments and food preparations.

“It is an asymmetric relationship, in the sense that we import much more than we export,” Rivero said at a conference organized by FLACSO.

“However, it is a dynamic relationship, in the sense that it is growing, but also complementary, because what we buy from China are products that we obviously do not produce and that we need in order to live.”

According to the specialist, Central America has the challenge of assuming structural reforms, where China can become a strategic partner for the economic development and competitiveness of the region.

“For that, I firmly believe that there is a need to define a joint agenda for trade and cooperation between the countries of the SICA region, which allows a coordination of efforts with the intention of maximizing the potential of the new relationship with China,” Rivero said.