Snapshot on Central America: A Region in Transition
Wedged between the mammoth continents of North America and South America, Central America is a small region that flies under the radar of most international business and policy analysis. This is somewhat surprising due to the fact that throughout much of its history Central America has experienced events which are closely aligned with global trends, from communist revolution to contemporary populism. Nowhere is this more evident than in the current refugee crisis crippling the nations of Guatemala, Honduras, El Salvador, and Nicaragua, where economies that have collapsed by corruption and violence threaten social stability and basic security. At the same time, states like Costa Rica and Panama are moving toward new trade relationships and closer diplomatic ties to China.
From this, it is clear that the region is undergoing some serious changes that merit greater attention. This analysis will focus on two areas where the region is most heavily affected: trade and migration.
Notes on Trade Liberalization
Central America has a historic background centered around trade, specifically US-style “free trade.” Like much of Latin America, the exports from the region are primarily commodities based (Central America is particularly known for its food exports, from coffee to bananas). From the liberal perspective, it is clear that the United States has traditionally used its Monroe Doctrine influence and economic largesse to dictate activity. This is especially clear when observing the multiple examples of neocolonialism endured by the region at the hands of Americans.
In more recent decades, the push for free trade agreements has intensified in the post-Cold War era. In particular, the Central American-Dominican Republic Free Trade Agreement (CAFTA) between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States created a region that is Latin America’s third largest for US exports. Among other impacts, this has provided the region with needed investments in technology and infrastructure in order to support growth in trade output. At the same time, however, industries like agriculture have been negatively impacted due to the increased competition from Washington-subsidized US farmers and cheaper Asian factories.
These negative conditions have exacerbated the resulting instability of the countries of the region. Interestingly, the Trump administration - a decidedly anti-free trade administration - has been speaking to this suffering in many of its policy pronouncements. Although such pronouncements are targeted directly to the American public - and often against Central Americans themselves - it remains to be seen whether Trump’s condescending views on Central America may actually yield some benefits were policies like CAFTA repealed.
This leads us directly to the ongoing migration crisis. Migrants from Central America face dually intense motivations to seek refuge and opportunity in the United States. First, the violence, extortion, and corruption emanating from frighteningly powerful and feuding gangs in the region creates life threatening conditions for poor families. Second, the economies of Central America are small and, as previously mentioned, negatively manipulated by US free trade agreements. Together, it can be nearly impossible to survive and function in such an abusive environment and the resulting migration only makes these countries poorer and more dependent on remittences (another form of US economic dependency).
This explains why migrants continue to arrive at the US border despite the Trump administration’s repeated attempts to dissuade them and make the country less welcoming to immigrants. Ironically, one of these policies can be directly to blame for an increase in the refugee crisis. Here, Trump’s withdrawal of foreign aid to Guatemala, Honduras, and El Salvador was portrayed as a tough gesture and punishment. What it actually did was intensify the desperate conditions within these countries further due to anticipated lack of already scarce resources, a further impetus for even more citizens of these countries to flee.
Under these circumstances, US foreign policy and alliances are both weaker and less desirable. This follows an overall pattern by the Trump administration to abandon areas of US geopolitical influence. At the same time, the looming threat of tariffs from the US-China trade war could have devastating consequences on Central America’s smaller economies if such policies were more globally applied.
As a result, it is no surprise that China has emerged as a suitable trading and diplomatic partner. This is significant in no small part due to the fact that, until recently, Central American nations were some of Taiwan’s biggest supporters and allies, as these countries had originally benefitted from Taipei’s once sizeable aid. China’s enormous resources and demand, however, have proven too much for the region to ignore. This is particularly the case in states like Costa Rica and Panama, where societies are more stable and therefore able to conduct relatively large amounts of trade. Panana also stands out for its newfound strategic importance in a rising geopolitical competition between China and the West. Here, control and influence of the Panama Canal and the monumental shipping lane it represents could become a major chokepoint in international affairs - assuming Washington does not give up its interests in the region entirely.
From these cases it is clear that Central America, though small in size and economic stature, is a region with geopolitical importance for decades to come. The instability currently ravaging many of its countries has already led to significant political responses by a major world power: the United States. At the same time, shifts in the winds of global trade policy already place the region in a precarious position, one which can underscore the dangers of international economic barriers. In addition, the rise of China has directly targeted Central America as a region for further trade growth, development, and cooperation, presenting a strong challenge to an area traditionally considered under sole American influence. As a result, there is much worth watching in Central America going forward, and it would not be a surprise if major trends emerge from the region.